- Adjustable
Rate Mortgage (ARM): A mortgage with an interest rate that changes
over time in line with movements in the index. ARMs are also referred
to as AML,s (adjustable mortgage loans) or VRMs (variable rate
mortgages).
- Adjustment
Period: The length of time between interest rate changes on an ARM.
For example, a loan with an adjustment period of one year is called a
one-year ARM, which means that the interest rate can change once a year.
- Amortization:
Repayment of a loan in equal installments of principal and interest,
rather than interest-only payments.
- Annual
Percentage Rate (APR): The total finance charge (interest, loan
fees, points) expressed as a percentage of the loan amount.
- Assumption
of Mortgage: A buyers agreement to assume the liability under an
existing note that is secured by a mortgage or deed of trust. The
lender must approve the buyer in order to release the original borrower
(usually the seller) from liability.
- Balloon
Payment: A lump-sum pnncipal payment due at the end of some
mortgages or other long- term loans.
- Beneficiary:
The lender on the security of a note and deed of trust
- Binder:
Sometimes known as an offer to purchase or an earnest money request. A
binder is the acknowledgement of a deposit along with a brief written
agreement to enter into a contract for the sale of real estate.
- Buydown:
An interest rate that is bought down to a lower rate.
- Cap:
The limit on how much an interest rate or monthly payment can change,
either at each adjustment or over the life of the mortgage.
- CC&R's-
Covenants, Conditions and Restrictions. A document that controls the
use, requirements and restrictions of a property.
- Certificate
of Reasonable Value (CRV): A document that establishes the maximum
value and loan amount for a VA guaranteed mortgage.
- Closing
Statement: The financial disclosure statement that accounts for all
of the funds received and expected at the closing, including deposits
for taxes, hazard insurance, and mortgage insurance.
- Community
Property: Property acquired by husband and/or wife during a
marriage when not acquired as the separate property of either spouse.
- Condominium:A
form of real estate ownership where the owner receives title to a
particular unit and has a proportionate interest in certain common
areas. The unit itself is generally a separately owned space whose
interior surfaces (walls, floors and ceilings) serve as its boundaries.
- Cooperative:
A form of multiple ownership in which a corporation or business trust
entity holds title to a property and grants occupancy rights to
shareholders by means of proprietary leases or similar arrangements.
- Deed
of Trust: A legal document by ewhich a borrower pledges real
property as guarantee for the repayment of a loan. There are three
parties to a deed of trust. They are the Trustor, Trustee, and
Beneficiary.
- Due-on-Sale
Clause: An acceleration clause that requires full payment of a
mortgage or deed of trust when the secured property changes ownership.
- Earnest
Money: The portion of the down payment delivered to the seller or
escrow agent by the purchaser with a written offer as evidence of good
faith.
- Escrow:
A procedure in which a third party acts as a stakeholder for both the
buyer and the seller, carrying out both parties' instructions and
assuming responsibility for handling all of the paperwork and
distribution of funds.
- FHA
Loan: A loan insured by the Insuring Office of the Department of
Housing and Urban Development; the Federal Housing Administration.
- Federal
National Mortgage Association (FNMA): Popularly known as Fannie
Mae. A privately owned corporation created by Congress to support the
secondary mortgage market. It purchases and sells residential mortgages
insured by FHA or guaranteed by the VA, as well as conventional home
mortgages.
- Fee
Simple: An estate in which the owner has unrestricted power to
dispose of the property as he wishes, including leaving by will or
inheritance. It is the greatest interest a person can have in real
estate.
- Finance
Charge: The total cost a borrower must pay, directly or indirectly,
to obtain credit according to Regulation 2.
- Funding
Fee: A fee associated with a VA loan used to guarantee the loan.
- Graduated
Payment Mortgage: A residential mortgage with monthly payments that
start at a low level and increase at a predetermined rate.
- Index:
A measure of interest rate changes used to determine changes in an
ARM's interest rate over the term of the loan.
- Joint
Tenancy: An equal undivided ownership of property by two or more
persons. Upon the death of any owner, the survivors take the decedent's
interest in the property.
- Lien:
A legal hold or claim on property as security for a debt or charge.
- Loan
Commitment: A written promise to make a loan for a specified amount
on specified terms.
- Loan
to value Ratio: The relationship between the amount of the mortgage
and the appraised value of the property, expressed as a percentage of
the appraised value.
- Margin:
The number of percentage points the lender adds to the index rate to
calculate the ARM interest rate at each adjustment.
- Mortgage:
An instrument by which property is hypothecated to secure the payment
of a debt or obligation.
- Mortgage
Insurance Premium (MIP): Money paid by the borrower in an FHA loan
and used to insure the loan.
- Mortgage
Life insurance: A type of term life insurance often bought by
mortgagors. The coverage decreases as the mortgage balance declines. If
the borrower dies while the policy is in force, the debt is
automatically covered by insurance proceeds.
- Mortgagor:
The borrower giving the lender a lien on property as security for the
repayment of a loan.
- Mortgagee:
The lender that holds the lien on property as security for the
repayment of a loan.
- Negative
Amortization: Negative amortization occurs when monthly payments
fail to cover the interest cost. The interest that isn't covered is
added to the unpaid principal balance, which means that even after
several 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 minthly payments that aren't high enough to cover the
interest.
- Planned
Unit Development (PUD): A project consisting of individually owned
parcels of land together with a common area and facilities owned by an
association of which all the owners of the parcels are members.
- Prepayment
Penalty: A fee paid to a lender for payoff of the loan prior to the
scheduled maturity.
- Private
Mortgage Insurance (PMI): Insurance paid for by the borrower to
insure the lender against default in conventional loans.
- Purchase
Agreement: A written document in which the purchaser agrees to buy
certain real estate and the seller agrees to sell under stated terms
and conditions. Also called a sales contract. earnest money contract,
or agreement for sale.
- Regulation
Z: The set of rules governing consumer lending issued by the
Federal Reserve Board of Governors in accordance with the Consumer
Protection Act.
- Tenancy
in Common: A type of joint ownership of property by two or more
persons with no right of survivorship.
- Title
Insurance Policy: A policy that protects the purchaser, mortgagee
or other party against losses.
- Trustee:
One who holds property in trust for another to secure the performance
of an obligation.
- VA
Loan: A loan that is partially guaranteed by the Veterans
Administration and made by a private lender.
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