The right of the mortgage
(lender) to demand the immediate repayment of the mortgage loan balance
upon the default of the mortgager (borrower), or by using the right
vested in the Due-on-Sale Clause.
Adjustable Rate Mortgage (ARM)
Is a mortgage
in which the interest rate is adjusted periodically based on a pre
selected index. Also sometimes known as the renegotiable rate mortgage,
the variable mortgage or the Canadian roll over mortgage.
On an adjustable rate
mortgage, the time between changes in the interest rate and/or monthly
payment, typically one, three or five years, depending on the index.
Means loan payment by equal
periodic payment calculated to pay off the debt at the end of a fixed
period, including accrued interest on the outstanding balance. Comes
from the French word, "mort",
literally to kill the loan owing.
Annual Percentage Rate (APR)
Is a interest
rate reflecting the cost of a mortgage as a yearly rate. This rate
is likely to be higher than the stated note rate or advertised rate
on the mortgage, because it takes into account points and other credit
cost. The APR allows home buyers to compare different types of mortgages
based on the annual cost for each loan.
An estimate of the value of
property, made by a qualified professional called an "appraiser".
There are different types of qualified appraisers. The highest qualification
is considered to be the MAI.
A local tax levied the County
usually against a property for a specific purpose, such as a sewer
or street lights. Also can mean the assessed value of the property.
Similar, but not the same as an "appraisal" see above.
The agreement between buyer
and seller where the buyer takes over the payments on an existing
mortgage from the seller. Assuming a loan can usually save the buyer
money since this is an existing mortgage debt, unlike a new mortgage
where closing cost and new, probably higher, market-rate interest
charges will apply. Most mortgages today are unassumable as Lenders
have found that assumed loans tend to have a far higher rate of default.
FHA loans closed before 12/15/89 and VA loans closed before 3/1/88
are freely assumable with no qualifying.
Note that the original borrower is still just as liable for the
loan as the new home buyer unless the previous borrower gets a release
from the Lender. This is called "novation".
A balloon mortgage is
one where a lump sum, the balance of the loan principal, becomes
payable at the end of the term. A mortgage can be interest only with
the whole principal due at the end of the term or it may be calculated
to amortize over a longer period, say 30 years, but with the outstanding
principal balance payable at the end of, say, 10 years.
A mortgage covering at
least two pieces of real estate as security for the same mortgage.
This provides greater security for the Lender. It may be possible
to get a "partial" release so the Borrower
can sell one of the properties provided a suitable principal reduction
One who applies for
and receives a loan in the form of a mortgage with the intention
of repaying the loan in full. The mortgage is not actually the loan,
it just creates the security interest in the property. It is the
promissory note that spells out the repayment terms and interest.
An individual in the business of
assisting in arranging funding or negotiating contracts for a client
buy who does not loan the money himself. Brokers usually charge a
fee or receive a commission for their services.
A limit on the amount
the interest rate on an adjustable rate mortgage may change per year
and/or the life of the loan. For example a 4/1 cap would mean a maximum
interest increase of 4% over the life of the loan and no more than
1% each year.
Consumer safeguards which
limit the amount monthly payments on an adjustable rate mortgage
may change. Mortgage may change per year and/or the life of the loan.
The meeting between the buyer,
seller and lender or their agents where the property and funds legally
changes hands. Also called settlement. Closing costs usually include
an origination fee, discount points, appraisal fee, title search
and insurance, survey, taxes, deed recording, credit report charge
and other costs assessed at settlement. The cost of closing usually
are about three to six percent of the mortgage amount. Commitment
and agreement, often in writing, between a lender and a borrower
to loan money at a future date subject to the completion of paperwork
or compliance with stated conditions.
A report documenting the
credit history and current status of a borrower's credit standing.
Credit is rated for mortgage purposes from A, excellent, down to
D, very poor. To obtain a conforming loan that can be resold to Fannie
Mae, the Borrower usually needs A grade credit.
We offer financing from A right down to D credit.
A promise by a lender to make
a loan on specific terms or conditions to a borrower or builder.
