Magic Funding Group, Inc.
Comprehensive Mortgage Term Glossary
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11th District COFI (Cost of Funds Index): (See adjustable-rate indexes ) This index is based on the cost of funds to savings and loan institutions in the 11th District of the Federal Home Loan Bank District. The rate is based on interest paid on checking and savings accounts by Savings and Loans in California, Arizona and Nevada. COFI funds are slow to change and therefore make a good index to choose when rates are rising.
100% Financing: A situation where no down payment is made, so the lender finances the house for 100 percent of its selling price. The buyer has no equity in the home.
203K Home Improvement Loan: (See Home Improvement Loan )
Abstract of Title: A summary of recorded instruments that affects the title to the property.
Acceleration: The right of the mortgagee (lender) to demand the immediate repayment of the mortgage loan balance upon the default of the mortgagor (borrower), or by using the right vested in the due-on-sale clause.
Adjustable-Rate Indexes: Indexes used to periodically change the interest rates on adjustable mortgage loans. For example, the weekly average yield on one-year U.S. Treasury bills, calculated at a constant maturity of one year, often is used by lenders as the basis for their adjustable mortgage rates.
Common Adjustable-Rate Indexes Include:
LIBOR: This is an acronym for London Interbank Offered Rate. LIBOR is a rate the most creditworthy banks dealing in eurodollars charge each other for large loans. It is also a baseline index for less creditworthy loans, which could be charged 1 percent over LIBOR, for example.
11th District COFI (Cost of Funds Index): This index is based on the cost of funds to savings and loan institutions in the 11th District of the Federal Home Loan Bank District. The rate is based on interest paid on checking and savings accounts by Savings and Loans in California, Arizona and Nevada. Since COFI funds are slow to change, it is a good index to choose when rates are rising.
COFI (Cost of Funds Index): Reflects the average national interest paid on checking and savings products over a period of time, usually one month. Savings instruments monitored include savings accounts, CDs, interest checking, money markets, and other like bank assets. Since COFI funds are slow to change, it is a good index to choose when rates are rising.
1-Year TCM (Treasury Constant Maturity): This is one of the most-common indexes used as a basis for adjusting interest rates on adjustable-rate loans. The yield on the 1-year TCM is published weekly by the Federal Housing Finance Board in its H.15 report on selected interest rates The yield on the 1-year TCM and on various other savings instruments listed in the report are adjusted to reflect a one-year maturity and are determined daily by closing market bid yields.
Prime Rate: The interest rate that banks charge their most creditworthy customers. This is a key interest rate for banks, and a standard within the banking industry. Many home equity lines of credit are based on the prime rate. Rates based on prime can be at prime, 'below prime,' or prime plus 1 percent, for instance. The prime rate usually changes when the Federal Reserve Board increases or decreases the fed funds target rate, which is the rate banks charge each other for overnight loans that often are used to satisfy reserve requirements.
Adjustable-Rate Mortgage (ARM): A mortgage in which the interest rate is adjusted periodically based on a pre-selected index. Also sometimes known as the renegotiable-rate mortgage or variable-rate mortgage.
Adjustment Date: The date on which the interest rate on an adjustable-rate mortgage is adjusted.
Adjustment Interval: On an adjustable-rate mortgage, the time between changes in the interest rate and/or monthly payment -- typically one, three or five years, depending on the index.
Amortization: The payment of a loan in equal periodic payments calculated to pay off the debt at the end of a fixed period, including accrued interest on the outstanding balance.
Amortization Schedule: A loan payment schedule of equal periodic payments calculated to pay off the debt at the end of a fixed period, broken down into payments of principal and interest.
Annual Percentage Rate (APR): An interest rate reflecting the actual cost of a mortgage, expressed as a yearly rate. This rate likely is higher than the stated note rate or advertised rate on the mortgage because it takes into account point(s) and other credit costs. Homebuyers use APR to compare different types of mortgages based on the annual cost for each loan.
Appraisal: An estimate of the value of property made by a qualified professional called an 'appraiser.' A mortgage lender will request an appraisal (paid by the home buyer) to ensure that the home's value at least equals the amount of money being borrowed.
Appraised value: The assessment of a fair value of the property as determined by a licensed professional. A mortgage lender will request an appraisal (paid by the home buyer) to ensure that the home's value at least equals the amount of money being borrowed.
Appreciation: The increase in value of a property over time due to property improvements, changes in market conditions or inflation.
Assessed value: A valuation placed on a property for the purpose of determining property taxes.
Assessment: A local tax levied against a property to fund a specific project or purpose, such as sewers or streetlights.
Assessor: A licensed professional who determines the fair value of a property for local tax purposes.
Assumption: The agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller. The assumption of a loan can usually save the buyer money because it is an existing mortgage debt, unlike a new mortgage where closing costs and new, possibly higher market-rate interest charges will apply.
