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Adjustment
Interval
This is a period of time between changes in either the interest
rate and/or the monthly payment. The interest rate on most ARMs
may change after one, three, or five years, although other adjustment
intervals may be negotiated with lenders.
Table Rate
An interest rate that changes periodically in relation to the
financial index it is based upon. With an adjustable rate, your
payments may increase or decrease accordingly - usually from year
to year.
Adjustable
Rate Mortgage (ARM)
A
mortgage loan with an interest rate that increases or decreases
periodically during the time it takes you to pay the loan back.
Adjustable
Rate Mortgage
An adjustable rate home loan with a 30-year term. The interest rate
remains the same for the first three years, then changes annually
thereafter.
Adjustable
Rate Mortgage
An adjustable rate home loan with a 30-year term. The interest
rate remains the same for the first five years, then changes annually
thereafter.
Adjustable
Rate Mortgage
An adjustable rate home loan with a 30-year term. The interest
rate remains the same for the first ten years, then changes annually
thereafter.
Amenity
A feature that enhances a property's attractiveness and increases
the occupant's or user's satisfaction (although the feature is not
essential to the property's use). Natural amenities include a desirable
location near water and scenic views of the surrounding area.
Amortization
A repayment method in which the amount you borrow is repaid gradually
through regular monthly payments of principal and interest for a
predetermined length of time. During the first few years, most of
each payment is applied toward the interest owed. During the final
years of the loan, payment amounts are applied almost exclusively
to the remaining principal.
Amortization
Schedule
A timetable for payment of a mortgage loan. An amortization
schedule shows the amount of each payment applied to interest and
principal and shows the remaining balance after each payment is
made.
Amortization
Term
The amount of time required to pay off the mortgage loan. The
amortization term is expressed as a number of months. For example,
for a 30-year fixed-rate mortgage, the amortization term is 360
months.
Amortize
To repay a mortgage with regular payments of both principal and
interest.
Annual Cap
The limit on the amount an adjustable rate mortgage's interest
rate can change over a 12-month period. An annual cap prevents your
payments from changing too dramatically, even if the factors that
determine changes in an adjustable mortgage's rate rise or fall
sharply during that period.
Annual Percentage
Rate
A measure of the cost of credit expressed as a yearly rate,
that relates the amount and timing of value received by the consumer
to the amount and timing of payments made. This rate includes specified
fees and costs paid up front to acquire the loan, and is, therefore,
usually a higher amount than the interest rate stipulated in the
mortgage note. Lenders are required by federal law to disclose the
APR. The rate is used to compare various loans.
Application
A form used to apply for a loan on which you provide personal and
financial information. This information is confidential and will
be used by the lender to determine your loan eligibility and for
required government reporting. The standard mortgage loan application
form is commonly referred to as a 1003 form.
Application
Fee
Fees that are paid upon application. An application fee may
frequently include charges for property appraisal and a credit report.
Appraisal
The process of figuring out how much a home is really worth, given
current market conditions. An appraisal, which is done by a qualified
expert, is an important part of getting a mortgage. It helps determine
the amount of money a lender will loan you to buy a house.
Appraised
Value
An opinion of a property's fair market value, based on an appraiser's
knowledge, experience, and analysis of the property.
Appraiser
A person qualified by education, training, and experience to
estimate the value of real property and personal property.
Appreciation
An increase in the value of a property due to positive improvements
of the area in market conditions or other causes. This is the opposite
of depreciation.
Assessed
Value
The valuation placed on property by a public tax assessor for
the purposes of taxation.
Assessment
The process of placing a value on property for the purpose of taxation.
Assessor
A public official who establishes the value of a property for taxation
purposes.
Asset
Anything of monetary value that is owned by a person that can be
used for the payment of debts. Assets include real property, personal
property, and enforceable claims against others (including bank
accounts, stocks, mutual funds, etc.).
Balance
Sheet
A financial statement that shows assets, liabilities, and net
worth as of a specific date.
Balloon Mortgage
A mortgage that has level monthly payments over a specified
term along with a lump sum payment to be due at the end of that
term.
Balloon Payment
The final lump sum payment due at the end of a balloon mortgage
loan.