A promise by an investor to purchase mortgages from a lender with
specific terms or conditions. Construction loan (interim loan) -
A loan to provide the funds necessary to pay for the construction
of buildings or homes. These are usually designed to provide periodic
disbursements to the builder as it progresses.
Contract sale or deed
A contract between
purchaser and a seller of real estate to convey title after certain
conditions have been met. It is a form of installment sale.
A short term interim
loan for financing the cost of construction. The lender advance funds
to the builder at periodic intervals as the work progresses.
A mortgage not insured
by FHA or guaranteed by the VA.
Language often in a second
mortgage that states that a failure to pay or a default on the first
mortgage is a default on the second mortgage.
Also that if the borrower has more than one mortgage with the same lender,
then a default on just one of the mortgages puts ALL the other mortgages into
The ratio, expressed
as a percentage, which results when a borrower's monthly payment
obligation on long-term debts is divided by his or her net effective
income (FHA/VA) or gross monthly income (conventional). See Housing
Deed of Trust
In many states, this document
is used in place of a mortgage to secure the payment of a note. It
involves a third party, the trustee, who holds the deed to the property.
Failure to meet legal obligations
in a contract, specifically, failure to make the monthly payments
on a mortgage. This can also mean failure to pay property taxes,
maintain insurance on the property or even to maintain the interior
and exterior of the property.
see Negative Amortization
Failure to make payments on
time. This can lead to foreclosure. See default.
Money paid to make up the
difference between the purchase price and the mortgage amount. Down
payments usually are 10 to 20 percent of the sales price on a conventional
loan. VA loans have no downpayment but are only available to Veterans
who have not used up their VA entitlement. FHA loans are often as
low as 3% downpayment.
When the down payment is less than 20% the Lender will usually
require PMI (Private Mortgage Insurance) on a conventional loan,
or MIP (Mortgage Insurance Premium) on an FHA loan.
A provision in a mortgage
or deed of trust that allows the lender to demand immediate payment
of the balance of the mortgage if the mortgage holder sells the home.
Money given by a buyer when
making an offer to a seller as part of the purchase price to bind
a transaction or assure payment. It should be held in escrow by the
real estate company, a title company or an attorney. This is usually
returnable if the contract does not go through for valid reasons.
It may not be returnable if the buyer just changes his mind.
Refers to a neutral third party
who carries out the instruction of both the buyer and seller to handle
all the paperwork of settlement or closing. Escrow may also refer
to an account held by the lender into which the home buyer pays money
for tax or insurance payments.
Equal Credit Opportunity Act (ECOA)
federal law that requires lenders and other creditors to make credit
equally available without discrimination based on race, color, religion,
national origin, sex, marital status, handicap status or receipt
income from public assistance programs.
The difference between the fair
market value and current indebtedness, also referred to as the owner's
The federal Home Loan Mortgage Corporation
provides a secondary market for saving and loans by purchasing their
conventional loans. Also known as "Freddie Mac."
Fixed Rate Mortgage
The mortgage interest
rate will remain the same on these mortgages throughout the term
of the mortgage for the original borrower.
The Federal National Mortgage Association
is a secondary mortgage institution which is the largest single holder
of home mortgages in the United States. FHMA buys VA, FHA and conventional
mortgages from primary lenders. Also known as "Fannie Mae."
A legal process by which the
lender or the seller forces a sale of a mortgaged property because
the borrower has not met the terms of the mortgage. Also known as
a repossession of property.
see Federal National Mortgage
Federal Home Loan Bank Board (FHLBB)
regulatory and supervisory agency for federally chartered savings
Federal Home Loan Mortgage Corporation (FHLMC)
referred to as "Freddie Mac", is a quasi-government
agency that purchases conventional mortgages from insured depository
institutions and HUD approved mortgage bankers.
