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Acceleration Clause - A provision which requires that the remaining balance due be paid if the borrower defaults on the loan or transfers title to another party.
Adjustable Rate Mortgage (ARM) - A mortgage with an interest rate that changes periodically, according to an "index", such as Treasury Bills. Monthly payments can go up or down when the rate is adjusted.
Adjustment Date - The date that an ARMs interest rate is changed.
Amortization - The process of paying off the debt or mortgage, usually by equal monthly payments. Monthly payments are mostly interest at first (because the debt is higher) and almost entirely principal in later years, when the loan balance is small.
Amortization Schedule - A table which shows the distribution of monthly payments - how much will be applied toward principal and how much toward interest over the life of the loan.
Annual Percentage Rate (APR) - A figure which attempts to reflect the total cost of a loan, expressed as a yearly rate. Because the APR takes the total cost of credit into account, it can never be lower, and is almost higher than the stated note rate or advertised rate. Within reason, the APR allows you to compare different types of mortgages based on the total cost.
Application Form (1003) - The standard form used to apply for a mortgage. The form used to includes regarding income, savings, assets, debts, and more.
Appraisal - A written justification of value of a property, usually based on an analysis of the price paid for similar properties in the area.
Appraised Value - An opinion of the fair value of a property, generally by a qualified and/or licensed professional an appraise.
Appreciation - The increase in the value of a property over time, usually due to changes in market conditions, inflation, or improvements.
APR - See Annual Percentage Rate (APR).
ARM - See Adjustable Rate Mortgage (ARM).
Assessed Value - The valuation placed on property for the purpose fixing the amount property taxes.
Assessment - The process of setting the value of a property for tax purposes.
Asset - Personal and Real property: items of value which can be quickly converted into cash. Bank accounts, stocks, bonds, mutual funds, real estate, personal property, etc.
Assignment - Transfer of ownership from one individual or company to another. Lenders often assign mortgages which they make to Fannie Mae or other entity which specializes in buying mortgages.
Assumable Mortgage - A mortgage which can be assumed by the buyer when a home is sold. Not commonly available in recent years.
Assumption - The process of assuming a mortgage.
Balloon Mortgage - A fixed rate mortgage with monthly payments which are not large enough to pay off the loan during the term. Balloons end after a specific time, usually one to five years, after which the entire remaining balance must be paid in a lump sum.
Balloon Payment - The final lump sum payment due at the end of a balloon mortgage.
Buydown - A provision where someone, usually the builder or seller, subsides the mortgage, either by paying extra points or by setting up an escrow account with funds to subsidize the loan during the first few years. The effect is to lower the interest rate for some period of time, which in turn allows the borrower to qualify. The reduced monthly payments increase when the subsidy expires.
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Caps - Caps are limits on the amount that the interest rate on an Adjustable Rate Mortgage can change at any one adjustment and (usually) over the life of the loan. They protect the borrower from huge increases in the monthly payment in a rising interest rate environment. Rarely, a cap may apply to the payment amount rather than to the rate. Under certain conditions, payment caps can cause the loan balance to increase rather than decrease. See Negative Amortization.
Cash Out Refinance - The process of refinancing for an amount higher than the balance due, assuming the property has a sufficiently high value.
Closing - A meeting between the buyer, seller, and lender where the property and funds legally change hands. Called a Settlement in some states.
Closing Costs - The total costs and fees associated with closing. Includes one-time non-recurring fees and charges for inspections and other services, and (usually) initial escrows for recurring costs such as property taxes and insurance.
Collection - The semi-formal process used by lenders in contacting borrowers in an effort to bring a loan current. In the case of a mortgage, the mailing and formal recording of certain documents which may be required to foreclose on a property.
Commission - The fee paid to brokers, attorneys, and others for their services.
Common Area - Those portions of a building, land, and amenities in condominium and cooperative projects which are used the apartment owners. The hallways, parking areas, and other amenities.
Common Area Assessments - Fees paid (usually) to an Owners Association Fees by the owners of the individual units in a condominium or cooperative which are used to maintain the property and common areas.
