Mortgage Resources and Glossary
Glossary IndexAppraisal Basics Credit Bankruptcy
- Options Other than Bankruptcy
- What Will Bankruptcy Cover?
- The Bankruptcy Process
- Prevent a Foreclosure
- The Consequences of a Foreclosure
- Down Payment Support Programs
- Down Payment Gifts, Loans, and Your 401K
- Low Down Payment Qualifications
- Housing Authorities
Appraisal Basics
Apply OnlineReal estate appraisal is used to determine the value of the property. The exact reason for the appraisal must be established prior to the start of the appraisal to ensure that the correct value is assessed. The appraiser evaluates market conditions to assist in the value determination. Not only is the property value assed at this time, but the property's amenities and physical condition are also taken into consideration. The final value of the property is decided when a complete report including research and the accumulation of other relevant data are completed.
Appraisal Methods
The value of a property is determined through the process of appraisal and three different methods are used most commonly to assess a property's value. These three methods are the Cost Approach, Comparison Approach, and the Income Approach. The Cost Approach evaluates the cost to make improvements to the property at the time of appraisal, minus factors including physical deterioration, economic obsolescence, and functional obsolescence. The final property value is called the Land Value. Through the Comparison Approach, appraisers use other properties of similar size, location, and quality as bench marks. The property that is being appraised is then compared to these bench mark properties to determine the property';s true value. Finally, the Income Approach is used to determine the property value primarily of commercial real estate. This methodology provides an objective estimate of what a practical investor would pay based on the net income the property produces. The final property value is connected to all three of these methods.
Reasons for Appraisal
Obtaining an appraisal of the property you intend to purchase or sell is a very important step. Appraisals should be completed to obtain a loan, reduce your taxes, determine insurance costs, to assist you in making your purchase decision, help determine a reasonable price when selling your property, government agencies including the IRS require appraisals, and appraisals are also important if you become involved in a lawsuit. Real estate appraisals not only protect your investment in the short term but can play an important role in the future and this is the most important reason to obtain an appraisal.
Credit
Apply OnlineUnderstanding Mortgage Credit
Every mortgage company determines the credit worthiness of a borrower in a slightly differently manner. In many cases, mortgage lenders use several different measures to determine a borrower's eligibility for a home loan. Some of the aspects of your credit that will be considered include payment history, amount of debt payments, bankruptcies, equity position, and credit scores. Your mortgage lender will help you help you further understand your credit rating and the impact it will have on your ability to obtain a home loan.
Credit Report Access
Due to the Fair Credit Reporting Act, only you and those businesses that have a "legitimate business need and a permissible purpose" can view your credit profile. Unless you have given written consent individuals such as family members, neighbors, and co-workers are not allowed access to your credit profile. The businesses that generally have access to your credit information are credit grantors, collection agencies, employers, and insurance companies. Any company that receives a copy of your credit profile will be listed under the "Inquiry" section of your report.
Credit Profile
Your credit profile provides mortgage brokers with information that will assist them in determining if you are eligible for a home loan. While this profile provides lenders with plenty of valuable information it is important to know that your race, religion, health records, criminal records and political preferences are not included in this report. Your credit profile provides information only about your employment history, credit information, public record information, and other inquires that have been made in the past.
What is a FICO Score?
All home loan lenders evaluate the risk associated with loaning a borrower funds and many factors will determine a borrower's risk. One important factor is an individual's FICO score. Your FICO score is a numeric representation of your financial responsibility and this number is based on your credit history. A scale is used to measure FICO scores and the number can be anywhere between 300 and 850. The higher the number the less risk associated with extending credit to that borrower. FICO scores are provided to mortgage lenders by the three major credit reporting agencies: Equifax, Experian, and TransUnion. The scores from these agencies are used when evaluating your home loan application.
Bankruptcy
Apply Options Other than Bankruptcy
There is no simple way to get out of debt, but borrowers should make every effort to improve their credit as it will increase the chances of being approved for a home loan. First, borrowers should attempt to lower their monthly payments and try to secure a loan from a family member or friend. Another option you have when trying to get out of debt is to cash out your 401K. All of these options have their consequences though which makes it important to get professional advice.
What Will Bankruptcy Cover?
The underlying policy of bankruptcy law is that the honest debtor who is in debt beyond his/her ability to repay the debt should be given a fresh start through the discharge of debts in a bankruptcy proceeding. Not all debts will be covered by bankruptcy though and those that are not covered include taxes, child support, and student loans, just to name a few. This information deals with Chapter 7 consumer bankruptcy only and the laws regarding bankruptcy vary depending on the chapter of bankruptcy that is used.
