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Financing 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
- 7/23 and 5/25 Mortgages
- Mortgages with a one time rate adjustment after seven years and five years
respectively.
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- 3/1, 5/1, 7/1 and 10/1 ARMs
- Adjustable rate mortgages in which rate is fixed for three year, five
year, seven year and 10-year periods, respectively, but may adjust annually
after that.
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- 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.
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- Adjustable Rate Mortgage (ARM)
- A mortgage in which the interest rate is adjusted periodically based on a
pre-selected index. Also sometimes known as a renegotiable rate mortgage,
variable rate mortgage or Canadian rollover mortgage.
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- Adjusted Basis
- The cost of a property plus the value of any capital expenditures for
improvements to the property minus any depreciation taken.
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- Adjustment Date
- The date that the interest rate changes on an adjustable rate mortgage
(ARM).
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- 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.
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- Adjustment Period
- The period elapsing between adjustment dates for an adjustable rate
mortgage (ARM).
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- Affordability Analysis
- An analysis of a buyer s ability to afford the purchase of a home. Reviews
income, liabilities, and available funds, and considers the type of mortgage
you plan to use, the area where you want to purchase a home, and the closing
costs that are likely.
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- Amortization
- Loan payment divided into equal periodic payments calculated to pay off
the debt at the end of a fixed period, including accrued interest on the
outstanding balance.
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- Amortization Term
- The length of time required to amortize the mortgage loan expressed as a
number of months. For example, 360 months is the amortization term for a
30-year fixed rate mortgage.
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- Annual Percentage Rate (APR)
- The measurement of the full cost of a loan including interest and loan
fees expressed as a yearly percentage rate. Because all lenders apply the same
rules in calculating the annual percentage rate, it provides consumers with a
good basis for comparing the cost of different loans.
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- Appraisal
- An estimate of the value of property made by a qualified professional
called an "appraiser.
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- Appraised Value
- An opinion of a property's fair market value, based on an appraiser's
knowledge, experience, and analysis of the property.
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- Assessment
- A local tax levied against a property for a specific purpose, such as a
sewer or street lights.
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- Assignment
- The transfer of a mortgage from one person to another.
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- Assumability
- An assumable mortgage can be transferred from the seller to the new buyer.
Generally requires a credit review of the new borrower and lenders may charge
a fee for the assumption. If a mortgage contains a due on sale clause, it may
not be assumed by a new buyer.
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- Assumption
- The agreement between buyer and seller where the buyer takes over the
payments on an existing mortgage from the seller. Assuming a loan can usually
save the buyer money since this is an existing mortgage debt, unlike a new
mortgage where closing cost and new, probably higher, market rate interest
charges will apply.
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- Assumption Fee
- The fee paid to a lender (usually by the purchaser of real property) when
an assumption takes place.
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- Balloon Mortgage
- A loan which is amortized for a longer period than the term of the loan.
Usually this refers to a thirty year amortization and a five or seven year
term. At the end of the term of the loan, the remaining outstanding principal
on the loan is due. This final payment is known as a balloon payment.
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- Balloon Payment
- The final lump sum paid at the maturity date of a balloon mortgage.
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- Biweekly Payment Mortgage
- A plan to reduce the debt every two weeks (instead of the standard monthly
payment schedule). The 26 (or possibly 27) biweekly payments are each equal to
one half of the monthly payment required if the loan were a standard 30-year
fixed rate mortgage. The result for the borrower is a substantial savings in
interest.
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- Blanket Mortgage
- A mortgage covering at least two pieces of real estate as security for the
same mortgage.
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- Borrower (Mortgagor)
- One who applies for and receives a loan in the form of a mortgage with the
intention of repaying the loan in full.
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- Bridge Loan
- A second trust that is collateralized by the borrower's present home
allowing the proceeds to be used to close on a new house before the present
home is sold. Also known as "swing loan."
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- Broker
- An individual in the business of assisting in arranging funding or
negotiating contracts for a client but who does not loan the money himself.
Brokers usually charge a fee or receive a commission for their services.
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- Buy Down
- When the lender and/or the home builder subsidized 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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- Cash Flow
- The 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,
etc...).
