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Terminology
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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).
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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.
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.
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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.
Balloon
Payment
The final lump sum paid at the maturity date of a balloon
mortgage.
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.
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.
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.
COFI
Adjustable-rate mortgage with rate that adjusts based on a
cost-of-funds index, often the 11th District Cost of Funds.
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.
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.
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.
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.
Credit
Report
A report documenting the credit history and current status
of a borrower's credit standing.
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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.
Debt-to-Income Ratio
The ratio, expressed as a percentage, which results when a
borrower's monthly payment obligation on long-term debts is
divided by his or her gross monthly income. See housing expenses-to-income
ratio.
Deed of trust
In many states, this document is used in place of a mortgage
to secure the payment of a note.
Default
Failure to meet legal obligations in a contract, specifically,
failure to make the monthly payments on a mortgage.
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.
Delinquency
Failure to make payments on time. This can lead to foreclosure.
Department of Veterans Affairs (VA)
An independent agency of the federal government which guarantees
long-term, low-or no-down payment mortgages to eligible veterans.
Discount Point
see point
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.
Earnest
Money
Money given by a buyer to a seller as part of the purchase
price to bind a transaction or assure payment.
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.
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.
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.
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.
Escrow Disbursements
The use of escrow funds to pay real estate taxes, hazard insurance,
mortgage insurance, and other property expenses as they become
due.
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.
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.
Federal Home Loan Bank Board (FHLBB)
The former name for the regulatory and supervisory agency
for federally chartered savings institutions. Agency is now
called the Office of Thrift Supervision
Federal
Home Loan Mortgage Corporation(FHLMC) also called "Freddie
Mac"
Is a quasi-governmental agency that purchases conventional
mortgage from insured depository institutions and HUD-approved
mortgage bankers.
Federal Housing Administration
(FHA)
A division of the Department of Housing and Urban Development.
Its main activity is the insuring of residential mortgage
loans made by private lenders. FHA also sets standards for
underwriting mortgages.
Federal National
Mortgage Association (FNMA) also know as "Fannie Mae"
A tax-paying corporation created by Congress that purchases
and sells conventional residential mortgages as well as those
insured by FHA or guaranteed by VA. This institution, which
provides funds for one in seven mortgages, makes mortgage
money more available and more affordable.
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."
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.
Fixed Rate
Mortgage
The mortgage interest rate will remain the same on these mortgages
throughout the term of the mortgage for the original borrower.
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.
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."
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.
Freddie Mac
see Federal Home Loan Mortgage Corporation
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.
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.
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.
Guarantee
Mortgage
A mortgage that is guaranteed by a third party.
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