Bankrupt
A person, firm, or corporation that, through a court proceeding,
is relieved from the payment of all debts after the surrender of
all assets to a court-appointed trustee.
Bankruptcy
A proceeding in a federal court in which a person who owes
more than his or her assets can relieve the debts by transferring
his or her assets to a trustee for distribution to the creditors
as full satisfaction of the outstanding debts. Types of bankruptcy
are Chapter 7 (Straight Bankruptcy or total liquidation of assets),
Chapter 11 (Business Reorganizations), Chapter 12 (Farm Debt Bankruptcy),
and Chapter 13 (Wage Earner Repayment Plan).
Before-Tax
Income
Income before taxes are deducted.
Blanket Mortgage
A mortgage covering more than one property of the mortgagor.
Borrower
The individual applying for or receiving a loan or line of credit
Broker
A person who, for a commission or a fee, brings parties together
and assists in negotiating contracts between them.
Buy Down
The option you have to lower the overall interest rate of a
home loan by paying more money when you first get the loan. The
money you pay-referred to as "discount points"-can reduce
the interest rate for the entire life of the loan, or just part
of it.
Call Option
A provision in the mortgage that gives the lender the right
to call the mortgage due and payable at the end of a specified period
for whatever reason.
Cap
A provision of an adjustable-rate mortgage (ARM) that limits
how much the interest rate or mortgage payments may increase or
decrease for a specified amount of time.
Cash Out
Receiving money back when refinancing your present mortgage.
Ceiling
The maximum allowable interest rate over the life of the loan
of an adjustable rate mortgage (ARM).
Certificate
of Title
A statement provided by an abstract company, title company,
or attorney stating that the current owner legally holds the title
to real estate.
Clear Title
A title that is free of liens or legal questions as to ownership
of the property.
Closing
A meeting at which the buyer finalizes a sale of a property signing
the mortgage documents and paying closing costs.
Closing Cost
Item
A fee or amount that a home buyer must pay at closing for a
single service, tax, or product. Closing costs are made up of individual
closing cost items such as origination fees and attorney's fees.
Closing cost items are included as numbered items on the HUD-1 statement.
Closing Costs
Any fees paid by the borrowers or sellers during the closing
of the mortgage loan. This normally includes an origination fee,
discount points, attorney's fees, title insurance, survey, and any
items which must be prepaid, such as taxes and insurance escrow
payments. Closing cost percentage will vary according to the area
of the country.
Closing Date
Lenders need to know when you expect or would like to complete
the final procedures your new house, in which documents are executed
and the sale is completed. 45-60 days is most common. You can always
discuss changing this date with your lending institution.
Closing Statement
The final statement of costs necessary to close on a loan listing
both buyer and seller fees, if applicable. This is also referred
to as the HUD-1.
Co-Borrower
An individual who enters into an agreement along with the borrower.
The co-borrower is responsible if the borrower should default on
the loan.
Collateral
An asset (such as a car or a home) that guarantees the repayment
of a loan. The borrower risks losing the asset if the loan is not
repaid according to the terms of the loan contract.
Commission
The fee charged by a broker or agent for negotiating a real estate
or loan transaction. A commission is generally a percentage of the
price of the property or loan.
Commitment
Letter
A formal offer by a lender stating the terms under which it
agrees to lend money to a home buyer.
Community
Property
A form of ownership in some western and southwestern states
in which property acquired during a marriage is presumed to be owned
jointly unless acquired as separate property of either spouse.
Compound
Interest
Interest paid on the original principal balance and on the
accrued and unpaid interest.
Conforming
Loan
Generally, a mortgage loan under $240,000. Qualifying ratios
and underwriting methods are standardized to a large degree with
this type of loan.
Consumer
Reporting Agency
An organization that prepares reports that are used by lenders
to determine a potential borrower's credit history. The agency obtains
data for these reports from a credit repository as well as from
other sources.
Contingency
A condition that must be met before a contract is legally binding.
For example, home purchasers often include a contingency that specifies
that the contract is not binding until the purchaser obtains a satisfactory
home inspection report from a qualified home inspector.
Contract
An oral or written agreement between two or more parties to
do or not to do a certain thing.
Contract
of Sale
The agreement between the buyer and seller on the purchase
price, terms, and conditions necessary to both parties to convey
the title to the buyer.
