Adjustable Rate Mortgage (ARM) - A type of mortgage loan on which payments may be adjusted as frequently as each month based on changes in the ARM interest rate index. (Each individual contract may stipulate interest rate limits and frequency of payment adjustments, known as caps.) Amortization - The repayment of a debt in a specified number of equal periodic installments that may include a portion of principal and accrued interest Annual Percentage Rate (APR) - The annual cost of a mortgage, including interest, loan fees and other costs. Appraised Value - The estimated value of a home established by a professional who has a knowledge of real estate prices and markets. Assumability - The ability of a mortgage loan to be taken over by a new borrower. Balloon Note - A note calling for periodic payments which are insufficient to fully amortize the face amount of the not prior to maturity, so that a principal sum known as a "balloon" is due at maturity Bridge Financing - A form of interim loan, generally made between a short term loan and a long term loan, when the borrower needs to have more time before taking on long term financing. Buy Down - A payment to the lender from the seller, buyer, third party, or some combination of these, causing the lender to reduce the interest rate during the early years of the loan. Closing - The meeting between the buyer, seller, and lender of their agents, where the property and funds legally change hands. Also called a settlement. Closing Cost - Expenses incurred in the closing of a real estate or mortgage transaction. These expenses include loan fees, title fees, appraisal fees, processing fees, etc. Commitment - A written notice from the bank or other lending institution saying it will advance mortgage funds in a specified amount to enable a buyer to purchase a house. Comparables - Properties used as comparisons to determine the value of a specified property. Condominium - A structure of two or more units, the interior space of which are individually owned; the balance of the property is owned in common by the owners of the individual units. Construction Loan - Short term financing of real estate construction. The lender will advance funds to the builder at periodic intervals as the work progresses. Generally followed by long term financing called "take out" loan, issued upon completion of improvements. Contract of Sale - Depending on the area of country, it may be a Land Sale Contract or a Purchase Agreement. Conventional Loan - A mortgage or deed of trust not obtained under a government insured program (such as FHA or VA) Credit Report - A report documenting the credit and payment history, and current status of a borrower's credit standing. Debt-to-Income Ratio - The ratio of monthly debt payments to monthly gross income. Lenders use a housing ratio (mortgage payment divided by monthly income) and a total ratio (all debt including the mortgage payment) to determine whether a borrower's income qualifies him or her for a mortgage. Default - Failure to meet legal obligations in a contract, specifically, failure to make the monthly payments on a mortgage. Deferred Interest - When monthly mortgage payments do not cover all the interest due, the interest not covered is added to the unpaid principal balance. This is also referred to as negative amortization. Delinquency - Failure to make payments on time. Depreciation - Decrease in value to real property improvements caused by deterioration or obsolescence. Disbursements - Payments made at closing. Discount Points - Prepaid interest assessed at closing by the lender. Each point is equal to one percent of the loan amount. Example: 3 points on a $100,000 mortgage would cost $3,000. Down Payment - Money paid to make up the difference between the purchase price and the mortgage amount. Depending upon the loan type, down payments are usually 3 to 20 percent of the sales price. Earnest Money - Money given by a buyer to a seller as part of the purchase price to bind a transaction. Equal Credit Opportunity Act (ECOA) - A federal law that requires lenders and other creditors to make credit equally available without discrimination based upon race, color, religion, national origin, age, sex, martial status, or receipt of income from public assistance programs. Equity - The value an owner has in real estate over and above the obligation against the property. Escrow - An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the deposit by a borrower with the lender of funds to pay taxes and insurance premiums when they become due, or the deposit of funds or documents with an attorney or escrow agent to be disbursed upon the closing of a sale of real estate. Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac) - A semi-governmental agency that purchases mortgages in the secondary market. Also known as "Freddie Mac". Federal Housing Administration (FHA) - A division of the Department of Housing and Urban Development whose main activity is the insuring of residential mortgage loans made by private lenders. FHA also sets standards for underwriting mortgages. Federal National Mortgage Association (FNMA or Fannie Mae) - A tax-paying corporation created by Congress that purchases and sells conventional residential mortgages as well as those insured by FHA or guaranteed by VA. Also known as "Fannie Mae". Fee Simple - An estate under which the owner is entitled to unrestricted powers to dispose of the property, and which can be left by a will or inherited. FHA Loan - A loan insured by the Department of Housing and Urban Development of the Federal Housing Administration. Fixed Rate Mortgage - A mortgage loan with a constant interest rate and payment throughout the life of the loan. The interest rate and payment amount are established at the time of origination. Foreclosure - A proceeding, in or out of court, to extinguish all rights, title, and interest, of the owner(s) of property in order to sell the property to satisfy a lien against it. Fully Indexed Interest Rate - This interest rate is the sum of the index rate on an adjustable rate mortgage plus the margin. Grandfather Clause - The clause in a law permitting the continuation of a use, business, etc. which, when established, was permissible but because of a change in the law, is now not permissible. Hazard Insurance - Real estate insurance protecting against loss caused by fire, some natural causes, vandalism, etc., depending upon the terms of the policy. Home Owner Association (HOA) - An association of people who own homes in a given area formed for the purpose of improving or maintaining the quality of the area. Housing Expenses-to-Income Ratio - The ratio, expressed as a percentage, between a borrower's monthly housing expenses, and his gross monthly income. Impound Account - An account held by a lender for payment of taxes, insurance, or other periodic debts against real property. The mortgagor pays a portion of, for example, the yearly taxes, with each monthly payment. The lender pays the tax bill from the accumulated funds. Index - Any number of economic indicators lenders use to calculate interest rate adjustments for adjustable rate mortgages. Examples include the 12-MTA, 11th District Cost of Funds, and LIBOR rates. Initial Interest Rate - The introductory rate on an ARM, which usually changes at the first rate adjustment. Insured Mortgage - A mortgage insured against loss to the mortgagee in the event of default and a failure to the mortgaged property to satisfy the balance owing plus costs of foreclosure. Interest Rate - The percentage of an amount of money which is paid for its use for a specified time. Usually expressed as an annual percentage rate. Interest Rate Cap - The most the interest rate on an ARM can increase or decrease at each adjustment period. Judgment - The decision of a court of law. Money judgments, when recorded, become a lien on real property of the defendant. Jumbo Loan - A loan amount that is over $333,700 for a 1 family home and $427,150 for a two family home. Late Charge - A penalty for failure to pay an installment payment on time. Lien - An encumbrance against property for money, either voluntary or involuntary. All liens are encumbrances are not liens.
