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7/23
and 5/25 Mortgages
Mortgages with a one time rate adjustment after seven years and five
years respectively.
3/1,
5/1, 7/1 and 10/1 ARMs
Adjustable-rate mortgages in which rate is fixed for three-year,
five-year, seven-year and 10-year periods, respectively, but may adjust
annually after that.
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.
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 renegotiable rate
mortgage, the variable rate mortgage or the Canadian rollover mortgage.
Adjusted
Basis
The cost of a property plus the value of any capital expenditures for
improvements to the property minus any depreciation taken.
Adjustment
Date
The date that the interest rate changes on an adjustable-rate mortgage
(ARM).
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.
Adjustment
Period
The period elapsing between adjustment dates for an adjustable-rate
mortgage (ARM).
Affordability
Analysis
An analysis of a buyers ability to afford the purchase of a home.
Reviews income, liabilities, and available funds, and considers the type
of mortgage you plan to use, the area where you want to purchase a home,
and the closing costs that are likely.
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.
Amortization
Term
The length of time required to amortize the mortgage loan expressed as a
number of months. For example, 360 months is the amortization term for a
30-year fixed-rate mortgage.
Annual
percentage rate (A.P.R.)
APR is a measurement of the full cost of a loan including interest and
loan fees expressed as a yearly percentage rate. Because all lenders
apply the same rules in calculating the annual percentage rate, it
provides consumers with a good basis for comparing the cost of loans.
Appraisal
An estimate of the value of property, made by a qualified professional
called an "appraiser".
_
Appraised
Value
An opinion of a property's fair market value, based on an appraiser's
knowledge, experience, and analysis of the property.
_
Assessment
A local tax levied against a property for a specific purpose, such as a
sewer or street lights.
_
Assignment
The transfer of a mortgage from one person to another.
_
Assumability
An assumable mortgage can be transferred from the seller to the new
buyer. Generally requires a credit review of the new borrower and
lenders may charge a fee for the assumption. If a mortgage contains a
due-on-sale clause, it may not be assumed by a new buyer.
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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.
_
Assumption
Fee
The fee paid to a lender (usually by the purchaser of real property)
when an assumption takes place.
_
Balloon
Mortgage
A loan which is amortized for a longer period than the term of the loan.
Usually this refers to a thirty-year amortization and a five year term.
At the end of the term of the loan, the remaining outstanding principal
on the loan is due. This final payment is known as a balloon payment.
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Balloon
Payment
The final lump sum paid at the maturity date of a balloon mortgage.
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Biweekly
Payment Mortgage
A plan to reduce the debt every two weeks (instead of the standard
monthly payment schedule). The 26 (or possibly 27) biweekly payments are
each equal to one-half of the monthly payment required if the loan were
a standard 30-year fixed-rate mortgage. The result for the borrower is a
substantial savings in interest.
_
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.
_
Bridge
Loan
A second trust that is collateralized by the borrower's present home
allowing the proceeds to be used to close on a new house before the
present home is sold. Also known as "swing loan."
_
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.
_
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 which 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.
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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 form 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).
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Change
Frequency
The frequency (in months) of payment and/or interest rate changes in an
adjustable-rate mortgage (ARM).
_
Closing
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.
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Closing
Costs
These are expenses - over and above the price of the property- that are
incurred by buyers and sellers when transferring ownership of a
property. Closing costs normally include an origination fee, property
taxes, charges for title insurance and escrow costs, appraisal fees,
etc. Closing costs will vary according to the area country and the
lenders used.
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COFI
Adjustable-rate mortgage with rate that adjusts based on a cost-of-funds
index, often the 11th District Cost of Funds.
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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 or she progresses.
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Consumer
Reporting Agency (or Bureau)
An organization that handles the preparation of reports used by lenders
to determine a potential borrower's credit history. The agency gets data
for these reports from a credit repository and from other sources.
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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.
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Conversion
Clause
A provision in an ARM allowing the loan to be converted to a fixed-rate
at some point during the term. Usually conversion is allowed at the end
of the first adjustment period. The conversion feature may cost extra.
