Adjustable Rate Mortgages or ARM
A mortgage loan on which the interest may reset at designated intervals of time (frequency of reset), based on movements in a pre-selected interest rate index and the margin over that index that the lender charges in each interval. The magnitude of rate resets are generally limited by periodic and lifetime caps and floors establishing the minimum and maxim rate that may be charged in each interval
Application
The form you’ll use when applying for a mortgage loan. It’s a questionnaire about your income, savings, assets, debt, containing information about the income, savings, assets, debts, and more about the borrower and co-borrower.
Appraisal
A written statement of a property’s current market value, as determined by a licensed appraiser.
Balloon Payment Mortgage
A mortgage loan which must be paid in full by the borrower after a term that is shorter than the term over which the loan is amortized. For instance a borrower’s payments may be calculated to fully amortize the loan over 30 years. If the loan has a 10 year balloon term, the borrower would have to pay in full the remaining unamortized balance on the loan after the first 120 scheduled monthly payments were made on the mortgage.
Buyer’s Agent
A real estate agent that represents a buyer. A representative guiding a buyer throughout the process of purchasing, negotiating, providing insight and advice exclusively for the buyer.
Correspondent
A lender who initially funds the borrower, but then delivers the loan to a (usually larger) wholesale lender against a prior price commitment the wholesaler has made to the correspondent.
Credit Report
A report from a credit bureau containing detailed information bearing on credit-worthiness, including the individual’s credit history, outstanding debts, and a credit score
Creditworthiness
Being financially sound. Mostly based on credit score it takes into account history of timely payments, assets and debts.
Cohabitation Agreement
An agreement between two people who have chosen to live together as if they are married. This documentation protects there rights as a couple while protecting individual assets and investments.
CMA or Comparative Market Analysis
Evaluation of recently sold homes or properties in an area-referred to as comparables. The comps or comparables chosen have the same general features as the home being compared. CMAs are most often by a real estate agent.
Conforming Loans
This is a loan that meets certain guidelines set forth by Freddie Mac and Fannie Mae. There is a limit to how much can be borrowed with a conforming loan.
Conventional Loan
A loan that is not backed or insured by the government. The most common form of loans for mortgage.
Correspondent Lender
Bank or mortgage company that originates and funds a loan, then almost immediately sells the loan to another lender.
Credit Report
A report from a credit bureau containing detailed information bearing on credit-worthiness, including the individual’s credit history.
Debt to Income Ratio (DTI)
A ratio calculated by adding up your mortgage payment, taxes, insurance and consumer debt (credit cards, car payment) and divided by your income.
Deductible (Income Taxes)
An expense that you are allowed to take as a deduction from income on your income tax return
Deductible (Insurance Policy)
The amount of money the insured person must pay before the insurance company will pay a claim.
Dual Agent
A dual agent represents both the buyer and the seller in the transaction. This can arise if a buyer calls the selling agent of the home. The agent is obligated to disclose the relationship to both parties as this can cause a conflict of interest.
Earnest Money
Theamount the buyer advances to show their intent to complete the transaction. It is also known as a good faith deposit. This money shows that a buyer is willing to sacrifice money to put toward a home’s down payment thereby hoping to secure the purchase of a property. It shows the seller that the buyer is serious about purchasing the property.
Escrow for home purchase
Earnest money or a deed, bond or other document held by a third party as insurance toward the purchase of home. The moneys are released only when certain conditions are fulfilled.
Escrow for taxes and insurance
An agreement whereby the borrower adds a specified amount for taxes and hazard insurance to their regular monthly mortgage payment. The money goes into an escrow account out of which the lender pays the taxes and insurance when they come due. (Also known as Impounds)
Errors and Omissions Insurance
Type of insurance that pays claims to parties injured due to errors or ommissions committed by a professional providing services.
Federal Emergency Management Agency (FEMA)
Part of the Department of Homeland Security, the purpose of the agency is to coordinate during a disaster. There must be a state of emergency declared by the governor of the affected state and a formal request from the president and the federal government to respond to the disaster.
Federal Housing Administration or FHA
A federal government agency established as part of the National Housing Act of 1934. The goals of this institution is to improve housing conditions and standards, help to stabilize the mortgage market and provide home financing through the insurance of mortgage loans. The organization sets for underwriting, insuring loans and setting construction standards.
FICO
A single numerical score, based on an individual’s credit history that measures the individual’s credit worthiness. Credit scores are as good as the algorithm used to derive them. The most widely used credit score is called FICO for Fair Isaac Co. which developed it.
Fixed Rate Mortgage
A mortgage loan on which the interest rate and monthly mortgage payment remain unchanged throughout the term of the loan.
Foreclosure
The legal process by which a lender acquires possession of a property securing a mortgage loan when the borrower defaults.
Grace Period
The period after the payment due date during which the borrower can pay without being hit for late fees.
Home Inspection
Usually associated with the sale of a home. When a professional assesses the condition of a home. These inspections are noninvasive; they do not cause damage to the home.
Hazard Insurance
Insurance purchased by the borrower, and required by the lender, to protect the property against loss from fire and other hazards. Also known as “homeowner insurance.”
Hybrid ARM
An ARM on which the initial rate holds for an extended period, during which it is a fixed rate loan, after which the loan becomes adjustable rate and its rate periodically resets. Hybrid ARMs typically have an initial fixed rate period of 24, 36, or 60 months.
Interest Only Mortgage
A mortgage on which the monthly mortgage payment consists of interest only for a designated number of months. During those months, the loan principal balance remains unchanged.
