Adjustable Rate Mortgage (ARM)
A type of mortgage where the interest rate and payment changes periodically, usually once or twice a year.
The means by which a loan is scheduled to be paid off (including interest and principal) by a series of regular installment periods. Loans are typically amortized over a thirty-year period.
Annual Percentage Rate (APR)
All fees financed in your mortgage loan package (interest, loan fees, points, or other charges) ex-pressed as a percentage of the loan amount (usually slightly above the actual interest rate alone).
A comprehensive written estimate of the current value of the home. Market value is based on its condition and the selling prices of comparable homes recently sold in the area.
The value a taxing authority places upon real or personal property for the purpose of calculating loans.
The feature of a loan which may permit you to transfer your mortgage and its specified terms to the person(s) purchasing your home. Having an assumable loan could make it easier to sell your home, since an assumption of a loan usually involves lower fees and/or qualifying standards for the new borrower than a new loan. Note that assumability is typically subject to conditions.
The Consumer Financial Protection Bureau on January 10, 2013, issued final regulations that require all creditors to determine a consumer’s “ability to repay” a mortgage before making a loan. The final rule includes a “qualified mortgage” standard broad enough to encompass most current types of mortgages. It also provides “safe harbor” legal protection to most qualified mortgages.
Loans with buy-down plans required and up-front payment (usually a percentage of the loan rather than a fixed amount) to be paid by the buyer or seller. In exchange, the interest rate over the initial portion of the loan term or for the whole term is lowered. Buy-downs can either be temporary or permanent.
Cash reserves are liquid assets (for example, cash or marketing securities) that remain in the borrowers’ accounts after the down payment and closing costs are paid.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) established the Consumer Financial Protection Bureau. Their core function is to work to give consumers the information they need to understand the terms
of their agreements with financial companies. They work to make regulations and guidance as clear and streamlined as possible to providers of consumer financial products and services can follow the rules on their own.
Real property against which there are no liens or judgments.
The conclusion of a mortgage transaction is referred to as the “closing.” When buying a home, closing includes the delivery of a deed, delivery of financial disclosures, the signing of notes, the disbursement of funds necessary to consummate the sale, and transfer of title.
A closing agent or attorney assures that all documentation related to the sale of a house had been properly completed, including the title search and title insurance.
Costs that must be paid before the loan can be funded. These costs may include such things as property tax, insurance, points, escrow fees, title insurance premiums, recording fees, transfer tax, etc. Escrow instructions will stipulate which portions of the fees are to be paid by the buyer or the seller. An estimate of closing costs will be given to you by the lender within 3 days after loan application submission.
Closing Disclosure (CD)
Upon receiving a clear to close approval, the lender will contact the settlement agent to finalize all fees. The lender will prepare and disclose the Closing Disclosure 7 business days prior to closing. The borrower must be in receipt of the closing disclosure not less than 3 business days prior to closing. The Closing Disclosure will state that closing funds required to complete the transaction.
Land and facilities shared by all individual owners in a residential project (such as a condominium or planned unit development project) and sometimes managed by a homeowner’s association. Common areas include streets, parks, tennis courts, pools, community buildings and other amenities for the convenience and enjoyment of the residents.
Recently sold properties that are used in the appraisal process to determine the fair market value of the subject property. Properties are comparable if they are approximately the same size, in the same location, and have similar amenities to the subject property.
A form of ownership of real property. The purchaser receives title to a particular unit and a proportionate interest in certain common areas. The purchaser may also receive the right to the use of certain areas (e.g., parking and storage). A condominium is generally defined as a separately owned space bounded by the interior surfaces of the permanent walls, floor, and ceilings.
In real estate lending, the term used to describe a home loan that meets FNMA/FHLMC guidelines.
A home loan, generally made by a financial institution, that is not insured or guaranteed by any federal agency such as FHA or VA.
A rating given to a person to establish willingness to pay obligations based upon one’s past history and timely payment.
A report giving a person’s credit history that shows delinquent payments, bankruptcies, foreclosures, and public records. There are three bureaus reporting credit information.
Percentage of the debt in relation to income.
Deed of Trust
An official instrument that, when properly executed and delivered, conveys title or ownership of real property from the seller to the buyer.
The difference between the sales price of real estate and the loan amount.
Funds submitted with an offer to show good faith to follow through with the purchase. Earnest money is placed by the real estate broker in an escrow/trust account until closing when it becomes part of the down payment of closing costs.
Equal Credit Opportunity Act (ECOA)
ECOA is a federal law that requires mortgage lenders and other creditors to make credit available without discrimination, based on race, color, religion, national origin, age, sex, marital status, receipt of income from public assistance programs or good-faith exercise of rights under the Consumer Credit Protection Act.
