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Adjustable Rate Mortgage or ARM: - is a mortgage that
has an initial rate which adjusts periodically. The initial
rate adjusts based upon the movement of an underlying index.
There are number of different indexes (i.e.; LIBOR or London
Interbank Offer Rate, 11th District cost of funds, T-Bill,
etc.). On ARMs, a predetermined margin is added to the index
to compute the interest rate.
Administration Fee:
American Nationwide Mortgage Funding fee that includes the
following: Processing fee, underwriting fee, and document
preparation fee. Amortization: - gradual reduction of a mortgage
debt through periodic payments according to a schedule over
a specified mortgage term.
Appraisal: -
a report that sets forth an estimate or opinion of fair market
value: also refers to the process by which a value estimate
is obtained.
Arms-Length Transaction:
- is a transaction negotiated by unrelated parties, each acting
in his/her own best interest.
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Back-End Ratio: - total
debt-to-income ratio. Total monthly obligations divided by
gross monthly income. Monthly obligations include: mortgage
payment, property taxes, insurance premiums, installment loans,
and revolving debt.
Balloon Mortgage:
- a mortgage that has level monthly payments over a stated
term but which provides for a lump-sum payment to be due at
the end of an earlier specified time (i.e.; 5 & 7 year
balloon mortgages, where the payment is fixed for 5 or 7 years
then becomes due and payable at the end of the term).
Bankruptcy:
- a proceeding in a federal court in which a debtor (one who
owes more than his/her assets) is relieved from the payment
of debts.
Buy Down: - an
arrangement where a party pays a lender an up-front fee, or
premium, to "buy down" the interest rate on a loan for a temporary
time period, usually one to three years: usually expressed
as two numbers. For example, 2/1 where the two represents
a 2% rate buydown the first year and the one represents 1%
buy down the second year, the third year the rate would revert
to the "straight" note rate.
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Cash-Out Refinance:
- a transaction that provides cash proceeds to the borrower
in excess of 1% of the mortgage amount or provides cash that
is used to pay-off consumer debt.
Cash Reserves:
- the amount of liquid assets the borrower has remaining after
the mortgage loan transaction is completed.
Closing Costs:
- money paid by borrowers and sellers to effect the closing
of a loan: could include origination fees, discount fees,
title insurance, survey fees, attorney's fees, appraisal fees,
credit report fees, and prepaid items such as taxes and insurance.
Combined Loan-to-Value
(CLTV): - the ratio of the total mortgage liens against
the subject property to the lesser of either the appraised
value or the sales price.
Compensating Factors:
- borrower strengths that mitigate or compensate for a borrower's
weakness (i.e.; length of employment, considerable cash reserves,
etc.).
Conforming Loans:
- loans that do not exceed the maximum loan amount and LTV
limitations established by FNMA or FHLMC:
- $214,600 1 unit
- $274,550 2 units
- $331,850 3 units
- $412,450 4 units
Co-borrower:
- is a person who is jointly and equally liable for repayment
of the mortgage obligation. A co-borrower completes an application
and submits all documentation and may not be on the security
instrument.
Construction Perm:
- construction-to-permanent financing involves the granting
of a long term mortgage for the purpose of replacing interim
construction financing that the borrower obtained to fund
the construction of a new residence. The transaction may be
considered as a purchase or a refinance.
Convertible ARM:
- a type of ARM that includes an option for the mortgagor
to change the mortgage to a fixed rate mortgage at specified
intervals during a predetermined time.
Cost of Funds Index
or COFI: - is an index that is used to determine interest
rate changes for certain ARMs. It represents the weighted
average cost of savings, borrowing's, and advances of the
11th District members of the Federal Home Loan Bank of San
Francisco.
Credit Bureau Repository:
- an organization that compiles credit history data directly
from lenders and creditors to build in-file credit reports
for individuals: the main repositories are TRW, TransUnion,
& Equifax.
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Debt-to-Income
Ratio: - is the ratio of the
borrowers total monthly obligations, including housing expenses
and recurring debts to monthly income. It is used to determine
the borrower's capacity to repay the mortgage and all other
debts.
Deed of Trust:
- in certain states, a legal instrument that secures a note
and perfects a security interest upon real property.
Discount Points:
- are payable to the lender by the borrower or seller to decrease
the interest rate. One point is equal to 1% of the loan amount.
Drive-by Appraisal:
- is an estimate of value given that is based mainly on recent
comparable sales.
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Escrow Account:
- is held by the lender on behalf of the borrower for the
payment of taxes, insurance or special assessments: also called
an impound account.
