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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 re-negotiable rate
mortgage, or the variable rate mortgage.
Amortization -
A repayment method in which the amount you borrow is repaid gradually
though regular monthly payments of principal and interest. During the
first few years, most of each payment is applied toward the interest
owed. During the final years of the loan, payment amounts are applied
almost exclusively to the remaining principal.
Annual Percentage Rate (APR) -
The cost of credit on a yearly basis, expressed as a percentage.
Required to be disclosed by the lender under the federal Truth in
Lending Act, Regulation Z. Includes up-front costs paid to obtain the
loan, and is, therefore, usually a higher amount than the interest rate
stipulated in the mortgage note. Does not include title insurance,
appraisal, and credit report.
Appraisal Report -
A written report by an appraiser containing an opinion as to the value
of a property and the reasoning leading to that opinion.
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Balloon Payment -
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.
Bill of Sale -
A written instrument by which one transfers his rights or interest in
chattels and goods to another.
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 but 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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Closing -
The meeting between the buyer, seller and lender or their agents where
the property and funds legally change hands. Also called settlement
costs, 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 is about three to six percent of
the mortgage amount.
Closing Costs -
Any fees paid by the borrowers or sellers during the closing of the
mortgage loan. This normally includes an origination fee, discount
points, attorney's fees, title insurance, survey, and any items which
must be prepaid, such as taxes and insurance escrow payments.
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.
Conventional/fixed rate mortgage -
Payments and interest rates are fixed for 15, 20, 25, or 30 year loans
with up to 95% financing, 5% down payment and quicker loan approval than
with FHA or VA. These are usually not assumable.
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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
gross monthly income. See housing expenses-to-income ratio.
Deed -
The legal document conveying title to a property.
Discount Points (or Points) -
A one-time charge imposed by the lender to lower the rate at which the
lender would otherwise offer the loan to you. Each point is equal to one
percent (1%) of the mortgage amount. For example, if a lender charges
two points on a $80,000 loan this amounts to a charge of $1,600.
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Earnest money -
Good faith money provided to seller by the potential buyer to show he is
serious about purchasing the home. This amount may be applied to the
down payment, but if the deal does not go through it may be forfeited,
although in some cases it's returned.
Effective Interest Rate -
The cost of credit on a yearly basis expressed as a percentage. Includes
up-front costs paid to obtain the loan, and is, therefore, usually a
higher amount than the interest rate stipulated in the mortgage note.
Useful in comparing loan programs with different rates and points.
Equity -
The difference between the fair market value (appraised value) of your
home and your outstanding mortgage balance.
Escrow -
A fee charged by the escrow as a neutral third party to carry out the
procedures necessary to transfer ownership of property.
Escrow Waiver -
When a loan value is 80% or less, you may elect not to open an escrow
account and pay the hazard insurance and property taxes yourself. There
is a one time charge by the Investor of 1/4 of a percent to 3/8 of a
percent (0.0025 - 0.0375) of the loan amount.
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FHLMC - Federal Home Loan Mortgage Corporation, also called
"Freddie Mac", is a quasi-governmental agency that purchases
conventional mortgages from insured depository institutions and
HUD-approved mortgage bankers.
FNMA - The Federal National Mortgage Association is a major
secondary market investor that purchases mortgage loans from mortgage
bankers and other financial institutions. Also known as "Fannie Mae."
Fixed Rate - An interest rate which is fixed for the term of the
loan. Payments are also fixed at one amount.
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Good Faith Estimate -
A written estimate of closing costs which a lender must provide you
within three days of submitting an application.
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HUD -
Housing and Urban Development is a federal agency that oversees the
Federal Housing Administration.
HUD-I Settlement Statement -
A form utilized at loan closing to itemize the costs associated with
purchasing the home. Used universally by mandate of HUD, the Department
of Housing and Urban Development.
Hazard Insurance -
A contract between purchaser and an insurer, to compensate the insured
for loss of property due to hazards (fire, hail damage, etc.), for a
premium.
Home Equity Loan -
A fixed or adjustable rate loan obtained for a variety of purposes,
secured by the equity in your home. Interest paid is usually
tax-deductible. Often used for home improvement or freeing of equity for
other real estate or investments. Recommended by many to replace or
substitute for consumer loans whose interest is not tax-deductible, such
as auto or boat loans, credit card debt, medical debt, and education
loans.
Home Inspection -
A home inspection is performed by a qualified home inspector to
determine the structural soundness and condition of the home, at the
request of a purchaser, seller or lender. The inspector will provide a
report outlining the condition of the home and what repairs, if any, are
necessary before the loan may be closed.
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.
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Interest Rate -
The periodic charge, expressed as a percentage, for use of credit.
