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Adjustable Rate Mortgage (ARM): A loan with
an interest rate that can be changed periodically, based on increases or
decreases in a specified economic index.
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Amortization: The process of reducing
the principal loan amount by making regularly scheduled payments of
principal and interest according to the terms of the mortgage note rate.
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Amount Financed: A term used in the Truth in
Lending Statements that refers to the loan amount less the cost of
obtaining the loan.
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Annual Percentage Rate (APR): A measure of
the cost of credit expressed as yearly percentage rate. This is a
federally required formula, designed d to help the owner compare the
cost of credit.
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Appraisal: An estimate of the fair market
value of the property, conducted by a certified appraiser and approved
by the leader.
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Assessed Value:
A home or piece of real estate property has more than one value;
the assessed value generally refers to that value set on the land by tax
authorities of purposes of determining real estate value.
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Buy-Down: A borrower may pay additional
“point” on a loan in order to reduce, or “buy down”, the initial
interest rate, thereby lowering the monthly payments.
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Buy-Up: A buyer may wish to reduce the
number of “points’ paid at the time of settlement in exchange for
“buying up” to higher interest rate and higher monthly payments.
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Closing/Settlement: The conclusion of
the transaction, including the signing of the mortgage and the
disbursement of funds.
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Closing/Settlement Costs: All of the costs
to the buyer and the seller, which are associated with the purchase,
sale or refinance of a home. These include points, the cost of title
insurance, recording fees, escrows and attorney’s fees.
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Commitment: A pledge by the lender to
make mortgage funds available to a buyer for buying or refinancing a
home.
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Condominium: Individual ownership of a
dwelling unit and an individual interest in the common areas and
facilities which serve the multi-unit project.
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Contract of Sales: Contract in which seller
agrees to sell and buyer agrees to buy under certain specific terms and
conditions spelled out in writing and signed by both parties.
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Cooperative: A structure of two or more
units in which the right to occupy a unit is obtained by the purchase of
stock in the corporation which owns the building.
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Credit Report: A report issued by one
or more national credit bureaus for the purpose of aiding lenders in
determining the overall credit standing of a loan applicant.
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Down Payment: Also known as “earnest
money”. An amount of money, deposited by the buyer in accordance with
the terms of the contract, which is applied to the purchase price at the
time of closing. The down payment maybe forfeited if the buyer defaults.
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Equity: An owner’s equity is the
difference between the
property’s fair market value and the current amount owned on the
property.
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Escrow: A portion of monthly payments
held by the lender on the borrower’s behalf to pay taxes and insurance
and other when they become due.
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Federal Housing
Administration (FHA): A federal agency within the Department of
Housing and Urban Development (HUD) that provides mortgage insurance for
residential mortgages and sets standards for construction and
underwriting. The FHA does not lend money, nor does it plan or construct
housing.
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Federal National Mortgage Association (FNMA):
The nation’s largest mortgage investor. Created in 1968 by an
amendment to Title III of the National Housing Act (12 USC 1716 et
seq.), this stockholder-owned corporation, a portion of whose board of
directors is appointed by the President of the United States, supports
the secondary market in mortgages on residential property with mortgages
purchases and securitization programs. Also called Fannie Mae.
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Fixed Rate Mortgage
(FRM): A loan with an
interest rate that remains the same throughout the life of the
loan-usually 15 or 30 years.
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Homeowner’s Insurance: An insurance policy
required of the buyer that will compensate the insured for a loss on the
property due to specified hazards. (e.g., fire, theft, etc.)
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Index: The interest rate on an ARM
(adjustable rate mortgage) is tied to a specific, published index rate.
At the end of each adjustment period, the lender is authorized to adjust
the mortgage note rate depending on the movement of the index since the
last time of adjustment. Most lenders use indexes based on U.S. Treasury
Securities. Others us cost-of-funds indexes.
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Joint Tenancy with Right of Survivorship:
One of the most common methods of home ownerships. In the event of the
death of one owner, the ownership interest held by that owner transfers
to other joint tenant(s).
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Liens: A legal hold or claim placed upon the
property of another as security for some debt or charge.
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Loan-to-Value Ratio (LTV): The
relationship of the loan amount to the appraised value of the property
or the sale price, whichever is lower.
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Margin: On an adjustable rate mortgage, the
margin is added to the index rate to determine the interest rate to be
charged during the next adjustment period. Margins are usually constant
for the life of the loan and generally reflect the lender’s cost of
doing business.
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Mortgage Banker: An individual, firm or
corporation that originates, sells and/or services loans secured by
mortgages on real property.
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Mortgage Broker: A firm or individual
who, for a commission, matches borrowers and lenders. A mortgage broker
does not retain servicing, does not use its own funds and is not a
principal.
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Mortgagee: The individual borrowing the
money.
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Negative Amortization: A loan payment
schedule in which the outstanding principal balances goes up, rather
down, because the payments do not cover the full amount of the interest
due. The unpaid interest is added to the principal.
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Points: Prepaid interest. One point
equals 1% of the loan amount.
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Private Mortgage Insurance
(PMI): This insurance permits a borrower who has less than 20% as down
payment to purchase a home because it protects a mortgage lender against
the borrower’s potential default on a mortgage.
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RESPA: Real Estate Settlement Procedures Act
is a federal consumer protection law that requires lenders to provide
borrowers with information on known or estimated settlement costs.
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Tenancy by the Entirety: A form of ownership
by husband and wife whereby each owns the entire property. In the case
of death, the survivor owns the property.
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Title Insurance: A type of insurance,
which can protect the lender and the borrower against any title defects
when a new home is purchased. Protection for the borrower requires the
payment of additional premiums.
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Title Search: An examination of public
records, laws and court decisions to disclose the facts regarding
ownership of the property.
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Truth in Lending Statements: Required
by federal regulations, this statement tells purchasers the cost of
financing their loan for the purpose of comparing loan programs.
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Underwriting: The analysis of risk that will
determine the ability of the borrower to repay the loan, and the
matching to that risk to an appropriate amount, rate and term on the
mortgage loan.
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Veterans Administration (VA): The Department
of the Veteran’s Affairs, a cabinet-level agency of the federal
government. The Servicemen’s Readjustment Act of 1944 authorized the
agency to administer a variety of benefit programs designed to
facilitate the adjustment of returning veterans to civilian life. Among
the benefit programs is the VA Home Loan Guaranty program, which
encourages mortgage lenders to offer long-term, low down payment
financing to eligible veterans by partially guaranteeing the lender
against loss.
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Warehousing: The short-term borrowing
of funds by a mortgage banker using permanent mortgage loans as
collateral. This form of interim financing is used until mortgages are
sold to a permanent investor.
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