Conventional
Mortgage
A mortgage that is not insured or guaranteed by the federal
government.
Convertible
ARM
An adjustable-rate mortgage (ARM) that can be converted to
a fixed-rate mortgage under specified conditions.
Courier Fee
Cost associated with transporting closing documents to the
closing agent. This fee may also include the cost of forwarding
and/or obtaining other documents necessary to complete the preparation
of your mortgage documents.
Covenant
A clause in a mortgage that obligates or restricts the borrower
and that, if violated, can result in foreclosure.
Credit
An agreement in which a borrower receives something of value in
exchange for a promise to repay the lender at a later date.
Credit History
A record of an individual's past and current debts. A credit
history helps a lender to determine whether a potential borrower
has met financial obligations on time in the past.
Credit Life
Insurance
A type of insurance often bought by the borrower because it
will pay off the mortgage debt if the borrower dies while the policy
is in force.
Credit Limit
The maximum amount that you can borrow.
Credit Report
A report on the past ability of a loan applicant to pay installment
payments. This report is requested by your lender that utilizes
information from at least two of the three national credit bureaus
and information provided on your loan application.
Creditor
A person to whom money is owed.
Creditor
Chargeoffs
A term generally used in accounting that indicates the creditor
does not expect to successfully collect the balance owed on an account
Creditor
Judgements
A decision by a court of law relative to an action or suit.
Debt
An amount owed to another.
Deed
The legal document conveying title to a property.
Deed of Trust
The agreement used in many western states to pledge your home
or other real estate as security for a loan. The property is transferred
to a trustee by the borrower in favor of the lender, and reconvened
upon payment in full. This is similar to a mortgage.
Default
Failure to make mortgage payments on a timely basis or to comply
with other requirements of a mortgage.
Delinquency
Failure to make mortgage payments when mortgage payments are due.
Deposit
A sum of money given to bind the sale of real estate, a sum of money
given to ensure payment, or an advance of funds in the processing
of a loan.
Depreciation
A decline in the value of property. The amount of yearly depreciation
is influenced by property condition and supply and demand in the
resale marketplace, and reputation of the manufacturer and model.
This is the opposite of appreciation.
Down Payment
The amount you pay in cash towards the total sales price of
the home you are buying. Your down payment accounts for the part
of the home's sales price not covered by the money you borrow from
a lender. Most lenders require the down payment to be paid from
the buyer's own funds. Gifts from related parties are sometimes
acceptable, and must be disclosed to the lender. Making a larger
down payment may also help you avoid the necessity of purchasing
a mortgage insurance policy, which maybe required of buyers providing
a down payment of less than 20% of the home's sales price.
Encumbrance
Anything that affects or limits the fee simple title to a property,
such as mortgages, leases, easements, restrictions, or a claim against
a property by another party. These factors usually affect the ability
to transfer ownership of the property.
Endorser
A person who signs ownership interest over to another party.
Equal Credit
Opportunity Act
A federal law that requires lenders and other creditors to
make credit equally available without discrimination based on race,
color, religion, national origin, age, sex, marital status, or receipt
of income from public assistance programs.
Equity
How much of your home you actually own. To figure out your
equity, subtract the amount you owe on your loan from your home's
current market value.
Escrow
An item of value, money, or documents deposited with a third
party in an account to pay for certain aspects of your loan when
they become due.
Escrow Account
The account between you and your mortgage lender that stores
money you have deposited until you need it to pay for certain aspects
of your loan, like closing costs, taxes or insurance fees.
Escrow Payment
The portion of a borrower's monthly payment that is held by
the servicer to pay for taxes, hazard insurance, mortgage insurance,
lease payments, and other items as they become due.
Estate
The sum total of all the real property and personal property
owned by an individual at time of death.
Eviction
The lawful expulsion of an occupant from real property.
Exclusive
Listing
A written contract between a property owner and a Real Estate
broker, whereby the owner promises to pay a fee or commission to
the broker if certain real property of the owner is sold during
a stated period, regardless of whether the broker is or is not the
cause of the sale
Fair Credit
Reporting Act
A consumer protection law that regulates the disclosure of
consumer credit reports by consumer/credit reporting agencies and
establishes procedures for correcting mistakes on one's credit record.
