- The right of the mortgagee (lender) to demand the immediate
repayment of the mortgage loan balance upon the default of the
mortgagor (borrower), or by using the right vested in the Due-on-Sale
- Adjustable rate mortgage (ARM)
- Is a mortgage in which the interest rate is adjusted periodically
based on a preselected index. Also sometimes known as the re-negotiable
rate mortgage, the variable rate mortgage or the Canadian rollover
- Adjustment interval
- On an adjustable rate mortgage, the time between changes
in the interest rate and/or monthly payment, typically one, three
or five years, depending on the index.
- Means loan payment by equal periodic payment calculated to
pay off the debt at the end of a fixed period, including accrued
interest on the outstanding balance.
- Annual percentage rate (A.P.R.)
- Is a interest rate reflecting the cost of a mortgage as a
yearly rate. This rate is likely to be higher than the stated
note rate or advertised rate on the mortgage, because it takes
into account point and other credit cost. The APR allows home
buyers to compare different types of mortgages based on the annual
cost for each loan.
- An estimate of the value of property, made by a qualified
professional called an "appraiser".
- A local tax levied against a property for a specific purpose,
such as a sewer or street lights.
- The agreement between buyer and seller where the buyer takes
over the payments on an existing mortgage from the seller. Assuming
a loan can usually save the buyer money since this is an existing
mortgage debt, unlike a new mortgage where closing cost and new,
probably higher, market-rate interest charges will apply.
- Balloon (payment) mortgage
- Usually a short-term fixed-rate loan which involves small
payments for a certain period of time and one large payment for
the remaining amount of the principal at a time specified in the
- Blanket Mortgage
- A mortgage covering at least two pieces of real estate as
security for the same mortgage.
- Borrower (Mortgagor)
- One who applies for and receives a loan in the form of a
mortgage with the intention of repaying the loan in full.
- An individual in the business of assisting in arranging funding
or negotiating contracts for a client buy who does not loan the
money himself. Brokers usually charge a fee or receive a commission
for their services.
- When the lender and/or the home builder subsidized the mortgage
by lowering the interest rate during the first few years of the
loan. While the payments are initially low, they will increase
when the subsidy expires.
- Cash Flow
- The amount of cash derived over a certain period of time
from an income-producing property. The cash flow should be large
enough to pay the expenses of the income producing property (mortgage
payment, maintenance, utilities, etc).
- Caps (interest)
- Consumer safeguards which limit the amount the interest rate
on an adjustable rate mortgage may change per year and/or the
life of the loan.
- Caps (payment)
- Consumer safeguards which limit the amount monthly payments
on an adjustable rate mortgage may change.
- Certificate of Eligibility ,
- The document given to qualified veterans which entitles them
to VA guaranteed loans for homes, business, and mobile homes.
Certificates of eligibility may be obtained by sending DD-214
(Separation Paper) to the local VA office with VA form 1880 (request
for Certificate of Eligibility).
- Certificate of Reasonable Value (CRV)
- An appraisal issued by the Veterans Administration showing
the property's current market value
- Certificate of veteran status
- The document given to veterans or reservists who have served
90 days of continuous active duty (including training time) It
may be obtained by sending DD 214 to the local VA office with
form 26-8261a (request for certificate of veteran status). This
document enables veterans to obtain lower down payments on certain
FHA insured loans.
- The meeting between the buyer, seller and lender or their
agents where the property and funds legally change hands. Also
called settlement. Closing costs usually include an origination
fee, discount points, appraisal fee, title search and insurance,
survey, taxes, deed recording fee, credit report charge and other
costs assessed at settlement. The cost of closing usually are
about 3 percent to 6 percent of the mortgage amount.
- A promise by a lender to make a loan on specific terms or
conditions to a borrower or builder. A promise by an investor
to purchase mortgages from a lender with specific terms or conditions.
An agreement, often in writing, between a lender and a borrower
to loan money at a future date subject to the completion of paper
work or compliance with stated conditions.
