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- Abstract of Title
- A summary of the property's title history. Based on information found in public records, it is used to list the property's transfers of ownership, and to
determine if there are any liens or defects that must be cleared before the sale.
- Adjustable Rate Mortgage
- A mortgage in which the interest rate periodically adjusts based on a pre-selected economic index, such as Treasury bill or prime rates. The initial interest rate, or "teaser rate," is fixed for a given number of years, and is usually lower than rates for traditional fixed rate mortgages — making monthly payments lower as well. When the interest rate begins to adjust, mortgage payments may go up or down along with it, at intervals specified in the ARM product disclosure. The lower initial rate of an ARM can increase purchasing power and enable you to consider a more expensive home than might be possible with a fixed rate mortgage. But keep in mind — the interest rate and monthly payments may increase when the rate begins to adjust.
- Adjustment Date
- The date the interest rate will change for an adjustable rate mortgage. To convert to another type of loan, such as a fixed rate mortgage, contact your lender at least three months before the adjustment date.
- Adjustment Period (or Adjustment Interval)
- The amount of time between the adjustment dates for an adjustable rate mortgage (ARM). Many ARMs have a one-year adjustment period, meaning that the interest rate will adjust (go up, down, or stay the same) every year. But there are ARMs with six-month and even three-year adjustment periods.
- A feature of a property that increases the attractiveness or value, but is not necessarily essential to the property's use. Amenities include features such as gardens, pools or beautiful views.
- The gradual reduction of your loan balance through scheduled periodic payments. For mortgage balances, payments are generally made every month. A portion of the payment goes to the loan principal and a portion goes to the interest. An amortization schedule shows the balance after each payment is made.
- Amortization Term
- The amount of time you have to repay the mortgage loan. It is usually expressed in months. For example, the amortization term for a 30-year mortgage is "360 months" (12 mo/yr x 30 yrs).
- Annual percentage rate (APR)
- The cost of your mortgage loan expressed as a yearly rate. The components that are used to formulate the APR are:
- Note Rate — The stated interest rate
- Per Diem Interest - The daily interest charged on your loan from the day of closing to the end of the month
- Other Applicable Fees — PMI, etc.
- The APR does not affect your monthly payment — amortization is computed on the note rate.
- An estimate of the current market value of the home you intend to buy, prepared by a professional appraiser. The estimate is based on the property's appearance, style and construction quality, as well as on the value of similar properties, or comparables that were recently sold in the area.
- Appraisal Fee
- Your lender may require that you get an appraisal, a professional analysis of your property and neighborhood to determine the approximate value of your home. The appraisal fee is the amount charge for the appraisal. The amount that you're eligible to borrow is based largely on your property's appraised value.
- An increase in the value of your property because of positive events, such as favorable changes in market conditions or enhancements made to the property.
- See Adjustable Rate Mortgage.
- A local area tax charged against a property for a specific purpose, such as a sewer or street signage.
- Anything of monetary value you own outright, including property, bank accounts, stocks and mutual funds. A review of assets is an important part of the mortgage application process.
- Assumable Mortgage
- An existing mortgage you can take over with the same rates and terms the current owner agreed to.
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- Balloon Mortgage
- A short-term loan that is paid off through fixed monthly payments, followed by one large, final payment (the 'balloon') of the entire remaining loan balance. The balloon mortgage is amortized as though it were a long-term fixed rate loan, resulting in low monthly payments, but after a specified time period (usually five, seven or 10 years) the entire remaining balance is due and payable in full.
- Balloon Payment
- The final lump sum payment made at the maturity date of a balloon mortgage. When payment is due, the homeowner may be able to refinance the loan.
- A legal process in which a person who is unable to pay outstanding debts is released from payment of all debts owed. In many cases, the court distributes the debtor's property to the creditors as payment for the outstanding debt.
- Blanket Mortgage
- One mortgage that covers more than one property.
- Bridge Loan
- A mortgage loan that enables you to obtain financing for a new house before your current house is sold. The current house is used as collateral. Also called a swing loan.
- The person who applies for a mortgage loan and will be responsible for repaying it. There may be more than one buyer on a single loan.
- Buyer's Title Insurance
- Insurance that protects you from losses that may result from disputes over the property's title. Typically, you purchase two separate policies: The Lender Title Insurance, which is a part of your closing costs, and separate insurance to protect your interests.
