Definitions
Adjustable-Rate Mortgage -
A home loan with an interest rate tied to a financial index which
can increase or decrease at pre-determined adjustment periods -
typically semi-annually or annually.
Adjustment Period - The interval
at which the loan rate and/or/monthly payment can be changed on
an adjustable-rate mortgage - usually one or more times per year.
Amortization - The gradual
repayment of debt through periodic payments of principal and interest
over a prescribed period until there is a zero balance.
Annual Percentage Rate - The
true annual interest rate. The total cost or finance charge for
a loan per year expressed as a percentage.
Appraisal - An opinon or estimate
of value, or the process whereby that opinion is reached.
Appraised Value - An opinion
of the value reached by an appraiser based upon study of pertinent
data.
Assessed Value - Value placed
upon property for tax purposed by the tax assessor.
Balloon Mortgage - A mortgage
with monthly payments of principal and interest that do not fully
amortize the loan. The balance of the mortgage is due in a lump
sum at a specified date.
Balloon Payment - The unpaid
principal amount of a mortgage due on a specified date in a lump
sum.
Buydown - An interest rate
subsidy in the form of additional discount points usually paid by
the builder, lender, seller or buyer.
Cap - A limit on how much interest
rate or monthly payment can change, either during the adjustment
period or over the life of the loan.
Closing - The delivery of the
deed, signing of notes, and disbursement of funds necessary to consummate
a real estate sale of loan transaction.
Closing Costs - Expenses incurred
by the buyer and seller during the purchase and sale of real estate
such as title fees, loan fees, etc.
Co-Borrower - A second borrower
who signs a mortgage loan with the borrower. The co-borrower's income,
assets, and debt are combined with that of the borrower's for the
sake of qualifying and underwriting purposes. The co-borrower's
name must also appear on the mortgage or deed of trust.
Comparables - Properties sold
recently that are similar to property being considered for purchase.
Comparables should be in the same general location and of similar
size character and construction type.
Conventional Mortgage - A mortgage
made by a lender without the backing provided by Government guarantees
such as VA or FHA
Conveyance - The document,
such as a deed or mortgage used to effect a transfer.
Deed of Trust - A security
instrument conveying title in trust to a neutral third party. In
some states this is used in place of a mortgage.
Equity -The difference between
the actual value of a property and the outstanding loan balance.
Escrow - The temporary holding
by a neutral third party of deposited funds pending completion of
agreed terms in a transaction.
FHA Mortgage - A low down payment
loan insured by the Federal Housing Administration. The FHA protects
the lender against loss in case the borrower defaults.
Fixed-Rate Mortgage - A loan
with an interest rate that remains unchanged over the term of the
loan.
Gift Letter - A letter from
the donor of gift funds certifying to the underwriter that funds
in an borrower's account are a gift and do not need to be repaid.
Hazard Insurance - Insurance
coverage providing compensation to the lender in case of a loss
or damage to a property.
Impound Account - Account held
by a lender for payment of taxes, insurance, mortgage insurance
and other debts against property. The borrower pays an apportioned
amount with each monthly payment.
Index -A base for determining
the interest rate adjustment of an ARM, such as the interest rate
on US Treasury securities Indexes generally reflect prevailing market
conditions.
Investor - A person or institution
that invests in mortgages or mortgage-backed securities.
Lien - A claim against property
for debt, such as a Mortgage.
Loan-to-Value Ratio (LTV) -
The ratio of mortgage amount to the lower appraised value or sales
price. Used by lenders to determine maximum loan amounts.
Margin - The amount expressed
as a percentage that a lender adds to an index to arrive at the
effective interest rate on ARM.
Market Value - The current
value of a property that a buyer is willing to pay and the seller
is willing to accept.
Mortgage Insurance - Insurance
obtained from a non-governmental insurer that provides the lender
with protection in case borrower defaults.
Non-Conforming Loan - A conventional
loan is considered non-conforming the loan amount is too large or
underwriting practices are outside guidelines established by the
Federal National Mortgage Association (FNMA) and the Federal Home
Loan Mortgage Corporation (FHLMC). A jumbo loan or a loan for borrowers
with less-than-perfect-credit are examples of non-conforming loans.
Note - A general term for an
instrument signed by the borrower that is an acknowledgment of the
debt and a promise to pay.
PITI - An acronym for the items
included in a monthly payment: Principal, Interest, Taxes, and Insurance.
Point - An amount equal to
one percent of the loan amount. The origination fee is often expressed
in points.
Purchase and Sale Contract
- The formal agreement in which the seller agrees to sell and the
buyer agrees to buy the property.
Refinancing - A new borrowing
against a property that is currently mortgaged, with the intention
of retiring the previous debt.
Second Mortgage - A second
lien on a property.
Term - The period or duration
of a note or loan.
Title Insurance - Insurance
written by a title company to protect the lender or owner against
loss in the case of undisclosed liens or defects in title to the
property.
Underwriting - In mortgage
banking, the analysis of risk involved in making a mortgage loan
to determine whether the risk is acceptable to the lender.
VA Mortgage - A low down payment
loan guaranteed by the Department of Veterans Affairs.