Acceleration - The right of the lender to demand the immediate repayment of the mortgage loan balance
upon the default of the borrower.
- A declaration by a party executing an instrument that it is his act and deed. It is usually made before a Notary Public
MORTGAGE (ARM)- Also known as a Variable Rate Mortgage, a loan secured against land, which has an interest rate that changes
according to some outside index -- such as the federal prime rate or the interest rate paid on government bonds -- over the
term of the mortgage. The change in interest rate will result in a change in the periodic payments due under the mortgage.
AFFIANT - One
who swears an affidavit.
AFFIDAVIT - A
sworn statement setting out facts, which the affiant states, are true. Sworn before a Commissioner for swearing Oaths, Notary
Public or other public official.
Agreement for Sale - A document in which the purchaser agrees to buy certain property and the seller agrees
to sell under stated terms and conditions. Also called sales contract, binder or earnest money contract.
Amortization - Gradual debt reduction. Typically, the reduction is made according to a pre-determined
schedule for installment payments.
Annual Percentage Rate (APR) - A term used in the Truth in Lending Act to represent the full cost of a
loan including interest and loan fees.
Appraisal - A written report by a qualified appraiser estimating the value of a property.
- An opinion of a property's fair market value, based on an appraiser's inspection and analysis of the property.
Appraiser - A
person qualified by education, training and experience to estimate the value of real property.
An increase in value of the property (the opposite of depreciation).
- The value that a taxing authority places upon personal property for the purposes of taxation.
Assumption - The
agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller.
Borrower - Someone
who receives funds in the form of a loan with the obligation of repaying the loan in full with interest, if applicable.
Broker - One who
receives a commission or fee for bringing buyer and seller together and assisting in the negotiation of contracts between
- The local regulations that control design, construction and materials used in construction. Building codes are based on
safety and health standards.
Buy-Down - A method
of lowering the buyer's monthly payment for a short period of time. The borrower
or homebuilder subsidizes the mortgage by lowering the interest rate for the first few years of a loan.
Cash-Out - Cashing
out means refinancing a loan where the borrower will take out money on their own home. If a home is appraised at $150,000
and the borrower's outstanding mortgage loan is $90,000, it is possible to enter into an 80% cash-out refinance transaction
for a loan of $120,000 (80% of $150,000). The new mortgage of $120,000 will pay off the $90,000 loan and leave $30,000 cash-out
to the borrowers.
Occupancy - Written authorization given by a local municipality that allows a newly completed or substantially completed structure
to be inhabited.
Closing - The
conclusion of a transaction.
- All of the costs to the buyer and seller individually that are associated with the purchase, sale or financing of real property.
- A financial disclosure giving an account of all funds received and expected at the closing.
Collateral - Property
pledged as security for a debt, such as real estate as security for a mortgage.
A real estate project in which each unit owner has title to a unit in the project, and sometimes an undivided interest in
the common areas.
Index - An index that combines the current and expected levels of consumer confidence. This index is almost identical to the
Conference Board Consumer Confidence index, though there are two monthly releases, a preliminary and final reading. Like the
Conference Board index, it has two components - expectations and current conditions.
Index - Also known as the cost-of-living index, this is a government index that measures changes in the price of typical consumer
goods. The corresponding index for wholesale prices is the Producer Price Index.
A condition that must be met before a contract is binding.
Contract of Sale
- A contract between a purchaser and a seller of real property to convey a title after certain conditions have been met and
payments have been made.
- A rating given to a person to establish willingness to pay obligations based upon one's past history of timely payment.
- A report to a prospective lender on the credit standing of a prospective borrower, used to help determine credit worthiness.
Ratio - Long-term debt expenses as a percentage of monthly income. Lenders use this ratio to qualify borrowers for mortgage
loans, typically setting a maximum debt-to-income ratio of 36%.
Deed of Trust
- In many states, this document is used in place of a mortgage to secure the payment of a note.