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- Cap (Interest Rate)
- See Rate Cap.
- Cap (Payment)
- See Payment Cap.
- Cash Out Refinance
- A refinance loan in which the new loan amount is larger than the remaining balance of all current mortgages, giving you cash that can be used for any purpose. Many homeowners use a cash out refinance to pay for home improvements, to consolidate debt, or to take needed cash from the equity earned by the property.
- Certificate of Title
- A record of property ownership issued by a title company or other qualified source. It is based on a title search to determine that the seller is the current legal owner, and to identify any liens on the property.
- Certified Funds
- In the United States this form of payment is guaranteed to clear or settle by the company that which certified the funds. When purchasing property the seller requires a guarantee that the payment will satisfy the obligations, sellers require certified funds in the form of a cashiers check, certified bank check or money order. Personal checks and credit cards are not acceptable.
- The conclusion of a real estate transaction. At closing, you sign documents that transfer legal ownership of the property to you, and pay closing costs. Also called Settlement.
- Closing Costs
- Expenses you and the seller pay to complete the transfer of ownership. Closing costs might include an origination fee, attorney's fee, initial escrow payments, and charges for obtaining title insurance and a survey. Closing costs vary according to geographic location. Also called Settlement Costs.
- Closing Disclosure (CD)
- A new form/disclosure that replaces the HUD-1 Settlement Statement and the final Truth in Lending (TIL) disclosure that reflects the actual terms and costs of the transaction. The Closing Disclosure must be received by the consumer(s) at least three business days before consummation.
- Closing Statement
- An itemized list of all closing costs to be paid by you and the seller. Also known as the HUD-1 Uniform Settlement Statement.
- All of the borrowers listed in the mortgage document when more than one person will be responsible for repaying the loan.
- Monetary assets and/or property you legally promise to a lender as a guarantee that you will repay a debt.
- Commitment Letter
- An official notification from a lender stating that your loan application has been approved. The commitment letter also details the terms of the agreement. Also called a Loan Commitment.
- Community Property
- In some states, property acquired during a marriage is legally considered to be jointly owned.
- Comparable Properties
- Recently sold properties with similar features to the one being appraised. Comparables have similar size, location, and amenities, and help an appraiser estimate the property's fair market value. Also known as Comps.
- A popular form of home ownership. You own the airspace within the walls, but not the actual walls, ceilings or floors. You may also own a percentage of common areas such as a swimming pool. Common areas are usually maintained by a condominium association, which charges a regular fee.
- Conforming Loan
- A mortgage loan that meets all the eligibility requirements for purchase by federal agencies such as Fannie Mae and Freddie Mac. The maximum conforming loan amount will change on January 1, 2009. The loan limits will vary according to geographical location. Our experienced mortgage representatives are happy to work with you to give you up-to-date information about the loan limits for your local area.
- Construction Loan
- A short-term loan for financing the cost of construction. The lender makes periodic loan payments directly to the builder or contractors as the home is built.
- A condition that must be met before the sales contract for your new home is legally binding. For example, the contract might not be binding until a satisfactory home inspection report is obtained from a qualified home inspector.
- Conventional Mortgage
- A loan that is not part of a government housing program, and is not insured or guaranteed by the federal government. A conforming loan, for instance, is an example of a conventional mortgage.
- Conversion Option
- A provision in some adjustable rate mortgages (ARMs) that allows you to change the ARM to a fixed rate mortgage. Also known as Conversion Clause.
- Convertible ARM
- An adjustable rate mortgage that can be converted to a fixed rate mortgage under specified conditions, usually by refinancing or exercising a conversion option.
- The transfer of a property title from one person to another. There are many ways to do a conveyance — with the title agent or attorney, for example.
- Co-op or Cooperative
- A form of home ownership in which you purchase an interest in a property — usually a multi-family dwelling — with occupancy rights to a particular unit. You become a member of a co-op association, which is responsible for all aspects of the property's operation, including maintenance and repairs. These costs are covered by an association fee.
- Corporate Relocation
- An arrangement through which an employer moves an employee to another area of the country. Typically, as part of the relocation agreement, the employer pays a portion of moving and mortgage-related expenses. Many companies specialize in providing complete corporate relocation services.
- Your purchase of the present use of money with the promise to pay it back in an agreed-upon time period, and at a cost usually defined by an interest rate.