Federal National Mortgage Association (FNMA)
know as "Fannie Mae" a taxpaying corporation created
by Congress that purchases and sells conventional residential mortgages
as well as those insured by FHA or guaranteed by VA. This institution,
which provides funds for one in seven mortgages, makes mortgage money
more available and more affordable.
see Federal Home Loan Mortgage
see Government National Mortgage
Government National Mortgage Association (GNMA)
known as "Ginnie Mae", provides sources of funds
for residential mortgage, insured or guaranteed by FHA or VA.
Graduated Payment Mortgage (GPM)
of flexible-payment where the payments increase for a specified period
of time and then level off. This type of mortgage may have negative
amortization built into it.
A promise by one party to pay
a debt or perform an obligation contracted by another if the original
party fails to pay or perform according to a contract.
Hard Money Lender
Equity lenders who base
their funding decisions on the unencumbered property value and its
salability. They do not calculate debt ratio and usually do not take
into account the borrower's credit and income. The combined loan-to-value
ratio is usually less than 65%. Funding can be very fast. Sometime
in 2 days or less.
A form of insurance in
which the insurance company protects the insured from specified losses,
such as fire windstorm and the like.
Housing Expenses-to-Income Ratio
expressed as a percentage, which results when a borrower's housing
expenses are divided by his and/or her net effective income (FHA
/ VA loans) or gross monthly income (conventional loans). Also see
That portion of a borrower's monthly
payment 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 published interest rate against
which lenders measure the difference between the current interest
rate on an adjustable rate mortgage and that earned by other investments
(such as one, three and five year U.S. Treasury security yields,
the monthly average interest rate on loans closed by savings and
loan institutions, and the monthly average costs of funds incurred
by savings and loans), which is then used to adjust the interest
rate on an adjustable mortgage up or down. The rate must be one that
is outside the influence of the lender.
A money source for a lender.
A construction loan
made during completion of a building or a project. A permanent loan
usually replaces this loan after completion.
A loan which is larger (more
than $203,250) than the limits set by the Federal National Mortgage
Association and the Federal Home Loan Mortgage Corporation. Because
jumbo loans can not be funded by these two agencies, they usually
carry a higher interest rate.
A claim upon a piece of property
for the payment of a debt or obligation.
The relationship between
the amount of the mortgage loan and appraised value of the property
expressed as a percentage.
The amount a lender adds to the
index on an adjustable rate mortgage to establish the adjusted interest
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.
MIP: Mortgage Insurance Premium
1, 1983 the MIP was changed to a one time charge to the borrowers.
Money paid to insure
the mortgage when the down payment is less than 20 percent. see Private
Mortgage Insurance, FHA Mortgage Insurance.
The borrower or home owner.
Occurs when your
monthly payments are not large enough to pay all the interest due
on the loan. This unpaid interest is added to the unpaid principal
balance of the loan. The danger of negative amortization is that
the home buyer ends up owing more than the original amount of the
Net Effective Income
The borrower's gross
income minus federal tax.
Non Assumption Clause
A statement in a
mortgage contract forbidding the assumption of the mortgage without
the prior approval of the lender. Note: The signed obligation to
pay a debt, as a mortgage note.
Negotiable Rate Mortgage
A loan in which
the interest rate is adjusted periodically. see Adjustable Rate Mortgage.
The fee charged by a lender
to prepare loan documents, make credit checks, inspect and sometimes
appraise a property; usually computed as a percentage of the face
value of the loan.
A long term mortgage, usually
ten years or more.
Principal, Interest, Taxes and Insurance.
Also called monthly housing expense.
Points (Loan Discount Points)
interest assessed at closing by the lender. Each point is equal to
one percent of the loan amount.
Power of Attorney
A legal document authorizing
one person to act on behalf of another.
Necessary to create an
escrow account or to adjust the seller's existing account. Can include
taxes, hazard insurance, private mortgage insurance and special assessments.
A privilege in a mortgage permitting
the borrower to make payments in advance of their due date. This
can enable the mortgage to be paid off much more quickly, with a
major savings in total interest costs.
Money charged for an
early repayment of debt. Prepayment penalties are allowed in some
form in 36 states and the District of Columbia.
