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Adjustable Rate Mortgage (ARM): A mortgage
in which the interest rate is adjusted periodically
according to a preselected index.
Amortization:
The systematic and continuous payment of an
obligation through installments until the debt
has been paid in full.
Annual
Percentage Rate (APR): A term used in the
Truth-in-Lending Act to represent the percentage
relationship of the total finance charge to the
amount of the loan. The APR reflects the cost
of your mortgage loan as a yearly rate. It will
be higher than the interest rate stated on the
note because it includes, in addition to the interest
rate, loan discount points, fees and mortgage
insurance.
Application:
A printed form used by a mortgage lender to
record necessary information concerning a prospective
mortgage.
Application
Fee: A sum of money paid towards estimated
initial mortgage processing expenses such as appraisal
and credit report.
Appraisal:
A report made by a qualified person setting
forth an opinion or estimate of property value.
The term also refers to the process by which this
estimate is obtained.
As Separate
Property: Ownership in real property which
is to be specifically excluded from community
property.
Assessed
Valuation: The value that a taxing authority
places on real or personal property for the purpose
of taxation.
Assessment:
A charge against a property for purposes of
taxation. This may take the form of a levy for
a special purpose or a tax in which the property
owner pays a share of the cost of community improvements
according to the valuation of his or her property.
Borrower:
A person (also known as Mortgagor) who receives
funds in the form of a loan with an obligation
to repay principal with interest.
Buydown:
A payment to the lender from the seller, buyer
or third party, causing the lender to reduce the
interest rate.
Cash
to Close: Liquid assets that are readily available
to be used to pay the closing costs involved in
a closing of a mortgage transaction.
Closing:
The consummation of a real estate transaction.
The closing includes the delivery of a deed, financial
adjustments, the signing of notes, and the disbursement
of funds necessary to complete the sale and loan
transaction.
Closing
Costs: Money paid by the borrower in connection
with the closing of a mortgage loan. This generally
involves an origination fee, discount points,
appraisal, credit report, title insurance, attorney's
fees, survey, and prepaid items such as tax and
insurance escrow payments.
Closing
Statement: A form used at closing that gives
an account of the funds received and paid at the
closing, including the escrow deposits for taxes,
hazard insurance, and mortgage insurance.
Co-Borrower:
Additional borrower(s) whose income contributes
to qualifying for a loan and whose name(s) appears
on documents with equal legal obligations.
Collateral:
Property pledged as security for a debt, such
as the real estate pledged as security for a mortgage.
Commitment
(Loan): A binding pledge made by the lender
to the borrower to make a loan, usually at a stated
interest rate within a given period of time for
a given purpose, subject to the compliance of
the borrower to stated conditions.
Commitment
Fee (Loan): Any fee paid by a potential borrower
to a lender for the lender's promise to lend money
at a specified rate and within a given time period.
Commitment
Letter: A lender's written offer to grant
a mortgage loan outlining the terms, the amount
of the loan, the interest rate and any other conditions.
It can also serve as a communication of the lender's
decision to the borrower's application.
Conforming:
A mortgage loan that conforms to regulatory
limits such as loan-to-value ratio, term and other
characteristics.
Conforming
Loan: Conventional home mortgages eligible
for sale and delivery to either the Federal National
Mortgage Association (FNMA) or the Federal Home
Loan Mortgage Corporation (FHLMC). These agencies
generally purchase traditional fixed rate level
payment first mortgages up to loan amounts mandated
by Congressional directive.
Conventional
Mortgage: A mortgage not obtained under a
government insured program (such as FHA or VA).
Credit
Report: A report detailing an individual's
credit history.
Deed
of Trust: An instrument used in many states
in place of a mortgage. Property is transferred
to a trustee by the borrower (trustor), in favor
of the lender (beneficiary) and reconveyed upon
payment in full.
Default:
The failure to perform an obligation as agreed
in a contract.
Delinquency:
A loan payment that is overdue but within
the period allowed before actual default is declared.
DeMinimus
PUD: A PUD in which the common property has
less than a 2% influence upon the value of the
premises. The 2% rule of thumb is calculated by
dividing the dollar amount of amenities by the
total number of units. Also see
PUD.
