Adjustable Rate Mortgage (ARM):
A Mortgage loan where the interest rate can periodically be adjusted up or down.
Limits on how much and how often the rate can be adjusted are usually agreed to
at the beginning of the loan.
Amortization:
An accounting procedure used to systematically spread the payment in full of a
debt across an agreed upon time.
Annual Percentage Rate (APR):
The APR reflects the cost of the mortgage loan as a yearly rate. It is often
higher than the Note’s interest rate because it includes, the interest rate,
loan discount points, miscellaneous fees and mortgage insurance.
Appraisal: A report made by a qualified appraiser to render
an estimated property value.
Appraisal Amount or Appraised Value:A home’s fair market value as assessed by an independent
appraiser.
Appreciation:
An increase in the value of a property.
Balloon Mortgage:
A fixed-rate mortgage for a set duration with a final one-time “balloon” payment
to pay the mortgage in full.
Cap: A maximum limit placed on adjustments that can be made to the
interest rate or payments on a loan. For example the annual cap on an adjustable
rate loan (ARM) or the cap on a rate over the life of the loan.
Cash-out Refinance:
Refinancing a mortgage for more than the principal owed on the original loan. A
borrower gets cash from the equity in their home.
Closing: Finalizing the purchase or refinancing of real estate.
The closing includes the delivery of a Deed, the signing of Notes and the
disbursement of funds
Closing Costs:
Costs associated with and due at the finalizing of a real estate transaction.
These costs normally include, but are not limited to, origination fee, discount
points, attorney's fees, title insurance, surveys, recording documents, and
prepayment of real estate taxes and insurance premiums held by the lender.
Closing Statement:
A statement that reflects the final accounting of the debits and credits
incurred at closing. All FHA, VA and Conventional financing loans use a Uniform
Closing or Settlement Statement commonly referred to as the HUD-1.
Collateral: Property or items of value used to secure a mortgage.
For example, your home is generally the collateral for your mortgage.
Collateral can be repossessed if the loan is not repaid.
Combined Loan To Value (CLTV):
The fair market value of a property less the total of all loan amounts (first
mortgage plus subordinate liens).
Conventional Loan:
A standard mortgage loan that is not insured or guaranteed by the federal
government.
Conversion Option:
A mechanism to convert an adjustable rate mortgage or balloon loan to a fixed
rate mortgage under specified conditions.
Co-Signer: A secondary party who signs a mortgage note and
therefore bares responsibility for the payment of said note. The party is not
an owner of the property. Generally used to help individuals who do not have
enough credit of their own.
Credit Rating or Score:
A numeric rating that establishes a individuals or company’s credit-worthiness
based upon the amount of credit issued, past credit history, and present
financial condition.
Credit Report:
A report completed by the 3 main credit bureaus that documents an individuals
complete credit position and history. It includes information on a person’s
credit card balances, previous mortgage history, bank loans and public records
dealing with financial matters.
Debt to Income Ratio:
Compares an individuals monthly income to the amount the borrower will owe each
month in existing debt and with a new mortgage payment (PITI). The ratio helps
determine if a borrower has the ability to repay all outstanding debts
HUD 1 Settlement
Statement: A HUD-1 Settlement
Statement is the complete breakdown of costs involved in a real estate
transaction for both the seller and buyer.
Default: Failure to comply with the terms of any agreement.
Down Payment:
Cash portion of the purchase price paid by the buyer.
Earnest Money:
Good Faith Deposit made by a purchaser of real estate as evidence of good
faith. The Earnest money is generally applied to the purchase price.
Equity:
The difference between the current market value of a property and the principal
balance of all outstanding loans.
Escrow Account: An account held by a lender to disburse payments
from a borrower for such things as property taxes, homeowners insurance and
special assessments when they come due.
Fixed-Rate Mortgage:
A loan where the interest rate is constant through out the life of the loan.
Good Faith Estimate (GFE):
Is an estimate that a lender gives to a borrower to define costs paid by the
borrower at closing.
