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After purchasing three single family homes I had no understanding of what terms such as: Title, escrow, prepaids, mortgage insurance and underwriting really meant, it's somewhat ironic that I now pride myself as a mortgage professional. Please use the Glossary to clarify as many of these terms as are available.

Mortgage glossary

Acre: A measure, usually of land equal to 160 square rods, (43560 sq. ft.) in a shape.

Adjustable Rate Mortgage (ARM): A mortgage in which the lender adjusts the interest rate periodically according to a spcified index.

Affidavit: A sworn statement in writing.

Amortization: Gradual reduction of the mortgage debt through periodic scheduled payments over the mortgage term (life of the loan).

Annual Percentage Rate (APR): A term used in a truth-in-lending act to represent the percentage relationship of the total finance charge to the amount of the loan. The APR reflects the cost of your mortgage loan as a yearly rate. It may be higher than the interest rate stated on the note because it includes, in addition to the interest rate, points and fees paid by the borrower.

Application: A printed form used by a mortgage lender to record necessary information concerning a prospective mortgage.

Application Fee: A sum of money collected which is applied toward the estimated initial mortgage processing expenses. (Appraisal and Credit Report).

Appraisal: A report made by a qualified person setting forth an opinion or estimate of value.

Appreciation: An increase of value in property due to the economic or related causes which may prove to be temporary or permanent.

Arbitration: The act of negotiating a debt to a lesser rate of interest or balance to achieve a settlement and closure of an account.

Assets: Everything owned by a person or corporation, which can be used for repayment of debts.

Bankruptcy: Proceedings under federal bankruptcy by a court having proper jurisdiction. The bankrupt's property is distributed by the court to the creditors as full satisfaction of the debts, in accordance with certain priorities and exemptions. Voluntary bankruptcy is petitioned by the debtor; involuntary bankruptcy is initiated by the creditors.

Buy-Down: Money advanced at settlement to reduce the borrowers monthly payments on a mortgage during the term of the loan or for the first few years.

Basis Point: One one-hundredth of one percent. Used primarily to describe changes in yield or price on debt instruments, including mortgages and mortgage backed securities. (Yield Spread)

Balloon Payment: A mortgage that has level monthly payments that will fully amortize it over a specified period, but which provides for a balloon payment to be due at an earlier specified term.

Blanket Mortgage: A mortgage that covers more than one parcel of real estate owned by the mortgagor.

Bridge Loan: (or Swing-Loan) A form of a second mortgage that is secured by the borrower's present home (which is usually for sale) in a manner which allows the proceeds to be used for closing on the new home before the present home is sold.

Broker: An individual employed on a fee or commission basis as agent to bring buyers and sellers together.

Caps (Interest): Consumer safeguard on an ARM (Adjustable Rate Mortgage) that limits the amount the interest rate may change per year.

Cap (Payment): Consumer safeguard on a ARM (Adjustable Rate Mortgage) which limits the amount monthly payment may change.

Cash-Out Refinance: A refinancing arrangement in which the amount of money received from the new loan exceeds the total of the money needed to repay the old debt, closing costs.

Closing: The consummation of a real estate transaction. The closing includes the delivery of a deed, financial adjustments, the signing of notes, and the disbursement of funds necessary to complete the sale and loan transaction.

Closing Costs: Generally involves an origination fee, appraisal, credit report, title insurance, attorney fees, survey, processing fee and recording fees.

Closing Statement: (Settlement Statement or HUD-1) a form used at closing that gives an account of the funds received and paid at the closing, including the escrow deposits for taxes, hazard insurance and mortgage insurance. This is generally the HUD-1.

Collateral: Property pledged as security for a debt, such as real estate pledged as security for a mortgage.

Comparables: Properties used for comparative purposes in the appraisal process that have similar characteristics to the subject property, (AKA: COMPS)

Coupon Rate: The stated anual interest rate on debt instrument. The term is used to describe the contract interest rate on the face of the mortgage note.

