Adjustable Rate Mortgage (ARM)

A loan in which the interest rate is adjusted periodically based on changes in a pre-selected index. Based on the index fluctuations, the rate and payments on an ARM loan rise and fall with the market.

Amortization

Repayment of a loan with incremental payments of both principal and interest calculated to payoff the loan at the end of a fixed period of time.

Annual Percentage Rate (APR)

A calculation that expresses the total cost of a mortgage loan as a yearly rate. The Annual Percentage Rate (APR) includes both your interest and any additional costs or prepaid finance charges you might pay such as prepaid interest, private mortgage insurance, closing fees, points and certain fees paid at origination. It generally results in a rate slightly higher than the stated interest rate on the loan.

Appraisal

A written estimate of a property's current market value, based on recent sales information for similar properties, the condition of the property and the neighborhood's impact on future property value. It is required to purchase or refinance your new home or property.

Appraisal Fee

A fee charged by a licensed, certified appraiser to provide an appraisal.

APR (Annual Percentage Rate)

A calculation that expresses the total cost of a mortgage loan as a yearly rate. The Annual Percentage Rate (APR) includes both your interest and any additional costs or prepaid finance charges you might pay such as prepaid interest, private mortgage insurance, closing fees, points and certain fees paid at origination. It generally results in a rate slightly higher than the stated interest rate on the loan.

ARM (Adjustable Rate Mortgage)

A loan in which the interest rate is adjusted periodically based on changes in a pre-selected index. Based on the index fluctuations, the rate and payments on an ARM loan rise and fall with the market.

Balloon Mortgage

A short-term, fixed-rate loan with fixed monthly payments for a set number of years and a large final balloon payment of the remainder of the principal.

Borrower (Mortgagor)

An individual who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan in full under the terms of the loan.

Broker

An individual who brings buyers and sellers together and assists in arranging funding or negotiating contracts for a client but does not loan money himself

Cash Out

A refinance for more than the remaining balance of the current mortgage. The excess money taken out reduces the borrower's equity they have already built up in the house.

Closing (or Settlement)

The closing is the conclusion of your real estate transaction and includes a meeting between the buyer, seller and lender or their agents at which property and funds legally change hands.

Closing Costs

Fees incurred in a real estate or mortgage transaction paid by borrower and/or seller at the closing of the transaction. Examples include title fees, recording fees, appraisal fee, credit report fee, attorney's fees, taxes, and surveying fees.

Conforming Loan

A mortgage loan that meets all the requirements to be eligible for purchase by the two Federally sponsored housing agencies, Fannie Mae and Freddie Mac.

Conventional Loan

A mortgage not insured by the FHA or guaranteed by the VA.

Convertible ARMs

An ARM loan with the option of conversion to a fixed loan during a given time period

Credit Report

A report detailing the credit history of a prospective borrower that's used by lenders to help determine creditworthiness.

Deed

Legal document by which title to a property is transferred from one owner to another. The deed contains a description of the property and is signed, witnessed, and delivered to the buyer at closing.

Default

Failure to meet legal obligations in a contract, including failure to make payments on a loan.

Delinquency

Failure to make required payments on time as agreed in the loan agreement.

Discount Points

Points are fees added on to a loan and are paid when the loan closes. One point equals one percent of the loan amount. There is an inverse relationship between the interest rate and the number of points paid. In other words, you can lower your monthly mortgage payments by paying more money up front through points.

Down Payment

In a home purchase, the up front cash amount you must pay that equals the difference between the purchase price and the mortgage amount.

Equity

The difference between the current market value of a property and the outstanding mortgage balance.

Escrow Account

An account held by the lender to which the borrower pays monthly installments, collected as part of the monthly mortgage payment, for annual expenses such as taxes and insurance.

Fannie Mae

This agency buys and sells residential loans that are underwritten to its specific guidelines.

Federal Housing Administration (FHA)

Government agency, division of the Department of Housing and Urban Development, which insures residential mortgage loans made by private lenders and sets standards for underwriting mortgage loans.

FHA (Federal Housing Administration)

Government agency, division of the Department of Housing and Urban Development, which insures residential mortgage loans made by private lenders and sets standards for underwriting mortgage loans.

FICO Score

A credit evaluation score developed by Fair, Isaac, and Co., used by lenders as one factor in making a loan decision.

