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A Credit Mortgages
Mortgages which generally meet the credit underwriting guidelines
of Fannie Mae, Freddie Mac, FHA, VA or major jumbo purchasers.
Those who have credit ratings or other qualification deficiencies
would be rated as B, C, or D credit.
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Adjustable Rate Mortgage (ARM)
A mortgage loan that allows the interest rate to be changed at
specific intervals over the maturity of the loan.
EXAMPLE: A person obtains an adjustable-rate mortgage to finance
the purchase of a home. After a 2 year period, the lender may
adjust the rate of interest on the loan in accordance with an
established index.
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Adjustment Period
The length of time which dictates interest rate adjustments on an
adjustable rate mortgage. A six month ARM would have an adjustment
every six months.
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Adjustable Period Cap
The amount that the interest rate is allowed to increase or
decrease at the time of adjustment of an adjustable rate mortgage.
A one year adjustable would have an annual cap, since the
adjustment period is every year.
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Affordable Housing
A general term applied to public and private sector efforts to help
low and moderate income people purchase homes. Usually the programs
offer lower cash down payments, eased loan qualifying rules, and/or
below market interest rates.
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Alternative Documentation
Use of bank statements, W-2's, and pay stubs to document an applicant's income and assets instead of verification forms mailed by the lender.
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Amortization Schedule
A table showing the amounts of principal and interest due at regular
intervals and the unpaid mortgage balance after each payment is made.
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Annual Percentage Rate
The effective rate of interest for a loan per year, disclosure of which is
required ny the TRUTH IN LENDING LAW.
EXAMPLE: Borrower gets a loan for $50,000.00 at 10% interest plus 2
discount points, payable over 30 years. Because of the discount points,
$49,000.00 has been effectively borrowed but $50,000.00 must be repaid
with 10% interest of $50,000.00. Considering the effective amount borrowed, the annual percentage rate is 10.25%.
Application Fee
Fee charged by a lender at the time of loan application. This fee may include the cost of an appraisal, credit report, lock-in fee or other closing costs which are incurred during the process of the fee may be in addition to other charges.
Appraisal
An opinion or estimate of value. For residential properties the appraiser would utilize the Uniform Residential Appraisal Report, (URAR)
Appreciation
An increase in the value of property. Causes of appreciation for real
estate may include inflation, demand pressures for land and buildings, a
physical addition, modernization, removal of a negative factor from
within or outside a property.
EXAMPLE: Owner sold for $100,000.00 land that he purchased 10 years ago for $60,000.00. During that time the amount of appreciation was $40,000.00.
Assignment
The transfer of a right or contract from one person to another. Mortgages and other security instruments are regularly assigned from one investor to another and commitments by HUD/FHA to insure mortgages may be assigned by one origination lender to another before insurance.
Assumption
The act of taking over the previous borrower's obligation of a mortgage note. Assumptions may be advantageous if the terms of the mortgage are advantageous and they are not changed by the lender when the mortgage is assumed.
Assumption of Mortgage
Assumption by a purchaser of the primary liability for payment of an existing mortgage or deed of trust. The seller remains secondarily liable unless specifically released by the lender.
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Balloon Mortgage
A mortgage with periodic installments of principal anad interest that do not fully amortize the loan. The balance of the mortgage is due in a lump sum at a specified date, usually at the end of the term.
Biweekly Mortgage
A mortgage which requires one-half of one monthly payment every two weeks.
Buydown Mortgage
A mortgage with a below market interest rate made by a lender in return for an interest rate subsidy in the form of additional discount points paid by the builder, seller, or buyer.
Cash Out Refinancing
When the principal amount of a new mortgage involved in refinancing is greater than the principal amount outstanding of the existing mortgage being refinanced, and all or a portion of the equity is converted to cash.
Closing Costs
The various fees and expenses payable by the seller or buyer at the time of a real estate closing.
