1 year adjustable (ARM)
- A loan with a fixed rate for the first 1-year that has a rate that changes once each year for the remaining life of the loan. Because the interest rate can change after the first 1 year, the monthly payment may also change.
- A loan with a fixed rate for the first 10 years that has a rate that changes once each year for the remaining life of the loan. Because the interest rate can change after the first 10 years, the monthly payment may also change.
- A loan with the same interest rate and payment over the entire 10-year life of the loan. As one of the shorter loan terms available, 10 year fixed loans offer lower lifetime interest payments than similar loans with longer terms, but you also have a higher monthly payment.
- A loan with the same interest rate and payment over the entire 10-year life of the loan. As one of the shorter loan terms available, 10 year fixed loans offer lower lifetime interest payments than similar loans with longer terms, but you also have a higher monthly payment.
- A loan with the same interest rate and payment over the entire 15-year life of the loan. As one of the shorter loan terms available, 15 year fixed loans offer lower lifetime interest payments than similar loans with longer terms, but you also have a higher monthly payment.
- A loan with a fixed rate for the first 2 years that has a rate that changes once each year for the remaining life of the loan. Because the interest rate can change after the first 2 years, the monthly payment may also change.
- A loan with the same interest rate and payment over the entire 20-year life of the loan. As one of the longer loan terms available, 20 year fixed loans offer lower payments, but you will pay more in interest over the life of this loan than a similar loan with a shorter term.
- A loan with the same interest rate and payment over the entire 25-year life of the loan. As one of the longer loan terms available, 25 year fixed loans offer lower payments, but you will pay more in interest over the life of this loan than a similar loan with a shorter term.
- A loan with a fixed rate for the first 3 years that has a rate that changes once each year for the remaining life of the loan. Because the interest rate can change after the first 3 years, the monthly payment may also change.
- A loan with the same interest rate and payment over the entire 30-year life of the loan. As one of the longer loan terms available, 30 year fixed loans offer lower payments, but you will pay more in interest over the life of this loan than a similar loan with a shorter term.
- A loan with the same interest rate and payment over the entire 40-year life of the loan. As one of the longer loan terms available, 40 year fixed loans offer lower payments, but you will pay more in interest over the life of this loan than a similar loan with a shorter term.
- A loan with a fixed rate for the first 5 years that has a rate that changes once each year for the remaining life of the loan. Because the interest rate can change after the first 5 years, the monthly payment may also change.
- The payment is calculated over a stated term and the balance must be repaid or refinanced at the end of the 5th year.
- A loan with a fixed rate for the first 7 years that has a rate that changes once each year for the remaining life of the loan. Because the interest rate can change after the first 7 years, the monthly payment may also change.
- The payment is calculated over a stated term and the balance must be repaid or refinanced at the end of the 7th year.
- A summary of the public records relating to the title to a particular piece of land. If there are any title defects they must be cleared before a buyer can purchase clear, marketable, and insurable title.
- Allows the lender to speed up the rate at which your loan comes due or even to demand immediate payment of the entire balance of the loan should you default on you loan.
- Interest that has accumulated from one payment-due date to the next. Also, the total amount of interest paid on a loan over time
- A fee charged by a dealer to begin a lease. Also known as a bank fee if the lessor is a bank, or an initiation fee. Acquisition fees start at about $300 and are seldom negotiable.
- Products or services added by dealerships. Common examples are pinstriping, rustproofing, alarm systems, electronic equipment, and extended warranties. Add-ons can really drive up the sticker price of a vehicle, but their actual cost is usually negotiable.
- A mortgage in which the interest rate is adjusted periodically based on an index. Also known as the renegotiable rate mortgage, the variable rate mortgage or the Canadian rollover mortgage. For example a one-year ARM is reset once a year, on a prescribed date, to the current level of the base rate plus a margin. For one-year ARMs, the base rate is often the one-year U.S. Treasury bill yield, adjusted for a constant.
- On an adjustable rate mortgage, the time between changes in the interest rate and/or monthly payment. For one-year ARMs, the adjustment is made once a year; for three-year ARMs, every three years; etc.
- An amount charged the buyer to cover the cost of national and local advertising. Many experts suggest that this fee should be no more than 1.5 percent of the manufacturer's suggested retail price (MSRP).
- An entity related to a Seller that is subject to common operating control and that is operated as part of the same system or enterprise. The Seller typically owns less than a majority of the voting stock or the Seller and the entity are subsidiaries of a third party.
- Mortgage with less than or equal to 95 percent LTV, when at least 5 percent of the downpayment comes from the borrower's personal cash.
- Mortgage with greater than 95 percent loan-to-value (LTV) ratio but less than or equal to 97 percent LTV, when at least 3 percent of the downpayment comes from the borrower's personal cash.
- Choice of loan determined under the Affordable Gold program. Indicates whether to submit the loan under the Affordable Gold program and, if so, which type of program.
- Subsidized secondary financing or other financial assistance provided under an established, documented secondary financing or financial assistance program that has formal procedures in place to provide applicant qualification, loan processing, and loan program administration on an ongoing basis.
- Known by various names, such as contract of purchase, purchase agreement, or sales agreement according to location or jurisdiction. A contract in which a seller agrees to sell and a buyer agrees to buy, under specific terms spelled out in writing and signed by both parties.