The Bankruptcy Process
When filing for bankruptcy many forms need to be completed and these forms are part of the bankruptcy petition. There could be between 30 and 60 pages in the petition. Local and Federal Government laws also must be followed when completing the forms. Preparing these forms requires an understanding of both bankruptcy law and state laws to ensure the correct and accurate completion of the forms. A hearing will also be held in a court where a decision regarding your situation will be made.
Prevent a Foreclosure
To avoid a foreclosure mortgage lenders often recommend that you communicate with your lender every step of the way. If your mortgage lender is informed of your financial situation they can help you lower your monthly payments and temporarily suspend your mortgage payments, as well as an array of other options. Be prepared to provide them with financial information, such as your monthly income and expenses. It is also important to stay in your home for the time being because you may not qualify for assistance if you abandon your home.
The Consequences of a Foreclosure
Following a foreclosure you will face many consequences. Foreclosure first results in the loss of the home which means that all saved equity and appreciation in the home will be lost as well. In many cases the combination of the equity and appreciation can translate into the home owner losing thousands of dollars. Foreclosure will also affect your ability to borrow money in the future. A foreclosure is a serious derogatory that make a person unworthy of credit. This derogatory remains on the credit report for at least 7 years. The result may be declined applications for credit, the inability to rent an apartment, and many other problems.
Commercial
Apply Online The Ins and Outs of Commercial Underwriting
Commercial financing is underwritten on an individual basis. Because every loan application is different it is assessed on its own merits but all borrowers seeking a commercial loan will face an evaluation of the DCR, credit worthiness, and property condition. First a financial analysis should be completed. This analysis includes an evaluation of the debt coverage ratio. The DCR is your monthly debt compared to your monthly income. Following the DCR analysis, your credit worthiness will be evaluated. This portion of the analysis will look at past financial records for the business and may include personal financial history in certain cases. Finally the condition of the property is examined. All of the above factors will influence your ability to secure a commercial loan.
Types of Commercial Loans
There are many types of commercial financing options available to borrowers and they include adjustable rate commercial loans, wrap around mortgages, credit lines, and balloon loans. Adjustable rate commercial loans have an interest rate that varies through out the life of the loan. A wrap around mortgage is a new mortgage which literally wraps around the old mortgage. By using a wrap-around mortgage, the buyer makes payments on the new mortgage directly to the seller, and the seller continues to make payments on the old mortgage. Credit lines provide a business with resources to fill temporary cash shortages that are the result of the difference between the period of cash outlays and collections. Credit lines are usually used to finance project or contract related work, receivables, and inventories. Commercial borrowers are also able to obtain a balloon loan. Balloon loans feature fixed interest rates for a specified period of time. When the loan reaches maturity the outstanding balance must be paid in full by the borrower. There are many financing options available to commercial borrowers and your investment plan should be evaluated prior to deciding on a specific type of commercial loan.
Financial Preparedness
Commercial lenders evaluate many different types of financial information to determine if your business is worthy of a commercial loan. Lenders often require three years of income tax and financial statements, profit and loss statements and balance sheets. In many cases personal financial statements are also required. Projected cash flow statements and pro formas for the next 12 months are commonly requested as well as a complete business plan. When all financial data is presented it will then be evaluated and a decision regarding your loan will be made.
Down Payment
Apply Online Down Payment Support Programs
Purchasing a home is a goal shared by many people but it can be difficult for some to collect the funds needed for a down payment. Fortunately, there are many programs to assist those who need help with down payments. There are national assistance programs and programs specifically for residents of your state. The precise requirements of the individual programs will need to be discussed with your mortgage broker but many assistance programs do not require repayment of the gift and do not place caps on the borrower's income to qualify for assistance. One such program is called Neighborhood Gold. This down payment assistance corporation provides free grant money to borrowers with no down payment. The qualifications for the Neighborhood Gold program are relatively simple to meet and your mortgage lenders are knowledgeable of the requirements.
Down Payment Gifts, Loans, and Your 401K
Loans and gifts from family, friends, and other organizations can help you put together a down payment sufficient for your home loan needs. The percentage of the loan or gift that is available for use as a down payment can vary depending on the type of home loan you qualify for. It is important to discuss any loans or gifts you plan to use as a down payment with your mortgage lender.Many companies also offer programs to their employees to make the home buying experience easier. 401K plans are often used for this purpose and employees are permitted to withdraw from their 401K plans without penalty to provide a down payment on a home loan. Making use of your 401K program can be useful and beneficial but there can be drawbacks that must be examined.