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Credit
Report
A report documenting the credit history and current status of a
borrower's credit standing.
_
Credit
Risk Score
A credit risk score is a statistical summary of the information
contained in a consumer's credit report. The most well known type of
credit risk score is the Fair Isaac or FICO score. This form of credit
scoring is a mathematical summary calculation that assigns numerical
values to various pieces of information in the credit report. The
overall credit risk score is highly relative in the credit underwriting
process for a mortgage loan.
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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.
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Deed
of trust
In many states, this document is used in place of a mortgage to secure
the payment of a note.
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Default
Failure to meet legal obligations in a contract, specifically, failure
to make the monthly payments on a mortgage.
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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.
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Delinquency
Failure to make payments on time. This can lead to foreclosure.
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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.
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Discount
Point
see point
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Down
Payment
Money paid to make up the difference between the purchase price and the
mortgage amount.
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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.
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Earnest
Money
Money given by a buyer to a seller as part of the purchase price to bind
a transaction or assure payment.
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Entitlement
The VA home loan benefit is called an entitlement (i.e. entitlement for
a VA guaranteed home loan). This is also known as eligibility.
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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.
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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.
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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.
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Escrow
Disbursements
The use of escrow funds to pay real estate taxes, hazard insurance,
mortgage insurance, and other property expenses as they become due.
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Escrow
Payment
The part of a mortgagor’s monthly payment that is held by the servicer
to pay for taxes, hazard insurance, mortgage insurance, lease payments,
and other items as they become due.
5TOP
Fannie Mae
see Federal National Mortgage Association.
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Farmers
Home Administration (FmHA)
Provides financing to farmers and other qualified borrowers who are
unable to obtain loans elsewhere.
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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.
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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.
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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.
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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".
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Firm
Commitment
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.
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First
Mortgage
The primary lien against a property.
_
Fixed
Installment
The monthly payment due on a mortgage loan including payment of both
principal and interest.
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Fixed
Rate Mortgage
The mortgage interest rate will remain the same on these mortgages
throughout the term of the mortgage for the original borrower.
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Fully
Amortized ARM
An adjustable-rate mortgage (ARM) with a monthly payment that is
sufficient to amortize the remaining balance, at the interest accrual
rate, over the amortization term.
5TOP_
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".
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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.
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Freddie
Mac
see Federal Home Loan Mortgage Corporation.
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Ginnie
Mae
see Government National Mortgage Association.
_
Government
National Mortgage Association (GNMA)
Also known as "Ginnie Mae," provides sources of funds for
residential mortgages, insured or guaranteed by FHA or VA.
_
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.
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Growing-Equity
Mortgage (GEM)
A fixed-rate mortgage that provides scheduled payment increases over an
established period of time. The increased amount of the monthly payment
is applied directly toward reducing the remaining balance of the
mortgage.
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Guaranty
A promise 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.
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Guarantee
Mortgage
A mortgage that is guaranteed by a third party.
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Hazard
Insurance
A form of insurance in which the insurance company protects the insured
from specified losses, such as fire, windstorm and the like.
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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.
_
HUD-1
statement
A document that provides an itemized listing of the funds that are
payable at closing. Items that appear on the statement include real
estate commissions, loan fees, points, and initial escrow amounts. Each
item on the statement is represented by a separate number within a
standardized numbering system. The totals at the bottom of the HUD-1
statement define the seller's net proceeds and the buyer's net payment
at closing.
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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.
_
Indexed
rate
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.
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Initial
Interest Rate
This refers to the original interest rate of the mortgage at the time of
closing. This rate changes for an adjustable-rate mortgage (ARM). It's
also known as "start rate" or "teaser".
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Installment
The regular periodic payment that a borrower agrees to make to a lender.
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Insured
Mortgage
A mortgage that is protected by the Federal Housing Administration (FHA)
or by private mortgage insurance (MI).
_
Interest
The fee charged for borrowing money.
