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2/1
Buy Down Mortgage
The 2/1 Buy Down Mortgage allows the borrower to qualify at below market
rates so they can borrow more. The initial starting interest rate increases
by 1% at the end of the first year and adjusts again by another 1% at the
end of the second year. It then remains at a fixed interest rate for the
remainder of the loan term. Borrowers often refinance at the end of the
second year to obtain the best long term rates; however, even keeping the
loan in place for three full years or more will keep their average interest
rate in line with the original market conditions.
Acceleration
Clause
Provision in a mortgage that allows the lender to demand payment of the
entire principal balance if a monthly payment is missed or some other default
occurs.
Additional
Principal Payment
A way to reduce the remaining balance on the loan by paying more than the
scheduled principal amount due.
Adjustable-Rate
Mortgage (ARM)
A mortgage with an interest rate that changes during the life of the loan
according to movements in an index rate. Sometimes called AMLs (adjustable
mortgage loans) or VRMs (variable-rate mortgages).
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
Period
The period elapsing between adjustment dates for an adjustable-rate mortgage
(ARM).
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
The gradual repayment of a mortgage loan, both principal and interest, by
installments.
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 (APR)
The cost of credit, expressed as a yearly rate including interest, mortgage
insurance, and loan origination fees. This allows the buyer to compare loans,
however APR should not be confused with the actual note rate.
Appraisal
A written analysis prepared by a qualified appraiser and estimating the
value of a property.
Appraised
Value
An opinion of a property's fair market value, based on an appraiser's knowledge,
experience, and analysis of the property.
Asset
Anything owned of monetary value including real property, personal property,
and enforceable claims against others (including bank accounts, stocks,
mutual funds, etc.).
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
Fee
The fee paid to a lender (usually by the purchaser of real property) when
an assumption takes place.
Balance
Sheet
A financial statement that shows assets, liabilities, and net worth as of
a specific date.
Balloon
Mortgage
A mortgage with level monthly payments that amortizes over a stated term
but also requires that a lump sum payment be paid at the end of an earlier
specified term.
Balloon
Payment
The final lump sum paid at the maturity date of a balloon mortgage.
Before-tax
Income
Income before taxes are deducted.
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.
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 or company that brings borrowers and lenders together for
the purpose of loan origination.
Buydown
When the seller, builder or buyer pays an amount of money up front to the
lender to reduce monthly payments during the first few years of a mortgage.
Buydowns can occur in both fixed and adjustable rate mortgages.
Cap
Limits how much the interest rate or the monthly payment can increase, either
at each adjustment or during the life of the mortgage. Payment caps don't
limit the amount of interest the lender is earning and may cause negative
amortization.
Certificate
of Eligibility
A document issued by the federal government certifying a veteran’s
eligibility for a Department of Veterans Affairs (VA) mortgage.
Certificate
of Reasonable Value (CRV)
A document issued by the Department of Veterans Affairs (VA) that establishes
the maximum value and loan amount for a VA mortgage.
Change
Frequency
The frequency (in months) of payment and/or interest rate changes in an
adjustable-rate mortgage (ARM).
Closing
A meeting held to finalize the sale of a property. The buyer signs the mortgage
documents and pays closing costs. Also called "settlement."
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.
Compound
Interest
Interest paid on the original principal balance and on the accrued and unpaid
interest.
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.
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 detailing an individual's credit history that is prepared by a
credit bureau and used by a lender to determine a loan applicant's creditworthiness.
Credit
Risk Score
A credit score measures a consumer's credit risk relative to the rest of
the U.S. population, based on the individual's credit usage history. The
credit score most widely used by lenders is the FICO® score, developed
by Fair, Issac and Company. This 3-digit number, ranging from 300 to 850,
is calculated by a mathematical equation that evaluates many types of information
that are on your credit report. Higher FICO® scores represents lower
credit risks, which typically equate to better loan terms. In general, credit
scores are critical in the mortgage loan underwriting process.
Deed
of Trust
The document used in some states instead of a mortgage. Title is conveyed
to a trustee.
Default
Failure to make mortgage payments on a timely basis or to comply with other
requirements of a mortgage.
Delinquency
Failure to make mortgage payments on time.
Deposit
This is a sum of money given to bind the sale of real estate, or a sum of
money given to ensure payment or an advance of funds in the processing of
a loan.
Discount
In an ARM with an initial rate discount, the lender gives up a number of
percentage points in interest to reduce the rate and lower the payments
for part of the mortgage term (usually for one year or less). After the
discount period, the ARM rate usually increases according to its index rate.