- Construction loan
- A short term interim loan to pay for the construction of
buildings or homes. These are usually designed to provide periodic
disbursements to the builder as he progresses.
- Contract sale or deed:
- A contract between purchaser and a seller of real estate
to convey title after certain conditions have been met. It is
a form of installment sale.
- Conventional loan
- A mortgage not insured by FHA or guaranteed by the VA.
- Credit Report
- A report documenting the credit history and current status
of a borrower's credit standing.
- Debt-to-Income Ratio
- The ratio, expressed as a percentage, which results when
a borrower's monthly payment obligation on long-term debts is
divided by his or her gross monthly income. See housing expenses-to-income
- Deed of trust
- In many states, this document is used in place of a mortgage
to secure the payment of a note.
- Failure to meet legal obligations in a contract, specifically,
failure to make the monthly payments on a mortgage.
- Deferred interest
- When a mortgage is written with a monthly payment that is
less than required to satisfy the note rate, the unpaid interest
is deferred by adding it to the loan balance.See negative
- Failure to make payments on time. This can lead to foreclosure.
- Department of Veterans Affairs (VA)
- An independent agency of the federal government which guarantees
long-term, low-or no-down payment mortgages to eligible veterans.
- Discount Point
- See point.
- Down Payment
- Money paid to make up the difference between the purchase
price and the mortgage amount.
- A provision in a mortgage or deed of trust that allows the
lender to demand immediate payment of the balance of the mortgage
if the mortgage holder sells the home.
- Earnest Money
- Money given by a buyer to a seller as part of the purchase
price to bind a transaction or assure payment.
- The VA home loan benefit is called entitlement. Entitlement
for a VA guaranteed home loan. This is also known as eligibility.
- Equal Credit Opportunity Act (ECOA)
- Is a federal law that requires lenders and other creditors
to make credit equally available without discrimination based
on race, color, religion, national origin, age, sex, marital status
or receipt of income from public assistance programs.
- The difference between the fair market value and current
indebtedness, also referred to as the owner's interest. The value
an owner has in real estate over and above the obligation against
- An account held by the lender into which the home buyer pays
money for tax or insurance payments. Also earnest deposits held
pending loan closing.
- Fannie Mae
- see Federal National Mortgage Association.
- Farmers Home Administration (FmHA)
- Provides financing to farmers and other qualified borrowers
who are unable to obtain loans elsewhere.
- Federal Home Loan Bank Board (FHLBB)
- The former name for the regulatory and supervisory agency
for federally chartered savings institutions. Agency is now called
the Office of Thrift Supervision
- Federal Home Loan Mortgage Corporation(FHLMC)
also called "Freddie Mac",
- Is a quasi-governmental agency that purchases conventional
mortgage from insured depository institutions and HUD-approved
- Federal Housing Administration (FHA)
- A division of the Department of Housing and Urban Development.
Its main activity is the insuring of residential mortgage loans
made by private lenders. FHA also sets standards for underwriting
- Federal National Mortgage Association (FNMA)
also know as "Fannie Mae"
- A tax-paying corporation created by Congress that purchases
and sells conventional residential mortgages as well as those
insured by FHA or guaranteed by VA. This institution, which provides
funds for one in seven mortgages, makes mortgage money more available
and more affordable.
- FHA loan
- A loan insured by the Federal Housing Administration open
to all qualified home purchasers. While there are limits to the
size of FHA loans (,250 as of 1/1/96), they are generous enough
to handle moderately-priced homes almost anywhere in the country.
- FHA mortgage insurance
- Requires a fee (up to 2.25 percent of the loan amount) paid
at closing to insure the loan with FHA. In addition, FHA mortgage
insurance requires an annual fee of up to 0.5 percent of the current
loan amount, paid in monthly installments. The lower the down
payment, the more years the fee must be paid.
- The Federal Home Loan Mortgage Corporation provides a secondary
market for savings and loans by purchasing their conventional
loans. Also known as "Freddie Mac."
