ARM: Adjustable Rate Mortgage; a mortgage loan subject to changes in interest rates; when rates change, ARM monthly payments increase or decrease at intervals determined by the lender; the change in monthly payment amount, however, is usually subject to a cap.
Abstract of Title: documents recording the ownership of property throughout time.
Acceleration: the right of the lender to demand payment on the outstanding balance of a loan.
Acceptance: the written approval of the buyer's offer by the seller.
Additional Principal Payment: money paid to the lender in addition to the established payment amount used directly against the loan principal to shorten the length of the loan.
Adjustable-Rate Mortgage (ARM): a mortgage loan that does not have a fixed interest rate. During the life of the loan the interest rate will change based on the index rate. Also referred to as adjustable mortgage loans (AMLs) or variable-rate mortgages (VRMs).
Affidavit: a signed, sworn statement made by the buyer or seller regarding the truth of information provided.
Amenity: a feature of the home or property that serves as a benefit to the buyer but that is not necessary to its use; may be natural (like location, woods, water) or man-made (like a swimming pool or garden).
Amortization:a payment plan that enables you to reduce your debt gradually through monthly payments. The payments may be principal and interest, or interest-only. The monthly amount is based on the schedule for the entire term or length of the loan.
Annual Mortgagor Statement:yearly statement to borrowers detailing the remaining principal and amounts paid for taxes and interest.
Annual Percentage Rate (APR):a measure of the cost of credit, expressed as a yearly rate. It includes interest as well as other charges. Because all lenders, by federal law, follow the same rules to ensure the accuracy of the annual percentage rate, it provides consumers with a good basis for comparing the cost of loans, including mortgage plans. APR is a higher rate than the simple interest of the mortgage.
Application:the first step in the official loan approval process; this form is used to record important information about the potential borrower necessary to the underwriting process.
Application Fee:a fee charged by lenders to process a loan application.
Appraisal:a document from a professional that gives an estimate of a property's fair market value based on the sales of comparable homes in the area and the features of a property; an appraisal is generally required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property.
Appraised Value: an estimation of the current market value of a property.
Appraiser:a qualified individual who uses his or her experience and knowledge to prepare the appraisal estimate.
Appreciation: an increase in property value.
Arbitration: a legal method of resolving a dispute without going to court.
As-is Condition:the purchase or sale of a property in its existing condition without repairs.
Asking Price: a seller's stated price for a property.
Assessed Value: the value that a public official has placed on any asset (used to determine taxes).
Assessments: the method of placing value on an asset for taxation purposes.
Assessor: a government official who is responsible for determining the value of a property for the purpose of taxation.
Assets: any item with measurable value.
Assumable Mortgage:when a home is sold, the seller may be able to transfer the mortgage to the new buyer. This means the mortgage is assumable. Lenders generally require a credit review of the new borrower and may charge a fee for the assumption. Some mortgages contain a due-on-sale clause, which means that the mortgage may not be transferable to a new buyer. Instead, the lender may make you pay the entire balance that is due when you sell the home. An assumable mortgage can help you attract buyers if you sell your home.
Assumption Clause: a provision in the terms of a loan that allows the buyer to take legal responsibility for the mortgage from the seller.
Automated Underwriting: loan processing completed through a computer-based system that evaluates past credit history to determine if a loan should be approved. This system removes the possibility of personal bias against the buyer.
Balance Sheet:a financial statement that shows the assets, liabilities and net worth of an individual or company.
Balloon Loan or Mortgage:a mortgage that typically offers low rates for an initial period of time (usually 5, 7, or 10) years; after that time period elapses, the balance is due or is refinanced by the borrower.
Balloon Payment:the final lump sum payment due at the end of a balloon mortgage.
Bankruptcy:a federal law whereby a person's assets are turned over to a trustee and used to pay off outstanding debts; this usually occurs when someone owes more than they have the ability to repay.
Biweekly Payment Mortgage:a mortgage paid twice a month instead of once a month, reducing the amount of interest to be paid on the loan.
Borrower:a person who has been approved to receive a loan and is then obligated to repay it and any additional fees according to the loan terms.
Bridge Loan:a short-term loan paid back relatively fast. Normally used until a long-term loan can be processed.
Broker:a licensed individual or firm that charges a fee to serve as the mediator between the buyer and seller. Mortgage brokers are individuals in the business of arranging funding or negotiating contracts for a client, but who does not loan the money. A real estate broker is someone who helps find a house.
Building Code: based on agreed upon safety standards within a specific area, a building code is a regulation that determines the design, construction, and materials used in building.
Budget:a detailed record of all income earned and spent during a specific period of time.