- The gradual reduction of a debt by periodic payments of interest and principal that are large enough to pay off a loan at maturity. The loan is repaid through regular, monthly payments of principal and interest paid for a predetermined amount of time.
- Mathematical tables that show how a mortgage or other loan is gradually repaid by applying the appropriate amounts of the loan payment to principal and interest. In the beginning of the repayment period, only a small portion is applied to reducing the loan principal. As the loan approaches maturity, the portion of the payment applied to principal.
- The part of the cost that a lender supplies. To determine the amount financed, multiply the purchase price by the interest rate; subtract that amount from the purchase price; add state purchase tax to that remainder; then subtract the down payment. Put differently, AF = purchase price - (purchase price X interest rate) + tax - downpayment.
- The annual cost of a loan to a borrower. Like an interest rate, the APR is expressed as a percentage of the loan amount. Unlike an interest rate, however, it includes other charges or fees to reflect the total cost of the loan. The Federal Truth in Lending Act requires that every consumer loan agreement disclose the APR in large, bold print. Since all lenders must follow the same rules to ensure the accuracy of the APR, borrowers can use the APR as a good basis for comparing the cost of Application
- A written statement of personal and financial information that is required to approve a loan. Note that application fees are usually required for home loans but not for auto loans.
- This charge imposed by your lender covers the initial costs of processing your loan request and checking your credit report.
- A written analysis of the estimated value of a property, as prepared by a qualified appraiser. A fee is typically charged for a real estate appraisal because a home appraisal is time-consuming. An appraisal of an auto is usually not necessary because auto dealers, sellers and buyers all have quick access to the market value of autos.
- The charge for estimating the value of property.
- A mortgage lender determines the fair market value of a home by arranging an independent appraisal of the home's value. The appraisal uses local real estate market sales activity as a major basis for valuation. The appraisal value determines how much the lender is willing to loan. Generally, lenders make mortgage loans of up to 80 percent of the appraisal/fair market value of the home (see loan-to-value (LTV) ratio).
- Group of licensed/certified individuals or entities contracted to perform property value assessments.
- Percentage increase in the value of an asset, expressed at an annual rate. A home bought for $100,000 that appreciates five percent a year will be worth $127,600 after five years.
- Report that appraisers use to record property values, marketability analyses and any pertinent comments regarding the subject property. Assessment reports are classified as appraisal reports or inspection reports.
- Approved recommendation from an appraiser that you must use a more comprehensive type of assessment. An example of an upgrade recommendation includes any adverse/atypical findings or other atypical property or neighborhood condition observed by the appraiser. You must also upgrade an assessment when its value does not support the loan transaction; the appraiser is unable to view the subject property from the public street; the assessment is "subject to" completion; or repair or property rights a
- Anything that has monetary or exchange value that is owned by an indvidual, business or institution. Assets include real estate property, personal property, vehicles and enforceable claims against others (including bank accounts, stocks, mutual funds, and so on). A lender is very interested in the amount and value of any assets you may have because assets can be used as collateral against a loan.
Assumable Mortgage
- An assumable mortgage is a mortgage that allows you to take over a mortgage on a home you are buying or allows a buyer to take over your mortgage if you are selling your house. The advantage of this is that you assume a mortgage that has a lower interest rate than current rates, and you avoid high closing costs.
- 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.
- Electronic terminals through which customers may make deposits, withdrawals, or other transactions as they would through a bank teller.
- Automated underwiriting is used to offer an instant decision regarding your loan request. Automated underwriting is similar to instant offer request. You are usually required to provide additional information to the lender to close your loan.
- Usually a short-term fixed-rate loan that involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a specific time.
- A payment method where your loan payment is automatically deducted from your checking or savings account, so you don't have to mail in your payment each month.
- A proceeding in a federal court in which a borrower who owes more than his or her assets can relieve the debts by transferring his or her assets to a trustee. Different chapters or types of bankruptcy exist. If a person files bankruptcy, a record of the filing appears on the borrower's credit rating for up to 10 years. A bankruptcy declared within the last 4 years may reduce the number of lenders available to serve your needs.
- The underlying interest rate used as a benchmark, or index, for pricing variable-rate loans such as adjustable-rate mortgages, auto loans or credit cards.
- Any mistake in your monthly statement as defined by the Fair Credit Billing Act.
- A preliminary agreement, secured by the payment of earnest money, between a buyer and seller as an offer to purchase real estate. A binder secures the right to purchase real estate upon agreed terms for a limited period of time. If the buyer changes his mind or is unable to purchase, the earnest money is forfeited unless the binder expressly provides that it is to be refunded.
- One who receives funds in the form of a loan with the obligation of repaying the loan in full with interest.
- A bridge loan is a short-term loan that covers the time between your closing date of a home you are buying and the closing date of the home you are selling. You usually need a contract to sell your current house.
- An individual in the business of assisting in arranging funding or negotiating contracts for a client but who does not loan the money himself.
- Distances from the ends and/or sides of the lot beyond which construction may not extend. The building line may be set by a filed plat of subdivision, by restrictive covenants in deeds or leases, by building codes, or by zoning ordinances.
- Find out from your institution to find out what days it counts as business days under the Truth in Lending and Electronic Fund Transfer Acts.
- When the lender and/or the homebuilder subsidizes 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.
