Adjustable Rate Mortgage (ARM)

A mortgage in which the interest rate is adjusted periodically based on a pre-selected index. Also sometimes known as a renegotiable rate mortgage variable rate mortgage or Canadian rollover mortgage.

 

Annual Percentage Rate (APR)

The 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 different loans.

Appraisal

An estimate of the value of property made by a qualified professional called an "appraiser. based on an appraiser's knowledge experience and analysis of the property.

 

 

Assessment

A local tax levied against a property for a specific purpose such as a sewer or street lights.

Closing

The meeting between the buyer seller and lender or their agents where the property and funds legally change hands also calledsettlement. Closing costs usually include an origination feediscount points appraisal fee title search and insurance surveytaxes deed recording fee credit report charge and other costs assessed at settlement. The cost of closing usually are about 3 percent to 6 percent of the mortgage amount.

 

 

Closing Costs

Expenses over and above the price of the property that are incurred by buyers and sellers when transferring ownership of a property. Closing costs normally include an origination fee property taxes charges for title insurance and escrow costs appraisal fees etc. Closing costs will vary according to the area country and the lenders used.

Construction Loan

A short term interim loan to pay for the construction of buildings or homes. These are usually designed to provide periodic disbursements to the builder as he or she progresses.

 

Conventional Loan

A mortgage not insured by FHA or guaranteed by VA.

Credit Report

A report documenting the credit history and current status of a borrower's credit standing.

Credit Risk Score

A credit risk score is a statistical summary of the information contained in a consumer's credit report. The most well known type of credit risk score is the Fair Isaac or FICO score. This form of credit scoring is a mathematical summary calculation that assigns numerical values to various pieces of information in the credit report. The overall credit risk score is highly relative in the credit underwriting process for a mortgage loan.

Fannie Mae

See Federal National Mortgage Association.

 

 

Farmers Home Administration (FmHA)

Provides financing to farmers and other qualified borrowers who are unable to obtain loans elsewhere.

Federal Housing Administration (FHA)

A division of the Department 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. 

FHA Loan

A loan insured by the Federal Housing Administration open to all qualified home purchasers. While there are limits to the size of FHA loans they are generous enough to handle moderately priced homes almost anywhere in the country.

 

 

FHA Mortgage Insurance

Requires a fee (up to 2.25 percent of the loan amount) paid at closing to insure the loan with FHA. In addition FHA mortgageinsurance requires an annual fee of up to 0.5 percent of the current loan amount paid in monthly installments. The lower the down payment the more years the fee must be paid.

Fixed Rate Mortgage

The mortgage interest rate will remain the same on these mortgages throughout the term of the mortgage for the original borrower.

Foreclosure

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. 

 

 

Freddie Mac

See Federal Home Loan Mortgage Corporation 

 

 

Ginnie Mae

See Government National Mortgage Association.

initial Interest Rate

This refers to the original interest rate of the mortgage at the time of closing. This rate changes for an adjustable rate mortgage (ARM). It's also known as "start rate" or "teaser."

Installment

The regular periodic payment that a borrower agrees to make to a lender.

Jumbo Loan

A loan which is larger than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. 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 or satisfaction of a debt or obligation.

Loan

A sum of borrowed money (principal) that is generally repaid with interest.

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.

Mortgage

A legal document that pledges a property to the lender as security for payment of a debt.

 

 

Mortgage Banker

A company that originates mortgages for resale in the secondary mortgage market.

 

 

Mortgage Broker

An individual or company that charges a service fee to bring borrowers and lenders together for the purpose of loan origination.

Mortgage Insurance

Money paid to insure the mortgage when the down payment is less than 20 percent. See private mortgage insurance FHA mortgage insurance.
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Mortgage Life Insurance

A type of term life insurance. In the event that the borrower dies while the policy is in force the mortgage debt is automatically paid by insurance proceeds.

 

 

Mortgagor

The borrower or homeowner.

Points (Loan Discount Points)

Prepaid interest assessed at closing by the lender. Each point is equal to 1 percent of the loan amount (e.g. two points on a $100000 mortgage would cost $2000).

Realtor®

A real estate broker or an associate holding active membership in a local real estate board affiliated with the National Association of Realtors.

Refinance

Obtaining a new mortgage loan on a property already owned often to replace existing loans on the property.

Reverse Annuity Mortgage (RAM)

A form of mortgage in which the lender makes periodic payments to the borrower using the borrower's equity in the home ascollateral for and repayment of the loan.

Second Mortgage

A mortgage made subsequent to another mortgage and subordinate to the first one.

 

 

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 lenders.

Title

A document that gives evidence of an individual's ownership of property.

Title Insurance

A policy usually issued 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 is often borne by the purchaser and/or seller. Policies are also available to protect the lender's interests.

VA Loan

A long term low-or-no down payment loan guaranteed by the Department of Veterans Affairs. Restricted to individuals qualified by military service or other entitlements.

Variable Rate Mortgage (VRM)

See adjustable rate mortgage

Verification of Employment (VOE)

A document signed by the borrower's employer verifying his/her position and salary.

Wraparound Mortgage

Results when an existing assumable loan is combined with a new loan resulting in an interest rate somewhere between the old rate and the current market rate. The payments are made to a second lender or the previous homeowner who then forwards the payments to the first lender after taking the additional amount off the top.