Allows a lender to declare the entire outstanding balance of
a loan immediately due and payable should a borrower violate
specific loan provisions or default on the loan.
A variable or flexible rate mortgage with an interest rate
that varies according to the financial index it is based upon.
To limit the borrower's risk, the ARM may have a payment or rate
cap. See also: cap.
Features of your home that fit your preferences and can
increase the value of your property. Some examples include the
number of bedrooms, bathrooms, or vicinity to public
transportation.
The liquidation of a debt by regular, usually monthly,
installments of principal and interest. An amortization schedule
is a table showing the payment amount, interest, principal and
unpaid balance for the entire term of the loan.
The actual interest rate, taking into account points and
other finance charges, for the projected life of a mortgage.
Disclosure of APR is required by the Truth-in-Lending Law and
allows borrowers to compare the actual costs of different
mortgage loans.
An estimate of a property's value as of a given date,
determined by a qualified professional appraiser. The value may
be based on replacement cost, the sales of comparable properties
or the property's ability to produce income.
Charges levied against a property for tax purposes or to pay
for municipality or association improvements such as curbs,
sewers, or grounds maintenance.
An agreement between a buyer and a seller, requiring lender
approval, where the buyer takes over the payments for a mortgage
and accepts the liability. Assuming a loan can be advantageous
for a buyer because there are no closing costs and the loan's
interest rate may be lower than current market rates. Depending
on what is in the mortgage or deed of trust, the lender may
raise the interest rate, require the buyer to qualify for the
mortgage, or not permit the buyer to assume the loan at all.
A loan requiring payments of principal and interest at
two-week intervals. This type of loan amortizes much faster than
monthly payment loans. The payment for a biweekly mortgage is
half what a monthly payment would be.
A loan to "bridge" the gap between the termination of one
mortgage and the beginning of another, such as when a borrower
purchases a new home before receiving cash proceeds from the
sale of a prior home. Also known as a swing loan.
Where the buyer pays additional discount points or makes a
substantial down payment in return for a below market interest
rate; or the seller offers 3-2-1 interest payment plans or pays
closing costs such as the origination fee. During times of high
interest rates, buy-downs may induce buyers to purchase property
they may not otherwise have purchased.
A limit in how much an adjustable rate mortgage's monthly
payment or interest rate can increase. A cap is meant to protect
the borrower from large increases and may be a payment cap, an
interest cap, a life-of-loan cap or an annual cap. A
payment cap is a limit on the monthly payment. An
interest cap is a limit on the amount of the
interest rate. A life-of-loan cap restricts the
amount the interest rate can increase over the entire term of
the loan. An annual cap limits the amount the
interest rate can increase over a twelve-month period.
Costs payable by both seller and buyer at the time of
settlement, when the purchase of a property is finalized. These
costs can be up to ten percent of the mortgage amount and
usually include but are not limited to the following:
Fees
Paid to the Lender
Fees
Paid in Advance
Other Charges
Origination fee Discount points Credit report fee Appraisal fee Assumption fee if loan is assumed
Interest from the closing date to the
beginning of the 1st payment Hazard insurance premium Mortgage insurance premium
Title search and title insurance Sales commissions Legal and recording fees Inspection and survey fees Property taxes and other adjustments Processing and document preparation fees
A fee charged when an agreement is reached between a lender
and a borrower for a loan at a specific rate and points and the
lender guarantees to lock in that rate.
One who is individually and jointly obligated to repay a
mortgage loan and shares ownership of the property with one or
more borrowers. See also:
co-signer.
An individually owned unit within a multi-unit building
where others or the Condominium Owners Association share
ownership of common areas such as the grounds, the parking
facilities and the tennis courts.
A short-term loan financing improvements to real estate,
such as the building of a new home. The lender advances funds to
the borrower as needed while construction progresses. Upon
completion of the construction, the borrower must obtain
permanent financing or pay the construction loan in full.
consumer
handbook on adjustable rate mortgages (C.H.A.R.M.)
A disclosure required by the federal government to be given
to any borrower applying for an adjustable rate mortgage (ARM).
A mortgage loan that is not insured, guaranteed or funded by
the Veterans Administration (VA), the Federal Housing
Administration (FHA) or Rural Economic Community Development
(RECD) (formerly Farmers Home Administration).
The borrower's privilege to make payments on a loan's
principal before they are due. Paying off a mortgage before it
is due may incur a penalty if so specified in the mortgage's
prepayment clause.
The ratio between a borrower's monthly payment obligations
divided by his or her net effective income (FHA or VA loans) or
gross monthly income (conventional loans).