- Consumer safeguards that limit the amount the interest rate on an adjustable rate mortgage may change per year and/or the life of the loan.
- Consumer safeguards that limit the amount monthly payments on an adjustable rate mortgage may change.
- Refinancing transaction in which the money the borrower receives from the new loan exceeds the total amount he uses to repay the existing first mortgage, closing costs, points; and satisfy any outstanding subordinate mortgage liens. In other words, a refinance transaction in which the borrower receives additional cash he can use for anything the borrower wishes.
- These ARMs are indexed to Certificate of Deposits (CDs). Adjustments occur every six months, with a per adjustment cap of 1 percent and a lifetime cap of 6 percent.
- A certificate issued by a title company or a written opinion by an attorney that the seller has good marketable and insurable title to the property that he is offering for sale. A certificate of title offers no protection against any hidden defects in the title which an examination of the records could not reveal. The issuer of a certificate of title is liable only for damages due to negligence.
- The meeting between the buyer, seller and lender where the property and funds legally change hands. Also called settlement.
- The closing costs usually are about 2 percent to 6 percent of the mortgage amount. Charges associated with the underwriting and funding of a loan that are paid when the loan is about to be disbursed and the borrower about to take possession of the asset. Mortgage closing costs include title search, insurance, loan origination fee, appraisal fee, legal and escrow service fees, mortgage points, survey, taxes, deed recording fee, credit report charge and other costs assessed at closing.
- The day on which the formalities of a real estate sale are finished. The certificate of title, abstract, and deed are generally prepared for the closing by an attorney and this cost charged to the buyer. The buyer signs the mortgage, and closing costs are paid. The final closing merely reiterates the original agreement reached in the agreement of sale.
- An outstanding claim which negatively affects the marketability of title.
- Property offered to support a loan that can be seized if you default.
- The fee charged by or paid to a broker, agent or auto sales rep for negotiating a real estate, car sale or loan transaction. A commission is generally a percentage of the sales price.
- An agreement, often in writing, between a lender and a borrower to loan money at a future date subject to the stated conditions.
- Interest is computed on the principal balance of a mortgage plus accrued interest.
- A determination by a governmental agency that a particular building is unsafe or unfit for use.
- Individual ownership of a unit and an individual interest in the common areas and facilities that serve the project.
- Secondary market entity that purchases loans from originators. Conduits provide expertise to evaluate, price, purchase, and service nonconforming loans.
- Any loan that meets the criteria and limits set forth by the largest buyers of loans, Fannie Mae or Freddie Mac.
- A short-term interim loan for financing the cost of construction. The lender advances funds to the builder as the work progresses.
- A person who contracts to erect buildings. There are also contractors for each phase of construction: heating, electrical, plumbing, air conditioning, road building and others.
- A mortgage not insured by FHA or guarantee by the VA or Farmers Home Administration (FmHA).
- Any mortgage which is not insured or guaranteed by a government agency such as HUD/FHA, VA, or the Farmers Home Administration.
- A conversion option allows you to convert an ARM to a fixed rate mortgage. You will likely pay a higher rate or more points to have this option.
- An apartment building or a group of dwellings owned by a corporation, the stockholders of which are the residents of the dwellings. It is operated for their benefit by their elected board of directors. In a cooperative, the corporation or association owns title to the real estate. A resident purchases stock in the corporation which entitles him to occupy a unit in the building or property owned by the cooperative.
- An entity that typically sells the Mortgages it originates to other lenders. The Correspondent performs some or all of the loan processing functions such as taking the loan application, ordering credit reports, appraisals, title reports, and verifying the borrower's income and employment. The Correspondent may or may not have delegated underwriting and typically funds the loans at settlement. The Mortgage is closed in the Correspondent's name and the Correspondent may or may not service the Mortgage.
- Another person who signs your loan and assumes equal responsibility for it.
- A cost-benefit analysis that subtracts homeownership benefits from homeownership costs. Included in the calculation of homeownership costs are: Mortgage interest, including points and closing costs.
- These ARMs are indexed to the actual costs of what banks pay to borrow money. Rates can adjust every month, six months, or every year.
- The right granted by a creditor to pay in the future in order to buy or borrow in the present; also, a sum of money owed to a person or business.
- An agency that keeps your credit record.
- Any card used from time to time to borrow money or buy goods or services on credit.
- The record of how you've borrowed and repaid debts.
- 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 net income (FHA/VA loans) or gross monthly income (Conventional loans).
- Report of an individual's credit history that a credit reporting company (CRC) or credit repository prepares that you use to determine a borrower's creditworthiness.
- Company that collects information received from more than one credit repository, merges all the information, and reports it in one form; merged credit reports.
- Company that collects information on an individual's credit history and reports it in one form, the in-file credit report.
- Statistical system used to rate credit applicants according to various characteristics relevant to creditworthiness.
- Guarantee or promise by the seller of the loan relating to the creditworthiness of the borrower(s). The seller warrants that the borrower has the willingness to repay and there is evidence of an acceptable credit reputation.
- Health, life, or accident insurance designed to pay the outstanding balance of debt.
- A person or business from whom you borrow or to whom you owe money.
- Past and future ability to repay debts.
- Your current index value is the index that is used to figure your interest adjustment on ARMs.
- Borrower who earns less than 5 percent of total stable monthly income from self-employed business income.
