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A
ADJUSTABLE-RATE-MORTGAGE (ARM)
A mortgage that permits the lender to periodically adjust the interest rate on the
basis of changes in a specified index.
AMORTIZATION
The gradual reduction of the mortgage debt through regularly scheduled payments
over the term of the loan.
ANNUAL PERCENTAGE RATE (APR)
The measure of the cost of credit stated as a yearly rate; includes such items as
the stated interest rate, plus certain charges.
APPRAISAL
A written estimate or opinion of a property's value prepared by a qualified appraiser.
ASSUMPTION
The act of becoming responsible for the repayment of a loan not originally in your
name.
B
BALLOON MORTGAGE
A mortgage in which the borrower’s monthly payments are amortized over a longer
period than the actual term of the mortgage. As a result, at the end of the loan
term, the borrower must pay off the remaining balance with a single lump sum payment
or refinance the loan.
BANKRUPTCY
When a debtor yields his or her assets to the Bankruptcy Court and thereby is relieved
of the duty to repay unsecured debts. After claiming this provision of Federal Law,
the debtor is discharged of existing unsecured debt; the unsecured creditors may
not continue collection actions. Although they may not take additional action to
collect from the debtor, those creditors holding deeds of trust or judgment liens
are secured by the property. Not all debts may be discharged.
BROKER
A person who coordinates funding or negotiates contracts for a client but does not
loan the money him- or herself.
BUY-DOWN
A situation in which the lender subsidizes the mortgage by lowering the interest
rate. During the first few years, the loan payments are low, but they will increase
when the funding expires.
C
CAP
For an Adjustable-Rate Mortgage (ARM), a limitation on the amount the interest rate
or mortgage payments may increase or decrease.
CERTIFICATE OF TITLE
An attorney's written opinion establishing the status of title for a property as
reflected on the public records. The certificate does not address issues not on
record and offers no protection unless the writer of the certificate was negligent.
CLOSING
Also called settlement, a meeting between the buyer, seller and lender and/or their
agents during which the property and funds legally transfer.
CLOSING COSTS
Expenses that fall above the price of the property which are incurred by buyers
and sellers in the process of transferring ownership of a property. Closing costs
usually include an origination fee, discount points, appraisal fee, title search
and insurance, survey, taxes, deed recording fee, credit report charge and other
costs assessed at settlement. The cost of closing typically is about 3 percent to
6 percent of the mortgage amount. Closing costs will vary according to the area
of the country; your New Century Realty & Lending Loan Officer is able to provide
estimates of closing costs for you.
COLLATERAL
Property assured to secure a loan.
COMMITMENT
A pledge by a lender to provide loan on specific terms or conditions to a borrower
CONSTUCTION LOAN
Used for financing the cost of construction, this is a short term interim loan in
which the lender advances funds to the builder at set intervals as the construction
progresses.
CONVENTIONAL LOAN
A mortgage not insured by FHA or guaranteed by the VA.
CREDIT REPORT
A report with documentation of the borrower's credit history and current status
of credit.
D
DEBT-TO-INCOME RATIO
The relationship between a borrower’s total monthly debt payments (including proposed
housing expenses) and his or her gross monthly income; this calculation is used
in determining the mortgage amount that a borrower qualifies for.
DEED
The written document conveying real property. The original piece of paper is not
needed to convey title in the future once recorded at the county recorder's office.
DEFAULT
The failure to make a schedule payment or otherwise comply with the terms of a mortgage
loan or other contract.
DEFERRED INTEREST
When a note is written with a monthly payment that is less than required to satisfy
interest accruing at the note rate, the unpaid interest is deferred by adding it
to the loan balance.
DELINQUENCY
Failure to make payments in a timely fashion. Foreclosure is a possible result.
DEPARTMENT OF VETERANS AFFAIRS
An independent agency of the federal government which guarantees long-term, low-or
no-down payment mortgages to eligible veterans.
DISCOUNT POINT (or POINT)
A fee paid by the borrower at closing to reduce the interest rate. A point equals
1 percent of the loan amount.
DEPRECIATION
A decline in property value.
DOWN PAYMENT
Money paid up front to make up the difference between the purchase price and the
mortgage amount. Down payments usually are 5 percent to 20 percent of the sales
price on conventional loans.
E
EARNEST MONEY
Money paid by a buyer to a seller to cement a transaction or ensure payment. Usually
between 1 to 5% of the purchase price, the amount becomes a part of the down payment
if the offer is accepted. The money is returned to the borrower if the offer is
rejected. If the borrower cancels the transaction, the entire amount may be forfeited.
ASEMENT
The right to use the land of another for a specific limited purpose.
ENCROACHMENT
The physical intrusion of a structure or improvement (such as a fence) on the land
of another.
