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7/23 and
5/25 Mortgages
Mortgages with a one time rate adjustment
after seven and five years respectively.
They can also be balloon loans, where you
pay the loans in full or re-finance for the
remaining term.
3/1, 5/1, 7/1 and 10/1 ARMs
Adjustable rate mortgages in which the rate
is fixed for three-year, five-year,
seven-year and ten-year period respectively,
but may adjust annually after initial
period.
Acceleration Clause
The right of the lender to demand the
immediate repayment of the mortgage loan
balance upon the default of the borrower.
Adjustable Rate Mortgage (ARM)
A mortgage in which the interest rate is
adjusted periodically based on a pre
selected index. It also usually has a
minimum and maximum cap for each period.
Amortization Schedule
The loan payment by equal periodic payments
calculated to pay off the debt at the end of
a fixed period, including accrued interest
on the outstanding balance.
Annual Percentage Rate (APR)
The APR is a measurement of the full cost of
a loan including interest and loan fees
expressed as a yearly percentage rate.
Because all lenders apply the same rules in
calculating the annual percentage rate, it
provides consumers with a good basis for
comparing the cost of loans.
Appraisal
An estimation of the value of a piece of
property made by a qualified, State of
Ohio-licensed appraiser.
Assessment
A local tax levied against a property for a
specific purpose, such as a sewer
installment, street lights or homeowner’s
association fee.
Blanket Mortgage
A mortgage covering at least two pieces of
real estate as security for the same
mortgage.
Borrower (Co -Borrower)
One who applies for and receives a loan in
the form of a mortgage with intention of
repaying the loan in full.
Buy-down
When the lender and/or home builder
subsidizes the mortgage by lowering the
interest rate during the first few years of
the loan. While the payments are initially
low, they will increase when the subsidy
expires. For example, a 2/1 buy-down means
the interest rate is 2% under the market
rate the first year and 1% under the market
rate the second year and goes back to the
market rate in years 3 - 30. There is a fee
for this buy-down.
Caps
Consumer safeguards which limit the amount
the interest rate on an adjustable rate
mortgage may change per year and /or over
the life of the loan. For example, a ‘2/6
cap’ means a rate can adjust up or down up
to 2% per period and can’t go above 6% over
the life of the loan.
Certificate of Eligibility
The document given to qualified military
veterans which entitles them to VA
guaranteed loans for homes.
Closing
The meeting between the buyer, seller, and
lender or their agents where the property
and funds legally change hands, also called
a settlement.
Closing Costs
Costs associated with the handling and
closing of the mortgage. Closing costs
usually include an origination fee, discount
points, appraisal fee, credit report, title
search and insurance, survey, taxes, deed,
recording fees, and other costs assessed at
closing.
Closing Statement
The document used at the closing, which
shows all of the buyer’s and seller’s
charges and credits involved in the sale of
the property. It’s also called a HUD-1 or
settlement statement.
Conventional Mortgage
A conforming mortgage that's salable on the
secondary market, but isn't insured by FHA
or VA.
Credit Report
A report documenting the borrower's credit
history and current status of the borrower's
credit-worthiness.
Debt-To-Income Ratio
The ratio, expressed as a percentage, which
results when a borower's monthly obligation
on long-term debts is divided by their gross
monthly income.
Default
Failure to meet legal obligations in a
contract, specifically, failure to make the
monthly payments on a mortgage.
Down Payment
Money paid to make up the difference between
the purchase price and the mortgage amount.
Due-On-Sale Clause
A provision in a mortgage that allows the
lender to demand immediate payment of the
balance of the mortgage if the borrower
sells the property.
Earnest Money
Money given by a buyer to a seller as part
of the purchase price to bind a transaction
or assume payment. The deposit is normally
held in a non-interest bearing trust account
until closing.
Easement
The legal rights the easement holder has
with regard to crossing over your property
(i.e. utility, driveway or sewer easement).
Equity
The difference between the fair market value
and the current indebtedness. The value an
owner has in real estate over and above the
obligations against the property.
Escrow
An account held by the lender in which the
home buyer pays money monthly for tax and/or
insurance payments. The lender then pays
those bills when they come due each period.
Federal Home Loan Mortgage Corporation
(FREDDIE MAC)
A quasi-governmental agency that purchases
conventional mortgages from insured
depository institutions and HUD-approved
mortgage bankers.
Federal Housing Administration (FHA)
A division of Housing and Urban Development.
Its main activity is the insuring of
residential mortgage loans made by private
lenders. FHA also sets standards for
underwriting mortgages.