Buy Down:the seller pays an amount to the lender so the lender provides a lower rate and lower payments many times for an ARM. The seller may increase the sales price to cover the cost of the buy down.
Cap:a limit, such as one placed on an adjustable rate mortgage, on how much a monthly payment or interest rate can increase or decrease, either at each adjustment period or during the life of the mortgage. Payment caps do not limit the amount of interest the lender is earning, so they may cause negative amortization.
Capacity:The ability to make mortgage payments on time, dependant on assets and the amount of income each month after paying housing costs, debts and other obligations.
Capital Gain:the profit received based on the difference of the original purchase price and the total sale price.
Capital Improvements:property improvements that either will enhance the property value or will increase the useful life of the property.
Capital or Cash Reserves:an individual's savings, investments, or assets.
Cash-Out Refinance:when a borrower refinances a mortgage at a higher principal amount to get additional money. Usually this occurs when the property has appreciated in value. For example, if a home has a current value of $100,000 and an outstanding mortgage of $60,000, the owner could refinance $80,000 and have additional $20,000 in cash.
Cash Reserves:a cash amount sometimes required of the buyer to be held in reserve in addition to the down payment and closing costs; the amount is determined by the lender.
Casualty Protection:property insurance that covers any damage to the home and personal property either inside or outside the home.
Certificate of Title:a document provided by a qualified source, such as a title company, that shows the property legally belongs to the current owner; before the title is transferred at closing, it should be clear and free of all liens or other claims.
Chapter 7 Bankruptcy: a bankruptcy that requires assets be liquidated in exchange for the cancellation of debt.
Chapter 13 Bankruptcy:this type of bankruptcy sets a payment plan between the borrower and the creditor monitored by the court. The homeowner can keep the property, but must make payments according to the court's terms within a 3 to 5 year period.
Charge-Off:the portion of principal and interest due on a loan that is written off when deemed to be uncollectible.
Clear Title:a property title that has no defects. Properties with clear titles are marketable for sale.
Closing:the final step in property purchase where the title is transferred from the seller to the buyer. Closing occurs at a meeting between the buyer, seller, settlement agent, and other agents. At the closing the seller receives payment for the property. Also known as settlement.
Closing Costs:fees for final property transfer not included in the price of the property. Typical closing costs include charges for the mortgage loan such as origination fees, discount points, appraisal fee, survey, title insurance, legal fees, real estate professional fees, prepayment of taxes and insurance, and real estate transfer taxes. A common estimate of a Buyer's closing costs is 2 to 4 percent of the purchase price of the home. A common estimate for Seller's closing costs is 3 to 9 percent.
Cloud On The Title:any condition which affects the clear title to real property.
Co-Borrower:an additional person that is responsible for loan repayment and is listed on the title.
Co-Signer:a person that signs a credit application with another person, agreeing to be equally responsible for the repayment of the loan.
Collateral:security in the form of money or property pledged for the payment of a loan. For example, on a home loan, the home is the collateral and can be taken away from the borrower if mortgage payments are not made.
Collection Account:an unpaid debt referred to a collection agency to collect on the bad debt. This type of account is reported to the credit bureau and will show on the borrower's credit report.
Commission:an amount, usually a percentage of the property sales price that is collected by a real estate professional as a fee for negotiating the transaction. Traditionally the home seller pays the commission. The amount of commission is determined by the real estate professional and the seller and can be as much as 6% of the sales price.
Comparative Market Analysis (CMA or COMPS):a property evaluation that determines property value by comparing similar properties sold within the last year.
Compensating Factors:factors that show the ability to repay a loan based on less traditional criteria, such as employment, rent, and utility payment history.
Condominium:a form of ownership in which individuals purchase and own a unit of housing in a multi-unit complex. The owner also shares financial responsibility for common areas.
Conforming loan:is a loan that does not exceed Fannie Mae's and Freddie Mac's loan limits. Freddie Mac and Fannie Mae loans are referred to as conforming loans.
Consideration:an item of value given in exchange for a promise or act.
Construction Loan:a short-term, to finance the cost of building a new home. The lender pays the builder based on milestones accomplished during the building process. For example, once a sub-contractor pours the foundation and it is approved by inspectors the lender will pay for their service.
Contingency: a clause in a purchase contract outlining conditions that must be fulfilled before the contract is executed. Both, buyer or seller may include contingencies in a contract, but both parties must accept the contingency.
Conventional Loan:a private sector loan, one that is not guaranteed or insured by the U.S. government.
Cooperative (Co-op):residents purchase stock in a cooperative corporation that owns a structure; each stockholder is then entitled to live in a specific unit of the structure and is responsible for paying a portion of the loan.