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Balloon Payment Mortgage: Usually a short-term fixed-rate loan that involves small payments for a certain period of time and one large payment for the remaining balance of the principal at a time specified in the contract.
Balloon Reset: A mortgage in which the borrower receives a below-market interest rate for a specified number of years (most often seven or 10), and then receives a new interest rate adjusted (within certain limits) to market conditions at that time. The lender sometimes has the option to call the loan due with 30 days notice at the end of seven or 10 years. Also called 'Super Seven' or 'Premier' mortgage. Also called a two-step mortgage.
Bankruptcy: Bankruptcy occurs when a person is unable to pay debts on time. A person filing for bankruptcy can file in one of two ways. Chapter 7 bankruptcy relieves him/her of all debts (except taxes), but stays on the credit record for 10 years. Chapter 11 allows the debtor to work out a payment plan whereby all or some of the debt (e.g., $0.25 on the dollar) is paid out over a specified period of time. Chapter 11 generally remains on a credit record for seven years. Any bankruptcy filing is extremely detrimental to your credit score.
Basis Point: A basis point is equal to 1/100 of a point, or 1/100 of 1.0 percentage point. The difference between 5.89 percent and 5.90 percent is one basis point.(See Points )
Below-Prime Mortgage: A below-prime mortgage is a loan offered at an interest rate lower than the current prime rate.
Bi-Weekly Mortgage: A mortgage where half a mortgage payment is made every two weeks, instead of the typical monthly payment. As a result, the borrower ends up making 13 full payments a year. The loan is paid off several years earlier, and the savings on interest payments is substantial. Check your savings with a bi-weekly mortgage calculation: Bi-Weekly Calculator
Blanket Mortgage: A mortgage covering at least two pieces of real estate that serves as security for the same mortgage.
Borrower (Mortgagor): One who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan principal in full.
Bridge Loan: A loan obtained to pay for the down payment on a new home before the old home is sold. No longer commonly used.
Broker: An individual in the business of assisting in arranging funding or negotiating contracts for a client (a buyer.) The broker does not loan the money personally. Brokers usually charge a fee or receive a commission for their services.
Buy-Down: This occurs when the lender and/or the homebuilder subsidize the mortgage by lowering the interest rate during the first few years of the loan. While the payments are initially low, they will increase when the subsidy expires.
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Capital Gain: The monetary gain on the sale of a capital asset (in this case, the sale of one's home). Capital gains on a home are tax-free as long as they don't exceed $250,000 for one person or $500,000 for a married couple. The property also must have been the owner's primary residence for at least two of the last five years. If you bought a home for $150,000, lived in it for two years, then sold it for $225,000, your capital gain would be $75,000, and you would not owe taxes on the gain.
Cash Flow: Amount of cash derived over a certain period of time from an income-producing property. The cash flow should be large enough to pay the expenses of the income-producing property (mortgage payment, maintenance, utilities, taxes, etc).
Cash-out Refinance: The refinancing of a property for an amount greater than than the outstanding balance.
Cash Reserve: A sufficient amount of cash left over after closing to cover two months of mortgage payments. Required by most lenders for conventional loans.
Cap (interest): (See interest cap )
Cap (life): (See life cap )
Cap (payment): (See payment cap )
Certificate of Eligibility: Document given to qualified veterans that entitle them to VA-guaranteed loans for homes, businesses, and mobile homes. Certificates of eligibility may be obtained by sending DD-214 (Separation Paper) to the local VA office with VA form 1880 (request for Certificate of Eligibility) or logging on: http://www.homeloans.va.gov/elig1.htm.
Certificate of Reasonable Value (CRV): An appraisal issued by the Veterans Administration showing the property's current market value.http://www.vba.va.gov/pubs/homeloanforms.htm
Certificate of Veteran Status: This document is given to veterans or reservists who have served 90 days of continuous active duty (including training time). It may be obtained by sending DD 214 to the local VA office with form 26-8261a (request for certificate of veteran status). This document enables veterans to obtain lower down payments on certain FHA-insured loans.
Closing: A meeting between the buyer, seller and the lender or their agents where the property and funds legally change hands. Also called settlement.
Closing Costs: Usually include an origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. The cost of closing usually runs 3 percent to 6 percent of the mortgage amount. Also called settlement costs.
COFI (Cost of Funds Index): (See 11th District COFI ; also see adjustable-rate indexes )
Commitment: A promise by a lender to make a loan on specific terms or conditions to a borrower or builder. This also is a promise by an investor to purchase mortgages from a lender with specific terms or conditions. An agreement, often in writing, between a lender and a borrower to loan money at a future date subject to the completion of paper work or compliance with stated conditions.
Common Area: Those areas of townhouse, condominium or cooperative (co-op) properties that are shared by all individual property owners, such as lobbies, hallways, recreational facilities, parking lots, greenways and other amenities.