This is the risk to the
Lender that the loan will be paid off before the end of the term.
It is considered to be a risk becuase loans are often refinanced
when interest rates drop. This means the Lender gets their capital
back but have to lend it out at a lower rate.
Primary Mortgage Market
mortgage loans directly to borrower's such as savings and loan association,
commercial banks and mortgage companies. These lenders usually sell
their mortgages into the secondary mortgage markets such as FNMA
of GNMA, etc. The original lender will usually still service the
loan, that is, send the payment coupons or statements to the Borrower.
The amount of debt, not counting
interest left on a loan.
Private Mortgage Insurance (PMI)
event that you do not have a 20 percent down payment, lenders will
allow a smaller down payment (as low as five percent in some cases).
With the smaller down payment loans, however, borrower's are usually
required to carry private mortgage insurance. Private mortgage insurance
will require an initial premium payment of one to five percent of
your mortgage amount and may require an additional monthly fee depending
on your loan's structure.
Quit Claim Deed
Type of deed that transfers
all the rights that grantor (giver) may have, which might be none.
Example, you could legally give someone a quit claim deed of your
rights in the Brooklyn Bridge. That does not mean that the person
you give the deed to now owns the Brooklyn Bridge.
A real estate broker or
an associate holding active membership in a local real estate board
affiliated with the National Association of Realtors.
The cancellation of a contract.
With respect to mortgage refinancing, the law that gives the homeowner
three days to cancel a contract in some cases once it is signed if
the transaction uses equity in the home as security. This means the
money for refinance is not disbursed till after the 3 days are up.
The only exception would be an emergency.
Money paid to the lender
for recording a home sale with the local authorities, thereby making
it part of the public records. The record is given a official records
book and page number making it easy to find.
Obtaining a new mortgage loan
on a property already owned. Often to replace existing loans on the
Short for the Real Estate Settlement
Procedures Act. RESPA is a federal law that allows consumers to review
information known or estimated settlement cost once after application
and once prior to or at a settlement. The law requires lenders to
furnish the information after application only.
Reverse Annuity Mortgage (RAM)
of mortgage in which the lender makes periodic payments to the borrower
using using the borrower's equity in the home as Satisfaction of
Mortgage (The document issued by the mortgagee when the mortgage
loan is paid in full.
A mortgage that payments
have been made on. The longer the seasoning and payment history of
the mortgage, the greater the likelihood it will be paid in the future.
A mortgage made subsequent
to another mortgage and subordinate to the first one. If the borrower
does not make payments on the first mortgage, they can foreclose
it and wipe out the interest of the second mortgage holder.
Secondary Mortgage Market
The place where
primary mortgage lenders sell the mortgages they make to obtain more
funds to originate more new loans. It provides liquidity for the
All the steps and operations
a lender performs to keep a loan in good standing, such as collection
of payments, payment of taxes insurance, property inspections and
Settlement / Settlement Costs
see Closing / Closing
Interest which is computed
only on the principal balance.
A measure of land, land prepared
by a registered land surveyor, showing the location of the land with
reference to known points, its dimensions and the location and dimensions
of any buildings.
Equity created by a purchasers
work on a property purchased.
A document that gives evidence of
an individual's ownership of property
A policy, usually issued
by a title insurance company which insures a home buyer or lender
against errors in the title search. The cost of the policy is usually
a function of the value of property, and is often borne by the purchaser
and /or seller.
An examination of municipal
records to determine the legal ownership of the property. Usually
is performed by a title company
A federal law requiring
disclosure of the Annual Percentage Rate to home buyers shortly after
they apply for a the loan.
The decision whether to make
a loan to a potential home buyer based on credit, employment, assets
and other factors and the matching of this risk to an appropriate
rate and term or loan amount.
Interest charged in excess of the
legal rate established by law.
Variable Rate Mortgage
Verification of Deposit (VOD)
signed by the borrower's financial institution verifying the status
and balance of his or her financial accounts.
Verification of Employment (VOE)
A document signed by the borrower's employer verifying his or her position