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Federal
Housing Administration (FHA): -
is a government mortgage insurance agency under direction
of the Department of Housing and Urban Development (HUD) that
insures lenders against loss from default of borrowers on
residential properties.
Federal National Mortgage
Association (FNMA) AKA Fannie Mae:- is a tax-paying
corporation, created by Congress to support the secondary
mortgage market.
Federal Home Loan Mortgage
Corporation (FHLMC) AKA FreddieMac: - is a tax-paying
corporation, created by Congress that purchases conventional
mortgages in the secondary mortgage market.
Fixed Rate Mortgage:
- a mortgage with one set interest rate for the entire term
of the mortgage.
Foreclosure:
- the legal process by which a borrower is in default under
a mortgage or deed of trust, loses his/her interest in the
mortgaged property: this process usually involves a forced
sale of the property at public auction with the proceeds of
the sale being applied to the mortgage debt.
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Gift Funds:
- funds donated on behalf of the borrower from certain eligible
sources to assist the borrower in meeting closing costs. Generally
eligible sources are: relatives, church, municipality, or
a nonprofit organization.
Good Faith Estimate: - A written estimate of the settlement
costs the borrower will likely have to pay at closing. Under
the Real Estate Settlement Procedures Act (RESPA), borrower
must receive the estimate from the lender within three days
of loan application.
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Hazard Insurance:
- insurance coverage that compensates for physical damage
by fire, wind or other natural disasters to the property.
HOA or homeowners association:
- is a nonprofit association, whose directors and officers
are elected by the unit owners of a condominium or PUD project;
primary responsibilities are to manage the common areas, expenses
and services of the project.
Home Equity Line of
Credit or HELOC: - is a real estate loan, usually in
a subordinate position, usually in a subordinate position,
that allows a borrower to withdraw equity in real estate owned
with specific limitations.
Housing Debt-to-Income
Ratio: - the sum of all monthly housing mortgage expenses
such as PITI, homeowners dues, private mortgage insurance
and any special assessments as a percentage of gross qualifying
income.
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Impound Account:
- see "Escrow Account"
Index: - a published
interest rate, such as the prime rate, LIBOR, T-Bill rate
or the 11th District COF. Lenders use indexes to establish
interest rates charged on mortgages or to compare investment
returns. A predetermined margin is added to the index to compute
the interest rate on the ARM.
Installment Debt:
- borrowed money that is repaid in successive payments, usually
at regular intervals; the monthly debt service can be excluded
for D/I purposes if 10 or fewer payments remain to be made.
Investment Property:
- a non-owner occupied residential property used for the generation
of income.
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Junior Lien:
- any lien that is subordinate or subsequent to the claims
of a prior lien.
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Loan-to-Value
Ratio (LTV): -The percentage of the loan amount
to the appraised value (or the sales price, whichever is less)
of the property. (e.g., an $80,000 loan on a home worth $100,000
would have an 80% LTV)
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Margin: - the amount that is added to the index to create the mortgage
interest rate for an ARM.
Mortgage: - a
note or other evidence of real property being pledged as the
security for a debt; also referred to as a "Deed of Trust",
"Trust Deed", or "Security Instrument"
Mortgage Insurance or
MI: - is insurance that protects a mortgage lender
against loss in the event of default by the borrower. This
insurance allows lenders to make loans with lower down payments
(LTVs above 80%, in most cases).
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Negative Amortization:
- a gradual increase in the mortgage debt caused by unpaid
interest that is added to the mortgage principal because the
payment is not sufficient to cover the full amount of interest
due.
Non-Conforming Loans:
- those loans that exceed the conforming loan limits. Generally,
loans above $214,600 (Jumbo).
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Origination
Fee: - a fee charged to the borrower
to reduce the interest rate; this fee is usually stated as
a percentage; see "Discount Points"
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PITI :- Acronym for Principal,
Interest, Taxes and Insurance, the components of a monthly
mortgage payment. Pronounced P-I-T-I.
Prepaid Items:
- items that generally must be paid for at the time of closing
and are generally recurring charges. Prepaid items may include
the following:
- First year premiums for hazard, flood and
mortgage insurance.
- Prorated interest.
- Any special assessments which must be prepaid
(i.e.; water/sewer connection, etc.).
- Escrow account for any of the above.
Private Mortgage Insurance
or PMI: - insurance coverage
that lenders require the borrower to obtain to protect the
lender against loss in the event of a mortgage default for
higher LTV mortgages.