Finance Charge

A finance charge is the total all interest a borrower would pay over the entire life of the loan.

Fixed Rate

An interest rate that is fixed for the term of the loan.

Fixed-Rate Mortgage

A mortgage whose interest rate and resulting monthly payments do not change for the life of the loan.

Foreclosure (or Repossession)

Legal process by which the lender forces the sale of a property when the borrower has not met the mortgage terms.

Freddie Mac (FHLMC)

An agency that purchases conventional mortgages that are underwritten to its specific guidelines.

Gross Income

Total income before taxes or expenses are deducted.

Homeowners insurance

Required by all lenders to protect their investment, and must be obtained before closing equal to the loan balance or the value of the home.

Housing and Urban Development (HUD)

A U.S. government agency established to implement federal housing and community development programs; oversees the Federal Housing Administration.

HUD (Housing and Urban Development)

A U.S. government agency established to implement federal housing and community development programs; oversees the Federal Housing Administration.

Initial Rate

The rate charged during the first interval of an adjustable rate mortgage.

Interest

Charge paid for borrowing money.

Interest Rate

The annual rate of interest on the loan, expressed as a percentage of the outstanding balance.

Jumbo Loan

A mortgage with a principal balance that exceeds the amount eligible for purchase by Fannie Mae and Freddie Mac. Jumbo loans generally carry a higher interest rate. Currently the limit is set at $322,700 for single unit properties.

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Lender

The bank, mortgage company, or mortgage broker offering the loan.

LIBOR (London Interbank Offered Rate)

The interest rate charged among banks for short-term foreign market loans, and a common index for adjustable rate mortgages.

Lien

A legal claim against a property that must be paid when the property is sold.

Loan Application

Document required by lenders prior to loan approval containing detailed information about the borrower and property.

Loan Term

The period of time between the closing date and the date of your last payment is paid of your loan.

Loan to Value Ratio (LTV)

The percentage of loan amount to the actual appraised value of the property.

Lock or Lock In

A lender's guarantee of an interest rate and related points for a set period of time, usually between loan application and loan closing. Protects borrower against rate increases during that time.

Mortgage

Document creating a lien on a property as security for the payment of a debt.

Mortgage Broker

An individual or company that arranges financing for borrowers.

Mortgage Insurance

Insurance purchased by a buyer to cover the lender's risk of loss. Mortgage Insurance is generally required by lenders when the down payment is less than 20% of the purchase price.

Mortgagee

The lender in a mortgage loan transaction.

Mortgagor

The borrower in a mortgage loan transaction.

Note

Legal document stating the terms of a debt and a promise to repay it.

Origination Fee

Fee charged by a lender to cover administrative costs of processing a loan.

Pre-approval

The process of determining how much money a prospective homebuyer or refinancer will be eligible to borrow prior to application for a loan. A pre-approval includes a preliminary screening of a borrower's credit history. Information submitted during pre-approval is subject to verification at application.

Principal

The amount of debt, not counting interest, left on a loan.

Property Tax

A government tax based on the market value of a property.

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Recording Fee

Money paid to a government agent for entering the sale of a property into the public records.

Refinancing

The process of paying off one loan with the proceeds from a new loan secured by the same property.

Real Estate Settlement Procedures Act (RESPA)

Law requiring lenders to give borrowers advance notice of closing costs.

Security

This refers to the address of the property being pledged as security for your loan.

Settlement (or Closing)

The closing is the conclusion of your real estate transaction and includes a meeting between the buyer, seller and lender or their agents at which property and funds legally change hands.

Settlement Costs (or Closing Costs)

Fees incurred in a real estate or mortgage transaction paid by borrower and/or seller at the closing of the transaction. Examples include title fees, recording fees, appraisal fee, credit report fee, attorney's fees, taxes, and surveying fees.

Tax Lien

Claim against a property for unpaid taxes.

Term

The number of years it will take to pay off a loan.

Third Party Fees

Fees paid to a third party for services requested by the lender on your behalf.

Title

Document which gives evidence of ownership of a property and the rights of ownership and possession of that property.

Underwriting

The process of verifying data and evaluating a loan for approval.

VA Loans

Fixed-rate loans guaranteed by the U.S. Department of Veterans Affairs. They are designed to make housing affordable for eligible U.S. veteran.

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