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Mortgage Terms
Adjustable-Rate Mortgage
A
loan with an interest rate that changes with market conditions on
predetermined dates.
Annual Percentage Rate (APR)
A
term used to represent the percentage relationship of the total finance
charge to the amount of the loan, over the term of the loan. Do not
confuse the APR with your quoted interest rate, which us used to
determine your monthly principal and interest payment.
The APR reflects the cost of your mortgage loan as a yearly rate.
It will be higher than the interest rate stated on the note because it
includes (in addition to the interest rate) loan discount points, fees
and mortgage insurance.
Appraisal
A
report written by a qualified expert that states an opinion on the value
of a property based on its characteristics and the selling prices of
similar properties or comparable properties in the area.
Appreciation
An
increase in the value of a house due to changes in market conditions or
other causes.
Automated Underwriting
A computerized method of reviewing home mortgage applications for loan
approval.
Balloon
- Mortgage characterized by level fixed payments
for a predetermined time frame followed by either a refinance or
adjustment in interest rate
Capital Gains
- The tax paid upon certain
types of real estate transactions. Contact accountant for specifics (see
links for details)
Cash to
Close -
The amount needed from the
borrower at closing. Consists of down payment, closing costs and prepaid
items. This amount needs to be in the form of a cashier check made
payable to the buyer.
Clear Title
Ownership of the property that is free of liens and legal questions as
to ownership of the property.
Closing
The final step after a lender approves an application. The occasion when
a borrower signs loan documents, including the mortgage or deed of
trust, and when closing costs are paid. Also referred to as the
settlement.
Closing Agent
Usually an attorney or title agency representative who oversees the
closing and witnesses the signing of the closing documents.
Closing Costs
The costs to obtain a mortgage loan. Closing costs cover any services
and charges - such as title search and insurance, appraisals, surveys,
credit histories, required inspections, taxes, and recording fees - that
are necessary to complete the transaction.
Commitment Letter
A binding, written pledge, by the lender to a mortgage applicant, to
make a loan, usually under certain stated conditions.
Condo/Town Home -
Property types that usually have
the following characteristics: they are attached, have a homeowners
association and dues, the outside maintenance is taken care of by the
association, and common areas and amenities available to all owners in
the association.
Conventional Financing -
Standard, non-government
financing.
Counseling Session
Before a homeowner can apply for a reverse mortgage, they are required
to attend a consumer education session with a HUD-approved counseling
agency. The purpose of the
session is to explain the legal and financial consequences of obtaining
a reverse mortgage
Credit Bureaus
- Agencies that provide
compilations of your credit history. The three main credit bureaus are
Experian, Trans Union, and Equifax
Credit Report
A report issued by an independent agency which contains certain
information concerning a mortgage applicants credit history and current
credit standing.
Credit
Scores -
The number generated by the credit
bureaus which is a numerical representation of the subjects credit
profile, range is from 350 on the low side to 800 being the highest
score possible.
Debt
Ratios -
Ratio of debt to pretax income,
often expressed as a front (housing payment only) or back (all debt)
ratios.
Deed of Trust
The legal document conveying title to a property.
Discount
Points -
One point equals one percent of
the loan amount. Points are used to lower the interest rate. One point
does not equate into lowering the interest rate one percent. Generally
lowering the interest rate 1/8 will cost about 1/2 point, although this
can vary based on daily pricing. Typically is tax deductible.
Down
Payment -
Difference between loan amount and
purchase price.
Earnest Money -
Deposit toward down payment submitted with a purchase agreement as
evidence of the buyers commitment
Equifax
Information Services
PO Box 740243
Atlanta, GA 30374
(800) 685-1111
Equity
Your ownership interest, or that portion of the value of the property
that exceeds the current amount of your home loan. For example, if the
property is worth $100,000 and the loan is for $75,000, then you have
$25,000, or 25% equity in your home.
Escrows - The portion
of the monthly payment that is not applied to principal or interest, but
rather is used to pay mortgage insurance, homeowners insurance and
property taxes.
Experian Information Services
PO Box 2002,
Allen, TX 75013-3742
(888) 397-3742
Fannie Mae - Short name for the Federal National Mortgage
Association. One of the main Government Sponsored Agencies which are the
companies who sell mortgage backed bonds to investors. They are the
ultimate source of the money that we lend. Fannie Mae protects its
investors by issuing underwriting guidelines that are to be followed to
ensure quality lending; also see schematic under "commonly asked
questions"
Freddie Mac - Short
name for Federal Home Loan Mortgage Corporation - see above
FHA Financing -
Government backed minimum down financing program which has a lower
mortgage insurance premium and greater credit leeway as compared to
conventional minimum down programs
Fixed Loan - Most
common type of financing. Terms ranging from 10 to 30 years. Interest
rate and P&I payment remains constant throughout life of loan.
Floating - Not
locking in a rate, but rather choosing to float the interest rate as the
market moves up or down.
Flood Certification -
Required document on all loans. Confirms if the property is in or out of
a FEMA designated flood zone
Funds held in Escrow
- Generally only applies to new construction. Monies held from the
seller to provide payment for repairs or non completed items.
Good Faith Estimate
A document that tells mortgage borrowers the approximate costs they will
pay at or before closing based on common practices in the locality
Government Financing
- Financing provided from government agencies such as FHA, VA etc
Home Equity Conversion Mortgage (HECM)
A
type of FHA-insured reverse mortgage
HELOC - Home Equity
Line of Credit. Second mortgage product, generally characterized by
interest only payments and the ability to draw, pay back, and redraw
Home Inspection - Not
required by lender. This is a private inspection done by the buyers
choice to confirm that the property is in acceptable condition.
