Adjustable rate mortgage (ARM)
A mortgage in which the interest rate is adjusted periodically based on a pre-selected index. Also sometimes known as the re-negotiable rate mortgage, the variable rate mortgage, or the Canadian rollover mortgage.
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.
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.
Annual percentage rate A.P.R.
An 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 points and other credit costs. The APR allows home buyers to compare different types of mortgages based on the annual cost for each loan.
An estimate of the value of property made by a qualified professional called an “appraiser.”
A local tax levied against a property for a specific purpose, such as a sewer or street lights.
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.
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.
A mortgage covering at least two pieces of real estate as security for the same mortgage.
One who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan in full.
An individual in the business of assisting in arranging funding or negotiating contracts for a client/buyer who does not loan the money himself. Brokers usually charge a fee or receive a commission for their services.
The action to pay additional discount points (buy down subsidy) to the lender in exchange for a lower interest rate. The reduced rate may apply for all or a portion of the loan term. This subsidy amount may be paid by the buyer, lender, seller or a combination of parties.
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.)
Consumer safeguards which limit the amount the interest rate on an adjustable rate mortgage may change per year and/or the life of the loan.
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, 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 Determination of Eligibility. Certificate of Reasonable Value (CRV)-A certification for 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) or 6 years in the reserves. 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.
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 is usually about 3 percent to 6 percent of the mortgage amount.
Co Borrower (co signer, co mortgagor)
One who signs a mortgage contract with another party or parties and is hereby jointly obligated to repay the loan. Generally a co borrower provides some assistance in meeting the requirements of the loan, and receives a share of interest in the encumbered property.
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.
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.
A short term interim loan for financing the cost of construction. The lender advances funds to the builder at periodic intervals as the work progresses.
A mortgage not insured by FHA or guaranteed by the VA.
A report documenting the credit history and current status of a borrower’s credit standing.
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). 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.
Failure to meet legal obligations in a contract, specifically, failure to make the monthly payments on a mortgage.
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
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
Money paid to make up the difference between the purchase price and the mortgage amount. Down payments can range from 3 percent to 20 percent or more of the sales price on conventional loans.
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.
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.
Money given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment.
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.
The value an owner has in real estate over and above the obligation against the property.
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.
Refers to a neutral third party who carries out the instruction of both the buyer and seller to handle all the paperwork of settlement or closing. Escrow may also refer to an account held by the lender into which the home buyer pays money for tax or insurance payments.
see Federal National Mortgage Association.
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)
A regulatory and supervisory agency for federally chartered savings institutions.
Federal Home Loan Mortgage Corporation(FHLMC)
also called “Freddie Mac” A quasi-governmental agency that purchases conventional mortgages from insured depository institutions and HUD-approved mortgage bankers
Federal Housing Administration (FHA)
A division of the Department of Housing and Urban Development (HUD). 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 private corporation, federally chartered to provide financial products and services that increase the availability and affordability of housing for low, moderate, and middle-income Americans. The largest corporation in America, Fannie Mae has $287 billion in assets and an additional $544 billion in Mortgage-Backed Securities outstanding. Next to the U.S. Treasury, it is often the second largest borrower in the capital markets. Fannie Mae is traded on the New York Stock Exchange (FNM) and has approximately 190,000 shareholders.
A loan insured by the Federal Housing Administration open to all qualified home purchasers. While there are limits to the size of FHA loans ($729,750), they are generous enough to handle moderately-priced homes almost anywhere in the country.
FHA Mortgage Insurance Premium (MIP)
An amount equal to 2.25 percent of the loan amount paid at closing or financed into the loan amount. 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.
The Federal Home Loan Mortgage Corporation provides a secondary market for saving and loans by purchasing their conventional loans. Also known as “Freddie Mac.”
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.
Fixed Rate Mortgage
The mortgage interest rate will remain the same on these mortgages throughout the term of the mortgage for the original borrower.
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.”
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.
A legal procedure in which property securing debt is sold by the lender to pay the defaulting borrower’s debt.
see Federal Home Loan Mortgage Corporation
see Government National Mortgage Association.
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.
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 (Homeowners 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 gross monthly income. See debt-to-income ratio.
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 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 (T-Bills), 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.
A money source for a lender (FNMA, FHLMC, GNMA).
A construction loan made during completion of a building or a project. A permanent loan usually replaces this loan after completion.
A loan which is larger (more than $729,750) 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.