Low Down Payment Qualifications
Many factors are considered when applying for a low down payment home loan. These factors include a good credit background, sufficient appraisal value, and adequate income to pay the monthly mortgage payment. While these factors are important other considerations are also taken. Your home loan professional will be able to discuss your qualifications with you on an individual basis. At this time other factors including your ability to pay the closing costs will be discussed. Closing costs are typically 2% to 3% of the price of the house. Your home loan officer will also discuss with you certain formulas that are used to determine your long term ability to pay for the home loan.
Housing Authorities
Housing authorities are agencies in states around the nation that handle housing issues in their designated areas. Many housing authorities strive to provide stable and affordable housing for low and moderate income persons and create living environments that help residents learn to live independently.
Relocation
Apply OnlineRelocating with Children
Relocating to a new area or a new home can be difficult for everyone in your family but a move can be particularly difficult for children and teenagers. For this reason it is important to remember to communicate with your children every step of the way. Children will know what to expect and therefore the move will go more smoothly. It is also important to resume your normal routines as soon as possible in the new home because children become confused and feel unsettled when their normal routines are disrupted. Most importantly, make the move fun for your children by turning it into an adventure. By making the move an exciting event children will focus less on what they are leaving behind. Parents can make a move fun for kids by throwing them a good bye party where all their friends can come and celebrate or ask you children to draw a picture of how they want their new room to look. Moving with children is never easy but these simple guidelines can help make your move more enjoyable for all members of your family.
Selection a Relocation Professional
When relocating it is important to hire a relocation professional that you feel comfortable with and are confident that they will keep your best interests in mind. To find a relocation professional you should begin by getting recommendations from family and friends. The employees in your new office may also be a helpful resource. You will need an agent that is familiar with real estate sales in the neighborhoods you are comfortable in and with in the price range you are able to afford. It is very important to conduct a thorough interview with an agent prior to engaging in a business relationship. Be sure to question the agent about topics including, but not limited to the number of homes they have sold, the agent’s commission, and references.
Getting Settled
Following relocation, it can be difficult to settle into your new settings and make your new house your new home. It is important to begin to make new friends and get yourself acquainted with your new surroundings. One way to meet new people and your neighbors is to join a volunteer group in the area. Volunteering will introduce you to new people while helping you get familiar with your new town. You may also want to get used to trying things you would not normally do, for instance bring your dog to a dog park where other dog owners are, rather than walking your dog on a quiet street. These ideas will help you become more comfortable in your new surroundings and before you know it you will call your new town home.
Mortgage Glossary
Index: A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
Acceleration- Typically associated with overdue payments or failure to perform as promised under a mortgage contract. The lender would then request or demand early payments or the entire payment of the mortgage.
Adjustable Rate Mortgage (ARM) - An ARM is different from a traditional fixed rate mortgage since the interest rate fluctuates during the lifespan of the loan in conjunction with movements in the index rate.
Amortization - This is the length of time it takes to pay a loan off.
Annual Percentage Rate (APR) - This states the total annual cost of a mortgage expressed by the actual rate of interest paid.
Appraisal - This is the process to determine the market value of a property.
Appraiser - This is a person qualified by education, training, and experience to estimate the value of real property and personal property.
Appreciation - This is an increase in the value of a property due to changes in market conditions or other causes. The opposite of depreciation.
Asset - This is anything of monetary value that is owned by a person. The assets include real property, personal property, and enforceable claims against others including bank accounts, stocks, mutual funds, etc..
Assumable Mortgage - If there is a house that is sold with
an assumable mortgage, that means the buyer gets the house and takes over
the terms of the loan. The buyer can assume the terms without being
qualified or the loan can be a Qualifying Assumable Loan--while the buyer may take over the terms of the mortgage, they must be
qualified as if they were applying for a brand new loan.
Assumption - This is the transfer of the seller's existing mortgage to the buyer.
Assumption Clause - This is a provision in an assumable mortgage that allows a buyer to assume responsibility for the mortgage from the seller. This loan does not need to be paid in full by the original borrower upon sale or transfer of the property.
Assumption Fee - This is the fee paid to a lender (usually by the purchaser of real property) resulting from the assumption of an existing mortgage.