Interest Rate
The rate the lender charges the borrower for the loan of money, by custom quoted on an annual basis. What the cost is to borrow money from a lender.
Joint Tenancy
When two or more owners hold a property together. The share of each holder passes to the others in the event of death. The property holders share equal rights and responsibilities.
Jumbo Loans
A loan that is too large to qualify to be a conforming loan. These loans generally have a higher interest rate as they are harder to sell on the secondary market.
Liquid Assets
Assets that are easily converted into cash with minimal impact. Generally, regarded as similar to cash because their prices are relatively stable. Examples of liquid assets are funds in your savings, checking and money market accounts, certificates of deposit, stocks, bonds and mutual funds, and of course, any cash you have stuffed in your mattress. Assets referred to as liquid because they can be transferred quickly, like water moving across a surface.
Loan-to-Value Ratio (LTV)
The number that represents the percentage of the home’s price that you’ll pay with the mortgage. You can usually borrow up to 90% of the purchase price of the home. For example, if the home is $250,000, 90% of the purchase price is $225,000.
Lock
An option exercised by the borrower, at the time of the loan application or later, to “lock in” the rates and points prevailing in the market at that time. The lender and borrower are committed to those terms, regardless of what happens between that point and the closing date.
Lockbox
A lockbox is generally placed on the front door. If the property is a condominium community the real estate agent will have instructions as to where to find the lockbox if it is not on the front door of the property. It contains the key to the property and can only be accessed by licensed agents.
Mortgage
A written document evidencing the lien on a property taken by a lender as security for the repayment of a loan. The term “mortgage” or “mortgage loan” is used loosely to refer both to the lien and the loan. In most cases, they are defined in two separate documents: a mortgage and a note.
Mortgage Broker
An independent contractor who offers the loan products of multiple lenders. A mortgage broker counsels on the loans available from different wholesalers, takes the application, and may do some of the processing of the loan. When the file is complete, but sometimes sooner, the lender underwrites the loan. In contrast to a correspondent, a mortgage broker does not fund a loan.
Mortgage Lender
The party who disburses funds to the borrower at the closing table. The lender receives the note evidencing the borrower’s indebtedness and obligation to repay, and the mortgage which is the lien on the subject property.
Multiple Listing Service or MLS
A database shared by realtors that enables other realtors and more recently potential customers to view multiple homes. It allows for the sharing of information of multiple property listings and information about the properties. Realtors usually have unlimited information on the database.
National Flood Insurance Program or NFIP
This program is managed by FEMA (Federal Emergency Management Agency.) If you live in an area that participates in the NFIP you are eligible for flood insurance. This means if an area is deemed to be flood prone you qualify to purchase insurance through a private company.
National Association of Realtors
The largest of the real estate organizations with a membership of over one million. They have both state and local chapters. Members are automatically enrolled in both the state and national organizations when they join a local chapter. Members have access to the local MLS, which is an advantageous benefit. The NAR is one of the largest trade groups.
Note
A document that evidences a debt and a promise to repay. A mortgage loan transaction always includes both a note evidencing the debt, and a mortgage evidencing the lien on the property, usually in two documents.
PITI
Shorthand for principal, interest, taxes and insurance, which are the primary components of the monthly housing expense, before considering homeowner association fees and other DIRECT housing expenses.
Preapproval
An evaluation by a lender to determine whether a prospective buyers qualifies to obtain a loan and the amount the lender is willing to loan.
Prequalification
The process of determining whether a prospective borrower has the ability (meaning sufficient assets and income) to repay a loan. Prequalification is subject to verification of the information provided by the applicant. Qualification is short of approval because it does not take account of the credit history of the borrower. Qualified borrowers may ultimately be turned down because, while they have demonstrated the ability to repay, a poor credit history suggests that they may be not have willingness to pay.
Principal
The balance owed on a mortgage loan. The term is also used to describe the portion of the borrower’s monthly payment that is not interest because that portion pays down the principal owed on the loan.
Real Estate Agent
A licensed person who assists clients with the buying and selling of property. Persons educated in the laws and regulations pertaining to real estate.
Real Estate Attorney
A lawyer that specializes in the practice of real estate transaction law
REALTOR®
A real estate professional who has decided to pledge a strict code of ethics and standards of practice. To maintain Realtor status they are required to join the National Association of Realtors.
RESPA or Real Estate Settlement Procedures Act
A federal law stating that real estate brokers may not receive compensation from a lender for referring a client. This law is exclusive to residential properties. Commercial properties are exempt from this rule.
Secondary Market
The secondary market is when your mortgage loan is sold to another institution that will then manage your loan. The biggest purchasers in the secondary market are Freddie Mac and Fannie Mae.
Seller’s agent
The real estate agent representing the seller of the home or property.
Taxes
The monetary obligation enforced by the government in order to support government activities.
Title Company
A company or institution that examines title for property to make sure that it is a legitimate document.
Trulia
A real estate site that allows users to search for homes and properties. This site also provides information to assist in educating the buyer about various real estate topics.
USDA/RHS Loans or Rural Development Guaranteed Housing loan program
A loan for rural property owners issued by the
United States Department of Agriculture.
The purpose is to meet the needs of ranchers and farmers.
VA Loans or Veterans Affair Loans
A mortgage backed by the Department of Veterans Affairs. Designed to assist veterans to purchase homes.
Zillow
A real estate site that allows users to search for homes and properties. This site also provides information to assist in educating the buyer about various real estate topics.