Common Area Assessment: Fee paid to an association (usually) for the upkeep and maintenance of such areas.
Comparables: Prices of similar properties recently sold in an area. Used by an tax assessor to help determine current value of a property.
Compound Interest: Interest calculated on unpaid interest as well as on unpaid principal.
Contingency: A condition that must be met before a sale can be completed. Often used when a buyer needs to sell the current house before buying a new one.
Conforming Loan: Conforming loans meet two criteria: 1.) They cannot exceed the current year's maximum loan amount limits. The 2005 conforming loan limit is $359,650; 2.) They also must conform to the credit history, income, loan-to-value, and debt guidelines established by Fannie Mae and/or Freddie Mac.
Construction Loan: A short-term interim loan to pay for the construction of buildings or homes. These usually are designed to provide periodic disbursements to the builder as construction progresses.
Contract Sale or Deed: A contract between a real estate buyer and a seller to convey title after certain conditions have been met. It is a form of installment sale.
Conventional Loan: A fixed-rate loan not insured by FHA or guaranteed by the VA.
Conventional Loan Limit: A loan limit set yearly by Fannie Mae and Freddie Mac. As of Jan. 1, 2005, the conventional loan limit is $359,650. Any loan for more than that amount is regarded as a jumbo loan and comes with a higher interest rate. There are four exceptions to the conventional loan limit. Properties in Alaska, Hawaii, the U.S. Virgin Islands and Guam have a loan limit of $539,475 due to the high cost of land in those areas.
Convertible Adjustable-Rate Mortgage: Loan that lets you switch to a fixed-rate mortgage from an adjustable-rate mortgage after a designated length of time. There is usually a conversion fee charged.
Cosigner: A friend or relative willing to cosign a mortgage if the borrower cannot get a mortgage on his or her own due to problems with the borrower's credit. The cosigner is responsible for payment if the primary borrower defaults. The mortgage is a contingent liability on the cosigner's borrowing power; therefore, it may have a negative effect on the cosigner's credit.
Credit Report: A report documenting the credit history and current status of a borrower's credit standing.
Credit Reporting Agencies: There are three major credit reporting agencies: Equifax (800) 685-1111 or , Experian (888) 397-3742 or , and TransUnion (800) 888-4213 or , which track your credit history with regard to on-time payment of bills, any liens or judgments filed against you, and any bankruptcies that you file. You can get one free copy of your credit report each year from each of the reporting agencies. Simply call them and ask for a copy of your credit information.
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Debt-To-Income Ratio: The ratio, expressed as a percentage, which results from a borrower's monthly payment obligations on long-term debts divided by gross monthly income. This also is referred to as a back-end ratio and is generally expected to come in at about 36-38 percent. Some lenders, especially those offering FHA or sub-prime loans, will stretch this ratio to 40 percent or even beyond. See housing expenses-to-income ratio.
Deed of Trust: In many states, a document used in place of a mortgage to secure the payment of a note.
Default: Failure to meet legal obligations in a contract. Specifically, failure to make the monthly payments on a mortgage.
Deferred Interest: (See negative amortization )
Delinquency: Failure to make payments on time. This can lead to foreclosure.
Department of Housing and Urban Development (HUD): A federal department that administers programs dealing with housing and urban renewal. HUD provides hundreds of services for home buyers, sellers and owners. There is a wealth of information on the HUD website: http://www.hud.gov/, or you can call your local
Department of Veterans Affairs (VA): An independent agency of the federal government that guarantees long-term, low- or no-down payment mortgages to eligible veterans. You can find out more about VA programs and your eligibility by contacting: http://www.homeloans.va.gov/veteran.htm or http://www.vba.va.gov/pubs/homeloanforms.htm You can also contact a VA Regional Office: http://www.vba.va.gov/benefits/ROcontacts.htm
Depreciation: A decrease in a property's value, or the amount allowed under federal and state tax guidelines for a deduction for a portion of a house used for business purposes.
Discount Point: (See point )
Down Payment: Money paid to make up the difference between the purchase price and the mortgage amount.
Due-On-Sale Clause: A provision in a mortgage or deed of trust that allows the lender to demand immediate payment of the balance of the mortgage if the mortgagor sells the home.
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Earnest Money: Money given by a buyer to a seller as part of thepurchase price to bind a transaction or assure payment. This payment is often given to the seller upon acceptance of an offer to buy. This amount is negotiable but could amount to 1 percent of the sale price. This money becomes part of the down payment.
Easement: (See right of way )
Eligibility: (See entitlement )
End Loan: (See permanent loan )Entitlement: The VA (Veterans Administration) home loan benefit that allows for a VA-guaranteed home loan. This is also known as eligibility.
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.
Equifax: One the three main credit reporting agencies. Equifax may be reached at (800) 685-1111 or www.equifax.com.