A document, used in many states in place of a
mortgage,
held by a trustee pending repayment of the loan. The advantage
of a deed of trust is that the trustee does not have to go to
court to proceed with foreclosure should the borrower default on
the loan.
Amounts paid to the lender based on the loan amount to buy
the interest rate down. Each point is one percent of the loan
amount; for example, two points on a $100,000 mortgage is
$2,000.
The difference between the purchase price and mortgage
amount. The down payment becomes the property equity. Typically
it should be cash savings, but it can also be a gift that is not
to be repaid or a borrowed amount secured by assets.
A clause in a mortgage or deed of trust allowing a lender to
require immediate payment of the balance of the loan if the
property is sold (subject to the terms of the security
instrument).
Deposit in the form of cash or a note, given to a seller by
a buyer as good faith assurance that the buyer intends to go
through with the purchase of a property.
A federal law prohibiting lenders and other creditors from
discrimination based on race, color, sex, religion, national
origin, age, marital status, receipt of public assistance or
because an applicant has exercised his or her rights under the
Consumer Credit Protection Act.
A provision allowing one party or more to cancel all or part
of the contract if certain events fail to happen, such as the
ability of the buyer to obtain financing within a specified
period.
Federal Home
Loan Mortgage Corporation (FHLMC or Freddie Mac)
A quasi-governmental, federally-sponsored organization that
acts as a
secondary market investor to buy and sell mortgage
loans. FHLMC sets many of the guidelines for conventional
mortgage loans, as does FNMA.
An agency within the Department of Housing and Urban
Development that sets standards for underwriting and insures
residential mortgage loans made by private lenders. One of FHA's
objectives is to ensure affordable mortgages to those with low
or moderate income. FHA loans may be high loan-to-value, and
they are limited by loan amount. FHA mortgage insurance requires
a fee of 1.5 percent of the loan amount to be paid at closing,
as well as an annual fee of 0.5 percent of the loan amount added
to each monthly payment.
Federal
National Mortgage Association (FNMA or Fannie Mae)
A private corporation that acts as a
secondary
market investor to buy and sell mortgage loans. FNMA
sets many of the guidelines for conventional mortgage loans, as
does FHLMC. The major purpose of this organization is to make
mortgage money more affordable and more available.
The maximum form of ownership, with the right to occupy a
property and sell it to a buyer at any time. Upon the death of
the owner, the property goes to the owner's designated heirs.
Also known as fee absolute.
A loan with a term of 15 years. Although the monthly payment
on a 15-year mortgage is higher than that of a 30-year mortgage,
the amount of interest paid over the life of the loan is
substantially less.
The Federal Flood Disaster Protection Act of 1973 requires
that federally-regulated lenders determine if real estate to be
used to secure a loan is located in a Specially Flood Hazard
Area (SFHA). If the property is located in a SFHA area, the
borrower must obtain and maintain flood insurance on the
property. Most insurance agents can assist in obtaining flood
insurance.
This includes amounts from a relative or a grant from the
borrower's employer, a municipality, non-profit religious
organization, or non-profit community organization that does not
have to be repaid.
A fixed-interest loan with lower payments in the early years
than the later years. The amount of the payment gradually
increases over a period of time and then levels off at a payment
sufficient to pay off the loan over the remaining amortization
period.
A form of insurance that protects the insured property
against physical damage such as fire and tornadoes. Mortgage
lenders often require a borrower to maintain an amount of hazard
insurance on the property that is equal at least to the amount
of the mortgage loan.
A thorough review of the physical aspects and condition of a
home by a professional home inspector. This inspection should be
completed prior to closing so that any repairs or changes can be
completed before the home is sold.
Indicates what proportion of homebuyers can afford to buy an
average-priced home in specified areas. The most well known
housing affordability index is published by the National
Association of Realtors.
A method used by real estate appraisers to predict a
property's anticipated future income. Income property includes
shopping centers, hotels, motels, restaurants, apartment
buildings, office space and so forth.
A published interest rate compiled from other indicators
such as U.S. Treasury bills or the monthly average interest rate
on loans closed by savings and loan organizations. Mortgage
lenders use the index figure to establish rates on adjustable
rate mortgages (ARMs).
The amount of the entire mortgage loan which does not
include the principal. Also, as a part of PITI, the amount of
the monthly mortgage payment which does not include the
principal, taxes, and insurance.
A nonconforming loan that is larger than the limits set by
the Federal National Mortgage Association (FNMA) or Federal Home
Loan Mortgage Corporation (FHLMC) guidelines.
A claim against a property for the payment of a debt. A
mortgage is a lien; other types of liens a property might have
include a tax lien for overdue taxes or a mechanics lien for
unpaid debt to a subcontractor.