Counter Offer:a rejection to all or part of a purchase offer that negotiates different terms to reach an acceptable sales contract.
Covenants:legally enforceable terms that govern the use of property. These terms are transferred with the property deed. Discriminatory covenants are illegal and unenforceable. Also known as a condition, restriction, deed restriction or restrictive covenant.
Credit:an agreement that a person will borrow money and repay it to the lender over time.
Credit Bureau:an agency that provides financial information and payment history to lenders about potential borrowers. Also known as a National Credit Repository.
Credit Counseling:education on how to improve bad credit and how to avoid having more debt than can be repaid.
Credit Grantor:the lender that provides a loan or credit.
Credit History:a record of an individual that lists all debts and the payment history for each. The report that is generated from the history is called a credit report. Lenders use this information to gauge a potential borrower's ability to repay a loan.
Credit Loss Ratio:the ratio of credit-related losses to the dollar amount of MBS outstanding and total mortgages owned by the corporation.
Credit Related Expenses:foreclosed property expenses plus the provision for losses.
Credit Related Losses:foreclosed property expenses combined with charge-offs.
Credit Repair Companies:Private, for-profit businesses that claim to offer consumers credit and debt repayment difficulties assistance with their credit problems and a bad credit report.
Credit Report:a report generated by the credit bureau that contains the borrower's credit history for the past seven years. Lenders use this information to determine if a loan will be granted.
Credit Risk:a term used to describe the possibility of default on a loan by a borrower.
Credit Score: a score calculated by using a person's credit report to determine the likelihood of a loan being repaid on time. Scores range from about 360 - 840: a lower score meaning a person is a higher risk, while a higher score means that there is less risk.
Credit Union: a non-profit financial institution federally regulated and owned by the members or people who use their services. Credit unions serve groups that hold a common interest and you have to become a member to use the available services.
Creditor: the lending institution providing a loan or credit.
Creditworthiness: the way a lender measures the ability of a person to qualify and repay a loan.
Debtor:The person or entity that borrows money. The term debtor may be used interchangeably with the term borrower.
Debt-to-Income Ratio:a comparison or ratio of gross income to housing and non-housing expenses; With the FHA, the-monthly mortgage payment should be no more than 29% of monthly gross income (before taxes) and the mortgage payment combined with non-housing debts should not exceed 41% of income.
Deductible:the amount of cash payment that is made by the insured (the homeowner) to cover a portion of a damage or loss. Sometimes also called "out-of-pocket expenses." For example, out of a total damage claim of $1,000, the homeowner might pay a $250 deductible toward the loss, while the insurance company pays $750 toward the loss. Typically, the higher the deductible, the lower the cost of the policy.
Deed:a document that legally transfers ownership of property from one person to another. The deed is recorded on public record with the property description and the owner's signature. Also known as the title.
Deed-in-Lieu:to avoid foreclosure ("in lieu" of foreclosure), a deed is given to the lender to fulfill the obligation to repay the debt; this process does not allow the borrower to remain in the house but helps avoid the costs, time, and effort associated with foreclosure.
Default:the inability to make timely monthly mortgage payments or otherwise comply with mortgage terms. A loan is considered in default when payment has not been paid after 60 to 90 days. Once in default the lender can exercise legal rights defined in the contract to begin foreclosure proceedings
Delinquency:failure of a borrower to make timely mortgage payments under a loan agreement. Generally after fifteen days a late fee may be assessed.
Depreciation:a decrease in the value or price of a property due to changes in market conditions, wear and tear on the property, or other factors.
Disclosures:the release of relevant information about a property that may influence the final sale, especially if it represents defects or problems. "Full disclosure" usually refers to the responsibility of the seller to voluntarily provide all known information about the property. Some disclosures may be required by law, such as the federal requirement to warn of potential lead-based paint hazards in pre-1978 housing. A seller found to have knowingly lied about a defect may face legal penalties.
Discount Point:normally paid at closing and generally calculated to be equivalent to 1% of the total loan amount, discount points are paid to reduce the interest rate on a loan. In an ARM with an initial rate discount, the lender gives up a number of percentage points in interest to give you a lower rate and lower payments for part of the mortgage term (usually for one year or less). After the discount period, the ARM rate will probably go up depending on the index rate.
Down Payment: the portion of a home's purchase price that is paid in cash and is not part of the mortgage loan. This amount varies based on the loan type, but is determined by taking the difference of the sale price and the actual mortgage loan amount. Mortgage insurance is required when a down payment less than 20 percent is made.
Document Recording: after closing on a loan, certain documents are filed and made public record. Discharges for the prior mortgage holder are filed first. Then the deed is filed with the new owner's and mortgage company's names.
