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Adjustable Rate Mortgage (ARM)
A loan in which
the interest rate is adjusted periodically based
on changes in a pre-selected index. Based on the
index fluctuations, the rate and payments on an
ARM loan rise and fall with the market.
Amortization
Repayment of a
loan with incremental payments of both principal
and interest calculated to payoff the loan at
the end of a fixed period of time.
Annual Percentage Rate (APR)
A calculation that
expresses the total cost of a mortgage loan as a
yearly rate. The Annual Percentage Rate (APR)
includes both your interest and any additional
costs or prepaid finance charges you might pay
such as prepaid interest, private mortgage
insurance, closing fees, points and certain fees
paid at origination. It generally results in a
rate slightly higher than the stated interest
rate on the loan.
Appraisal
A written estimate
of a property’s current market value, based on
recent sales information for similar properties,
the condition of the property and the
neighborhood’s impact on future property value.
It is required to purchase or refinance your new
home or property.
Appraisal Fee
A fee charged by a
licensed, certified appraiser to provide an
appraisal.
APR (Annual Percentage Rate)
A calculation that
expresses the total cost of a mortgage loan as a
yearly rate. The Annual Percentage Rate (APR)
includes both your interest and any additional
costs or prepaid finance charges you might pay
such as prepaid interest, private mortgage
insurance, closing fees, points and certain fees
paid at origination. It generally results in a
rate slightly higher than the stated interest
rate on the loan.
ARM (Adjustable Rate Mortgage)
A loan in which
the interest rate is adjusted periodically based
on changes in a pre-selected index. Based on the
index fluctuations, the rate and payments on an
ARM loan rise and fall with the market.
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Balloon Mortgage
A short-term,
fixed-rate loan with fixed monthly payments for
a set number of years and a large final balloon
payment of the remainder of the principal.
Borrower (Mortgagor)
An individual who
applies for and receives a loan in the form of a
mortgage with the intention of repaying the loan
in full under the terms of the loan.
Broker
An individual who
brings buyers and sellers together and assists
in arranging funding or negotiating contracts
for a client but does not loan money himself
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Cash Out
A refinance for
more than the remaining balance of the current
mortgage. The excess money taken out reduces the
borrower’s equity they have already built up in
the house.
Closing (or Settlement)
The closing is the
conclusion of your real estate transaction and
includes a meeting between the buyer, seller and
lender or their agents at which property and
funds legally change hands.
Closing Costs
Fees incurred in a
real estate or mortgage transaction paid by
borrower and/or seller at the closing of the
transaction. Examples include title fees,
recording fees, appraisal fee, credit report
fee, attorney's fees, taxes, and surveying fees.
Conforming Loan
A mortgage loan
that meets all the requirements to be eligible
for purchase by the two Federally sponsored
housing agencies, Fannie Mae and Freddie Mac.
Conventional Loan
A mortgage not
insured by the FHA or guaranteed by the VA.
Convertible ARMs
An ARM loan with
the option of conversion to a fixed loan during
a given time period
Credit Report
A report detailing
the credit history of a prospective borrower
that’s used by lenders to help determine
creditworthiness.
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Deed
Legal document by
which title to a property is transferred from
one owner to another. The deed contains a
description of the property and is signed,
witnessed, and delivered to the buyer at
closing.
Default
Failure to meet
legal obligations in a contract, including
failure to make payments on a loan.
Delinquency
Failure to make
required payments on time as agreed in the loan
agreement.
Discount Points
Points are fees
added on to a loan and are paid when the loan
closes. One point equals one percent of the loan
amount. There is an inverse relationship between
the interest rate and the number of points paid.
In other words, you can lower your monthly
mortgage payments by paying more money up front
through points.
Down Payment
In a home
purchase, the up front cash amount you must pay
that equals the difference between the purchase
price and the mortgage amount.
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Equity
The difference
between the current market value of a property
and the outstanding mortgage balance.
Escrow Account
An account held by
the lender to which the borrower pays monthly
installments, collected as part of the monthly
mortgage payment, for annual expenses such as
taxes and insurance.
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Fannie Mae
This agency buys
and sells residential loans that are
underwritten to its specific guidelines.
Federal Housing Administration (FHA)
Government agency,
division of the Department of Housing and Urban
Development, which insures residential mortgage
loans made by private lenders and sets standards
for underwriting mortgage loans.
FHA (Federal Housing Administration)
Government agency,
division of the Department of Housing and Urban
Development, which insures residential mortgage
loans made by private lenders and sets standards
for underwriting mortgage loans.
