Appraisal
An expert opinion on the value of a property.
Annual Percentage Rate
This is not the note rate applied for, but rather is a government mandated
formula that shows the cost of the loan in a yearly rate by using the
note rate plus certain other upfront costs.
ARM Loan
Adjustable Rate Mortgage. Mortgage characterized by an interest rate that
can adjust up or down at certain intervals based on a current index (commonly
the 1 year T-Bill) plus a preset margin.
Balloon
Mortgage characterized by level fixed payments for a predetermined time
frame followed by either a refinance or adjustment in interest rate.
Capital Gains
The tax paid upon certain types of real estate transactions. Contact accountant
for specifics.
Cash to Close
The amount needed from the borrower at closing. Consists of down payment,
closing costs and prepaid items. This amount needs to be in the form of
a cashier check made payable to the buyer.
Closing Date
Date stated on the purchase agreement that buyer and seller agree to finalize
or close the transaction.
Closing Costs
Various costs of setting up and funding the transaction - including closing
fee, title insurance, appraisal fees, underwriting fee, mortgage registration
tax etc.
Condo/Townhome
Property types that usually have the following characteristics: they are
attached, have a homeowners association and dues, the outside maintenance
is taken care of by the association, and common areas and amenities available
to all owners in the association.
Conventional Financing
Standard, non-government financing.
Credit Bureaus
Agencies that provide compilations of your credit history. The three main
credit bureaus are Experian, Trans Union, and Equifax.
Credit Report
Report provided by the credit bureaus which shows the history, current
status, and profile of an individual.
Credit Scores
The number generated by the credit bureaus which is a numerical representation
of the subjects credit profile, range is from 450 on the low side to 900
being the highest score possible.
Debt Ratios
Ratio of debt to pretax income, often expressed as a front (housing payment
only) or back (all debt) ratios. Ex- $5000 monthly income, $1400 housing
payment, $1700 total debt would equal ratios of 28%/34%.
Discount Points
One point equals one percent of the loan amount. Points are used to lower
the interest rate. One point does not equate into lowering the interest
rate one percent. Generally lowering the interest rate 1/8 will cost about
1/2 point, although this can vary based on daily pricing. Typically is
tax deductible.
Down Payment
Difference between loan amount and purchase price.
Earnest Money
Deposit toward down payment submitted with a purchase agreement as evidence
of the buyers commitment.
Escrows
The portion of the monthly payment that is not applied to principal or
interest, but rather is used to pay mortgage insurance, homeowners insurance
and property taxes.
Fannie
Mae
Short name for the Federal National Mortgage Association. One of the main
Government Sponsored Agencies which are the companies who sell mortgage
backed bonds to investors. They are the ultimate source of the money that
we lend. Fannie Mae protects its investors by issuing underwriting guidelines
that are to be followed to ensure quality lending.
Freddie Mac
Short name for Federal Home Loan Mortgage Corporation. One of the main
Government Sponsored Agencies which are the companies who sell mortgage
backed bonds to investors. They are the ultimate source of the money that
we lend. Freddie Mac protects its investors by issuing underwriting guidelines
that are to be followed to ensure quality lending.
FHA Financing
Government backed minimum down financing program which has a lower mortgage
insurance premium and greater credit leeway as compared to conventional
minimum down programs.
Fixed Loan
Most common type of financing. Terms ranging from 10 to 30 years. Interest
rate and P&I payment remains constant throughout life of loan.
Floating
Not locking in a rate, but rather choosing to float the interest rate
as the market moves up or down.
Flood Certification
Required document on all loans. Confirms if the property is in or out
of a FEMA designated flood zone
Funds held in Escrow
Generally only applies to new construction. Monies held from the seller
to provide payment for repairs or non completed items.
Good Faith Estimate
Document prepared by lender which estimates and delineates the various
fees and closing costs associated with the home purchase.
Government Financing
Financing provided from government agencies such as FHA, VA etc…
HELOC
Home Equity Line of Credit. Second mortgage product, generally characterized
by interest only payments and the ability to draw, pay back, and redraw.