Duration: the number of years it will take to receive the present value of all future payments on a security to include both principal and interest.
Earnest Money (Deposit):money put down by a potential buyer to show that they are serious about purchasing the home; it becomes part of the down payment if the offer is accepted, is returned if the offer is rejected, or is forfeited if the buyer pulls out of the deal. During the contingency period the money may be returned to the buyer if the contingencies are not met to the buyer's satisfaction.
Easements:the legal rights that give someone other than the owner access to use property for a specific purpose. Easements may affect property values and are sometimes a part of the deed.
Eminent Domain:when a government takes private property for public use. The owner receives payment for its fair market value. The property can then proceed to condemnation proceedings.
Encroachments: a structure that extends over the legal property line on to another individual's property. The property surveyor will note any encroachment on the lot survey done before property transfer. The person who owns the structure will be asked to remove it to prevent future problems.
Encumbrance:anything that affects title to a property, such as loans, leases, easements, or restrictions.
Equity:an owner's financial interest in a property; calculated by subtracting the amount still owed on the mortgage loon(s)from the fair market value of the property.
Escrow:funds held in an account to be used by the lender to pay for home insurance and property taxes. The funds may also be held by a third party until contractual conditions are met and then paid out.
Escrow Account:a separate account into which the lender puts a portion of each monthly mortgage payment; an escrow account provides the funds needed for such expenses as property taxes, homeowners insurance, mortgage insurance, etc.
Estate: the ownership interest of a person in real property. The sum total of all property, real and personal, owned by a person.
Exclusive Listing:a written contract giving a real estate agent the exclusive right to sell a property for a specific timeframe.
FICO Score:FICO is an abbreviation for Fair Isaac Corporation and refers to a person's credit score based on credit history. Lenders and credit card companies use the number to decide if the person is likely to pay his or her bills. A credit score is evaluated using information from the three major credit bureaus and is usually between 300 and 850.
FSBO (For Sale by Owner):a home that is offered for sale by the owner without the benefit of a real estate professional.
Fair Credit Reporting Act:federal act to ensure that credit bureaus are fair and accurate protecting the individual's privacy rights enacted in 1971 and revised in October 1997.
Fair Housing Act:a law that prohibits discrimination in all facets of the home buying process on the basis of race, color, national origin, religion, sex, familial status, or disability.
Fair Market Value:: the hypothetical price that a willing buyer and seller will agree upon when they are acting freely, carefully, and with complete knowledge of the situation.
Familial Status:HUD uses this term to describe a single person, a pregnant woman or a household with children under 18 living with parents or legal custodians who might experience housing discrimination.
FHA:Federal Housing Administration; established in 1934 to advance homeownership opportunities for all Americans; assists homebuyers by providing mortgage insurance to lenders to cover most losses that may occur when a borrower defaults; this encourages lenders to make loans to borrowers who might not qualify for conventional mortgages.
First Mortgage:the mortgage with first priority if the loan is not paid.
Fixed Expenses: payments that do not vary from month to month.
Fixed-Rate Mortgage:a mortgage with payments that remain the same throughout the life of the loan because the interest rate and other terms are fixed and do not change.
Fixture:personal property permanently attached to real estate or real property that becomes a part of the real estate.
Flood Insurance:insurance that protects homeowners against losses from a flood; if a home is located in a flood plain, the lender will require flood insurance before approving a loan.
Forbearance:a lender may decide not to take legal action when a borrower is late in making a payment. Usually this occurs when a borrower sets up a plan that both sides agree will bring overdue mortgage payments up to date.
Foreclosure:a legal process in which mortgaged property is sold to pay the loan of the defaulting borrower. Foreclosure laws are based on the statutes of each state.
Good Faith Estimate:an estimate of all closing fees including pre-paid and escrow items as well as lender charges; must be given to the borrower within three days after submission of a loan application.
Grantee: an individual to whom an interest in real property is conveyed.
Grantor:an individual conveying an interest in real property.
Gross Income:money earned before taxes and other deductions. Sometimes it may include income from self-employment, rental property, alimony, child support, public assistance payments, and retirement benefits.
Guaranty Fee:payment to FannieMae from a lender for the assurance of timely principal and interest payments to MBS (Mortgage Backed Security) security holders.
Hazard Insurance:protection against a specific loss, such as fire, wind etc., over a period of time that is secured by the payment of a regularly scheduled premium.
HELP:Homebuyer Education Learning Program; an educational program from the FHA that counsels people about the home buying process; HELP covers topics like budgeting, finding a home, getting a loan, and home maintenance; in most cases, completion of the program may entitle the homebuyer to a reduced initial FHA mortgage insurance premium-from 2.25% to 1.75% of the home purchase price.
