- 7/23 and 5/25 Mortgages
- Mortgages with a one time rate
adjustment after seven years and five years respectively.
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- 3/1, 5/1, 7/1 and 10/1
ARMs
- Adjustable rate mortgages in
which rate is fixed for three year, five year, seven year and 10-year periods,
respectively, but may adjust annually after that.
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A
Acceleration
The right of the mortgagee
(lender) to demand the immediate repayment of the mortgage loan balance upon
the default of the mortgagor (borrower), or by using the right vested in the
Due on Sale Clause.
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Adjustable Rate Mortgage
(ARM)
A mortgage in which the interest
rate is adjusted periodically based on a pre-selected index. Also sometimes
known as a renegotiable rate mortgage, variable rate mortgage or Canadian
rollover mortgage.
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Adjusted Basis
The cost of a property plus the
value of any capital expenditures for improvements to the property minus any
depreciation taken.
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Adjustment Date
The date that the interest rate
changes on an adjustable rate mortgage (ARM).
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Adjustment Interval
On an adjustable rate mortgage,
the time between changes in the interest rate and/or monthly payment,
typically one, three or five years depending on the index.
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Adjustment Period
The period elapsing between
adjustment dates for an adjustable rate mortgage (ARM).
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Affordability Analysis
An analysis of a buyer’s
ability to afford the purchase of a home. Reviews income, liabilities, and
available funds, and considers the type of mortgage you plan to use, the area
where you want to purchase a home, and the closing costs that are likely.
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Amortization
Loan payment divided into equal
periodic payments calculated to pay off the debt at the end of a fixed period,
including accrued interest on the outstanding balance.
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Amortization Term
The length of time required to
amortize the mortgage loan expressed as a number of months. For example, 360
months is the amortization term for a 30-year fixed rate mortgage.
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Annual Percentage Rate
(APR)
The measurement of the full cost
of a loan including interest and loan fees expressed as a yearly percentage
rate. Because all lenders apply the same rules in calculating the annual
percentage rate, it provides consumers with a good basis for comparing the
cost of different loans.
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Appraisal
An estimate of the value of
property made by a qualified professional called an "appraiser.”
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Appraised Value
An opinion of a property's fair
market value, based on an appraiser's knowledge, experience, and analysis of
the property.
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Assessment
A local tax levied against a
property for a specific purpose, such as a sewer or street lights.
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Assignment
The transfer of a mortgage from
one person to another.
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Assumability
An assumable mortgage can be
transferred from the seller to the new buyer. Generally requires a credit
review of the new borrower and lenders may charge a fee for the assumption. If
a mortgage contains a due on sale clause, it may not be assumed by a new
buyer.
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Assumption
The agreement between buyer and
seller where the buyer takes over the payments on an existing mortgage from
the seller. Assuming a loan can usually save the buyer money since this is an
existing mortgage debt, unlike a new mortgage where closing cost and new,
probably higher, market rate interest charges will apply.
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Assumption Fee
The fee paid to a lender
(usually by the purchaser of real property) when an assumption takes place.
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B
Balloon Mortgage
A loan which is amortized for a
longer period than the term of the loan. Usually this refers to a thirty year
amortization and a five or seven year term. At the end of the term of the
loan, the remaining outstanding principal on the loan is due. This final
payment is known as a balloon payment.
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Balloon Payment
The final lump sum paid at the
maturity date of a balloon mortgage.
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Biweekly Payment
Mortgage
A plan to reduce the debt every
two weeks (instead of the standard monthly payment schedule). The 26 (or
possibly 27) biweekly payments are each equal to one half of the monthly
payment required if the loan were a standard 30-year fixed rate mortgage. The
result for the borrower is a substantial savings in interest.
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Blanket Mortgage
A mortgage covering at least two
pieces of real estate as security for the same mortgage.
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Borrower
(Mortgagor)
One who applies for and receives
a loan in the form of a mortgage with the intention of repaying the loan in
full.
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Bridge Loan
A second trust that is
collateralized by the borrower's present home allowing the proceeds to be used
to close on a new house before the present home is sold. Also known as "swing
loan."