PUD or Planned Unit
Development: - is a real
estate project in which each unit owner has title to a residential
lot and a non-exclusive easement on the common areas of the
project.
Purchase Money Mortgage:
- a mortgage used to purchase real property where title is
conveyed from one individual to another.
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Qualifying
Ratios: - the percentage of payment
to income (P/I) and debt-to-income (D/I) that is used to measure
the borrower's capacity to repay the mortgage debt.
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Rate & Term
Refinance: - a refinance of any
mortgage in which the new mortgage amount is limited to the
unpaid principal balance of the existing first mortgage plus
any closing costs.
Ratios: - Measurement
(expressed as a percentage) that compares your monthly liabilities
to your gross income. The Housing Ratio is your proposed mortgage
payment divided by your gross monthly income. The Debt Ratio
is all you monthly liabilities (including your mortgage) divided
by your gross monthly income. Underwriters will use these
ratios to see if your income supports the mortgage payment.
Underwriters are usually more flexible on loans with higher
down payments and less flexible on low down payment loans.
Reserves: - The amount of money you have after
closing to cover your mortgage payments. Reserves are often
expressed as "months of payments". For example,
if you had $10,000 after closing and your mortgage payment
was $1,000 a month then you would have 10 months of reserves.
Some loan programs require a minimum number of months' reserves.
Revolving Debt :
- a debt that does not have a fixed payment, although repayment
is usually a percentage of the outstanding balance and made
at regular intervals; most common are credit cards issued
by banks and department stores.
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Second Mortgage:
- a mortgage that is in a second position behind the first
mortgage; see "Junior Lien."
Self Employed Borrower:
- a borrower whose income is derived from a business source
in which he/she has an ownership interest of 25% or more.
Servicing: -
the administration of a loan that includes, but is not limited
to, the collection of the monthly payments, and/or related
fees, and disbursement of the collections to the investor
who owns the loan. Upon selling the loan, servicing may either
be retained or released. If retained, the selling lender will
be paid a fee for managing the loan account. If servicing
is released, the seller is not responsible for the loan administration.
Settlement Costs:
- see "Closing Costs."
Single Family Residence
or SFR: - is a structure
that is intended to house one family.
Subordinate Financing:
- secondary financing secured by a lien that is junior to
the first mortgage or senior claim.
Supplemental Income:
- income derived from sources such as interest/dividends,
capital gains, and rental properties; these incomes require
tax returns to support the qualifying income.
Sweat Equity:
- the exchange of labor or services in lieu of paying cash
for the purpose of receiving credit towards the down payment:
this generally is not an eligible source of down payment.
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Tax Service Contract:
- the lender's verification of payment of property taxes.
Temporary Buydown:
- a loan on which the interest rate has been "bought down"
for a temporary period of time at the beginning of the loan
by escrowing funds at the time of closing, which will be applied
to the total monthly mortgage payment as each becomes due.
See "Buy Down."
Timeshare: -
a real estate development in which a buyer can purchase the
exclusive right to occupy a unit for a specified period of
time each year, not eligible for financing with American Nationwide
Mortgage. Funding.
Title Insurance:
- a type of insurance that insures against defects in title
that were not listed in title work or abstract.
Title Search: - Examination of municipal records
to ensure that the seller is the legal owner of a property
and that there are no liens or other claims against the property.
The goal of this search is to have "clear title".
Townhouse: -
an architectural type of construction; a row house on a small
lot that has exterior limits common to other similar units;
title to the unit and it's lot is vested in the individual
owner with a fractional interest in common areas.
Truth-in-Lending Act:-
Federal law requiring written disclosure of the terms
of a mortgage (including the APR and other charges) by a lender
to a borrower after application. Also requires the right to
rescission period.
Two-step ARM:
- an ARM that has a fixed interest rate for the first five
or seven years of the mortgage term, then adjusts at the current
market rate plus a predetermined margin, then remaining fixed
at that rate for the remainder of the term.
Two-to-Four Family Properties:
- consists of a structure that provides dwelling units for
two, three or four families, although ownership is evidenced
by a single deed.
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Underwriter:
- an analyst who reviews the supportive documentation to determine
the risk associated with the loan request. The person who
gives final loan approval.
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Veterans
Administration or VA:
- is a government agency designed to encourage mortgage lenders
to offer long term, low down payment financing to eligible
veterans by partially guaranteeing the lender against loss
from default.
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Zoning:
- the creation of districts by local governments in which
specific types of property uses are authorized (e.g., commercial,
industrial, residential, high density, mixed use).
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