- A plastic card, looks similar to a credit card, that consumers may use to make purchases, withdrawals, or other types of electronic fund transfers.
- An amount of money owed by one person, company, organization or other entity to another.
- Your total monthly housing expense PLUS any recurring debts (i.e. monthly credit card minimum payment, car payments, or other loan payments) divided by your income.
- A formal written instrument by which title to real property is transferred from one owner to another. The deed should contain an accurate description of the property being conveyed, should be signed and witnessed according to the laws of the State where the property is located, and should be delivered to the purchaser at closing day. There are two parties to a deed: the grantor and the grantee. (See also deed of trust, general warranty deed , quitclaim deed, and special warranty.
- In many states, this document is used in place of a mortgage to secure the payment of a note.
- Failure to repay a loan or otherwise meet the terms of your credit agreement.
- Failure to repay a loan or otherwise meet the terms of your credit agreement.
- 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 deferring your interest is that the buyer ends up owing more than the original amount of the loan. Also called Negative Amortization.
- Failure to make payments on time. This can lead to foreclosure.
- An independent agency of the federal government that guarantees long-term, low- or no-down payment mortgages to eligible veterans.
- Decline in value of a house due to wear and tear, adverse changes in the neighborhood, or any other reason.
- Information that must be given to consumers about their financial dealings.
- 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).
- A State tax, in the forms of stamps, required on deeds and mortgages when real estate title passes from one owner to another. The amount of stamps required varies with each State.
- A list of documents you will be required to provide when submitting a loan application. The required documents range from w2's to a signed sales contract.
- Category determined by Loan Prospector to indicate the minimum level of documentation you must obtain to underwrite the loan. The three possible classes are: Accept Plus, Accept and Caution.
- Money paid to make up the difference between the purchase price and mortgage amount plus the closing cost fees to close the loan.
- 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.
- A right-of-way granted to a person or company authorizing access to or over the owner's land. An electric company obtaining a right-of-way across private property is a common example.
- The creditor's right to take property or a portion of property offered as security.
- As defined in the Equal Credit Opportunity Act, a person 62 or older.
- A variety of systems and technologies for transferring funds electronically rather than by check.
- An obstruction, building, or part of a building that intrudes beyond a legal boundary onto neighboring private or public land, or a building extending beyond the building line.
- A legal right or interest in land that affects a good or clear title, and diminishes the land's value. It can take numerous forms, such as zoning ordinances, easement rights, claims, mortgages, liens, charges, a pending legal action, unpaid taxes, or restrictive covenants. An encumbrance does not legally prevent transfer of the property to another. A title search is all that is usually done to reveal the existence of such encumbrances.
- 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 difference between the Fair Market Value and current indebtedness, plus the Closing Cost Fees to close the loan.
- Refers to a neutral third party who carries out the instructions of both the buyer and seller to handle all the paperwork of settlement or "closing." Escrow may also refer to an account held by the lender into which the homebuyer pays money for tax or insurance payments.
- 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. Also referred to as FederalNationalMortgageAssociation.
- Provides financing to farmers and other qualified borrowers who are unable to obtain loans elsewhere.
- Also called Freddie Mac, is a quasi-governmental agency that purchases conventional mortgages from insured depository institutions and HUD-approved mortgage bankers.
- 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 standard for underwriting mortgages.
- Also known 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, they are generous enough to handle moderate-priced homes almost anywhere in the country.
- Requires a small fee (up to 3 percent of the loan amount) paid at closing or a portion of this fee added to each monthly payment of an FHA loan to insure the loan with FHA. On a 9.5 percent $75,000 30-year fixed-rate FHA loan, this fee would amount to either $2,250 at closing or an extra $31 a month for the life of the loan.
- The total dollar amount credit will cost.
- Funds originating from an interested party to the transaction used to reduce the mortgage interest rate, subsidize the borrower's monthly payment, contribute to the financing charges (such as discount points, loan fees, commitment and/or origination fees), and pay borrower expenses (such as application fees, homeowner association fees, appraisal fees, transfer taxes, tax stamps, attorney fees, surveys, closing costs, and title insurance).
- Characteristics of a fixed rate mortgage: A rate that does not change during the life of the loan. A consistent payment. Less risk because of payment stability.
- A mortgage on which the interest rate is set for the term of the loan.
- The float period refers to the time between when you accept a loan and when you lock-in your rate. During this time the interest rate and points on your loan will fluctuate with the market until you lock.
- A legal procedure in which property securing debt is sold by the lender to pay a defaulting borrower's debt .
- A quasi-governmental agency that purchases conventional mortgages from insured depository institutions and HUD-approved mortgage bankers. Also Referred to as Federal Home Loan Mortgage Corporation.
- A deed which conveys not only all the grantor's interests in and title to the property to the grantee, but also warrants that if the title is defective or has a "cloud" on it (such as mortgage claims, tax liens, title claims, judgments, or mechanic's liens against it) the grantee may hold the grantor liable.
- 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.
- That party in the deed who is the buyer or recipient.
- That party in the deed who is the seller or giver.
- The total amount the borrower earns per month, before any expenses are deducted.
- The total amount of salary earned before taxes and other deductions are made. Different than net pay or take home pay, which is the amount of salary after taxes and other deductions are taken. Lenders look at your gross and net pay to help decide how much money to lend you.
- 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.
