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ADJUSTABLE RATE MORTGAGE (ARM) -
Is a mortgage in
which the interest rate is adjusted periodically based on a preselected index. Also sometimes known as the renegotiable rate mortgage, the variable rate mortgage or the Canadian
rollover mortgage.
AMORTIZATION -
The periodic principal pay down of a loan.
ANNUAL PERCENTAGE RATE A.P.R. -
Is a interest rate reflecting the cost
of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account point and other credit
cost. the APR allows home buyers to compare different types of mortgages based on the annual cost for each loan.
ASSUMPTION -
Taking over a loan and becoming personally liable for the repayment.
BALLOON (payment) MORTGAGE -
Usually a short-term fixed-rate loan which involves
small payments for a certain period of time and one large payment for the remaining amount of the principal at a time specified in the contract.
BANKRUPTCY -
A provision of Federal Law whereby a debtor surrenders his assets to
the Bankruptcy Court and is relieved of the future obligation to repay his unsecured debts. After bankruptcy, the debtor is discharged and his unsecured creditors may not pursue
further collection efforts against him. Secured creditors, those holding deeds of trust or judgment liens, continue to be secured by the property but they may not take other
action to collect from the debtor.
BENEFICIARY -
A person named to receive a benefit from a trust. A contingent
beneficiary has conditions attached to his rights, usually someone else must die first.
BROKER -
An individual in the business of assisting in arranging funding or
negotiating contracts for a client buy who does not loan the money himself.
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. Brokers us ally charge a fee
or receive a commission for their services.
CAPS (interest) -
Consumer safeguards which limit the amount the interest rateon an
adjustable rate mortgage 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.
CAVEAT EMPTOR -
Buyer beware. The buyer must inspect the property and satisfy
himself it is adequate for his needs. The seller is under no obligation to disclose defects but may not actively conceal a known defect or lie if asked.
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 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 TITLE -
A written opinion by an attorney setting forth the status of
title to the property as shown on the public records. The certificate does not certify as to matters not of record and affords no protection unless the author was negligent.
CLOSINGS -
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. commitment an agreement, often in writing, between a lender and a borrower to loan money at a future date subject to the completion of paperwork or compliance with stated
conditions.
COLLATERAL -
Property pledged to secure a loan.
COMMITMENT -
A promise by a lender to make a loan on specific terms or conditions
to a borrower or builder. A promise by an investor to purchase mortgages from a lender with specific terms or conditions. construction loan (interim loan): A loan to provide the
funds necessary to pay for the construction of buildings or homes. These are usually designed to provide periodic disbursements to the builder as he progresses.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.
CONDOMINIUM -
A system of individual fee simple ownership of portions (units) in a
multi-unit structure, combined with joint ownership of common areas. Each individual may sell or encumber his own unit.
CONSTUCTION LOAN -
A short term interim loan for financing the cost of
construction. The lender advance funds to the builder at periodic intervals as the work progresses.
COVENANT -
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.
CONVENTIONAL LOAN -
A mortgage not insured by FHA or guaranteed by the VA
ordeferred 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.
CREDIT REPORT -
A report documenting the credit history and current status of a
borrower's credit standing.
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 net effective income (FHA/VA loans) or gross monthly income (conventional loans).
DEED -
The written document conveying real property. Once recorded at the
Courthouse, the original piece of paper is not needed to convey title in the future.
DEED OF TRUST -
A voluntary lien to secure a debt deeding the property to Trustees
who foreclose, sell the property at public auction, in the event of default on the Note the Deed of Trust secures. 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.
DELINQUENCY -
Failure to make payments on time. this can lead to foreclosure.
DELIVERY -
The final, unconditional and absolute transfer of a deed to the Grantee
so that the Grantor may not revoke it. A Deed, signed but held by the Grantor, does not pass title.
DEPARTMENT OF VETERANS AFFAIRS
An independent agency of the federal government
which guarantees long-term, low-or no-down payment mortgages to eligible veterans.