Fair Market
Flood Insurance
An insurance policy that covers damage to your home due to
flooding. If the home you are buying is in an area prone to flooding,
then you may be required by your home loan provider to get flood
insurance. To establish whether your home is in such an area, a
land survey must be done-at the expense of the person selling the
home. The lender must give notice that the property is in a flood
zone at least 10 days prior to closing.
Fair Market
Value
How much a home or property is worth, given the current conditions
of the local real estate market. The fair market value of a home
is usually used in conjunction with the amount of tax its owner
must be charged. The highest price that a buyer, willing but not
compelled to buy would pay, and the lowest a seller, willing but
not compelled to sell, would accept.
Federal Housing
Administration
An agency of the U.S. Department of Housing and Urban Development
(HUD). Its main activity is the insuring of residential mortgage
loans made by private lenders. The FHA sets standards for construction
and underwriting but does not lend money or plan or construct housing.
Fee Simple
An estate under which the owner is entitled to unrestricted powers
to dispose of the property, commonly a synonym for ownership.
Finder's
Fee
A fee or commission paid to a mortgage broker for finding a mortgage
loan for a prospective borrower.
First Mortgage
A mortgage which is in first lien position, taking priority over
all other liens (which are financial encumbrances).
Fixed Installment
The monthly payment due on a mortgage loan. The fixed installment
includes payment of both principal and interest.
Fixed Rate
A loan with an interest rate that stays the same throughout the
life of the loan. Payments as well are fixed at one amount.
Fixed-Rate
Mortgage
A mortgage in which the interest rate does not change during the
entire term of the loan.
Flood Certification
Fee
This is a fee to obtain documentation that indicates whether or
not a property is in a federally-designated flood zone, and whether
or not flood insurance is required for that property.
Flood Insurance
Insurance that compensates against loss by flood damage. Typically
not included in standard hazard insurance.
Foreclosure
The legal process by which a borrower in default under a mortgage
is deprived of his or her interest in the mortgaged property. This
usually involves a forced sale of the property at public auction
with the proceeds of the sale being applied to the mortgage debt.
Forfeiture
The loss of money, property, rights, or privileges due to a breach
of legal obligation.
Full Disclosure
A legal requirement that says a person selling a home must inform
a potential buyer of everything they know about the home's physical
and economic condition.
Gift Letter
The form stating that a relative is giving you money to help you
buy a home, and that they will not ask you to it pay back. The letter
also provides proof, by referring to bank statements and other records,
that the relative does in fact, have enough money to cover the amount
of the gift, and that the money has been transferred to your possession.
Good Faith
Estimate
A written estimate of charges that a borrower is likely to incur
in connection with obtaining a loan. A lender must mail to you a
GFE within three business days after your application is received.
Grace Period
The period of time past the due date for a payment during which
time the payment may be made and not considered delinquent.
Grantee
The person to whom an interest in real property is conveyed,
generally the seller.
Grantor
The person conveying an interest in real property, generally
the buyer.
Gross Income
For qualifying purposes, the income of the borrower before
taxes or expenses are deducted.
Guarantee
Mortgage
A mortgage that is guaranteed by a third party.
Hazard Insurance
A contract between purchaser and an insurer, to compensate the insured
for loss of property due to hazards (fire, hail damage, etc.), for
a premium. This is an insurance policy many lenders require a home buyer
to have to cover damages due to occurrences like fires or storms.
Home Equity
Conversion Mortgage
A special type of mortgage that enables older home owners to
convert the equity they have in their homes into cash, using a variety
of payment options to address their specific financial needs. Unlike
traditional home equity loans, a borrower does not qualify based
on income, but on the value of his or her home. In addition, the
loan does not have to be repaid until the borrower no longer occupies
the property.
Home Inspection
A thorough inspection that evaluates the structural and mechanical
condition of a property. A satisfactory home inspection is often
included as a contingency by the purchaser.
Homeowners'
Association
A nonprofit association that manages the common areas of a planned
unit development (PUD) or condominium project. In a condominium
project, it has no ownership interest in the common elements. In
a PUD project, it holds title to the common elements.
Homeowner's
Insurance
An insurance policy that combines personal liability insurance
and hazard insurance coverage for a dwelling and its contents.