Equity: The difference between the fair market value of a home and current indebtedness; the value an owner has in real estate over and above the amount still owed on the property. Also referred to as the owner's interest.
Escrow: An account held by the lender into which the homebuyer pays money for tax and/or insurance payments. Also may include earnest deposits held pending loan closing.
Experian: One of the three major credit reporting agencies. Experian may be reached at (888) 397-3742) or www.experian.com .
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Fannie Mae: A tax-paying, government-chartered corporation created by Congress that purchases conventional residential mortgages. This institution, or government-sponsored enterprise (GSE), provides funds for one in seven mortgages, makes mortgage money more available and more affordable. Also known as Federal National Mortgage Association or FNMA.
Federal Funds Rate: The interest rate banks charge for overnight loans of excess reserves to other banks needing such loans to meet reserve requirements. The federal funds rate is the most sensitive indicator of the direction of interest rates, since it is set daily by the marketplace, unlike bank prime rates and the Fed's discount rate.
Farmers Home Administration (FmHA): Provides financing to farmers and other qualified borrowers who are unable to obtain loans elsewhere.
Federal Home Loan Bank Board (FHLBB): (See Freddie Mac )
Federal Housing Administration (FHA): A division of the Department of Housing and Urban Development (HUD), whose main activity is to insure residential mortgage loans made by private lenders. FHA also sets standards for underwriting mortgages.
Federal National Mortgage Association (FNMA): (See Fannie Mae )
Federal Reserve: The U.S. central bank created by Congress in 1913 to foster a sound banking system and healthy economy. The Federal Reserve System is comprised of 12 regional banks, plus the Board of Governors located in Washington, D.C. The Fed performs many functions that affect the economy but specifically acts as a banker's bank and the government's bank; serves as a regulator of financial institutions, and acts as the nation's money manager.
FHA Loan: A loan insured by the Federal Housing Administration (FHA) and open to qualified home purchasers. While there are limits on the size of FHA loans (up to $312,895 as of 1/1/05), they are generous enough to handle moderately priced homes in many parts of the country. The maximum FHA loan available varies throughout the country. To find amount available in your area you can call the HUD Consumer Hotline at 1-800-767-4483 or go online at . Once there, type in the name of the state or the county where you are interested in buying.
FHA Mortgage Insurance: A fee (up to 1.5 percent of the loan amount) paid at closing to insure the loan with FHA. In addition, FHA mortgage insurance requires an annual fee of up to 0.5 percent of the current loan amount, paid in monthly installments, until you have 22 percent paid equity in your home.
FHLMC: (See Freddie Mac )
FICO Score: A mathematical equation developed by Fair Isaac Corp. that determines how likely you are to pay your bills on time. Many lenders use this score to determine not only if a mortgage loan will be made, but also the interest rate you will be charged. Because of differences in calculation methods, not all credit scores are the same. Your credit scores may differ among the credit-reporting agencies and likely also will vary from your FICO score.
Firm Commitment: A promise by the FHA to insure a mortgage loan for a specified property and borrower. A promise from a lender to make a mortgage loan.
First Mortgage: A loan used to finance the purchase of a property. If there are two mortgages on one property, the first mortgage usually covers the larger percentage on the balance owed. It is the primary lien against the property.
Fixed-Rate Mortgage (FRM): The mortgage interest rate on these mortgages will remain the same throughout the term of the mortgage for the original borrower.
Flood Insurance: A separate insurance policy purchased by a homeowner to protect property against flood damage. This type of protection is not included in the homeowner hazard policy. Flood insurance may be required if the home is located on a flood plain.
FNMA: (See Fannie Mae )
Foreclosure: A legal process by which the lender or the seller forces a sale of a mortgaged property because the borrower has not met the terms of the mortgage. Also known as a repossession of property.
Freddie Mac: A quasi-governmental agency that purchases conventional mortgages. Also called Office of Thrift Supervision Federal Home Loan Mortgage Corporation (FHLMC).
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Ginnie Mae: A corporation that functions much the same as Fannie Mae or Freddie Mac. Ginnie Mae buys government-backed loans from mortgage lenders, providing them with funds to make more loans. Also known as Government National Mortgage Association (GNMA).
GNMA: (See Ginnie Mae )
Good Faith Estimate (GFE): A document detailing a list of charges that the borrower will likely be required to pay at closing. The lender must supply this estimate within three days after application is made.
Government National Mortgage Association (GNMA): (See Ginnie Mae )
Graduated payment mortgage (GPM): A type of flexible-payment mortgage where the payments increase for a specified period of time and then level off. This type of mortgage has negative amortization built into it.
Guaranty: A promise by one party to pay a debt or perform an obligation contracted by another if the original party fails to pay or perform according to a contract.
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Hazard Insurance: A form of insurance in which the insurance company protects the insured from specified losses, such as those resulting from fire, windstorm and the like.