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Broker
An individual in the business of
assisting in arranging funding or negotiating contracts for a client but who
does not loan the money himself. Brokers usually charge a fee or receive a
commission for their services.
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Buy Down
When the lender and/or the home
builder subsidized the mortgage by lowering the interest rate during the first
few years of the loan. While the payments are initially low, they will
increase when the subsidy expires.
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C
Cash Flow
The amount of cash derived over
a certain period of time from an income producing property. The cash flow
should be large enough to pay the expenses of the income producing property
(mortgage payment, maintenance, utilities, etc...).
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Caps (interest)
Consumer safeguards which limit
the amount of change to the interest rate for an adjustable rate mortgage.
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Caps (payment)
Consumer safeguards which limit
the amount of change to the monthly payments for an adjustable rate mortgage.
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Certificate of
Eligibility
The document given to qualified
veterans which entitles them to VA guaranteed loans for homes, business and
mobile homes. Certificates of eligibility may be obtained by sending form DADA
(Separation Paper) to the local VA office with VA form 1880 (Request for
Certificate of Eligibility).
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Certificate of
Reasonable Value (CRV)
An appraisal issued by the
Veterans Administration showing the property's current market value.
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Certificate of Veteran
Status
The document given to veterans
or reservists who have served 90 days of continuous active duty (including
training time). It may be obtained by sending DD 214 to the local VA office
with form 26-8261a (Request for Certificate of Veteran Status). This document
enables veterans to obtain lower down payments on certain FHA insured loans.
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Change Frequency
The frequency (in months) of
payment and/or interest rate changes in an adjustable rate mortgage (ARM).
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Closing
The meeting between the buyer,
seller and lender or their agents where the property and funds legally change
hands, also called settlement. 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 usually are about 3 percent to 6 percent of
the mortgage amount.
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Closing Costs
Expenses over and above the
price of the property that are incurred by buyers and sellers when
transferring ownership of a property. Closing costs normally include an
origination fee, property taxes, charges for title insurance and escrow costs,
appraisal fees, etc. Closing costs will vary according to the area country and
the lenders used.
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COFI
An adjustable-rate mortgage with
a rate that adjusts based on a cost-of-funds index, often the 11th District
Cost of Funds.
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Construction Loan
A short term interim loan to pay
for the construction of buildings or homes. These are usually designed to
provide periodic disbursements to the builder as he or she progresses.
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Consumer Reporting
Agency (or Bureau)
An organization that handles the
preparation of reports used by lenders to determine a potential borrower's
credit history. The agency gets data for these reports from a credit
repository and other sources.
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Contract Sale or Deed:
A contract between purchaser and
a seller of real estate to convey title after certain conditions have been
met. It is a form of installment sale.
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Conventional Loan
A mortgage not insured by FHA or
guaranteed by VA.
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Conversion Clause
A provision in an ARM allowing
the loan to be converted to a fixed-rate at some point during the term.
Usually conversion is allowed at the end of the first adjustment period. The
conversion feature may cost extra.
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Credit Report
A report documenting the credit
history and current status of a borrower's credit standing.
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Credit Risk Score
A credit risk score is a
statistical summary of the information contained in a consumer's credit
report. The most well known type of credit risk score is the Fair Isaac or
FICO score. This form of credit scoring is a mathematical summary calculation
that assigns numerical values to various pieces of information in the credit
report. The overall credit risk score is highly relative in the credit
underwriting process for a mortgage loan.
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D
Debt-to-Income Ratio
The ratio, expressed as a
percentage, which results when a borrower's monthly payment obligation on long
term debts is divided by his or her gross monthly income. See housing
expenses-to-income ratio.
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Deed of Trust
In many states, this document is
used in place of a mortgage to secure the payment of a note.
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Default
Failure to meet legal
obligations in a contract, specifically, failure to make the monthly payments
on a mortgage.
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Deferred Interest
When a mortgage is written with
a monthly payment that is less than required to satisfy the note rate, the
unpaid interest is deferred by adding it to the loan balance. See negative
amortization.
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Delinquency
Failure to make payments on
time. This can lead to foreclosure.