The difference between the fair market value and the existing liens on the property, sometimes referred to as the owner’s interest.
A procedure in which documents or transfers of cash and property are put in the care of a third party, other than the buyer or seller.
A neutral third-party (also known as an escrow officer) appointed to act as custodian for documents and funds during the transfer from seller to buyer.
Fannie Mae/Freddie Mac
The nation’s two federally chartered and stockholder-owned mortgage finance companies. Forbidden by their charters from originating loans (that is, from providing mortgage loans on a retail basis), these two Government-Sponsored Enterprises (GSEs) purchase and/or securitize mortgage loans made by others.
Federal Housing Administration (FHA)
U.S. agency that sets standards for underwriting mortgages and insures residential mortgage loans from private lenders. A division of the Department of Housing and Urban Development (HUD).
An FHA-insured and guaranteed mortgage loan designed to make purchasing a home more affordable, especially for the first-time homebuyer. FHA loans feature lower down payments and higher qualifying ratios than most conventional mortgages. There are some limits to the amount of money that can be borrowed.
The financial charge is the cost of consumer credit expressed as a dollar amount. It includes the amount of interest you will pay during the terms of the loan, origination points, and certain other items. Some closing costs are not treated as finance charges.
The type of loan where the interest rate will not change for the entire term of the loan.
Floating interest rate
A loan interest rate that has not been “locked” in. The floating rate and any discount points are not guaranteed. The actual rate and points will be based on the market price available at the time your rate is locked.
A specified period of time (usually 3 to 6 months) wherein borrowers can make either lower payments or no payments at all on a loan. This is some-times offered by a lender as an option to prevent foreclosure.
A legal procedure in which property securing a defaulted loan is sold by the lender in order to repay a borrower’s loan. The amount paid by a buyer at the foreclosure may not be enough to fully repay the loan and the borrower may continue to owe the lender the difference.
The loss of money, property, rights, or privileges due to a breach of legal obligation.
A letter certifying to the underwriter that funds in the applicant’s account are truly a gift and need not be repaid.
The person to whom an interest in real property is conveyed (e.g., the buyer).
The person who conveys an interest in real property (e.g., the seller).
A broad form of casualty insurance coverage for real estate that includes protection against loss from fire, certain natural causes, vandalism, and malicious mischief.
An inspection of the condition of a property. A third party conducts the inspection, which includes all major appliances and structural elements. If an inspector finds something wrong, and your sales contract allows you to, you can request that the seller pay for the repairs. If the seller refuses, and your sales contract allows you to, you may not have to proceed with the purchase of the home.
A type of insurance that covers repairs to specified parts of a house for a specific period of time. The builder or property seller as a condition of the sale may provide it, but homeowners can also purchase it.
Homeowners’ Association (HOA)
An organization of property owners that administers the rules and upholds the covenants of a subdivision, development, or condominium complex.
A savings account for accumulating that portion of a borrower’s monthly payments designated for future payment of taxes and/or insurance. Required by certain lenders or with certain types of financing.
When used in a mortgage note or credit agreement, a financial index is the measurement used to decide how much the annual percentage rate will change at the beginning of each adjustment period. Generally, the index plus or minus margin equals the new rate that will be charged, subject to any caps. Lenders use various financial index rates: London Interbank Offered Rate (LIBOR) and Treasury-Indexed ARMs (T-Bills).
A request for your credit report, made by you or a company considering you for an offer of credit.
Interest Rate Cap
A safeguard built into adjustable rate mortgages to protect the consumer by limiting the amount the interest rate may change each change period and over the life of the loan.
A form of co-ownership giving each tenant equal interest and equal rights in a property, including the right of survivorship.
Also known as a nonconforming loan. The amount of the loan exceeds standards that would make it eligible for sale to Fannie Mae and Freddie Mac. Certain geographical areas have temporary con-forming loan limits higher than typical conforming limits. Lenders may charge additional fees and place certain restrictions due to the large loan amounts.
A general term referring to all types of financial debts and obligations. The applicant’s liabilities include all installment loans, revolving charge ac-counts, real estate loans, stock pledges, alimony and all other debts or obligations of a continuing nature.
A legal claim against a property that must be paid off when the property is sold.
A form that provides a precise breakdown of estimated closing costs. It is required by law to be provided by the lender to the consumer within 3 business days of receipt of an application.
Ratio of the loan balance to the value of the home, usually shown as a percentage.
After the loan closes, the loan servicer co9llects payments. Lenders often release servicing to another organization, so a borrower may not necessarily send mortgage payments to the company that made the original loan.