- Credit Bureau
- A company that provides information to a lender about your creditworthiness, based on your credit history. The three major national credit bureaus are Equifax, Experian, and Trans Union. Also called Consumer Credit Reporting Agency or Credit Repository.
- Credit History
- Your debt and repayment history on loans and credit cards.
- Credit Rating
- See credit score.
- Credit Report
- A credit bureau's detailed report of your credit history.
- Credit Score
- A number, based on the analysis of your credit report, used by the lender to determine your ability to qualify for a mortgage loan. Credit scores usually range from 300 to 900 — the higher the number, the better to qualify for a loan. Also known as FICO score.
- Current Rate (initial)
- The interest rate you see when you shop for a mortgage. Rates fluctuate with market conditions. The rate you see on a web site is an estimated rate and is subject to change.
- Credit Repository
- See Credit Bureau.
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- Money owed to another and due to be paid according to a predetermined agreement. Mortgage lenders carefully review your debt to help determine their loan decision. Also referred to as liability.
- Debt-to-Income Ratio
- Your total monthly debt, divided by gross monthly income and shown as a percentage. Total monthly debt includes monthly mortgage payments as well as student loans, car loans, and credit card payments.
Example of an ideal debt-to-income ratio: If debt = ($XXX) and gross monthly income = ($XXX), the Debt-to-Income Ratio equals ($XXX) divided by ($XXX), or (XX%). This indicates that you are well qualified to pay back the mortgage loan.
Generally, lenders want a debt-to-income ratio of 36% or under, although some lenders will accept ratios up to 50% if you have a good credit rating. Also called the back-end ratio or total debt ratio.
- Failure to make payments as required by the terms of the mortgage loan. Default puts you at risk of losing the property.
- When you don't submit payments before the due date and grace period have passed.
- A decrease in the value of a property due to negative events such as unfavorable changes in market conditions, or damage to the property.
- Discount Points, or Points
- A percentage of the loan amount paid at closing. For instance, on a $90,000 loan amount, 1 point = 1%, or $900. Points are typically paid to buy down (reduce) the interest rate. Alternatively, in exchange for a higher rate, the lender may pay points to offset a homeowner's closing costs. These are called negative points.
- Document Preparation Fee
- Lender fee that offsets the cost of processing your loan for closing. Different companies may refer to them by different names, such as processing fees or underwritting fees.
- Down Payment
- The part of the property purchase price paid in cash, and not financed with a mortgage.
- Draw Period
- The agreed-upon interval of time when a lender will advance funds to you according to your loan terms.
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- Earnest Money
- A deposit made in good faith when you make an offer on a home. The money is generally applied to the down payment at closing, and is not refundable.
- A right of way that allows you access to another owner's property for a specific purpose — for example, access to a water line.
- Equal Credit Opportunity Act (ECOA)
- A federal law requiring lenders to make credit equally available to all applicants without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of public assistance.
- Your "financial interest" in a property, determined by subtracting all amounts owed from the property's current market value.
Property Current Market Value = $200,000
Mortgage Loans and Liens = $150,000
Owner's Equity = $50,000
- Equity Line of Credit
- An open-ended loan using the equity you have in your home as security for an approved line of credit. Also known as Home Equity Line of Credit (HELOC.)
- Your money that is set aside and held in trust by a third party. In a mortgage transaction the funds are commonly used for homeowner's insurance and property tax payments.
- Escrow Account
- A trust account created by a third party to hold money. In a mortgage transaction, generally these funds are used to pay taxes and insurance bills when they become due. To fund the account, monthly mortgage payments may include 1/12 of annual property taxes and insurance.
- Escrow Analysis
- Periodic examination of escrow accounts to determine if current monthly deposits are enough to pay taxes, insurance, and other bills when due. Lenders are required to review escrow accounts annually, and to provide you with the analysis.
- Escrow Closing
- A term used to describe closings in states where Deeds of Trust are used instead of mortgages. Generally, the title company will act as the escrow agent, and supervise the transfer of funds and property.
- Escrow Payment
- The portion of your monthly mortgage payment held in an escrow account to pay taxes, homeowner's insurance, mortgage insurance, lease payments and other items as they become due. In some states, this is known as impounds, or reserves.
- Escrow State
- States that structure closings differently. You and the seller are not required to be in the same location. Instead, the closing agent coordinates the document signings as well as the funding of the loan with the assistance of a real estate agent involved in the sale or purchase. In some cases the closing, funding, and recording of the loan can occur on the same day, but usually the closings and funding will occur on different days. You may sign documents without certified check in hand if the loan is not funding on the same day. Attorneys are not present at closing.
