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TERM GLOSSARY
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Quick Find: A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
- Define Mortgage 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.
Define Adjustable rate mortgage (ARM)
Is a
mortgage in which the interest rate is adjusted periodically based on a
preselected index. Also sometimes known as the re negotiable rate
mortgage, the variable rate mortgage or the Canadian rollover mortgage.
Define 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.
Define 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.
Define 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.
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.
Define 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.
Define
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.
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 (CRV)
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).
Define Closing
Costs
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 6 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. an agreement, often inwriting,
between a lender and a borrower to loan money at a future date subject
to the completion of paperwork or compliance with stated conditions.
Define Construction loan
A short
term interim loan 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.
Conventional loan
A mortgage
not insured by FHA or guaranteed by the VA.
Define Credit Report
A report
documenting the credit history and current status of a borrower's credit
standing.
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 gross
monthly income. See housing expenses-to-income ratio.
Define 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
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.
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.
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.
Earnest Money
Money
given by a buyer to a seller as part of the purchase price to bind a
transaction or assure payment.
Entitlement
The VA
home loan benefit is called entitlement. Entitlement for a VA guaranteed
home loan. This is also known as eligibility.
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.
Define Equity
The
difference between the fair market value and current indebtedness, also
referred to as the owner's interest. The value an owner has in real
estate over and above the obligation against the property.
Define Escrow
An account
held by the lender into which the home buyer pays money for tax or
insurance payments. Also earnest deposits held pending loan closing.
Fannie Mae
seeFederal 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)
The former
name for the regulatory and supervisory agency for federally chartered
savings institutions. Agency is now called the Office of Thrift
Supervision
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.
FHLMC
The
Federal Home Loan Mortgage Corporation provides a secondary market for
savings 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.
Define 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.
Freddie Mac
see
Federal Home Loan Mortgage Corporation
Ginnie Mae
see
Government National Mortgage Association.
Government National Mortgage Association (GNMA)
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.
Guaranty
Apromise
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
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 gross monthly income. See debt-to-income
ratio.
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.
Interim Financing
A
construction loam made during completion of a building or a project. A
permanent loan usually replaces this loan after completion.
Investor
A money
source for a lender.
Define Jumbo Loan
a loan
which is larger (more than $214,600 as of 1/1/97) 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.
Lien
A claim
upon a piece of property for the payment or satisfaction of a debt or
obligation.
Define Loan-to-Value Ratio
The
relationship between the amount of the mortgage loan and the appraised
value of the property expressed as a percentage.
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.
Define MIP (Mortgage Insurance Premium)
It is
insurance from FHA to the lender against incurring a loss on account of
the borrower's default.
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
Define 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.
Office of Thrift Supervision (OTS)
The
regulatory and supervisory agency for federally chartered savings
institutions. Formally known as Federal Home Loan Bank Board
Define 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.
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.
Define 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 many states.
Primary Mortgage Market
Lenders
making mortgage loans directly to borrower's such as savings and loan
associations, 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
usually require an initial premium payment and may require an additional
monthly fee depending on you loan's structure.
Realtor
A real
estate broker or an associate holding active membership in a local real
estate board affiliated with the National Association of Realtors.
Define Right Of Rescission
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.
Define
Refinance Loan
Obtaining
a new mortgage loan on a property already owned. Often to replace
existing loans on the property.
Renegotiable Rate Mortgage
a loan in
which the interest rate is adjusted periodically. See adjustable
rate mortgage.
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.
Define
Reverse Annuity Mortgage (RAM)
a form of
mortgage in which the lender makes periodic payments to the borrower
using the borrower's equity in the home as
Satisfaction of Mortgage: The
document issued by the mortgagee when the mortgage loam is paid in full.
Also called a "release of mortgage."
Define
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.
Define
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.
Title
a document
that gives evidence of an individual's ownership of property.
Define 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 usually a
function of the value of the property, and is often borne by the
purchaser and/or seller. Policies are also available to protect the
lender's interests.
Title Search
an
examination of municipal records to determine the legal ownership of
property. Usually is performed by a title company.
Define Truth-In-Lending
a federal
law requiring disclosure of the Annual Percentage Rate to home buyers
shortly after they apply for the loan. Also known as Regulation Z.
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.
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.
Define
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.
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 mortgage
results
when an existing assumable loan is combined with a new 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.
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