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MORTGAGE TERMINOLOGY |
- 2/28 and 3/27 Mortgages
- Mortgages with a fixed rate for 2 or 3 years and then adjust the rate
every year thereafter.
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- 3/1, 5/1, 7/1 and 10/1 ARMs
- Adjustable-rate mortgages in which rate is fixed for three-year,
five-year, seven-year and 10-year periods, respectively, but may adjust
annually after that.
- Acceleration
- The right of the mortgagee (lender) to demand the immediate repayment
of the mortgage loan balance upon the default of the mortgagor (borrower),
or by using the right vested in the Due-on-Sale Clause.
- Adjustable rate mortgage (ARM)
- Is a mortgage in which the interest rate is adjusted periodically
based on a pre-selected index.
- Adjusted Basis
- The cost of a property plus the value of any capital expenditures for
improvements to the property minus any depreciation taken.
- Adjustment Date
- The date that the interest rate changes on an adjustable-rate mortgage
(ARM).
- Adjustment interval
- On an adjustable rate mortgage, the time between changes in the
interest rate and/or monthly payment, typically one, three or five years
depending on the index.
- Adjustment Period
- The period elapsing between adjustment dates for an adjustable-rate
mortgage (ARM).
- Affordability Analysis
- An analysis of a buyers ability to afford the purchase of a home.
Reviews income, liabilities, and available funds, and considers the type
of mortgage you plan to use, the area where you want to purchase a home,
and the closing costs that are likely.
- Amortization
- Means loan payment by equal periodic payment calculated to pay off the
debt at the end of a fixed period, including accrued interest on the
outstanding balance.
- Amortization Term
- The length of time required to amortize the mortgage loan expressed as
a number of months. For example, 360 months is the amortization term for a
30-year fixed-rate mortgage.
- Annual percentage rate (A.P.R.)
- APR is a measurement of the first year 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.
However, some lenders have hidden fees that are not included in the APR.
Always obtain a good faith estimate prior to making a decision about a
loan.
- Appraisal
- An estimate of the value of property, made by a qualified professional
called an "appraiser".
- Appraised Value
- An opinion of a property's fair market value, 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.
- Assignment
- The transfer of a mortgage from one person to another.
- Assumability
- An assumable mortgage can be transferred from the seller to the new
buyer. Generally requires a credit review of the new borrower and lenders
may charge a fee for the assumption. If a mortgage contains a due-on-sale
clause, it may not be assumed by a new buyer.
- Assumption
- The agreement between buyer and seller where the buyer takes over the
payments on an existing mortgage from the seller. Assuming a loan can
usually save the buyer money since this is an existing mortgage debt,
unlike a new mortgage where closing cost and new, probably higher,
market-rate interest charges will apply.
- Assumption Fee
- The fee paid to a lender (usually by the purchaser of real property)
when an assumption takes place.
- Balloon Mortgage
- A loan which is amortized for a longer period than the term of the
loan. Usually this refers to a thirty-year amortization and a five year
term. At the end of the term of the loan, the remaining outstanding
principal on the loan is due. This final payment is known as a balloon
payment.
- Balloon Payment
- The final lump sum paid at the maturity date of a balloon mortgage.
- Biweekly Payment Mortgage
- A plan to reduce the debt every two weeks (instead of the standard
monthly payment schedule). The 26 (or possibly 27) biweekly payments are
each equal to one-half of the monthly payment required if the loan were a
standard 30-year fixed-rate mortgage. The result for the borrower is a
substantial savings in interest.
- Blanket Mortgage
- A mortgage covering at least two pieces of real estate as security for
the same mortgage. This is a commercial loan and only available
through banks.
- Borrower (Mortgagor)
- One who applies for and receives a loan in the form of a mortgage with
the intention of repaying the loan in full.
- Bridge Loan
- A second mortgage that is collateralized by the borrower's present
home allowing the proceeds to be used to close on a new house before the
present home is sold. Also known as "swing loan."
- Broker
- An individual in the business of assisting in arranging funding or
negotiating contracts for a client but who does not loan the money
himself. Brokers usually charge a fee or receive a commission for their
services.
- Buy-down
- When the lender and/or the home builder subsidized 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.
- Cash Flow
- The amount of cash derived over a certain period of time from an
income-producing property. The cash flow should be large enough to pay the
expenses of the income producing property (mortgage payment, maintenance,
utilities, etc.).
