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| adjustable-rate
mortgage (ARM)
- A mortgage that permits the lender to adjust its interest rate periodically on
the basis of changes in a specified index. |
| adjustment
date
- The date on which the interest rate changes for an adjustable-rate mortgage (ARM). |
| adjustment
period
- The period that elapses between the adjustment dates for an adjustable-rate mortgage |
| amortization - The gradual repayment
of a mortgage loan by installments. |
| amortization
schedule
- A timetable for payment of a mortgage loan. An amortization schedule shows the
amount of each payment applied to interest and principal and shows the remaining
balance after each payment is made. |
| amortization
term
- The amount of time required to amortize the mortgage loan. The amortization term
is expressed as a number of months. For example, for a 30-year fixed-rate mortgage,
the amortization term is 360 |
| annual percentage
rate (APR)
- The cost of a mortgage stated as a yearly rate; includes such items as interest,
mortgage insurance, and loan origination fee (points). |
| appraisal - A written
analysis of the estimated value of a property prepared by a qualified appraiser.
Contrast with home inspection. |
| 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 of monetary
value that is owned by a person. Assets include real property, personal property,
and enforceable claims against others (including bank accounts, stocks, mutual funds,
and so on). |
| assumable mortgage - A mortgage that can
be taken over ("assumed") by the buyer when a home is sold. |
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| balloon mortgage - A mortgage that has
level monthly payments that will amortize it over a stated term but that provides
for a lump sum payment to be due at the end of an earlier specified term. |
| bankruptcy - A proceeding
in a federal court in which a debtor who owes more than his or her assets can relieve
the debts by transferring his or her assets to a trustee. Usually, at least 2 years
must elapse from the discharge of the bankruptcy before lenders will consider making
a loan to someone who had declared bankruptcy. |
| beneficiary - The person designated
to receive the income from a trust, estate, or a deed of trust. |
| bill of sale - A written document
that transfers title to personal property. |
| bond -
An interest-bearing
certificate of debt with a maturity date. An obligation of a government or business
corporation. A real estate bond is a written obligation usually secured by a mortgage
or a deed of trust. |
| bridge loan - A form of second
trust that is collateralized by the borrower's present home (which is usually for
sale) in a manner that allows the proceeds to be used for closing on a new house
before the present home is sold. Also known as "swing loan." |
| broker - A person who, for
a commission or a fee, brings parties together and assists in negotiating contracts
between them. |
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| cap - A provision of an
adjustable-rate mortgage (ARM) that limits how much the interest rate or mortgage
payments may increase or decrease. See lifetime payment cap, lifetime rate cap, periodic
payment cap, and periodic rate cap. |
| cash-out refinance - A refinance transaction
in which the amount of money received from the new loan exceeds the total of the
money needed to repay the existing first mortgage, closing costs, points, and the
amount required to satisfy any outstanding subordinate mortgage liens. In other words,
a refinance transaction in which the borrower receives additional cash that can be
used for any purpose. |
| 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 title
- A statement
provided by an abstract company, title company, or attorney stating that the title
to real estate is legally held by the current owner. |
| closing costs - Expenses (over and
above the price of the property) incurred by buyers and sellers in transferring ownership
of a property. Closing costs normally include an origination fee, an attorney's fee,
taxes, an amount placed in escrow, and charges for obtaining title insurance and
a survey. Closing costs percentage will vary according to the area of the country;
lenders or Realtors® often provide estimates of closing costs to prospective
home buyers. |
| commission - The fee charged by
a broker or agent for negotiating a real estate or loan transaction. A commission
is generally a percentage of the price of the property or loan. |
| comparables - An abbreviation for
"comparable properties"; used for comparative purposes in the appraisal
process. Comparables are properties like the property under consideration; they have
reasonably the same size, location , and amenities and have recently been sold. Comparables
help the appraiser determine the approximate fair market value of the subject property. |
| construction
loan
- A short-term, interim loan for financing the cost of construction. The lender makes
payments to the builder at periodic intervals as the work progresses. |
| credit reporting
agency (or bureau) -
An organization that prepares reports that are used by lenders to determine a potential
borrower's credit history. The agency obtains data for these reports from a credit
repository as well as from other sources. |
| conventional
mortgage
- A mortgage that is not insured or guaranteed by the federal government. Contrast
with government mortgage. |
| convertibility
clause
- A provision in some adjustable-rate mortgages (ARMs) that allows the borrower to
change the ARM to a fixed-rate mortgage at specified timeframes after loan origination |
| convertible
ARM
- An adjustable-rate mortgage (ARM) that can be converted to a fixed-rate mortgage
under specified conditions. |
| credit history - A record of an individual's
open and fully repaid debts. A credit history helps a lender to determine whether
a potential borrower has a history of repaying debts in a timely manner. |