EQUITY
The owner’s interest in a property, calculated as the current fair market value
of the property less the amount of existing liens.
ESCROW
An item of value, money, or documents deposited with a third party to be delivered
upon the fulfillment of a condition. For example, the deposit by a borrower with
the lender of funds to pay taxes and insurance premiums when they become due, or
the deposit of funds or documents with an attorney or escrow agent to be disbursed
upon the closing of a sale of real estate.
F
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC)
Also known as "Freddie Mac," the Federal Home Loan Mortgage Corporation provides
a secondary market for mortgage financing by purchasing conventional loans.
FEDERAL HOUSING ADMINISTRATION (FHA)
A division of the Department of Housing and Urban Development. Its main purpose
is the insuring of residential mortgage loans made by private lenders. FHA also
sets standards for underwriting mortgages.
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)
Also known as "Fannie Mae," this secondary mortgage institution is the largest single
holder of home mortgages in the United States. FNMA purchases VA, FHA, and conventional
mortgages from primary lenders.
FHA LOAN
A loan insured by the Federal Housing Administration open to all qualified home
purchasers. There are limits to the loan amount of FHA loans; these are dependent
on the borrower’s county.
FIXED RATE MORTGAGE
Throughout the term of the loan, this mortgage interest rate will remain the same
for the original borrower.
FORECLOSURE
Also known as a repossession of property, this occurs when the lender or the seller
legally forces a sale of a property because the borrower has not met the terms of
the mortgage.
G
GOOD FAITH ESTIMATE
A list that estimates all fees paid before closing, all closing costs, and any escrow
costs the borrower will encounter when purchasing a home. This must be supplied
by the lender within three days of the borrower’s application so that the borrower
is able to make sound decisions when shopping for a loan.
GUARANTY
The pledge of one party to pay a debt or fulfill a responsibility contracted by
another if the original party neglects to pay or perform according to terms of the
contract.
H
HAZARD INSURANCE
When an insurance company covers the insured from loss or damage to the property
resulting from issues, such as fire, windstorm and the like.
HUD
The U.S. Department of Housing and Urban Development. Established in 1965, HUD develops
national policies and programs to address housing needs in the U.S. One of the main
missions of HUD is to create a suitable living environment for all Americans by
developing and improving the country's communities and enforcing fair housing laws.
I
INDEX
A published interest rate against which lenders measure the difference between the
current interest rate on an adjustable rate mortgage and that earned by other investments
(such as one- three-, and five-year U.S. Treasury security yields, the monthly average
interest rate on loans closed by savings and loan institutions, and the monthly
average costs-of-funds incurred by savings and loans), which is then used to adjust
the interest rate on an adjustable mortgage up or down.
INTERIM-FINANCING
A construction loan made during the completion of a building project. After completion
of the project, a permanent loan typically takes the place of this loan.
J
JUMBO LOAN
A loan which is larger than the limits set by the Federal National Mortgage Association
(Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). These
loans typically hold a higher interest rate because they are not able to be funded
by these two agencies.
L
LIEN
A claim against property. Property is said to be encumbered by a lien and the lien
must be removed to clear title.
LIFETIME CAP
For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate
or monthly payment can increase or decrease over the life of the loan.
LOAN ORIGINATION FEE
This pays the administrative costs of processing the loan. Usually, it is expressed
in points with one point being 1 percent of the mortgage amount.
LOAN-TO-VALUE RATIO (or LTV RATIO)
The relationship between the loan amount and the value of the property (the lower
of appraised value or sales price), expressed as a percentage of the property’s
value. For example, a $100,000 home with an $80,000 mortgage has an LTV of 80 percent.
LOCK-IN
The lender guarantees a specified interest rate if a mortgage goes to closing within
a set period of time through this written agreement. This typically specifies the
number of points to be paid at closing as well.
LOCK-IN PERIOD
The time period during which the borrower is guaranteed an interest rate by the
lender.
M
MARGIN
For an adjustable-rate mortgage (ARM), the amount that is added to the index to
determine the interest rate on each adjustment date, as stated in the note.
MARKET VALUE
The lowest price a seller would accept and the highest price that a buyer would
pay on a property. The price a property could be sold for at a given time could
differ from the market value.
MORTGAGE
A voluntary lien filed against a property to secure a debt, usually a loan.
MORTGAGE BANKER
A company that originates and services mortgages exclusively for resale in the secondary
mortgage market (to other lenders and investors). Certain mortgage bankers are subsidiaries
of depository institutions or their holding companies but do not receive money from
individual depositors.
MORTGAGE BROKER
An independent professional or company that brings together borrowers and lenders
for loan origination purposes, both in residential and commercial circumstances.