An amount expressed as a percentage which is added to the index in order to determine the inter-est on a variable rate loan. Different lenders and loan programs may use different margins and indexes. The margin generally does not change once it is established in your loan documents.
The most probably price at which a property will sell in a competitive and open market.
A legal document pledging real property as security for a loan which is to be repaid on an installment basis.
Insurance (whether government or private), the function of which is to insure a home loan lender against loss caused by a borrower’s default. This insurance may cover a percentage of, or virtually all, of the home loan depending on the type of loan.
A situation which may occur on variable rate loans which have a payment cap feature. If your monthly payment is capped, your adjusted payment amount may, at times, be insufficient to pay the actual amount due. The unpaid deferred interest will then be added to your loan balance. This increase in your loan balance is known as negative amortization.
In reference to real estate, a home loan with an amount that exceeds VNMA/FHLMC loan limits (also called a “jumbo” loan).
Non-Recurring Closing Costs
One-time charges, i.e., title fees, points, appraisal fees, document/processing fees, initial PMI premium (my be a gift, paid by seller or borrowed).
A written promise by one party to pay a specified sum of money to a second party under conditions agreed upon mutually.
A fee paid to a lender for processing a loan application; it is stated as a percentage of the mortgage amount.
For adjustable rate mortgages (ARMs), it is an increase or decrease in the required monthly
principal and interest payment according to the terms outlined in the note and based on market fluctuations.
Payment change limitation. A restriction on the amount that the monthly payment on an adjustable rate loan can change on any payment date. With a payment cap there may be deferred interest (negative amortization).
Refers to principal, interest, taxes, and insurance, the components of a mortgage payment.
A fee paid to the lender on closing day to increase the effective yield of the mortgage. 1 point is equal to one percentage point (1% ) of the loan amount. Also called a discount point.
A commitment by a lender to extend credit provided specific conditions are met.
Interest paid before it is due. This payment is made at loan closing.
A charge that a borrower may be required to pay during the years of a real estate loan if he or she pays it in full or pays large sums to reduce the unpaid balance. This is not a guarantee or commitment by a lender to extend credit.
Informal estimate of how much financial a potential borrower might expect to obtain. Will often include
a counseling of loan types and review of credit-worthiness.
The original balance of money loaned, excluding interest. Also, the remaining balance of a loan, excluding interest.
Private Mortgage Insurance (PMI)
Insurance which guarantees the lender payment of the balance of the loan not covered by sale of the property in the event of foreclosure. PMI may be required on certain types of loans and will be included as part of your monthly payment.
Taxes (based on the assessed value of the home) paid by the homeowner for community services such as schools, public works, and other costs of local government.
Guidelines applied by the lenders to determine how large a loan to grant a home buyer.
A written agreement guaranteeing the borrower a specified interest rate provided the loan is closed with a set period of time.
Real Estate Agent
A licensed real estate professional who can sell real estate.
Real Estate Purchase Contract (REPC)
A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.
Real Estate Settlement Procedures Act (RESPA)
A federal law that, among other things, requires lenders to disclose all settlement costs. It gives you the legal right to review estimated closing costs after you apply for a loan, and again at or before settlement.
A real estate agent, broker, or associate who is a licensed member of the National Association of Realtors, and its local and state associations. Real-tors are trained to assist clients in the purchase and sale of properties.
Recurring Closing Costs
Costs that will be paid again and again, i.e., taxes and insurance.
The process of paying off one loan with the proceeds from a new loan using the same property as collateral.
Federal regulation by the Federal Reserve Board to carry out the purposes of the Truth-in-Lending Act (TILA).
The right of a consumer to cancel (at no cost) a credit transaction in which the consumer’s current primary residence is used as security for a debt. This right does not apply to a purchase transaction.
The amount of savings, separate from the down payment, that a homebuyer sets aside in case of unforeseen events or emergencies.
A loan secured by a mortgage that is lower in priority than a first mortgage. Commonly used to supplement a first mortgage loan or assumption at the time of purchase or as a way of raising cash for home improvements.
The property that will be pledged as collateral for a loan. If the borrower defaults, the lender can sell the collateral to satisfy the debt.
An agreement that creates or provides the lender a security interest in your property. Commonly title “deed of Trust” or “Mortgage.”
Secondary Mortgage Market
The market wherein home loans are sold by the lender after closing to Fannie Mae, Freddie Mac or a variety of other institutional investors.
A required policy purchased by the buyer of a home ensuring that title will be held free of any liens other than that obtained by the buyer.
A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.
The process of evaluating a loan application to determine the risk involved for the lender. It involves an analysis of the borrower’s creditworthiness and the quality of the property itself. Also, the process of determining if a borrower qualifies for a loan by fulfilling required guidelines.