FICO Score
A credit
evaluation score developed by Fair, Isaac, and
Co., used by lenders as one factor in making a
loan decision.
Finance Charge
A finance charge
is the total all interest a borrower would pay
over the entire life of the loan.
Fixed Rate
An interest rate
that is fixed for the term of the loan.
Fixed-Rate Mortgage
A mortgage whose
interest rate and resulting monthly payments do
not change for the life of the loan.
Foreclosure (or Repossession)
Legal process by
which the lender forces the sale of a property
when the borrower has not met the mortgage
terms.
Freddie Mac (FHLMC)
An agency that
purchases conventional mortgages that are
underwritten to its specific guidelines.
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Gross Income
Total income
before taxes or expenses are deducted.
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Homeowners insurance
Required by all
lenders to protect their investment, and must be
obtained before closing equal to the loan
balance or the value of the home.
Housing and Urban Development (HUD)
A U.S. government
agency established to implement federal housing
and community development programs; oversees the
Federal Housing Administration.
HUD (Housing and Urban Development
A U.S. government
agency established to implement federal housing
and community development programs; oversees the
Federal Housing Administration.
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Initial Rate
The rate charged
during the first interval of an adjustable rate
mortgage.
Interest
Charge paid for
borrowing money.
Interest Rate
The annual rate of
interest on the loan, expressed as a percentage
of the outstanding balance.
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Jumbo Loan
A mortgage with a
principal balance that exceeds the amount
eligible for purchase by Fannie Mae and Freddie
Mac. Jumbo loans generally carry a higher
interest rate. Currently the limit is set at
$322,700 for single unit properties.
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Lender
The bank, mortgage
company, or mortgage broker offering the loan.
LIBOR (London Interbank Offered Rate)
The interest rate
charged among banks for short-term foreign
market loans, and a common index for adjustable
rate mortgages.
Lien
A legal claim
against a property that must be paid when the
property is sold.
Loan Application
Document required
by lenders prior to loan approval containing
detailed information about the borrower and
property.
Loan Term
The period of time
between the closing date and the date of your
last payment is paid of your loan.
Loan to Value Ratio (LTV)
The percentage of
loan amount to the actual appraised value of the
property.
Lock or Lock In
A lender's
guarantee of an interest rate and related points
for a set period of time, usually between loan
application and loan closing. Protects borrower
against rate increases during that time.
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Mortgage
Document creating
a lien on a property as security for the payment
of a debt.
Mortgage Broker
An individual or
company that arranges financing for borrowers.
Mortgage Insurance
Insurance
purchased by a buyer to cover the lender’s risk
of loss. Mortgage Insurance is generally
required by lenders when the down payment is
less than 20% of the purchase price.
The lender in a
mortgage loan transaction.
Mortgagor
The borrower in a
mortgage loan transaction.
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Note
Legal document
stating the terms of a debt and a promise to
repay it.
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Origination Fee
Fee charged by a
lender to cover administrative costs of
processing a loan.
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Pre-approval
The process of
determining how much money a prospective
homebuyer or refinancer will be eligible to
borrow prior to application for a loan. A
pre-approval includes a preliminary screening of
a borrower's credit history. Information
submitted during pre-approval is subject to
verification at application.
Principal
The amount of
debt, not counting interest, left on a loan.
Property Tax
A government tax
based on the market value of a property.
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Recording Fee
Money paid to a
government agent for entering the sale of a
property into the public records.
Refinancing
The process of
paying off one loan with the proceeds from a new
loan secured by the same property.
Real Estate Settlement Procedures Act
(RESPA)
Law requiring
lenders to give borrowers advance notice of
closing costs.
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Security
This refers to the
address of the property being pledged as
security for your loan.
Settlement (or Closing)
The closing is the
conclusion of your real estate transaction and
includes a meeting between the buyer, seller and
lender or their agents at which property and
funds legally change hands.
Settlement Costs (or Closing Costs)
Fees incurred in a
real estate or mortgage transaction paid by
borrower and/or seller at the closing of the
transaction. Examples include title fees,
recording fees, appraisal fee, credit report
fee, attorney's fees, taxes, and surveying fees.
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Tax Lien
Claim against a
property for unpaid taxes.
The number of
years it will take to pay off a loan.
Third Party Fees
Fees paid to a
third party for services requested by the lender
on your behalf.
Title
Document which
gives evidence of ownership of a property and
the rights of ownership and possession of that
property.
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Underwriting
The process of
verifying data and evaluating a loan for
approval.
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VA Loans
Fixed-rate loans
guaranteed by the U.S. Department of Veterans
Affairs. They are designed to make housing
affordable for eligible U.S. veteran.
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