ADJUSTABLE
RATE MORTGAGE (ARM)-
A mortgage instrument in which the interest rate is adjusted periodically
according to a pre-selected index.
AMORTIZATION-
Gradual debt reduction. Normally, the reduction is made according
to a predetermined schedule for installment payments.
ANNUAL
PERCENTAGE RATE (APR)- A term used in the Truth in Lending Act
to represent the percentage relationship of the total finance charge
to the amount of the loan.
APPLICANT-
One who applies for a real estate loan. (The prospective mortgagor.)
APPRAISAL-
A report made by a qualified person setting forth an opinion or estimate
of value. The term also refers to the process by which the estimate
is obtained.
APPRAISED
VALUE- An opinion of value reached by an appraiser based upon
knowledge, experience and study of pertinent data.
APPRECIATION-
An increase in value, the opposite of depreciation.
BALLOON
MORTGAGE- A mortgage with periodic installments
of principal and interest that do not fully amortize the loan. The
balance of the mortgage is due in a lump sum at a specified date in
the future, usually at the end of the term.
BALLOON
PAYMENT- The unpaid principal amount of a mortgage or other long
term loan due on a specified date in the future. Usually the amount
that must be paid in a lump sum at the end of the term.
BORROWER-
A mortgagor who receives funds in the form of a loan with the obligation
of repaying the loan in full with interest, if applicable.
BUYDOWN-
Money advance by an individual (builder, seller, etc) to reduce the
monthly payments for a home mortgage either during the entire term
or for an initial period of years.
CLOSING-
The conclusion of the transaction. In real estate, closing includes
the delivery of a deed, financial adjustments, the signing of notes,
and the disbusement of funds necessary to the sale of a loan transaction.
CLOSING
COSTS- All of the costs, not including the price of the property,
to the borrower and the seller which are associated with the purchase,
sale or refinancing of real property.
COLLATERAL-
Property pledged as security for a debt, such as real estate as security
for a mortgage.
COMMITMENT-
An agreement, often in writing, between a lender and borrower to loan
money at a future date subject to compliance with stated conditions.
CONDOMINIUM-
A form of ownership of real property. The purchaser receives title
to a particular unit and a proportionate interest in certain common
areas. A condominium generally defines each unit as a separately owned
space to the interior surfaces of the perimeter walls, floors, and
ceilings. Title to the common areas is in terms of percentages and
refers to the entire project less the separately owned units.
CREDIT
RATING- A rating given a person or company to establish credit
worthiness based upon present financial condition, experience and
past credit history.
CREDIT
REPORT- A report to a prospective lender on the credit standing
of a prospetive borrower, used to help determine credit worthiness.
DEBT
TO INCOME RATIO (DTI)- The ratio between the amount
of monthly installment & revolving debt the borrower has and the gross
amount of monthly household income.
DELINQUENCY-
Failure of the debtor to pay an obligation when due.
DOWN
PAYMENT- The difference between the sales price of real estate
and the mortgage amount.
EQUITY-
The difference between fair market value and current indebtedness,
usually referred to as the owner's interest.
ESCROW-
A transaction in which a third party, acting as the agent for the
buyer and seller, carries out instructions of both and assumes responsibilities
of handling all paperwork and disbursement of funds.
ESCROW
ACCOUNT- An amount set up by the lender into which the borrower
makes periodic payments, usually monthly, for taxes, hazard insurance,
assessments and mortgage insurance premiums. The funds are held in
trust by the lender who pays the sums as they become due.
ESCROW
PAYMENT- That portion of the monthly mortgage payments held by
the lender to pay for taxes, hazard insurance, mortgage insurance,
lease payments, and other items as they become due. Also known as
impounds or reserves.
FAIR
MARKET VALUE- The price at which property is transferred
between a willing buyer and a willing seller, each of whom has reasonable
knowledge of all pertinent facts and neither being under any compulsion
to buy or sell.
FEDERAL
HOUSING ADMINISTRATION (FHA)- A division of the Department of
Housing and Urban Development (HUD). It's main activity is the insuring
of residential mortgage loans made by private lenders. It sets standards
for construction and underwriting.
FEDERAL
HOME LOAN MORTGAGE CORPORATION (FHLMC or FREDDIE MAC)- A private
corporation authorized by Congress. It sells participant sales certificates
secured by pools of conventional mortgage loans with the principal
and interest guaranteed by the federal government through Freddie
Mac. It also sells GNMA bonds to raise funds to finance the purchase
of mortgages.