- Caps (interest)
- Consumer safeguards which limit the amount the interest rate on an
adjustable rate mortgage which may change per year and/or the life of the
loan.
- Caps (payment)
- Consumer safeguards which limit the amount monthly payments on an
adjustable rate mortgage may change.
- Certificate of Eligibility
- The document given to qualified veterans which entitles them to VA
guaranteed loans for homes, business and mobile homes. Certificates of
eligibility may be obtained by sending form DD-214 (Separation Paper) to
the local VA office with VA form 1880 (request for Certificate of
Eligibility)
- Certificate of Reasonable Value (CRV)
- An appraisal issued by the Veterans Administration showing the
property's current market value
- Change Frequency
- The frequency (in months) of payment and/or interest rate changes in
an adjustable-rate mortgage (ARM).
- Closing Celebration
- The meeting between the buyer, seller and lender or their agents where
the property and funds legally change hands, also called settlement.
Closing costs usually include an origination fee, discount points,
appraisal fee, title search and insurance, survey, taxes, 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
- These are 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.
- COFI
- Adjustable-rate mortgage with rate that adjusts based on a
cost-of-funds index, often the 11th District Cost of Funds.
- 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.
- Consumer Reporting Agency (or Bureau)
- An organization that handles the preparation of reports used by
lenders to determine a potential borrower's credit history. The agency
gets data for these reports from a credit repository and from other
sources.
- Contract for deed:
- A contract between purchaser and a seller of real estate to convey
title after certain conditions have been met. It is a form of installment
sale. Problems occur with this form of purchase because the borrower
is not in title and any title problems caused by the seller will affect
the purchase. This form of purchase is not recommended.
- Conventional loan
- A mortgage not insured by FHA or guaranteed by the VA.
- Conversion Clause
- A provision in an ARM allowing the loan to be converted to a
fixed-rate at some point during the term. Usually conversion is allowed at
the end of the first adjustment period. The conversion feature may cost
extra.
- Credit Report
- A report documenting the credit history and current status of a
borrower's credit standing.
- Credit Score
- A credit 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.
- Debt-to-Income Ratio or DTI
- The ratio, expressed as a percentage, which results when a borrower's
monthly payment obligation on long-term debts is divided by his or her
gross monthly income. See housing expenses-to-income ratio.
- Deed of trust
- In many states, this document is used in place of a mortgage to secure
the payment of a note. For example, it is used in Colorado and not
in Oklahoma.
- Default
- Failure to meet legal obligations in a contract, specifically, failure
to make the monthly payments on a mortgage.
- Deferred interest
- When a mortgage is written with a monthly payment that is less than
required to satisfy the note rate, the unpaid interest is deferred by
adding it to the loan balance. See negative amortization.
- Delinquency
- Failure to make payments on time. This can lead to foreclosure.
- Department of Veterans Affairs (VA)
- An independent agency of the federal government which guarantees
long-term, low-or no-down payment mortgages to eligible veterans.
- Discount Point
- see point
- 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 or deed of trust that allows the lender to
demand immediate payment of the balance of the mortgage if the mortgage
holder sells the home.
- Earnest Money
- Money given by a buyer to a seller as part of the purchase price to
bind a transaction or assure payment.
- Entitlement
- The VA home loan benefit is called an entitlement (i.e. entitlement
for a VA guaranteed home loan). This is also known as eligibility.
- Equal Credit Opportunity Act (ECOA)
- Is a federal law that requires lenders and other creditors to make
credit equally available without discrimination based on race, color,
religion, national origin, age, sex, marital status or receipt of income
from public assistance programs.
- Equity
- The difference between the fair market value and current indebtedness,
also referred to as the owner's interest. The value an owner has in real
estate over and above the obligation against the property.
- Escrow
- An account held by the lender into which the home buyer pays money for
tax or insurance payments. Also earnest deposits held pending loan
closing.
- Escrow Disbursements
- The use of escrow funds to pay real estate taxes, hazard insurance,
mortgage insurance, and other property expenses as they become due.
- Escrow Payment
- The part of a mortgagor’s monthly payment that is held by the servicer
to pay for taxes, hazard insurance, mortgage insurance, lease payments,
and other items as they become due.
- 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 Home Loan Bank Board (FHLBB)
- The former name for the regulatory and supervisory agency for
federally chartered savings institutions. Agency is now called the
Office of Thrift Supervision
- Federal Home Loan Mortgage Corporation(FHLMC) also
called "Freddie Mac"
- Is a quasi-governmental agency that purchases conventional mortgage
from insured depository institutions and HUD-approved mortgage bankers.
