7/23 and 5/25
3/1, 5/1, 7/1 and 10/1 ARMs
in which rate is fixed for three-year, five-year, seven-year and 10-year
periods, respectively, but may adjust annually after that.
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
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.
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.
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.
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.
An estimate of the value
of property, made by a qualified professional called an "appraiser".
A local tax levied against a property for a specific purpose, such as a sewer or street lights.
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.
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.
A mortgage covering at
least two pieces of real estate as security for the same mortgage.
One who applies for and
receives a loan in the form of a mortgage with the intention of repaying the
loan in full.
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.
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.
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.)
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.
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
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.
with rate that adjusts based on a cost-of-funds index, often the 11th District
Cost of Funds.
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.
A mortgage not insured by
FHA or guaranteed by the VA.
A report documenting the credit history and current status of a borrower's credit standing.
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
Deed of trust
In many states, this
document is used in place of a mortgage to secure the payment of a note.
Failure to meet legal
obligations in a contract, specifically, failure to make the monthly payments
on a mortgage.
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
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.
Money paid to make up the
difference between the purchase price and the mortgage amount.
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.
Money given by a buyer to
a seller as part of the purchase price to bind a transaction or assure payment.
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.
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.
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.
see Federal National
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.
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
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.
The Federal Home Loan
Mortgage Corporation provides a secondary market for savings and loans by
purchasing their conventional loans. Also known as "Freddie Mac."
A promise by FHA to insure a mortgage loan for a specified property and borrower. A promise from a lender to make a mortgage loan.
Fixed Rate Mortgage
The mortgage interest rate
will remain the same on these mortgages throughout the term of the mortgage for
the original borrower.
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."
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
see Federal Home Loan
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.
The ratio, expressed as a percentage, which results when a borrower's housing expenses are divided by hthly income. See debt-to-income ratio.
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.
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.
The sum of the published
index plus the margin. For example if the index were 9% and the margin 2.75%,
the indexed rate would be 11.75%. Often, lenders charge less than the indexed
rate the first year of an adjustable-rate mortgage.
A construction loan made
during completion of a building or a project. A permanent loan usually replaces
this loan after completion.
A money source for a lender.
a loan which is larger
(more than $207,000 as of 1/1/96) than the limits set by the
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.
A claim upon a piece of
property for the payment or satisfaction of a debt or obligation.
The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.
Lender's guarantee that the mortgage rate quoted will be good for a specific number of days from day of application.
The amount a lender adds
to the index on an adjustable rate mortgage to establish the adjusted interest
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.
MIP (Mortgage Insurance Premium)
It is insurance from FHA
to the lender against incurring a loss on account of the borrower's default.
Money paid to insure the
mortgage when the down payment is less than 20 percent. See
insurance, FHA mortgage insurance.
The borrower or homeowner
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.
The regulatory and
supervisory agency for federally chartered savings institutions. Formally known
as Federal Home Loan Bank Board.
Mortgage whose annual rate
changes yearly. The rate is usually based on movements of a published index
plus a specified margin, chosen by the lender.
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.
A long term mortgage,
usually ten years or more. Also called an "end loan."
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.
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.
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.
A privilege in a mortgage
permitting the borrower to make payments in advance of their due date.
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
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.
A real estate broker or an
associate holding active membership in a local real estate board affiliated
with the National Association of Realtors.
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.
Money paid to the lender
for recording a home sale with the local authorities, thereby making it part of
the public records.
Obtaining a new mortgage
loan on a property already owned. Often to replace existing loans on the
Renegotiable Rate Mortgage
a loan in which the
interest rate is adjusted periodically. See adjustable rate mortgage.
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.
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 loan is paid in full. Also called a "release of 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.
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
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.
Interest which is computed
only on the principle balance.
A measurement of land,
prepared by a registered land surveyor, showing the location of the land with
reference to now points, its dimensions, and the location and dimensions of any
Equity created by a purchaser performing work on a property being purchased.
a document that gives
evidence of an individual's ownership of property.
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.
an examination of
municipal records to determine the legal ownership of property. Usually is
performed by a title company.
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.
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.
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
Interest charged in excess of the legal rate established by law.
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.
See adjustable rate
Verification of Deposit (VOD)
A document signed by the
borrower's financial institution verifying the status and balance of his/her
Verification of Employment (VOE)
A document signed by the borrower's employer verifying his/her position and salary.
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.
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.
a Home] [Closing
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