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Glossary
In order to assist you we have defined
common terms used in the loan process. If you encounter an
unknown term and it is not listed below please contact
us for additional assistance.
Adjustable Rate
Mortgage (ARM)
A mortgage in which the interest
rate is adjusted periodically based on a pre selected index.
This product generally comes with a lower initial interest
rate than 30 year fixed products.
list
of terms
Amortization
Means loan payment by equal periodic
payments calculated to pay off the debt at the end of a fixed
period, including accrued interest on the outstanding balance.
Most loans are amortized over 30, 20 or 15 years. list
of terms
Annual Percentage
Rate (APR)
An interest rate reflecting the cost
of a mortgage as a yearly rate. This rate is likely to be
higher than the stated note rate or advertised rate on the
mortgage, because it takes into account points and other credit
costs. list of terms
Appraisal
An estimate of the value of property,
made by a state certified professional called an 'appraiser'.
list of terms
Balloon (Payment)
Mortgage
Usually a short-term fixed-rate loan
that involves small payments for a certain period of time
and one large payment for the remaining amount of the principal
at a time specified in the contract. list
of terms
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.
list of terms
Caps
Limits on the amount the interest
rate on an adjustable rate mortgage may change per year
and/or the life of the loan. list
of terms
Closing
The meeting between the buyer, seller
and lender or their agents where the property and funds
legally change hands. Also called settlement meeting.
list of terms
Closing Costs
The costs associated with procuring
and funding a mortgage loan. These may include one or all
of the following: an origination fee, discount points, appraisal
fee, title search and insurance, survey, taxes, deed recording
fee, credit report charge and other miscellaneous costs.
Closing costs usually are about 3 percent to 5 percent of
the mortgage amount. list
of terms
Construction Loan
A short term interim loan for financing
the cost of construction. The lender advances funds to the
builder at periodic intervals as the work progresses.
list of terms
Conventional Loan
A mortgage underwritten using guidelines
provided by either Fannie Mae or Freddie Mac. Usually less
than $240,000. A loan not associated with the FHA.
list of terms
Delinquency
Failure to make payments on time.
This can lead to foreclosure. list
of terms
Discount Points
Prepaid interest assessed at closing
by the lender. Each point is equal to 1 percent of the loan
amount (e.g. one point on a $100,000 mortgage would cost
$1,000). list of terms
Down Payment
The borrowers inital equity investment
in the home. Or money paid to make up the difference between
the purchase price and mortgage amount. Down payments generally
vary from 3 percent to 50 percent of the sales price.
list of terms
Earnest Money
Money given by a buyer to a seller
as part of the purchase price to bind a transaction or assure
payment. list of terms
Equal Credit Opportunity
Act (ECOA)
Is 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. list
of terms
Equity
The difference between the fair market
value of a home and the balance of the mortgage.
list of terms
Escrow
Escrow refers to an account held
by the lender into which the home buyer pays money for tax
or insurance payments. list
of terms
Federal Home Loan
Mortgage Corporation (FHLMC)
Also called Freddie Mac, is a quasi-governmental
agency that purchases conventional mortgages from insured
depository institutions and HUD-approved mortgage bankers.
list of terms
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 standard for underwriting mortgages. list
of terms
Federal National
Mortgage Association (FNMA)
Also known as Fannie Mae. A tax-paying
corporation created by Congress that purchases and sells
conventional residential mortgages as well as those insured
by FHA or guaranteed by VA. This institution, which provides
funds for one in seven mortgages, makes mortgage money more
available and more affordable. list
of terms
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 moderate-priced homes almost anywhere in
the country. list of
terms
FHA Mortgage Insurance
Requires a small fee (up to 3 percent
of the loan amount) paid at closing or a portion of this
fee added to each monthly payment of an FHA loan to insure
the loan with FHA. On a 9.5 percent $75,000 30-year fixed-rate
FHA loan, this fee would amount t o either $2,250 at closing
or an extra $31 a month for the life of the loan. In addition,
FHA mortgage insurance requires an annual fee of 0.5 percent
of the current loan amount, the more years the fee must
be paid. list of terms
Fixed-Rate Mortgage
A mortgage on which the interest
rate is set for the term of the loan. list
of terms
Foreclosure
A legal procedure in which property
securing debt is sold by the lender to pay a defaulting
borrower's debt. list
of terms
Government National
Mortgage Association (GNMA)
Also known as Ginnie Mae. Provides
sources of funds for residential mortgages, insured or guaranteed
by FHA or VA. list
of terms
Gross Monthly Income
The total amount the borrower earns
per month, before any expenses are deducted. list
of terms
Hazard Insurance
A form of insurance in which the
insurance company protects the insured from specified losses,
such as fire, windstorm and the like. list
of terms
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), which is then used to adjust
the interest rate on an adjustable mortgage up or down.
list of terms
Jumbo Loan
A loan which is larger (more than
$322,000 and less than $700,000) 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. list
of terms
Lien
A claim upon a piece of property
for the payment or satisfaction of a debt or obligation.
list of terms
Loan Commitment
An agreement, often in writing, between
a lender and a borrower to loan money at a future date subject
to the completion of paperwork or compliance with stated
conditions. list of
terms
Loan-To-Value Ratio
The relationship between the amount
of the mortgage loan and the appraised value of the property
expressed as a percentage. list
of terms
Margin
The amount a lender adds to the index
on an adjustable rate mortgage to establish the adjusted
interest rate. list
of terms
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. list
of terms
Mortgage Insurance
Money paid to insure the mortgage
when the down payment is less than 20 percent. list
of terms
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
face value of the loan. list
of terms
PITI
Principal, interest, taxes, and insurance.
Also called monthly housing expense. list
of terms
Power of Attorney
A legal document authorizing one
person to act on behalf of another. list
of terms
Prepaids
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. list
of terms
Prepayment
A privilege in a mortgage permitting
the borrower to make payments in advance of their due date.
list of terms
Prepayment Penalty
Money charged for an early repayment
of debt. Prepayment penalties are allowed in some form (but
not necessarily imposed) in 36 states and the District of
Columbia. list of terms
Principal
The amount of debt, not counting
interest, left on a loan. list
of terms
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 5 percent in some cases. With the
smaller down payment loans, however, borrowers are usually
required to carry private mortgage insurance. list
of terms
Ratio
The ratio, expressed as a percentage,
that results when a borrower's monthly payment obligation
on long-term debts is divided by his or her gross monthly
income (Conventional loans). list
of terms
Rescind
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. list
of terms
Recording Fees
Money paid to the lender for recording
a home sale with the local authorities, thereby making it
part of the public records. list
of terms
Servicing
All the steps and operations a lender
perform to keep a loan in good standing, such as collection
of payments, payment of taxes, insurance, property inspections,
and the like. list
of terms
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 building. list
of terms
Title
A document that gives evidence of
an individual's ownership of property. list
of terms
Title Insurance
A policy, usually issued by a title
insurance company, that 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. list
of terms
Title Search
An examination of municipal records
to determine the legal ownership of property. Usually performed
by a title company. list
of terms
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. list
of terms
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.
list of terms
Verification of
Deposit (VOD)
A document signed by the borrower's
financial institution verifying the status and balance of
his/her financial accounts. list
of terms
Verification of
Employment
A document signed by the borrower's
employer verifying his/her position and salary. list
of terms
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