Home Equity Conversion Mortgage (HECM): More commonly referred to as a reverse mortgage, it allows homeowners age 62 or over who owe nothing on their house (or very little) to convert home equity into cash. Homeowners receive tax-free payments that do not have to be repaid until the last owner moves out of the property. At that time, the property is sold so the lender can recoup the payments and interest. If the sale of the home results in a profit, the profit is returned to the owner or the heirs.
Home Equity Line of Credit (HELOC): A variable-rate (usually based on the prime rate) line of credit that is secured by the equity in the home. Funds are available on demand, but repayment is not required until the borrower draws them down. Funds can be repaid and drawn repeatedly with no additional paperwork.
Home Improvement Loan (203K or HomeStyle): Someone who buys a 'fixer-upper,' or a home that needs repairs costing more than $5,000, can get a home improvement loan in addition to the first mortgage when he/she buys or refinances. The value of this type of loan is that it carries the same low rate as the first mortgage rather than the higher rate of a second mortgage. There are restrictions on the size of the loan as well as on the procedures used to get it approved. These are structured as affordable home improvement loans and are available from FHA (203K) or Fannie Mae lenders (HomeStyle).
Housing Expenses-to-Income Ratio: The ratio, expressed as a percentage, calculated by dividing a borrower's monthly housing expenses by gross monthly income. See debt-to-income ratio.
HUD: (See Department of Housing and Urban Development )
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Impound: That portion of a borrower's monthly payment held by the lender or loan servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Also known as reserves.
Interest-Only Loan: A mortgage loan that is structured so that the borrower pays only the interest due for a certain amount of time, e.g., three, five, seven, or 10 years. After the interest-only period has expired, the loan is renegotiated at the current interest rate for the remaining life of the loan. For example, if the loan were set up as a seven-year interest-only loan, the borrower would pay only interest for the first seven years. At that time the principal would be amortized over the remaining 23 years of the 30-year loan at current interest rates.
Index: A published interest rate against which lenders measure the difference between the current interest rate on an adjustable-rate mortgage and that earned by other investments. Common indices include one-, three-, and five-year U.S. Treasury security yields; the monthly average interest rate on loans closed by savings and loan institutions, and the monthly average cost of funds incurred by S&Ls. These data are then used to adjust up or down the interest rate on an adjustable-rate mortgage.
Interest Cap: A consumer safeguard that limits the amount the interest rate on an adjustable-rate mortgage may change per year and/or over the life of the loan.
Interim Financing: A construction loan made during completion of a building or a project. A permanent loan usually replaces this loan after completion. (See also rollover.)
Investor: A money source for a lender.
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Joint Tenancy: Joint ownership of a property by two or more persons, such as a husband and wife or partners. Each has equal rights to the property and the property passes to the remaining tenant(s) upon the death of one of the owners.
Jumbo Loan: A loan that is larger (more than $359,650 as of 1/1/2005) than the limits set yearly by Fannie Mae and Freddie Mac. Because jumbo loans cannot be funded by these two agencies, jumbo loans usually carry a higher interest rate. Also called a non-conforming loan.
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No terms found under letter K
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Land Contract: A real estate sales agreement between the seller and the buyer wherein the buyer promises to pay a negotiated amount in monthly installments for a negotiated period of time (usually seven to 10 years). The buyer is free to use the property while making payments, but does not receive title to the property until the conditions of sale are met.
Lease/Purchase: A way to buy property with no down payment. Instead, installment payments are made over a period of time. With a lease/purchase, the potential buyer rents the property for a specified amount of time, with part of the rent going toward the purchase price (a down payment). During this time the seller retains ownership rights. Once the agreed-upon rental period elapses, ownership rights go to the renter. The renter is obligated to purchase the property at the agreed-upon price and time or forfeit any down payment money accumulated if the purchase is not completed.
Lender Buy-Down: (See Buy-down )
LIBOR: (See adjustable-rate indexes )
Lien: A claim upon a piece of property for the payment or satisfaction of a debt or obligation.
Life Cap: For adjustable-rate mortgages, a limit on the amount a loan's interest rate can increase or decrease over the life of the mortgage. Also called life-of-loan cap.
Line of Credit: Credit extended to a borrower under specific conditions. (Also see Home Equity Line of Credit )
Loan: Money borrowed that is repaid, usually with interest.
Loan Discount Points: (See points )
Loan Servicing: Processes required in managing and collecting monthly mortgage payments. These include sending statements, managing escrow/impound accounts, and making insurance and tax payments on time.
Loan-to-Value Ratio: The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage calculated by dividing the amount of the loan by the appraised value.
Lock-In: An agreement whereby the lender promises to offer (or lock in) a specific interest rate on a mortgage for a period of time, e.g., a 30-day lock. A borrower may have to pay the lender a fee to lock a rate for a longer period.