Veteran Affairs (VA) - An independent agency of the federal government created in 1930. The VA home loan guaranty program
is designed to encourage lenders to offer long-term, low down payment mortgages to eligible veterans by guaranteeing the lender
Discount Fee -
In an ARM with an initial rate discount, the lender gives up a number of percentage points in interest to give the borrower
a lower rate and lower payments for part of the mortgage term (usually for one year or less). After the discount period, the
ARM rate will probably go up depending on the index rate.
Down Payment -
When you borrow money for a home, any lender will ask you to contribute some of your own money to the purchase of the house.
- 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.
- A sum of money given to bind a sale of real estate; a deposit.
Equity - The home
owner's interest in a property; the difference between fair market value and the current amount the owner owes on the property.
Escrow - Funds
given to a third party which will be held to cover payments such as tax or insurance payments and earnest money deposits.
Fair Market Value
- The price at which property is transferred between a willing buyer and a willing seller, each of who has reasonable knowledge
of all pertinent facts and neither being under and compulsion to buy or sell.
Fannie Mae - See
System - The Federal Reserve System is America's independent central bank. Established in 1913 many decades after Andrew Jackson
closed down the last previous central bank, the system is governed by the Federal Reserve Board, whose seven members are appointed
to stagger 14-year terms.
FHA (FEDERAL HOUSING
ADMINISTRATION) - A division of the Department of Housing and Urban Development. It's main activity is the insuring of residential
mortgage loans made by private lenders.
FHA Loan - A loan
insured by the Federal Housing Administration open to all qualified home purchasers.
HOME LOAN MORTGAGE CORPORATION) - A private corporation created by Congress to support the secondary mortgage market. It sells
participation certificates secured by pools of conventional mortgage loans, their principle and interest guaranteed by the
federal government through the FHLMC. Popularly known as the Freddie Mac.
NATIONAL MORTGAGE ASSOCIATION) - A private corporation created by Congress to support the secondary mortgage market. FNMA
sells mortgage-backed securities backed by pools of conventional loans. Payment of principle and interest on these securities
is backed by the US Government. Popularly known as Fannie Mae.
Freddie Mac -
The right of a lender to put the home on the market for sale to recover money owed to the lender in the event that the borrower
fails to pay back the loan through mortgage payments.
Good Faith Estimate
- A written estimate of closing costs, which a lender must provide a borrower with within three (3) days of submitting an
Mortgage Association (GNMA) - Also known as Ginnie Mae.
Income - The amount of consistent and stable income that an individual receives each month, averaged over a period of time.
- A contract that pays for loss on a home from certain hazards, such as fire.
- An organization of homeowners residing within a particular development whose major purpose is to maintain and provide community
facilities and services for the common enjoyment of the residents.
And Building Permits - A measure of the number of residential housing activity in which units construction is begun on a monthly
basis. An increase in building permits and starts usually occurs a few months after a reduction in mortgage rates.
Impound - That
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).
Index - The measure
of interest rate changes that the lender uses to decide how much the interest rate on an ARM will change over time.
- The risk that our money will not be worth as much in the future. That's because the cost of the things we need to buy, such
as like housing, clothing and medical care all increase. Guaranteed investments like bank accounts do not keep pace with inflation.
Interest - Money
paid for the use of money -- that is, money paid for a loan.
Investor - A money
source for a lender.
Lender - Any person
or institution that provides money to a borrower.
Lien - A claim
on the property of another as security against the payment of a just debt.
Loan - An amount
of money a borrower will take out from a lender to pay for a purchase.
Ratio - The relationship between the amount of a home loan and the total value of the property. For example, if you receive
a loan of $90,000 on a home that costs $100,000, the loan-to value ratio is 90%.
Lock-In Rate -
A commitment from a lender to make a loan at a pre-set interest rate at some future date.
Margin - The number
of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.
Market Value -
The highest price that a willing buyer would pay and the lowest a willing seller would accept.
Mortgage - An
interest in real property given as security for the payment of an obligation.