Down
Payment
Part of the purchase price of a property that is paid in cash and not financed
with a mortgage.
Effective
Gross Income
A borrowers normal annual income, including overtime that is regular or
guaranteed. Salary is usually the principal source, but other income may
qualify if it is significant and stable.
Equity
The amount of financial interest in a property. Equity is the difference
between the fair market value of the property and the amount still owed
on the mortgage.
Escrow
An item of value, money, or documents deposited with a third party to be
delivered upon the fulfillment of a condition. For example, the deposit
of funds or documents into an escrow account to be disbursed upon the closing
of a sale of real estate.
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
A congressionally chartered, shareholder-owned company that is the nation's
largest supplier of home mortgage funds.
FHA
Mortgage
A mortgage that is insured by the Federal Housing Administration (FHA).
Also known as a government mortgage.
FICO
Score
FICO® scores are the most widely used credit score in U.S. mortgage
loan underwriting. This 3-digit number, ranging from 300 to 850, is calculated
by a mathematical equation that evaluates many types of information that
are on your credit report. Higher FICO® scores represent lower credit
risks, which typically equate to better loan terms.
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 (FRM)
A mortgage interest that are fixed throughout the entire term of the loan.
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.
GNMA
A government-owned corporation that assumed responsibility for the special
assistance loan program formerly administered by Fannie Mae. Popularly known
as Ginnie Mae.
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.
Guarantee
Mortgage
A mortgage that is guaranteed by a third party.
Housing
Expense Ratio
The percentage of gross monthly income budgeted to pay housing expenses.
HUD-1
statement
A document that provides an itemized listing of the funds that are payable
at closing. Items that appear on the statement include real estate commissions,
loan fees, points, and initial escrow amounts. Each item on the statement
is represented by a separate number within a standardized numbering system.
The totals at the bottom of the HUD-1 statement define the seller's net
proceeds and the buyer's net payment at closing.
Hybrid
ARM (3/1 ARM, 5/1 ARM, 7/1 ARM)
A combination fixed rate and adjustable rate loan - also called 3/1,5/1,7/1
- can offer the best of both worlds: lower interest rates (like ARMs) and
a fixed payment for a longer period of time than most adjustable rate loans.
For example, a "5/1 loan" has a fixed monthly payment and interest
for the first five years and then turns into a traditional adjustable rate
loan, based on then-current rates for the remaining 25 years. It's a good
choice for people who expect to move or refinance, before or shortly after,
the adjustment occurs.
Index
The index is the measure of interest rate changes a lender uses to decide
the amount an interest rate on an ARM will change over time.The index is
generally a published number or percentage, such as the average interest
rate or yield on Treasury bills. Some index rates tend to be higher than
others and some more volatile.
Initial
Interest Rate
This refers to the original interest rate of the mortgage at the time of
closing. This rate changes for an adjustable-rate mortgage (ARM). It's also
known as "start rate" or "teaser."
Installment
The regular periodic payment that a borrower agrees to make to a lender.
Insured
Mortgage
A mortgage that is protected by the Federal Housing Administration (FHA)
or by private mortgage insurance (MI).
Interest
The fee charged for borrowing money.
Interest
Accrual Rate
The percentage rate at which interest accrues on the mortgage. In most cases,
it is also the rate used to calculate the monthly payments.
Interest
Rate Buydown Plan
An arrangement that allows the property seller to deposit money to an account.
That money is then released each month to reduce the mortgagor's monthly
payments during the early years of a mortgage.
Interest
Rate Ceiling
For an adjustable-rate mortgage (ARM), the maximum interest rate, as specified
in the mortgage note.
Interest
Rate Floor
For an adjustable-rate mortgage (ARM), the minimum interest rate, as specified
in the mortgage note.
Late
Charge
The penalty a borrower must pay when a payment is made a stated number of
days (usually 15) after the due date.
Lease-Purchase
Mortgage Loan
An alternative financing option that allows low- and moderate-income home
buyers to lease a home with an option to buy. Each month's rent payment
consists of principal, interest, taxes and insurance (PITI) payments on
the first mortgage plus an extra amount that accumulates in a savings account
for a downpayment.
Liabilities
A person's financial obligations. Liabilities include long-term and short-term
debt.
Lifetime
Payment Cap
For an adjustable-rate mortgage (ARM), a limit on the amount that payments
can increase or decrease over the life of the mortgage.