- A form of insurance in which the insurance company protects the insured from specified losses, such as fire, windstorm and the like.
- Secondary financing that consists of a revolving line of credit secured by a lien junior to a mortgage.
- A loan in real estate property that is used to secure or guarantee the amount borrowed. Sometimes referred to as a second mortgage or borrowing against your home. The loan allows you to tap into your home's built-up equity, which is the difference between the amount your home could be sold for, and any claims held against it. People often use a home equity loan for home improvements or to pay for a new car.
- Standard used to derive data from millions of transactions; supported by property values for hundreds of counties in all 50 states. When you submit a conventional/conforming transaction, the service automatically searches Home ValueSM models to determine if it can support the value of the transaction, based on the loan's overall risk
- Insurance coverage required by a mortgage lender to insure against such potentially catastrophic damage to a home (the lender's collateral) as flood, fire, tornado, or hurricane. Homeowner's insurance also provides liability coverage in case someone is injured on your property.
- U.S. Department of Housing and Urban Development. Office of Housing/Federal Housing Administration within HUD insures home mortgage loans made by lenders and sets minimum standards for such homes.
- 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. The taxes and insurance portions represent property taxes and homeowner's insurance premium, respectively. These are often required by the lender to be included in a monthly payment since regular and timely payment of both of these obligations improves the lender's collateral position.
- Information issued by one credit repository that contains an individual credit history to review in determining a loan applicant's creditworthiness.
- Your total monthly housing expense divided by your gross monthly income (before taxes).
- 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 initial interest rate is the rate you pay when you first get your loan. On an ARM, this rate may be for 5 years (5/1 ARM) or only a month.
- The starting interest rate on an adjustable-rate mortgage loan, which is often below market ARM rates. The intent of a low initial rate is to assist homebuyers that may not otherwise qualify for a mortgage loan.
- Liability that typically has a fixed interest rate, fixed term, and equal payments amortized over a set number of months, agreed upon by the lender and the borrower prior to disbursement.
- A charge paid for borrowing money. Interest is usually expressed as a percentage of the amount borrowed or interest rate.
- Interest cost shows how much you will pay in interest over the life of the loan, assuming you keep the loan for the entire period.
- Interest due is the portion of the mortgage payment that goes toward interest. When you close on your home, you will usually owe interest for the time between your closing date and when you make your first payment.
- The annual rate of interest on the loan, expressed as a percentage of 100.
- The interest rate adjustment period is how often your rate is adjusted on an ARM after the initial rate period is over. For example, a 5/1 ARM means you have an initial rate period of 5 years that is fixed and then after 5 years, your rate changes every year.
- A limit on the amount the interest rate can increase. A periodic cap limits how much the rate can increase at each adjustment period. A lifetime cap limits how much the rate can increase during the term of the loan.
- The interest rate ceiling is the highest interest rate possible under an ARM. You may hear this called the lifetime cap and it based on the number of percentage points your rate can increase from your initial rate.
- An interest rate decrease cap is the maximum allowable decrease in your interest rate (on an ARM) each time your rate is adjusted. It is usually 1 or 2 percentage points. If rates go down 4%, your rate may only go down 2% due to the cap.
- The rate floor is the lowest interest rate possible under an ARM loan.
- The interest rate increase cap is the maximum allowable increase in your interest rate (on an ARM) each time your rate is adjusted. It is usually 1 or 2 percentage points. For example, if your rate adjusts every year, each year it cannot exceed the stated cap.
- The interest rate index is the specific fund/security that your interest rate on an ARM is tied to. Common indexes are Treasury Constant Maturities or Cost of Funds indices. All the indices are published regularly in readily available sources.
- Money source for a lender.
- A credit account held by two or more people so that all can use the account and all assume legal responsibility to repay.
- A loan that is larger (more than $300,700) 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.
- A payment made later than agreed upon in a credit contract and on which additional charges may be imposed.
- Company that performs the functions necessary to complete a mortgage transaction. Lenders include approved sellers, mortgage brokers, and third-party originators (TPOs).
- Items payable in connection with the loan and contribute to the total amount of the loan's closing costs. These are the fees that lenders charge to process, approve and make the mortgage loan. See Closing Costs for more information.
- A person who signs a lease to get temporary use of property.
- A company that provides temporary use of property usually in return for periodic payment.
- Legal responsibility to repay debt.
- A claim upon a piece of property for the payment or satisfaction of a debt or obligation.
- Cash or assets that can be immediately converted to cash
- The amount of debt not including interest.
- Defines the scope of your mortgage, including the type of interest rate you have and the mortgage term. For example, your loan program may be for 30 years with a fixed rate or may be for 5 years with an adjustable rate.
- The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage. Loan amount divided by the fair market value of the collateral, generally the appraisal value. For instance, a lender considering an 80 percent LTV on a home appraised at $250,000 would consider a loan request of $200,000. When considering a home equity loan, the lender will consider the combined LTV, assuming full disbursement of the equity loan.
- A lock period refers to the amount of time prior to closing that you can secure an interest rate for your loan. Generally, lock periods range from 30 days to over 90 days. Generally, the longer the lock period, the more you pay in points or interest.
- A lender's guarantee of an interest rate for a set period of time. The time period is usually that between loan application approval and loan closing. The lock-in protects you against rate increases during that time.
