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Adjustable Rate Mortgage:
A mortgage in which the interest rate is adjusted
periodically based on a pre-selected index. Most adjustable rate
mortgages have rate caps which limit the amount by which the
interest rates can change.
Amortization: Repayment of
a loan with periodic payments of both principal and interest,
calculated to payoff the loan at the end of a fixed period of
time.
Annual Percentage Rate (APR):
The cost of credit expressed as an annual rate. The APR
results from an equation that considers the amount financed,
finance charges, and the term of the loan. The result is an
annual percentage rate that is slightly higher than the actual
note rate.
Appraisal: A written
analysis of the estimated value of a property as determined by a
certified licensed appraiser.
Assessed Value: The value
a taxing authority places on property for the purpose of
collecting payment of taxes on the property. Typically the
assessed value is lower than the appraised value.
Assignment: The transfer
of a mortgage from one person to another.
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Balloon Mortgage: A
mortgage with a note rate that is fixed for an initial period of
time, after which time the remaining principal balance is due at
the end of the term
Balloon Payment: The final
lump sum payment that is made at the maturity date of a balloon
mortgage.
Bridge Loan: A loan,
generally taking a second lien position, that is collateralized
by the borrower's present home in a manner that allows the
proceeds to be used for closing on a new house before the
present house is sold.
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Cap:
A provision of an adjustable rate
mortgage that limits how much the interest rate can change.
Closing:
The closing or
settlement is the conclusion of the real estate transaction
where the mortgage documents are signed, closing costs are paid,
and funds are disbursed.
Closing Costs:
Costs for services that must be
performed before your loan can be processed. Some of these costs
include title insurance, appraisal fees, closing fees, recording
fees and credit report fees.
Cloud (on title):
An outstanding claim or lien on the
property that, if valid, affects the owner's clear ownership
rights to the property. Clouds can be removed from the title by
a court action, release or deed.
Contract of Sale (Offer to
Purchase): The agreement
between buyer and seller on the purchase price, terms, and
conditions of a sale.
Conventional Mortgage:
A mortgage that is not insured
or guaranteed by the federal government.
Conversion Clause:
A provision in some adjustable rate
mortgages that would allow the borrower to convert the note to a
fixed rate at some point during the loan term. Usually a
conversion fee is charged if this option is exercised.
Credit Report:
A written report detailing the
credit history of the prospective borrower.
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Debt Ratio: A ratio that
results when the borrower's monthly payment obligations on long
term debt are divided by his or her gross monthly income.
Default: Failure to make
the monthly payments on a mortgage.
Depreciation: Decline in
the value of a property.
Discount Points: Discount
points are an up-front fee paid to the lender at closing for the
purpose of reducing the interest rate. The more points paid, the
lower the interest rate. Discount points are prepaid interest
that is tax deductible on a purchase but must be amortized on a
refinance transaction.
Down Payment: Money paid
at closing to make up the difference between the purchase price
and the mortgage amount.
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Earnest Money:
A deposit made by the buyer towards
the purchase of real estate as evidence of good faith when the
purchase contract is signed. Earnest money is part of the down
payment.
Encumbrance:
Anything that affects or limits the
title to real estate.
Equity:
The difference between the current
market value of a property and the total outstanding debts
against the property.
Escrow Account:
An account held by the lender or
mortgage servicer to which the borrower pays monthly
installments for property taxes and insurance. When taxes and
insurance become due the lender disburses the required funds.
There are also other types of escrow accounts for new
construction and repair projects or home improvements.
Escrow Analysis:
The periodic examination of escrow
accounts to determine if current monthly deposits will provide
sufficient funds to pay taxes and insurance.
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Fee Simple:
The greatest possible interest a
person can have in real estate.
First Mortgage:
A mortgage which is in first lien
position, taking priority over all other liens. In the event of
foreclosure, the first mortgage will be repaid before any other
liens.
FNMA (Federal National
Mortgage Association) (Fannie Mae):
A congressionally chartered,
shareholder-owned company that is the nations largest supplier
of home mortgage funds.
Foreclosure:
A legal process where the lender
forces the sale of a mortgaged property because the borrower has
not met the terms of the mortgage.
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Good Faith Estimate:
Written estimate of the settlement costs the borrower will have
to pay at closing. Under the Real Estate Settlement Procedures
Act, the lender is required to provide this disclosure to the
borrower within three days of receiving a loan application.
Grace Period: Period of
time during which a loan payment may be made after its actual
due date without incurring a late charge. The grace period is
specified in the terms of the note. The payment must be received
by the end of the grace period to avoid any late charges.
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Hazard Insurance: Hazard
or homeowners insurance protects the insured against loss due to
fire, natural causes, vandalism, etc. depending on the terms of
the policy.
Home Equity Line of Credit:
A credit line that is usually secured by a second lien on a
house. A line of credit is a revolving account that functions
like a credit card, which can be paid down or charged up for the
term of the loan. The minimum payment due each month is
generally interest only.