- 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.
- Federal National Mortgage Association (FNMA) also
know as "Fannie Mae"
- A tax-paying corporation created by Congress that purchases and sells
conventional residential mortgages as well as those insured by FHA or
guaranteed by VA. This institution, which provides funds for one in seven
mortgages, makes mortgage money more available and more affordable.
- 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
($155,250 as of 1/1/96), they are generous enough to handle
moderately-priced homes almost anywhere in the country.
- FHA mortgage insurance
- Requires a fee (up to 1.5 percent of the loan amount) paid at closing
and included in the loan amount to insure the loan with FHA. In addition,
FHA mortgage insurance 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.
- FHLMC
- The Federal Home Loan Mortgage Corporation provides a secondary market
for savings and loans by purchasing their conventional loans. Also known
as "Freddie Mac.
- Firm Commitment
- A promise by FHA to insure a mortgage loan for a specified property
and borrower. A promise from a lender to make a mortgage loan.
- First Mortgage
- The primary lien against a property.
- Fixed Installment
- The monthly payment due on a mortgage loan including payment of both
principal and interest.
- Fixed Rate Mortgage
- The mortgage interest rate will remain the same on these mortgages
throughout the term of the mortgage for the original borrower.
- Fully Amortized ARM
- An adjustable-rate mortgage (ARM) with a monthly payment that is
sufficient to amortize the remaining balance, at the interest accrual
rate, over the amortization term.
- FNMA
- The Federal National Mortgage Association is a secondary mortgage
institution which is the largest single holder of home mortgages in the
United States. FNMA buys VA, FHA, and conventional mortgages from primary
lenders. Also known as "Fannie Mae."
- 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.
- Government National Mortgage Association (GNMA)
- Also known as "Ginnie Mae," provides sources of funds for residential
mortgages, insured or guaranteed by FHA or VA.
- Guaranty
- A promise by one party to pay a debt or perform an obligation
contracted by another if the original party fails to pay or perform
according to a contract.
- Guarantee Mortgage
- A mortgage that is guaranteed by a third party.
- Hazard Insurance
- A form of insurance in which the insurance company protects the
insured from specified losses, such as fire, windstorm and the like.
- Housing Expenses-to-Income Ratio
- The ratio, expressed as a percentage, which results when a borrower's
housing expenses are divided by his/her gross monthly income. See
debt-to-income ratio.
- HUD-1 statement
- A document that provides an itemized listing of the funds that are
payable at closing. Items that appear on the statement include real estate
commissions, loan fees, points, and initial escrow amounts. Each item on
the statement is represented by a separate number within a standardized
numbering system. The totals at the bottom of the HUD-1 statement define
the seller's net proceeds and the buyer's net payment at closing.
- Impound or Escrow
- That portion of a borrower's monthly payments held by the lender or
servicer to pay for taxes, hazard insurance, mortgage insurance, lease
payments, and other items as they become due. Also known as reserves.
- 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
costs-of-funds incurred by savings and loans), which is then used to
adjust the interest rate on an adjustable mortgage up or down.
- Indexed rate
- The sum of the published index plus the margin. For example if the
index were 9% and the margin 2.75%, the indexed rate would be 11.75%.
Often, lenders charge less than the indexed rate the first year of an
adjustable-rate mortgage.
- 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.
- Insured Mortgage
- A mortgage that is protected by the Federal Housing Administration
(FHA) or by private mortgage insurance (MI).
- Interest
- The fee charged for borrowing money.
- Interest Accrual Rate
- The percentage rate at which interest accrues on the mortgage. In most
cases, it is also the rate used to calculate the monthly payments.
- Interest Rate Buydown Plan
- An arrangement that allows the property seller to deposit money to an
account. That money is then released each month to reduce the mortgagor's
monthly payments during the early years of a mortgage.
- Interest Rate Ceiling
- For an adjustable-rate mortgage (ARM), the maximum interest rate, as
specified in the mortgage note.
- Interest Rate Floor
- For an adjustable-rate mortgage (ARM), the minimum interest rate, as
specified in the mortgage note.
- Interim Financing
- A construction loan made during completion of a building or a project.
A permanent loan usually replaces this loan after completion.
- Investor
- A money source for a lender.
- Jumbo Loan
- A loan which is larger (more than $333,700 as of 1/1/04) 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.