| credit report - A report of an individual's
credit history prepared by a credit bureau and used by a lender in determining a
loan applicant's creditworthiness. See merged credit report. |
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| deed of trust - The document used
in some states instead of a mortgage; title is conveyed to a trustee. |
| Department
of Veterans Affairs (VA)
- An agency of the federal government that guarantees residential mortgages made
to eligible veterans of the military services. The guarantee protects the lender
against loss and thus encourages lenders to make mortgages to veterans. |
| discount points - See point. |
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| earnest money
deposit
- A deposit made by the potential home buyer to show that he or she is serious about
buying the house. |
| encumbrance - Anything that affects
or limits the fee simple title to a property, such as mortgages, leases, easements,
or restrictions. |
| Equal Credit
Opportunity Act (ECOA) -
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 - A homeowner's financial
interest in a property. Equity is the difference between the fair market value of
the property and the amount still owed on its 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 by a borrower with the lender
of funds to pay taxes and insurance premiums when they become due, or the deposit
of funds or documents with an attorney or escrow agent to be disbursed upon the closing
of a sale of real estate. |
| escrow account
- The
account in which a mortgage servicer holds the borrower's escrow payments prior to
paying property expenses. |
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| Fair Credit
Reporting Act
- A consumer protection law that regulates the disclosure of consumer credit reports
by consumer/credit reporting agencies and establishes procedures for correcting mistakes
on one's credit record. |
| Fannie Mae
- A congressionally
chartered, shareholder-owned company that is the nation's largest supplier of home
mortgage funds. |
| first mortgage - A mortgage that is
the primary lien against a property. |
| fixed-rate
mortgage (FRM)
- A mortgage in which the interest rate does not change during the entire term of
the loan. |
| flood insurance - Insurance that compensates
for physical property damage resulting from flooding. It is required for properties
located in federally designated flood areas. |
| foreclosure - The legal process
by which a borrower in default under a mortgage is deprived of his or her interest
in the mortgaged property. This usually involves a forced sale of the property at
public auction with the proceeds of the sale being applied to the mortgage debt. |
| 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. |
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| hazard insurance - Insurance coverage
that compensates for physical damage to a property from fire, wind, vandalism, or
other hazards. |
| 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.
The blank form for the statement is published by the Department of Housing and Urban
Development (HUD). The HUD-1 statement is also known as the "closing statement"
or "settlement sheet." |
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| index -
A number used to compute the interest rate for an adjustable-rate mortgage (ARM).
The index is generally a published number or percentage, such as the average interest
rate or yield on Treasury bills. A margin is added to the index to determine the
interest rate that will be charged on the ARM.. This interest rate is subject to
any caps that are associated with the mortgage. |
| in-file credit
report - An
objective account, normally computer-generated, of credit and legal information obtained
from a credit repository. |
| interest - The fee charged for
borrowing money. |
| interest rate - The rate of interest
in effect for the monthly payment due. |
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| judgment
- A decision
made by a court of law. In judgments that require the repayment of a debt, the court
may place a lien against the debtor's real property as collateral for the judgment's
creditor. |
| jumbo loan
- A loan
that exceeds Fannie Mae's legislated mortgage amount limits. Also called a non conforming
loan. |
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| liabilities
- A person's
financial obligations. Liabilities include long-term and short-term debt, as well
as any other amounts that are owed to others. |
| lien -
A legal
claim against a property that must be paid off when the property is sold. |
| 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. See cap. |
| 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 to a specified borrower. |
| 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 origination
- The process
by which a mortgage lender brings into existence a mortgage secured by real property. |
| 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 $85,000 mortgage has a LTV percentage of 85 percent. |
| lock-in
- A written
agreement in which the lender guarantees a specified interest rate if a mortgage
goes to closing within a set period of time. The lock-in also usually specifies the
number of points to be paid at closing. |
| lock-in period
- The time
period during which the lender has guaranteed an interest rate to a borrower. See
lock-in. |
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| margin
- For an
adjustable-rate mortgage (ARM), the amount that is added to the index to establish
the interest rate on each adjustment date, subject to any limitations on the interest
rate change. |
| merged credit
report -
A credit report that contains information from three credit repositories. When the
report is created, the information is compared for duplicate entries. Any duplicates
are combined to provide a summary of a your credit. |
| mortgage broker
- An individual
or company that brings borrowers and lenders together for the purpose of loan origination.
