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Mortgage Glossary

Acceleration clause
Adjustable rate mortgage
Affordability analysis
Amortization
Amortization schedule
Annual Percentage Rate (APR)
Appraisal
Balance sheet
Balloon mortgage
Balance payment
Bankrupt
Consumer Price Index (CPI)
Cap
Deed
Deed-in-lieu
Deed of trust
Default
Earnest money deposit
Easement
Effective age
Effective gross income
Fair Credit Reporting Act
Fair market value
Fannie Mae (FNMA)
FED Is Easing
FED Is Tightening

Government National Mortgage Association
Grantee
Grantor
Ground Rent
Hazard Insurance
Home equity line of credit
Index
Industrial Production Index
In-file credit report
Inflation
Initial interest rate
Judgment
Judgment Lien
Jumbo loan
Legal description
Liability
Liability insurance
Master association
Maturity
Maximum financing
Net cash flow
Net worth
Non-Farm Payroll
Original principal balance
Origination fee

Owner financing
PITI reserves
Point
Power of attorney
Prearranged refinancing agreement
Producer Price Index (PPI)
Qualifying ratios
Quitclaim Deed
Rate lock
Secured loan
Security
Survey
Tenancy by entirety
Tenancy in common
Title
Title company
Title insurance
Title search
Transfer tax
Truth-in-Lending Act
Underwriting
VA loan
What-if analysis
What-if scenario
Wraparound mortgage


 

Acceleration clause
A provision in a mortgage that gives the lender the right to demand payment of the entire outstanding balance if a monthly payment is missed.

 

Adjustable rate mortgage
A mortgage that permits the lender to adjust its interest rate periodically on the basis of changes in a specified index.

 

Affordability analysis
A detailed analysis of your ability to afford the purchase of a home. An affordability analysis takes into consideration your income, liabilities, and available funds, along with the type of mortgage you plan to use, the area where you want to purchase a home, and the closing costs that you might expect to pay.

 

Amortization
The gradual repayment of a mortgage by installments, calculated to pay off the obligation at the end of a fixed period of time.

 

Amortization schedule
A timetable for payment of a mortgage showing the amount of each payment applied to interest and principal and the balance remaining.

 

Annual Percentage Rate (APR)
The total cost of a mortgage stated as a yearly rate; includes such items as the base interest rate, loan origination fee (points), commitment fees, prepaid interest, and other credit costs that may be paid by the borrower.

 

Appraisal
A professional opinion or estimate of the market value of a property.

 

Balance sheet
A financial statement that shows assets, liabilities, and net worth as of a specific date. Professional opinion or estimate of the market value of a property

 

Balloon mortgage
A mortgage that has level monthly payments that will amortize over a stated term and provides for a lump sum payment due at the end of an earlier specified term.

 

Balance payment
The final lump sum payment that is made at the maturity date of a balloon mortgage.

 

Bankrupt
A person, firm, or corporation that, through a court proceeding, is relieved from the payment of all debts after the surrender of all assets to a court-appointed trustee

 

Consumer Price Index (CPI)
The consumer price index is an indicator of the general level of prices. Components include energy, food and beverages, housing, apparel, transportation, medical care, and entertainment. When the consumer price index goes up, it is a sign of an inflationary environment. Consumers have to pay more for the same amount of goods and services. Bond Market Moves Down In Price.

 

Cap
A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or mortgage payments may increase or decrease.

 

Deed
The legal document conveying title to a property.

 

Deed-in-lieu
A deed given by a mortgagor to the mortgagee to satisfy a debt and avoid foreclosure. Also called a “voluntary conveyance.”

 

Deed of trust
The document used in some states instead of a mortgage; title is conveyed to a trustee.

 

Default
Failure to make mortgage payments on a timely basis or to comply with other requirements of a mortgage.

 

Earnest money deposit
A deposit made by the potential homebuyer to show that he or she is serious about buying the house.

 

Easement
A right of way giving persons other than the owner access to or over a property.

 

Effective age
An appraiser’s estimate of the physical condition of a building. The actual age of a building may be shorter or longer than its effective age.