Lifetime
Rate Cap
For an adjustable-rate mortgage (ARM), a limit on the amount that the interest
rate can increase or decrease over the life of the loan. See cap.
Line
of Credit
An agreement by a commercial bank or other financial institution to extend
credit up to a certain amount for a certain time.
Liquid
Asset
A cash asset or an asset that is easily converted into cash.
Loan
A sum of borrowed money (principal) that is generally repaid with interest.
Loan-to-Value
(LTV) Percentage
The relationship between the principal balance of the mortgage and the appraised
value (or sales price if it is lower) of the property. For example, a $100,000
home with an $80,000 mortgage has an LTV of 80 percent.
Lock-In
Period
The guarantee of an interest rate for a specified period of time by a lender,
including loan term and points, if any, to be paid at closing. Short term
locks (under 21 days), are usually available after lender loan approval
only. However, many lenders may permit a borrower to lock a loan for 30
days or more prior to submission of the loan application.
Margin
The number of percentage points the lender adds to the index rate to calculate
the ARM interest rate at each adjustment.
Maturity
The date on which the principal balance of a loan becomes due and payable.
Monthly
Fixed Installment
That portion of the total monthly payment that is applied toward principal
and interest. When a mortgage negatively amortizes, the monthly fixed installment
does not include any amount for principal reduction and doesn't cover all
of the interest. The loan balance therefore increases instead of decreasing.
Mortgage
A legal document that pledges a property to the lender as security for payment
of a debt.
Mortgage
Banker
A company that originates mortgages exclusively for resale in the secondary
mortgage market.
Mortgage
Broker
An individual or company that brings borrowers and lenders together for
the purpose of loan origination.
Mortgage
Insurance
A contract that insures the lender against loss caused by a mortgagor's
default on a government mortgage or conventional mortgage. Mortgage insurance
can be issued by a private company or by a government agency.
Mortgage
Insurance Premium (MIP)
The amount paid by a mortgagor for mortgage insurance.
Mortgage
Life Insurance
A type of term life insurance In the event that the borrower dies while
the policy is in force, the debt is automatically paid by insurance proceeds.
Mortgagor
The borrower in a mortgage agreement.
Negative
Amortization
Amortization means that monthly payments are large enough to pay the interest
and reduce the principal on your mortgage. Negative amortization occurs
when the monthly payments do not cover all of the interest cost. The interest
cost that isn't covered is added to the unpaid principal balance. This means
that even after making many payments, you could owe more than you did at
the beginning of the loan. Negative amortization can occur when an ARM has
a payment cap that results in monthly payments not high enough to cover
the interest due.
Net
Worth
The value of all of a person's assets, including cash.
Non
Liquid Asset
An asset that cannot easily be converted into cash.
Note
A legal document that obligates a borrower to repay a mortgage loan at a
stated interest rate during a specified period of time.
Origination
Fee
A fee paid to a lender for processing a loan application. The origination
fee is stated in the form of points. One point is 1 percent of the mortgage
amount.
Owner
Financing
A property purchase transaction in which the party selling the property
provides all or part of the financing.
Payment
Change Date
The date when a new monthly payment amount takes effect on an adjustable-rate
mortgage (ARM) or a graduated-payment mortgage (GPM). Generally, the payment
change date occurs in the month immediately after the adjustment date.
Periodic
Payment Cap
A limit on the amount that payments can increase or decrease during any
one adjustment period.
Periodic
Rate Cap
A limit on the amount that the interest rate can increase or decrease during
any one adjustment period, regardless of how high or low the index might
be.
PITI
Reserves
A cash amount that a borrower must have on hand after making a down payment
and paying all closing costs for the purchase of a home. The principal,
interest, taxes, and insurance (PITI) reserves must equal the amount that
the borrower would have to pay for PITI for a predefined number of months
(usually three).
Points
A point is equal to one percent of the principal amount of your mortgage.
For example, if you get a mortgage for $165,000 one point means $1,650 to
the lender.Points usually are collected at closing and may be paid by the
borrower or the home seller, or may be split between them.
Prepayment
Penalty
A fee that may be charged to a borrower who pays off a loan before it is
due.
Pre-Approval
The process of determining how much money you will be eligible to borrow
before you apply for a loan.
Prime
Rate
The interest rate that banks charge to their preferred customers. Changes
in the prime rate influence changes in other rates, including mortgage interest
rates.
Principal
The amount borrowed or remaining unpaid. The part of the monthly payment
that reduces the remaining balance of a mortgage.
