Home Mortgage Terms


Adjustable Mortgage Loan (AML)
any mortgage that does not have a fixed interest rate and fixed payments for the term of the loan, or does not amortize to zero at the end of the set term, when all required payments are made on time. (AML's include ARM's, buydowns, GEM's GPRAM's)

Adjustable Rate Mortgage (ARM)
A mortgage in which the interest rate is adjusted periodically according to the movement in a preselected index. Technically, ARM's do not include mortgages where the payments change for other reasons, such as buydowns, although the term is often used in this broader sense.

Amortize
Reduce a debt by regular payments of both principal and interest. (˝Fully amortizingţ means payments scheduled to pay off the debt completely during a set term.)

Amortization Schedule
A timetable for payment of a mortgage showing the amount of each payment applied to interest and principal and the remaining balance.

Annual Percentage Rate (APR)
A figure which indicates the true total cost of the loan as a yearly percentage rate. The APR is higher than your interest rate because other costs (such as borrower-paid origination fees, mortgage insurance, processing and loan fees, interim interest, etc.) are included.

Appraisal
A professional report that sets forth an estimate or opinion of the value of the property. (market value)

Appreciation
An increase in the value of a house due to changes in the market conditions or other causes.

Assessed Value
The valuation placed upon property by a public tax assessor for purposes of taxation.

Balloon Mortgage
A mortgage with periodic installments of principal and interest that do not fully amortize the loan. The balance of the mortgage is due in a lump sum at a specified date in the future, usually at the end of the term.

Buydown (Temporary Buydown)
A payment to the lender from the seller, buyer, or a third party, causing the lender to reduce the interest rate during the initial year(s) of the loan.

Cap
A provision of an ARM limiting how much the interest rate or mortgage payments may increase.

Cash Out
A loan transaction in which the borrower receives funds as the time of closing.

Certificate of Eligibility
A document issued by the federal government certifying a veteran's eligibility for a Veterans Administration (VA) mortgage guarantee.

Certificate of Title
A written statement usually furnished by a title company or attorney which presents the status of the title to a piece of property.

Closing
The conclusion of the loan transaction, which includes delivery of a deed, financial adjustments, the signing of notes and the disbursement of funds necessary to finalize the sale or loan tranaction.

Closing Agent (Escrow/Title Company)
A third party who oversees the closing of the loan transaction.

Closing Costs
Money paid by the borrower or the seller for various services provided in connection with the closing of a mortgage loan. This generally involves an origination fee, discount points, appraisal, credit report, title insurance, attorney's fees, survey and prepaid items such as taxes and insurance escrow payments.

Closing Documents
The documents which are signed at closing. These include the Deed of Trust or Mortgage with attachments, Promissory Note, Truth-in-Lending Disclosure, and other documents related to the transaction.

Commitment Letter
A formal offer by a lender stating the terms under which it agrees to loan money to a home buyer.

Comparables
An abbreviation for comparable properties used for comparative purposes in the appraisal process; facilities of reasonably the same size and location with similar amenities; properties which have been recently sold, which have characteristics similar to the property under consideration, therby indicating the approximate fair market value of the subject property.

Conventional Mortgage
A mortgage not insured or guaranteed by a federally insured program (such as FHA or VA).

Convertible ARM
A type of adjustable rate mortgage that allows the borrower to change from an ARM to a fixed rate loan according to the terms of the note and security instrument.

Credit Report
A report by an independent credit bureau that lists the applicant's credit history and the credit rating as reported by the creditor. In addition, the credit bureau may perform some investigative functions and research of other public records.

Default
Failure to make mortgage payments on a timely basis or to comply with other conditions of a mortgage instrument.

Deficiency Judgement
A court order to pay the balance owed on a loan if the proceeds from the sale of the security are insufficient to pay off the loan. Deficiency judgements are not allowed in all states.

Depreciation
A decline in the value of property; the opposite of "appreciation."

Discount Points
A charge calculated as a percentage of the loan, to compensate the lender for the difference between the stated interest rate of the loan and the current market interest rates.

Earnest Money
A portion of the downpayment delivered to the seller or an escrow agency by the purchaser of real estate with a purchase offer as evidence of good faith.

ECOA (Equal Credit Opportunity Act)
A federal law that requires lenders and other creditors to make credit available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.

Escrow Account
That portion of a borrower's monthly payment which is held by the servicer (lender to pay items such as property taxes, hazard insurance, mortgage insurance, and other items as they become due.

FHA (Federal Housing Administration)
A division of the Department of Housing and Urban Development. Its main activity is the insuring of residential mortgage loans made by private lenders against loss in the evnt of a foreclosure. It sets standards for construction and underwriting. FHA does not lend money, nor plan, nor construct housing.

FHLBB (Federal Home Loan Bank Board)
A Regulatory and supervisory agency for federally chartered savings institutions which oversees the operations of the FSLIC and FHLMC. This agency was abolished by the Financial Institutions Reform, Recovery and Enforcement Act of 1989. (See FIRREA.)