Deposit:
A sum of money given to bind a sale of real
estate. Also known as earnest money.
Depreciation:
A loss of value in real property brought about
by age, physical deterioration, functional or
economic obsolescence.
Discount
Point: Amount payable to the lending institution
by the borrower or seller to increase the lender's
effective yield. One point is equal to one percent
of the loan amount.
Discounted
Loan: When the note rate on a loan is less
than the market rate, the lender requires additional
points to raise the yield on the loan to the market
rate.
Earnest
Money: A portion of the down payment delivered
to the seller or an escrow agency by the purchaser
of real estate with a purchase offer as evidence
of good faith.
Equal
Credit Opportunity Act (ECOA): A Federal law
requiring lenders and other creditors to make
credit equally available without discrimination
based on race, color, religion, national origin,
sex, age, marital status, receipt of income from
public assistance programs or past exercising
of rights under the Consumer Credit Protection
Act.
Equity
The ownership interest: i.e. portion of a
property's value over and above the liens against
it.
Escrow:
A procedure whereby a disinterested third
party handles legal documents and funds on behalf
of a seller and buyer.
Fair
Credit Reporting Act (FCRA): A Federal law
which requires a lender who is rejecting a loan
request because of adverse credit information
to inform the borrower of the source of such information.
Federal
Home Loan Mortgage Corporation - FHLMC (FREDDIE
MAC): A corporation authorized by Congress.
It purchases residential mortgages insured by
the Federal Housing Administration (FHA) or guaranteed
by the Veterans Administration (VA) as well as
conventional home mortgages. It sells participation
certificates whose principal and interest are
guaranteed by FHLMC.
Federal
National Mortgage Association - FNMA (FANNIE MAE):
A taxpaying corporation created by Congress
to support the secondary mortgage market. It purchases
and sells residential mortgages insured by the
Federal Housing Administration (FHA) or guaranteed
by the Veterans Administration (VA) as well as
conventional home mortgages.
First
Mortgage: A real estate loan that has priority
over any subsequently recorded mortgages.
Fixed
Interest Rate: An interest rate which does
not change during the loan term.
Foreclosure:
A legal procedure in which property mortgaged
as security for a loan is sold to pay the defaulting
borrower's debt.
Gift
Letter: A written explanation signed by the
individual giving the gift stating, "This
is a bona fide gift and there is no obligation
expressed or implied to repay this sum at any
time."
Gross
Monthly Income: Total monthly income earned
before deductions.
Hazard
Insurance: A contract whereby an insurer,
for a premium, undertakes to compensate the insured
for loss on a specific property due to certain
hazards.
High-Ratio
Loan: Mortgage loans in excess of 80 percent
of the loan amount divided by the lower of the
sales price or appraised value.
Homeowners'
Association Dues: The fees imposed by a condominium
or homeowners' association for maintenance of
common areas.
Insured
Loans: A loan insured by FHA or a private
mortgage insurance company.
Interest:
Consideration in the form of money paid for
the use of money. Also a right, share or title
in property.
Interest
Rate: The percentage of an amount of money
which is paid for its use for a specified time.
Investment
Property: Real estate owned with the intent
of supplementing income and not intended for owner
occupancy.
Lien:
A legal claim or attachment against property
as security for payment of an obligation.
Loan-To-Value
Ratio: The ratio between the amount of a given
mortgage loan and the lower of sales price or
appraised value.
Market
Value: The highest price which a ready, willing
and able buyer would pay and a willing seller
will accept, both being fully informed under no
pressure to act. The market value may be different
from the price a property can actually be sold
for at a given time (market price).
Maturity:
The termination or due date on which final
payment on a loan must be paid in full.
Monthly
Payment: Usually, the amount of PITI (principal,
interest, taxes, and insurance) paid each month
on a mortgage loan.
Mortgage:
The conveyance of an interest in real property
given as security for the payment of a loan.
Mortgagee:
The lender in a mortgage transaction.
Mortgage
Insurance Premium (MIP): The consideration
paid by a mortgagor (borrower) for mortgage insurance
- either to the FHA or to a private mortgage insurer.