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Department of Veterans
Affairs (VA)
An independent agency of the
federal government which guarantees long term, low-or-no-down payment
mortgages to eligible veterans.
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Discount Point
See point
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Down Payment
Money paid to make up the
difference between the purchase price and the mortgage amount.
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Due-on-Sale-Clause
A provision in a mortgage or
deed of trust that allows the lender to demand immediate payment of the
balance of the mortgage if the mortgage holder sells the home.
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E
Earnest Money
Money given by a buyer to a
seller as part of the purchase price to bind a transaction or assure payment.
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Entitlement
The VA home loan benefit is
called an entitlement (i.e. entitlement for a VA guaranteed home loan). This
is also known as eligibility.
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Equal Credit Opportunity
Act (ECOA)
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.
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Equity
The difference between the fair
market value and current indebtedness, also referred to as the owner's
interest. The value an owner has in real estate over and above the obligation
against the property.
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Escrow
An account held by the lender
into which the home buyer pays money for tax or insurance payments. Also
earnest deposits held pending loan closing.
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F
Escrow Disbursements
The use of escrow funds to pay
real estate taxes, hazard insurance, mortgage insurance, and other property
expenses as they become due.
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Escrow Payment
The part of a mortgagor’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.
Fannie Mae
See Federal National
Mortgage Association.
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Farmers Home
Administration (FmHA)
Provides financing to farmers
and other qualified borrowers who are unable to obtain loans elsewhere.
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Federal Home Loan Bank
Board (FHLBB)
The former name for the
regulatory and supervisory agency for federally chartered savings
institutions. The agency is now called the Office of Thrift Supervision
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Federal Home Loan
Mortgage Corporation(FHLMC) also called "Freddie Mac"
A government sponsored entity
that purchases conventional mortgage from insured depository institutions and
HUD-approved mortgage bankers.
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Federal Housing
Administration (FHA)
A division of the Department of
Housing and Urban Development. Its main activity is the insuring of
residential mortgage loans made by private lenders. FHA also sets standards
for underwriting mortgages.
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Federal National
Mortgage Association (FNMA) also know as "Fannie Mae"
A government sponsored entity
that purchases and sells conventional residential mortgages as well as those
insured by FHA or guaranteed by VA.
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FHA Loan
A loan insured by the Federal
Housing Administration open to all qualified home purchasers. While there are
limits to the size of FHA loans, they are generous enough to handle moderately
priced homes almost anywhere in the country.
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FHA Mortgage Insurance
Requires a fee (up to 2.25
percent of the loan amount) paid at closing to insure the loan with FHA. In
addition, FHA mortgage insurance requires an annual fee of up to 0.5 percent
of the current loan amount, paid in monthly installments. The lower the down
payment, the more years the fee must be paid.
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FHLMC
The Federal Home Loan Mortgage
Corporation provides a secondary market for savings and loans by purchasing
their conventional loans. Also known as "Freddie Mac."
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Firm Commitment
A promise by FHA to insure a
mortgage loan for a specified property and borrower. A promise from a lender
to make a mortgage loan.
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First Mortgage
The primary lien against a
property.">
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Fixed Installment
The monthly payment due on a
mortgage loan including payment of both principal and interest.
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Fixed Rate Mortgage
The mortgage interest rate will
remain the same on these mortgages throughout the term of the mortgage for the
original borrower.
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Fully Amortized ARM
An adjustable rate mortgage
(ARM) with a monthly payment that is sufficient to amortize the remaining
balance, at the interest accrual rate, over the amortization term.
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FNMA
The Federal National Mortgage
Association is a secondary mortgage institution. FNMA buys VA, FHA, and
conventional mortgages from primary lenders. Also known as "Fannie Mae."
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Foreclosure
A legal process by which the
lender or the seller forces a sale of a mortgaged property because the
borrower has not met the terms of the mortgage. Also known as a repossession
of property.
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Freddie Mac
See Federal Home Loan
Mortgage Corporation
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G
Ginnie Mae
See Government National
Mortgage Association.
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Government National
Mortgage Association (GNMA)
Also known as "Ginnie Mae."
Provides sources of funds for residential mortgages, insured or guaranteed by
FHA or VA.
