Adjustable Rate
Mortgage (ARM)
ARM is a mortgage in which the interest rate is adjusted periodically
based on a pre-selected index.
Amortization
Is a loan payment by equal periodic payments calculated to pay off the
debt at the end of a fixed period, including accrued interest on the
outside balance.
Annual Percentage Rate (APR)
APR is the cost of credit expressed as an annual rate. It must be calculated
by using a formula set by federal law and disclosed to the Borrower
to aid in comparing different credit plans. All finance charges imposed
by a Lender are included in this calculation, and an APR is always higher
than the simple interest rate when such finance charges like points,
origination fees or mortgage insurance are charged by a Lender.
Appraisal
Is an estimate of the value of property; made by a qualified professional
called an "appraisal."
Closing Cost
Usually include an origination fee, discount points, appraisal fee,
title search and insurance, survey, taxes, deed recording fee, credit
report charges and other costs assessed at settlement.
Commitment
An agreement, often in writing, between the Lender and the Borrower
to loan money at a future date subject to the completion of paperwork
or compliance with stated conditions.
Construction Loan
A short-term interim loan for financing the cost of construction. The
Lender advances funds to the builder at periodic intervals as the work
progresses.
Credit Report
A report documenting the credit history and current status of a Borrower's
credit standing.
Debt-to-Income Ratio
The ratio (expressed as a percentage) results when a Borrower's monthly
payment obligation on long-term debts is divided by his/her monthly
income.
Down payment
Money paid to make up the difference between the purchase price and
the mortgage amount. Down payments are usually 5% to 20% of the sale
price on conventional loans.
Equity
The difference between fair market value and current indebtedness; also
referred to as the Owner's interest.
Escrow
Refers to a neutral third party who carries out the instructions of
both you and the Seller to handle all the paperwork of settlement or
"closing." Escrow may also refer to an account held by the Investor
into which you would pay money for tax or insurance program.
Federal Home Loan Mortgage Corporation (FHLMC)
Also know as "Freddie Mac;" a quasi-governmental agency that purchases
conventional mortgages from insured depository institutions and HUD-approved
mortgage bankers.
Federal National Mortgage Association (FNMA)
Also known 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, make mortgage money available
and more affordable.
Fixed Rate Mortgages
A mortgage in which the interest rate is set for the term of the loan.
Gross Monthly Income
The total amount the Borrower earns per month before any expenses are
deducted.
Loan-to-Value Ratio
The relationship between the amount of the mortgage loan and the appraisal
value of the property.
Market Value
The highest price that you would pay and the lowest price the 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.
Points (Loan Discount Points)
Prepaid interest assessed at closing by the Lender. Each point is equal
to 1% of the loan amount (for example, two points on a $100,000 mortgage
would cost $2,000).
Prepayment
A privilege in a mortgage permitting the Borrower to make payments in
advance of their due date without penalty.
Private Mortgage Insurance (PMI)
May be required by your Lender if the loan you apply for cannot be granted
because the loan does not meet the normal standards for the Lender.
The most common reason for this requirement is a smaller down payment
than the Lender usually requires which is around 20%. This insurance
protects the Lender from loss if the Borrower defaults. It does not
protect the Borrower, though it may allow the Borrower to qualify for
a loan he/she could not otherwise get. PMI will require monthly payments.
Premium will vary generally between 0.50% to 2.0% of your mortgage amount.
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 you
against errors in the title search. The cost of the policy is usually
a fraction of the value of the property and is often borne by the Buyer
and/or Seller.
Title Search
An examination of municipal or county records to determine the legal
ownership of property, usually performed by a title company.
Note: The information
in this web page is for your general guidance only; difference or additional
information may be required. The loan charges and fees for services
mentioned are provided only as examples; the fees can vary depending
upon whom you ask to provide the service; the loan charges also will
vary depending upon the Lender and the type of loan. You should receive
a Good Faith Estimate of Settlement Costs which (still an estimate)
will be more specific to the loan product for which you have applied.
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