Comparables - Recent sales of similar properties in the area. Used as a measure local market value to help set the current value of a property.
Contingency - A condition which must be met before a contract is binding. For example, a requirement that an existing lien on the property must be cleared by a specified date.
Conventional Mortgage - A loose term which generally refers to a fixed-rate conforming loan other than an FHA or VA loan.
COFI (Cost Of Funds Index) - An index produced by the 11th District Federal Home Loan Bank. One of several indexes used to set interest rate changes for certain Adjustable-Rate Mortgages.
Credit Report - A report of an individual's credit history used by lenders to determine credit risk. A record of an individual's repayment of debt.
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Debt - An obligation, Specifically, the amount owed.
Debt To Income Ratio (DTI) - Total outstanding debt as a portion of total income. Used by lenders as a measure of credit worthiness.
Deed - The legal document which certifies title to a property.
Deed Of Trust - Used in place of a mortgage in some states. The deed to a property is held by a trustee (title company or other third party) with the condition that it will be conveyed to the borrower when the mortgage is paid off.
Default - Failure to make payments within a specified period of time. A finding made by a lender prior to beginning foreclosure proceedings.
Delinquency - Failure to make mortgage payments when they are due. Policies vary from lender to lender but a borrower is generally reported delinquent if a payment is more than 30 days late.
Depreciation - A decline in the value of property; the opposite of appreciation.
Discount Point - A prepayment of interest equal to 1% of the mortgage amount. See Point, Origination Fee.
Down Payment - A part of the purchase price, paid in cash, to cover the difference between the purchase price and the loan amount. Typically between 5% and 20% but can be more or less.
Easement - A right of way allowing access to or over a property for a specific purpose, such as for a power line, or a road for access to another property.
Eminent Domain - The right of a government to take private property for public use upon payment of its fair market value. Eminent domain is the basis for condemnation proceedings.
Encroachment - An illegal intrusion on another property by a fence, structure, etc.
Encumbrance - Anything that affects or limits the title to a property, such as a lien or mortgage, easement, or a lease or other restriction.
Equity - The difference between the fair market value of a property and any lien or mortgage. The net amount the owner would realize if the property were sold.
Escrow - Funds deposited with a third party to be delivered upon the fulfillment of a condition. A special account created to hold money for taxes and insurance, or to hold deposit money prior to closing.
Escrow Account - An account created for a specific purpose, such as to hold money for taxes and insurance, or to hold deposit money prior to closing.
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Fair Market Value - The highest price for a property that a willing buyer would pay, and the lowest price a willing seller would accept.
Fannie Mae (FNMA) - The Federal National Mortgage Association (FNMA). A government sponsored private corporation which purchase mortgages from lenders.Also see Freddie Mac (FHLMC).
Federal Housing Administration (FHA) - A division of the Department of Housing and Urban Development. See FHA mortgage.
Fee Simple - Absolute title; the highest possible interest in a property.
First Mortgage - A loan used to finance the purchase of a home. The primary lien against a property.
Fixed Rate Mortgage - A mortgage with an interest rate that remains constant for the life of the loan. The rate is set when the loan is made and never changes.
Flood Insurance - Insurance against damage from flooding. A specialized insurance which must be purchased separately.
Foreclosure - The legal process used to regain title to a mortgaged property if the borrower defaults. Foreclosure usually involves a forced sale of the property with the proceeds being applied to the mortgage balance.
Freddie Mac (FHLMC) - Federal Home Loan Mortgage Corporation. A government sponsored private corporation which purchase mortgages from lenders. Also see Fannie Mae (FNMA).
Ginnie Mae (GNMA) - Government National Mortgage Association. A federally owned corporation which funds FHA and VA loans. GNMA performs the same role as Fannie Mae and Freddie Mac in providing funds to lenders for making home loans.
Good Faith Estimate - A formal estimate of the fees and charges which the borrower must pay at the closing. Lenders are required to provide a Good Faith Estimate at the time the commitment is issued.
Hazard Insurance - Insurance to protect the homeowner AND the lender against physical damage to a property from fire, windstorm, vandalism, and other specified hazards. Also see Flood Insurance, Homeowner's Policy.