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Graduated Payment
Mortgage (GPM)
A type of flexible payment
mortgage where the payments increase for a specified period of time and then
level off. This type of mortgage has negative amortization built into it.
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Growing Equity Mortgage
(GEM)
A fixed rate mortgage that
provides scheduled payment increases over an established period of time. The
increased amount of the monthly payment is applied directly toward reducing
the remaining balance of the mortgage.
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Guaranty
A promise by one party to pay a
debt or perform an obligation contracted by another if the original party
fails to pay or perform according to a contract.
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Guarantee Mortgage
A mortgage that is guaranteed by
a third party.
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H
Hazard Insurance
A form of insurance in which the
insurance company protects the insured from specified losses, such as fire,
windstorm and the like.
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Housing
Expenses-to-Income Ratio
The ratio, expressed as a
percentage, which results when a borrower's housing expenses are divided by
his/her gross monthly income. See debt-to-income ratio.
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HUD-1 Statement
A document that provides an
itemized listing of the funds that are payable at closing. Items that appear
on the statement include real estate commissions, loan fees, points and
initial escrow amounts. Each item on the statement is represented by a
separate number within a standardized numbering system. The totals at the
bottom of the HUD-1 statement define the seller's net proceeds and the buyer's
net payment at closing.
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I
Impound
The portion of a borrower's
monthly payments held by the lender or servicer to pay for taxes, hazard
insurance, mortgage insurance, lease payments, and other items as they become
due. Also known as reserves.
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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.
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Indexed Rate
The sum of the published index
plus the margin. For example if the index is 4% and the margin is 2.75%, the
indexed rate would be 6.75%. Often, lenders charge less than the indexed rate
the first year of an adjustable rate mortgage.
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Initial Interest Rate
This refers to the original
interest rate of the mortgage at the time of closing. This rate changes for an
adjustable rate mortgage (ARM). It's also known as "start rate" or "teaser."
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Installment
The regular periodic payment
that a borrower agrees to make to a lender.
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Insured Mortgage
A mortgage that is protected by
the Federal Housing Administration (FHA) or by private mortgage insurance
(MI).
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Interest
The fee charged for borrowing
money.
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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.
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Interest Rate Buydown
Plan
An arrangement that allows the
property seller to deposit money to an account. That money is then released
each month to reduce the mortgagor's monthly payments during the early years
of a mortgage.
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Interest Rate Ceiling
For an adjustable rate mortgage
(ARM), the maximum interest rate, as specified in the mortgage note.
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Interest Rate Floor
For an adjustable rate mortgage
(ARM), the minimum interest rate, as specified in the mortgage note.
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Interim Financing
A construction loan made during
completion of a building or a project. A permanent loan usually replaces this
loan after completion.
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Investor
A money source for a lender.
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J
Jumbo Loan
A loan which is larger than the
limits set by the Federal National Mortgage Association and the
Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be
funded by these two agencies, they usually carry a higher interest rate.
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K
L
- Late Charge
- The penalty a borrower must pay
when a payment is made a stated number of days after the due date.
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- Lease-Purchase Mortgage
Loan
- An alternative financing option
that allows low and moderate income home buyers to lease a home with an option
to buy. Each month's rent payment consists of principal, interest, taxes and
insurance (PITI) payments on the first mortgage plus an extra amount that
accumulates in a savings account for a down payment.
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- Liabilities
- A person's financial
obligations. Liabilities include long term and short term debt.
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- Lien
- A claim upon a piece of property
for the payment or satisfaction of a debt or obligation.
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- Lifetime Payment Cap
- For an adjustable rate mortgage
(ARM), a limit on the amount that payments can increase or decrease over the
life of the mortgage.
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- Lifetime Rate Cap
- For an adjustable rate mortgage
(ARM), a limit on the amount that the interest rate can increase or decrease
over the life of the loan. See cap.
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- Loan
- A sum of borrowed money
(principal) that is generally repaid with interest.
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- Loan to Value Ratio
- The relationship between the
amount of the mortgage loan and the appraised value of the property expressed
as a percentage.
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- Lock
- A lender's guarantee that the
mortgage rate quoted will be good for a specific number of days from the day
of application.