Home Equity Loan: A loan
that is usually secured by a second lien on a house, and most
often used for home improvement purposes.
Homeowners Insurance:
Hazard or homeowners insurance protects the insured against loss
due to fire, natural causes, vandalism, etc. depending on the
terms of the policy.
HUD (U.S. Department of
Housing and Urban Development): A U.S. government agency
established to implement federal housing and community
development programs.
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Index:
A published rate used by lenders
that serves as the basis for determining interest rate changes
on adjustable rate mortgages.
Initial Cap:
The maximum amount an interest rate
can adjust in the first adjustment period.
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Jumbo:
A term for a loan that is larger
than the limits set by the Federal National Mortgage Association
(FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC).
The limit changes every year and is currently at $333,700 for a
single family residence.
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Lien:
A claim against property for money
due.
Lifetime Cap:
A provision of an adjustable rate
mortgage that limits the highest rate that can occur over the
life of the loan.
Loan to Value Ratio:
A ratio that compares the amount
of your mortgage loan to the appraised value of the house.
Lock:
A lender's guarantee of an interest
rate for a specified period of time.
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Margin: The number of
percentage points that is added to a predetermined index value
to determine your new interest rate at the time of adjustment.
Mortgage: A legal document
by which real property is pledged as security for the repayment
of a loan.
Mortgage Commitment: An
agreement between borrower and lender to disburse a mortgage
loan at a future date if specified terms and conditions are
satisfied.
Mortgage Note: Legal
document obligating a borrower to repay a loan at a specified
interest rate during a certain period of time.
Mortgagee: The lender in a
mortgage transaction.
Mortgagor: The borrower in
a mortgage transaction.
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Note: Legal document
obligating a borrower to repay a loan at a specified interest
rate during a certain period of time.
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Offer To Purchase: The
agreement between buyer and seller on the purchase price, terms,
and conditions of a sale.
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Per Diem Interest:
Interest calculated per day on a mortgage loan.
Power of Attorney: Legal
document authorizing one person to act on behalf of another.
Planned Unit Development (PUD):
A project that may consist of any combination of 1-4 family
homes or condominiums where common facilities are owned and
maintained by a homeowner's association.
Points: Prepaid interest
collected at closing by the lender. Each point represents 1
percent of the loan amount.
Prepaid Interest: Interest
that is paid in advance of when it is due. Prepaid interest is
charged to a borrower at closing to cover interest on the loan
between the closing date and the first payment date.
Prepayment: Full or
partial repayment of principal prior to the due date.
Principal: The amount of
outstanding debt, not including interest, left on a loan.
Private Mortgage Insurance:
Insurance written by an independent mortgage guaranty
insurance company that protects the mortgage lender against loss
incurred by a mortgage default, thus enabling the lender to lend
a higher percentage of the sales price.
Purchase Agreement: The
agreement between buyer and seller on the purchase price, terms,
and conditions of a sale.
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Quitclaim Deed: A deed
releasing whatever interest someone has in a property but making
no warranty whatsoever.
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Real Estate Settlement
Procedures Act (RESPA): A federal law designed to allow
consumers to review information on settlement costs once after
application and prior to or at settlement.
Recission: The
cancellation of a contract. With respect to mortgage
refinancing, the right of recission law 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.
Recording: The act of
entering documents concerning title to a property into public
records.
Refinancing: The process
of paying off one or more mortgage loans with the proceeds from
another loan using the same property as security. The new
mortgage amount can be greater than the current loan balance.
Right of Rescission: With
respect to mortgage refinancing, the right of recission law
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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Sales Agreement:
The agreement between buyer and
seller on the purchase price, terms, and conditions of a sale.
Second Mortgage:
An additional mortgage placed on a
property with rights subordinate or secondary to the first
mortgage.
Settlement Statement:
The complete breakdown of costs
associated with the real estate transaction for both the buyer
and seller. The settlement statement is also known as the HUD-1
or the closing statement.
Special Assessments:
A special "tax" levied against a
property which arises when a major improvement is made by the
local or state government. For example, sewer lines, street
paving or lighting.
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Temporary Buydown:
When the borrower makes and initial
lump sum payment to reduce the interest rate or payment during
the first few years of the mortgage.
Title Insurance Policy:
Insurance that protects the
lender (lender's policy) or the buyer (owner's policy) against
loss due to disputes over ownership of a property.
Title Search or Examination:
An investigation into the
history of ownership of a property to check for liens, unpaid
claims, restrictions or problems, and to prove that the seller
can transfer free and clear ownership.
Transfer Tax:
Tax paid when title passes from one
owner to another.
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Underwriting: The process
of determining the risks involved in a particular loan and
establishing suitable terms and conditions for the loan.
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Verification of Deposit (VOD):
A form sent to a depository institution to verify the funds
of the borrower at that institution.
Verification of Employment (VOE):
A form sent to the borrower's employer to verify the
borrower's employment history.
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