DOWN PAYMENT -
Money paid to make up the difference between the purchase price and
the mortgage amount. Down payments usually are 10 percent to 20 percent of the sales price on conventional.
DUE-ON-INTEREST -
A clause inserted in a mortgage that allows the lender to call
the loan due and payable at its option upon the transfer of the property also known as paragraph "17" in FNMA/ FHLMC Mortgage
DUE-ON-SALES 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.
EASEMENT -
The right to use the land of another for a specific limited purpose.
EMINENT DOMAIN -
The power of the state to take private property for public use
upon payment of just compensation.
ENCROACHMENT -
The physical intrusion of a structure or improvement on the land of
another. Examples include a fence or driveway over the property line.
ENTITLEMENT -
The VA home loan benefit is called entitlement. 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 value an owner has in real estate over and above the obligation
against the property.
EQUITY SHARING -
A form of joint ownership between an owner/occupant and an
owner/investor. The investor takes depreciation deductions for his share of the ownership. The occupant receives a portion of the tax write-offs for interest and taxes and a part
of his monthly payment is treated as rent. The co-owners divide the profit upon sale of the property.
ESCROW -
Funds that are set aside and held in trust, usually for payment of taxes
and insurance on real property. Also earnest deposits held pending loan closing.
FARMERS HOME ADIMINSTRATION (FmHA) -
provides financing to farmers and other
qualified borrowers who are unable to obtain loans elsewhere.
FEDERAL HOME LOAN BANK BOARD (FHLBB) -
A regulatory and supervisory agency for
federally chartered savings institutions.
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) -
The Federal Home Loan Mortgage
Corporation provides a secondary market for saving and loans by purchasing their conventional loans. Also known as "Freddie Mac."
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) -
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."
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, they generous enough to handle moderately-priced homes almost anywhere in the country.
FHA MORTGAGE INSURANCE -
Requires a small fee (up to 3.8 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 $2,850 at closing or an extra $31 a month for the life of the loan. In addition, FHA mortgage insurance requires an annual fee of 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.
FIRM COMMITMENT -
A promise by FHA to insure a mortgage loam for a specified
property and borrower. A promise from a lender to make a mortgage loan.
FIXED RATE MORTGAGE -
The mortgage interest rate will remain the same on these
mortgages throughout the term of the mortgage for the original borrower.
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.
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) -
also known as Ginnie Mae,
provides sources of funds for residential mortgage, 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.
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.
HAZARD INSURANCE -
A form of insurance in which the insurance company protects the
insured from specified losses, such as fire, windstorm and the like.
HOUSING EXPENSES-TO-INCOME RATIO -
The ratio, expressed as a percentage, which
results when a borrower's housing expenses are divided by his/her net effective income (FHA/VA loans) or gross monthly income (conventional loans).
IMPOUND -
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.
INDEX -
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.
INVESTOR -
A money source for a lender.
INTERIM FINANCING -
A construction loam 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 and 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.
JOINT TENANCY -
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.
JUMBO LOAN -
a loan which is larger 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.
LIEN -
A claim or charge against property. Property is said to be encumbered by a
lien and the lien must be removed to clear title.
LOAN-TO-VALUE RATIO -
The relationship between the amount of the
mortgage loan and the appraised value of the property expressed as a percentage. Apply Now
MARGIN -
The amount a lender adds to the index on an adjustable rate mortgage to
establish the adjusted interest rate.
MARKET VALUE -
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.
MORTGAGE -
A voluntary lien filed against property to secure a debt, usually a
loan. To foreclose, the lender must often institute a court action and the borrower may have the right to reclaim the property after foreclosure.
MORTGAGE INSURANCE -
Money paid to insure the mortgage when the down payment is
less than 20 percent.
MORTGAGE INSURANCE PREMIUM (MIP) -
One-half percent borrowers pay each month on FHA
insured mortgage loans. It is insurance from FHA to the lender against incurring a loss on account of the borrower's default. On September 1, 1983, the MIP was changed to a
one-time charge to the borrowers.
MORTGAGEE -
The lender.
MORTGAGOR -
The borrower or homeowner.
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