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B
Balance Sheet - This is a financial statement that shows assets, liabilities, and net worth as of a specific date.
Balloon Mortgage - This is where the remaining balance must be paid in full at the end of a pre-set term.
Bankrupt - This is a person, firm, or corporation that, through a court proceeding, is relieved from the payment of all debts after the
surrender of all assets to a court-appointed trustee.
Beneficiary - This is a person designated to receive the income from a trust, estate, or a deed of trust.
Biweekly Payment Mortgage - This is a mortgage that requires payments to reduce the debt every two weeks instead of the standard monthly payment schedule. The 26 or possibly 27 biweekly payments are each equal to one-half of the monthly payment that would be required if the loan were a standard 30-year fixed-rate mortgage, and they are usually drafted from the borrower's bank account. The result for the borrower is a substantial savings in interest.
Bond - This is an interest-bearing certificate of debt with
a maturity date. This is an obligation of a government or business corporation.
A real estate bond is a written obligation usually secured by a
mortgage or a deed of trust.
Breach - This is a violation of any legal obligation.
Bridge Loan - This is a form of second trust that is collateralized by the borrower's present home, which is usually for sale, in a manner that allows the proceeds to be used for closing on a new house before the present home is sold. This is also known as a "swing loan."
Broker - This is a person who, for a commission or a fee, brings parties together and assists in negotiating contracts between them.
Buydown Mortgage - The temporary buydown is a
mortgage on which an initial lump sum payment is made by any party to
reduce a borrower's monthly payments during the first few years of a
mortgage. A permanent buydown reduces the interest rate over the entire
life of a mortgage.
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C
Call Option - This is a provision in the mortgage that gives the mortgagee the right to call the mortgage due and payable at the end of a specified period for any reason.
Cap - This is a provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or mortgage payments may increase or decrease.
Capital Improvement - This is any structure or component erected as a permanent improvement to real property that adds to its value and useful life.
Cash-Out Refinance - This is a refinance transaction in which the amount of money received from the new loan exceeds the total of the money needed to repay the existing first mortgage, closing costs, points, and the amount required to satisfy any outstanding subordinate mortgage liens. Otherwise a refinance transaction in which the borrower receives additional cash that can be used for any purpose.
Certificate of Eligibility - This is a document issued by the federal government certifying a veteran's eligibility for a Department of Veterans Affairs (VA) mortgage.
Certificate of Reasonable Value (CRV) - This is a document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA mortgage.
Certificate of Title - This is a statement provided by an
abstract company, title company, or attorney stating that the title to
real estate is legally held by the current owner.
Chain of Title
- This is the history of all of the documents that transfer the title to a parcel
of real property, starting with the earliest existing document and
ending with the most recent.
Change Frequency - This is the frequency (in months) of payment and/or interest rate changes in an adjustable-rate mortgage (ARM).
Clear Title - This is a title that is free of liens or legal questions as to ownership of the property.
Closing - This is a meeting at which a sale of a property is finalized by the buyer signing the mortgage documents and paying closing costs. This is also called "settlement."
Closing Cost Item - This is a fee or amount that a home buyer must pay at closing for a single service, tax, or product. The closing costs are made up of individual closing cost items such as origination fees and attorney's fees. Many of the closing cost items are included as numbered items on the HUD-1 statement. There are also expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. The closing costs normally include an origination fee, an attorney's fee, taxes, an amount placed in escrow, and charges for obtaining title insurance and a survey. The closing costs percentage will vary according to the area of the country.
Closing Statement - This is also referred to as the HUD-1 which is the final statement of costs incurred to close on a loan or to purchase a home.
Cloud on Title - These are any conditions revealed by a title
search that adversely affect the title to the real estate. Typically clouds
on title cannot be removed except by a quitclaim deed, release, or
court action.
Collateral - This is an asset
such as a car or a home, that guarantees the repayment of a loan. The
borrower risks losing the asset if the loan is not repaid according to
the terms of the loan contract.
Collection - These are efforts used to bring a delinquent mortgage up to date and to file the necessary notices to proceed with foreclosure when necessary.
Combination Loan - With this type of loan, a person receives a first mortgage for 80% of the loan amount, and a second mortgage at the same time for the remainder of the balance. If avoiding PMI (mortgage insurance) is important, consider combination loans--known as 80/10/10 loans or 80/20's.
Combined Loan-to-Value (CLTV) - This is the unpaid principal balances of all the mortgages on a property (usually first and second) divided by the property's appraised value.