Home Equity Line Of Credit (HELOC) - A variable rate line of credit secured by a homeowner's equity. The lender provides funds on demand, with a corresponding lien against the property. The loan must be repaid in installments after a specified draw period.
Homeowner's Policy - A standardized form of insurance providing blanket coverage against personal liability and a wide variety of hazards. Homeowner's policies do NOT include flood insurance, and may also specify additional exemptions.
Index - An economic indicator that is used to determine changes in the interest rate of an Adjustable Rate Mortgage. U.S. Treasury bills and notes are the most common but there are others. The rate is periodically adjusted to the index value plus a margin.
Interest - The charge paid for borrowing money.
Joint Tenancy - Joint ownership by two or more persons such as husband and wife, business partners, etc. Each person has equal rights to the property and ownership passes to the survivor in the event of death.
Jumbo Loan - A mortgage for an amount greater than the amount eligible for purchase by Fannie Mae or Freddie Mac. See Non Conforming Loan.
Lien - A legal claim against a property, such as a mortgage or a workman's claim. In general, liens must be paid off prior to title transfer.
Life 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 mortgage.
Line Of Credit - An agreement to extend credit to a borrower under specified conditions. See Home Equity Line Of Credit (HELOC).
Loan To Value (LTV) Ratio - The percentage relationship between the amount of the loan and the appraised value or sales price, whichever is lower.
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Margin - The percentage amount added to the Index value to establish the new interest rate at each adjustment. The margin remains constant over the life of the loan.
Market Value - The highest price that a motivated buyer would pay, and the lowest price that a motivated seller would accept on a property. Market value is not necessarily the price that a property could actually be sold for at a given time.
Maturity - The date on which the remaining balance of a loan financial instrument becomes due and payable. The date the mortgage must be paid off.
Mortgage - A formal document pledging a property as security for a loan. Not used in all states. See Deed Of Trust.
Mortgage Banker - A company or individual that originates and funds mortgages, which are then sold in the secondary market.
Mortgage Broker - An independent company or individual that originates but does not fund mortgages. A mortgage broker arranges mortgages with a variety of institutions with which they have pre-established relationships.
Negative Amortization - A condition where the loan balance goes up, rather than down, as payments are made. If a payment is not large enough to cover the interest due the difference is added to the principal. Negative amortization can occur in certain types of adjustable rate mortgages.
No Cost Refinance - A refinance with the fees and charges are added to the new mortgage amount instead of being paid up front.
Non Conforming Loan - A mortgage which does not conform to credit or other standards, or to the maximum loan limits set by Fannie Mae and Freddie Mac. See Jumbo Loan
Note - A signed, formal document obligating a borrower to repay a loan at a stated interest rate during a specified period of time.
Note Rate - The stated interest rate on a mortgage or other loan agreement.
Origination - The process of making a loan; the sequence of steps needed to document borrower assets and credit, property appraisal, and so on.
Origination Fee - A fee charged by a lender to cover certain expenses associated with the loan origination. Usually stated as a percentage of the face value of the loan (points).
PITI - Principal, Interest, Taxes and Insurance. The four components that (for most homeowners) make up the monthly mortgage payment. Principal and interest are the portions of the payment assigned to repay the mortgage; the tax and insurance components are accumulated in an escrow account to make payments when they are due.
PITI Reserves - A cash amount that a borrower must have on hand after making a down payment and paying all closing costs for the purchase of a home. The principal, interest, taxes, and insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a predefined number of months.
Planned Unit Development (PUD) - A type of ownership with privately owned lots and buildings, and jointly owned common areas and facilities.
Point - A point is equal to 1 percent of the mortgage. One point on a $100,000 mortgage would be $1,000, for example. Discount points are simply interest that is paid up-front. Most lenders offer mortgages with several combinations of points and interest rates; generally, more points means a lower interest rate, less points means a higher rate.
Pre Approval - An approval for credit issued by a lender before the borrower has selected a property. Usually issued for a stated maximum loan amount and under certain conditions and assumptions regarding interest rates and other factors.