Homeowners Association Dues
- Amount paid by owner of a townhome or condo to cover various amenities
or services provided by the homeowners association (examples -- common
areas, hazard insurance, garbage, mowing, snow removal)
Homeowners Insurance (also called Hazard Insurance)
A real estate insurance policy required of the buyer protecting the
property against loss caused by fire, some natural causes, vandalism,
etc. May also include added coverage such as personal liability and
theft away from the home.
HUD-1 Settlement Statement
A standard form used to disclose costs at closing
Index
Interest rate adjustments on adjustable-rate mortgage (ARM) loans are
based on a specific index or treasury issue (bond) which is selected
because it is a reliable, familiar financial indicator. Your monthly
interest rate payment will be adjusted up or down in relation to this
market indicator, plus the margin as specified in your note.
Interest Rate
The interest that is paid to the lender for the use of the money,
usually expressed as an annual percentage rate.
Jumbo
Loan - Loan with an initial balance greater than
$417,000.
Jumbo
Pricing - Refers to the fact that rates are generally
slightly higher on jumbo loans.
Lien
A
legal claim against a property as security for a payment of an
obligation.
Loan Balance
The outstanding balance of a reverse mortgage loan. Equal to principal
plus financed fees plus all accrued interest.
Loan Conditions
These are terms under which the lender agrees to make the loan. They
include the interest rate, length of loan agreement, and any
requirements the customer must meet prior to closing.
Loan Proceeds
Payments to a customer through a reverse mortgage.
Loan Settlement
The conclusion of the mortgage transaction. This includes the delivery
of a deed, the signing of notes, and the disbursement of funds necessary
to the mortgage transaction.
Loan-to-Value (LTV)
The ratio of the amount borrowed to the appraised value or sales price
of real property expressed as a percentage.
Ex. 80,000 owed on a property worth
100,000 equals an 80% LTV
Lock-in
Period - Time period that a rate is protected for during
the loan process
Locking
in - Choosing to protect a particular rate and program
for a specific period of time
Margin
The number of percentage points added to the index to calculate the
interest rate for an adjustable-rate mortgage (ARM) at each adjustment
period.
Mortgage
A legal document that pledges a property to the lender as security for
payment of a debt.
Mortgagee
The lender.
Mortgage Insurance (MI)
An insurance policy which will repay a portion of the loan if the
borrower does not make payments as agreed upon in the note. In the
reverse mortgage program, the MIP protects the lender against the risk
that the loan balance might at some time exceed the value of the home.
Mortgage Insurance Premium (MIP)
The fee paid by a borrower to FHA or a private insurer for mortgage
insurance.
Mortgagor
The borrower.
Mortgage Specialist
The individual responsible for collecting the completed application and
all supporting documents before the entire loan packet is submitted to
underwriting. Also known as a processor.
Note
The agreement which states the home mortgage amount to be borrowers and
the terms and conditions of the loan. It also includes a completed
description of how the loan should be repaid and the timeframe for
repayment.
Origination Fee
The amount collected by the lender for making a loan. It is generally
equal to a percentage of the principal amount borrowed. It is charged to
cover the lenders costs in preparing the initial loan application and
the processing of the loan.
Origination Fee
The amount collected by the lender for making a loan. It is generally
equal to a percentage of the principal amount borrowed. It is charged to
cover the lenders costs in preparing the initial loan application and
the processing of the loan.
Principal
The amount of a loan, excluding interest; or the remaining balance of a
loan, excluding interest.
PITI
- Monthly payment. Stands for Principal, Interest, Tax escrow, Insurance
(both hazard and mortgage) escrow
Pre-paids
- Group of items paid at closing including monies to set up the escrow
account and to pay prepaid or odd days interest.
Principal
The amount of a loan, excluding interest; or the remaining balance of a
loan, excluding interest.
Private Mortgage Insurance (PMI)
A mortgage insurance policy on a conventional mortgage loan issued by a
private insurance company.
Principal Residence
The property is considered the primary residence of the borrower.
Processing
The completion of a mortgage loan application and supporting documents.
Property
Taxes - Amount of tax due on a property.
Purchase
Agreement - Contract between buyer and seller outlining
the terms of the agreement.
Rate Cap
The limit of how much the interest rate may change on an ARM at each
adjustment and over the life of the loan.
Refinance
The process of paying off one loan with the proceeds from a new loan
secured by the same property.
Servicing Fee
The fee paid by the borrower to cover record-keeping and other
administrative costs of processing mortgage payments. This flat fee will
be added to the outstanding loan balance each month.
Settlement
-
See Closing.
Single
Family Residence - Standard, one unit home, as opposed to
a Condo/Town Home with a homeowners association
Title
-
A
legal document establishing the right of ownership.
Title
Company - Company that prepares title work and is where
the closing is held
Title
Insurance - Policy provided by the title company on their
title work guaranteeing the accuracy and completion. Lenders Policy is
required and only protects the Lender from loss, Owners Policy is
available at buyers discretion and protects the owner
Title Search
-
A
check of title records to ensure that a person is the legal owner of a
property and that there are no liens or other claims outstanding on the
property.
Trans Union
Information Services
PO Box 1000
Chester, PA 79022
(800) 916-8800
Truth-in-Lending Statement
Required by federal regulations, this statement tells borrowers the
costs of financing their loan expressed as the annual percentage rate
(APR).
Underwriting
The process of a lender reviewing the application, documentation, and
property prior to rendering a loan decision.
VA
Financing - Government backed financing available only
for service veterans, characterized by no down payment, no mortgage
insurance, but with a funding fee |