The relationship, expressed as a percentage, between the
amount of the proposed loan and a property's appraised value.
For example, a $75,000 loan on a property appraised at $100,000
is a 75% loan-to-value.
The cost of the upkeep of the house. These costs may be
minor in cost and nature (replacing washers in the faucets) or
major in cost and nature (new heating system or a new roof) and
can apply to either the interior or exterior of the house.
The amount a lender adds to the index of an adjustable rate
mortgage to establish an adjusted interest rate. For example, a
margin of 1.50 added to a 7 percent index establishes an
adjusted interest rate of 8.50 percent.
An intermediary between a borrower and a lender. A broker's
expertise is to help borrowers find financing that they might
not otherwise find themselves.
Money paid to insure the lender against loss due to
foreclosure or loan default. Mortgage insurance is required on
conventional loans with less than a 20 percent down payment. FHA
mortgage insurance requires a payment of 1.5 percent of the loan
amount to be paid at closing, as well as an annual fee of 0.5
percent of the loan amount added to each monthly payment.
A situation in which a borrower is paying less interest than
what is actually being charged for a mortgage loan. The unpaid
interest is added to the loan's principal. The borrower may end
up owing more than the original amount of the mortgage.
A loan that does not conform to Federal National Mortgage
Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC)
guidelines. Jumbo loans are nonconforming.
Charges levied by the lender based on the loan amount. Each
point equals one percent of the loan amount; for example, two
points on a $100,000 mortgage is $2,000. Discount points are
used to buy down the interest rate. Points can also include a
loan origination fee, which is usually one point.
Tentative establishment of a borrower's qualification for a
mortgage loan amount of a specific range, based on the
borrower's assets, debts, and income.
The amount of the entire mortgage loan, not counting
interest. Also, as a part of PITI, the amount of the monthly
mortgage payment which does not include the interest, insurance,
and taxes.
As determined by a lender, the ability of the borrower to
repay a mortgage loan based on the borrower's credit history,
employment history, assets, debts and income.
Abbreviation for the Real Estate Settlement Procedures Act,
which allows consumers to review settlement costs at application
and once again prior to closing.
A type of mortgage loan in which the lender makes periodic
payments to the borrower. The borrower's equity in the home is
used as security for the loan.
When a borrower's principal dwelling is going to secure a
loan, the borrower has three business days following signing of
the loan documents to rescind or cancel the transaction. Any and
all money paid by the borrower must be refunded upon rescission.
The right to rescind does not apply to loans to purchase real
estate or to refinance a loan under the same terms and
conditions where no additional funds will be added to the
existing loan.
At the end of the construction loan period, the borrower's
file is delivered to Bank One Mortgage Loan Servicing Dept.
Prior to delivery, CLD contacts the borrower and obtains funds
for the tax and insurance escrows, a final title policy and
homeowner's policy. This process is called a rollover.
A market comprising investors like GNMA, FHLMC and FNMA,
which buy large numbers of mortgages from the primary lenders
and sell them to other investors.
The responsibility of collecting monthly mortgage payments
and properly crediting them to the principal, taxes and
insurance, as well as keeping the borrower informed of any
changes in the status of the loan.
A physical measurement of property done by a registered
professional showing the dimensions and location of any
buildings as well as easements, rights of way, roads, etc.
joint tenancy - equal ownership of
property by two or more parties, each with the right of
survivorship.
tenancy by the entireties - ownership of
property only between husband and wife in which neither can
sell without the consent of the other and the property is
owned by the survivor in the event of death of either party.
tenancy in common - equal ownership of
property by two or more parties without the right of
survivorship.
tenancy in severalty - ownership of
property by one legal entity or a sole party.
tenancy at will - a license to use or
occupy a property at the will of the owner.
A policy issued by a title insurance company insuring the
purchaser against any errors in the title search. The cost of
title insurance may be paid for by the buyer, the seller or
both.
The Truth In Lending Act requires lenders to disclose the
Annual Percentage Rate and other associated costs to homebuyers
within three working days of the loan application.
A professional who approves or denies a loan to a potential
homebuyer based on the homebuyer's credit history, employment
history, assets, debts and other factors such as loan
guidelines.
A standard document prescribed by the Real Estate Settlement
Procedures Act containing information for closing which must be
supplied to both buyer and seller.
The federal agency responsible for the VA loan guarantee
program as well as other services for eligible veterans. In
general, qualified veterans can apply for home loans with no
down payment and a funding fee of 1 percent of the loan amount.
The ability of local governments to specify the use of
private property in order to control development within
designated areas of land. For example, some areas of a
neighborhood may be designated only for residential use and
others for commercial use such as stores, gas stations, etc.