Currently, the escrow states are: Alaska, Arizona, California, Hawaii, Idaho, Nevada, New Mexico, parts of Ohio, Oregon, Utah and Washington.
- The total of property, possessions, and debt owned at the time of death.
- Estimated Gross Costs of Buying
- The total amount of principal and interest payments over the number of years that you plan to own your home.
- Estimated Increase in Equity
- A property's estimated increase in value, determined by applying an estimated rate of appreciation for a specific number of years.
- Estimated Net Costs of Buying
- The estimated gross costs of buying a home minus estimated tax savings and estimated increase in equity.
- Estimated Tax Savings
- The estimated amount of property tax and loan interest saved by renting instead of buying a home.
- Estimated Total Costs of Renting
- The total cost of rental payments for the same number of years you plan to own a home, taking into account yearly rental increases.
- Estimated Total Savings
- The estimated net cost of renting compared to the lower net cost of buying.
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- Fair Credit Reporting Act
- A federal law that, among other things, gives you the right to see your credit reports from credit reporting agencies, and allows you to examine and correct information.
- Fair Housing Act
- A Federal law that prohibits discrimination in the sale, rental, and financing of housing on the basis of race, color, national origin, religion, sex, family status, or disability.
- Fair Market Value
- The price that a willing buyer and seller agree upon in the open market when given comprehensive information about a home's worth.
- Fannie Mae
- The Federal National Mortgage Association (FNMA) — a privately-held corporation created by Congress to help make mortgages more available and more affordable. Fannie Mae purchases and sells mortgages to and from lenders on the secondary mortgage market, and is the nation's largest source of home mortgage funding.
- Federal Housing Administration (FHA)
- U.S. agency that sets standards for underwriting mortgages and insures residential mortgage loans from private lenders. A division of the Department of Housing and Urban Development (HUD).
- Federal Housing Administration (FHA) Mortgage
- An FHA-insured and guaranteed mortgage loan designed to make purchasing a home more affordable, especially for the first-time homebuyer. FHA loans feature lower down payments and higher qualifying ratios than most conventional mortgages. There are some limits to the amount of money that can be borrowed.
- First Mortgage
- A mortgage that is the primary lien on a property, and is the first to be paid.
- Fixed Interest Rate
- An interest rate that does not change for the entire term of the loan.
- Fixed Rate Mortgage
- A mortgage in which the interest rate does not change during the entire term of the loan. The monthly payments on the principal and the interest are fixed for the life of the loan.
- Float Rate
- See Rate Float.
- Flood Insurance
- Special hazard coverage from a reputable flood insurance provider — required for properties located in specially designated flood hazard areas, but generally recommended for all properties.
- A legal proceeding in which the lender takes possession of a property and sells it at public auction if the homeowner neglects to make mortgage payments.
- Freddie Mac
- The Federal Home Loan Mortgage Corporation (FHLMC) — a stockholder-owned corporation created by Congress that buys mortgages from lenders and resells them as securities on the secondary mortgage market. Considered a sister agency — and competitor — to Fannie Mae.
- Funding of a Loan
- The mortgage lender issues an agreed-upon amount of money to the seller of a property or a homeowner who is refinancing. Funding frequently takes place at closing.
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- Ginnie Mae®
- The Government National Mortgage Association (GNMA) — a governmental agency that offers special assistance in obtaining FHA-insured and VA-guaranteed mortgages.
- Good Faith Estimate (GFE)
- See Loan Estimate (LE).
- Gross Monthly Rental Income
- The amount of money you earn each month on a rental property — used as part of the gross monthly income you report in your loan application.
- A pledge by a third party or government agency to repay a loan to the lender in the event that the homeowner cannot. Fannie Mae and Freddie Mac guarantee loans.
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- Hazard Insurance
- See Homeowner's Insurance.
- Home Equity Line of Credit (HELOC)
- A line of credit that allows you to borrow money using your home's equity as collateral. A Home Equity Line of Credit works like a credit card, but features a lower, variable interest rate. You can draw cash as you need, using convenience checks supplied by your lender, and only pay interest on the amount you use.