Home Equity Line of Credit:a mortgage loan, usually in second mortgage, allowing a borrower to obtain cash against the equity of a home, up to a predetermined amount.
Home Equity Loan:a loan backed by the value of a home (real estate). If the borrower defaults or does not pay the loan, the lender has some rights to the property. The borrower can usually claim a home equity loan as a tax deduction.
Home Inspection:an examination of the structure and mechanical systems to determine a home's quality, soundness and safety; makes the potential homebuyer aware of any repairs that may be needed. The homebuyer generally pays inspection fees.
Home Warranty:offers protection for mechanical systems and attached appliances against unexpected repairs not covered by homeowner's insurance; coverage extends over a specific time period and does not cover the home's structure.
Homeowner's Insurance:an insurance policy, also called hazard insurance, that combines protection against damage to a dwelling and its contents including fire, storms or other damages with protection against claims of negligence or inappropriate action that result in someone's injury or property damage. Most lenders require homeowners insurance and may escrow the cost. Flood insurance is generally not included in standard policies and must be purchased separately.
Homeownership Education Classes:classes that stress the need to develop a strong credit history and offer information about how to get a mortgage approved, qualify for a loan, choose an affordable home, go through financing and closing processes, and avoid mortgage problems that cause people to lose their homes.
HomesteadCredit:property tax credit program, offered by some state governments, that provides reductions in property taxes to eligible households.
Housing Counseling Agency:provides counseling and assistance to individuals on a variety of issues, including loan default, fair housing, and home buying.
HUD:the U.S. Department of Housing and Urban Development; established in 1965, HUD works to create a decent home and suitable living environment for all Americans; it does this by addressing housing needs, improving and developing American communities, and enforcing fair housing laws.
HUD1 Statement:also known as the "settlement sheet," or "closing statement" it itemizes all closing costs; must be given to the borrower at or before closing. Items that appear on the statement include real estate commissions, loan fees, points, and escrow amounts.
HVAC: Heating, Ventilation and Air Conditioning; a home's heating and cooling system.
Indemnification:to secure against any loss or damage, compensate or give security for reimbursement for loss or damage incurred. A homeowner should negotiate for inclusion of an indemnification provision in a contract with a general contractor or for a separate indemnity agreement protecting the homeowner from harm, loss or damage caused by actions or omissions of the general (and all sub) contractor.
Index:the measure of interest rate changes that the lender uses to decide how much the interest rate of an ARM will change over time. No one can be sure when an index rate will go up or down. If a lender bases interest rate adjustments on the average value of an index over time, your interest rate would not be as volatile. You should ask your lender how the index for any ARM you are considering has changed in recent years, and where it is reported.
Inflation:the number of dollars in circulation exceeds the amount of goods and services available for purchase; inflation results in a decrease in the dollar's value.
Inflation Coverage:endorsement to a homeowner's policy that automatically adjusts the amount of insurance to compensate for inflationary rises in the home's value. This type of coverage does not adjust for increases in the home's value due to improvements.
Inquiry:a credit report request. Each time a credit application is completed or more credit is requested counts as an inquiry. A large number of inquiries on a credit report can sometimes make a credit score lower.
Interest:a fee charged for the use of borrowing money.
Interest Rate:the amount of interest charged on a monthly loan payment, expressed as a percentage.
Interest Rate Swap:a transaction between two parties where each agrees to exchange payments tied to different interest rates for a specified period of time, generally based on a notional principal amount.
Intermediate Term Mortgage:a mortgage loan with a contractual maturity from the time of purchase equal to or less than 20 years.
Insurance:protection against a specific loss, such as fire, wind etc., over a period of time that is secured by the payment of a regularly scheduled premium.
Joint Tenancy (with Rights of Survivorship):two or more owners share equal ownership and rights to the property. If a joint owner dies, his or her share of the property passes to the other owners, without probate. In joint tenancy, ownership of the property cannot be willed to someone who is not a joint owner.
Judgment:a legal decision; when requiring debt repayment, a judgment may include a property lien that secures the creditor's claim by providing a collateral source.
Late Payment Charges:the penalty the homeowner must pay when a mortgage payment is made after the due date grace period.
Lease:a written agreement between a property owner and a tenant (resident) that stipulates the payment and conditions under which the tenant may occupy a home or apartment and states a specified period of time.
Lease Purchase (Lease Option):assists low to moderate income homebuyers in purchasing a home by allowing them to lease a home with an option to buy; the rent payment is made up of the monthly rental payment plus an additional amount that is credited to an account for use as a down payment.