- Firm Commitment
- A promise by FHA to insure a mortgage loan for a specified
property and borrower. A promise from a lender to make a mortgage
- Fixed Rate Mortgage
- The mortgage interest rate will remain the same on these
mortgages throughout the term of the mortgage for the original
- The Federal National Mortgage Association is a secondary
mortgage institution which is the largest single holder of home
mortgages in the United States. FNMA buys VA, FHA, and conventional
mortgages from primary lenders. Also known as "Fannie Mae."
- A legal process by which the lender or the seller forces
a sale of a mortgaged property because the borrower has not met
the terms of the mortgage. Also known as a repossession of property.
- Freddie Mac
- see Federal Home Loan Mortgage Corporation.
- Ginnie Mae
- see Government National Mortgage Association.
- Government National Mortgage Association (GNMA)
- Graduated Payment Mortgage (GPM)
- A type of flexible-payment mortgage where the payments increase
for a specified period of time and then level off. This type of
mortgage has negative amortization built into it.
- A promise by one party to pay a debt or perform an obligation
contracted by another if the original party fails to pay or perform
according to a contract.
- Hazard Insurance
- A form of insurance in which the insurance company protects
the insured from specified losses, such as fire, windstorm and
- Housing Expenses-to-Income Ratio
- The ratio, expressed as a percentage, which results when
a borrower's housing expenses are divided by his/her gross monthly
income. See debt-to-income ratio.
- That portion of a borrower's monthly payments held by the
lender or servicer to pay for taxes, hazard insurance, mortgage
insurance, lease payments, and other items as they become due.
Also known as reserves.
- A published interest rate against which lenders measure the
difference between the current interest rate on an adjustable
rate mortgage and that earned by other investments (such as one-
three-, and five-year U.S. Treasury security yields, the monthly
average interest rate on loans closed by savings and loan institutions,
and the monthly average costs-of-funds incurred by savings and
loans), which is then used to adjust the interest rate on an adjustable
mortgage up or down.
- Interim Financing
- A construction loan made during completion of a building
or a project. A permanent loan usually replaces this loan after
- A money source for a lender.
- Jumbo Loan
- A loan which is larger (more than ,600 as of 1/1/97) than
the limits set by the Federal National Mortgage Association
and the Federal Home Loan Mortgage Corporation. Because
jumbo loans cannot be funded by these two agencies,
they usually carry a higher interest rate.
- A claim upon a piece of property for the payment or satisfaction
of a debt or obligation.
- Loan-to-Value Ratio
- The relationship between the amount of the mortgage loan
and the appraised value of the property expressed as a percentage.
- The amount a lender adds to the index on an adjustable rate
mortgage to establish the adjusted interest rate.
- Market Value
- The highest price that a buyer would pay and the lowest price
a seller would accept on a property. Market value may be different
from the price a property could actually be sold for at a given
- MIP (Mortgage Insurance Premium)
- It is insurance from FHA to the lender against incurring
a loss on account of the borrower's default.
- Mortgage Insurance
- Money paid to insure the mortgage when the down payment is
less than 20 percent. See private mortgage insurance, FHA
- The lender.
- The borrower or homeowner.
- Negative Amortization
- Occurs when your monthly payments are not large enough to
pay all the interest due on the loan. This unpaid interest is
added to the unpaid balance of the loan. The danger of negative
amortization is that the home buyer ends up owing more than the
original amount of the loan.
- Net Effective Income
- The borrower's gross income minus federal income tax.
- Non Assumption Clause
- A statement in a mortgage contract forbidding the assumption
of the mortgage without the prior approval of the lender. Note:
The signed obligation to pay a debt, as a mortgage note.
- Office of Thrift Supervision (OTS)
- The regulatory and supervisory agency for federally chartered
savings institutions. Formally known as Federal Home Loan
- Origination Fee
- The fee charged by a lender to prepare loan documents, make
credit checks, inspect and sometimes appraise a property; usually
computed as a percentage of the face value of the loan.
- Permanent Loan
- A long term mortgage, usually ten years or more. Also called
an "end loan."