- Home Equity Loan
- A loan that allows the home owner to borrow money using their home's equity as collateral. The borrowers receive the loan as a lump sum at the time of closing. These loans are sometimes useful for families to help finance major home repairs, medical bills or college eduaction.
- Home Inspection
- A thorough examination by a professional home inspector of a home's visible structure, which will make you aware of any repairs that may be needed. The inspection period is stated in your contract.
- Homeowner's Insurance
- Insurance for home loss caused by fire, vandalism, and other damaging events, depending upon the terms of the policy. Flood or wind insurance may require additional coverage. Homeowner's insurance is required to close on a loan. Also known as Hazard Insurance.
- Housing Ratio
- A calculation your lender uses to determine if you can afford a particular monthly payment: The total monthly housing payment (PITI - Principal, Interest, Taxes, and Insurance) is divided by your gross monthly income, and shown as a percentage.
PITI = $1,500
divided by gross monthly income = $6000
Housing ratio = 25%
This example shows an ideal housing ratio, one well below typically acceptable ratios of 28%-33% for conventional loans and 29%-31% for FHA loans. Also known as a front-end, or qualifying ratio.
- HUD (U.S. Department of Housing and Urban Development)
- A government agency responsible for creating and operating federal housing and community development programs. It also oversees the Federal Housing Administration.
- HUD-1 Uniform Settlement Statement
- See Closing Disclosure (CD).
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- Impound Account
- An account set up and operated by your mortgage lender that holds a portion of your monthly mortgage payments for payment of property taxes and insurance costs. Also known as Escrow Account.
- The sum of money from your sources of revenue, including salary, bonuses, interest and investment income. Income is an important piece of financial information that lenders review during the mortgage approval process.
- A published interest rate lenders used to determine the cost of borrowing money, including the changing rates on adjustable rate mortgages (ARMs). Some commonly used indices include the One-Year Treasury Index, the London Interbank Offered Rate (LIBOR), and the 11th District Cost of Funds (COFI).
- Initial Monthly Payment
- Upon closing, you will be provided with the monthly mortgage payment for your loan. An escrow analysis is completed after closing and based on the findings (i.e., changes to property taxes and homeowners insurance), the monthly payment could be subject to change. Ask your mortgage representative for an estimate of your PITI before closing.
- Interest Only Mortgage
- A loan program that generally features lower monthly payments than a conventional fixed rate loan. Payments only consist of the interest due, no principal is charged for a specified period of timeÂ—usually five to 10 years. After the interest only period, payments include both principal and interest.
- Interest Rate
- The amount you pay to borrow money from a lender, calculated as a percentage of the amount borrowed.
- Investment-Related Savings
- The amount of your estimated total savings from buying instead of renting, invested at a rate of 8% for the number of years you plan to own your home. See our Rent vs. Buy Calculator to compute your estimated savings.
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- Jumbo Loan
- A mortgage loan exceeding the price limit of the conforming loans that Fannie Mae and Freddie Mac can purchase. Lenders who offer jumbo loans usually charge a higher interest rate.
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- LIBOR (London Interbank Offered Rate)
- The interest rate at which banks in the foreign market can borrow money from each other. Frequently used for setting adjustable rate mortgage interest rates.
- A legal claim against a property. All liens must be satisfied before the title is transferred at closing.
- Lifetime Cap
- A provision of an adjustable rate mortgage (ARM) that limits the highest interest rate allowed over the life of the loan. For example, a 6% interest rate with a 5% lifetime cap cannot exceed an 11% interest rate for the life of the loan. ARM lifetime caps vary and can be used for comparison when shopping for a loan.
- Liquid Assets
- Cash, or assets that can be quickly converted to cash.
- Loan Amount
- The amount you borrow from a lender to purchase a home.
- Loan Estimate (LE)
- The TRID/RESPA Loan Estimate provides a summary of key loan terms to help borrowers understand terminology used during the mortgage application process, and estimates of loan and closing costs to help borrowers understand the details of their transaction.A new form/disclosure that replaces the current Good Faith Estimate (GFE) and early Truth in Lending (TIL) disclosures that reflects the key features, costs and risk of the mortgage loan for which they are applying. The form must be provided to the consumer three business days after the application date.
- Loan Program
- A type of loan defined by its term and repayment features. Examples include: 30-year fixed rate mortgage, 10/1 ARM mortgage.
- Loan Servicing
- The term used to describe the collection and management of your monthly mortgage payment, which includes principal and interest. This typically includes processing payments, sending statements and managing escrow accounts.