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M
- Margin
- The amount a lender adds to the
index on an adjustable rate mortgage to establish the adjusted interest rate.
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- Market Value
- The highest price that a buyer
would pay and the lowest price a seller would accept on a property. Market
value may be different from the price a property could actually be sold for at
a given time.
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- Maturity
- The date on which the principal
balance of a loan becomes due and payable.
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- MIP (Mortgage Insurance
Premium)
- Insurance from FHA to the lender
against incurring a loss on account of the borrower's default.
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- Monthly Fixed
Installment
- The portion of the total monthly
payment that is applied toward principal and interest. When a mortgage
negatively amortizes, the monthly fixed installment does not include any
amount for principal reduction and doesn't cover all of the interest. The loan
balance therefore increases instead of decreasing.
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- Mortgage
- A legal document that pledges a
property to the lender as security for payment of a debt.
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- Mortgage Banker
- A company that originates
mortgages for resale in the secondary mortgage market.
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- Mortgage Broker
- An individual or company that
charges a service fee to bring borrowers and lenders together for the purpose
of loan origination.
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- Mortgagee
- The lender.
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- Mortgage Insurance
- Money paid to insure the
mortgage when the down payment is less than 20 percent. See private
mortgage insurance, FHA mortgage insurance.
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- Mortgage Life Insurance
- A type of term life insurance.
In the event that the borrower dies while the policy is in force, the mortgage
debt is automatically paid by insurance proceeds.
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- Mortgagor
- The borrower or homeowner.
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N
- Negative Amortization
- When your monthly payments are
not large enough to pay all the interest due on the loan. This unpaid interest
is added to the unpaid balance of the loan. The home buyer ends up owing more
than the original amount of the loan.
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- Net Effective Income
- The borrower's gross income
minus federal income tax.
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- Non Assumption Clause
- A statement in a mortgage
contract forbidding the assumption of the mortgage without the prior approval
of the lender.
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- Note
- A legal document that obligates
a borrower to repay a mortgage loan at a stated interest rate during a
specified period of time.
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O
- Office of Thrift
Supervision (OTS)
- The regulatory and supervisory
agency for federally chartered savings institutions. Formally known as
Federal Home Loan Bank Board
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- One Year Adjustable Rate
Mortgage
- Mortgage where the annual rate
changes yearly. The rate is usually based on movements of a published index
plus a specified margin, chosen by the lender.
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- Origination Fee
- The fee charged by a lender to
prepare loan documents, make credit checks, inspect and sometimes appraise a
property; usually computed as a percentage of the face value of the loan.
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- Owner Financing
- A property purchase transaction
in which the party selling the property provides all or part of the financing.
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P
- Payment Change Date
- The date when a new monthly
payment amount takes effect on an adjustable rate mortgage (ARM) or a
graduated-payment mortgage (GPM). Generally, the payment change date occurs in
the month immediately after the adjustment date.
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- Periodic Payment Cap
- A limit on the amount that
payments can increase or decrease during any one adjustment period.
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- Periodic Rate Cap
- A limit on the amount that the
interest rate can increase or decrease during any one adjustment period,
regardless of how high or low the index might be.
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- Permanent Loan
- A long term mortgage, usually
ten years or more. Also called an "end loan."
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- PITI
- Principal, interest, taxes and
insurance. Also called monthly housing expense.
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- Pledged Account Mortgage
(PAM):
- Money is placed in a pledged
savings account and this fund plus earned interest is gradually used to reduce
mortgage payments.
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- Points (Loan
Discount Points)
- Prepaid interest assessed at
closing by the lender. Each point is equal to 1 percent of the loan amount
(e.g., two points on a $100,000 mortgage would cost $2,000).
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- Power of Attorney
- A legal document authorizing one
person to act on behalf of another.
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- Preapproval
- The process of determining how
much money you will be eligible to borrow before you apply for a loan.
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- Prepaid Expenses
- Necessary to create an escrow
account or to adjust the seller's existing escrow account. Can include taxes,
hazard insurance, private mortgage insurance and special assessments.