 

Effective gross income
Normal annual income including overtime that is regular or guaranteed. The income may be from more than one source. Salary is generally the principal source, but other income may qualify if it is significant and stable.

 

Fair Credit Reporting Act
A consumer protection law that regulates the disclosure of consumer credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one’s credit record.

 

Fair market value
The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept.

 

Fannie Mae (FNMA)
A congressionally chartered, shareholder-owned company that is the nation’s largest supplier of home mortgage funds.

 

FED Is Easing
Exactly the opposite of Fed tightening. The Federal Reserve feels that the economy is not growing at the desired level and eases credit conditions by lowering interest rates to help stimulate the economy. Bond Market Moves Up In Price.

 

FED Is Tightening
This term refers to efforts by the Federal Reserve to curb excessive growth in the money supply. This can be accomplished by their raising the discount rate and/or increasing the federal funds rate. Bond Market Moves Down In Price.

 

Government National Mortgage Association
A government-owned corporation within the U.S. Department of Housing and Urban Development (HUD). Created by Congress on September 1, 1968, GNMA assumed responsibility for the special assistance loan program formerly administered by Fannie Mae. Popularly known as Ginnie Mae.

 

Grantee
The person to whom an interest in real property is conveyed.

 

Grantor
The person conveying an interest in real property.

 

Ground Rent
The amount of money that is paid for the use of land when title to a property is held as a leasehold estate rather than as a fee simple estate.

 

Hazard Insurance
Insurance coverage that compensates for physical damage to a property from fire, wind, vandalism, or other hazards.

 

Home equity line of credit
A mortgage loan, which is usually in a subordinate position, that allows the borrower to obtain multiple advances of the loan proceeds at his or her own discretion, up to an amount that represents a specified percentage of the borrower’s equity in a property.

 

Index
A number used to compute the interest rate for an adjustable-rate mortgage (ARM). The index is generally a published number or percentage, such as the average interest rate or yield on Treasury bills. A margin is added to the index to determine the interest rate that will be charged on the ARM.. This interest rate is subject to any caps that are associated with the mortgage.

 

Industrial Production Index
The industrial production index measures the monthly level of the physical output of the manufacturing, mining, and gas and electric utility industries. When industrial production is down, it indicates a slowing of economic growth and, therefore, the Federal Reserve is inclined to allow interest rates to drop to stimulate the economy. Bond Market Moves Up In Price.

 

In-file credit report
An objective account, normally computer-generated, of credit and legal information obtained from a credit repository.

 

Inflation
An increase in the amount of money or credit available in relation to the amount of goods or services available, which causes an increase in the general price level of goods and services. Over time, inflation reduces the purchasing power of a dollar, making it worth less.

 

Initial interest rate
The original interest rate of the mortgage at the time of closing. This rate changes for an adjustable-rate mortgage (ARM). Sometimes known as “start rate” or “teaser.”

 

Judgment
A decision made by a court of law. In judgments that require the repayment of a debt, the court may place a lien against the debtor’s real property as collateral for the judgment’s creditor.

 

Judgment Lien
A lien on the property of a debtor resulting from the decree of a court.

 

Jumbo loan
A loan that exceeds Fannie Mae’s legislated mortgage amount limits. Also called a nonconforming loan.

 

Legal description
A property description, recognized by law,that is sufficient to locate and identify the property without oral testimony.

 

Liability
A person’s financial obligations. Liabilities include long-term and short-term debt, as well as any other amounts that are owed to others.

 

Liability insurance
Insurance coverage that offers protection against claims alleging that a property owner’s negligence or inappropriate action resulted in bodily injury or property damage to another party

 

Master association
A homeowners’ association in a large condominium or planned unit development (PUD) project that is made up of representatives from associations covering specific areas within the project. In effect, it is a “second-level” association that handles matters affecting the entire development, while the “first-level” associations handle matters affecting their particular portions of the project.

 

Maturity
The date on which the principal balance of a loan, bond, or other financial instrument becomes due and payable.

 

Maximum financing
A mortgage amount that is within 5 percent of the highest loan-to-value (LTV) percentage allowed for a specific product. Thus, maximum financing on a fixed-rate mortgage would be 90 percent or higher, because 95 percent is the maximum allowable LTV percentage for that product.