A claim upon a piece of property for the payment or satisfaction of a debt or obligation.
LNOV (Lenders Notification Of Reasonable Value)
A certification for an appraisal issued by the Lender in place of a CRV showing the property’s current market value.
The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.
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.
MIP: Mortgage Insurance Premium
A monthly premium paid by the homeowner in addition to the Up Front MIP that is generally financed. The monthly mortgage insurance is equal to the mortgage amount multiplied by .005 divided by 12. ($100,000 x .005 / 12 = $41.67 per month)
Money paid to insure the mortgage when the down payment is less than 20 percent. See private mortgage insurance, FHA mortgage insurance.
The borrower or homeowner
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.
Net Effective Income
The borrower’s gross income minus federal income tax.
Non Assumption Clause
A statement in a mortgage contract forbidding the assumption of the mortgage without the prior approval of the lender.
The signed obligation to pay a debt, as a mortgage note.
The fee charged by a lender to prepare loan documents, make credit checks, inspect and sometimes appraise a property; usually computed as a percentage of the face value of the loan.
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.
Points (loan discount points)
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 legal document authorizing one person to act on behalf of another.
Necessary to create an escrow account or to adjust the seller’s existing escrow account. Can include taxes, hazard insurance, private mortgage insurance and special assessments.
A privilege in a mortgage permitting the borrower to make payments in advance of their due date.
Money charged for an early repayment of debt. Prepayment penalties are allowed in some form (but not necessarily imposed) in 36 states and the District of Columbia.
Primary Mortgage Market
Lenders making mortgage loans directly to borrower’s such as savings and loan association, commercial banks, and mortgage companies. These lenders sometimes sell their mortgages into the secondary mortgage markets such as to FNMA or GNMA, etc.
The amount of debt, not counting interest, left on a loan.
Private Mortgage Insurance (PMI)
In the event that you do not have a 20 percent down payment, lenders will allow a smaller down payment – as low as 3 percent in some cases. With the smaller down payment loans, however, borrowers are required to carry private mortgage insurance which is generally paid monthly, and obtained by the lender through a Private Mortgage Insurance Company (GE, MGIC, United Guarantee, Amerin, PMI, etc).
A real estate broker or an associate holding active membership in a local real estate board affiliated with the National Association of Realtors.
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.
Negotiable Rate Mortgage (RBM)
a loan in which the interest rate is adjusted periodically. See adjustable rate mortgage.
Short for the Real Estate Settlement Procedures Act. 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.
Reverse Annuity Mortgage (RAM)
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.”
A mortgage made subsequent to another mortgage and subordinate to the first one.
Secondary Mortgage Market
The place where primary mortgage lenders sell the mortgages they make to obtain more funds to originate more new loans It provides liquidity for the lenders security.
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.
see closing/closing costs
Shared Appreciation Mortgage (SAM)
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 mortgages where the borrower(s) 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. term mortgage see balloon payment mortgage.
A document that gives evidence of an individual’s ownership of property.
A policy, usually issued by a title insurance company, which insures a home buyer against errors in the title search. The cost of the policy is usually a function of the value of the property, and is often borne by the purchaser and/or seller.
An examination of municipal records to determine the legal ownership of property. Usually is performed by an attorney or title company.
A federal law requiring disclosure of the Annual Percentage Rate and other loan terms to home buyers within 72 hours of loan application per regulation Z.
A 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 7or 10 years. Also called “Super Seven” or “Premier” mortgage.
The decision whether to make a loan to a potential home buyer based on income, assets, credit, collateral 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.
A 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.
VA Mortgage Funding Fee
A premium of up to 3 % (depending on the size of the down payment, and previous use of benefits) paid on a VA-backed loan. An eligible veteran who is using his eligibility for the first time will pay a 2% funding fee which can be financed.
Variable Rate Mortgage (VRM)
see adjustable rate mortgage
Verification of Deposit (VOD)
A document signed by the borrower’s financial institution verifying the status and balance of his/her financial accounts. This document is generally not needed if recent bank statements are available.
Verification of Employment (VOE)
A document signed by the borrower’s employer verifying his/her position and salary. This document is generally not needed if recent pay stubs are available.
Many mortgage firms must borrow funds on a short term basis in order to originate loans which are to be sold later in the secondary mortgage market (or to investors). When the prime rate of interest is higher on short term loans than on mortgage loans, the mortgage firm has an economic loss which is offset by charging a warehouse fee.