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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.
Adjustable rate mortgage (ARM)
Is a mortgage in which the interest rate is adjusted periodically
based on a pre selected index. Also sometimes known as the renegotiable rate mortgage, the variable rate mortgage or the
Canadian rollover mortgage.
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.
Amortization
Means loan payment by equal periodic payment calculated to pay
off the debt at the end of a fixed period, including accrued interest on the outstanding balance.
Annual percentage rate A.P.R...
Is a 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
point and other credit cost. The APR allows home buyers to compare different types of mortgages based on the annual cost
for each loan.
Appraisal
An estimate of the value of property, made by a qualified
professional called an "appraiser".
Assessment
A local tax levied against a property for a specific purpose, such
as a sewer or street lights.
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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Balloon (payment) mortgage
Usually a short-term fixed-rate loan which 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.
Blanket Mortgage
A mortgage covering at least two pieces of real estate as
security for the same mortgage.
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.
Broker
An individual in the business of assisting in arranging funding or
negotiating contracts for a client buy who does not loan the money himself. Brokers usually charge a fee or receive a
commission for their services.
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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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.)
Caps (interest)
Consumer safeguards which limit the amount the interest rate on
an adjustable rate mortgage may change per year and/or the life of the loan.
Caps (payment)
Consumer safeguards which limit the amount monthly payments
on an adjustable rate mortgage may change.
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 DD-214
(Separation Paper) to the local VA office with VA form 1880 (request for Certificate of Eligibility)
Certificate of Reasonable Value
(C.R.V.)
An appraisal issued by the Veterans Administration showing the
property's current market value
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.
Credit Report
A report documenting the credit history and current status of a
borrower's credit standing.
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 10 percent of the mortgage amount.
Commitment
A promise by a lender to make a loan on specific terms or
conditions to a borrower or builder. A promise by an investor to purchase mortgages from a lender with specific terms or
conditions.
Construction loan (interim loan)
A loan to provide the funds necessary to pay for the construction of buildings or
homes. These are usually designed to provide periodic disbursements to the builder as he progresses.
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.
Construction loan
A short term interim loan for financing the cost of construction.
The lender advance funds to the builder at periodic intervals as the work progresses.
Conventional loan
A mortgage not insured by FHA or guaranteed by the VA
or 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.
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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 net effective income (FHA/VA loans) or gross
monthly income (conventional loans). See housing expenses-to-income ratio.
Deed of trust
In many states, this document is used in place of a mortgage to
secure the payment of a note.
Default
Failure to meet legal obligations in a contract,
specifically, failure to make the monthly payments on a mortgage.
Deferred interest
See negative amortization
Delinquency
Failure to make payments on time. This can lead to foreclosure.
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.
Discount Point
See point
Down Payment
Money paid to make up the difference between the purchase
price and the mortgage amount. Down payments usually are 10 percent to 20 percent of the sales price on conventional
loans.
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.
Due-On-Interest:
A clause inserted in a mortgage that allows the lender to call the
loan due and payable at its option upon the transfer of the property also known as paragraph "17" in FNMA/ FHLMC
Mortgage.
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Earnest Money
Money given by a buyer to a seller as part of the purchase price
to bind a transaction or assure payment.
Equal Credit Opportunity Act
(E.C.O.A.)
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.
Equity
The difference between the fair market value and current
indebtedness, also referred to as the owner's interest.
Escrow
Refers to a neutral third party who carries out the instruction of
both the buyer and seller to handle all the paperwork of settlement or closing." Escrow may also refer to an account held
by the lender into which the home buyer pays money for tax or insurance payments."
Entitlement
The VA home loan benefit is called entitlement. Entitlement for a
VA guaranteed home loan. This is also known as eligibility.
Equity
The value an owner has in real estate over and above the
obligation against the property.
Escrow
Funds that are set aside and held in trust, usually for payment of
taxes and insurance on real property. Also earnest deposits held pending loan closing.
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FHLMC
The Federal Home Loan Mortgage Corporation provides a
secondary market for saving and loans by purchasing their conventional loans. Also known as "Freddie Mac."
Firm Commitment
A promise by FHA to insure a mortgage loam for a specified
property and borrower. A promise from a lender to make a mortgage loan.
Fixed Rate Mortgage
The mortgage interest rate will remain the same on these
mortgages throughout the term of the mortgage for the original borrower.
FNMA
The federal National Mortgage Association is a secondary
mortgage institution which is the largest single holder of home mortgages in the United States. FNMA buys VA, FHA, and
conventional mortgages from primary lenders. Also known as "Fannie Mae."
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.
Fannie Mae
See Federal National Mortgage Association.
Farmers Home Administration
(FMHA)
Provides financing to farmers and other qualified borrowers who
are unable to obtain loans elsewhere.
Federal Home Loan Bank Board (FHLBB)
A regulatory and supervisory agency for federally chartered
savings institutions.
Federal Home Loan Mortgage
Corporation (FHLMC) also called
"Freddie Mac", is a quasi-governmental agency that purchases conventional
mortgage from insured depository institutions and HUD-approved mortgage bankers
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.
Federal National Mortgage Association
(FNMA) also know 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.
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 ($155,250 as of 1/1/96), they are generous enough to
handle moderately-priced homes almost anywhere in the country.