- Loan-to-Value Ratio (LTV)
- A down payment risk assessment calculation used by lenders: The mortgage amount divided by the property's assessed value, expressed as a percentage.
For example, a $150,000 loan divided by a property valued at $200,000 equals a 75% LTV loan ratio, and a down payment of 25%. If the lender requires a loan ratio of 80% or under (a 20% down payment), the example shows a favorable LTV. There are different maximum LTV limitations for different loan programs.
- Lock Rate
- See Rate Lock.
- Loss Mitigation
- A process to avoid foreclosure — usually, when the lender assists a homeowner who has missed a number of payments. Loss mitigation methods include repayment plans, modification of mortgage terms, and bankruptcy.
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- Mail-Away Closing
- When you can't be present at the closing table, it may be possible to do a mail-away closing: The closing documents are mailed to you by the closing agent. You sign all necessary documents and mail them back. The closing agent then releases the funds and records the transaction at the county office before mailing the package back to the lender.
- Manufactured Housing
- Factory-built homes, including prefabricated (also known as modular) and mobile homes.
- Monthly Payment
- The amount you pay on your mortgage loan on a monthly basis. Normally, a monthly mortgage payment consists of principal, interest, property taxes and homeowners insuranceÂ—known as PITI.
- A legal document that gives you conditional ownership of your home, and uses the home itself for security (see collateral) on the loan. The main condition of a mortgage is that you make regular payments of principal and interest until the mortgage debt is fully paid.
- Mortgage Application
- The process by which you submit personal financial information—including income, assets and debts—to a mortgage lender. The lender verifies and evaluates the information to determine loan approval.
- Mortgage Broker
- A person or company that takes mortgage applications, performs many loan processing functions (ordering credit reports, appraisals etc.), and offers a borrower loans found from a search of sources—for a fee or commission.
- Mortgage Insurance (MI)
- A policy that guarantees payment of a mortgage loan in case of default. Paid by the homeowner, mortgage insurance is not required on a conventional loan if your down payment is at least 20 percent.M
- Mortgage Insurance Premium (MIP)
- An amount paid at closing or as a part of your monthly payment for mortgage insurance.
- Your mortgage lender, who holds the mortgage note as legal evidence of your promise to repay the loan.
- Mortgage Note
- A document that holds you legally responsible to repay your loan. It indicates the terms and conditions of the loan and how it will be repaid, the monthly payment amount, the date payment is due, the interest rate and the length of the mortgage.
- The borrower in a mortgage loan transaction.
- Multi-Family Dwelling
- A property with more than four residential units.
- Multiple Listing Service (MLS)
- A continually updated database that features information on homes for sale in your area. Participating real estate agents maintain the information and agree to share commissions with each other.
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- Negative Amortization
- When your monthly mortgage payments aren't large enough to cover the principal and interest due, unpaid interest is added to the loan balance, increasing the amount of money you owe.
- Nonconforming Mortgage Loan
- See Jumbo Loan.
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- Origination Fee
- A fee charged by a lender to cover the costs of evaluating and processing a mortgage loan. Usually, the fee is a percentage of the loan amount.
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- P & I
- See Principal and Interest.
- Payment Cap
- A limit on the amount your monthly payments on an adjustable rate mortgage can increase during each adjustment period. Unlike an interest rate cap, a payment cap does not limit the amount of interest you pay, and could lead to negative amortization.
- Piggyback Mortgage
- See Second Mortgage.
- An abbreviation for "Principal, Interest, Taxes and Insurance" — the four charges that make up your monthly mortgage payment.
- A percentage of your loan amount, paid at closing. For instance, on a $90,000 loan amount, 1 point = 1 % or $900. You may have the option to pay points to buy down (reduce) your interest rate. Alternatively, in exchange for a higher rate, the lender may pay points to offset your closing costs. These are called negative points. See Discount Points.
- Power of Attorney (POA)
- A legal and notarized document authorizing someone else to act on your behalf if you are not able to attend closing. The document must specify the type of loan it is to be used for and include the property address. The closing agent will obtain and coordinate the POA document, which is to be recorded at closing.
- The process by which you get a preliminary decision on a mortgage loan before making an offer on a home. Having pre-approval can give you an advantage over other homebuyers who may be interested in the same home, because it may give the seller more confidence in your ability to purchase the home.
