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.
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.
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.
constable - The job of the constable
is to serve papers for individuals and the courts or to
help homeowners with the eviction process.
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.
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.
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.
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.
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."
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.
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.
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.
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.
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).
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.
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.
principal - The amount borrowed or remaining unpaid.
The part of the monthly payment that reduces the remaining
balance of a mortgage.
principal, 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.
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.
second mortgage - A mortgage that
has a lien position subordinate to the first mortgage.
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.
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.
VA mortgage - A mortgage that is
guaranteed by the Department of Veterans Affairs (VA).
Also known as a government mortgage.
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