_
Interest
Accrual Rate
The percentage rate at which interest accrues on the mortgage. In most
cases, it is also the rate used to calculate the monthly payments.
_
Interest
Rate Buydown Plan
An arrangement that allows the property seller to deposit money to an
account. That money is then released each month to reduce the
mortgagor's monthly payments during the early years of a mortgage.
_
Interest
Rate Ceiling
For an adjustable-rate mortgage (ARM), the maximum interest rate, as
specified in the mortgage note.
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Interest
Rate Floor
For an adjustable-rate mortgage (ARM), the minimum interest rate, as
specified in the mortgage note.
_
Interim
Financing
A construction loan 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.
_
Jumbo
Loan
A loan which is larger (more than $240,000 as of 1/1/99) 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.
_
Late
Charge
The penalty a borrower must pay when a payment is made a stated
number of days (usually 15) after the due date.
_
Lease-Purchase
Mortgage Loan
An alternative financing option that allows low- and moderate-income
home buyers to lease a home with an option to buy. Each month's rent
payment consists of principal, interest, taxes and insurance (PITI)
payments on the first mortgage plus an extra amount that accumulates in
a savings account for a down payment.
_
Liabilities
A person's financial obligations. Liabilities include long-term and
short-term debt.
_
Lien
A claim upon a piece of property for the payment or satisfaction of a
debt or obligation.
_
Lifetime
Payment Cap
For an adjustable-rate mortgage (ARM), a limit on the amount that
payments can increase or decrease over the life of the mortgage.
_
Lifetime
Rate 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 loan. See
cap.
_
Loan
A sum of borrowed money (principal) that is generally repaid with
interest.
_
Loan-to-Value
Ratio
The relationship between the amount of the mortgage loan and the
appraised value of the property expressed as a percentage.
_
Lock
Lender's guarantee that the mortgage rate quoted will be good for a
specific number of days from day of application.
_
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.
_
Maturity
The date on which the principal balance of a loan becomes due and
payable.
_
MIP
(Mortgage Insurance Premium)
It is insurance from FHA to the lender against incurring a loss on
account of the borrower's default.
_
Monthly
Fixed Installment
That portion of the total monthly payment that is applied toward
principal and interest. When a mortgage negatively amortizes, the
monthly fixed installment does not include any amount for principal
reduction and doesn't cover all of the interest. The loan balance
therefore increases instead of decreasing.
_
Mortgage
A legal document that pledges a property to the lender as security for
payment of a debt.
_
Mortgage
Banker
A company that originates mortgages exclusively for resale in the
secondary mortgage market.
_
Mortgage
Broker
An individual or company that charges a service fee to bring borrowers
and lenders together for the purpose of loan origination.
_
Mortgagee
The lender.
_
Mortgage
Insurance
Money paid to insure the mortgage when the down payment is less than 20
percent. See private mortgage insurance, FHA mortgage insurance.
_
Mortgage
Life Insurance
A type of term life insurance In the event that the borrower dies while
the policy is in force, the debt is automatically paid by insurance
proceeds.
_
Mortgagor
The borrower or homeowner.
_
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.
_
Note
A legal document that obligates a borrower to repay a mortgage loan at a
stated interest rate during a specified period of time.
_
Office of
Thrift Supervision (OTS)
The regulatory and supervisory agency for federally chartered savings
institutions. Formally known as Federal Home Loan Bank Board.
_
One-year
adjustable
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.
_
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.
_
Owner
Financing
A property purchase transaction in which the party selling the property
provides all or part of the financing.
_
Payment
Change Date
The date when a new monthly payment amount takes effect on an
adjustable-rate mortgage (ARM) or a graduated-payment mortgage (GPM).
Generally, the payment change date occurs in the month immediately after
the adjustment date.
_
Periodic
Payment Cap
A limit on the amount that payments can increase or decrease during any
one adjustment period.
_
Periodic
Rate Cap
A limit on the amount that the interest rate can increase or decrease
during any one adjustment period, regardless of how high or low the
index might be.
