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Adjustable-rate mortgage (ARM)
A mortgage with an interest rate that adjusts periodically based on a preselected index, causing interest rates and payments to rise and fall with the market.
The time between changes in the interest rate and monthly payments on an ARM.
A method of documenting a loan file that relies on information the borrower is likely to be able to provide, instead of waiting on verification sent to third parties for confirmation of statements made in the application.
A monthly repayment schedule in which a loan is repaid in fixed payments of principal and interest.
Annual Percentage Rate (APR)
A measure of credit cost to the borrower, calculated on the assumption that the loan runs to term, and must be reported by lenders under the Truth in Lending regulations.
Often referred to as a 1003, an initial statement of personal and financial information required to approve your loan.
A written estimate of a property’s current market value as prepared by an appraiser.
An additional disclosure specific to adjustable-rate mortgages that must be prepared and presented to the consumer within three days of application whenever an adjustable-rate mortgage transaction is contemplated
Anything of monetary value that a person owns. Assets include real property, personal property and enforceable claims against others (including bank accounts, stocks, and mutual funds and so on).
A feature of a loan allowing it to be transferred to the new purchaser of a home. Assumable mortgages can help attract buyers because assumption of a loan requires lower fees and/or qualifying standards than a new loan.
A unit of measure: 1/100th of one percent. For example the difference between a 9.0 percent loan and a 9.5 percent loan is 50 basis points.
An individual who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan in full.
An individual who assists in arranging funding or negotiating contracts for a client, but does not loan money himself.
A situation in which the seller contributes money that allows the lender to give the buyer a lower rate and payment, usually in exchange for an increase in sales price. With a refinance, this could be paid by the borrower.
Certificate of Eligibility
The document given to qualified veterans which entitles them to VA guaranteed loans for homes, businesses, and mobile homes. Certificates of eligibility may be obtained by sending DD-214 (Separation Paper) to the local VA office with VA form 1880 (Request for Certificate of Eligibility)
A written agreement or restriction on the use of land or promising certain acts. Homeowner Associations often enforce restrictive covenants governing architectural controls and maintenance responsibilities. However, land could be subject to restrictive covenants even if there is no homeowner’s association.
A mortgage not insured by FHA or guaranteed by the VA.
Failure to meet legal obligations in a contract, including failure to make payments on a loan. A mortgage is generally considered to be in default when a payment is 30 or more days past due.
Interest added to the balance of a loan when monthly payments are not sufficient to cover it.
Failure to make payments on time.
When the value of property declines.
Money paid for a house from one’s own funds at closing. The down payment will be the difference between the purchase price and mortgage amount.
The right to use the land of another for a specific limited purpose.
The value an owner has in real estate over and above the obligation against the property.
The neutral third party that holds money and/or documents until the escrow instructions are fulfilled and escrow can be a title company or an attorney, depending on state regulations.
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.
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.
Period of time during which a loan payment may be made after its due date without incurring a late penalty.
Total income before taxes or expenses are deducted.
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.
Stands for home equity line of credit, or simply “home equity line.” It is a loan set up as a line of credit for some maximum draw, rather than for a fixed dollar amount.
That portion of a borrower’s monthly payments held by the lender or servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Also known as reserves.
A construction loan made during completion of a building or a project. A permanent loan usually replaces this loan after completion
Joint Ownership Agreement
An agreement between owners defining their rights, ownership, monetary obligations and responsibilities. This could be between an investor and an occupant or the occupants. If an investor is involved, the investor does not take depreciation deductions and none of the occupant’s payment is deemed rent for tax purposes.
Two or more persons own a property. Joint tenants with the common law right of survivorship means the survivor inherits the property without reference to the decedent’s will. Creditors may sue to have the property divided to settle claims against one of the owners.
A loan which is larger than the limits set by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.
A claim or charge against property. Property is said to be encumbered by a lien and the lien must be removed to clear title
Life cap (Interest)
A pre-determined amount that establishes the maximum interest rate life of a loan. This can be expressed as a percentage above the start rate or as a rate of interest independent of the start rate.
