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.