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- Prepayment
- A privilege in a mortgage
permitting the borrower to make payments in advance of their due date.
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- Prepayment Penalty
- Money charged for an early
repayment of debt. Prepayment penalties are allowed in some form (but not
necessarily imposed) in many states.
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- Primary Mortgage Market
- Lenders, such as savings and
loan associations, commercial banks, and mortgage companies, who make mortgage
loans directly to borrowers. These lenders sometimes sell their mortgages to
the secondary mortgage markets such as FNMA or GNMA, etc…
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- Principal
- The amount borrowed or remaining
unpaid. The part of the monthly payment that reduces the remaining balance of
a mortgage.
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- Principal Balance
- The outstanding balance of
principal on a mortgage not including interest or any other charges.
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- Principal, Interest,
Taxes, and Insurance (PITI)
- The four components of a monthly
mortgage payment. Principal refers to the part of the monthly payment that
reduces the remaining balance of the mortgage. Interest is the fee charged for
borrowing money. Taxes and insurance refer to the monthly cost of property
taxes and homeowners insurance, whether these amounts are paid into an escrow
account each month or not.
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- Private Mortgage
Insurance (PMI)
- In the event that you do not
have a 20 percent down payment, lenders will allow a smaller down payment - as
low as 3 percent in some cases. With the smaller down payment loans, however,
borrowers are usually required to carry private mortgage insurance. Private
mortgage insurance will usually require an initial premium payment and may
require an additional monthly fee depending on your loan's structure.
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Q
- Qualifying Ratios
- Calculations used to determine
if a borrower can qualify for a mortgage. They consist of two separate
calculations: a housing expense as a percent of income ratio and total debt
obligations as a percent of income ratio.
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R
- Rate Lock
- A commitment issued by a lender
to a borrower or another mortgage originator guaranteeing a specified interest
rate and lender costs for a specified period of time.
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- Realtor®
- A real estate broker or an
associate holding active membership in a local real estate board affiliated
with the National Association of Realtors.
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- Real Estate Agent
- A person licensed to negotiate
and transact the sale of real estate on behalf of the property owner.
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- Real Estate Settlement
Procedures Act (RESPA)
- A consumer protection law that
requires lenders to give borrowers advance notice of closing costs.
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- Recission
- The cancellation of a contract.
With respect to mortgage refinancing, the law that gives the homeowner three
days to cancel a contract in some cases once it is signed if the transaction
uses equity in the home as security.
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- Recording Fees
- Money paid to the lender for
recording a home sale with the local authorities, thereby making it part of
the public records.
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- Refinance
- Obtaining a new mortgage loan on
a property already owned often to replace existing loans on the property.
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- Renegotiable Rate
Mortgage
- A loan in which the interest
rate is adjusted periodically. See adjustable rate mortgage.
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- RESPA
- Short for the Real Estate
Settlement Procedures Act. RESPA is a federal law that allows consumers to
review information on known or estimated settlement costs once after
application and once prior to or at settlement. The law requires lenders to
furnish the information after application only.
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- Reverse Annuity Mortgage
(RAM)
- A form of mortgage in which the
lender makes periodic payments to the borrower using the borrower's equity in
the home as collateral for and repayment of the loan.
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- Revolving Liability
- A credit arrangement, such as a
credit card, that allows a customer to borrow against a pre-approved line of
credit when purchasing goods and services.
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S
- Satisfaction of Mortgage
- The document issued by the
mortgagee when the mortgage loan is paid in full. Also called a "release of
mortgage."
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- Second Mortgage
- A mortgage made subsequent to
another mortgage and subordinate to the first one.
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- Secondary Mortgage
Market
- The place where primary mortgage
lenders sell the mortgages they make to obtain more funds to originate more
new loans. It provides liquidity for the lenders.
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- Security
- The property that will be
pledged as collateral for a loan.
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- Seller Carry Back
- An agreement in which the owner
of a property provides financing, often in combination with an assumable
mortgage. See owner financing.
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- Servicer
- An organization that collects
principal and interest payments from borrowers and manages borrower escrow
accounts. The servicer often services mortgages that have been purchased by an
investor in the secondary mortgage market.
