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A Adjustable-rate mortgage (ARM): A mortgage or loan whose interest rate changes periodically to keep page with changes in a specific index. Adjusted basis: The initial cost of a property, along with the value of any improvements, minus any claimed depreciation. The adjusted sale price of the property minus commissions, legal fees and any additional costs of selling.
Amortization: Repayment of a mortgage loan with equal periodic payments of both principal and interest. The payments are calculated so that the debt is paid off at the end of a fixed period of time. Appraisal: An expert judgment or estimate of the quality or value of real estate as of a given date. Assessment: An assessed value given to property which is used solely for determining property taxes. Asset: An item that has monetary value such as cash, stocks and real estate. Information about your assets is required when applying for a mortgage loan. B Biweekly Mortgage: A mortgage loan in which payments are due every two weeks, totaling 26 (or possibly 27) payments each year. Caps: Limits on how much adjustable rate mortgages can increase in interest rate annually and in monthly payment amount. Closing: The final step in the mortgage loan process which follows underwriting. The closing is a meeting between the homebuyer, seller and lender in which mortgage documents are signed and title to the property passes from the seller to the buyer. At the same time, the homebuyer receives the funds needed to purchase the property and pledges the property as security for repayment of the debt. Closing Costs: Costs and fees assessed during official transfer in ownership of property and in obtaining a mortgage at closing or settlement. Typically totals between 3 and 6 percent of mortgage amount. Deed of Trust: Like a mortgage, a security instrument whereby real property is given as security for a debt. Discount Points: Also called "points". A one-time charge paid to the lender at closing to obtain a lower interest rate on the mortgage loan. One point is equal to 1 percent of the loan amount. For example, two points on a $ 100,000 mortgage would cost $ 2,000. Equity: The amount of the home that you actually own. Equity is the difference between the market value of the home and what you still owe on it. Escrow: Special account set up by lender to hold money to pay taxes and insurance. Also name for third party who handles paperwork at settlement. F FHA Loan: A mortgage loan made by an approved lender in which the Federal Housing Administration insures the borrower's ability to repay the debt. G Graduated Payment Mortgage (GPM): A type of mortgage loan in which payments increase for a specified period of time and then level off. This type of mortgage is for homebuyers who expect to be able to make larger monthly payments as their income grows. Growing Equity Mortgage (GEM): A type of mortgage loan in which payments increase yearly until the mortgage is paid off. The increasing payments are applied directly to the principal, allowing the homebuyer to acquire equity more rapidly and pay off the mortgage sooner. Housing-to-Income Ratio: A ratio that compares all your monthly housing expenses to your monthly income. This ratio is used as one factor by the lender to see if you qualify for a mortgage Index: A published interest rate to which the interest rate on an Adjustable Rate Mortgage (ARM) is tied. Some commonly used indices include the 1 Year Treasury Bill, 6 Month LIBOR, and the 11th District Cost of Funds (COFI). Impound Account: An impound account is an account established by the lender to pay a borrower's tax and insurance costs. The borrower's monthly mortgage payment is then increased to cover these costs, with the additional amount being held in the impound account and disbursed by the lender when the payments are due. Lenders typically prefer this arrangement because it reduces the possibility of a lapse in tax or insurance payments that could diminish the value of the lender's investment (your house). Therefore, while it is often possible to opt out of an impound account it will result in additional charges. Interest-only Loan Option: Loan payments have two components, principal and interest. An interest-only loan has no principal component for a specified period of time. These special loans minimize your monthly payments by eliminating the need to pay down your balance during the interest-only period, giving you greater cash flow control and/or increased purchasing power. Jumbo Mortgage: The current loan limit for a conforming loan is $300,700. Loan amounts of $300,701 and above are considered non-conforming or jumbo mortgages and are usually subject to higher pricing. Liability: An outstanding debt such as a loan or credit card balance. Information about your liabilities is required when applying for a mortgage. Loan Commitment: A written promise to make a loan for a specified amount on specified terms. Lock Period: The amount of time that a lender will guarantee a loan's interest rate. Once you've locked in the interest rate on a loan, the lender will guarantee that rate for a certain period of time, usually for 30, 45 or 60 days. Lock-in: A written agreement guaranteeing the home buyer a specified interest rate provided the loan is closed within a set period of time. The lock-in also usually specifies the number of points to be paid at closing. Mortgage: A lien or claim against real property given by the buyer to the lender as security for money borrowed. Mortgage Broker: A real estate financing professional who brings homebuyers and lenders together to arrange funding and mortgage contracts. Mortgage Insurance: Insurance that protects the lender in case the house payments are not made. Typically, you would be required to pay a fee for mortgage insurance if your down payment is less than 20 percent. Mortgage Note: A document that you sign at closing which states your promise to pay a sum of money at a specified interest rate for a fixed period of time. Mortgagee: The lender Mortgagor: The homebuyer or borrower No Income Verification: See Stated/Documented Income Non-Conforming Loan: Also called a jumbo loan. Conventional home mortgages not eligible for sale and delivery to either Fannie Mae (FNMA) or Freddie Mac (FHLMC) because of various reasons, including loan amount, loan characteristics or underwriting guidelines. Non-conforming loans usually incur a rate and origination fee premium. The current non-conforming loan limit is $300,701 and above. Origination: The first step in the mortgage loan process. During the origination phase, a loan application is filled out with details of your financial position. You will be asked to provide supporting documentation such as W - 2s and pay stubs. Your loan officer will then be required to provide you with a Good Faith Estimate and a Truth-in-Lending disclosure shortly after your initial loan application. Origination Fee: A fee that the lender may charge the homebuyer for the service of creating the mortgage loan. This fee is usually stated as a percentage of the loan. PITI: Principal, interest, taxes, and insurance. Prequalification: A process in which the loan officer calculates the housing-to-income ratio and the total debt-to-income ratio to see if you qualify for a mortgage loan. Principal: The amount owed on a loan, excluding interest Private Mortgage Insurance (PMI): Insurance provided by a private mortgage insurance company that protects the lender in case the house payments are not made. Typically, you would be required to pay a fee for mortgage insurance if your downpayment is less than 20 percent. Qualifying Ratios: The ratio of your fixed monthly expenses to your gross monthly income, 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. Recording Fees: Fees that the lender charges for officially recording the signed mortgage documents to make them a public record. Refinancing: The process of paying off one loan with the proceeds from a new loan using the same property as security. Servicing: Activities that the lender performs such as collecting the payments and payment taxes and insurance if you have an escrow account. Stated/Documented Income: Some loan products require only that applicants "state" the source of their income without providing supporting documentation such as tax returns. Title Insurance: Protects lenders and home owners against loss of their interest in property due to legal defects in title. Title Search: An examination of officially recorded documents to determine the legal ownership of property. Total Debt-to-Income ratio: A ratio which compares all of your monthly debt payments, such as credit cards and car payments, to your monthly income. This ratio is used as one factor by the lender to see if you qualify for a mortgage loan. Truth-in-Lending Disclosure: A documents which the lender is required by law to give to the homebuyer shortly after loan application. This disclosure gives details of the house payments along with the corresponding APR. Underwriting: The third step in the mortgage loan process which follows processing. During underwriting, the documents in the loan file are evaluated to determine whether the loan should be approval, denied, or approved with conditions. Veterans Administration (VA): Known as the Department of Veterans Affairs, an agency within the Federal Government which administers benefit programs for veterans. VA Loan: A long-term, low- or no-downpayment mortgage loan in which the Veteran Administration guarantees the homebuyer's ability to repay the debt. Only Veterans are eligible for this type of loan.
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