Low-Doc Loan: A loan that requires low (or minimal) documentation, i.e., a loan where the borrower is required to submit only a portion of the documentation usually required to get a mortgage. Persons who are self-employed or whose incomes are volatile use this type of loan, which usually requires a 20-percent down payment (or more), a higher interest rate and an excellent credit history. These factors offset the added risk.
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Margin: The amount a lender adds to the index on an adjustable-rate mortgage to establish the adjusted interest rate.
Market Value: The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.
MIP (Mortgage Insurance Premium): Mortgage insurance required by the FHA on a loan where the borrower puts down less than 20 percent of the house's purchase price. The insurance protects the lender against incurring a loss due to borrower default.
Modification: A change in mortgage terms upon refinancing. It usually entails a change in interest rates to benefit the borrower.
Monthly Housing Expense: (See PITI )
Mortgage: A document that pledges a property as security for a loan.
Mortgage Insurance (MI): Money paid to insure the mortgage when the down payment is less than 20 percent. Lenders will allow a smaller down payment or no down payment at all, in some cases, but in those cases borrowers are usually required to carry mortgage insurance that generally calls for an initial premium payment and may require an additional monthly fee depending on the structure of the loan. MI is not tax deductible and as a result, most homeowners have it removed once the value of the equity in the home reaches 20 percent. (See also FHA mortgage insurance)
Mortgagee: The lender.
Mortgagor: The borrower or homeowner.
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Negative Amortization: Occurs when monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan. The danger of negative amortization is that the homebuyer ends up owing more than the original amount of the loan.
No Cost Refinance: A type of refinancing in which charges and fees are rolled into the new mortgage rather than having the borrower paying them in advance.
Net Effective Income: The borrower's gross income minus federal income tax.
No-Doc-loan: A no-doc or no-documentation loan requires little or no income or asset verification by the borrower. Those who do not want to reveal their financial information use it. Because the loan is made on your word as the buyer, you must have excellent credit. You will also likely have to make a substantial down payment (often more than 20 percent) and you also will be charged a higher interest rate to offset the risk in this type of loan.
Non-Assumption Clause: A statement in a mortgage contract forbidding the assumption of the mortgage by another party without the prior approval of the lender.
Non-Conforming Loan: (See Jumbo Loan )
Note: The signed obligation to pay a debt, such as a mortgage note.
Note Rate: The stated interest rate on a note to pay a debt.
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Office of Thrift Supervision Federal Home Loan Mortgage Corporation (FHLMC): Formally known as Federal Home Loan Bank Board. (See Freddie Mac )
One-Year TCM (Treasury Constant Maturity): This is an index published by the Federal Housing Finance Board listing the yields on a group of securities. The yields are adjusted to reflect a one-year maturity and are determined daily by closing market bid yields. TCM is widely used as the basis for adjustable-rate loans.
Origination: The steps taken during the loan process to document the credit and assets of the borrower, as well as to get an appraisal of the property to be purchased.
Origination Fee: The fee charged by a lender to prepare loan documents, make credit checks, inspect and sometimes appraise a property; usually computed as a percentage of the face value of the loan and often expressed as a point or a fraction of a point.
Owner's Interest: (See equity )
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Payment Cap: Consumer safeguards that limit the amount by which monthly payments may change on an adjustable-rate mortgage, e.g., 2 percent per year.
Party Wall: The wall that connects two properties, such as in a condominium, an apartment building or semi-attached house.
Percolation Test: For properties with a septic tank, a test of soil seepage capacity.
Permanent Financing: A mortgage that replaces a construction loan after construction has been completed and contractors have been paid.
Permanent Loan: A long-term mortgage, usually 10 years or more. Also called an 'end loan.'
PITI: An acronym for Principal, Interest, Taxes and Insurance. Also called monthly housing expense.
PITI Reserves: Additional funds the homebuyer must have after making the down payment and paying closing costs on a house purchase. The required amount equals the PITI for a predetermined number of months - often two months.
Planned Unit Development (PUD): An area containing privately owned lots and buildings and jointly owned areas and facilities, such as a townhouse development.
Pledged Account Mortgage (PAM): Money placed in a pledged savings account. This fund plus earned interest is gradually used to reduce mortgage payments.
Points (loan discount points): Prepaid interest assessed at closing by the lender, reducing the amount of money the lender advances to the borrower. Each point is equal to 1 percent of the loan amount (e.g., two points on a $100,000 mortgage would cost $2,000).
Prime Rate: The interest rate that banks charge their most creditworthy customers. This is a key interest rate for banks, and a standard within the banking industry. Many home equity lines of credit are based on the prime rate. They can be at prime, below prime, or prime plus 1 percent, for instance. The prime rate usually changes when the Federal Reserve Board increases or decreases the target fed funds rate, which is the interest rate banks charge each other for overnight loans. These loans are most often used to satisfy the bank's reserve requirement.
