Glossary of Terms



Adjustable-rate Mortgage (A.R.M.)

A mortgage whose interest rate changes over time based on an index and a margin - Rate changes are made at prescribed times and within prescribed limits as defined in the mortgage agreement

Amortization

Gradual debt reduction - Normally, the reduction is made according to a predetermined schedule for installment payments

Annual Percentage Rate

A term used in the Truth-in-Lending Act to represent the full cost of a loan including interest and loan fees.

Appraisal

A formal, written estimation of the current market value of a property

Appreciation

An increase in value, the opposite of depreciation

Assessed Value

The value that a taxing authority places upon personal property for the purposes of taxation

Assumable Mortgage

A mortgage that can be taken over ("assumed") by a buyer when a home is sold - This type can either be a qualified or a non-qualified assumption

Borrower

A mortgagor who receives funds in the form of a loan with the obligation of repaying the loan in full with interest

Cap

A provision of an A.R.M. limiting how much the interest rate or mortgage payments can increase during a set time period

Cash Reserve

A requirement of some lenders that buyers have sufficient cash remaining after closing to make a set amount of mortgage payments

Clear Title

A title that is free of liens and legal questions as to ownership of the property

Closing

The occasion where a purchase or refinance transaction is finalized: where the buyer signs the mortgage, and closing costs are paid

Closing Costs

Expenses, above the price of the home, incurred by buyers and sellers in the transfer of ownership of the property Also, these are called "settlement costs"

Commitment Letter

A formal offer by a lender stating the terms under which it agrees to loan money to a home buyer

Community Home Buyer's Program

An alternative financing option that allows households of modest income to qualify for mortgages using nontraditional credit histories

Condominium

A form of ownership of real property - The purchaser receives title to a particular unit and a proportionate interest in certain common areas

Contingency

A condition that must be met before a contract is legally binding

Conventional Mortgage

A mortgage loan not insured by FHA or guaranteed by VA or Farmers Home Administration

Convertible A.R.M.

An adjustable rate mortgage that can be converted to a fixed rate mortgage under specified conditions

Credit Rating

A rating given to a person to establish willingness to pay obligations based upon one's past history of timely payments

Debt-To-Income Ratio

Long term debt expenses as percentage of monthly income. Lenders use this ratio to qualified borrowers for mortgage loans

Deed

The legal document conveying title to a property

Default

Failure to make mortgage payments on a timely basis or to comply with other conditions of a mortgage

Delinquency

A loan in which a payment is overdue but not yet in default

Deposit

Cash paid to the seller when a formal sales contract is signed

Depreciation

A decline in the value of a property, opposite of appreciation

Discount Points

A one time charge by a lender to increase or decrease the stated interest rate on a loan

Down Payment

The part of the purchase price, which the buyer pays in cash and does not finance with the mortgage

Earnest Money

A sum of money given to bind a sale of real estate; a deposit

Easement

A right of way giving persons other than the owner access to or over a property. A common is a utility easement, which gives the power company the right to put power lines and poles over properties to deliver electricity

Equity

The home owner's interest in a property; the difference between fair market value and the current amount the owner owes on the property

Escrow-Account

An account set up by the lender into which the borrower makes periodic payments, usually monthly, for taxes, hazard insurance, assessments, and mortgage insurance premiums. These funds are held in trust by the lender who pays these sums as they become due

FHA Loan

FEDERAL HOUSING ADMINISTRATION-A division of the Department of Housing and Urban Development - Its main activity is the insuring of residential mortgage loans made by private lenders

First Mortgage

The mortgage that has first claim (or "lien") in the event of a default

Fixed Rate Mortgage

A mortgage in which the interest rate does not change the entire term of the loan

Flood Insurance

Insurance required for properties in federally designated flood areas

Foreclosure

The process by which a mortgaged property may be sold when a mortgage is in default

Gross Monthly Income

The amount of consistent and stable income that an individual receives each month, averaged over a period of time - This amount includes salaries, hourly pay, overtime pay, bonuses, commissions, and income from dividends or interest, provided that the individual can show consistent history or receiving such income