- Late Charge
- The penalty a borrower must pay when a payment is made a stated number
of days (usually 15) after the due date.
- Liabilities
- A person's financial obligations. Liabilities include long-term and
short-term debt.
- Lien
- A claim upon a piece of property for the payment or satisfaction of a
debt or obligation.
- Lifetime Payment Cap
- For an adjustable-rate mortgage (ARM), a limit on the amount that
payments can increase or decrease over the life of the mortgage.
- Lifetime Rate Cap
- For an adjustable-rate mortgage (ARM), a limit on the amount that the
interest rate can increase or decrease over the life of the loan. See cap.
- Loan
- A sum of borrowed money (principal) that is generally repaid with
interest.
- 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
- 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 the 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.
- Maturity
- The date on which the principal balance of a loan becomes due and
payable.
- MIP (Mortgage Insurance Premium)
- It is insurance from FHA to the lender against incurring a loss on
account of the borrower's default.
- Monthly Fixed Installment
- That portion of the total monthly payment that is applied toward
principal and interest. When a mortgage negatively amortizes, the monthly
fixed installment does not include any amount for principal reduction and
doesn't cover all of the interest. The loan balance therefore increases
instead of decreasing.
- 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 exclusively 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.
- Mortgagee
- The lender.
- Mortgage Insurance
- Money paid to insure the mortgage when the down payment is less than
20 percent. See private mortgage insurance, FHA mortgage insurance.
- Mortgage Life Insurance
- A type of term life insurance In the event that the borrower dies
while the policy is in force, the debt is automatically paid by insurance
proceeds.
- Mortgagor
- The borrower or homeowner.
- 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.
- Net Effective Income
- The borrower's gross income minus federal income tax.
- Non Assumption Clause
- A statement in a mortgage contract forbidding the assumption of the
mortgage without the prior approval of the lender. Note: The signed
obligation to pay a debt, as a mortgage note.
- Note
- A legal document that obligates a borrower to repay a mortgage loan at
a stated interest rate during a specified period of time.
- Office of Thrift Supervision (OTS)
- The regulatory and supervisory agency for federally chartered savings
institutions. Formally known as Federal Home Loan Bank Board
- One-year adjustable
- Mortgage whose annual rate changes yearly. The rate is usually based
on movements of a published index plus a specified margin, chosen by the
lender.
- Origination Fee
- The fee charged by a lender to prepare loan documents, make credit
checks, inspect and sometimes appraise a property; usually computed as a
percentage of the face value of the loan.
- Owner Financing
- A property purchase transaction in which the party selling the
property provides all or part of the financing.
- 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 adjustment date.
- Periodic Payment Cap
- A limit on the amount that payments can increase or decrease during
any one adjustment period.
- Periodic Rate Cap
- A limit on the amount that the interest rate can increase or decrease
during any one adjustment period, regardless of how high or low the index
might be.
- Permanent Loan
- A long term mortgage, usually ten years or more. Also called an "end
loan."
- PITI
- Principal, Interest, Taxes and Insurance. Also called monthly housing
expense.
- 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 $100,000
mortgage would cost $2,000).
- Power of Attorney
- A legal document authorizing one person to act on behalf of another.
- Pre-Approval
- The process of determining how much money you will be eligible to
borrow before you apply for a loan.
- Prepaid Expenses
- Necessary to create an escrow account or to adjust the seller's
existing escrow account. Can include taxes, hazard insurance, private
mortgage insurance and special assessments.
- Prepayment
- A privilege in a mortgage permitting the borrower to make payments in
advance 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.
- Primary Mortgage Market
- Lenders, such as savings and loan associations, commercial banks, and
mortgage companies, who make mortgage loans directly to borrowers. These
lenders sometimes sell their mortgages to the secondary mortgage markets
such as to FNMA or GNMA, etc.
- Principal
- The amount borrowed or remaining unpaid. The part of the monthly
payment that reduces the remaining balance of a mortgage.
- Principal Balance
- The outstanding balance of principal on a mortgage not including
interest or any other charges.
- Principal, Interest, Taxes, and Insurance (PITI)
- The four components of a monthly mortgage payment. Principal refers to
the part of the monthly payment that reduces the remaining balance of the
mortgage. Interest is the fee charged for borrowing money. Taxes and
insurance refer to the monthly cost of property taxes and homeowners
insurance, whether these amounts that are paid into an escrow account each
month or not.