Lender:A term referring to an person or company that makes loans for real estate purchases. Sometimes referred to as a loan officer or lender.
Lender Option Commitments:an agreement giving a lender the option to deliver loans or securities by a certain date at agreed upon terms.
Liabilities:a person's financial obligations such as long-term / short-term debt, and other financial obligations to be paid.
Liability Insurance:insurance coverage that protects against claims alleging a property owner's negligence or action resulted in bodily injury or damage to another person. It is normally included in homeowner's insurance policies.
Lien:a legal claim against property that must be satisfied when the property is sold. A claim of money against a property, wherein the value of the property is used as security in repayment of a debt. Examples include a mechanic's lien, which might be for the unpaid cost of building supplies, or a tax lien for unpaid property taxes. A lien is a defect on the title and needs to be settled before transfer of ownership. A lien release is a written report of the settlement of a lien and is recorded in the public record as evidence of payment.
Lien Waiver:A document that releases a consumer (homeowner) from any further obligation for payment of a debt once it has been paid in full. Lien waivers typically are used by homeowners who hire a contractor to provide work and materials to prevent any subcontractors or suppliers of materials from filing a lien against the homeowner for nonpayment.
Life Cap:a limit on the range interest rates can increase or decrease over the life of an adjustable-rate mortgage (ARM).
Line of Credit:an agreement by a financial institution such as a bank to extend credit up to a certain amount for a certain time to a specified borrower.
Liquid Asset:a cash asset or an asset that is easily converted into cash.
Listing Agreement:a contract between a seller and a real estate professional to market and sell a home. A listing agreement obligates the real estate professional (or his or her agent) to seek qualified buyers, report all purchase offers and help negotiate the highest possible price and most favorable terms for the property seller.
Loan:money borrowed that is usually repaid with interest.
Loan Acceleration:an acceleration clause in a loan document is a statement in a mortgage that gives the lender the right to demand payment of the entire outstanding balance if a monthly payment is missed.
Loan Fraud:purposely giving incorrect information on a loan application in order to better qualify for a loan; may result in civil liability or criminal penalties.
Loan Officer:a representative of a lending or mortgage company who is responsible for soliciting homebuyers, qualifying and processing of loans. They may also be called lender, loan representative, account executive or loan rep.
Loan Origination Fee:a charge by the lender to cover the administrative costs of making the mortgage. This charge is paid at the closing and varies with the lender and type of loan. A loan origination fee of 1 to 2 percent of the mortgage amount is common.
Loan Servicer:the company that collects monthly mortgage payments and disperses property taxes and insurance payments. Loan servicers also monitor nonperforming loans, contact delinquent borrowers, and notify insurers and investors of potential problems. Loan servicers may be the lender or a specialized company that just handles loan servicing under contract with the lender or the investor who owns the loan.
Loan to Value (LTV) Ratio:a percentage calculated by dividing the amount borrowed by the price or appraised value of the home to be purchased; the higher the LTV, the less cash a borrower is required to pay as down payment.
Lock-In:since interest rates can change frequently, many lenders offer an interest rate lock-in that guarantees a specific interest rate if the loan is closed within a specific time.
Lock-in Period:the length of time that the lender has guaranteed a specific interest rate to a borrower.
Loss Mitigation:a process to avoid foreclosure; the lender tries to help a borrower who has been unable to make loan payments and is in danger of defaulting on his or her loan
Mandatory Delivery Commitment:an agreement that a lender will deliver loans or securities by a certain date at agreed-upon terms.
Margin:the number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.
Market Value:the amount a willing buyer would pay a willing seller for a home. An appraised value is an estimate of the current fair market value.
Maturity:the date when the principal balance of a loan becomes due and payable.
Median Price:the price of the house that falls in the middle of the total number of homes for sale in that area.
Medium Term Notes:unsecured general obligations of Fannie Mae with maturities of one day or more and with principal and interest payable in U.S. dollars.
Merged Credit Report:raw data pulled from two or more of the major credit-reporting firms.
Mitigation:term usually used to refer to various changes or improvements made in a home; for instance, to reduce the average level of radon.
Modification:when a lender agrees to modify the terms of a mortgage without refinancing the loan.
Mortgage:a lien on the property that secures the Promise to repay a loan. A security agreement between the lender and the buyer in which the property is collateral for the loan. The mortgage gives the lender the right to collect payment on the loan and to foreclose if the loan obligations are not met.
Mortgage Acceleration Clause:a clause allowing a lender, under certain circumstances, demand the entire balance of a loan is repaid in a lump sum. The acceleration clause is usually triggered if the home is sold, title to the property is changed, the loan is refinanced or the borrower defaults on a scheduled payment.