EXAMPLES: The following are some closing costs:
* Brokerage commissions
* Lender discount points/other fees
*Title insurance premium
*Deed recording fees
*Loan prepayment penalty
*Inspection and appraisal fees
*Attorney's Fees
Closing Date
The date on which the seller delivers the deed and the buyer pays for the property.
EXAMPLE: The sales contract generally establishes a closing date, at which time the parties will meet and settle all accounts necessary to transfer title to the property.
Closing Statement
An accounting of funds from a real estate sale, made to both the seller and the buyer separately
Co-Borrower
Second or additional persons equally responsible for payments on a mortgage.
Combined Loan-To-Value (CLTV)
The principal balance of all mortgages on the property (including second and third trusts) divided by the value of the property.
Commercial Real Estate
Office buildings, shopping centers, apartment buildings and other property
which is utilized for the production of income rather than as residences.
If residential real estate has more than four units it is considered commercial real estate.
Commitment
An agreement for future action. A rate commitment would be an agreement to
lend at a certain rate. A loan commitment would be an agreement to lend
and represents another term for loan approval.
Compensating Factor
A positive characteristic of a mortgage applicant which may offset a
negative factor.
Conventional Financing
Mortgage financing that is not insured or guaranteed by a governmental agency.
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Deed Of Trust
A legal document which enables the lender, or mortgagee, to hold legal
claim or title to a property while the note is outstanding. The deed of trust transfers title to a trustee designated by the lender.
Default
The non-payment of a mortgage or other loan in accordance with the terms as specified in the note.
Discount Point
Amount payable to the lending institution by the borrower or seller to increase the lender's effective yield. One point is equal to one percent of the loan.
Federal Home Loan Mortgage Corporation (FREDDIE MAC)
A quasi-governmental agency which is a publicly traded corporation.
It was originally chartered by Congress and oversight is located within the Department of Housing and Urban Development. The purpose of the entity is to help facilitate the access of mortgage money by creating a secondary market for conventional mortgages.
Federal Housing Administration (FHA)
Government agency within the Department of Housing and Urban Development that provides mortgage insurance for residential mortgages and sets standards for construction and underwriting. The FHA does not lend money, nor does it plan or construct housing.
Federal National Mortgage Association (FANNIE MAE)
A quasi-governmental agency which is a publicly traded corporation. It was originally chartered by Congress and oversight is located within the Department of Housing and Urban Development. It is the largest mortgage investor.
Fee Simple
The greatest possible interest a person can have in real estate, including the right to dispose of the property or pass it on to one's heirs.
Firm Commitment
(1) A lender's agreement to make a loan to a specific borrower on a
specific property, sometimes on specific terms, (2) A HUD/FHA or PMI
agreement to insure a loan on a specific property, for a specific borrower,
at a maximum amount, interest rate, and term. In HUD/FHA transactions, the firm commitment is conditioned on compliance with requirements imposed by the conditional commitment with respect to the property, and other conditions imposed by the firm commitment itself, usually with respect to the borrower or to the transaction as a whole.
Fixed Rate Mortgage
A mortgage in which the interest rate (and usually the payment) does not change over the term of the mortgage.
Float
A loan application in which the lender has not committed to lend at a particular interest rate (the rate is not locked-in).
Fully Amortized
A mortgage which has a zero balance at the end of the mortgage term.
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Home Equity Line Of Credit Loan
An open-end loan, usually recorded as a second mortgage, that permits borrowers to obtain cash advances based on an approved line of credit. An agreement whereby a financial institution promises to lend up to a certain amount without the need to file another application.
Home Loan
A mortgage loan secured by a residence for one, two, three of four families. Also known as a single family mortgage, even though the property may be designed for more than one family.
Index
1. A statistic that indicates some current economic of financial condition.
Indexes are often used to make adjustments in wage rates, rental rates, loan interest rates, and pension benefits set by long term contracts.
EXAMPLE: Office building rental rates are sometimes adjusted in relation to the consumer price index.
