Adjustable-rate mortgage (ARM)
Interest rate can change periodically based on a specified financial
index.
Amortized Loan
Principal and interest payments that will pay off the loan in the specified
time.
Annual percentage rate (APR)
Where loan fees (points, underwriting, etc.) are factored into the simple
interest rate producing the true cost of a loan and shown as an annual
rate.
Assumable mortgage
A loan that can be taken over ("assumed") by the buyer when
a home is sold
Back End Debt Ratio
Lenders qualifying ratio includes principal, interest, taxes, insurance, & all
other revolving debts.
Balloon payment
The final lump sum payment that is made at the maturity date of a balloon
loan.
Basis point
A basis point is 1/100th of a percentage point. For example, a fee calculated
as 50 basis points of a loan amount of $100,000 would be 0.50% or $500.
Beneficiary (see Trust Deed)
The person(s) who lends money and receives the interest income.
Bridge Loan (aka “swing loan”)
Temporary loan giving a borrower enough cash to buy another home before
the present home is sold.
Buydown
A lump sum payment made upfront to a lender to reduce the interest rate
on a loan.
Cash-out Refinance
To refinance & receive additional cash over & above the pay off
of the existing mortgage(s).
Closing Cost
The amount needed to pay for lender fees, points, appraisal, escrow,
title insurance, recording, etc.
“ COFI”
see index
Conforming Loan
Loan limit at or less than $322,700.
Conventional Mortgage
A loan that is not insured or guaranteed by the federal government, i.e.
not FHA or VA.
Convertible Loans
Allows the borrower to change an ARM loan to a fixed-rate loan without
refinancing.
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Debt Ratio
The ratio of your fixed monthly expenses to your gross monthly income,
used by lenders to determine how much you can afford to borrow (see front
end & back end debt ratios).
Deed of Trust (aka Trust Deed)
see Trust Deed
Due-on-Sale
Allows the lender to demand full payment of the loan balance if the borrower
sells/transfers the property to someone else without lender approval.
Equal Credit Opportunity Act (ECOA)
Federal law requiring lenders 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
Difference between fair market value and the amount still owed on the
property.
Escrow
An independent third party that follows the instruction of the borrower,
lender, buyer, & seller.
Escrow Account
see Impound Account
Fair market value
The highest price a buyer would pay and the lowest price a seller would
accept.
Fannie Mae (aka Federal Nation Mortgage Assoc.)
A congressionally chartered, shareholder-owned company that is the nation's
largest supplier of home mortgage funds.
Federal Housing Administration (FHA)
Insures residential mortgage loans made by private lenders. Does not
lend their own money.
Federal Truth-in-Lending (aka Regulation Z)
Federal law requiring disclosure of credit terms where the interest rate is
shown as an annual percentage rate (APR).
First Mortgage (aka 1st Trust Deed)
A loan that is the primary lien (1st position) on property. Second Mortgage
is in 2nd position, etc.
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Fixed-rate Loan
A loan where the interest rate does not change during the entire term of the
loan.
Foreclosure
Legal process where a property is sold at public auction to satisfy the outstanding
debts.
Freddie Mac (aka Federal Home Loan Mortgage Corp.)
Mortgage-backed securities packaged, guaranteed & sold to investors.
Front End Debt Ratio
Lenders qualifying ratio which only includes principal, interest, taxes, & insurance.
Good Faith Estimate (GFE)
An estimate of charges which a borrower is likely to incur in connection with
a real estate loan.
Grant Deed
The legal document conveying title to a property.
Hazard Insurance
Insurance protecting against loss to real estate caused by fire, some natural
causes, vandalism, etc.
Home Equity Line of Credit
Credit line secured by a 2nd or 3rd lien on a home. Similar to a credit card
but at better rates.
Home Equity Loan
Loan secured by a 2nd or 3rd lien on a home for a specific amount.
Index
Published rates that sets the rates for ARM mortgages, such as Treasury Bill, “LIBOR” (London
Inter-Bank Offered Rate), and “COFI” (11th District Cost of Funds).
Impound Account (aka Escrow Account)
Borrower's monthly payment includes property taxes and hazard insurance (PITI).
Required on loans exceeding 80% LTV.
Interest-only Loan
Loan payments of interest, but no principal. Will result in a balloon balance
at the end of the term.
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Joint Tenant
Ownership of real property by 2 or more persons, each with an undivided interest
and the right of survivorship.
Jumbo Loan
Loan amounts above $322,700. Are usually subject to higher interest rates.
“ LIBOR”
see Index
Lifetime Cap
A provision of an ARM that limits the highest rate that can occur over the life
of the loan.
Loan Commitment
A formal offer by a lender stating the terms under which it agrees to lend
money to a borrower.
Loan Origination Fee (aka Points)
A fee charged by a lender in connection with making a real estate loan. Usually
a percentage of the loan amount.
Loan to Value (LTV)
The ratio that shows what portion the mortgage(s) represent in relation to
the property value.
Lock-In
The lender guarantees a specified interest rate for a set period of time.
Margin
The number of percentage points a lender adds to the index value to calculate
the ARM interest rate at each adjustment period.
Mortgage
A legal document that pledges a property to the lender as security for repayment
of a loan. Involves 2 parties: borrower and lender. Seldom used in California,
see Trust Deed.
Mortgage Insurance (MI)
Insurance written by an independent mortgage insurance company protecting the
mortgage lender against loss incurred by a mortgage default. Usually required
for loans over 80% LTV.
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No Income Verification
See "stated income".
Non-Conforming Loan
Loans not meeting Fannie Mae (FNMA) or Freddie Mac (FHLMC) underwriting guidelines.
Usually priced at a higher rate.
Payment Cap
Limit on how much the payment can change on an ARM during the loan term.
Promissory Note
Written agreement promising to repay a sum of money, secured by a lien on real
property & evidenced by a recorded Trust Deed.
PITI
Loan payment consisting of principal, interest, taxes and insurance.
Points
see Loan Origination Fee
Prepayment Penalty
Borrower is charged addition interest for paying off a loan early.
Principal
Amount of loan which does not include interest.
Private Mortgage Insurance (PMI)
see Mortgage Insurance (MI)
Rate cap
Limit on how much interest rate can change on ARM loan.
Rebate
Credit from lender used to pay borrower’s closing costs, but loan carries
a higher interest rate.
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Second Mortgage (aka 2nd Trust Deed)
See home equity loan.
Stated Income
Borrower is only required to "state" their income on the application.
Supporting documentation, such as tax returns, is not needed.
Tenants-in-common.
An undivided interest in property taken by two or more persons.
The interest need not be equal. Upon death of one or more persons, there is
no right of survivorship.
Title insurance
Insurance against loss resulting from defects of title to a specifically described
parcel of real property. Required by all lenders.
Trust Deed (aka Deed of Trust)
A recorded document showing a lien against real property that is secured by
a Promissory Note. Consisting of 3 parties: trustor (borrower), trustee (neutral
party), and beneficiary (lender). Used in California as opposed to a “mortgage”.
Trustee
The neutral party in a Trust Deed, usually a title company.
Trustor
A borrower who signs a Promissory Note pledging to repay a real estate loan
which is evidenced by a recorded Trust Deed.
80/10/10 Loan
A 1st mortgage equaling 80% LTV with a 2nd mortgage equaling 10-15% LTV. This
will eliminate the necessity for MI (mortgage insurance) for loan amounts over
80% LTV.
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