Prepayment - Any amount paid to reduce the principal balance of a loan before the due date. Payment in full when a property is sold. Also where additional or augmented monthly payments to reduce the loan balance prematurely.
Prepayment Penalty - A fee that may be charged to a borrower who pays off a loan before it is due.
Prequalification - Usually, a written opinion of the ability of a borrower to qualify for a home loan.
Principal - The amount of debt, not including interest, left on a loan; the total amount of a loan before any payments are made.
Principal Balance - The remaining balance on a mortgage. The principal balance does not include interest or any other charges.
Purchase Agreement - A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.
Purchase Money Mortgage - A mortgage used for the acquisition of a property.
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Qualifying Ratios - A measure of credit worthiness. Ratios of debt to income which are used to determine whether a borrower can qualify for a mortgage. Less important than formerly, qualification ratios are being replaced by FICO scores.
Quitclaim Deed - A deed that transfers all interest or title, if any, that a grantor may have at the time the conveyance is made. No warranty is made.
Rate Lock - A commitment issued by a lender to a borrower guaranteeing a specified interest rate for a specified period of time at a specific cost. Extended lock in periods usually incur an additional fee.
Realtor - A real estate agent who is an active member of a board of realtors that is affiliated with the National Association of Realtors.
Recording - A registration of the details of a properly executed legal document, such as a deed, mortgage, satisfaction of mortgage, etc., thus making it a part of the public record.
Refinance - The process of paying off one loan with the proceeds from a new loan using the same property as security, usually, for the purpose of obtaining a lower interest rate, converting accumulated equity into cash, or both.
Remaining Balance - The amount of principal that has not yet been repaid. See Principal Balance.
Remaining Term - The original amortization term less the number of payments that have been applied. The number of payments yet to be made.
Revolving Debt - A credit arrangement, such as a credit card, that allows a customer to borrow against a preapproved line of credit when purchasing goods and services. The borrower is billed for the amount that is actually borrowed plus any interest due.
Second Mortgage - A mortgage with lower rights than a first mortgage on the same property. In the event of a foreclosure, the first mortgage must be satisfied before any payment can go to the second.
Secondary Market - An infrastructure where the vast majority of mortgages are sold. Crudely, individual mortgages grouped together into large pools called Mortgage Backed Securities. Shares in MBSs are sold to investors, providing funds for more mortgages.
Settlement Statement - A statement which shows the seller's net proceeds and the buyer's net payment at closing. A standard form itemizing all of the monies paid at closing, including real estate commissions, loan fees, points, and initial escrow amounts. Also commonly known as a HUD-1 Settlement Statement.
Subordinate Loan - Any mortgage or lien that has a priority lower than the first mortgage.
Sweat Equity -An owners labor or services in the construction or rehabilitation of a property, instead of, or in addition to, cash.
Tax Lien - A claim against a property for due and unpaid taxes.
Tenancy In Common - Joint ownership by two or more persons. Each person has equal rights to the property but without any right of survivorship. Ownership does not pass to the others in the event of death.
Title - Detailed documentation evidencing ownership or other right to a property. In real estate, the deed.
Title Insurance - An insurance against a loss (up to a specified amount) resulting from any dispute over ownership or other title defect.
Title Search - An examination of the public title records to ensure that the seller is the owner of the property and that there are no liens or other claims outstanding.
Transfer Tax, Transfer Fee - Fees and taxes imposed by state and local governments when title passes from one owner to another.
Treasury Indexes - A series of indexes which are used the basis for determining interest rate changes for many Adjustable Rate Mortgages.
Truth-In-Lending - A federal law and supporting regulations which require lenders to fully disclose, in writing, the terms and conditions of a loan, mortgage, or other credit. Lenders are required to specify the rate, term, fees, and other characteristics, including an Annual Percentage Rate (APR).
Underwriting - The process of verifying the documentation and analyzing the risk associated with granting a mortgage.
Zoning - Specification, by a municipal or city authority, of areas for particular purposes; the type of use (residential, commercial, etc.) allowed for a property located within a specified area.
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