Hazard Insurance

Insurance to protect the homeowner and the lender against physical damage to a property from fire, wind, vandalism and other hazards

Homeowner's Insurance

An insurance policy that combines liability coverage and hazard insurance

Homeowner's Warranty

A type of insurance that covers repairs to specified parts of a house for a specified period of time

Inspector

The property/mechanical inspector examines a home to evaluate its plumbing, electrical work, appliances, hearing and cooling systems, roof and structural stability

Interest

The cost of borrowing money, above the principle balance

Late Charge

The penalty a borrower must pay when a payment is made after the due date

Lien

A legal claim against a property that must be paid when the property is sold

Lifetime Cap

A provision of an A.R.M. that limits the total increase in interest rates over the life of the loan

Loan-To-Value Ratio (LTV)

The total loan amount divided by the value of the house

Lock-In-Rate

A commitment from the lender to make a loan at a preset interest rate at some future date; usually for not more than 90 days - A fee may be charged to "Lock-In" that particular rate

Market Value

The highest price that a willing buyer would pay and the lowest a willing seller would accept

Mortgage

An interest in real property given as security for the payment of an obligation

Mortgage Broker

A company that matches the borrower with a lender

Mortgage Insurance

A policy that allows mortgage lenders to recover part of their financial losses if a borrower fails to repay a loan

Mortgagee

The lender in a mortgage agreement

Mortgagor

The borrower in a mortgage agreement

Negative Amortization

Payment terms under which the borrower's monthly payments do not cover the interest due; as a result, the balance due is added to the loan balance making it rise-thus the term "negative amortization"

Origination Fee

A fee paid to a lender for processing a loan application. It is stated as a percentage of the mortgage amount

Owner Financing

A purchase in which the seller provides all or part of the financing

PITI

Principal, Interest, Taxes and Insurance are components of a mortgage payment

Planned Unit Development (PUD)

A subdivision having lots or areas in common and reserved for the use of some or all of the owners of the separately owned lots

Point

A dollar amount paid to the lender from making a loan. A point is usually 1% of the loan amount

Prepayment Penalty

A fee or percentage of the loan charged to a borrower who pays off a loan before it is due. Some loan programs contain a prepayment penalty, while most do not. Check with your loan officer for further details

Pre-Qualification

The process of determining how much money a prospective home buyer will be eligible to borrow before a loan is applied for

Principal

The original balance of money loaned, excluding interest. Also, the remaining balance of a loan, excluding interest

Private Mortgage Insurance (PMI)

Insurance provided by a non-governmental insurer that protects lenders against a loss if a borrower defaults. Usually required on all loans with a LTV equal or greater than 80%

Purchase and Sales Agreement

A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold

Qualifying Ratios

Guidelines applied by lenders to determine how much of a loan to grant to the borrower. The debt-to-income-ratio is all your current monthly debt divided by your monthly gross income. The housing-to-income ratio is your new housing payments divided by your gross income

Realtor®

A person licensed to negotiate and transact the sale of real estate on behalf of either the borrower or seller, or in some cases both parties

Refinancing

The process of paying off one loan with the proceeds form a new loan secured by the same property to lower mortgage payments

Second Mortgage

A mortgage that has rights which are subordinate to the rights of the first mortgage. As such, these loans are often less secure and may demand a slightly higher interest rate

Settlement

The closing of a mortgage loan

Survey

A drawing showing the legal boundaries of a property, it's fixtures, and any easements of encroachments

Title

The evidence of the right to or ownership in property

Title Company

A company that specializes in title searches and insuring title to property

Title Insurance

Insurance to protect the lender or the buyer against loss arising from disputes over ownership of property

Title Search

A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims against the property

Truth-In-Lending

A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the APR and other charges

Underwriting

The process of evaluating a loan application to determine the risk involved for the lender

VA Loan

An independent agency of the federal government created in 1930. The VA home loan guaranty program is designed to encourage lenders to offer long term, low down payment mortgages to eligible veterans by guaranteeing the lender against loss

Zoning

City or county laws specifying how property may be used in specific areas

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