- Mortgage Insurance (MI)
- In the event that you do not have a 20 percent down payment, lenders
will allow a smaller down payment - as low as 3 percent in some cases.
With the smaller down payment loans, however, borrowers are usually
required to carry private mortgage insurance. ortgage insurance will
usually require an initial premium payment and may require an additional
monthly fee depending on your loan's structure.
- Qualifying Ratios
- Calculations used to determine if a borrower can qualify for a
mortgage. They consist of two separate calculations: a housing expense as
a percent of income ratio and total debt obligations as a percent of
income ratio.
- Rate Lock
- A commitment issued by a lender to a borrower or other mortgage
originator guaranteeing a specified interest rate and lender costs for a
specified period of time.
- Realtor®
- A real estate broker or an associate holding active membership in a
local real estate board affiliated with the National Association of
Realtors.
- Real Estate Agent
- A person licensed to negotiate and transact the sale of real estate on
behalf of the property owner.
- Real Estate Settlement Procedures Act (RESPA)
- A consumer protection law that requires lenders to give borrowers
advance notice of closing costs.
- Recission
- The cancellation of a contract. With respect to mortgage refinancing,
the law that gives the homeowner three days to cancel a contract in some
cases once it is signed if the transaction uses equity in the home as
security.
- Recording Fees
- Money paid to the lender for recording a home sale with the local
authorities, thereby making it part of the public records.
- Refinance
- Obtaining a new mortgage loan on a property already owned. Often to
replace existing loans on the property.
- RESPA
- Short for the Real Estate Settlement Procedures Act. RESPA is a
federal law that allows consumers to review information on known or
estimated settlement cost once after application and once prior to or at a
settlement. The law requires lenders to furnish the information after
application only.
- Revolving Liability
- A credit arrangement, such as a credit card, that allows a customer to
borrow against a pre-approved line of credit when purchasing goods and
services.
- Satisfaction of Mortgage
- The document issued by the mortgagee when the mortgage loan is paid in
full. Also called a "release of mortgage."
- 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.
- Security
- The property that will be pledged as collateral for a loan.
- Seller Carry-back
- An agreement in which the owner of a property provides financing,
often in combination with an assumable mortgage. See owner financing.
- Servicer
- An organization that collects principal and interest payments from
borrowers and manages borrowers’ escrow accounts. The servicer often
services mortgages that have been purchased by an investor in the
secondary mortgage market.
- 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,
property inspections and the like.
- Settlement/Settlement Costs
- see closing/closing costs
- Simple Interest
- Interest which is computed only on the principle balance.
- Standard Payment Calculation
- The method used to determine the monthly payment required to repay the
remaining balance of a mortgage in substantially equal installments over
the remaining term of the mortgage at the current interest rate.
- 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.
- Third-party Origination
- When a lender uses another party to completely or partially originate,
process, underwrite, close, fund, or package the mortgages it plans to
deliver to the secondary mortgage market.
- 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.
- Title Search
- An examination of municipal records to determine the legal ownership
of property. Usually is performed by a title company.
- Total Expense Ratio
- Total obligations as a percentage of gross monthly income including
monthly housing expenses plus other monthly debts.
- Truth-In-Lending
- A federal law requiring disclosure of the Annual Percentage Rate to
home buyers shortly after they apply for the loan. Also known as
Regulation Z.
- Underwriting
- The decision whether to make a loan to a potential home buyer based on
credit, employment, assets, and other factors and the matching of this
risk to an appropriate rate and term or loan amount.
- Usury
- Interest charged in excess of the legal rate established by law.
- 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.
- VA Mortgage Funding Fee
- A premium of up to 1-7/8 percent (depending on the size of the down
payment) paid on a VA-backed loan. On a $75,000 fixed-rate mortgage with
no down payment, this would amount to $1,406 either paid at closing or
added to the amount financed.
- Variable Rate Mortgage (VRM)
- see adjustable rate mortgage
- Verification of Deposit (VOD)
- A document signed by the borrower's financial institution verifying
the status and balance of his/her financial accounts.
- Verification of Employment (VOE)
- A document signed by the borrower's employer verifying his/her
position and salary.
- Warehouse Fee
- Many mortgage firms must borrow funds on a short term basis in order
to originate loans which are to be sold later in the secondary mortgage
market (or to investors). When the prime rate of interest is higher on
short term loans than on mortgage loans, the mortgage firm has an economic
loss which is offset by charging a warehouse fee.
- 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. This is illegal in
the state of Oklahoma for residential mortgages.
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