Co-Maker - This is a person who signs a promissory note
along with the borrower. The co-maker's signature guarantees that the
loan will be repaid since the borrower and the co-maker are equally
responsible for the repayment. Also see endorser.
Commission
- This is the fee charged by a broker or agent for negotiating a real estate or
loan transaction. The commission is generally a percentage of the price
of the property or loan.
Commitment letter
- This is a formal offer by a lender stating the terms under which it agrees to
lend money to a home buyer. This also known as a "loan commitment."
Common Areas - These are portions of a building, land,
and amenities owned or managed by a planned unit development (PUD) or
condominium project's homeowners' association or a cooperative
project's cooperative corporation that are used by all of the unit
owners, who share in the common expenses of their operation and
maintenance. These common areas include swimming pools, tennis courts, and
other recreational facilities, as well as common corridors of
buildings, parking areas, means of ingress and egress, etc.
Community Home Improvement Mortgage Loan
- This is an alternative financing option that allows low and moderate income
home buyers to obtain 95% financing for the purchase and
improvement of a home in need of modest repairs. This repair work can
account for as much as 30% of the appraised value.
Community Property - In some western and
southwestern states, community property is a form of ownership under which property acquired
during a marriage is presumed to be owned jointly unless acquired as
separate property of either spouse.
Comparables
- This is an abbreviation for "comparable properties" which is used for comparative
purposes in the appraisal process. Comparables are properties like the
property under consideration. They reasonably have the same size,
location , and amenities and have recently been sold. Comparables help
the appraiser determine the approximate fair market value of the
subject property.
Condominium - This is a
real estate project in which each unit owner has title to a unit in a
building, an undivided interest in the common areas of the project, and
sometimes the exclusive use of certain limited common areas.
Condominium Conversion - This is the changing of the ownership of an existing building (usually a rental project) to the condominium form of ownership.
Conforming Loan - The current conforming loan limit is $359,650 and below. The conforming loan limit change annually.
Construction Loan - This is a short-term, interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses.
Consumer Reporting Agency (or Bureau) - This is an organization that prepares reports that are used by lenders to determine a potential borrower's credit history. The agency obtains data for these reports from a credit repository and from other sources.
Contingency - This is a condition that must be met before a contract is legally binding. For instance, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector.
Contract - This is an oral or written agreement to do or not to do a certain thing.
Conventional Mortgage - This is a mortgage that is not insured or guaranteed by the federal government.
Convertibility Clause - This is a provision in some
adjustable-rate mortgages (ARMs) that allow the borrower to change the
ARM to a fixed-rate mortgage at specific timeframes after loan
origination.
Convertible ARM - This is an adjustable-rate mortgage (ARM) that can be converted to a fixed-rate mortgage under specific conditions.
Cooperative (Co-op) - This is a type of multiple ownership in which the residents of a multiunit housing complex own shares in the cooperative corporation that own the property, giving each resident the right to occupy a specific apartment or unit.
Corporate Relocation - These are arrangements under which an employer moves an employee to another area as part of the employer's normal course of business or under which it transfers a substantial part or all of its operations and employees to another area since it is relocating its headquarters or expanding its office capacity.
Cost of Funds Index (COFI) - This is an index that is used to determine interest rate changes for certain ARM plans. This represents the weighted-average cost of savings, borrowings, and advances of the 11th District members of the Federal Home Loan Bank of San Francisco.
Covenant - This is a clause in a mortgage that obligates or restricts the borrower and that, if violated, can result in foreclosure.
Credit - This is an agreement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date.
Credit History - This is a record of an individual's open and fully repaid debts. Credit history helps a lender to determine whether a potential borrower has a history of repaying debts in a timely manner.
Credit Report - This is a report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's credit worthiness.
Credit Repository - This is an organization that gathers, records, updates, and stores financial and public records information about the payment records of individuals who are being considered for credit.
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D
Debt - This is an amount owed to another.
Deed - This is the legal document conveying the title to a property.
Deed-in-Lieu - This is a deed given by a mortgagor to the mortgagee to satisfy a debt and avoid foreclosure.
Deed of Trust - This is a document used in some states instead of a mortgage. The title is conveyed to a trustee.
Default - This is the failure to make mortgage payments on a timely basis or to comply with other requirements of a mortgage.
Delinquency - This is the failure to make mortgage payments when mortgage payments are due.
Deposit - This is a sum of money given to bind the sale of real estate, or a sum of money given to ensure payment or an advance of funds in the processing of a loan.