Power of Attorney: A legal document authorizing one person to act on behalf of another.
Pre-Approval: A commitment on behalf of the lender that a loan can be made for a certain amount of money pending property approval by a lender. The commitment is based on some credit investigation of the borrower.
Pre-Paid Expenses: The amount necessary to create an escrow account or to adjust the seller's existing escrow account. May include taxes, hazard insurance, mortgage insurance and special assessments.
Pre-Payment: A privilege in a mortgage permitting the borrower to make payments in advance of their due date without penalty.
Pre-payment Penalty: Money charged for an early repayment of debt. Prepayment penalties are allowed in some form (but not necessarily imposed) in many states.
Pre-Qualified: Approval of a specific amount a mortgage lender likely would be willing to loan the borrower, based on unverified information provided by the borrower. Final approval requires a credit report, income verification and appraisal of the property to be purchased.
Primary Mortgage Market: Commercial banks and mortgage companies that make loans directly to borrowers. These lenders sometimes sell their mortgages into the secondary mortgage markets such as Fannie Mae, Freddie Mac or Ginnie Mae, etc.
Prime Rate: The interest rate banks charge their most creditworthy customers. Also, the index against which most HELOCs are based.
Principal: The amount of debt, not counting interest, remaining on a loan.
Principal Balance: The balance owed on a mortgage, not including interest or other charges.
Private Mortgage Insurance (PMI): (See mortgage insurance )
PUD: (See Planned Unit Development )
Purchase Agreement: The contract that gives the terms and conditions by which a property will be sold. It is signed by both the seller and the buyer.
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Qualifying Ratio: A measure of creditworthiness obtained by determining the borrower's debt-to-income ratio. The outcome of this formula (dividing mortgage debt or total debt by income) will determine if the borrower qualifies for a loan and at what rate. This method of determining creditworthiness is losing ground to FICO scoring.
Quit Claim Deed: A deed that gives all interest or title that the person signing the deed has at the time of conveyance to another individual.
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Rate Lock: (See Lock-in rate )
Real Estate Agent: A person licensed to transact the sale of property.
Real Property: Land and the trees, minerals, easements and buildings that are attached to it.
Realtor(r): A real estate broker or an associate holding active membership in a local real estate board affiliated with the National Association of Realtors(r).
Recision: The cancellation of a contract. With respect to mortgage refinancing, in some cases the law gives the homeowner three days to cancel a contract once it is signed if the transaction uses equity in the home as security.
Recording: The process of registering a deed, mortgage, satisfaction of a mortgage, or other legal documents with a local authority to make it public record.
Recording Fees: Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records.
Refinance: Obtaining a new mortgage loan on a property already owned, often replacing existing loans on the property.
Release of Mortgage: (See satisfaction of mortgage )
Remaining Balance: (See principal balance )
Remaining Term: The number of years or payments that are left on a mortgage.
Renegotiable Rate Mortgage: (See adjustable-rate mortgage )
Replacement Reserve: Funds that have been placed in an escrow account to replace property held in common in townhouses, cooperatives (co-ops) or condominiums, such as roofs or HVAC units.
Repossession of Property: (See foreclosure )
Reserves: (See impound )
RESPA: Acronym for the Real Estate Settlement Procedures Act. RESPA is a federal law that allows consumers to review information on known or estimated settlement costs once after application and once prior to or at settlement. The law requires lenders to furnish the information after application only.
Reverse Annuity Mortgage (RAM): (See Home Equity Conversion Mortgage )
Reverse Mortgage: A Reverse Mortgage is the name of an often-complex loan that allows homeowners ages 62 and up to use the equity in their paid-for (or nearly paid-for) home. The homeowner can access a percentage of the equity either as a lump sum, a line of credit, in monthly payments or a combination of two or three options. The loan is called a reverse mortgage because the loan is set up to make tax-free payments to the homeowner(s), which is just the opposite of the way a traditional mortgage works. The loan does not have to be repaid until the owner moves from the property or is out of the property for one consecutive year. Once the home is vacated, the home is sold so the lender can recoup the initial loan. Any monies over and above the amount owed to the lender are returned to the homeowner or his/her heirs.
Right of First Refusal: An agreement wherein the owner of a property must offer the first opportunity to buy to a designated person before offering it to others.
Right of Way: The right of someone to use land owned by another for limited purposes; an easement.
Rollover: When construction of a home is completed, the process in which a construction loan is converted to permanent financing.
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Satisfaction of Mortgage: The document issued by the lender when the mortgage loan is paid in full. Also called a 'release of mortgage.'
Second Mortgage: A mortgage made subsequent to another mortgage and subordinate to the first one. Interest rates for secondary mortgages are typically higher than for first mortgages.
Secondary Mortgage Market: The place where primary mortgage lenders sell the mortgages they make to obtain funds to originate more new loans. It provides liquidity for the lenders.