Mortgage
Note: A written promise to pay a sum of money
at a stated interest rate during a specified term.
The note contains a complete description of the
conditions under which the loan is to be repaid
and when it is due.
Mortgagor:
The borrower in a mortgage transaction who
pledges property as security for a debt.
Non-Conforming:
A mortgage loan that does not conform to regulatory
limits such as loan-to-value ratio, term and other
characteristics.
Non-Conforming
Loan: Conventional home mortgages not eligible
for sale and delivery to either FNMA or FHLMC
because of various reasons, including loan amount,
loan characteristics or underwriting guidelines.
Occupancy:
The use of a property as a full-time residence,
either by the title holder (owner-occupancy) or
by another party through a formal agreement (rental).
Origination
Fee: The amount charged for services performed
by the company handling the initial application
and processing of the loan.
Percentage
Point: One percent of the loan amount or a
measure of the interest rate.
PITI
(Principal, Interest, Taxes, and Insurance): The
most common components of a monthly mortgage payment.
Preliminary
Title Report: The results of a title search
by a title company prior to issuing a title binder
or commitment to insure clear title.
Primary
Residence: A residence which the borrower
intends to occupy as the principal residence.
Principal
Balance: The remaining balance due on a debt.
Private
Mortgage Insurance: Insurance written by a
private company protecting the mortgage lender
against loss resulting from a mortgage default.
Processing:
The preparation of a mortgage loan application
and supporting documentation for consideration
by a lender or insurer.
PUD
(Planned Unit Development): A planned combination
of diverse land uses, such as housing, recreation,
and shopping in one contained development or subdivision.
A major feature of a PUD includes areas of common
land for use by the housing unit owners; the association
of unit owners generally owns, pays fees, and
maintains the common areas. Also see DeMinimus
PUD.
Purchase
Contract (Agreement/Offer): An agreement between
a buyer and seller of real property, setting forth
the price and terms of the sale. Also known as
a sales contract.
Rate
Lock Option: An agreement guaranteeing the
home buyer a specified interest rate provided
the loan is closed within a set period of time.
Real
Assets: Real estate or real property owned
by an individual or business.
Real
Estate Settlement Procedures Act (RESPA): A
Federal law requiring lenders to provide home
mortgage borrowers with information on known or
estimated settlement costs. It also establishes
guidelines for escrow account balances and the
disclosure of settlement costs.
Real
Property: Land and that which is affixed to
it.
Refinancing:
The repayment of a debt from the proceeds
of a new loan using the same property as security.
Satisfaction
of Mortgage: The recordable instrument issued
by the lender verifying full payment of a mortgage
debt.
Second
Home (Vacation Home, Weekend Home): A residence
other than the borrower's primary residence which
the borrower intends to occupy for a portion of
each year. Must be suitable for year-round occupancy.
Secondary
Mortgage Market: A market where existing mortgages
are bought and sold. It contrasts with the primary
mortgage market where mortgages are originated.
Security:
In lending, the collateral given, deposited,
or pledged to secure the payment of a debt.
Settlement
Services: Services provided by the lender
at the closing of a loan.
Survey:
The measurement and description of land by
a registered surveyor.
Term:
The time limit within which a loan must be
repaid.
Title:
The legal evidence of ownership rights to
real property.
Title
Insurance Policy: A contract in which an insurer,
usually a title insurance company, agrees to pay
the insured party a specific amount for any loss
caused by defects of title on real estate in which
the insured has an interest as purchaser, mortgagee,
or otherwise.
Title
Search: An examination of public records to
disclose the past and current facts regarding
the ownership of a given piece of real estate.
Truth-in-Lending
Act: A federal law requiring a disclosure
of credit terms using a standard format. This
is intended to facilitate comparisons between
the lending terms of financial institutions.
Underwriting:
Analysis of risk and setting of an appropriate
rate and term for a mortgage on a given property
for given borrowers.
Zero
Point Option: An option which allows the borrower
to not pay the points associated with the loan
origination fee. This savings is offset by a slightly
higher loan interest rate.
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