This document sets out the costs associated with a mortgage, including the interest rate, lender fees, title charges, pre-paid interest, and insurance. The government requires that your lender give you a Loan Estimate within three days of receiving your loan application. The Loan Estimate is only an estimate; some fees can change before closing. Lender fees and the interest rate (if you have locked your rate) may not increase, and certain other costs may be increased by more than 10 percent.
Lock or lock-in
A lender’s guarantee of an interest rate for a set period of time, usually between loan application and loan closing. This protects borrowers against rate increases during that time.
The amount a lender adds to the index on an adjustable rate mortgage to establish the adjusted interest 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 document that creates a lien on a property as security for the payment of a debt.
The lender in a mortgage loan transaction.
A loan for which real estate serves as collateral to provide for repayment in case of default.
A legal document that obligates a borrower to repay loan at a stated interest rate during a specified period of time. The agreement is secured by a mortgage.
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.
Negotiable Rate Mortgage (RBM)
A loan in which the interest rate is adjusted periodically.
Net Effective Income
The borrower’s gross income minus federal income tax.
A statement in a mortgage contract forbidding the assumption of the mortgage without the prior approval of the lender.
A written promise to pay a certain sum of money at a certain time. A negotiable note starts “Pay to the order of” and is transferable by endorsement similar to a check.
A long-term mortgage, usually ten years or more. Also called an “end loan.”
Principal, Interest, Taxes, and Insurance. Also called monthly housing expense.
Pledged Account Mortgage (PAM)
Money is placed in a pledged savings account and this fund plus earned interest is gradually used to reduce mortgage payments.
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 written document authorizing another to act on his or her behalf as an Attorney in Fact. One does not need to be a licensed attorney to act as an attorney in fact but, power of attorney forms are powerful legal documents that should be used only under the advice of a licensed attorney at law.
The amount of debt, not counting interest, left on a loan.
A deed releasing whatever interest you may hold in a property but making no warranty whatsoever.
Real Estate Settlement Procedures Act (RESPA)
RESPA is a federal law that allows consumers to review information on known or estimated settlement costs once after application and once prior to or at a settlement. The law requires lenders to furnish the information after application only.
The cancellation of a contract. With respect to mortgage refinancing, the law that gives the homeowner three days to cancel a contract in some cases once it is signed if the transaction uses equity in the home as security.
Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records.
Obtaining a new mortgage loan on a property already owned. Often to replace existing loans on the property.
Reverse Annuity Mortgage
A form of mortgage in which the lender makes periodic payments to the borrower using the borrower’s equity in the home as Satisfaction of Mortgage: The document issued by the mortgagee when the mortgage loan is paid in full. Also called a “release of mortgage.”
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.
Shared Appreciation Mortgage
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 a mortgage where the borrowers share the monthly principal and interest payments with another party in exchange for part of the appreciation.
Interest which is computed only on the principle balance.
A measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to known points, its dimensions, and the location and dimensions of any buildings.
Equity created by a purchaser performing work on a property being purchased.
Tenant in Common
Two or more persons own the property with no right of survivorship. If one dies, his interest passes to his heirs, not necessarily the co-owner. Either party, or a creditor of one, may sue to partition the property.
Document that gives evidence of an individual’s ownership of property
Insurance that provides an indemnity against loss or damage as a result of a defect in title ownership to a particular piece of property. Title insurance covers mistakes made during a Title Search as well as matters which could not be found or discovered in the public records such as missing heirs, mistakes, fraud and forgery.
An examination of municipal records to determine the legal ownership of property. Usually is performed by a title company.
Mortgage in which the borrower receives a below-market interest rate for a specified number of years (most often 7 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 7 or 10 years. Also called “Super Seven” or “Premier” mortgage.
The decision whether to make a loan to a potential home buyer based on credit, employment, assets, and other factors and the matching of this risk to an appropriate rate and term or loan amount.
Interest charged in excess of the legal rate established by law.
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.
Verification of Deposits (VOD)
Document signed by the borrower’s financial institution verifying the status and balance of his/her financial accounts.
Verification of Employment (VOE)
Document signed by the borrower’s employer verifying his/her position and salary.
The debt secured includes an existing debt already on the property. The payments made to the holder of the wraparound include payments due on the existing loan and the holder must forward the appropriate portion of each payment to the existing noteholder.