 |
 |
Frequently Used Terms
A_B_C_D_E_F_G_H_I_J_K_L_M_
N_O_P_Q_R_S_T_U_V_W_X_Y_Z_
Adjustable Mortgage Rate (ARM): A mortgage loan in which the market conditions determine fluxuations in the interest rate. Changes in the interest rate are determined by a financial index. ARM loans have a cap or a limit on how much the interest rate can change.
Amortization: Repayment of a mortgage loan with equal periodic payments of both principal and interest. The payments are calculated so that the debt is paid off at the end of a fixed period of time.
Annual Percentage Rate (APR): A term that expresses the cost of a mortgage as an annual rate. The APR is normally higher than the advertised interest rate because it includes interest, points, and other finance charges. The APR is used to compare different types of mortgages.
Appraisal: A report created by a qualified appraiser that is an estimate of the value of the property being purchased.
Assessment: An assessed value given to property which is used solely for determining property taxes.
Asset: An item that has monetary value such as cash, stocks and real estate. Information about your assets is required when applying for a mortgage loan.
Balloon Mortgage: a short-term mortgage loan of equal monthly payments in which a large final payment (balloon) is due on a specified date. The final payment is equal to the remaining balance of the loan.
Biweekly Mortgage: A mortgage loan in which payments are due every two weeks, totaling 26 (or possibly 27) payments each year.
Closing: The final step in the mortgage loan process which follows underwriting. The closing is a meeting between the homebuyer, seller and lender in which mortgage documents are signed and title to the property passes from the seller to the buyer. At the same time, the homebuyers receives the funds needed to purchase the property and pledges the property as security for repayment of the debt.
Closing Costs: Fees paid at closing which are usually 3 to 6 percent of the mortgage amount. Some examples of closing costs are: realtor fees, appraisal fees and taxes.
Collateral: Property pledged as security for repayment of the mortgage loan.
Conventional Loan: A mortgage loan made by an approved lender in which the borrower's ability to repay the debt is not insured by a government agency such as the FHA or VA.
Convertible Mortgage: a type of adjustable rate mortgage loan that can be converted to a fixed-rate mortgage.
Discount Points: Also called "points". A one-time charge paid to the lender at closing to obtain a lower interest rate on the mortgage loan. One point is equal to 1 percent of the loan amount. For example, two points on a $100,000 mortgage would cost $2,000.
Escrow Account: An account often required by the lender to pay taxes and insurance. Every time a mortgage payment is made, a portion goes into the escrow account. When the taxes and insurance bills are due on your own home, the lender pay the bills with funds from this account.
Equity: The amount of the home that you actually own. Equity is the difference between the market value of the home and what you still owe on it.
Federal Housing Administration (FHA): A division within the Federal Department of Housing and Urban Development (HUD) that provides mortgage insurance for residential mortgages and sets standards for construction and underwriting.
FHA Loan: A mortgage loan made by an approved lender in which the Federal Housing Administration insures the borrower's ability to repay the debt.
back to topGood Faith Estimate: An estimate of the fees you will be required to pay at closing. It is required by law that the lender provide the good faith estimate within three days of your initial loan application.
Growing Equity Mortgage (GEM): A type of mortgage loan in which payments increase yearly until the mortgage is paid off. The increasing payments are applied directly to the principal, allowing the homebuyer to acquire equity more rapidly and pay off the mortgage sooner.
Housing-to-Income Ratio: A ratio that compares all your monthly housing expenses to your monthly income. Normally, housing expenses are equivalent to 28 percent of your monthly income. This ratio is used by the loan to see if you qualify for a mortgage.
Mortgage: A legal document that pledges you r property as security for repayment of the Mortgage loan.
Mortgage Broker: A real estate financing professional who brings homebuyers and sellers together arrange funding and negotiate contract.
Mortgage Insurance: Insurance that protects the lender in case the house payments are not made. Typically you would be required to pay a fee for mortgage insurance if your down payment is less than 20 percent.
Mortgage Note: A document that you sign at closing which states your promise to pay a um of money at a specific rate for a fixed period of time.
Mortgagee: the lender Mortgagor: the homebuyer or borrower
Origination: The first step in the mortgage loan process. During the origination phase, a loan application is filled out with details of your financial position. You will be asked to provide supporting documentation such as W-2s and pay stubs. Your loan officer will then be required to provide you with Good Faith Estimate and a Truth-in-Lending disclosure shortly after your initial loan application.
Origination Fee: A fee that the lender charges the homebuyer for the service of creating the mortgage loan. You will not have an origination fee if you are using the services of a Mortgage Broker.
back to topPoints: See Discount Points.
Prequalification: A process in which the loan officer calculates the housing-to-income ratio and the total debt-to-income ratio to see if you qualify for a mortgage loan.
Principal: The amount owed on a loan, excluding interest.
Private Mortgage Insurance (PMI): Insurance provided by a private mortgage insurance company that protects the lender in case the house payments are not made. Typically, you would be required to pay a fee for mortgage insurance if your down payment is less than 20 percent.
Processing: The second step in the mortgage loan process which follows origination. During processing, documents are collected and your loan file is examined to ensure that all information is complete and accurate. Verifications, appraisals, credit reports and other necessary documents are ordered at this time.
Recording Fees: Fees that the lender charges for officially recording the signed mortgage documents to make them a public record.
Servicing: Activities that the lender performs such as collecting the payments and paying taxes and insurance if you have an escrow.
Title: A document describing the legal owner of a specified piece of property. The title is sometimes called the deed.
Title Insurance: An insurance policy which insures the homebuyer against errors in the title search. The fee for the title insurance policy is paid at closing.
Title Search: An examination of officially recorded documents to determine the legal ownership of property.
Total Debt-to-Income Ratio: A ratio which compares all of your monthly debt payments, such as credit cards and car payments, to your monthly income. Normally, your monthly debt payments are equivalent to 36 percent of your monthly income. This ratio is used by the loan officer to see if you qualify for a mortgage loan.
Truth-in-Lending Disclosure: A document which the lender is required by law to give to the homebuyer shortly after loan application. This disclosure gives detail of the house payments along with the corresponding APR.
Underwriting: The third step in the mortgage loan process which follows processing. During underwriting, the documents in the loan file are evaluated to determine whether the loan should be approved, denied, or approved with conditions.
Veterans Administration (VA): Known as the Department of Veterans Affairs, an agency within the Federal Government which administers benefit programs for veterans.
VA Loan: A long-term, low or no-down payment mortgage loan in which the Veterans Administration guarantees the homebuyers' ability to repay the debt. Only veterans are eligible for this type of loan.
