Annual Percentage Rate - APR
The effective rate of interest for a loan per year. This rate is typically higher than the note rate because it takes into account closing costs. This is one way to compare loan programs offered by different lenders. Caution : the APR is sometimes computed differently by different lenders and can be misleading.
Blanket Mortgage
A mortgage covering more than one piece of property. Example : A developer subdivides a tract of land into lots and obtains a blanket mortgage on the whole tract.
Buy Down
Obtaining a lower interest rate (buying down the rate) by paying additional points to the lender. The lower rate may apply for the full duration of the loan or for just the first few years. A buydown may be used to qualify a borrower who would otherwise not qualify . This is because a buydown results in lower payments which are easier to qualify for.
Example : A very popular buydown is the 2-1 buydown. If the interest rate on the note is 9%, the buydown results in the rate being 7% (9%-2%) for the first year, 8% (9%-1%) for the second year, and 9% thereafter.
Certificate of Eligibility
The document issued by the Veterans Administration to those that qualify for a VA loan which may be used to buy a house with 0 down. Certificates of eligibility may be obtained by sending the form DD-214 to the local VA office along with VA form 1880.
Certificate of Reasonable Value (CRV)
An appraisal performed by an VA approved appraiser which establishes the property's current market value. This value establishes the ceiling on the maximum VA mortgage loan principal.
Conventional Loan
Any mortgage loan other than a VA or an FHA loan. A convention loan may be conforming or non-conforming.
Convertible ARMS
Some variable loans come with options to convert them to a fixed loan based on a pre-determined formula, during a given time period. For example the 1-year tbill adjustable may be converted to a fixed during the first five years on the adjustment date. The means that you could convert during the 13th, 25th, 37th, 49th and 61th months of the loan.
Deed of Trust
Used in many states in lieu of a mortgage to secure the payment of a note. In a deed of trust there are three parties - the borrower, the trustee, and the lender, (or beneficiary). In such a transaction, the borrower transfers the legal title for the property to the trustee who holds the property in trust as security for the payment of the debt to the lender or beneficiary. If the borrower pays the debt as agreed, the deed of trust becomes void. If, however, he/she defaults in the payment of the debt, the trustee may sell the property without a court proceeding.
Discount Points
Fees paid to a lender to reduce the interest rate.
Escheat
The reversion of property to the state in the event that the owner dies without leaving a will and has no legal heirs.
Equal Credit Opportunity Act (ECOA)
The Equal Credit Opportunity Act ensures that all consumers are given an equal chance to obtain credit. This doesn't mean all consumers who apply for credit get it: Factors such as income, expenses, debt, and credit history are considerations for creditworthiness.
The law protects you when you deal with any creditor who regularly extends credit, including banks, small loan and finance companies, retail and department stores, credit card companies, and credit unions. Anyone involved in granting credit, such as real estate brokers who arrange financing, is covered by the law. Businesses applying for credit also are protected by the law.
Fannie Mae (FNMA)
Purchases loans from lenders, securitizes them and sells FNMA mortgage backed securities on wall street.
Federal Home Loan Bank Board (FHLBB)
Provides financing to farmers.
Farmer's Home Administration (FmHA)
An agency, within the U.S. Department of Agriculture, that administers assistance programs for purchasers of homes and farms in small towns and rural areas.
Freddie Mac (FHLMC)
Purchase loans from members of the Federal Reserve and the Federal Home Loan Bank Systems, securitizes them and sells FHLMC mortgage backed securities on wall street.
Federal Housing Administration (FHA)
An agency within the the US Dept of Housing and Urban Development (HUD) that administers loan programs, issues loan guarantees to make more housing available.
Ginne Mae (GNMA)
A government agency part of HUD that buys VA and FHA loans from lenders, securitizes them and sells Ginnie Mae securities to investors.
Graduated Payment Mortgage (GPM)
A mortgage that has lower payments initially (with potential negative amortization) which increase each year until the loan is fully amortized.
Homestead Exemption
Available in some states - this causes the assessed value of a principal residence to be reduced by the amount of the exemption for the purposes of calculating property tax.
Example : John's principal residence is assessed at $100,000 and the homestead exemption is $7,000. His property taxes will be based on $93,000.
Home Ownership and Equity Protection Act (HOEPA)
HOEPA is a law that regulates high cost loans. HOEPA applies to most home equity and refinance loans secured by the borrower's home. There are 2 main parts to HOEPA: 1) the Annual Percentage Rate (APR) and points and fees threshold that show when a specific high cost loan is subject to the law, and 2) certain prohibitions and restrictions that are placed on high cost loans covered by the law. Loans with an APR of 10% above the Treasury rate, or loans with points and fees that total more than 8% of the loan amount are subject to HOEPA. The law has very specific definitions of points and fees, so that not all points and fees are included in the 8% trigger.
Income Approach
A method used by an appraiser to estimate the value of a property based on the income it generates.
Jumbo Loan
Loan size that is larger than the limit established by Fannie Mae or Freddie Mac.
Junior Mortgage
A mortgage subordinate to another mortgage. In the case of a foreclosure a senior mortgage will be paid prior to a junior mortgage.