Federal National Mortgage Corporation
(FANNIE MAE)
A tax-paying corporation created by Congress
that purchases and sells conventional
residential mortgage as well as those
insured by FHA and VA. This institution,
which provides funds for one in seven
mortgages, makes mortgage money more
available and more affordable.
Fixed Rate Mortgage
The mortgage interest rate will remain the
same on these mortgages throughout the term
of the mortgage for the original borrower.
Flood Insurance
An insurance policy that may cover the
damage of your home that can occur in a
flood. If your property is in an identified
flood zone, flood insurance may be a
requirement of your lender.
Foreclosure
The 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.
Gift Letter
The form stating that a relative is giving
you money to buy a home without a
requirement to pay it back.
Graduated Payment Mortgage
A type of flexible-payment mortgage where
the payments increase for a specified period
of time and then level off. This type of
mortgage has negative amortization built
into it.
Hazard Insurance
A form of insurance (i.e. homeowner's
insurance) in which the insurance company
protects the insured from specified losses,
such as fire, windstorm and the like based
on policy stipulations.
Home Equity Loan
A loan that lets you borrow back money
(normally up to 80% of value) against your
property.
Index
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 cost-of-funds incurred
by saving and loans), which is then used to
adjust the interest rate on an adjustable
rate mortgage up or down.
Indexed Rate
The sum of the published index plus the
margin. For example, if the index were 6%
and the margin 2.75%, the indexed rate would
be 8.75%. Often, lenders charge less than
the indexed rate the first year of an
adjustable rate mortgage.
Jumbo loan
A loan which is larger (more than $417,000
as of 1/2007) than the limits set by the
FANNIE MAE and FREDDIE MAC. Because jumbo
loans cannot be funded by these two
agencies, they usually carry a higher
interest rate.
Lien
A claim upon a piece of property for the
payment of satisfaction of a debt or
obligation, like a mortgage or anything
where the property has been used as
collateral.
Loan-To-Value Ratio
The relationship between the amount of the
mortgage loan and the appraised value of the
property expressed as a percentage.
Lock-In Period
Lender's guarantee that the mortgage rate
quoted will be good for a specific number of
days from day of application.
Margin
The amount a lender adds to the index on an
adjustable rate mortgage to establish an
adjusted interest rate.
Market Value
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)
It's insurance from FHA to the lender
against incurring a loss on account of the
borrower's default.
Negative Amortization
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 balance of the loan. The danger
of negative amortization is that the home
buyer ends up owing more than the original
amount of the loan.
P.I.T.I.
Principal, Interest, Taxes, and Insurance.
Points (Loan Discount Points)
Prepaid interest assessed at closing the the
lender. Each point is equal to 1 percent of
the loan amount. (i.e. two points on a
$100,000 mortgage would cost $2,000.)
Power Of Attorney
A legal document authorizing one person to
act on behalf of another.
Prepayment
A mortgage privilege permitting the borrower
to make payments in ahead of their due date.
Prepayment Penalty
Money charged for an early repayment of
debt. Prepayment penalties are allowed in
some form (but not necessarily imposed) in
many states. Check with your lender.
Principal
The amount of debt, not counting interest,
left due on the loan.
Private Mortgage Insurance (PMI)
In the event that you do not have a 20% down
payment, lenders will allow a smaller down
payment - as low as 3 percent in some cases
when you pay private mortgage insurance that
usually requires an initial premium payment
and may require an additional monthly fee
depending on your loan's structure.
Recording Fees
Money paid to the lender and charged by the
local taxing authorities for recording a
home sale, thereby making it part of public
records.
Satisfaction Of Mortgage
The document issued by the lender when the
mortgage loan is paid in full.
Secondary Mortgage Market
The place where primary mortgage lenders
sell the mortgage and subordinate to the
one.
Servicing
All the steps and operations a lender
performs to keep a loan in good standing,
such as collection of payments, payment of
taxes & insurance, etc.
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. A site survey
is less expensive than a stake survey, where
rods are put in the ground at the property’s
boundaries.
Title
A document that gives evidence of an
individual's ownership of property.
Title Insurance
A policy, usually issue by a title insurance
company, which insures a home buyer against
errors in the title search. The cost of the
policy is usually a function of the value of
the property, and it's usually paid with a
one-time premium. There are 2 types of
policies: lender & owner's.
Underwriting
The decision whether to make a loan to a
potential home buyer based on credit,
employment, assets, debts and other factors
and the matching of this risk to an
appropriate rate and term or loan amount.
Verification Of Deposit
A document signed by the borrower's
financial institution verifying the status
and balance of their financial accounts.
Verification Of Employment
A document signed by the borrower's employer
verifying their position and salary.
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