Mortgage brokers typically charge a fee or require a commission for their services.
MORTGAGE INSURANCE (MI)
Insurance that protects lenders against losses caused by a borrower’s default on
a mortgage loan. MI typically is required if the borrower’s down payment is less
than 20% of the purchase price.
MORTGAGE INSURANCE PREMIUM (MIP)
Insurance provided to the lender from the Federal Housing Administration (FHA) to
cover an instance of the borrower defaulting on the mortgage. Borrowers pay one-half
percent each month on FHA insured mortgage loans.
N
NEGATIVE AMORTIZATION
When a borrower’s monthly payments are not large enough to pay all the interest
due on the loan. The unpaid interest then is added to the unpaid balance of the
loan. Negative amortization can cause home buyers to owe more than the original
amount of the loan.
NET EFFECTIVE INCOME
The borrower's gross income minus federal income tax.
NON-ASSUMPTION CLAUSE
A portion of a mortgage contract prohibiting the assumption of the mortgage without
the approval of the lender beforehand.
O
ORIGINATION FEE
Lenders charge the borrowers this fee to cover the services needed to take a loan
application, process it, and prepare it for closing; it is typically computed as
a percentage of the face value of the loan.
P
PAPER TRAIL
Copies of all paperwork to cover the lender should the borrower default on the loan.
Depending on the lender, this may be required from the borrower. It can include
copies of all checks, deposit slips, loan paperwork, forms to liquidate assets,
etc.
PITI
An acronym for the four primary components of a monthly mortgage payment: principal,
interest, taxes, and insurance (PITI).
POINT -- See DISCOUNT POINT
PREPAID EXPENSES
Needed to create an escrow account or to adjust the seller's existing escrow account;
taxes, hazard insurance, private mortgage insurance and special assessments can
be included in the prepaid expenses.
PRE-PAYMENT
The ability established in the mortgage agreement for a borrower to make advanced
payments before their due date.
PRE-PAYMENT PENALTY
A fee that a borrower may be required to pay to the lender, in the early years of
a mortgage loan, for repaying the loan in full or prepaying a substantial amount
to reduce the unpaid principle balance.
PREQUALIFICATION
A preliminary assessment by a lender of the amount it will lend to a potential homebuyer.
The process of determining how much money a prospective home buyer may be eligible
to borrow before he or she applies for a loan.
PRINCIPAL
The amount of money owed on a loan, excluding interest. Also, the part of the monthly
payment that reduces the remaining balance of a mortgage
PRIVATE MORTGAGE INSURANCE (PMI)
Insurance coverage required for expenses incurred if the borrower defaults on the
loan. Borrowers typically are required to carry private mortgage insurance when
they have a small percentage of a down payment to offer. An initial premium payment
of 1% to 5% of your mortgage amount will be required. Private mortgage insurance
also may necessitate an additional monthly fee depending on the borrower’s loan
structure.
R
RECORDING FEES
A lender is paid this money for recording a home sale with the local authorities;
this makes it part of the public records.
REFINANCE
Acquiring a new mortgage loan on a property already owned; this usually is done
to replace an existing loan on the property (often to benefit from a lower interest
rate).
RESCISSION
The cancellation of a contract. In regards to mortgage refinancing, by law the homeowner
has three days to cancel the new loan if the agreement uses equity in the home as
security.
RESPA
Real Estate Settlement Procedures Act. Through this, lenders are obligated to disclose
information to potential customers throughout the mortgage process. By doing so,
it protects borrowers from abuses by lending institutions. RESPA requires lenders
to fully inform borrowers about all closing costs, lender servicing, escrow account
practices, and business relationships between closing service providers and other
parties to the transaction.
S
SECOND MORTGAGE
A mortgage that has a lien position subordinate to the first mortgage.
SIMPLE INTEREST
Interest calculated only on the principle balance.
SURVEY
Conducted by a registered land surveyor, this measurement of land shows the location
of the land with reference to known points, its dimensions, and the location and
dimensions of any buildings.
T
TITLE
Indicates ownership of property. A property owner is said to be "in title."
U
UNDERWRITING
A step in the loan process where it is decided if a loan will be provided to a potential
home buyer; this decision is based on credit, employment, assets, and other factors
and the matching of this risk to an appropriate rate and term or loan amount.
V
VA (or U.S. DEPARTMENT OF VETRANS AFFAIRS)
A federal government agency that provides benefits to veterans and their dependents,
including health care, educational assistance, financial assistance, and guaranteed
home loans.
VERIFICATION OF DEPOSITS (VOD)
The borrower’s financial institution signs this document to verify the status and
balance of his/her financial accounts.
VERIFICATION OF EMPLOYMENT (VOE)
The borrower’s employer signs this document to verify his/her position and salary.
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