Mortgage-Backed Security (MBS):a Fannie Mae security that represents an undivided interest in a group of mortgages. Principal and interest payments from the individual mortgage loans are grouped and paid out to the MBS holders.
Mortgage Banker:a company that originates loans and resells them to secondary mortgage lenders like Fannie Mae or Freddie Mac.
Mortgage Broker:a firm that originates and processes loans for a number of lenders.
Mortgage Life and Disability Insurance:term life insurance bought by borrowers to pay off a mortgage in the event of death or make monthly payments in the case of disability. The amount of coverage decreases as the principal balance declines. There are many different terms of coverage determining amounts of payments and when payments begin and end.
Mortgage Insurance:a policy that protects lenders against some or most of the losses that can occur when a borrower defaults on a mortgage loan; mortgage insurance is required primarily for borrowers with a down payment of less than 20% of the home's purchase price. Insurance purchased by the buyer to protect the lender in the event of default. Typically purchased for loans with less than 20 percent down payment. The cost of mortgage insurance is usually added to the monthly payment. Mortgage insurance is maintained on conventional loans until the outstanding amount of the loan is less than 80 percent of the value of the house or for a set period of time (7 years is common). Mortgage insurance also is available through a government agency, such as the Federal Housing Administration (FHA) or through companies (Private Mortgage Insurance or PMI).
Mortgage Insurance Premium (MIP):a monthly payment -usually part of the mortgage payment - paid by a borrower for mortgage insurance.
Mortgage Interest Deduction:the interest cost of a mortgage, which is a tax - deductible expense. The interest reduces the taxable income of taxpayers.
Mortgage Modification:a loss mitigation option that allows a borrower to refinance and/or extend the term of the mortgage loan and thus reduce the monthly payments.
Mortgage Note:a legal document obligating a borrower to repay a loan at a stated interest rate during a specified period; the agreement is secured by a mortgage that is recorded in the public records along with the deed.
Mortgage Score: a score based on a combination of information about the borrower that is obtained from the loan application, the credit report, and property value information. The score is a comprehensive analysis of the borrower's ability to repay a mortgage loan and manage credit.
Mortgagee:the lender in a mortgage agreement. Mortgagor - The borrower in a mortgage agreement.
Mortgagor:the borrower in a mortgage agreement
Multifamily Housing:a building with more than four residential rental units.
Multiple Listing Service (MLS):within the Metro Columbus area, Realtors submit listings and agree to attempt to sell all properties in the MLS. The MLS is a service of the local Columbus Board of Realtors�. The local MLS has a protocol for updatinglistings and sharing commissions. The MLS offers the advantage of more timely information, availability, and access to houses and other types of property on the market.
National Credit Repositories:currently, there are three companies that maintain national credit - reporting databases. These are Equifax, Experian, and Trans Union, referred to as Credit Bureaus.
Negative Amortization:amortization means that monthly payments are large enough to pay the interest and reduce the principal on your mortgage. Negative amortization occurs when the monthly payments do not cover all of the interest cost. The interest cost that isn't covered is added to the unpaid principal balance. This means that even after making many payments, you could owe more than you did at the beginning of the loan. Negative amortization can occur when an ARM has a payment cap that results in monthly payments not high enough to cover the interest due.
Net Income:Your take-home pay, the amount of money that you receive in your paycheck after taxes and deductions.
No Cash Out Refinance:a refinance of an existing loan only for the amount remaining on the mortgage. The borrower does not get any cash against the equity of the home. Also called a "rate and term refinance."
No Cost Loan:there are many variations of a no cost loan. Generally, it is a loan that does not charge for items such as title insurance, escrow fees, settlement fees, appraisal, recording fees or notary fees. It may also offer no points. This lessens the need for upfront cash during the buying process however no cost loans have a higher interest rate.
Nonperforming Asset:an asset such as a mortgage that is not currently accruing interest or which interest is not being paid.
Note:a legal document obligating a borrower to repay a mortgage loan at a stated interest rate over a specified period of time.
Note Rate:the interest rate stated on a mortgage note.
Notice of Default:a formal written notice to a borrower that there is a default on a loan and that legal action is possible.
Notional Principal Amount:the proposed amount which interest rate swap payments are based but generally not paid or received by either party.
Non-Conforming loan:is a loan that exceeds Fannie Mae's and Freddie Mac's loan limits. Freddie Mac and Fannie Mae loans are referred to as conforming loans.
Notary Public:a person who serves as a public official and certifies the authenticity of required signatures on a document by signing and stamping the document.
Offer:indication by a potential buyer of a willingness to purchase a home at a specific price; generally put forth in writing.
Original Principal Balance:the total principal owed on a mortgage prior to any payments being made.