Security (MBS) - A security backed by mortgage debt. Mortgage loans are collected into groups called pools. Pooling mortgage
loans improves the liquidity and reduces the risk associated with trading mortgages individually. As with other types of investments
mortgage securities are bought and sold depending on economic conditions, and this creates demand and supply.
Insurance purchased by a borrower to insure the lender or the government against loss should a loan become default.
Rates and the Bond Market - The mortgage backed securities market, not the bond market as commonly believed, directly determines
interest rates for mortgages. Bond market movements are often similar to movements that occur in the mortgage backed securities
market so consumers tend to watch the bond market movement to determine mortgage interest rate movement. While most times
the securities move in the same direction, at times the interest rates charged to consumers can actually move in the opposite
direction of the bond market because of differing supply and demand within the two markets.
- Any person or institution that invests in mortgages. By buying mortgage loans from lenders, the mortgage investor gives
the lender funds that can be used for more lending.
Insurance - A type of term life insurance. The amount of coverage decreases as the mortgage balance declines. In the event
that the borrower dies while the policy is in force, the debt is automatically paid by insurance proceeds.
Mortgagee - A
lender to whom property is conveyed as security for a loan.
Mortgagor - One
who borrows money, giving as security a mortgage or deed of trust on real property.
- Occurs when the monthly payments on the mortgage do not cover all of the interest cost. The interest cost that isn't covered
is added to the unpaid principle balance.
- The fee charged by a lender to prepare loan documents, process, underwrite, make credit checks, inspect and sometimes appraise
a property (lenders profit is also included).
PITI - Principal,
Interest, Taxes and Insurance are the components of a mortgage payment.
Point - A dollar
amount paid to a lender for making a loan. A point is one percent of the loan amount. Also called discount points.
Power of Attorney
- A legal document authorizing one person to act on behalf of another.
Prepaids - 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.
Prepayment - A
privilege in a mortgage permitting the borrower to make payments in advance of their due date.
- Money charged for an early repayment of debt.
- Qualifying a borrower for a loan amount before looking for a home.
Prime Rate - The
interest charged by banks to their most creditworthy customers. (Click here for
Principle - The
original balance of money loaned, excluding interest. Also, the remaining balance of a loan, excluding interest.
Purchasing - Obtaining
a mortgage loan for the acquisition of a property, usually a home.
Rate - A percentage
of the monthly mortgage payment paid to the lender.
Realtor A member
of the National Association of Realtors.
Refinance - Obtaining
a new mortgage loan on a property already owned. Often to replace existing loans on the property.
RESPA (Real Estate
Settlement Procedures Act). RESPA is a federal law that requires lenders to provide home mortgage borrowers with information
about known or estimated settlement costs.
Retail Sales Index
- A government index that measures the total receipts of retail stores. The changes in retail sales are widely followed as
a timely indicator of broad consumer spending patterns.
Servicer - After
a mortgage loan closes, the loan servicer collects the payments, manages escrow accounts, pays escrowed taxes and insurance,
and manages delinquent payments.
Settlement - The
closing of a mortgage loan.
Teaser Rate -
Your initial interest rate. It is an attractive, low interest rate that most
adjustable mortgage rates start with.
Title - The evidence
of the right to or ownership in property. In the case of real estate, the documentary evidence of ownership is the title deed.
Title may be acquired through purchase, inheritance, gift, or through foreclosure of a mortgage.
- A policy that insures a home buyer against errors in the title search (Owners Title Insurance). 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 (Lenders Title Insurance).
Someone who performs the analysis of the risk involved in making 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.
- A loan that is not backed by collateral (property).
Employment - A document signed by the borrower's employer verifying his/her position and salary.
A final inspection of the home before closing to inspect the premises for any damage that needs to be corrected before closing.
- 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 their share.
Yield - The
yield on a given investment based on its current price. A stock that pays a $1 in dividends per quarter, or $4 per year, and
that trades at $100, has a current yield of 4 percent. If the stock goes to $133 and the dividend remains unchanged, the current
yield would be 3 percent.