Gift Letter: A letter that verifies that part of a borrower's down
payment is a gift from relatives or friends that does not have to be repaid.
Gross Income:
Total income before deduction for income taxation, retirement or child support.
Homeowners Association (HOA):
A non-profit neighborhood association that is responsible for common areas and
helps maintain residence compliance with neighborhood Codes, Covenants and
Regulations (CCR’s)
Homeowners or Hazard Insurance:
Insurance that covers damage to the property and liability claims made against
the property owner subject to the policy terms, conditions, provisions, losses
not insured provision and exclusions.
Interest Rate:
A percentage of the Principal amount paid to a lender for use of the money.
Lien: A legal claim or hold on a property that must be
settled when the property is sold.
Loan Term:
Specified number of years a loan is amortized or repayment. Mortgage loan terms
are generally 15, 20, or 30 years.
Loan-to-Value (LTV):
The ratio of the total amount borrowed or mortgaged against a property, compared
to the appraised value of the property. A LTV ratio of 80 means that the
borrower is borrowing 80% of the value of the property and paying 20% as a down
payment. For a purchase, property value is determined by the lesser of the
purchase price or the appraised value. For a refinance the value is determined
by an appraisal.
Lock-In: An agreement between the lender and borrower for the
lender to hold specific interest rate, origination and/or discount point(s) at a
certain level for a specified period of time.
Mortgage: A document that pledge a title to real estate as
security for repayment of a Promissory Note.
Net Income:
The difference between gross income and expenses including taxes and insurance.
Origination Fee:
A loan application processing fee paid to a lender; Generally it is based of a
percentage of the mortgage amount.
Owner-Occupied Property:
Means that the property is the primary residence of either the borrower or a
family member of the borrower.
PITI: An acronym that refers to a typical mortgage payment.
It stands for Principal, Interest, Taxes, and Insurance.
Principal and Interest:
The primary components a monthly mortgage payment. Principal is the remaining
balance for the mortgage. Interest is the fee charged for borrowing money.
Principal Balance:
The outstanding balance of a mortgage. It does not count interest.
Private Mortgage Insurance (PMI):
An insurance policy that is generally included in a borrower’s monthly
payment that gives a lender insurance against loan default by a borrower.
Processing: The compilation of a packet of all necessary paperwork
including the loan application, the property appraisal, credit report, credit
history, W2’s and relevant expenses. The packet that is put together in
processing is used by the lender to consider the borrower for a loan.
Promissory Note:
A loan document where a borrower agrees to pay back the principal and
interest in a specified number of payments
Property Taxes:
Taxes assessed by local and or state governments on real estate.
Purchase Agreement:
A contract between the seller and buyer that defines the agreement. A purchase
agreement would have the price and all of the terms of the sale.
Purchase Price:
The total cost for a home.
Single-Family Attached Home:
A single-family home that is attached to other single-family homes such as a
townhouse or condominium.
Single-Family Detached Home:
A freestanding home for a single family
Subordinate Financing or a Second Mortgage:A secondary loan such as a Home Equity line of credit that
is secured by the property. This lien takes second priority to the first
mortgage.
Title Deed: The document that bares the evidence to the right to or
ownership in property. Title may be acquired through purchase, inheritance,
devise, gift or through the foreclosure of a mortgage.
Title Insurance Policy:
A contract between the Title Agency and the insured to verify who has legal
title to a property. The Title Agency agrees to pay the insured a specific
amount of any loss caused by clouds, claims or defects of title to real estate,
which the insured has an interest as owner, mortgagee or otherwise.
Truth in Lending (TIL):Federal statutes (Regulation Z) that were developed to
insure that borrowers are given full disclosure of the cost of receiving credit.
As well as basic information on Credit.
Underwriting (Mortgage Loans):
Analysis of a loan application to verify the risk for the lender.
Verification of Employment (VOE):
A VOE form is used verify income and the employment of a borrower. VOE’s are
primarily used when pay stubs and W2 forms are unavailable or unusable.