FHLMC (Federal Home Loan Mortgage Corporation, Freddie Mac)
A private corporation authorized by Congress, which became an independent, stockholder-owned government corporation with the passage of FIRREA. FHLMC promotes the flow of funds into housing markets by purchasing conventional mortgages in the secondary market and selling securities backed by those mortgages in the capital market.

FIRREA (Federal Institutions Reform, Recovery and Enforcement Act of 1989)
An act signed into law in August, 1989 by President Bush that restructured the thrift regulatory and insurance system. The Federal Home Loan Bank Board (FHLBB) was abolished and its various functions reassigned to existing and new agencies. The Federal Housing Finance Board (FHFB) was formed to replace the FHLBB system. It oversees the functions of the twelve regional Federal Home Loan Banks. The Office of Thrift Supervision (OTC) was formed to charter federal thrifts, serve as the primary federal examiner and regulator of federal and state chartered savings associations (formerly insured by the FSLIC), and administer laws governing savings and loan holding companies. The Federal Deposit Insurance Corporation (FDIC) provides insurance of accounts for institutions whose deposits were formerly covered by the Federal Savings and Loan Insurance Company (FSLIC). The FSLIC was abolished. The Resolution Trust Corporation (RTC) was formed to resolve thrift failures over the next three years and dispose of their assets and liabilities.

FNMA (Federal National Mortgage Association, Fannie Mae)
A government sponsored corporation, owned solely by private investors, created to provide support to the secondary market for FHA and VA mortgages and conventional mortgages.

Gift Letter
A written explanation signed by the individual giving the gift staing that the gift is a bona fide gift and there is no obligation expresses or implied to repay this sum at any time.

Graduated Payment Mortgage (GPM)
A mortgage where the payments are scheduled to increase, usually annually, for a set number of years and then level off. GPM can be used with either a fixed or adjustable rate, and usually have a 30 year term.

Hazard Insurance
Insurance to protect the homeowner and the lender against physical damage to a property from fire, wind, vandalism, or other hazards.

HUD (Housing and Urban Development)
A Cabinet department responsible for the implementation and administration of government housing and urban development programs. The broad range of programs include community planning and development, low-rent public housing, mortgage insurance for residential mortgages (FHA), equal opportunity in housing, and research and technology.

Index
(Also called "Rate Index")- A regularly published rate, independent of the lending institution, that measures the prevailing cost of funds, and is used periodically with the margin to set ARM rates. Common indices are the 1-Year Treasury Security and FHLBB's Cost of Funds.

Initial Borrower Interest Rate
The rate on which the borrower's first payment is calculated. If the loan is discounted or brought down, it may be lower than the Fully Indexed Accrual Rate.

Initial Borrower Payment Rate
The annual interest rate used to calculate the borrower's initial cash payment. If, for example, the note specifies that a fully amortizing annual rate of 11% be used to calculate the initial monthly payment, and that rate is "brought down" 2%, the IBPR is 9%.

Lifetime Cap
A provision of an ARM that limits the total increase in interest rates over the life of the loan.

Loan-To-Value (LTV)
The loan-to-value is the original loan amount divided by the lower of the sales price or the appraised value.

Mortgage
A legal instrument that conveys an interest in real property given as security for the payment of a debt. In some states, a Deed of Trust or Deed to Secure Debt is used in place of a Mortgage.

Mortgage Banker
A company that originates and funds, and services mortgages exclusively for resale in the secondary market.

Mortgage Broker
A company that for a fee matches borrowers with Mortgage Bankers.

Mortgage Insurance
Insurance which protects the lender against loss which could result from a mortgage default.

Mortgage Insurance Premium (MIP)
The fee paid to FHA for mortgage insurance.

Origination Fee
The amount charged for services performed by the company (lender) handling the initial application and processing of the loan. This fee is usually computed as a percentage of the loan amount.

OTC (The Office of Thrift Supervision)
See FIRREA.

Owner-Occupied
This means that the property is the owner's primary residence.

PITI
Principal, Interest, Taxes and Insurance are components of a mortgage payment.

Pre-Qualification
The process of determining how much money a prospective home buyer will be eligible to borrower before formal application for a loan.

Principal
The amount borrowed or remaining unpaid; also, that part of the monthly payment that reduces the outstanding balance of a mortgage.

Private Mortgage Insurance (PMI)
Insurance provided by non government insurers that protects lenders against loss if a borrower defaults.

Qualifying Ratios
Guidelines applied by lenders to determine how large a loan to grant a home buyer.

Real Estate Owned (REO)
A term frequently used by lending institutions as applied to ownership of real property acquired for investment or as a result of a foreclosure.

RESPA (Real Estate Settlement Procedures Act)
A federal law requiring lenders to provide home mortgage borrowers with information on known or estimated settlement costs. It also establishes guidelines for escrow account balances and the disclosure of settlement costs.



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