- The amount you pay at regular intervals to maintain coverage on your home insurance and flood insurance if required.
- Paying all or part of your mortgage before it is due. Partial prepayments can reduce the amount of your loan. Many mortgage loans offer prepayment without a prepayment penalty — an important consideration when you compare loan programs.
- Prepayment Penalty
- An amount charged by a lender when you make a prepayment to pay the loan in full before the final term. Not all loan programs have a prepayment penalty.
- A preliminary evaluation of your financial status performed by a lender to estimate the amount and type of loans available to you. An evaluation does not include a credit report, and does not formally commit the lender to giving you a loan.
- Primary Mortgage Market
- Lenders who make mortgage loans available directly to borrowers. Coldwell Banker Mortgage is a primary lender, as are many savings and loan associations and commercial banks. Primary lenders frequently sell their mortgages in the secondary mortgage market, which includes Fannie Mae and Ginnie Mae.
- The amount of your mortgage loan, excluding interest, which has not been paid.
- Principal & Interest (P&I)
- The two charges that make up your monthly mortgage payment. Principal is the outstanding balance of your loan, and interest is the finance charge on that amount.
- Private Mortgage Insurance (PMI)
- A policy that guarantees payment of a conventional mortgage loan in case of default. Usually required if your down payment is less than 20 percent of the home's price.
- Property Type
- The physical characteristics of a property and/or the type of ownership you have in a property. Examples: Condominium, Co-op, manufactured home, multi-family dwelling, single family attached home, single family detached home.
- Planned Unit Development (PUD)
- A comprehensive development plan for a land area that features common areas owned and shared by the homeowners.
- Purchase Price
- The agreed-upon price you pay to purchase a home.
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- Meeting a lender's requirements for approval of a mortgage loan in areas such as income, assets, credit history and debt.
- Qualifying Ratios
- The criteria a lender will calculate to see what percentage of your income you could spend on a monthly mortgage payment. A qualifying ratio consists of a front-end number and a back-end number. For example, a 26/35 ratio means you'll spend approximately 26% of your gross monthly income on your mortgage, and 35% on the mortgage plus other debts such as credit cards and car loans. Traditionally, lenders want a front-end ratio of 28 or lower and a back-end ratio of 36 or lower, though many will accept slightly higher ratios.
- Quitclaim Deed
- A document that transfers title to property, with the seller releasing all claims to the property. Often given to clear a title when the seller's interest in the property is under question.
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- The percentage of interest paid to borrow money from a lender. See Interest Rate.
- Rate Cap
- The limit on how much the interest rate on an adjustable rate mortgage (ARM) loan can change during an adjustment period, or over the life of the loan. For example, suppose a lender offers a rate cap of 1% and the current interest rate is 6%. Based on the cap, the interest rate will stay between 5% and 7% at each adjustment. A lender will provide this information for each of its adjustable rate mortgage products.
- Rate Float
- When an interest rate has not been secured by a rate lock or rate protection, it will fluctuate—or "float"—according to market conditions.
- Rate Lock
- A lender's commitment to provide a loan at a specified interest rate as long as the loan closes by a specified expiration date. Some lenders will offer a rate lock extension, though an additional fee might be charged.
- Rate Protection
- Protection against an increase in an interest rate between the time you apply for a loan and closing. Usually, there is a cap added to the rate. The cap represents the maximum rate you will pay as long as the loan closes on time, even if rates increase. If rates drop, you will have a one-time option to lock in at a lower rate.
- Real Estate Agent
- A person who is licensed to sell real estate.
- A real estate agent, broker or associate who is a licensed member of the National Association of Realtors, and its local and state associations. Realtors are trained to assist clients in the purchase and sale of properties.
- Recording Fees
- Money paid to your mortgage company for entering a record of the new title to your home into the public records. Recording fees are generally part of your closing costs.
- Paying off one loan with the proceeds from a new loan using the same property as security. Consider refinancing when you can gain a lower interest rate, shorten the term of your loan, or want to get cash out of your property's equity.
- RESPA (Real Estate Settlement Procedures Act)
- A federal law that, among other things, requires lenders to disclose all settlement costs. It gives you the legal right to review estimated closing costs after you apply for a loan, and again at or before settlement. It also requires lenders to tell you about other business relationships it has with companies that may provide you with services.