Security: In a mortgage, security is usually the property that the loan is being used to buy. The lender has title to the property and may take possession of it if the loan is not repaid.
Servicing: All the steps and operations a lender performs to keep a loan in good standing, such as collection of payments, payment of taxes, insurance and property inspections.
Settlement: (See closing )
Settlement Costs: (See closing costs )
Shared Appreciation Mortgage (SAM): A mortgage in which a borrower receives a below-market interest rate. In return, the lender (or another investor such as a family member or other partner) receives a portion of the future appreciation in the value of the property. May also apply to mortgages where the borrowers share the monthly principal and interest payments with another party in exchange for part of the appreciation.
Simple Interest: Interest that is computed only on the principal balance.
Subordinate Loan: A second loan or mortgage with a lower priority than the first.
Survey: A measurement of land, prepared by a registered land surveyor, that shows the location of the land with reference to known points, its dimensions, and the location and dimensions of any buildings.
Sweat Equity: Equity created by a purchaser performing work on a property being purchased.
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Tax Deed: The deed received for any property bought at a public sale.
Tax Lien: A claim that has been made against property for overdue and unpaid taxes.
Tax Sale: A court-ordered property sale to satisfy a tax lien.
Tenancy by Entirety: Joint ownership in which a husband and wife are considered one person for the purpose of automatic survivorship. Only in effect in some states.
Tenancy in Common : Joint ownership in which each person owns the property equally but there is no right of survivorship, nor can the property be passed on to others upon a person's death. Upon the death of one of the owners, his or her share will be inherited by a person or persons designated in the decedent's will.
Tenancy in Partnership: Ownership in which the title is in the name of the partnership, not the individual partner names.
Title: A document that gives evidence of an individual's ownership of property.
Title Insurance: A policy, usually issued by a title insurance company, which insures a homebuyer against errors in the title search. The cost of the policy is usually a function of the value of the property, and is often borne by the purchaser and/or seller. Policies are also available to protect the lender's interests.
Title Search: An examination of municipal records to determine the legal ownership of property. Usually performed by a title company.
Townhouse: A residential unit that is similar to a condominium or cooperative (co-op). The units typically share common walls, but stand on separate lots. Owners hold the title only to the unit and lot, not to common areas or building exteriors, which are jointly owned.
Transfer Tax/Fee: A tax and/or fee assessed by state and local governments when a title changes hands.
Trans Union: One of the three main credit reporting agencies. Reach them at (800) 888-4213 or www.transunion.com
Treasury Index: Interest-rate changes for Adjustable-Rate Mortgages are determined by yields in this series of indices.
Truth-In-Lending: A federal law requiring disclosure of the annual percentage rate (APR) on a mortgage loan to prospective homebuyers within three days after applying for a loan. The written document should also specify the rate, term, fees and other pertinent data related to the loan. Also known as Regulation Z.
Two-Step Mortgage: (See balloon reset )
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Underwriting: The decision whether to make a loan to a potential homebuyer based on credit, employment, assets and other factors, and the matching of this risk to an appropriate rate and term or loan amount.
Usury: Interest charged in excess of the legal rate established by either federal or state law.
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VA Mortgage: A long-term, low- or no-down payment loan guaranteed by the Department of Veterans Affairs. Restricted to individuals qualified by military service or other entitlements. The VA may be contacted by call 1-800-827-10000 or by going to its Website: http://www.va.gov/
VA Mortgage Funding Fee: A premium that ranges from 1.25 percent to 3.3 percent (depending on the size of the down payment) paid on a VA-backed loan. For a veteran using the program for the first time, on a $100,000 fixed-rate mortgage with no down payment, this would amount to $2,150 either paid at closing or added to the amount financed. For further information, go to www.va.gov
Variable-Rate Mortgage (VRM): (See adjustable-rate mortgage )
Verification of Deposit (VOD): A document signed by the borrower's financial institution verifying the status and balance of the person's financial accounts.
Verification of Employment (VOE): A document signed by the borrower's employer verifying the person's position, length of service, and salary.
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Warehouse Fee: Many mortgage firms must borrow funds on a short-term basis in order to originate loans to be sold later in the secondary mortgage market (or to investors). When the prime rate is higher on short-term loans than on mortgage loans, the mortgage firm has an economic loss that is offset by charging a warehouse fee to the borrower.
Warranty Deed: (See quitclaim deed )
Wraparound Mortgage: Results when an existing assumable loan is combined with a new loan, resulting in an interest rate somewhere between the old rate and the current market rate. The payments are made to a second lender or the previous homeowner, who then forwards the payments to the first lender after taking the additional amount off the top.
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No terms found under letter X
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No terms found under letter Y
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Zoning: City or municipal designation of property in an area for a specific purpose, such as residential or commercial use.
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