Homeowner's
Warranty
A type of insurance that covers repairs to specified parts
of a house for a specific period. It is provided by the builder
or property seller as a condition of the sale.
Housing Expense
Ratio
The percentage of gross monthly income that goes toward paying housing
expenses.
HUD
The U.S. Department of Housing and Urban Development.
HUD-1
A standard form, which itemizes the closing costs, associated with
the purchase or the refinance of a one-to-four family residential
property. .
I
Index
A number, usually a percentage, upon which future interest rates
for adjustable rate mortgages are based. Some commonly used indexes
include the 1-Year Treasury Bill, 6 Month LIBOR, and the 11th District
Cost of Funds (COFI).
In-File Credit
Report
An objective account, normally computer-generated, of credit
and legal information obtained from a credit repository.
Inflation
An increase in the amount of money or credit available in relation
to the amount of goods or services available, which causes an increase
in the general price level of goods and services. Over time, inflation
reduces the purchasing power of a dollar, making it worth less.
Initial Interest
Rate
The original interest rate of the mortgage at the time of closing.
This rate changes for an adjustable-rate mortgage (ARM).
Installment
The regular periodic payment that a borrower agrees to make
to a lender.
Installment
Loan
Borrowed money that is repaid in equal payments, known as installments.
An auto loan is often paid for as an installment loan.
Insurance
A contract that provides compensation for specific losses in
exchange for a periodic payment. An individual contract is known
as an insurance policy, and the periodic payment is known as an
insurance premium.
Interest
The amount of money a lender charges you to borrow money. The
interest you pay is a percentage of your total loan, and is paid
over time.
Interest
Accrual Rate
The percentage rate at which interest accrues on the mortgage.
In most cases, it is also the rate used to calculate the monthly
payments, although it is not used for an adjustable-rate mortgage
(ARM) with payment change limitations.
Interest
Adjustment or Prepaid Interest
An estimated amount of interest due at closing, usually from
the date of closing to the end of the month.
Interest
Rate
The periodic charge, expressed as a percentage, for use of
credit.
Interest
Rate Ceiling
For an adjustable-rate mortgage (ARM), the maximum interest
rate, as specified in the mortgage note.
Interest
Rate Floor
For an adjustable-rate mortgage (ARM), the minimum interest
rate, as specified in the mortgage note.
Investment
Property
A property that is not occupied by the owner.
Joint Tenancy
A form of co-ownership that gives each tenant equal interest
and equal rights in the property, including the right of survivorship.
Jumbo Loan
A loan that exceeds Fannie Mae's legislated mortgage amount
limits. Also called a nonconforming loan. Terms and underwriting
requirements may vary from conforming loans.
Late Payment
Fee
A fee charged for failing to submit the minimum monthly payment
by its due date.
Lender
A financial institution, like a bank, that loans you money, and
expects you to pay the money back to them in a stated period, usually
with interest.
Lien
A claim against a property by another party which utilizes
the property as security for repayment of a loan or other claim.
This usually affects the ability to transfer ownership.
Loan Application
The formal document you fill out when you approach a lender
to borrow money. It includes your name and personal information,
the amount of money and other terms of the loan you need, as well
as a detailed description of the purpose of the loan.
Loan Term
The total amount of time you are given by a lender to pay off
your loan. Loan terms vary, but are generally set at 15 or 30 years.
Lock-In
A written agreement guaranteeing the borrower a specified interest
rate provided the loan is closed within a set period. The lock-in
also usually specifies the number of points to be paid at closing.
Margin
The number of percentage points a lender adds to the index value
to calculate the ARM interest rate at each adjustment period. A
representative margin would be 2.75%.
Maturity
The date on which the principal balance of a loan, bond, or other
financial instrument becomes due and payable.
Maturity
Date
The scheduled date for your final payment on a loan. After
making the payment on a loan's maturity date, you assume complete
ownership of your home from the lender.
Maximum Financing
A mortgage amount that is within 5 percent of the highest loan-to-value
(LTV) percentage allowed for a specific product. Thus, maximum financing
on a fixed-rate mortgage would be 90 percent or higher, because
95 percent is the maximum allowable LTV percentage for that product.