Kicker
A payment required by a mortgage in addition to normal principal and interest. Sometimes known as a participation loan.
Loan origination fee or points
Charge by a lender or broker connected with originating a loan. This is different from discount points which are used to buy down the rate of interest.
Loan to Value Ratio (LTV)
The loan amount divided by the value of the property.
Loan Servicing
The act of collecting loan payments, handling property tax and insurance escrows, foreclosing on defaulted loans and remitting payments to the investors.
Margin
A fixed number added to the index to compute the rate on an adjustable rate mortgage.
Mortgage Banker
Specializes in originating and servicing loans. They generally sell their loans to investors, but may continue to service them.
Mortgage Broker
Arranges financing for a borrower by placing loans with lenders. Mortgage brokers are paid a fee by the borrower or the lender when a loan closes.
Negative Amortization
An increase in principal balance which occurs when the monthly payments do not cover all of the interest cost. The interest cost which is not covered by the payment is added to the unpaid principal balance.
Net Effective Income
The borrowers gross income minus federal income tax.
Non-Conforming Loan
Loans that do not comply with FNMA or GNMA guidelines.
Private Mortgage Insurance (PMI)
In the event that you do not have a 20 percent down payment, lenders will allow a smaller down payment - as low as 2 percent in some cases. With the smaller down payment loans, however, borrowers are usually required to carry private mortgage insurance. Private mortgage insurance payments are normally made annual or monthly. An impound account may be required.
Real Estate Settlement Procedure Act (RESPA)
A law that states how mortgage lenders must treat those who apply for real estate loans on property with 1-4 units. Also known as "Reg X" - GFE, HUD-1 requirements.
Example : A lender is required to provide a good faith estimate of closing costs within 3 days of an application being filed.
Regulation Z (Reg Z)
A federal regulation requiring creditors to provide full disclosure of the terms of a loan including the terms of the loan and the annual percentage rate (APR).
Reverse Mortgage
A mortgage used by the elderly that provides income as long as they live in exchange. Payments made cause the loan principal to increase.
Rollover Loan
A loan that is amortized over a long period of time (e.g. 30 years) but the interest rate is fixed for a short period (e.g. 5 years). The loan may be extended or rolled over, at the end of the shorter term, based on the terms of the loan.
Secondary Mortgage Market
The market where banks, savings & loans and mortgage bankers can sell mortgages to investors like FNMA, GNMA, large national banks and private Wall Street firms.
Settlement Cost (HUD guide)
A booklet that provides an overview of the lending process and is required to be given to consumers after the loan application is completed.
Sub-prime Loan
A loan usually offered at a higher rate and terms to borrowers with less than perfect credit, higher debt ratios, and higher loan to value ratios.
Tenancy at Sufferance
Tenancy established when a person who had been a lawful tenant wrongfully remains in possession of property after expiration of a lease.
Tenancy at Will
A license to use or occupy land and buildings at the will of the owner. The tenant may decide to leave the property at any time or must leave at the landlords will.
Tenancy by the Entirety
A form of ownership by husband and wife whereby each owns the entire property. In event of the death of one, the survivor owns the property without probate
Tenancy for Years
Created by a lease for a fixed term, such as 6 months, 2 years, etc.
Tenancy in Common
Ownership of a property by 2 or more persons, each of whom has an undivided interest, without the right of survivorship. Upon the death of one of the owners, the ownership share of the deceased is inherited by the beneficiary designated on the owner's will.
Tenancy in Severalty
Ownership of property by one person.
Title Report
A document indicating the current state of title. The report includes information on the current ownership, outstanding deeds of trust or mortgages, liens, easements, covenants, restrictions, and any defects.
Truth in Lending
See Regulation Z.
Underwriting
The decision whether to make a loan to a potential home buyer based on credit, income, employment history, assets, etc.
VA Loan
Home loan guaranteed by the US Veterans Administration, enabling a veteran to buy a home with no money down.
Verification of Deposit (VOD)
A document signed by the borrower's bank or other financial institution verifying the account balance and history.
Verification of Employment
A document signed by the borrower's employer verifying his/her starting date, job title, salary and probability of continued employment.
Warehousing
Mortgage bankers and other financial institutions make loans that are then periodically sold on the secondary market. After the loan is made but before it is sold - the loan is said to be in the lenders warehouse.
Warranty Deed
A deed conveying the title to a property with a warranty of a clear marketable title.
Wraparound Mortgage
A loan arrangement whereby the existing loan is retained an a new loan is added to the property. Example : The seller sells his/her property for $200,000. The buyer puts $80,000 down. The seller has an existing loan balance of $100,000 for a remaining period of 25 years at an interest rate of 6%. The seller then makes a wraparound mortgage to the buyer, (where the seller acts as a lender) for $120,000 at 8%. The seller has to continue making payments on his old loan. They buyer has to pay the seller on the new loan. The buyer may at a later date refinance the property and close both loans.
Zero Lot Line
A form of housing where individual units are on separate lots, but are attached to one another. Example : PUD, townhouse.
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