- You can "lock in" the current interest rate for a set length of time, usually 30, 45 or 60 days. By "locking in" a rate the interest rate is locked and if interest rates increase, your "locked in" rate will not change.
- The amount a lender adds to the base rate of an adjustable-rate mortgage to determine the loan rate. For instance, if a one-year ARM is priced at a margin of 300 basis points (100 basis points is equal to one percent) over the yield on the one-year constant maturity-adjusted Treasury bill, and the T-bill's yield is 6.5 percent, the one-year ARM rate.
- 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.
- A title that is free and clear of objectionable liens, clouds, or other title defects. A title which enables an owner to sell his property freely to others and which others will accept without objection.
- Liability that is substantial. The debt results from a recent inquiry and could affect the ratios used to make a decision on the loan.
- Information issued by one credit reporting company that receives credit history information from more than one credit repository and combines all of it into one concise format. May be individual or joint.
- Minimum down payment is the amount of money you are required to put down at closing. If the minimum is 10%, you must make a down payment of at least $10,000 on a $100,000 house.
- The amount paid each month towards the principal and interest amount of a loan. The monthly payment may or may not include taxes and insurance.
- A lien or claim against real property given by the buyer to the lender as security for money borrowed. Under government-insured or loan-guarantee provisions, the payments may include escrow amounts covering taxes, hazard insurance, water charges, and special assessments. Mortgages generally run from 10 to 30 years, during which the loan is to be paid off.
- A mortgage with a provision that permits borrowing additional money in the future without refinancing the loan or paying additional financing charges. Open-end provisions often limit such borrowing to no more than would raise the balance to the original loan figure.
- A person or entity that specializes in loan origination, receiving a commission to match borrowers and lenders. The Mortgage Broker performs some or most of the loan processing functions such as taking loan applications, ordering credit reports, appraisals, and title reports. Typically the Mortgage Broker does not underwrite the loan and generally does not use its own funds for closing. The Mortgage is generally closed in the name of the lender who commissioned the broker's services.
- A written notice from the bank or other lending institution saying it will advance mortgage funds in a specified amount to enable a buyer to purchase a house.
- Money paid to insure the mortgage when the down payment is less than 20 percent. See Private Mortgage Insurance or FHA Mortgage Insurance.
- The payment made by a borrower to the lender for transmittal to HUD to help defray the cost of the FHA mortgage insurance program and to provide a reserve fund to protect lenders against loss in insured mortgage transactions. In FHA insured mortgages this represents an annual rate of one-half of one percent paid by the mortgagor on a loan.
- A written agreement to repay a loan. The agreement is secured by a mortgage, serves as proof of an indebtedness, and states the manner in which it shall be paid. The note states the actual amount of the debt that the mortgage secures and renders the mortgagor personally responsible for repayment.
- One mortgage point equals one percent of the loan amount (e.g., $1,000 on a mortgage loan of $100,000). Mortgage points are also called discount points. The IRS considers points to be a form of prepaid interest which means they can be deducted from taxable income. Lenders often require that the borrower pay one or two points at closing in exchange for a lower mortgage rate.
- The lender.
- The borrower or homeowner.
- Stands for Manufacturer's Suggested Retail Price. It represents the manufacturer's recommended selling price for a vehicle and each of its options.
- 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 homebuyer ends up owing more than the original amount of the loan.
- The borrower's gross income minus federal income tax.
- A no-documentation or "no-doc" mortgage is a product that certain lenders offer to borrowers which generally requires a down payment of at least 5% to 30% or more of the home purchase price or who generally have at least 25% equity in their home. Loan programs featuring lower down payments (5-24%) are also available to borrowers with excellent credit. No-doc mortgages are generally a wise choice for self-employed people, those who do not wish to verify their income.
- A statement in a mortgage contract forbidding the assumption of the mortgage without the prior approval of the lender.
- A conventional home mortgage that does not meet the criteria of Fannie Mae or Freddie Mac for various reasons including loan amount, loan characteristics or underwriting guidelines. Non-Conforming loans usually incur a higher rate and/or points.
- A line of credit that may be used over and over again, including credit cards, overdraft credit accounts, and home equity lines.
- A lease that may involve a balloon payment based on the value of the property when it is returned.
- A fee commonly charged by a lender for processing a loan application. The origination fee may be presented in the form of points or a dollar amount. Each point is equal to 1 percent of the loan amount (e.g. two points on a $100,000 mortgage would cost $2,000).
- A line of credit that allows you to write checks or draw funds by means of an EFT card for more than your actual balance, with an interest charge on the overdraft.
- A limit on the amount that the monthly payment can increase. A periodic cap limits the amount of the increase at each adjustment period. A lifetime cap limits the amount that the monthly payment can increase during the term of the loan. A potential peril of payment caps is negative amortization. In the case of an adjustable-rate mortgage with a payment cap, rising interest rates may cause the loan payment to be insufficient to cover even the interest portion of the scheduled
- An unsecured loan, which means a borrower does not put up any collateral or security to guarantee the repayment of the loan. For this reason, personal loans carry high interest rates. If a borrower owns a home, a lower-interest-rate alternative is a home-equity loan. But this option requires that the borrower put up his or her home or other real estate property as collateral.
- An alternative to private mortgage insurance, also known as a second trust loan. The most common type is an 80/10/10 where a first mortgage is taken out for 80% of the home’s value, a down payment of 10% is made and another 10% is financed in a second trust at a higher interest rate. In some cases, you may even qualify for a piggyback loan with as little as a 5% down payment.