Principal
Balance
The outstanding balance of principal on a mortgage not including interest
or any other charges.
Principal,
Interest, Taxes, and Insurance (PITI)
The four components of a monthly mortgage payment. Principal refers to the
part of the monthly payment that reduces the remaining balance of the mortgage.
Interest is the fee charged for borrowing money. Taxes and insurance refer
to the monthly cost of property taxes and homeowners insurance, whether
these amounts that are paid into an escrow account each month or not.
Private
Mortgage Insurance (PMI)
Mortgage insurance provided by a private mortgage insurance company to protect
lenders against loss if a borrower defaults. Most lenders generally require
MI for a loan with a loan-to-value (LTV) percentage in excess of 80 percent.
Qualifying
Ratios
Calculations used to determine if a borrower can qualify for a mortgage.
They consist of two separate calculations: a housing expense as a percent
of income ratio and total debt obligations as a percent of income ratio.
Rate
Lock
A commitment issued by a lender to a borrower or other mortgage originator
guaranteeing a specified interest rate and lender costs for a specified
period of time.
Real
Estate Agent
A person licensed to negotiate and transact the sale of real estate on behalf
of the property owner.
Real
Estate Settlement Procedures Act (RESPA)
A consumer protection law that requires lenders to give borrowers advance
notice of closing costs.
Real
Estate Agent®
A real estate broker or an associate who is an active member in a local
real estate board that is affiliated with the National Association of Real
Estate Agents.
Recording
The noting in the registrar’s office of the details of a properly executed
legal document, such as a deed, a mortgage note, a satisfaction of mortgage,
or an extension of mortgage, thereby making it a part of the public record.
Refinance
Paying off one loan with the proceeds from a new loan using the same property
as security.
Revolving
Liability
A credit arrangement, such as a credit card, that allows a customer to borrow
against a pre-approved line of credit when purchasing goods and services.
Secondary
Mortgage Market
Where existing mortgages are bought and sold.
Security
The property that will be pledged as collateral for a loan.
Seller
Carry-back
An agreement in which the owner of a property provides financing, often
in combination with an assumable mortgage. See Owner Financing.
Servicer
An organization that collects principal and interest payments from borrowers
and manages borrowers’ escrow accounts. The servicer often services
mortgages that have been purchased by an investor in the secondary mortgage
market.
Standard
Payment Calculation
The method used to determine the monthly payment required to repay the remaining
balance of a mortgage in substantially equal installments over the remaining
term of the mortgage at the current interest rate.
Step-Rate
Mortgage
A mortgage that allows for the interest rate to increase according to a
specified schedule (i.e., seven years), resulting in increased payments
as well. At the end of the specified period, the rate and payments will
remain constant for the remainder of the loan.
Third-party
Origination
When a lender uses another party to completely or partially originate, process,
underwrite, close, fund, or package the mortgages it plans to deliver to
the secondary mortgage market.
Total
Expense Ratio
Total obligations as a percentage of gross monthly income including monthly
housing expenses plus other monthly debts.
Treasury
Index
An index used to determine interest rate changes for certain adjustable-rate
mortgage (ARM) plans. Based on the results of auctions that the U.S. Treasury
holds for its Treasury bills and securities or derived from the U.S. Treasury's
daily yield curve, which is based on the closing market bid yields on actively
traded Treasury securities in the over-the-counter market.
Truth-in-Lending
A federal law that requires lenders to fully disclose, in writing, the terms
and conditions of a mortgage, including the annual percentage rate (APR)
and other charges.
Two-step
Mortgage
An adjustable-rate mortgage (ARM) with one interest rate for the first five
or seven years of its mortgage term and a different interest rate for the
remainder of the amortization term.
Underwriting
The process of evaluating a loan application to determine the risk involved
for the lender. Underwriting involves an analysis of the borrower's creditworthiness
and the quality of the property itself.
VA
Mortgage
A mortgage that is guaranteed by the Department of Veterans Affairs (VA).
Also known as a government mortgage.
"Wrap
Around" Mortgage
A mortgage that includes the remaining balance on an existing first mortgage
plus an additional amount requested by the mortgagor. Full payments on both
mortgages are made to the "Wrap Around" mortgagee, who then forwards
the payments on the first mortgage to the first mortgagee. These mortgages
may not be allowed by the first mortgage holder, and if discovered, could
be subject to a demand for full payment.
Licensed
by the Department of Corporations under the California Residential Mortgage
Lending Act. | © Copyright 2009 eloanhero.com All Rights Reserved