 

Net cash flow
The income that remains for an investment property after the monthly operating income is reduced by the monthly housing expense, which includes principal, interest, taxes, and insurance (PITI) for the mortgage, homeowners’ association dues, leasehold payments, and subordinate financing payments.

 

Net worth
The value of all of a person’s assets, including cash, minus all liabilities.

 

Non-Farm Payroll
The non-farm payroll figure is a component of total civilian employment and measures the number of people employed in all activities except agriculture.

 

Original principal balance
The total amount of principal owed on a mortgage before any payments are made.

 

Origination fee
A fee paid to a lender for processing a loan application. The origination fee is stated in the form of points. One point is 1 percent of the mortgage amount.

 

Owner financing
A property purchase transaction in which the property seller provides all or part of the financing.

 

PITI reserves
A cash amount that a borrower must have on hand after making a down payment and paying all closing costs for the purchase of a home. The principal, interest, taxes, and insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a predefined number of months.

 

Point
A one-time charge by the lender for originating a loan. A point is 1 percent of the amount of the mortgage.

 

Power of attorney
A legal document that authorizes another person to act on one’s behalf. A power of attorney can grant complete authority or can be limited to certain acts and/or certain periods of time.

 

Prearranged refinancing agreement
A formal or informal arrangement between a lender and a borrower wherein the lender agrees to offer special terms (such as a reduction in the costs) for a future refinancing of a mortgage being originated as an inducement for the borrower to enter into the original mortgage transaction.

 

Producer Price Index (PPI)
The monthly producer price index measures the level of prices for all goods produced and imported for sale in the primary marketplace. Increase in the PPI tend to lead other measures of inflation. Bond Market Moves Down In Price.

 

Qualifying ratios
Calculations that are used in determining whether a borrower can qualify for a mortgage. They consist of two separate calculations: a housing expense as a percent of income ratio and total debt obligations as a percent of income ratio.

 

Quitclaim Deed
A deed that transfers without warranty whatever interest or title a grantor may have at the time the conveyance is made.

 

Rate lock
A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate for a specified period of time.

 

Secured loan
A loan that is backed by collateral.

 

Security
The property that will be pledged as collateral for a loan.

 

Survey
A drawing or map showing the precise legal boundaries of a property and the location of improvements, easements, rights of way, encroachments, and other physical features.

 

Tenancy by entirety
A type of joint ownership of property that provides rights of survivorship and is available only to a husband and wife.

 

Tenancy in common
A type of joint ownership in a property without rights of survivorship.

 

Title
A legal document evidencing a person’s right to or ownership of a property.

 

Title company
A company that specializes in examining and insuring titles to real estate.

 

Title insurance
Insurance to protect the lender (lender’s policy) or the buyer (owner’s policy) against loss arising from disputes over ownership of property.

 

Title search
An examination of the public records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.

 

Transfer tax
State or local tax payable when title passes from one owner to another.

 

Truth-in-Lending Act
A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the APR and other charges.

 

Underwriting
The process of evaluating a loan application to determine the risk involved for the lender. It involves an analysis of the borrower’s creditworthiness and the quality of the property itself.

 

VA loan
A loan that is guaranteed by the U.S. Department of Veteran Affairs. Also referred to as a “government” mortgage.

 

What-if analysis
An affordability analysis that is based on a what-if scenario. A what-if analysis is useful if you do not have complete data or if you want to explore the effect of various changes to your income, liabilities, or available funds or to the qualifying ratios or down payment expenses that are used in the analysis.

 

What-if scenario
A change in the amounts that is used as the basis of an affordability analysis. A what-if scenario can include changes to monthly income, debts, or down payment funds or to the qualifying ratios or down payment expenses that are used in the analysis. You can use a what-if scenario to explore different ways to improve your ability to afford a house.

 

Wraparound mortgage
A mortgage that includes the remaining balance on an existing first mortgage plus an additional amount requested by the mortgagor. Full payments on both mortgages are made to the wraparound mortgagee, who then forwards the payments on the first mortgage to the first mortgagee.

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