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.
Fixed-Rated Mortgage
A mortgage on which the interest rate is set for the term of the
loan.
Foreclosure
A legal procedure in which property securing debt is sold by the
lender to pay the defaulting borrower's debt.
Freddie Mac
See Federal Home Loan Mortgage Corporation
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Ginnie Mae
See Government National Mortgage Association.
Government National Mortgage Association
(GNMA) also known as
"Ginnie Mae, provides sources of funds for residential mortgage, insured or
guaranteed by FHA or VA
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.
Guarantee
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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Hazard Insurance
A form of insurance in which the insurance company protects the
insured from specified losses, such as fire, windstorm and the like.
Housing Expenses-to-Income Ratio
The ratio, expressed as a percentage, which results when a
borrower's housing expenses are divided by his/her net effective income (FHA/VA loans) or gross monthly income (conventional
loans).
See debt-to-income ratio.
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Impound
That 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.
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.
Investor
A money source for a lender.
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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Jumbo Loan
A loan which is larger (more than $207,000 as of 1/1/96) 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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Lien
A claim upon a piece of property for the payment or satisfaction
of a debt or obligation.
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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Margin
The amount a lender adds to the index on an adjustable rate
mortgage to establish the adjusted interest rate.
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.
MIP: Mortgage Insurance Premium
Is the one-half percent borrowers pay each month on FHA insured
mortgage loans. It is insurance from FHA to the lender against incurring a loss on account of the borrower's default. On
September 1, 1983, the MIP was changed to a one-time charge to the borrowers.
Mortgage Insurance
Money paid to insure the mortgage when the down payment is
less than 20 percent. See private mortgage insurance, FHA mortgage insurance.
Mortgagee
The lender
Mortgagor
The borrower or homeowner
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Negotiable Rate Mortgage
(RBM)
A loan in which the interest rate is adjusted periodically. See
adjustable rate mortgage.
Negative Amortization
Occurs 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 danger of negative
amortization is that the home buyer ends up owing more than the original amount of the loan.
Net Effective Income
The borrower's gross income minus federal income tax.
Non Assumption Clause
A statement in a mortgage contract forbidding the assumption of
the mortgage without the prior approval of the lender.
Note
The signed obligation to pay a debt, as a mortgage note.
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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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Permanent Loan
A long term mortgage, usually ten years or more. Also called an
"end loan."
PITI
Principal, Interest, Taxes and Insurance. Also called monthly
housing expense.
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.
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).
Power of Attorney
A legal document authorizing one person to act on behalf of
another.
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.
Prepayment
A privilege in a mortgage permitting the borrower to make
payments in advance of their due date.
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.
Primary Mortgage Market
Lenders making mortgage loans directly to borrower's such as
savings and loan association, commercial banks, and mortgage companies. These lenders sometimes sell their mortgages into the
secondary mortgage markets such as to FNMA or GNMA, etc.
Principal
The amount of debt, not counting interest, left on a loan.
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. Private mortgage insurance will require an initial
premium payment of 1.0 percent to 5.0 percent of your mortgage amount and may require an additional monthly fee depending on
you loan's structure. On a $75,000 house with a 10 percent down payment, this would mean either an initial premium
payment of $2,025 to $3,375, or an initial premium of $675 to $1,130 combined with a monthly payment of $25 to $30.
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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.
Recision
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.
Recording Fees
Money paid to the lender for recording a home sale with the local
authorities, thereby making it part of the public records.
Refinance
Obtaining a new mortgage loan on a property already owned.
Often to replace existing loans on the property.
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 cost once after application and once
prior to or at a settlement. The law requires lenders to furnish the information after application only.
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Satisfaction of Mortgage
The document issued by the mortgagee when the mortgage loan is paid in full. Also called a "release of
mortgage."
Second Mortgage
A mortgage made subsequent to another mortgage and
subordinate to the first one.
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. security.
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.
Settlement/Settlement Costs
See closing/closing costs
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.
Simple Interest
Interest which is computed only on the principle balance.
Survey
A measurement of land, prepared by a registered land surveyor,
showing the location of the land with reference to know points, its dimensions, and the location and
dimensions of any buildings.
Sweat Equity
Equity created by a purchaser performing work on a property
being purchased. term mortgage see balloon payment mortgage.
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Term Mortgage
see balloon payment mortgage.
Title
A document that gives evidence of an individual's ownership of
property.
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 us ally a function of the value of the property,
and is often borne by the purchaser and/or seller.
Title Search
An examination of municipal records to determine the legal
ownership of property. Usually is performed by a title company.
Truth-In-Lending
A federal law requiring disclosure of the Annual Percentage Rate
to home buyers shortly after they apply for the loan.
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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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.
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.
VA Mortgage Funding Fee
A premium of up to 1-7/8 percent (depending on the size of the
down payment) paid on a VA-backed 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.
Variable Rate Mortgage
(VRM)
See adjustable rate mortgage
Verification of Deposit
(VOD)
A document signed by the borrower's financial institution verifying
the status and balance of his/her financial accounts.
Verification of Employment
(VOE)
A document signed by the borrower's employer verifying his/her
position and salary.
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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. Wraparound results when an existing
assumable loan is combined with anew 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.