Deed: A written document by which the ownership of land is transferred from one person to another.

Default: The failure to perform an obligation as agreed in a contract.

Delinquency: A loan payment tht is overdue but within the period allowed before actual default is declared.

Depreciation: A loss of value in real property brought about by age, physical deterioration, functional or economic obsolescence.

Discounted Loan: When the note rate on a loan is less than the market rate of interest. The lender requires additional points to raise the yield on the loan to the market rate.

Due-On-Sale Provision: A covenant in a conventional mortgage that allows the lender to call the mortgage due and payable if ownership was transferred without the lender's permission.

Debt-To-Income Ratio (DTI): The relationship of a borrower's total monthly payment obligations on long-term debts divisded by gross monthly income, expressed in percentages (AKA: Back End Ratio).

Earnest Money: Deposit money given to the seller by the potential buyer to show that he or she is serious about buying a property. If the transaction is completed, the earnest money is applied to the down payment. If the the transaction fails to complete, it may be forfeited.

Easement: an interest in land owned by another tht entitles its holder to a specifice limited use, such as laying a sewer, putting up power lines or crossing the property.

Encroachment: a fixture, such as a howse, wall or fence, which intrudes upon another persons property.

Equal Credit Opportunity Act (ECOA): A federal law requiring lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, sex, marital status, receipt of income from public assistance programs or past exercising or rights uncer the Consumer Protection Act.

Equity: The ownership interest - that portion of a property's value over and above the liens against it.

Equity Loan: A loan based upon the equity in a property. The credit of the borrower is not a major factor.

Escrow: A procedure whereby a disinterested third party handles legal documents and funds on behalf of a seller and buyer.

Fair Credit Reporting Act (FCRA): A law, which requires a lender who is rejecting a loan request because of adverse credit information to inform the borrower of the source of such information.

Farmer's Home Administration (FmHA): a government agency within the Department of Agriculture that operates under the Consolidated Farm and Rural Development Act of 1921 and Title V of the Housing Act of 1949. This agency provides financing to farmenrs and other qualified borrowers who are unable to obtain loans elsewhere.

Federal Emergency Management Agency (FEMA):
Federal agency which, among other things directs the activities of the Federal Insurance Administration andestablishes flood insurance rates and terms of coverage, issues policies, processes claims and indicates and maps flood-prone areas.

Federal Home Loan Mortgage Corporation (FREDDIE MAC):
a corporation authorized by Congress in 1970. It purchases residential mortgages insured by the General Housing Administration or guaranteed by the Veterans Administration (VA) as well as conventional home mortgages. It sells participation certificates whose principal and interest is guaranteed by FHLMC.

Federal Housing Administration (FHA):
A federal agency within the Department of Housing and Urban Development (HUD) that provides mortgage insurance for residential mortgages and sets standards for construction and underwriting. The FHA does not lend money, nor does it plan or construct housing.

Federal National Mortgage Association (FANNIE MAE):
A tax paying corporation created by Congress to support the secondary mortgage market. It purchases and sells residental mortgages insured by the Federal Housing Administration (FHA) or guaranteed by the Veterans Administration (VA) as well as conventional home mortgages.

Fee Simple: The greatest possible ownership interest a person can have in real estate. A term used to describe ownership in real estate meaning that the person owning fee simple has all possible rights to the use of the property, including the right to dispose of the property or pass it on to heirs.

First Mortgage: A real estate loan that has priority over any subsequently recorded mortgage.

Fixed Interest Rate: An interest rate, which does not change during the loan term.

Forbearance: The act of refraining from taking legal action despite the fact the mortgage is in arrears. It is usually granted only when a mortggor makes a satisfactory arrangement to pay the amount owed at a future date.

Foreclosure: A legal procedure in which a mortgaged property is sold to pay the outstanding debt in case of default.

Funding Date: Date when the purchaser of the mortgage disburses payment to the seller or warehouse lender.

Funding Fee: The consideration paid by a mortgagee (borrower) for mortgage insurance on a VA loan.