FEDERAL
NATIONAL MORTGAGE ASSOCIATION (FNMA or Fannie Mae)- A tax paying
corporation created by Congress to support the secondary mortgage
market. It purchases and sells residential mortgages insured by FHA
and guaranteed by VA, as well as conventional home mortgages.
FORECLOSURE-
An authorized procedure taken by a mortgagee or lender, under the
terms of a mortgage or deed of trust for the purpose of having the
property applied to the payment of defaulted debt.
HAZARD
INSURANCE- A contract whereby any insurer, or
a premium, undertakes to compensate the insured for loss on a specific
property due to certain hazards.
INDEX-
An interest rate indicator used to determine changes in the mortgage
interest rate. Any index that is beyond the control of the lender
and easily verifiable by the borrower can by used. The maturity of
the index chosen usually corresopnds to the loan's adjustment interval.
Some commonly used indexes include: 6-month Treasury Bill rates, 1,3,and
5 Year Treasuries.
INTEREST-
Consideration in the form of money paid for the use of money. Also,
a right, share or title of property.
INVESTOR-
The holder of a mortgage or the permanent lender for whom the mortgage
banker services the loan. Any person or institution that invests in
mortgages.
LOAN
TO VALUE (LTV)- The relationship between the amount
of the mortgage loan and the appraised value of the security expressed
as a percentage of the appraised value. (In the case of a purchase,
the LTV is the relationship between the amount of the mortgage loan
and the purchase price).
MARGIN-
The amount or percentage added to the index at each adjustment to
determine the borrower's new interest rate. Margins are generally
fixed for the term of the loan and are based on the lender's estimated
expenses and profit goals.
MARKET
VALUE- The highest price that a buyer, willing but not compelled
to buy, would pay and the lowest a seller, willing but not compelled
to sell, would accept.
MORTGAGE-
A conveyance of interest in real property given as security for the
payment of an obligation.
MORTGAGEE-
A person or firm to whom property is conveyed as security for a loan
made by such person or firm.
MORTGAGE
INSURANCE- Either private or government insurance which insures
a mortgage lender against loss caused by a mortgagor's default. This
insurance may cover part or all of the mortgage loan depending on
the type of mortgage insurance and amount of coverage.
MORTGAGOR-
One who borrows money, giving as security a mortgage or deed of trust
on real property.
PAYMENT
SHOCK- Borrower's difficulty in coping with frequent
and/or large payment increases.
PRINCIPAL,
INTEREST, TAXES AND INSURANCE (PITI)- An acronym for the items
included in a monthly mortgage payment. The tax and insurance portion
may be adjusted to reflect adjustments in the taxes and insurance
costs.
POINT-
An amount equal to 1 percent of the principal amount of investment.
Loan discount points are a one-time charge assessed at closing by
the lender to increase the yield on the mortgage loan to a competitive
position with other types of investments.
PREPAID
INTEREST- Mortgage interest that is paid in advance of when it
is due.
PRINCIPAL
BALANCE- The outstanding balance of a mortgage, exclusive of interest
and any other charges.
PRIVATE
MORTGAGE INSURANCE (PMI)- An insurance contract written by a private
corporation that protects a portion of the loan to the mortgagee against
losses that might occur in the event of default and/or foreclosure
on conventional loans. May also refer to the companies writing this
type of coverage.
REFINANCING-
The repayment of a debt from the proceeds of a new loan using the
same property as security.
SECONDARY
FINANCING- Financing real estate with a loan or
loans that are subordinate to a first mortgage or first trust deed.
SERVICING-
The collection for an investor of payments of interest, principal
and trust items such as hazartd insurance and taxes, on a note by
the borrower in accordance the terms of the note. Servicing also consists
of operational procedures covering accounting, bookkeeping, insurance
tax records, loan payment follow-up, collections, delinquency reporting
and payoffs.
TITLE
INSURANCE POLICY- A contract by which the insurer,
usually a title insurance company, agrees to pay the insured a specific
amount for any loss caused by defects of title to real estate, wherein
the insured has an interest as purchaser, mortgagee or otherwise.
UNDERWRITING-
The analysis of risk and the approval or decline of a loan request
based on specific investor guidelines.
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