Mortgage brokers typically require a fee or a commission for their services. |
| 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 such as the Veterans Administration (VA). Depending
on the type of mortgage insurance, the insurance may cover a percentage of or virtually
all of the mortgage loan. See private mortgage insurance. |
| mortgage life
insurance - A
type of term life insurance often bought by mortgagors. The amount of coverage decreases
as the principal balance declines. In the event that the borrower dies while the
policy is in force, the debt is automatically satisfied by insurance proceeds. |
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| no cash-out
refinance - A
refinance transaction in which the new mortgage amount is limited to the sum of the
remaining balance of the existing first mortgage, closing costs (including prepaid
items), points, the amount required to satisfy any mortgage liens that are more than
one year old (if the borrower chooses to satisfy them), and other funds for the borrower's
use (as long as the amount does not exceed 1 percent of the principal amount of the
new mortgage). |
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| 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. |
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| periodic payment
cap - For
an adjustable-rate mortgage (ARM), a limit on the amount that payments can increase
or decrease during any one adjustment period. See cap. |
| periodic rate
cap - For
an adjustable-rate mortgage (ARM), 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. See cap. |
| point -
A one-time
charge by the lender for originating a loan. A point is 1 percent of the amount of
the mortgage. |
| power of attorney
- A legal
document that authorizes another person to act on one's behalf. A power of attorney
can grant complete authority or can be limited to certain acts and/or certain periods
of time. |
| prepayment
- Any amount
paid to reduce the principal balance of a loan before the due date. Payment in full
on a mortgage that may result from a sale of the property, the owner's decision to
pay off the loan in full, or a foreclosure. In each case, prepayment means payment
occurs before the loan has been fully amortized. |
| pre-qualification
- The process
of determining how much money a prospective home buyer will be eligible to borrow
before he or she applies 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. |
| principle
- The amount
borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining
balance of a mortgage. |
| principle,
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 amounts that are paid into an escrow account each month for property
taxes and mortgage and hazard insurance. |
| private mortgage
insurance (PMI) - Mortgage
insurance that is 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. |
| purchase and
sale agreement - A
written contract signed by the buyer and seller stating the terms and conditions
under which a property will be sold. |
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| rate lock
- A commitment
issued by a lender to a borrower or other mortgage originator guaranteeing a specified
interest rate for a specified period of time. See lock-in. |
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| second mortgage
- A
mortgage that has a lien position subordinate to the first mortgage. |
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| title - A legal document evidencing
a person's right to or ownership of a property. |
| title company
- A
company that specializes in examining and insuring titles to real estate. |
| title insurance
- Insurance
that protects the lender (lender's policy) or the buyer (owner's policy) against
loss arising from disputes over ownership of a property. |
| title search
- 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. |
| Treasury index
- An index
that is used to determine interest rate changes for certain adjustable-rate mortgage
(ARM) plans. It is based on the results of auctions that the U.S. Treasury holds
for its Treasury bills and securities or is 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. See adjustable-rate mortgage (ARM). |
| 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. |
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| 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. |
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| VA mortgage
- A mortgage
that is guaranteed by the Department of Veterans Affairs (VA). Also known as a government
mortgage. |
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