Government National Mortgage Association (GINNIE MAE):
Created in 1968 by an amendment to the Title III of the National Housing Act, this federal government corporation is a constituent part of the Department of Housing and Urban Development (HUD). Among other governmental functions, it guarantees securities backed by mortgages that are insured or guaranteed by other government agencies. (AKA: Ginnie Mae)

High Ratio Loan: Mortgage loans in excess of 80% of the lower of the sales price or appraised value.

Homeowners Associations (HOA): A non profit corporation or association tht manages the common areas and services of a PUD or condominium project. In a condominium project it has no ownership interest in the common areas; in a PUD , it holds title to common areas.

Homeowner's Policy: A multiple peril insurance policy available to owners of private dwellings, which covers the dwelling and its contents, as well as personal liability.

Homestead State: In some states, a statutory exemption which prohibits the attachment or sale of owner-occupied properties to pay the claims of creditors.

Housing and Urban Development (HUD): Established by the Housing and Urban Development Act of 1965 to supersede the Housing and Home Finance Agency.

Land Contract: An agreement to ttransfer title to a property once conditions of the contract have been fulfilled.

Improvements: Those additions to raw lands tending to increase value such as buildings, streets, sewers, etc.

Index: When talking about adjusting rate mortgages, the index is usually expressed as a composite of interest rates. Often, these rates are the rates of the U.S. Treasury Securities. Changes in the index determine how the interest rates will change on an adjustable rate mortgage (ARM).

Level Payment Mortgage: A mortgage that provides for a fixed sum to be paid periodically during the term of the loan. Part of the fixed payments is credited to interest and the balance is used to reduce the principal of the loan.

Lien: A hold, claim or charge allowed a creditor upon the lands of a debtor, such as a mortgage.

LIBOR Index: The Libor (London Interbank Offered Rate) Index is the daily average of interbank offered rates for six-month U.S. dollar-denominated deposits as published in the Wall St. Journal.

Margin: With respect to Adjustable Rate Mortgages (ARM), the margin is the amount the lender adds to the index value to calculate the new interest rate at each adjustment. The margin reflects the lender's cost of doing business and allowance for profit.

Mortgage: An instrument used to encumber land as a security for a debt.

Net Worth: The value of all assets less total liabilities. It is often used as an underwriting guideline to indicate credit worthiness and financial strength.

Owners Policy: A policy of title insurance, which insures a named owner against loss by reason of defects, liens and encumbrances or lack of marketability of the title. The company also agrees to defend covered claims made against the title.

Open-End Mortgage: A mortgage with a provision that the outstanding loan amount may be increased upon mutual agreement of the lender and the borrower.

Originator: A person who solicits builders, brokers, and others to obtain applications for mortgaage loans, (AKA: Loan Officer).

Over-Improvement: Renovation or remodeling inappropriate to a site due to its excess isze or cost, or inadequate return.

PITI (Principal, Interest, Taxes and Insurance): The most common components of a monthly mortgage payment.

Point: An amount equal to 1% of the loan amount. Points are one-time charges assessed at closing by the lender. They represent additional yield to the investor besides the interest rate.

Prepaids: This generally includes homeowners insurance, escrow accrual for insurance and taxes, interest to the end of the month and PMI (Private Mortgage Insurance) if necessary.

Prepayment Priveilege: The right given a borrower to pay all or part of a debt prior to its maturity.

Prepayment Penalties: A fee charged to a borrower who pays off a mortgage loan balance befor it is due. Not normall charged for more than five years.

Processing: The paration of a mortgage loan application and supporting documentation for consideration by a lender or insurer.

Property Type: A description of property, which classifies it according to the number of living units and type of structure (example: townhouse, condominium, single family dwelling, multi-family dwelling, etc).

Quitclaim Deed: A deed relinquishing all interest, title or claim an owner has in a property. A quitclaim deed implies no warranty.

Refinancing: The repayment of a debt from the proceeds of a new loan using the same property as security.