Depreciation - This is a decline in the value of property; the opposite of appreciation.
Down payment - This is the part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.
Due-on-Sale Provision - This is a provision in a mortgage that allows the lender to demand full repayment if the borrower sells the property that serves as security for the mortgage.
TopEarnest Money Deposit - This is a deposit made by the potential home buyer to show that they're serious about buying the house.
Easement - This is a right of way giving persons other than the owner access to or over a property.
Effective Age - This is an appraiser's estimate of the physical condition of a building. The actual age of a building may be shorter or longer than the effective age.
Effective Gross Income - This is the normal annual income including overtime that is regular or guaranteed. This income may be from more than one source. The salary is generally the principal source, but other income may qualify if it is significant and stable.
Encumbrance - This is anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements, or restrictions.
Endorser - This is a person who signs ownership interest over to another party. Contrast with co-maker.
Equal Credit Opportunity Act (ECOA) - This is a federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.
Equity - This is a homeowner's financial interest in a property. The equity is the difference between the fair market value of the property and the amount still owed on the mortgage.
Escrow - This is an item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For instance, the deposit by a borrower with the lender of funds to pay taxes and insurance premiums when they are due, or the deposit of funds or documents with an attorney or escrow agent to be disbursed upon the closing of a sale of real estate.
Escrow Account - This is an account in which a mortgage servicer holds the borrower's escrow payments prior to paying property expenses.
Escrow Analysis - This is the periodic examination of
escrow accounts to determine if current monthly deposits will provide
sufficient funds to pay taxes, insurance, and other bills when they are due.
Escrow Collections
- These are the funds collected by the servicer and set aside in an escrow account to
pay the borrower's property taxes, mortgage insurance, and hazard
insurance.
Escrow Disbursements - This is the use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.
Escrow Payment - This is the portion of a mortgagor's monthly payment that is held by the servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. This is also known as "impounds" or "reserves" in some states.
Estate - This is the ownership interest of an individual in real property. The total sum of all the real property and personal property owned by an individual at the time of death.
Eviction - This is the lawful expulsion of an occupant from real property.
Examination of Title - This is the report on the title of a property from the public records or an abstract of the title.
TopFair Credit Reporting Act - This is a consumer protection law that regulates the disclosure of consumer credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on a person's credit record.
Fair Market Value - This is the highest price that a buyer, willing but not compelled to buy, would pay. This is also the lowest a seller, willing but not compelled to sell, would accept.
Fannie Mae - Fannie Mae is a congressionally chartered,
shareholder-owned company that is the nation's largest supplier of home
mortgage funds. Fannie Mae's Community Home Buyer's Program is an
income-based community lending model, under which mortgage insurers and
Fannie Mae offer flexible underwriting guidelines to increase a low or
moderate income family's buying power and to decrease the total amount
of cash required to purchase a home. Borrowers who participate in the
model are required to attend pre-purchase home-buyer education
sessions.
Federal Housing Administration (FHA)
- This is an agency of the U.S. Department of Housing and Urban Development
(HUD). Their main activity is the insuring of residential mortgage loans
made by private lenders. The FHA sets standards for construction and
underwriting however, it does not lend money or plan or construct housing.
Fee Simple - This is the greatest possible interest a person can have in real estate.
FHA mortgage - This is a mortgage that is insured by the Federal Housing Administration (FHA). It is also known as a government mortgage.
Finder's Fee - This is a fee or commission paid to a mortgage broker for finding a mortgage loan for a prospective borrower.
First Adjustment - This is when a person can expect the first rate adjustment in your ARM loan.
First Mortgage - This is a mortgage that is the primary lien against a property.
Fixed-Rate Mortgage (FRM) - This is a mortgage in which the interest rate does not change during the entire term of the loan.
Flood Insurance - The insurance that compensates for physical property damage resulting from flooding. This is required for properties located in federally designated flood areas.
Foreclosure - This is the legal process by which a borrower in default under a mortgage is deprived of their interest in the mortgaged property. This typically involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.
Fully Amortized ARM - This is an ARM with a monthly payment that is sufficient to amortize the remaining balance, at the interest accrual rate, over the amortization term.
TopGood Faith Estimate - This is an estimate of charges in which a borrower is likely to incur in connection with a settlement.
TopHazard Insurance - This is insurance protection against loss to real estate caused by fire, some natural causes, vandalism, etc. This depends on the terms of the policy.