_
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.
_
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.
_
Pre-Approval
The process of determining how much money you will be eligible to borrow
before you apply for a loan.
_
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, such as savings and loan associations, commercial banks, and
mortgage companies, who make mortgage loans directly to borrowers. These
lenders sometimes sell their mortgages to the secondary mortgage markets
such as to FNMA or GNMA, etc.
_
Principal
The amount borrowed or remaining unpaid. The part of the monthly payment
that reduces the remaining balance of a mortgage.
_
Principal
Balance
The outstanding balance of principal on a mortgage not including
interest or any other charges.
_
Principal,
Interest, Taxes, and Insurance (PITI)
The four components of a monthly mortgage payment. Principal refers to
the part of the monthly payment that reduces the remaining balance of
the mortgage. Interest is the fee charged for borrowing money. Taxes and
insurance refer to the monthly cost of property taxes and homeowners
insurance, whether these amounts that are paid into an escrow account
each month or not.
_
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 3 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.
_
Qualifying
Ratios
Calculations used to determine if a borrower can qualify for a mortgage.
They consist of two separate calculations: a housing expense as a
percent of income ratio and total debt obligations as a percent of
income ratio.
_
Rate Lock
A commitment issued by a lender to a borrower or other mortgage
originator guaranteeing a specified interest rate and lender costs for a
specified period of time.
_
Realtor®
A real estate broker or an associate holding active membership in a
local real estate board affiliated with the National Association of
Realtors.
_
Real
Estate Agent
A person licensed to negotiate and transact the sale of real estate on
behalf of the property owner.
_
Real
Estate Settlement Procedures Act (RESPA)
A consumer protection law that requires lenders to give borrowers
advance notice of closing costs.
_
Recission
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.
_
Refinance
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.
_
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 collateral for and
repayment of the loan.
_
Revolving
Liability
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.
_
Satisfaction
of Mortgage
The document issued by the mortgagee when the mortgage loan is paid in
full. Also called a "release of mortgage".
_
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
The property that will be pledged as collateral for a loan.
_
Seller
Carry-back
An agreement in which the owner of a property provides financing, often
in combination with an assumable mortgage. See owner financing.
_
Servicer
An organization that collects principal and interest payments from
borrowers and manages borrowers’ escrow accounts. The servicer often
services mortgages that have been purchased by an investor in the
secondary mortgage market.
_
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.
_
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.
_
Standard
Payment Calculation
The method used to determine the monthly payment required to repay the
remaining balance of a mortgage in substantially equal installments over
the remaining term of the mortgage at the current interest rate.
_
Step-Rate
Mortgage
A mortgage that allows for the interest rate to increase according to a
specified schedule (i.e., seven years), resulting in increased payments
as well. At the end of the specified period, the rate and payments will
remain constant for the remainder of the loan.
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Survey
A measurement of land, prepared by a registered land surveyor, showing
the location of the land with reference to known points, its dimensions,
and the location and dimensions of any buildings.
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Sweat
Equity
Equity created by a purchaser performing work on a property being
purchased.
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Third-party
Origination
When a lender uses another party to completely or partially originate,
process, underwrite, close, fund, or package the mortgages it plans to
deliver to the secondary mortgage market.
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Title
A document that gives evidence of an individual's ownership of property.
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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.
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Title
Search
An examination of municipal records to determine the legal ownership of
property. Usually is performed by a title company.
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Total
Expense Ratio
Total obligations as a percentage of gross monthly income including
monthly housing expenses plus other monthly debts.
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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.
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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.
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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.
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Usury
Interest charged in excess of the legal rate established by law.
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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.
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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.
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Variable
Rate Mortgage (VRM)
see adjustable rate mortgage
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Verification
of Deposit (VOD)
A document signed by the borrower's financial institution verifying the
status and balance of his/her financial accounts.
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Verification
of Employment (VOE)
A document signed by the borrower's employer verifying his/her position
and salary.
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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.
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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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