Minimum Payment
The minimum amount that you must pay (usually monthly) on your
account. In some plans, the minimum payment may be 'interest only'.
In other plans, the minimum payment may include principal and interest.
Monthly Housing
Allowance
The percentage of a person's income they can comfortably use
each month to pay for where they live-with enough left over to spend
on food, clothing, and other luxuries. This percentage is usually
28% of your total income.
Monthly Periodic
Rate
The most common interest rate factor used to calculate the
interest charges on a monthly basis. The factor is computed by dividing
the yearly rate by 12.
Mortgage
The legal document outlining your responsibilities as a borrower,
including the amount of the loan you have taken and the details
and schedule of your re-payment. It states that if you do not make
payments on your loan in a timely fashion, you may lose your right
to ownership of the home.
Mortgage
Banker
A company that originates mortgages. They loan you their funds
and close the loan in their name, then resell the loan in the secondary
mortgage market.
Mortgage
Broker
An individual or company that brings borrowers and lenders
together for the purpose of loan origination. Mortgage brokers typically
require a fee or a commission for their services. As do mortgage
bankers, they take a loan application and process the necessary
paperwork. Unlike a mortgage banker, brokers do not fund the loan
with their own money, but work on behalf of several investors, such
as mortgage bankers, S and L's, banks, or investment bankers.
Mortgage
Disability Insurance
A disability insurance policy which will pay the monthly mortgage
payment in case of a covered disability of an insured borrower for
a specified period of time.
Mortgage
Insurance
A contract that insures the lender against loss caused by a
mortgagor's default on a government mortgage or conventional mortgage.
Mortgage insurance can be issued by a private company or by a government
agency such as the Federal Housing Administration (FHA). Depending
on the type of mortgage insurance, the insurance may cover a percentage
of or most of the mortgage loan. This is an insurance policy you
are required to get if the amount of your down payment is less than
20% of the total cost of the home.
Mortgage
Insurance Premium
The amount paid by a borrower for mortgage insurance, either
to a government agency such as the Federal Housing Administration
(FHA) or to a private mortgage insurance (MI) company.
Mortgage
Life Insurance
A type of term life insurance often bought by borrowers. The
amount of coverage decreases as the principal balance declines.
In the event that the borrower dies while the policy is in force,
the debt is automatically satisfied by insurance proceeds.
Mortgage
Loan
A loan, which utilizes real estate as security or collateral to
provide for repayment should you, default on the terms of your loan.
The mortgage or Deed of Trust is your agreement to pledge your home
or other real estate as security.
Mortgagee
The person or company who receives the mortgage as a pledge for
repayment of the loan. The lender in a mortgage agreement.
Mortgagor
The mortgage borrower who gives the mortgage as a pledge to repay.
The borrower in a mortgage agreement.
N
Negative Amortization
A gradual increase in mortgage debt that occurs when the monthly
payment is not large enough to cover the entire principal and interest
due. The portion of the payment, which should be paid, is added
to the remaining balance owed. The balance owed is added to the
remaining balance to create "negative" amortization.
New Loan
Escrow
A fee charged by the escrow company to carry out the additional
procedures necessary when a new loan is created by a lender in connection
with a purchase.
No Cash-Out
Refinance
A refinance transaction in which the new mortgage amount is
limited to the sum of the remaining balance of the existing first
mortgage, closing costs (including prepaid items), points, the amount
required to satisfy any mortgage liens that are more than one year
old (if the borrower chooses to satisfy them), and other funds for
the borrower's use (as long as the amount does not exceed 1 percent
of the principal amount of the new mortgage).
No Doc Loan
A loan requiring no documentation of income. This type of loan
is ideal for self-employed individuals with good credit.
Non-Conforming
Loan
Conventional home mortgages not eligible for sale and delivery
to either Fannie Mae (FNMA) or Freddie Mac (FHLMC) because of various
reasons, including loan amount, loan characteristics or underwriting
guidelines. Non-conforming loans usually incur a rate and origination
fee premium. The current non-conforming loan limit is $227,151 and
above. This is also called a jumbo loan.
Note
Legal document obligating a borrower to repay a loan at a stated
interest rate for a specified period of time. The agreement is secured
by a mortgage or deed of trust
Notice of
Default
A formal written notice to a borrower that default has occurred
and that legal action may be taken.
