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Adjustable Rate Mortgage (ARM)
A mortgage loan in which the interest rate varies at specified intervals with changes in a specified index, and may result in variable monthly payments. Interest rate on these loans are generally two to two-and-one-half percent below the interest rate on a comparable fixed rate loan.
Amortization
The process of reducing principal and interest by at specified intervals over a set term.
Annual Percentage Rate (APR)
The actual cost of credit to the borrower, including interest and certain other changes, expressed as a yearly rate and calculated over the life of the loan; often used as a guide to compare the cost of loans.
Application
An oral or written request for an extension of credit, usually a printed form on which the lender collects credit, income or debt information about a prospective borrower, plus facts about the property being used to secure the loan.
Appraisal
A written report stating the value of the property to be used as collateral for the mortgage loan based upon an inspection of the property to assure that its market value exceeds the amount of the loan.
Balloon Mortgage
Nonamortized or partially amortized short-term loans that become due at a predetermined date. At that time the full outstanding balance must be repaid.
Cash-out Refinance
The refinancing of an existing mortgage, in which the borrower receives cash in excess of what is used to pay off the existing mortgage, closing costs, points and other fees associated with the transaction.
Closing
The meeting between the buyer, seller, lender and closing agents where the property and funds legally change hands.
Closing Costs
Expenses, in addition to the purchase price of the property, (incurred by buyers and sellers in transferring ownership of a property, including but not limited to: origination fee, title insurance, and recording fees.
Combined Loan-to-Value
The total of all liens on the property divided by the appraised value, expressed as a percentage.
Commitment Letter
A lender's written offer to grant a mortgage loan outlining the terms, the amount of the loan, the interest rate and any other conditions.
Conventional Mortgage Loan
Conventional loans cover a vast array of loan programs. They can have either fixed or variable rates or payments. These loans are not government insured or guaranteed.
Debt-to-Income Ratio
The total mortgage payment (principal and interest, escrow deposits for taxes, hazard insurance, mortgage insurance premium, homeowners' dues, etc.) divided by the gross monthly income, expressed as a percentage.
Deed
The written document conveying real property.
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.
Down Payment
Cash paid upfront to the seller.
Earnest Money Deposit
Cash paid upfront to the seller to show the potential buyer has a definite interest in the property.
Effective Gross Income
total income received before taxes are deducted
Equal Credit Opportunity Act
Federal law that prohibits discrimination in a credit transaction on the basis of sex, marital status, race, color, religion, national origin, age receipt of public assistance benefits and/or the borrower's good faith exercise of the rights under the Consumer Credit Protection Act.
Equity
The value of the property over and above the financial obligations against it.
Escrow
Money collected in advance by the lender, usually on a monthly basis, for the payment of real estate taxes and/or insurance.
Escrow Analysis
The annual examination of escrow accounts to establish whether the current monthly escrow payment is sufficient to pay insurance and taxes annually.
Fair Housing Act (FHA)
Prohibits discrimination in the sale, rental, and financing of dwellings, and in other housing-related transactions, based on race, color, national origin, religion, sex, familial status (including children under the age of 18 living with parents of legal custodians, pregnant women, and people securing custody of children under the age of 18), and handicap (disability).
Fannie Mae
The nation's largest, privately-owned company that strives to make mortgage money available for people in low, moderate, and middle income families through financial products and services
Fee Simple Estate
The owner is entitle to unrestricted powers to dispose of the property, and under which the property can be left by will or inherited.
Finance Charge
The cost of credit, which is either collected at or before the loan closing.
Fixed Rate Mortgage
A mortgage in which the interest rate and principal and interest payment does not change throughout the term of the loan.
Flood Insurance
Hazard coverage that is required in designated areas for loss due to flooding.
Foreclosure
The process reserved by a lender to terminate the borrowers interest in a property due to a default in the loan, often ending in the lender selling the property and using the proceeds to satisfy the mortgage.
Freddie Mac
Issues varying security products that help to make mortgages available to families, including low-income and minority families, by reducing the costs of housing finance, expanding housing opportunities, initiating community development lending projects, and promoting consumer education to improve financial literacy.