- Principal, interest, taxes, and insurance. Also called monthly housing expense.
- A map or chart of a lot, subdivision or community drawn by a surveyor showing boundary lines, buildings, improvements on the land, and easements.
- A method by which consumers can pay for purchases by having their deposit accounts debited electronically without the use of checks.
- Additional points you can pay a lender to lower the interest rate on your loan at closing. Each point is equal to 1 percent of the loan amount (e.g. two points on a $100,000 mortgage would cost $2,000). Also referred to as Discount Points.
- A legal document authorizing one person to act on behalf of another.
- Pre-paid items are amounts that are required by the Lender to be paid in advance of their due date at settlement. You may be required to prepay certain items at the time of settlement, such as accrued interest, mortgage insurance premiums and hazard insurance premiums. Pre-paid items contribute to the total amount of the loan's closing costs. See Closing Costs for more information.
- 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.
- 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 premiums are allowed in some form (but not necessarily imposed) in 36 states and the District of Columbia.
- The interest rate charged by lenders to their best, most creditworthy customers. A less credit worthy customer may be offered a loan at the prime rate plus anywhere from 2 to 10 percent. Borrowing at below-prime also occurs, but is less common and usually applies to businesses, not individual consumers. The Federal Reserve determines whether to lower or raise the prime rate based on a variety of economic factors.
- The amount of debt, not counting interest, left on a loan.
- 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 payments loans, however, borrowers are usually required to carry private mortgage insurance. Private mortgage insurance will require an initial premium payment of 1.0 percent to 5.0 percent of your mortgage amount and may require an additional monthly fee depending on your loan's structure.
- Processing are the steps a lender takes with your loan application to gather your information for underwriting. Processing involves building your file of information for your loan. Processing includes getting the credit report, appraisal, verification of employment, assets, etc.
- Levies assessed on real property. A local assessor can provide information on tax rates.
- Typically, the option to buy a leased auto usually during the life of a lease (lease buy out) or when the lease ends.
- Qualification is the initial process to see if you have enough cash and sufficient income to meet the requirements of the lender for a loan you want. Qualification is not an approval because it does not include your credit history. Qualified borrowers can be turned down if they have poor credit history.
- Qualification ratios are set by the lender that state your housing expense to income, and housing expense plus other debts to income, cannot exceed a specified number. Many lenders use a 28% housing expense to income and a 36% housing expense plus debts to income.
- A deed that transfers whatever interest the maker of the deed may have in the particular parcel of land. A quitclaim deed is often given to clear the title when the grantor's interest in a property is questionable. By accepting such a deed the buyer assumes all the risks. Such a deed makes no warranties as to the title.
- In lending, the amount of interest on the loan expressed as an interest rate or annual percentage rate (APR) of the principal.
- Rate cap insurance limits how much the interest rate can increase during the float period (usually no more than .5%). For example, if you get the insurance when the rate is 7.5%, you will be guaranteed that the rate will not go above 8%. This protects you from uncertainty in the market and rising rates. With the insurance you will be told that you can lock-in a rate, usually within 60 days of closing.
- These options are all the combinations of interest rate and points that are offered on a particular loan. Usually you will find that paying more points lowers interest rates.
- A middle man or agent who buys and sells real estate for a company, firm, or individual on a commission basis. The broker does not have title to the property, but generally represents the owner.
- RESPA is a federal law that allows consumers to review information on RESPA, known or estimated settlement costs once after application and once prior to or at settlement.
- 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.
- The process of the same mortgagor paying off one loan with the proceeds from another loan.
- A loan in which the interest rate is adjusted periodically. Sometimes referred to as Adjustable Rate Mortgage.
- Required cash is the total cash required for you to close the loan. This cash goes towards down payment, points, and other charges paid to the lender. It also goes towards up-front charges for things like mortgage insurance and other settlement charges associated with the transaction such as title insurance, taxes, etc. Your good faith estimate will show how much cash you need for closing.
- Verified liquid assets remaining after the borrower pays downpayment and closing costs.
- Detailed account of the credit, employment, and residence history, as well as public-record information, concerning an individual.
- Private restrictions limiting the use of real property. Restrictive covenants are created by deed and may "run with the land," binding all subsequent purchasers of the land, or may be "personal" and binding only between the original seller and buyer. The determination whether a covenant runs with the land or is personal is governed by the language of the covenant, the intent of the parties, and the law in the State where the land is situated.
- A form of mortgage in which the lender makes periodic payments to the borrower using the borrower's equity in the home as security.
- Debt that typically has a variable interest rate, an open-ended term, and payments that are based on a percentage of the balance. The debt has a set limit agreed upon by the lender and borrower.
- Assessment of a loan's relative risk with respect to its probability of default. Risk Grade Evaluation quantifies the risk by assigning a grade from RG1 (highest quality) to RG7 (lowest quality).
- Incentive to purchase a property, such as vacations, furniture, automobiles, and securities, and/or excess finance concessions. Also, other giveaways granted by any interested party, including financing inducements that may be over limitations set forth in the definition of financing concessions (to-be sales).
- One-unit property owned by an individual, occupied by the borrower for some portion of the year, and not subject to any timesharing ownership arrangement. The property must be in a location where it can function reasonably as a second home.