2. To adjust contract terms according to an index.
EXAMPLE: Mortgage interest rates on adjustable rate mortgages are often
indexed to the average mortgage rate for all lenders or the average cost of funds for all lenders.
Indexed Loan
A long term loan in which the term, payment, interest rate, or principal amount may be adjusted periodically according to a specific index. The index and the manner of adjustment are generally stated in the loan contract.
EXAMPLE: An adjustable rate mortgage is an indexed loan. At specific intervals the face interest rate on the loan may be changed according to variations in the specified index.
IRS 4506/Request for copy of tax form
IRS Form required by lenders on self-employed loan applications (and FHA when alternative documentation is utilized). This form allows the lender to pull tax returns on the borrower directly from the IRS, usually accomplished as a quality control check on a certain number of cases.
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Jumbo Mortgage
A mortgage which is larger than the legislated purchase limits of Fannie Mae and Freddie Mac.
Lender Paid Mortgage Insurance
Mortgage insurance program which allows the lender to collect a higher interest rate from the borrower and forward the excess interest to the mortgage insurance company to pay for the mortgage insurance.
Lien
A legal holder or claim against a property. A mortgage is one form of a lien.
Loan Submission
A package of pertinent papers and documents regarding specific property or properties delivered to a prospective lender for review and consideration for the purpose of making a mortgage loan.
Lock-In
The process by which a lender commits to lend ata a particular rate as
long a the mortgage transaction closes within a specified time period. The
document which specifies the terms of the lock-in is called a rate
commitment or lock-in agreement
Lock-In Fee
A fee charged by some lenders at the time of lock-in.
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Margin
The amount added to the index on an adjustable rate mortgage to determine the interest rate at each adjustment.
EXAMPLE: An adjustable rate mortgage is indexed to the 1 year Treasury yield and has a margin of 3 percentage points. If the index is currently 6%, the fully indexed rate on the loan is 9% (6% index plus 3% margin).
Mortgage
A loan secured against real estate as opposed to personal property.
States which are not Trust States utilized a mortgage as the legal
instrument to secure the lien against the real estate which means that
the owner holds title rather than a trustee.
Mortgage Banker
One who originates, sells, and services mortgage loans. Most loans are
insured or guaranteed by a government agency or private mortgage insurer.
(See mortgage insurance)
Mortgage Broker
One who, for a fee, places loans with investors, but does not service such loans.
Mortgage Insurance (MI)
Insurance which protects the lender against loss in case of default by the borrower. The federal government offers MI through HUD/FHA; private entities offer MI for conventional loans.
Mortgage Insurance Premium (MIP)
The amount paid by a mortgagor for mortgage insurance either to FHA or a private mortgage insurance company.
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Negative Amortization
The unpaid interest that is added to the mortgage principal in a loan where the principal balance increases rather than decreases because the mortgage payments do not cover the full amount of the interest rate.
Non-Conforming Mortgage
A mortgage loan in which the loan amount, the LTV ratio, the term, or
some other aspect of the loan exceeds permissible limits as specified in agency regulations.
No Point Mortgages
A mortgage which carries a higher interest rate in exchange for no discount points or origination fee
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Origination Fee
A charge by a lender for the costs of originating a mortgage. Usually equal to one point, or 1% of the mortgage amount.
Owner Occupied Purchase
The purchase of a property for the purpose of the primary residence of the owner.
Point
An amount equal to one percent of the principal amount of a mortgage.
Prepaids
Closing costs which are actually paid at closing for charges which will occur in the future. One example would be prepaid interest which is for interest which will accrue after the closing date until the starting date of the note.
Prepayment
The payment of all or part of a mortgage debt before it is due.
Prepayment Penalty
A charge the mortgagor pays the mortgagee for the privilege of prepaying the loan.
Pre-Qualification
Evaluation of a potential borrower's financial status to determine the size and type of mortgage available.