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Joint Tenancy -
The ownership of property by two or more persons with the survivor
taking the interest of the deceased.
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Loan Origination Fee -
A fee charged by the lender for processing a mortgage.
Loan to Value Ratio (LTV) -
A ratio determined by dividing the sales price or appraised value into
the loan amount, expressed as a percentage. For example, with a sales
price of $100,000 and a mortgage loan of $80,000, your loan to value
ratio would be 80%. Loans with an LTV over 80% may require Private
Mortgage Insurance, defined below.
Lock or Lock In -
A commitment you obtain from a lender assuring you a particular interest
rate or feature for a definite time period. Provides protection should
interest rates rise between the time you apply for a loan, acquire loan
approval, and, subsequently, close the loan and receive the funds you
have borrowed.
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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.
Mortgage Broker -
As do mortgage bankers, takes loan application and processes the
necessary paperwork. Unlike a mortgage banker, brokers do not fund the
loan with their own money, but work on behalf of several investors, such
as mortgage bankers, Savings and Loan's, banks, or investment bankers.
Mortgage Loan -
A loan which utilizes real estate as security or collateral to provide
for repayment should you default on the terms of your loan. The mortgage
or Deed of Trust is your agreement to pledge your home or other real
estate as security.
Mortgagee -
The lender in a mortgage loan transaction.
Mortgagor -
The borrower in a mortgage loan transaction.
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Offer to Purchase -
Also known as a purchase offer, earnest money agreement, contract of
purchase, or deposit receipt. A document that lists the price
conditions, and terms under which the buyer is willing to purchase a
property.
Origination Fee -
The fee charged by a lender to cover administrative costs incurred
during the processing of the loan, often expressed as a percentage of
the loan amount.
Owner's Title Policy -
An insurance premium charged by the title company to insure the buyer
that the title is free from defects up to the date the conveying
instrument is recorded. Buyer is the beneficiary. (Frequently paid by
the seller. $300 and up).
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Per Diem Interest - Depending on the day of the month you close,
you will have to pay interest from the date of closing to the end of the
month. Then, usually, the first mortgage payment will be due the first
of the following month
Points (or Discount Points) -
A one-time charge imposed by the lender to lower the rate at which the
lender would otherwise offer the loan to you. Each point is equal to one
percent (1%) of the mortgage amount. For example, if a lender charges
two points on a $80,000 loan this amounts to a charge of $1,600.
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.
Prepaid Interest -
The amount of interest to cover the period from close of escrow until
the beginning of the first payment.
Prepayment Penalty -
A penalty found in a Promissory Note imposed by the lender when the loan
is paid before it is due.
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 your loan's structure.
Processing Fee -
This fee is paid at closing. The Processor is the person who handles all
paperwork requirements in getting your loan approved. He/She obtains
verifications from your bank, employer, and other sources.
Purchase and Sale Agreement -
A written contract signed by the buyer and seller stating the terms and
conditions under which a property will be sold.
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Recording Fees -
Fees charged by the County Recorder's Office for recordation of Deed,
Mortgage or Deed of Trust, and, at times, additional documents requiring
public notice.
Refinancing -
The process of paying off one loan with the proceeds from a new loan
secured by the same property.
Right of Rescission -
The legal right to void or cancel your mortgage contract in such a way
as to treat the contract as if it never existed. Right of rescission is
not applicable to mortgages made to purchase a home, but may be
applicable to other mortgages, such as home equity loans.
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Satisfaction -
The discharge of an obligation by paying a party what is due.
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Tenancy in Common -
A form of ownership on which the tenants own separate but equal parts.
To inherit the property, a surviving tenant should either have to be
mentioned in the will or, in the absence of a will, be eligible through
state inheritance laws.
Title -
The written evidence that proves the right of ownership of a specific
piece of property.
Title Company -
A company that specialized in insuring title to property.
Title Insurance -
Insurance to protect the lender (lender's policy) or the buyer (owner's
policy) against loss arising from disputes over ownership of a 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
outstanding.
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Underwriting -
The process of verifying data and approving a loan.
Underwriting Fee -
This fee is paid at closing. This charge is for the review of your file
to insure your ability to meet your mortgage payment obligations.
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VOD (Verification of Deposit) -
A document signed by the borrower's financial institution verifying the
status and balance of his/her financial accounts.
VOE (Verification of Employment) -
A document signed by the borrower's employer verifying his/her position
and salary.
Variable Rate -
An interest rate that changes periodically in relation to an index.
Payments may increase or decrease accordingly.
Variable Rate Loan -
Loan in which the rate of interest is tied to a specific financial
index, with both the rate of interest and the monthly payments subject
to change at established adjustment intervals.
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