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- Caps (interest)
- Consumer safeguards which limit the amount of change to the interest rate
for an adjustable rate mortgage.
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- Caps (payment)
- Consumer safeguards which limit the amount of change to the monthly
payments for an adjustable rate mortgage.
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- Certificate of Eligibility
- The document given to qualified veterans which entitles them to VA
guaranteed loans for homes, business and mobile homes. Certificates of
eligibility may be obtained by sending form DADA (Separation Paper) to the
local VA office with VA form 1880 (Request for Certificate of Eligibility).
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- Certificate of Reasonable Value (CRV)
- An appraisal issued by the Veterans Administration showing the property's
current market value.
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- Certificate of Veteran Status
- The document 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.
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- Change Frequency
- The frequency (in months) of payment and/or interest rate changes in an
adjustable rate mortgage (ARM).
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- Closing
- The meeting between the buyer, seller and 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 are about
3 percent to 6 percent of the mortgage amount.
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- Closing Costs
- Expenses over and above the price of the property that are incurred by
buyers and sellers when transferring ownership of a property. Closing costs
normally include an origination fee, property taxes, charges for title
insurance and escrow costs, appraisal fees, etc. Closing costs will vary
according to the area country and the lenders used.
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- COFI
- An adjustable-rate mortgage with a rate that adjusts based on a
cost-of-funds index, often the 11th District Cost of Funds.
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- Construction Loan
- A short term interim loan to pay for the construction of buildings or
homes. These are usually designed to provide periodic disbursements to the
builder as he or she progresses.
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- Consumer Reporting Agency (or Bureau)
- An organization that handles the preparation of reports used by lenders to
determine a potential borrower's credit history. The agency gets data for
these reports from a credit repository and other sources.
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- Contract Sale or Deed:
- A contract between purchaser and a seller of real estate to convey title
after certain conditions have been met. It is a form of installment sale.
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- Conventional Loan
- A mortgage not insured by FHA or guaranteed by VA.
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- Conversion Clause
- A provision in an ARM allowing the loan to be converted to a fixed-rate at
some point during the term. Usually conversion is allowed at the end of the
first adjustment period. The conversion feature may cost extra.
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- Credit Report
- A report documenting the credit history and current status of a borrower's
credit standing.
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- Credit Risk Score
- A credit risk score is a statistical summary of the information contained
in a consumer's credit report. The most well known type of credit risk score
is the Fair Isaac or FICO score. This form of credit scoring is a mathematical
summary calculation that assigns numerical values to various pieces of
information in the credit report. The overall credit risk score is highly
relative in the credit underwriting process for a mortgage loan.
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- Debt-to-Income Ratio
- The ratio, expressed as a percentage, which results when a borrower's
monthly payment obligation on long term debts is divided by his or her gross
monthly income. See housing expenses-to-income ratio.
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- Deed of Trust
- In many states, this document is used in place of a mortgage to secure the
payment of a note.
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- Default
- Failure to meet legal obligations in a contract, specifically, failure to
make the monthly payments on a mortgage.
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- Deferred Interest
- When a mortgage is written with a monthly payment that is less than
required to satisfy the note rate, the unpaid interest is deferred by adding
it to the loan balance. See negative amortization.
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- Delinquency
- Failure to make payments on time. This can lead to foreclosure.
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- Department of Veterans Affairs (VA)
- An independent agency of the federal government which guarantees long
term, low-or-no-down payment mortgages to eligible veterans.
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- Discount Point
- See point
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- Down Payment
- Money paid to make up the difference between the purchase price and the
mortgage amount.
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- 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 mortgage holder
sells the home.
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- Earnest Money
- Money given by a buyer to a seller as part of the purchase price to bind a
transaction or assure payment.
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- Entitlement
- The VA home loan benefit is called an entitlement (i.e. entitlement for a
VA guaranteed home loan). This is also known as eligibility.
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- 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.
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- Equity
- The difference between the fair market value and current indebtedness,
also referred to as the owner's interest. The value an owner has in real
estate over and above the obligation against the property.
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- Escrow
- An account held by the lender into which the home buyer pays money for tax
or insurance payments. Also earnest deposits held pending loan closing.