Real Estate Settlement Procedure Act (RESPA):
A federal law requiring lenders to provide home mortgage borrowers with information on known or estimated settlement costs. It also establishes guidelines for escrow account balances and the disclosures of settlement costs.

Real Property: Land and that which is affixed to it. (example: Land and Home).

Regulation Z: Federal Reserve regulation issued under the Truth in Lending (TIL) Law, which requires that a credit purchaser be advised in writing of all costs connected with the credit portion of the purchase or refinance.

Sales Contract: A written agreement between buyer and seller stating terms and conditions of a sale or exchange of a property.

Secondary Financing: A funding method using a loan secured by a second mortgage on a property. Sometimes used to refer to any financing techniques other than equity and first mortgage debt.

Second Home (Vacation Home, Weekend Home): A residence other than the borrower's primarty residence which the borrower intends to occupy for a portion of each year. Must be suitable for year round occupancy. No rental income from the property will be allowed to qualify the applicant for a loan against the purchase of a second home.

Second Mortgage Market: A market where existing mortgages are bought and sold. It contrasts with the primary mortgage market where mortgages are originated.

Security: In lending, the collateral given, deposited or pledged to secure the payment of debt.

Seller Contributions: Payment by the seller or any other interested party of some or all of the purchaser's usual closing costs.

Tax Lien: A claim against property of unpaid taxes.

Tenants in the Entirety: Ownership of real property by husband and wife with equal rights of possession. No disposition of any interest can take place without the consent of both. The property passes to the survivor in the event of the death of one or the other.

Title: Written evidence of the right to or ownership in a property. In the case of real estate, the documentary evidence of ownerships the title deed that specifies whom the legal estate is vested and the history of ownership and transfers. Title may be aquired through purchase, inheritance, devise, and gift or through foreclosures of a mortgage.

Title Insurance Property: A contract in which an insurer, usually a title insurance company, agrees to pay the insured party a specific amount for any loss caused by defects of title on real estate in which the insured has an interest as purchaser, mortgage or otherwise.

Title Search: An examination of public records to disclose the past and the current facts regarding the ownership of a given piece of real estate.

Treasury Index: The Treasury Index is the weekly average yield on U.S. Treasury securities adjusted to a constant maturity of one, three or five years, as made available by the Federal Reserve Board.

Truth in Lending Act (TIL):
A federal law requiring a disclosure of credit terms using a standard format. This is intended to facilitate comparison between the lending terms of financial institutions.

Two Step Mortgage: Mortgage where the interest rate stays the same for a stated period, then changes typically after 5 or 7 years.

Underwriting: Analysis of risk and setting of an appropriate rate and term for a mortgage on a given property for given borrowers.

Uniform Residential Appraisal Report (URAR): Standard form used by appraisers to detail facts supporting the value of single-family properties (AKA: FNMA Form 1004/FHLMC 65).

Uniform Residential Loan Application (URLA): Standard form where mortgage applicants provide the lender with information essential to loan approval (AKA: FNMA Form 1003).

Unimproved Land: Raw Land

Vacancy Factor: The percentage of gross rental income that represents vacant units.

Warehouse Loans: Loans that are funded and awaiting sale or delivery to an investor.

Wholesale Origination: A loan origination strategy by which loans are purchased from mortgage brokers, mortgage bankers or other loan originators (banks, thrifts, etx). The loans may be purchased prior to closing, at closing or after the loans are closed depending on the arrangement between the originator and the wholesale lender. Wholesale origination enables a lender to acquire mortgage-servicing rights without incurring the fixed costs assiciated with a retail origination strategy.

Without Recourse: A mortgage in which the lender will not pursue personal liability against the borrower. The lender's security is the real estate being financed.

Yield: The ratio of investment income to the total amount invested over a given period of time.

Zero Coupon Mortgage: Long term commercial financing that defers all principal and interest payments until maturity.

Zoning: The creation of districts by local governments in which specific types of property uses are authorized (i.e. residential, commercial, mixed use).

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