Home Inspection
Not required by lender. This is a private inspection done by the buyers
choice to confirm that the property is in acceptable condition.
Homeowners Association Dues
Amount paid by owner of a townhome or condo to cover various amenities
or services provided by the homeowners association (examples -- common
areas, hazard insurance, garbage, mowing, snow removal).
Homeowners/hazard Insurance
Insurance which covers damage or loss to the property. The premium is
usually paid into an escrow account held by the mortgage company, which
then pays the insurance company once a year.
HUD-I (Settlement statement)
Document prepared by title company at closing which shows where all of
the money in the transaction was coming from and going to.
Jumbo Loan
Loan with an initial balance greater than $300,700.
Jumbo Pricing
Refers to the fact that rates are generally slightly higher on jumbo loans.
Loan-to-Value (LTV)
Ratio of liens versus value of property or sales price. Ex. 80,000 owed
on a property worth 100,000 equals an 80% LTV.
Lock-in Period
Time period that a rate is protected for during the loan process.
Locking in
Choosing to protect a particular rate and program for a specific period
of time.
Mortgage Insurance (MI)
Insurance which protects the LENDER against default. Generally the higher
the loan-to-value the higher the monthly premium.
Note
This document signed at closing is the promise by the signers to repay
the loan.
Origination
Fee
1% of the loan amount. Can be avoided by paying a higher rate; typically
is tax deductible.
Odd Days Interest/Per Diem Interest
Collected at closing, it is money collected/refunded to borrower to synchronize
the closing to the monthly payments.
Paying Points
Money paid upfront to lower the interest rate. Rule of thumb - breakeven
point is (where monthly savings meets/exceeds money paid upfront) usually
around 60 payments or 5 years. This means that in many cases paying points
will pay off as long as you do not sell or refinance your loan before
the breakeven point (actual breakeven point may vary). Some niche programs
and products may require points to be paid.
Piggy Back
A second mortgage closed at the same time as a first mortgage. Usually
purpose is to avoid mortgage insurance, jumbo pricing, or for future needs.
PITI
Monthly payment. Stands for Principal, Interest, Tax escrow, Insurance
(both hazard and mortgage) escrow.
Pre-Approval
Based on documented income, assets, and credit.
Pre-paids
Group of items paid at closing including monies to set up the escrow account
and to pay prepaid or odd days interest.
Pre-Qualification
Based on stated income, assets and debt. Information not verified, not
as useful or informative as a Pre-Approval.
Pre Payment Penalty
An option on certain loan types. A benefit in that the rate is lower on
these products compared to other similar products.
Property Taxes
Amount of tax due on a property. Usually is collected as part of the escrow
portion of the monthly payment, with the lender being responsible to forward
the escrowed money as the bills come due on May 15 and Oct 15.
Purchase Agreement
Contract between buyer and seller outlining the terms of the agreement.
Rate vs. Price
Rate refers to the interest rate. Price refers to points. It is easy to
become confused as both rate and points are usually referred to in 1/8
percent increments. A good rule of thumb is that often a 1/8% change in
interest rate reflects a 1/2% change in points (actual rate and points
may vary slightly).
Single Family Residence
Standard, one unit home, as opposed to a Condo/Town Home with a homeowners
association.
Swing Loan
A swing loan occurs when a borrower obtains a bridge (swing) loan that
is secured by his or her present home so that funds from the loan can
be used for closing on a new home before the present home is sold.
Title Company
Company that prepares title work and is where the closing is held.
Title Insurance
Policy provided by the title company on their title work guaranteeing
the accuracy and completion. Lenders Policy is required and only protects
the Lender from loss, Owners Policy is available at buyers discretion
and protects the owner.
Title Work
Document prepared by title company which outlines the ownership of the
property and other various details.
Underwriting
Act of approving a loan application. Underwriters are bound by guidelines
set forth by Fannie Mae, Freddie Mac, FHA or VA as applicable.
VA Financing
Government backed financing available only for service veterans, characterized
by no down payment, no mortgage insurance, but with a funding fee.
Prime Mortgage, a Division of The Business Bank