Obligations
The things you have to pay for consistently each month, excluding
housing costs. Obligations include things like car loans, credit
card bills, student loans, and alimony or child support.
Original
Principal Balance
The total amount of principal owed on a mortgage before any
payments are made.
Origination
A loan processing fee charged by the lender for originating
a new loan (usually 1% of the loan amount, or one "point").
Origination
Fee
A fee paid to a lender for processing a loan application. The
origination fee is stated in the form of points. One point is 1
percent of the mortgage amount. These are charges you must pay when
first buying a home to cover credit checks, property appraisals,
title searches, and other expenses not directly linked to the cost
of the home.
Owner of
Record
The actual owner of a property, according to public records.
Owner's Title
Policy
An insurance premium charged by the title company to insure
the buyer that the title is free from defects up to the date the
conveying instrument is recorded. The seller frequently pays this
premium.
Parcel
A piece of land or property under one ownership. Parcels are
created when a single large property is sub-divided into many smaller
pieces of property.
Payment Change
Date
The date when a new monthly payment amount takes effect on
an adjustable-rate mortgage (ARM) or a graduated-payment adjustable-rate
mortgage (GPARM). Generally, the payment change date occurs in the
month immediately after the adjustment date.
Payoff or
Prepayment Penalty
A penalty imposed by the lender when the loan is paid before
it is due. The penalty is intended to recover some of the money
they would've gotten from you in the form of interest payments,
had you taken the full term of the loan to pay it off.
Personal
Property
Any property that is not real property.
Points
A one-time charge by the lender paid to either maintain or lower
the interest rate charged. Each point is equal to one percent (1%)
of the loan amount (i.e., two points on a $100,000 mortgage would
equal $2,000).
Power of
Attorney
A legal document that authorizes another person to act on one's
behalf. A power of attorney can grant complete authority or can
be limited to certain acts and/or certain periods.
Pre-Approval
A way you can establish your ability to get a home loan worth
a certain amount of money, even before you have found the home you
want to buy.
Prepaid Interest
The amount of interest to cover the period from close of escrow
until the beginning of the first payment.
Prepaids
Those expenses of property which are paid in advance of their
due date and will usually be prorated upon sale, such as taxes,
insurance, rent, etc.
Prepayment
Payment in full on a mortgage that may result from a sale of
the property, the owner's decision to pay off the loan in full,
or a foreclosure. In each case, prepayment means payment occurs
before the loan has been fully amortized.
Pre-Qualification
The process of determining how much money a prospective home buyer
will be eligible to borrow before he or she applies for a loan.
Private Mortgage
Insurance
Insurance to protect the lender in case the borrower defaults
on his/her loan.
Prime Interest
Rate
The interest rate that banks charge to their preferred customers.
Changes in the prime rate influence changes in other rates, including
mortgage interest rates.
Principal
The amount borrowed or remaining unpaid. When you buy a home,
the principal of your loan, combined with your down payment, covers
the total sales price. When you make payments to the lender each
month, you pay back a portion of the principal as well as additional
fees in the form of interest charges.
Processing
Fee
A fee incurred for the preparation of a mortgage loan application
and for the preparation of supporting documents for underwriting.
Punch List
A written inventory of things that need to be done to a home
in order to meet the requirements of a sales contract.
Qualifying
Ratios
The ratio of your fixed monthly expenses to your gross monthly
income, used to determine how much you can afford to borrow. The
fixed monthly expenses would include PITI along with other obligations
such as student loans, car loans, or credit card payments.
Rate-Improvement
Mortgage
A fixed-rate mortgage that includes a provision that gives
the borrower a one-time option to reduce the interest rate (without
refinancing) during the early years of the mortgage term.
Real Estate
Agent
A person licensed to negotiate and transact the sale of real
estate on behalf of the property owner.
Real Property
Land and property, including anything of a permanent nature
such as structures, trees, minerals.
Recording
Fees
Fees charged by the County Recorder's Office for recordation
of Deed, Mortgage or Deed of Trust, and, at times, additional documents
requiring public notice.
Refinancing
The way you can replace your current home loan with a new loan
to get an interest rate lower than the one you have, or to borrow
cash from the amount you have paid back on your current loan.