Home Equity Line of Credit - This is a credit line that is
secured by a second deed of trust on a house. The equity lines of credit
are revolving accounts that work 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 the interest only.
Home Equity Loan - This is a loan secured by a second deed of trust on a house which is usually used as a home improvement loan.
Housing Ratio - This is the ratio of the monthly housing payment in total (PITI - Principal, Interest, Taxes, and Insurance) divided by the gross monthly income. This ratio is in some cases referred to as the top ratio or front end ratio.
HUD - The HUD is the U.S. Department of Housing and Urban Development.
Index - This is a published interest rate to which the interest rate on an ARM is tied. Some of the commonly used indices include the 1 Year Treasury Bill, 6 Month LIBOR, and the 11th District Cost of Funds (COFI).
Impound Account - The impound account is an account established by
the lender to pay a borrower's tax and insurance expenses. The borrower's
monthly mortgage payment is increased to cover these costs while
the additional amount being held in the impound account and then disbursed
by the lender when the payments are due. Lenders usually prefer this
arrangement since it reduces the possibility of a lapse in tax or
insurance payments that could diminish the value of the lender's
investment (the house). While it is often possible to opt
out of an impound account, it will result in additional charges.
Interest - An only loan option. The loan payments have two components which are
principal and interest. The interest-only loan has no principal
component for a specific period of time. These special loans minimize monthly payments by eliminating the need to pay down your balance
during the interest-only period, giving greater cash flow control
and/or increased purchasing power.
Jumbo Mortgage - The current loan limit for a conforming loan is $359,650. Loan amounts of $359,651 and above are considered non-conforming or jumbo mortgages and are often subject to higher pricing.
TopLien - This is an encumbrance against the property for money due. This can be either voluntary or involuntary.
Lender - The lender is the bank, mortgage company, or mortgage broker offering the loan.
LIBOR - LIBOR stands for London Inter-Bank Offered
Rate. This is a favorable interest rate offered for U.S. dollar
deposits between a group of London banks. There are many different
LIBOR rates, defined by the maturity of their deposit. The LIBOR is an
international index that follows world economic conditions.
The LIBOR-indexed ARMs offer borrowers aggressive initial rates and have
proven to be competitive with popular ARM indexes like the Treasury
bill.
Lifetime Cap - This is a provision of an ARM that limits the highest rate that can occur over the lifetime of the loan.
Loan to Value Ratio (LTV) - This is the unpaid principal balance of the mortgage on a property divided by the property's appraised value. The LTV will affect programs available to the borrower and usually, the lower the LTV the more favorable the terms of the programs that are offered by lenders.
Lock Period - This is the amount of time that a lender will guarantee a loan's interest rate. Once a person gets locked in on the interest rate on a loan, the lender will guarantee that rate for a specific period of time. This is usually for 30, 45 or 60 days.
Lock-In - This is a written agreement guaranteeing the home buyer a specified interest rate as long as the loan is closed within a set period of time. Often the lock-in also specifies the number of points to be paid at closing.
TopMargin - This is the number of percentage points a lender adds to the index value to calculate the ARM interest rate at each adjustment period.
Mortgage - This is a legal document that pledges a property to the lender as security for payment of a debt.
Mortgage Disability Insurance - This is a disability insurance
policy which will pay the monthly mortgage payment in the event of a
covered disability of an insured borrower for a specific period of
time.
Mortgage Insurance (MI) - This is insurance written by an independent mortgage insurance company that protects the mortgage lender against loss incurred by a mortgage default. This is usually required for loans with an LTV of 80.01% or higher.
Mortgagee - This is the person or company who receives the mortgage as a pledge for repayment of the loan. This is also the mortgage lender.
Mortgagor - This the mortgage borrower who provides the mortgage as a pledge to repay.
TopNon-Conforming Loan - This is also referred to as a jumbo loan.
Conventional home mortgages are not eligible for sale and delivery to
some insurers due to various
reasons, including the loan amount, loan characteristics or underwriting
guidelines. Non-conforming loans usually incur at a rate and have origination
fee premium.
Note - This is a written agreement containing a promise of the
signer to pay a named person, or order, or bearer, a certain sum of
money at a specified date or on demand.
Origination Fee - This is a fee imposed by a lender to cover certain processing costs in connection with making a real estate loan. This is usually a percentage of the amount loaned, such as one percent.
Owner Financing - This is the property purchase transaction in which the seller of the property provides all or part of the financing.