- An alternative to private mortgage insurance, also known as a “piggyback loan.” The most common type is an 80/10/10 where a first mortgage is taken out for 80% of the home’s value, a down payment of 10% is made and another 10% is financed in a second trust at a higher interest rate. In some cases, you may even qualify for a second trust loan with as little as a 5% down payment.
- Money borrowed that is guaranteed (or secured) by the borrower's funds and held by the lender in an interest-bearing account. Typically required when a borrower is without credit or has poor credit. The lender usually returns the secured money plus a nominal rate of earned interest to the borrower with a certain period of time if a good credit history is established. Distinguished from unsecured debt.
- Property pledged to the creditor in case of a default on a loan; also referred to as collateral.
- Applicant who owns 25 percent or more interest in a business.
- A component of some finance charges, such as the fee for triggering an overdraft checking account into use.
- All the steps and operations a lender perform to keep a loan in good standing, such as collection of payments, payment of taxes, insurance, property inspections and the like.
- The meeting between the buyer, seller and lender where the property and funds legally change hands. Also referred to as Closing.
- Includes a loan origination fee, points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. The closing costs usually are about 2 percent to 6 percent of the mortgage amount.
- A mortgage in which a borrower receives a below-market interest rate in return for which a 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 mortgages where the borrower shares the monthly principal and interest payments with another party in exchange for a part of the appreciation.
- Interest that is paid on the principal amount borrowed. Considered the best interest term for a borrower because it is not compounded.
- A special tax imposed on property, individual lots or all property in the immediate area, for road construction, sidewalks, sewers, streetlights, etc.
- A lien that binds a specified piece of property, unlike a general lien, which is levied against all one's assets. It creates a right to retain something of value belonging to another person as compensation for labor, material, or money expended in that person's behalf. In some localities it is called "particular" lien or "specific" lien. Also see lien.
- A deed in which the grantor conveys title to the grantee and agrees to protect the grantee against title defects or claims asserted by the grantor and those persons whose right to assert a claim against the title arose during the period the grantor held title to the property. In a special warranty deed the grantor guarantees to the grantee that he has done nothing during the time he held title to the property which has, or which might in the future, impair the grantee's title.
- 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 building.
- As applied to real estate, an enforced charge imposed on persons, property or income, to be used to support the State. The governing body in turn utilizes the funds in the best interest of the general public.
- The Tax Assessed Value (TAV) is the dollar amount assigned to your property for the purposes of taxation. The TAV is not necessarily the market value of your home, but the TAV will take into consideration your home's market value, as well other factors, including your property's tax class, maintenance costs, home improvements, etc. The TAV is established by the county's tax assessor who utilizes features such as sales prices from surrounding properties, location, condition and age of the property.
- The period of time between the beginning loan date on the legal documents and the date the entire balance of the loan is due.
- Usually a short-term fixed-rate loan that involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a specific time. Also known as Balloon Payment Mortgage.
- These are fees charged by vendors to perform services related to your loan, such as title search, mortgage recording and settlement. Third party fees contribute to the total amount of the loan's closing costs. See Closing Costs for more information.
- A document that gives evidence of an individual's ownership of property.
- A policy, usually issued by a Title Insurance company, which insures a homebuyer 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.
- An examination of municipal records to determine the legal ownership of property. Usually is performed by a title company.
- The total dollar value of assets you could easily sell for cash. Liquid assets would include all balances in bank accounts and the value of any stocks, bonds or mutual funds you might own. The value of real estate and other things that take time to sell would not be included in total liquid assets.
- These ARMs are indexed to treasury bills or securities. Depending on the ARM, the rate will adjust every 6 months, every year, or every 3 years.
- A party who is given legal responsibility to hold property in the best interest of or "for the benefit of" another. The trustee is one placed in a position of responsibility for another, a responsibility enforceable in a court of law.
- A federal law requiring disclosure of the Annual Percentage Rate to homebuyers shortly after they apply for the loan.
- A mortgage in which the borrower receives a below-market interest rate for a specified number of years (most often seven or 10 years), 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 within 30 days notice at the end of seven or 10 years. Also called "Super Seven" or "Premier" mortgage.
- The analysis of the risk involved in making a mortgage loan to determine whether the risk is acceptable to the lender. Underwriting involves the evaluation of the property as outlined in the appraisal report, and of the borrower's ability and willingness to repay the loan.
- Mortgage loan made by an approved lender and guaranteed by the Department of Veterans Affairs. VA loans are made eligible to veterans and those currently serving in the military, and can have lower downpayment than other types of loans.
- A premium of up to 2 percent (depending on the size of the down payment) paid on a VA-backed loan. On a $75,000 30-year fixed-rate mortgage with no down payment, this would amount to $1,406 either paid at closing or added to the amount financed.
- A document signed by the borrower's financial institution verifying the status and balance of his/her financial accounts.
- A document signed by the borrower's employer verifying his/her position and salary.
- Relaxing a requirement pertaining to the eligibility of a loan. Waivers may include permitting less documentation than would otherwise be required.
- A wholesaler is a lender that provides loans to borrowers through mortgage brokers or correspondents. The mortgage broker or correspondent works with you and gets your application.
- 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.
- The acts of an authorized local government establishing building codes, and setting forth regulations for property land usage.