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MORTGAGE GLOSSARY

The mortgage process can incorporate some unusual terminology. Use this glossary to help you better understand your information.

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A summary of recorded transactions concerning a particular property.


Adjustable rate

An interest rate that changes periodically according to an index


Adjustable-rate mortgage (ARM)

A mortgage with an interest rate that adjusts periodically based on a preselected index, causing interest rates and payments to rise and fall with the market.


Adjustment interval

The time between changes in the interest rate and monthly payments on an ARM.


Alternative documentation

A method of documenting a loan file that relies on information the borrower is likely to be able to provide, instead of waiting on verification sent to third parties for confirmation of statements made in the application.


Amortization

A monthly repayment schedule in which a loan is repaid in fixed payments of principal and interest.


Annual Percentage Rate (APR)

A measure of credit cost to the borrower, calculated on the assumption that the loan runs to term, and must be reported by lenders under the Truth in Lending regulations.


Application

Often referred to as a 1003, an initial statement of personal and financial information required to approve your loan.


Application fee

A fee charged by a lender to cover initial costs of processing a loan application, often including charges for property appraisal and a credit report.


Appraisal

A written estimate of a property's current market value as prepared by an appraiser.


Appraisal fee

A fee charged by a licensed, certified appraiser to render an opinion of market value as of a specific date.


ARM disclosure

An additional disclosure specific to adjustable-rate mortgages that must be prepared and presented to the consumer within three days of application whenever an adjustable-rate mortgage transaction is contemplated (Note: home equity lines have their own unique disclosure).


ARM handbook

The Consumer Handbook to Adjustable-Rate Mortgages ("CHARM" booklet) must be presented to the consumer within three days of applying for an ARM loan (in addition to the ARM disclosure referenced above).


Asset

Anything of monetary value that a person owns. Assets include real property, personal property and enforceable claims against others (including bank accounts, stocks, and mutual funds and so on).


Assumability

A feature of a loan allowing it to be transferred to the new purchaser of a home. Assumable mortgages can help attract buyers because assumption of a loan requires lower fees and/or qualifying standards than a new loan.


A document showing the financial situation-assets, liabilities and net worth of a person at a specific point in time.


Basis Point

A unit of measure: 1/100th of one percent. For example the difference between a 9.0 percent loan and a 9.5 percent loan is 50 basis points.


Biweekly mortgage

A payment plan under which one pays one-half of a monthly payment every two weeks, saving interest substantially over the life of the loan.


Borrower (Mortgagor)

An individual who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan in full.


Broker

An individual who assists in arranging funding or negotiating contracts for a client, but does not loan money himself.


Buy-down

A situation in which the seller contributes money that allows the lender to give the buyer a lower rate and payment, usually in exchange for an increase in sales price. With a refinance, this could be paid by the borrower.


Buyer's market

Market conditions that favor buyers. With more sellers than buyers in the market, buyers have ample choice of properties and can negotiate lower prices.


Failure to meet legal obligations in a contract, including failure to make payments on a loan. A mortgage is generally considered to be in default when a payment is 30 or more days past due.


Deferred interest

Interest added to the balance of a loan when monthly payments are not sufficient to cover it. (See Negative amortization.)


Delinquency

Failure to make payments on time.


Depreciation

When the value of property declines.


Discount points (or Points)

Money paid to a lender at closing in exchange for lower interest rates. Each point is equal to 1 percent of the loan amount.


Documentary stamps

A state tax, in the forms of stamps, required on deeds and mortgages when a real estate title passes from one owner to another.


Down Payment

Money paid for a house from one's own funds at closing. The down payment will be the difference between the purchase price and mortgage amount.


The percentage of property value held by the owner; the difference between the current market value of a property and the outstanding mortgage balance.


Escrow

The neutral third party that holds money and/or documents until the escrow instructions are fulfilled and escrow can be a title company or an attorney, depending on state regulations.


Escrow account

Account held by a lender containing funds collected as part of mortgage payments for annual expenses such as taxes and insurance, so that the homeowner does not have to pay a large sum when these fall due.


Escrow waiver

Escrow Waiver is waiver of the requirement to fund an escrow account with lender and instead pay insurance and taxes separately. This waiver may require a fee and is not available with all loan programs.


Period of time during which a loan payment may be made after its due date without incurring a late penalty.


Gross income

Total income before taxes or expenses are deducted.


A claim by one person on the property of another for payment of a debt


Life cap (Interest)

A pre-determined amount that establishes the maximum interest rate life of loan. This can be expressed as a percentage above the start rate or as a rate of interest independent of the start rate.


Loan application

A document required by lenders prior to loan approval containing detailed information about the borrower and property.


Loan Estimate

This document sets out the costs associated with a mortgage, including the interest rate, lender fees, title charges, pre-paid interest and insurance. The government requires that your lender give you a Loan Estimate within three days of receiving your loan application. The Loan Estimate is only an estimate; some fees can change before closing. Lender fees and the interest rate (if you have locked your rate) may not increase, and certain other costs may be increase by more than 10 percent.


Loan origination fee

A fee a lender charges to process a mortgage, usually expressed as a percentage of the loan (or points), which pays for the work in evaluating and processing the loan.


Loan to value ratio (LTV)

The percentage of the property value borrowed. (Loan amount / property value = LTV)


Lock or lock-in

A lender's guarantee of an interest rate for a set period of time, usually between loan application and loan closing. This protects borrowers against rate increases during that time.


A document that creates a lien on a property as security for the payment of a debt.


Mortgage Banker

A professional that originates mortgage loans, funding them with his own money.


Mortgage Broker

A specialist that arranges financing for borrowers, but places loans with lenders rather than funding them with their own money.


Mortgagee

The lender in a mortgage loan transaction.


MIP (Mortage insurance premium)

Insurance purchased by borrower to insure against default on FHA loans.


Mortgage loan

A loan for which real estate serves as collateral to provide for repayment in case of default.


Mortgage note

A legal document that obligates a borrower to repay loan at a stated interest rate during a specified period of time. The agreement is secured by a mortgage.


Mortgagor

The borrower in a mortgage loan transaction.


A fee that a lender charges, usually expressed as a percentage of the loan (or points) for evaluating and processing the loan.


The process of verifying data and evaluating a loan application. The underwriter gives the final loan approval.


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