Origination:the process of preparing, submitting, and evaluating a loan application; generally includes a credit check, verification of employment, and a property appraisal.
Origination Fee:the charge for originating a loan; is usually calculated in the form of points and paid at closing. One point equals one percent of the loan amount. On a conventional loan, the loan origination fee is the number of points a borrower pays.
Owner Financing:a home purchase where the seller provides all or part of the financing, acting as a lender.
Ownership:ownership is documented by the deed to a property. The type or form of ownership is important if there is a change in the status of the owners or if the property changes ownership.
Owner's Policy:the insurance policy that protects the buyer from title defects.
PITI:Principal, Interest, Taxes, and Insurance: the four elements of a monthly mortgage payment; payments of principal and interest go directly towards repaying the loan while the portion that covers taxes and insurance (homeowner's and mortgage, if applicable) goes into an escrow account to cover the fees when they are due.
PITI Reserves:a cash amount that a borrower must have on hand after making a down payment and paying all closing costs for the purchase of a home. The principal, interest, taxes, and insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a predefined number of months.
PMI:Private Mortgage Insurance; privately-owned companies that offer standard and special affordable mortgage insurance programs for qualified borrowers with down payments of less than 20% of a purchase price.
Partial Payment:a payment that is less than the total amount owed on a monthly mortgage payment. Normally, lenders do not accept partial payments. The lender may make exceptions during times of difficulty. Contact your lender prior to the due date if a partial payment is needed.
Payment Cap:a limit on how much an ARM's payment may increase, regardless of how much the interest rate increases.
Payment Change Date:the date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM) or a graduated-payment mortgage (GPM). Generally, the payment change date occurs in the month immediately after the interest rate adjustment date.
Payment Due Date:Contract language specifying when payments are due on money borrowed. The due date is always indicated and means that the payment must be received on or before the specified date. Grace periods prior to assessing a late fee or additional interest do not eliminate the responsibility of making payments on time.
Perils:for homeowner's insurance, an event that can damage the property. Homeowner's insurance may cover the property for a wide variety of perils caused by accidents, nature, or people.
Personal Property:any property that is not real property or attached to real property. For example furniture is not attached however a new light fixture would be considered attached and part of the real property.
Points:a point is equal to one percent of the principal amount of your mortgage. For example, if you get a mortgage for $95,000, one point means you pay $950 to the lender. Lenders frequently charge points in both fixed-rate and adjustable-rate mortgages in order to increase the yield on the mortgage and to cover loan closing costs. These points usually are collected at closing and may be paid by the borrower or the home seller, or may be split between them.
Power of Attorney:a legal document that authorizes another person to act on your behalf. A power of attorney can grant complete authority or can be limited to certain acts or certain periods of time or both.
Pre-Approval:a lender commits to lend to a potential borrower a fixed loan amount based on a completed loan application, credit reports, debt, savings and has been reviewed by an underwriter. The commitment remains as long as the borrower still meets the qualification requirements at the time of purchase. This does not guaranty a loan until the property has passed inspections underwriting guidelines.
Predatory Lending:abusive lending practices that include a mortgage loan to someone who does not have the ability to repay. It also pertains to repeated refinancing of a loan charging high interest and fees each time.
Pre-foreclosure Sale (Short Sale):a procedure in which the borrower is allowed to sell a property for an amount less than what is owed on it to avoid a foreclosure. This sale fully satisfies the borrower's debt.
Prepayment:any amount paid to reduce the principal balance of a loan before the due date or payment in full of a mortgage. This can occur with the sale of the property, the pay off the loan in full, or a foreclosure. In each case, full payment occurs before the loan has been fully amortized.
Prepayment Penalty:a provision in some loans that charge a fee to a borrower who pays off a loan before it is due.
Pre-Foreclosure sale:allows a defaulting borrower to sell the mortgaged property to satisfy the loan and avoid foreclosure.
Pre-Qualify:a lender informally determines the maximum amount an individual is eligible to borrow. This is not a guaranty of a loan.
Premium:an amount paid on a regular schedule by a policyholder that maintains insurance coverage.
Prepayment:payment of the mortgage loan before the scheduled due date; may be Subject to a prepayment penalty.
Prepayment Penalty:a fee charged to a homeowner who pays one or more monthly payments before the due date. It can also apply to principal reduction payments.
PriceRange:the high and low amount a buyer is willing to pay for a home.
Prime Rate:the interest rate that banks charge to preferred customers. Changes in the prime rate are publicized in the business media. Prime rate can be used as the basis for adjustable rate mortgages (ARMs) or home equity lines of credit. The prime rate also affects the current interest rates being offered a