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- Servicing
- All the steps and operations a
lender performs to keep a loan in good standing, such as collection of
payments, payment of taxes, insurance, property inspections and the like.
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- Settlement/Settlement
Costs
- See closing/closing costs
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- Shared Appreciation
Mortgage (SAM)
- A mortgage in which a borrower
receives a below market interest rate in return for which the lender (or
another investor such as a family member or other partner) receives a portion
of the future appreciation in the value of the property. May also apply to
mortgage where the borrowers shares the monthly principal and interest
payments with another party in exchange for part of the appreciation.
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- Simple Interest
- Interest which is computed only
on the principle balance.
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- Standard Payment
Calculation
- The method used to determine the
monthly payment required to repay the remaining balance of a mortgage in
substantially equal installments over the remaining term of the mortgage at
the current interest rate.
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- Step Rate Mortgage
- A mortgage that allows for the
interest rate to increase according to a specified schedule (i.e., seven
years), resulting in increased payments as well. At the end of the specified
period, the rate and payments will remain constant for the remainder of the
loan.
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- Survey
- A measurement of land, prepared
by a registered land surveyor, showing the location of the land with reference
to known points, its dimensions, and the location and dimensions of any
buildings.
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- Sweat Equity
- Equity created by a purchaser
performing work on a property being purchased.
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- Third Party Origination
- When a lender uses another party
to completely or partially originate, process, underwrite, close, fund, or
package the mortgages it plans to deliver to the secondary mortgage market.
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- Title
- A document that gives evidence
of an individual's ownership of property.
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- Title Insurance
- A policy, usually issued by a
title insurance company, which insures a home buyer against errors in the
title search. The cost of the policy is usually a function of the value of the
property, and is often borne by the purchaser and/or seller. Policies are also
available to protect the lender's interests.
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- Title Search
- An examination of municipal
records to determine the legal ownership of property. Usually is performed by
a title company.
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- Total Expense Ratio
- Total obligations as a
percentage of gross monthly income including monthly housing expenses plus
other monthly debts.
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- Truth in Lending
- A federal law requiring
disclosure of the Annual Percentage Rate to home buyers shortly after they
apply for the loan. Also known as Regulation Z.
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- Two Step Mortgage
- A mortgage in which the borrower
receives a-below-market interest rate for a specified number of years (most
often seven or 10), and then receives a new interest rate adjusted (within
certain limits) to market conditions at that time. The lender sometimes has
the option to call the loan due with 30 days notice at the end of seven or 10
years. Also called "Super Seven" or "Premier" mortgage.
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U
- Underwriting
- The decision whether to make a
loan to a potential home buyer based on credit, employment, assets, and other
factors and the matching of this risk to an appropriate rate and term or loan
amount.
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- Usury
- Interest charged in excess of
the legal rate established by law.
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- VA Loan
- A long term, low-or-no down
payment loan guaranteed by the Department of Veterans Affairs. Restricted to
individuals qualified by military service or other entitlements.
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- VA Mortgage Funding Fee
- A premium of up to 1-7/8 percent
(depending on the size of the down payment) paid on a fixed rate loan. On a
$75,000 fixed-rate mortgage with no down payment, this would amount to $1,406
either paid at closing or added to the amount financed.
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- Variable Rate Mortgage
(VRM)
- See adjustable rate mortgage
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- Verification of Deposit
(VOD)
- A document signed by the
borrower's financial institution verifying the status and balance of his/her
financial accounts.
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- Verification of
Employment (VOE)
- A document signed by the
borrower's employer verifying his/her position and salary.
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W
- Warehouse Fee
- Many mortgage firms must borrow
funds on a short term basis in order to originate loans which are to be sold
later in the secondary mortgage market (or to investors). When the prime rate
of interest is higher on short term loans than on mortgage loans, the mortgage
firm has an economic loss which is offset by charging a warehouse fee.
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- Wraparound Mortgage
- Results when an existing
assumable loan is combined with a new loan, resulting in an interest rate
somewhere between the old rate and the current market rate. The payments are
made to a second lender or the previous homeowner, who then forwards the
payments to the first lender after taking the additional amount off the top.
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