Home Mortgage Glossary
also known as a variable rate mortgage. The interest rate on these mortgages changes periodically.
a gradual paying off of a debt by periodic installments which pay principal and interest.
the effective rate of interest for a loan per year. This rate is typically higher than the note rate because it takes into account closing costs. This is one way to compare loan programs offered by different lenders. Caution: the APR is sometimes computed differently by different lender and can be misleading.
an opinion or estimate of the value of a property at a given date.
usually a short-term fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a time specified in the contract. Example: a balloon mortgage for $25,000 has interest only payments for 5 years at 12% ($250 per month), with the full principal of $25,000 due and payable after 5 years.
the amount of cash derived over a certain period of time from an income-producing property. The cash flow should be large enough to pay the expenses of the income producing property (mortgage payment, maintenance, utilities, etc.)
document issued by a local governmental agency that states a property meets the local building standards for occupancy and is in compliance with public health and building codes. This document is normally required by a lender prior to closing the loan.
the act of transferring ownership of a property from seller to buyer in accordance with a sales contract.
expenses incurred by the buyer and seller in a real estate or mortgage transaction. There are two types or costs: recurring and non-recurring.
Non-recurring costs are one time transactional costs which include
- discount and origination points
- lender fees-underwriting, processing, document preparations, flood certificate, tax service, wire transfer, courier, etc
- title insurance fees
- escrow, attorney or closing agent fees
- recording fees
- inspection and appraisal fees
- real estate brokerage commissions
Recurring fees are costs associated with owning the property and they recur month after month. These costs may include hazard insurance, interest, property taxes, mortgage insurance (PMI), and association fees. A pro-rated amount of these fees may have to be paid at closing including
- pre-paid interest - interest charges from the date of closing to the end of the month
- property taxes if due
- hazard insurance, fire insurance or homeowners insurance has to be paid for one year
- mortgage insurance(PMI)-may be required if the loan amount is more than 80% of the value of the property. In the past a whole year of PMI had to be paid up front, however in recednt years many PMI companies only require 1-2 months up front. Mortgage insurance premiums are normally paid every month with the loan payment
- impound account may need money to be set up for future payments
any mortgage loan other tan a VA or an FHA loan. A convention loan my be conforming or non-conforming
a report detailing a borrowers credit history including payment history on revolving accounts (e.g. credit cards) and installment accounts (e.g. car loan). A credit report also includes information found from public records including tax liens and judgments.
the amount paid for the purchase of a property in addition to the mortgage, but not including any closing costs. Example : John buys a house for $100,000 and obtains a loan for $80,000. His downpayment is $20,000.
the right to use the land of another for a specific purpose. Easements may be temporary or permanent. Example: the utility company may need an easement to run electric lines.
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.
a mortgage that has priority as a lien over all other mortgages. In the case of a foreclosure the first mortgage will be satisfied before other mortgages.
an insurance policy that covers property damage due to natural flooding. Flood insurance may be required on properties in a flood zone.
insurance on a property against fire and other risks. A homeowners policy may have additional coverage for theft, liability, etc that a fire insurance policy may not cover.
loan size that is larger than the limit established by Fannie Mae or Freddie Mac
a document required by a lender prior to loan approval. The application includes detailed information about the borrower and the property.
charge by a lender or broker connected with originating a loan.
the loan amount divided by the value of the property.
the act of collecting loan payments, handling property tax and insurance escrows, foreclosing on defaulted loans and remitting payments to the investors
a fixed number added to the index to compute the rate on an adjustable rate mortgage.
the highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.
a written instrument that creates a lien upon real estate as security for the payment of a specified debt.
specializes in originating ans servicing loans. They generally sell their loans to investors, but may continue to service them.
a written instrument that acknowledges a debt and promises to pay.
abbreviation for principal, interest, taxes and insurance, which may be combined in a single monthly mortgage payment
a zoning classification that allows flexibility in the design of a subdivision. PUD's include individually owned units as well as some common space that is jointly owned.
a written document authorizing a person to act on the behalf of another person. That person does not have to be an attorney.
prepaid interest is the interest chared to borrowers at closing to pay for the cost of borrowing for a balance of the month. For example, if a loan closes on the 19th of the month and the first payment is due on the 1st of the flowing month, the lender will charge 12 days of prepaid interest.
the outstanding balance on a loan.
in event that you do not have a 20 percent down payment. With the smaller down payments loans, however, borrowers are usually required to carry private mortgage insurance. Private mortgage insurance payments are made monthly. An impound account may be required.
a government levy based on the market value (as assessed by the county assessor's office) or the property.
a deed which transfers whatever interest the maker of the deed may have in the particular parcel of land. A quitclaim deed is often given to clear the title when the grantor's interest in a property is questionable. By accepting such a deed the buyer assumes all the risks. Such a deed makes no warranties as to the title, but simply transfers to the buyer whatever interest the grantor has.
repaying an existing loan from the proceeds of a new loan on the same property.
the cancellation of a contract. When refinancing a mortgage on a principal residence the law gives the homeowner three days to cancel the contract.
a federal regulation requiring creditors to provide full disclosure of the terms of a loan including the terms or the loan and the annual percentage rate (APR).
also known as a vacation home. This home is different from an investment property as it is not rented, but used occansionally by the owners.
a subordinated lien, created by a mortgage loan, over the amount of a first mortgage. Second mortgages generally carry a higher rate than a first mortgage since they represent a higher risk for an investor.
the act of billing, collecting payment, filing reports, managing impound accounts and handling defaults on a mortgage.
a type of residential structure designed to include one dwelling
a loan in a lower priority, for example a second mortgage is subordinate to a first.
an insurance policy which protects the insured against loss arising from defects in title. Title insurance policies are typically obtained for the buyer and the lender.
the decision whether to make a loan to a potential home buyer based on credit, income, employment history, assets, etc.
home loan guaranteed by the U.S. Veterans Administration, enabling a veteran to buy a home with no money down.
a document signed by the borrower's bank or other financial institution verifying the account balance and history.
a document signed by the borrower's employer verifying his/her starting date, job title, salary and probability of continued employment.
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