- Reverse Mortgage
- A type of loan that can provide income to people who own their home or have considerable equity. The lender makes periodic payments to the homeowner, using the equity as collateral. At the end of the loan, the lender usually sells the home. Many retired people consider reverse mortgages as a way to supplement their fixed income.
- Right of Rescission
- Your legal right to cancel a refinance on your primary residence, bridge loan or home equity loan for any reason, for three business days after you have signed the loan contract. As required by federal law, the loan will not be finalized and no money will be issued until the rescission period has ended.
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- Second Mortgage
- A mortgage for a property that already has one mortgage. The first mortgage has priority for all rights and claim settlements. A second mortgage is sometimes used to get cash, and can also be used to reduce the size of the down payment required by the first mortgage. Also known as a Piggyback Mortgage.
- Secondary Mortgage Market
- The open, national market where residential mortgages are bundled, bought and sold to private organizations and investors such as Fannie Mae and Freddie Mac. The secondary market enables primary lenders, such as Coldwell Banker Mortgage, to sell their loans and get funds to make new mortgage loans available to the American public.
- See Closing.
- Settlement Statement
- See Closing Statement.
- Single Family Attached Home
- A home in which you own the dwelling and lot, but share ownership of common walls with neighboring homes.
- Single Family Detached Home
- A freestanding home in which you own the entire structure and lot, and you are not charged homeowner's association dues. If you pay such dues, your property is considered a detached home in a planned unit development.
- Sub-Prime Lender
- A company that offers mortgage loans to people with credit problems — a low credit rating, for example. Sub-prime loans are generally offered at higher rates than those from a primary lender, and usually come with more points and a lower Loan-to-Value ratio as well. Many sub-prime loans feature low, initial rates that can rise dramatically when the fixed rate period is over.
- Subject Property
- The property to be appraised by an appraiser, and the property that is the subject of the mortgage loan. In other words, the home you want to buy.
- The detailed measurement of your property's land and structures. Prepared by a licensed surveyor, and usually paid for as part of the settlement, the survey shows the property's location, dimensions and boundaries.
- Swing Loan
- See Bridge Loan.
- Sweat Equity
- Equity you create by building or improving a property on your own as part of the down payment.
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- Term of Loan
- The amount of time you have to repay the mortgage loan, usually expressed as a number of months. For example, the term for a 30-year fixed-rate mortgage is 360 months (30 years X 12 months).
- See Certificate of Title.
- Title Insurance
- Insurance that protects you and the lender from losses that may result from disputes over the property's title. Typically, you purchase two separate policies: The Lender Title Insurance, which is a part of your closing costs, and separate insurance to protect your interests.
- Title Search
- The examination of public records to determine that the seller is the legal owner of the property you're purchasing. The title search is a standard part of your closing costs. It is conducted by a real estate attorney or title abstractor.
- Transfer Tax
- Depending on the location, tax levied by state or local governments when property passes from one owner to another.
- Total Monthly Payment
- The sum of the loan principal, interest, taxes and insurance charges (known as PITI) that make up your monthly mortgage payment.
- A person or firm who has the legal responsibility to hold and manage property in the best interest of the owner.
- Truth-in-Lending Act
- A federal law, part of The Consumer Credit Protection Act, requiring lenders to clearly disclose key credit terms in a standard format. The Act also gives you the right to cancel certain types of loan contracts within three business days (see Right of Rescission).
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- The analysis of the risk involved in making a mortgage loan, based on your ability and willingness to repay the loan, as well as other factors such as the property evaluation.
- Underwriting Fee
- Lender fee that offsets the cost of processing your loan for closing. Different companies may refer to them by different names, such as processing fees or document preparation fees.
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- Veterans Administration (VA)
- The government agency that administers benefit programs for veterans, including a guaranteed mortgage loan with little or no down payment. See VA Mortgage.
- VA Mortgage
- A low- or no-down-payment mortgage guaranteed by the Department of Veteran Affairs. It is only available to military personnel, veterans or spouses of veterans who died of service-related injuries.
- Variable Interest Rate
- An interest rate that changes (goes up or down) based on a specified economic index.
- Variable Rate Mortgage
- See Adjustable Rate Mortgage.
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- Walk-Through Inspection
- A final walk-through of the home before you go to closing. This is your opportunity to make sure your seller has made all the repairs listed in the Agreement of Sale. These repairs are usually based on the results of the original home inspection, and agreed upon by you and the seller.
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