Principal Reduction
The reduction in loan balance which occurs with each payment of a positively amortized mortgage
Processing
The completion of a mortgage loan application and supporting documents for underwriting.
Profit and Loss Statement (P&L)
A financial statement provided by the applicant which reports the income and expenses for a business during a certain time period. The statement would be required of self-employed applicants.
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Ration Method
Method of qualifying which divides the monthly mortgage payment by the gross monthly income of the borrower (housing or first ratio) and then divides the monthly mortgage payment and monthly debt payments by the gross monthly income (debt or second ratio).
Real Estate Settlement Procedures Act (RESPA)
Federal law which regulates the settlement practices within the real estate industry. This law requires the provision of Good Faith Estimates of Closing Costs, prohibits kickbacks for referrals of related services, and standardizes the closing with a required form and format (HUD-1).
Real Property
The rights to use real estate. Sometimes also defined as Real Estate.
EXAMPLES: Real property includes, but is not limited to:
* personal residence owned in fee simple
* a life estate to a farm
* rights to use land under a lease
* easements and other partial interests.
Recordation Fees
Fees charged by a local government to record the documents of a real estate transaction.
Refinancing
The repayment of a debt from the proceeds of a new loan using the same property as security.
Rehabilitation
The process of reconstructing or improving property which is in the state of disrepair, and bring it back to its full potential or use. A mortgage for such purpose would be referred to as a rehab mortgage.
Residual Analysis
A procedure used in underwriting residential loans that evaluates the
adequacy of an applicant's monthly income after the proposed housing
expenses have been deducted.
Reverse Annuity Mortgage (RAM)
A mortgage which uses present equity in the property fo fund monthly payments from the lender to the borrower-in lieu of the borrower receiving the proceeds of the loan in a lump sum.
Right of Recission
Period of three full days in which the consumer is allowed to negate an owner occupied refinance transaction
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Sales Concession
Something a seller pays of value to a purchaser in order to entice the purchaser to buy the home. Another term for seller contribution.
Second Mortgage
A loan which is secured by real estate which is already secured by another loan referred to as the first mortgage. The second mortgage is subordinate to the first mortgage.
Secondary Mortgage Market
The market where lenders and investors buy and sell existing mortgages or mortgage-backed securities, thereby providing greater availability of funds for additional mortgage lending.
Self-Employment
A person who owns at least 25% of the entity for which generates income for that person.
Servicing
The process by which a lender collects monthly mortgage payments and forwards applicable portions of the payments to the investor, local government and insurance agencies.
Subsidize
A term for aid. Federally subsidize mortgages typically have an interest
rate lower than market because of government assistance. Temporary Buydowns are considered subsidized mortgages, because there is money placed in an escrow fund to supplement the regular payment for a certain period of time.
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Tax Service Contract
A service performed by a tax service company which identifies the payment due date of local taxes for the servicer.
Title
Written evidence of the right to or ownership of property.
A settlement agent will conduct a title search to make sure the seller
has clear title to the property before conducting settlement. If there is
not clear title, it is said that the title has defects. Title Insurance
is typically required to cover the lender against such defects.
Transfer Taxes
Taxes levied by a state or local government upon the transfer of real property. Also may be known as tax stamps.
Truth In Lending Act
Federal law which requires a truth in lending statement tio be disclosed
for consumer loans. This statement would include disclosure of the annual
percentage rate, or AOR, as well as other facets or the mortgage program. The law also requires the right of recission period for refinances.
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Underwriting
In mortgage banking, the analysis of the risk involved in making a mortgage loan to determine whether the risk is acceptable to the lender.
Variable Income
Income which will vary from year to year. Examples of income which will vary include: self-employment, commission, bonus, overtime, part-time employment, and investment income.
Warehousing
The borrowing of funds by a mortgage banker on a short term basis at a commercial bank using permanent mortgage loans as collateral. This form of interim financing is used until the mortgages are sold to a permanent investor.
