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.