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- Escrow Disbursements
- The use of escrow funds to pay real estate taxes, hazard insurance,
mortgage insurance, and other property expenses as they become due.
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- Escrow Payment
- The part of a mortgagor s monthly payment that is held by the servicer to
pay for taxes, hazard insurance, mortgage insurance, lease payments, and other
items as they become due.
- Fannie Mae
- See Federal National Mortgage Association.
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- Farmers Home Administration (FmHA)
- Provides financing to farmers and other qualified borrowers who are unable
to obtain loans elsewhere.
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- Federal Home Loan Bank Board (FHLBB)
- The former name for the regulatory and supervisory agency for federally
chartered savings institutions. The agency is now called the Office of
Thrift Supervision
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- Federal Home Loan Mortgage Corporation(FHLMC) also called
"Freddie Mac"
- A government sponsored entity that purchases conventional mortgage from
insured depository institutions and HUD-approved mortgage bankers.
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- Federal Housing Administration (FHA)
- A division of the Department of Housing and Urban Development. Its main
activity is the insuring of residential mortgage loans made by private
lenders. FHA also sets standards for underwriting mortgages.
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- Federal National Mortgage Association (FNMA) also know as
"Fannie Mae"
- A government sponsored entity that purchases and sells conventional
residential mortgages as well as those insured by FHA or guaranteed by VA.
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- FHA Loan
- A loan insured by the Federal Housing Administration open to all qualified
home purchasers. While there are limits to the size of FHA loans, they are
generous enough to handle moderately priced homes almost anywhere in the
country.
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- FHA Mortgage Insurance
- Requires a fee (up to 2.25 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. The lower the down payment, the more years the fee must be paid.
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- FHLMC
- The Federal Home Loan Mortgage Corporation provides a secondary market for
savings and loans by purchasing their conventional loans. Also known as
"Freddie Mac."
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- Firm Commitment
- A promise by FHA to insure a mortgage loan for a specified property and
borrower. A promise from a lender to make a mortgage loan.
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- First Mortgage
- The primary lien against a property.">
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- Fixed Installment
- The monthly payment due on a mortgage loan including payment of both
principal and interest.
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- Fixed Rate Mortgage
- The mortgage interest rate will remain the same on these mortgages
throughout the term of the mortgage for the original borrower.
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- 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.
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- FNMA
- The Federal National Mortgage Association is a secondary mortgage
institution. FNMA buys VA, FHA, and conventional mortgages from primary
lenders. Also known as "Fannie Mae."
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- 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.
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- Freddie Mac
- See Federal Home Loan Mortgage Corporation
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- Ginnie Mae
- See Government National Mortgage Association.
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- Government National Mortgage Association (GNMA)
- Also known as "Ginnie Mae." Provides sources of funds for residential
mortgages, insured or guaranteed by FHA or VA.
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- 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.
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- Growing Equity Mortgage (GEM)
- A fixed rate mortgage that provides scheduled payment increases over an
established period of time. The increased amount of the monthly payment is
applied directly toward reducing the remaining balance of the mortgage.
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- 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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- Guarantee Mortgage
- A mortgage that is guaranteed by a third party.
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- Hazard Insurance
- A form of insurance in which the insurance company protects the insured
from specified losses, such as fire, windstorm and the like.
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- Housing Expenses-to-Income Ratio
- The ratio, expressed as a percentage, which results when a borrower's
housing expenses are divided by his/her gross monthly income. See
debt-to-income ratio.
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- 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.
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- Impound
- The portion of a borrower's monthly payments held by the lender or
servicer to pay for taxes, hazard insurance, mortgage insurance, lease
payments, and other items as they become due. Also known as reserves.
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- 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 (such as 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 costs-of-funds incurred by
savings and loans), which is then used to adjust the interest rate on an
adjustable mortgage up or down.
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- Indexed Rate
- The sum of the published index plus the margin. For example if the index
is 4% and the margin is 2.75%, the indexed rate would be 6.75%. Often, lenders
charge less than the indexed rate the first year of an adjustable rate
mortgage.
