Adjustable Rate Mortgage (ARM) – Loan on which the monthly payments will
increase or decrease over time. An ARM’s interest rate may be tied to the
11th District Cost of Funds, one year T-note and six-month T-bill. ARM payments
are typically adjusted every six months or once a year.
Amortization – The gradual repayment of a mortgage through monthly
payments. In the early years of a mortgage, most of the monthly payment
goes toward interest. Later in the mortgage, more of the payment goes
toward reducing the loan’s principal balance.
Annual Percentage Rate (APR) –The annual cost of a mortgage, including
interest, loan fees and other costs, stated as a percentage of the loan
amount.
Appraisal/Appraised Value – An opinion of the market value of
a home expressed by a professional real estate appraiser.
Caps – Provisions of an adjustable rate mortgage which limit how
much the interest rate can change at each adjustment period (i.e. every
six months or once a year) or over the life of the loan (rate cap). A
payment cap limits how much the payment due on the loan can increase
or decrease.
Closing Costs – Expenses in addition to the price of the home
incurred by buyers and sellers when a home is sold. Common closing costs
include escrow fees, title insurance fees, document recording fees and
real estate commissions.
Commission – An amount paid to a Realtor® for his or her services,
typically set at a percentage of the sales price.
Conventional Mortgage – A loan not guaranteed, insured or made
by the federal or state government
Debt to Income Ratio –The ratio of monthly debt payments to monthly
gross income. Lenders use a debt to income (or DTI) ratio to determine
whether a borrower’s income qualifies him or her for a mortgage.
Deed – A legal document conveying ownership of property
Down Payment – The portion of the home’s purchase price
the buyer pays in cash.
Earnest Money – The deposit given by a buyer to a seller to show
that the buyer is serious about purchasing the home. Earnest money binds
the contract. Earnest money usually is refundable to homebuyers in the
event a contingency of the sale contract cannot be met.
Equity – The difference between a home’s value and the mortgage
amount owed on the home.
Escrow – The holding of documents and money by a neutral third
party until all parties perform.
Fannie Mae and Freddie Mac– The Federal National Mortgage Association,
and the Federal Home Loan Mortgage Corporation are government sponsored,
privately owned entities which purchase mortgages from lenders and turn
the mortgages into securities which are bought by investors. Fannie Mae
and Freddie Mac are the key secondary mortgage market agencies.
Fixed-rate Mortgage (FRM) – A loan on which the interest rate
and monthly payments do not change.
Hazard Insurance – A policy which protects against damage to a
property caused by fire, wind or other hazards.
Homeowner’s Warranty – A policy that covers certain repairs
(such as plumbing or heating) of a newly purchased home for a certain
period of time.
Impound Account – An account established by a lender to collect
a borrower’s property tax and insurance payments. Impound accounts
are normally required on mortgages with down payments of 10 percent or
less.
Loan to Value (LTV) Ratio – The ratio of the amount of money owned
on a home to the home’s value. The LTV ratio for a $100,000 home
financed with a $90,000 mortgage would be 90 percent.
Mortgage Banker – A company which originates mortgages for ale
into the secondary mortgage market (for example to Fannie Mae or Freddie
Mac).
Mortgage Broker –A company that, for a fee, matches borrowers
with lenders. Mortgage brokers do not originate loans.
Mortgage Interest Deduction – The ability of mortgage borrowers
to deduct the interest paid on a home loan for purposes of federal and
state income taxes.
Origination Fee – A fee charged by a lender for making a mortgage.
PITI – Principal, interest, taxes and insurance, the primary component
of a monthly mortgage payment.
Points – One point equals 1 percent of the mortgage amount. Points
are charged by lender to increase the lender’s return on the mortgage.
Typically, lenders may charge anywhere from zero to two points. Loan
points are tax deductible.
Principle – The loan amount borrowed or still owed.
Private Mortgage Insurance – Insurance issued by private insurers
which protects lenders against a loss if a borrower defaults on a mortgage
with a low down payment (less than 20 percent).
Realtor® –A real estate broker or agent who is a member of
the local Board of Realtors®, a state Association of Realtors® and
the National Association of Realtors®. Realtors® adhere to a
high standard of professionalism and strict code of ethics.
Seller Financing – A financing agreement in which a seller provides
part (or all) of the financing needed by a buyer to purchase the seller’s
home.
Title – Legal document establishing the right of ownership in
the property.
Title Insurance – Insurance to protect the buyer and lender against
losses arising from disputes over the ownership of property.
Underwriting – The process of evaluating a loan application to
determine if it meets the lender’s standards.
If there is any way that I can assist you further, please contact me.
Thank you for visiting my website and I am looking forward to helping you
for your real estate needs.
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