Periodic Cap - This is the maximum rate of increase for a specific period for a specific loan. This is ARM only.
PITI - This is the principal, interest, taxes and insurance--the components of a monthly mortgage payment.
Planned Unit Developments (PUD) - This is a subdivision of
five or more individually owned lots with one or more other parcels
owned in common or with reciprocal rights in one or more other parcels.
Points - These are the charges levied by the mortgage lender which usually is payable at closing. One point represents 1% of the face value of the mortgage loan.
Prepaid - The expenses of the property which are paid in advance of their due date which will usually be prorated upon sale, such as taxes, insurance, rent, etc.
Prepayment Penalty - This is a charge imposed by a mortgage
lender on a borrower who wants to pay off part or all of the mortgage
loan in advance of the schedule.
Principal - This is the amount of debt which does not include interest. This is the face value of a note or mortgage.
Private Mortgage Insurance (PMI) - This is the insurance provided by non-government insurers that protect lenders against loss if a borrower defaults. Some insurers require private mortgage insurance for loans with loan-to-value (LTV) percentages greater than 80%.
TopQualifying Ratios - This is the ratio of your fixed monthly expenses to your gross monthly income. This is used to determine how much you can afford to borrow. The fixed monthly expenses would include PITI along with other obligations such as student loans, car loans, or credit card payments.
TopRate - This is the annual rate of interest on a loan which is expressed as a percentage of 100.
Rate Cap - This is a limit on how much the interest rate can change. It is either at each adjustment period or over the lifetime of the loan.
Rate Lock-in - This is a written agreement in which the
lender guarantees the borrower a specified interest rate as long as the
loan closes within a set period of time.
Realtor - A realtor is a member of the National Association of Realtors. Not all real estate agents are realtors since it is a trademark.
Rebate - A rebate is compensation received from a wholesale lender which can be used to cover closing costs or as a refund to the borrower. Loans with rebates usually carry higher interest rates compared to loans with "points".
Refinancing - This is the process of paying off one loan with the proceeds from a new loan by using the same property as security.
Residential Mortgage Credit Report (RMCR) - This is a report that is requested by your lender that utilizes information from at least two of the three national credit bureaus and the information provided on your loan application.
TopSales Contract - This is a written agreement to sell or purchase a home. This agreement is signed by both the seller and buyer.
Second Mortgage - A second mortgage assumes a subordinate position behind the first mortgage.
Seller - A seller is the person transferring ownership and all the rights for your home in exchange for cash or trade.
Seller Carry Back - An agreement in where the owner of a property provides financing. This is often in combination with an assumed mortgage.
Stated/Documented Income - Some loan products require that only applicants "state" the source of their income without needing to provide supporting documentation such as tax returns.
Sub-Prime Loans - Sub-prime loans are provided for those with less than good or prime credit.
Subordination - If you are refinancing your first
mortgage and have an existing second or home equity line, an option you can choose is
to "subordinate" the second mortgage. This is a request for your second mortgage
holder to go back into the second lien position when you replace your
existing first mortgage with the new refinancing loan.
Survey - A print showing the measurements of the boundaries of a parcel of land. These measurements go together with the location of all improvements on the land and some cases its area and topography.
TopTenants-in-Common - The undivided interest in property taken by two or more persons. The interest does not need to be equal. Upon the death of one or more persons, there is no right of survivorship.
Term - The period of time which covers the lifetime of the loan. For instance, a 20 year fixed loan has a term of 20 years.
Title - The evidence a person has a right to possession of land.
Title Insurance - Insurance against loss resulting from defects of title to a specifically described parcel of real property.
Title Search - This an investigation into the history of
ownership of a property to check for liens, unpaid claims, restrictions
or problems, to verify that the seller can transfer free and clear
ownership.
Total Debt Ratio - The monthly debt and housing payments
divided by gross monthly income. This is also known as the Obligations-to-Income
Ratio or Back-End Ratio.
Truth-in-Lending Act - A federal law requiring a
disclosure of credit terms using a standard format. This is intended to
facilitate comparisons between the lending terms of different financial
organizations.
V
Verification of Deposit - A VOD is a form mailed to
a bank or credit union that requests the institution to verify that the
borrower's bank account exists.
Veterans Administration (VA) - A government agency guaranteeing mortgage loans with no down payment to veterans that are qualified.
Wrap-Around Mortgage - This is a method of financing
where the borrower pays the former owner of the property each month in
the form of a mortgage payment.