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- Initial Interest Rate
- This refers to the original interest rate of the mortgage at the time of
closing. This rate changes for an adjustable rate mortgage (ARM). It's also
known as "start rate" or "teaser."
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- Installment
- The regular periodic payment that a borrower agrees to make to a lender.
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- Insured Mortgage
- A mortgage that is protected by the Federal Housing Administration (FHA)
or by private mortgage insurance (MI).
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- Interest
- The fee charged for borrowing money.
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- Interest Accrual Rate
- The percentage rate at which interest accrues on the mortgage. In most
cases, it is also the rate used to calculate the monthly payments.
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- Interest Rate Buydown Plan
- An arrangement that allows the property seller to deposit money to an
account. That money is then released each month to reduce the mortgagor's
monthly payments during the early years of a mortgage.
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- Interest Rate Ceiling
- For an adjustable rate mortgage (ARM), the maximum interest rate, as
specified in the mortgage note.
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- Interest Rate Floor
- For an adjustable rate mortgage (ARM), the minimum interest rate, as
specified in the mortgage note.
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- Interim Financing
- A construction loan made during completion of a building or a project. A
permanent loan usually replaces this loan after completion.
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- Investor
- A money source for a lender.
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- Jumbo Loan
- A loan which is larger than the limits set by the Federal National
Mortgage Association and the Federal Home Loan Mortgage Corporation.
Because jumbo loans cannot be funded by these two agencies, they usually
carry a higher interest rate.
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- Late Charge
- The penalty a borrower must pay when a payment is made a stated number of
days after the due date.
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- Lease-Purchase Mortgage Loan
- An alternative financing option that allows low and moderate income home
buyers to lease a home with an option to buy. Each month's rent payment
consists of principal, interest, taxes and insurance (PITI) payments on the
first mortgage plus an extra amount that accumulates in a savings account for
a down payment.
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- Liabilities
- A person's financial obligations. Liabilities include long term and short
term debt.
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- Lien
- A claim upon a piece of property for the payment or satisfaction of a debt
or obligation.
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- 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.
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- 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.
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- Loan
- A sum of borrowed money (principal) that is generally repaid with
interest.
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- Loan to Value Ratio
- The relationship between the amount of the mortgage loan and the appraised
value of the property expressed as a percentage.
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- Lock
- A lender's guarantee that the mortgage rate quoted will be good for a
specific number of days from the day of application.
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- Margin
- The amount a lender adds to the index on an adjustable rate mortgage to
establish the adjusted interest rate.
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- 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.
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- Maturity
- The date on which the principal balance of a loan becomes due and payable.
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- MIP (Mortgage Insurance Premium)
- Insurance from FHA to the lender against incurring a loss on account of
the borrower's default.
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- Monthly Fixed Installment
- The portion of the total monthly payment that is applied toward principal
and interest. When a mortgage negatively amortizes, the monthly fixed
installment does not include any amount for principal reduction and doesn't
cover all of the interest. The loan balance therefore increases instead of
decreasing.
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- Mortgage
- A legal document that pledges a property to the lender as security for
payment of a debt.
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- Mortgage Banker
- A company that originates mortgages for resale in the secondary mortgage
market.
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- Mortgage Broker
- An individual or company that charges a service fee to bring borrowers and
lenders together for the purpose of loan origination.
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- Mortgagee
- The lender.
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- Mortgage Insurance
- Money paid to insure the mortgage when the down payment is less than 20
percent. See private mortgage insurance, FHA mortgage insurance.
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- Mortgage Life Insurance
- A type of term life insurance. In the event that the borrower dies while
the policy is in force, the mortgage debt is automatically paid by insurance
proceeds.
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- Mortgagor
- The borrower or homeowner.
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- Negative Amortization
- When your 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 home buyer ends up owing more than the original amount of the loan.
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- Net Effective Income
- The borrower's gross income minus federal income tax.
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- Non Assumption Clause
- A statement in a mortgage contract forbidding the assumption of the
mortgage without the prior approval of the lender.
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- Note
- A legal document that obligates a borrower to repay a mortgage loan at a
stated interest rate during a specified period of time.