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.
Good Faith Estimate
An estimate of settlement costs that the applicant may incur at loan closing.
Gross Monthly Income
The borrower's total earnings per month before expenses are deducted.
Hazard Insurance
Insurance coverage that compensates for damage to a property from fire, wind, or other hazards.
Home Equity Line of Credit
A mortgage loan, generally in a subordinate position, which allows the borrower to draw funds in different increments from the loan as needed.
Home Mortgage Disclosure Act (HMDA)
Under this act, covered lenders must collect information on all applications for home purchase, home improvement and refinancing of these loans. HMDA covers all residential loans, including multi-family dwellings
Housing Expense Ratio
The percentage of gross monthly income that goes toward paying housing expenses.
Interest Only Loan
A mortgage that requires only accrued interest be paid for a specified term of the loan.
Leasehold Estate
Real estate ownership through which the property owner doesn't actually hold the property title, but has us of it through a recorded long-term lease.
Lien
A legal claim, granted by contract or by a court, against property.
Loan-to-value Ratio
the relationship, expressed in a percentage, between the amount of the mortgage and the appraised value/purchase price of the property.
Mortgage
Security instrument in which real property is pledged by the borrower to the lender to secure the repayment of a loan.
Note
A written, legally binding promise to repay a debt to a lender on a specified date.
Origination Fee
Compensation paid to a lender to process a loan. Sometimes expressed in the form of a points, in which case 1 point is equal to 1%.
PITI
Principal, interest, taxes, and insurance, which generally make up the four components of the monthly mortgage payment.
Point
A sum of money, equal to one percent of the principal amount of a mortgage, charged by lenders to cover certain costs of making a loan.
Prepayment Penalty
A fee that is sometimes charged to a borrower for paying off a debt early.
Private Mortgage Insurance (PMI)
Protection for lenders against borrower default, usually required when the down payment is less than 20% of the purchase price; expense is paid by the borrower.
Quit Claim Deed
A release intended to pass title, interest or claim that the grantor may have in a property, but does not contain any warranty that such title is valid, nor does it contain any warrants or covenants for title.
Rate lock
A written agreement by which a lender will hold an interest rate on a mortgage for a specified period of time.
Real Estate Settlement Procedures Act (RESPA)
A federal law; it stipulates that a Good Faith Estimate (GFE) of closing costs is required to be disclosed to the borrower for certain first mortgages.
Right of Rescission
A three-business day period after loan closing, stipulated by state and federal law, that allows refinancing consumers to cancel the loan and receive a refund of all fees.
Secondary Mortgage Market
Investors who purchase residential mortgages originated by lenders.
Servicing Disclosures Statement
This statement provides information regarding the lender's ability and intention to service the loan. It also discloses the percentage of loans that are sold.
Single Family Residence
A home intended to be occupied by one family.
Simple Interest
Interested computed solely on the principal balance.
Subordinate Lien
A lien taking a minimum of a second position to another lien already existing on the property.
Title
The document that shows evidence of ownership in a property.
Title Commitment
A written report, completed prior to a sale or mortgage, showing all current liens against a property in which a title policy is issued.
Title Insurance
Protection against loss due to defects in the title that were not uncovered in the title search and not listed in the title report.
Title Search
An examination of legal records to check the validity and completeness of the title to the property. The title should uncover any outstanding liens, overdue assessments or other claims against the property. Truth-in-Lending Disclosure - Federal and State laws that require lenders to provide borrowers with full admission of the true cost of a loan and easy-to-understand information about the annual percentage rate and terms of the loan.
Truth-in-Lending Act
Federal law requiring disclosure of the Annual Percentage Rate to home buyers within a short period of applying for a loan. It's purpose is to help borrowers understand the actual cost of borrowing money, which allows them to compare costs among lenders.
VA Loan
A loan guaranteed by the Department of Veterans Affairs, restricted to qualified individuals of military service.
Warranty Deed
The grantor can fully warrant good clear title to the property, free from any encumbrances that are not listed on the deed.
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