Remaining
Balance
The amount of principal that has not yet been repaid.
Remaining
Term
The original amortization term minus the number of payments
that have been applied.
Right of
First Refusal
A provision in an agreement that requires the owner of a property
to give another party the first opportunity to purchase or lease
the property before he or she offers it for sale or lease to others.
Second Mortgage
A mortgage that has a position subordinate to the first mortgage.
Secured Loan
A loan that is backed by collateral.
Security
The property that will be pledged as collateral for a loan.
Security
Interest
An interest that a lender takes in the borrower's property
to assure repayment of a debt.
Subdivision
A housing development that is created by dividing a tract of
land into individual lots for sale or lease.
Survey
A drawing or map showing the precise legal measurements of
the boundaries of a property, together with the location of all
improvements and sometimes its area and topography. This is performed
by a trained professional called a surveyor, and occurs before a
home sale is finalized.
Tax Liens
A lien against real estate for unpaid taxes.
Tax Search
A part of a title search which determines if there are any
unpaid taxes or assessments which may be a lien against the property
being searched
Term
The period of time between the beginning date of the legal
documents and the date the entire balance of the loan is due.
Title
The legal, written evidence that identifies the owner of a
home or piece of property, and outlines that person's rights as
owner. At the time of a home sale, the title passes from the seller
to the buyer and the lender who is providing the buyer's home loan.
The buyer gets the title when their home loan is paid back in full.
Title Company
A company that specializes in examining and insuring titles
to real estate.
Title Insurance
The insurance policy you must purchase to protect yourself
and the lender against any possible problems of the home you are
buying. These problems may include disputes over ownership of a
property unresolved legal claims, or an interruption of the deed
transferal process between previous owners of the property.
Title Search
An investigation into the history of ownership of a property
to check for liens, unpaid claims, restrictions or problems, to
prove that the seller can transfer free and clear ownership.
Total Debt
Ratio
Monthly debt and housing payments divided by gross monthly
income.
Trade Equity
Equity that results from a purchaser giving his or her existing
property (or an asset other than real estate) as trade as all or
part of the down payment for the property that is being purchased.
Transaction
Fee
A fee charged each time you draw on your credit line.
Transfer
of Ownership
Any means by which the ownership of a property changes hands.
Lenders consider all of the following situations to be a transfer
of ownership: the purchase of a property "subject to"
the mortgage, the assumption of the mortgage debt by the property
purchaser, and any exchange of possession of the property under
a land sales contract or any other land trust device.
Truth-in-Lending
A federal law that requires lenders to fully disclose, in writing,
the terms and conditions of a mortgage, including the annual percentage
rate (APR) and other charges. This is intended to facilitate comparisons
between the lending terms of different financial institutions.
Underwriting
The process of evaluating a loan application to determine the
risk involved for the lender. Underwriting involves an analysis
of the borrower's creditworthiness and the quality of the property
itself.
Underwriting
Fee
The cost to cover the evaluation of a loan application to determine
the risk involved for the lender.
Unsecured
Loan
A loan that is not backed by collateral.
Up-Front
Costs
The total amount of cash you need to pay when you buy a home,
minus the amount of your loan. Up front costs include your down
payment, any closing fees you must pay-like broker's commissions
or insurance charges-and the discount points you can use to lower
your overall interest rate.
Variable
Rate
An interest rate that changes periodically in relation to a
specific financial index. Payments may increase or decrease accordingly
due to changes in the index. Adjustments are usually made on a quarterly
basis.
Wage Garnishments
A notice to an employer that a portion of an employee's wages
must be applied to a debt owed by said employee.
Warehouse
A fee charged by the lender to cover the expense incurred between
funding and the sale of the loan to the ultimate investor.
Wraparound Mortgage
A mortgage that includes the remaining balance on an existing
first mortgage plus an additional amount requested by the borrower.
Full payments on both mortgages are made to the wraparound mortgagee,
who then forwards the payments on the first mortgage to the first
mortgagee.
Zoning
The way cities and towns define how areas within their borders
are to be used as real property. Zoning determines which areas of
a city or town can contain stores and other businesses, which should
be used as residential areas, and which can mix both types of property.
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