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- Office of Thrift Supervision (OTS)
- The regulatory and supervisory agency for federally chartered savings
institutions. Formally known as Federal Home Loan Bank Board
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- One Year Adjustable Rate Mortgage
- Mortgage where the annual rate changes yearly. The rate is usually based
on movements of a published index plus a specified margin, chosen by the
lender.
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- 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.
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- Owner Financing
- A property purchase transaction in which the party selling the property
provides all or part of the financing.
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- Payment Change Date
- The date when a new monthly payment amount takes effect on an adjustable
rate mortgage (ARM) or a graduated-payment mortgage (GPM). Generally, the
payment change date occurs in the month immediately after the adjustment date.
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- Periodic Payment Cap
- A limit on the amount that payments can increase or decrease during any
one adjustment period.
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- Periodic Rate Cap
- 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.
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- Permanent Loan
- A long term mortgage, usually ten years or more. Also called an "end
loan."
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- PITI
- Principal, interest, taxes and insurance. Also called monthly housing
expense.
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- Pledged Account Mortgage (PAM):
- Money is placed in a pledged savings account and this fund plus earned
interest is gradually used to reduce mortgage payments.
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- Points (Loan Discount Points)
- Prepaid interest assessed at closing by the lender. Each point is equal to
1 percent of the loan amount (e.g., two points on a $100,000 mortgage would
cost $2,000).
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- Power of Attorney
- A legal document authorizing one person to act on behalf of another.
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- Preapproval
- The process of determining how much money you will be eligible to borrow
before you apply for a loan.
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- Prepaid Expenses
- Necessary to create an escrow account or to adjust the seller's existing
escrow account. Can include taxes, hazard insurance, private mortgage
insurance and special assessments.
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- Prepayment
- A privilege in a mortgage permitting the borrower to make payments in
advance of their due date.
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- Prepayment Penalty
- Money charged for an early repayment of debt. Prepayment penalties are
allowed in some form (but not necessarily imposed) in many states.
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- Primary Mortgage Market
- Lenders, such as savings and loan associations, commercial banks, and
mortgage companies, who make mortgage loans directly to borrowers. These
lenders sometimes sell their mortgages to the secondary mortgage markets such
as FNMA or GNMA, etc
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- Principal
- The amount borrowed or remaining unpaid. The part of the monthly payment
that reduces the remaining balance of a mortgage.
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- Principal Balance
- The outstanding balance of principal on a mortgage not including interest
or any other charges.
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- 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 monthly cost of property taxes and homeowners insurance, whether
these amounts are paid into an escrow account each month or not.
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- Private Mortgage Insurance (PMI)
- In the event that you do not have a 20 percent down payment, lenders will
allow a smaller down payment - as low as 3 percent in some cases. With the
smaller down payment loans, however, borrowers are usually required to carry
private mortgage insurance. Private mortgage insurance will usually require an
initial premium payment and may require an additional monthly fee depending on
your loan's structure.
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- Qualifying Ratios
- Calculations used to determine if a borrower can qualify for a mortgage.
They consist of two separate calculations: a housing expense as a percent of
income ratio and total debt obligations as a percent of income ratio.
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- Rate Lock
- A commitment issued by a lender to a borrower or another mortgage
originator guaranteeing a specified interest rate and lender costs for a
specified period of time.
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- Realtor
- A real estate broker or an associate holding active membership in a local
real estate board affiliated with the National Association of Realtors.
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- Real Estate Agent
- A person licensed to negotiate and transact the sale of real estate on
behalf of the property owner.
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- Real Estate Settlement Procedures Act (RESPA)
- A consumer protection law that requires lenders to give borrowers advance
notice of closing costs.
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- Recission
- The cancellation of a contract. With respect to mortgage refinancing, the
law that gives the homeowner three days to cancel a contract in some cases
once it is signed if the transaction uses equity in the home as security.
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- Recording Fees
- Money paid to the lender for recording a home sale with the local
authorities, thereby making it part of the public records.
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- Refinance
- Obtaining a new mortgage loan on a property already owned often to replace
existing loans on the property.
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- Renegotiable Rate Mortgage
- A loan in which the interest rate is adjusted periodically. See
adjustable rate mortgage.
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- RESPA
- Short 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.