Lifetime Interest Rate Cap The maximum the interest rate on an ARM can increase or decrease over the life of the loan. Sometimes this is called the “ceiling rate.” Loan Package - The file of all items necessary for the lender to decide to give or not give a loan. These items would include the information on the prospective borrower and information on the property. Loan-to-Value Ratio - The ratio that the principal amount of the loan has to the property's appraised value. You may see this represented as an 80% loan or, a 95% LTV. Margin - Margin or spread is the difference between the interest rate charged on a loan and the index. The margin remains fixed over the life of the loan. Mortgagee - The party lending the money and receiving the mortgage. Mortgagor - The party who borrows the money and gives the mortgage.
Negative Amortization - A condition created when a loan payment is less than interest alone. Even though payments are made on time, the amount owing increases. Origination Fee - A fee made by a lender for making a mortgage loan. Usually a percentage of the amount loaned, such as one percent. Owner-occupied - A residence lived in by the borrower. Payment Cap - The limit that the monthly payment can change from one adjustment period to another. Permanent Mortgage - A mortgage on completed construction for a long period of time. PITI - Payment consisting of principal, interest taxes and insurance. Used to indicate what is included in a monthly payment on real property. These are the four major portions of a usual monthly payment. PMI (Private Mortgage Insurance) - An insurance policy offered by a private company to protect a lender against loss on a defaulted mortgage loan. Usually, PMI is required only for loans with a high loan-to-value ratio. The borrower usually pays the PMI premiums. Points - An amount equal to 1% of the principal amount of the mortgage. Points are a one-time charge. Power of Attorney - A legal document authorizing one person to act on behalf of another. Pre-paid Expenses - Necessary to create an escrow account or to adjust the seller's existing escrow account. Can include taxes, hazard insurance, private mortgage insurance, and special assessments. Pre-payment - A privilege in a mortgage permitting the borrower to make payments in advance of their due date. Prepayment Penalty - A fee charged to a borrower who pays a loan before it is due. Not allowed for FHA or VA loans. Principal - The amount of the mortgage loan. Purchase Price - The total selling price of the home, which includes the cash down payment and the principal on the loan. Recision of a Contract - The annulling or cancellation of a contract and placing the parties to it in a position as if there had not been a contract. With respect to mortgage refinancing, the law that gives the homeowner three days (the recision period) to cancel a contract if the transaction uses equity in the primary home as security.
Recording Fee - The amount paid to the recorder's office in order to make a document a matter of public record.
Refinance - Homeowners usually consider refinancing to reduce their monthly mortgage payment or to draw from the equity that has built up over a period of time. This is used to pay off an existing mortgage loan. Release - An instrument releasing property from the lien of the mortgage, judgment, etc. RESPA (Real Estate Settlement Procedures Act) - A federal statute effective June 20, 1975, requiring disclosure of certain costs in the sale of residential improve property which is to be financed by a federally insured lender. Second Mortgage - A mortgage made subsequent to another mortgage and subordinate to the first one. Servicing - 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 the like. Settlement Statement - A statement prepared by broker, escrow, or lender, giving a complete breakdown of costs involved in a real estate transaction. Statutory Lien - An involuntary lien includes tax liens, judgment liens, mechanic liens, etc. Substitute of Trustee - A document which is recorded to change the trustee under the deed of trust. Survey - A measurement of 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. Title - The document that gives legal evidence of an individual's ownership of property. Title Insurance - The insurance that protects the lender and the homeowner against loss resulting from any inconsistencies in the title of a property. Title Search - A review of all recorded documents affecting a specific piece of property to determine the present condition of title. Truth-in-Lending - The federal law requiring disclosure of the Annual Percentage Rate (APR) to home buyers shortly after they apply for the loan. Underwriting - The decision whether to make a loan to a potential home buyer based upon credit, employment, assets, other factors and the matching of this risk to an appropriate rate and term or loan amount. VA Loan - A loan that is partially guaranteed by the Veterans Administration and made by a private lender.
Verification of Deposit (VOD) - A document signed by the borrower's financial institution verifying the status and balance of his financial accounts. Most lenders require that the funds used for real estate purchase be "seasoned", or on deposit in the account for at least 60 days. Verification of Employment (VOE) - A document signed by the borrower's employer verifying his position and salary. Most lenders require a minimum of a two year history of stable and constant employment. Own-A-Home Mortgage is a Registered Mortgage Broker - NYS Banking Department. All loans arranged by third party providers. |