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- Reverse Annuity Mortgage (RAM)
- A form of mortgage in which the lender makes periodic payments to the
borrower using the borrower's equity in the home as collateral for and
repayment of the loan.
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- Revolving Liability
- A credit arrangement, such as a credit card, that allows a customer to
borrow against a pre-approved line of credit when purchasing goods and
services.
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- Satisfaction of Mortgage
- The document issued by the mortgagee when the mortgage loan is paid in
full. Also called a "release of mortgage."
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- Second Mortgage
- A mortgage made subsequent to another mortgage and subordinate to the
first one.
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- Secondary Mortgage Market
- The place where primary mortgage lenders sell the mortgages they make to
obtain more funds to originate more new loans. It provides liquidity for the
lenders.
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- Security
- The property that will be pledged as collateral for a loan.
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- Seller Carry Back
- An agreement in which the owner of a property provides financing, often in
combination with an assumable mortgage. See owner financing.
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- Servicer
- An organization that collects principal and interest payments from
borrowers and manages borrower escrow accounts. The servicer often services
mortgages that have been purchased by an investor in the secondary mortgage
market.
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- 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,
property inspections and the like.
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- Settlement/Settlement Costs
- See closing/closing costs
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- Shared Appreciation Mortgage (SAM)
- A mortgage in which a borrower receives a below market interest rate in
return for which 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 mortgage where the borrowers shares the
monthly principal and interest payments with another party in exchange for
part of the appreciation.
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- Simple Interest
- Interest which is computed only on the principle balance.
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- Standard Payment Calculation
- The method used to determine the monthly payment required to repay the
remaining balance of a mortgage in substantially equal installments over the
remaining term of the mortgage at the current interest rate.
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- Step Rate Mortgage
- A mortgage that allows for the interest rate to increase according to a
specified schedule (i.e., seven years), resulting in increased payments as
well. At the end of the specified period, the rate and payments will remain
constant for the remainder of the loan.
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- Survey
- A measurement of land, prepared by a registered land surveyor, showing the
location of the land with reference to known points, its dimensions, and the
location and dimensions of any buildings.
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- Sweat Equity
- Equity created by a purchaser performing work on a property being
purchased.
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- Third Party Origination
- When a lender uses another party to completely or partially originate,
process, underwrite, close, fund, or package the mortgages it plans to deliver
to the secondary mortgage market.
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- Title
- A document that gives evidence of an individual's ownership of property.
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- Title Insurance
- A policy, usually issued by a title insurance company, which insures a
home buyer 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.
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- Title Search
- An examination of municipal records to determine the legal ownership of
property. Usually is performed by a title company.
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- Total Expense Ratio
- Total obligations as a percentage of gross monthly income including
monthly housing expenses plus other monthly debts.
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- Truth in Lending
- A federal law requiring disclosure of the Annual Percentage Rate to home
buyers shortly after they apply for the loan. Also known as Regulation Z.
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- Two Step Mortgage
- 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.
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- Underwriting
- The decision whether to make a loan to a potential home buyer based on
credit, employment, assets, and other factors and the matching of this risk to
an appropriate rate and term or loan amount.
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- Usury
- Interest charged in excess of the legal rate established by law.
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- VA Loan
- 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.
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- VA Mortgage Funding Fee
- A premium of up to 1-7/8 percent (depending on the size of the down
payment) paid on a fixed rate loan. On a $75,000 fixed-rate mortgage with no
down payment, this would amount to $1,406 either paid at closing or added to
the amount financed.
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- Variable Rate Mortgage (VRM)
- See adjustable rate mortgage
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- Verification of Deposit (VOD)
- A document signed by the borrower's financial institution verifying the
status and balance of his/her financial accounts.
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- Verification of Employment (VOE)
- A document signed by the borrower's employer verifying his/her position
and salary.
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- Warehouse Fee
- Many mortgage firms must borrow funds on a short term basis in order to
originate loans which are to be sold later in the secondary mortgage market
(or to investors). When the prime rate of interest is higher on short term
loans than on mortgage loans, the mortgage firm has an economic loss which is
offset by charging a warehouse fee.
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- 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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