- Principal, Interest, Taxes and Insurance. Also called monthly
- Pledged account Mortgage (PAM):
- Money is placed in a pledged savings account and this fund
plus earned interest is gradually used to reduce mortgage payments.
- Points (loan discount points)
- Prepaid interest assessed at closing by the lender. Each
point is equal to 1 percent of the loan amount (e.g., two points
on a ,000 mortgage would cost ,000).
- Power of Attorney
- A legal document authorizing one person to act on behalf
- Prepaid Expenses
- Necessary to create an escrow account or to adjust the seller's
existing escrow account. Can include taxes, hazard insurance,
private mortgage insurance and special assessments.
- A privilege in a mortgage permitting the borrower to make
payments in advance of their due date.
- Prepayment Penalty
- Money charged for an early repayment of debt. Prepayment
penalties are allowed in some form (but not necessarily imposed)
in many states.
- Primary Mortgage Market
- Lenders making mortgage loans directly to borrower's such
as savings and loan associations, commercial banks, and mortgage
companies. These lenders sometimes sell their mortgages into the
secondary mortgage markets such as to FNMA or GNMA,
- The amount of debt, not counting interest, left on a loan.
- 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 5 percent
in some cases. With the smaller down payment loans, however, borrowers
are usually required to carry private mortgage insurance. Private
mortgage insurance will usually require an initial premium payment
and may require an additional monthly fee depending
on you loan's structure.
- A real estate broker or an associate holding active membership
in a local real estate board affiliated with the National Association
- The cancellation of a contract. With respect to mortgage
refinancing, the law that gives the homeowner three days to cancel
a contract in some cases once it is signed if the transaction
uses equity in the home as security.
- Recording Fees
- Money paid to the lender for recording a home sale with the
local authorities, thereby making it part of the public records.
- Obtaining a new mortgage loan on a property already owned.
Often to replace existing loans on the property.
- Renegotiable Rate Mortgage
- A loan in which the interest rate is adjusted periodically.
See adjustable rate mortgage.
- Short for the Real Estate Settlement Procedures Act. RESPA
is a federal law that allows consumers to review information on
known or estimated settlement cost once after application and
once prior to or at a settlement. The law requires lenders to
furnish the information after application only.
- Reverse Annuity Mortgage (RAM)
- A form of mortgage in which the lender makes periodic payments
to the borrower using the borrower's equity in the home as Satisfaction
of Mortgage: The document issued by the mortgagee when the mortgage
loan is paid in full. Also called a "release of mortgage."
- Second Mortgage
- A mortgage made subsequent to another mortgage and subordinate
to the first one.
- Secondary Mortgage Market
- The place where primary mortgage lenders sell the mortgages
they make to obtain more funds to originate more new loans. It
provides liquidity for the lenders. Security.
- All the steps and operations a lender performs to keep a
loan in good standing, such as collection of payments, payment
of taxes, insurance, property inspections and the like.
- Settlement/Settlement Costs
- See closing/closing costs.
- Shared Appreciation Mortgage (SAM)
- A mortgage in which a borrower receives a below-market interest
rate in return for which the lender (or another investor such
as a family member or other partner) receives a portion of the
future appreciation in the value of the property. May also apply
to mortgage where the borrowers shares the monthly principal and
interest payments with another party in exchange for part of the
- Simple Interest
- Interest which is computed only on the principle balance.
- A measurement of land, prepared by a registered land surveyor,
showing the location of the land with reference to know points,
its dimensions, and the location and dimensions of any buildings.
- Sweat Equity
- Equity created by a purchaser performing work on a property
- A document that gives evidence of an individual's ownership
- Title Insurance
- A policy, usually issued by a title insurance company, which
insures a home buyer against errors in the title search. The cost
of the policy is usually a function of the value of the property,
and is often borne by the purchaser and/or seller. Policies are
also available to protect the lender's interests.
- Title Search
- An examination of municipal records to determine the legal
ownership of property. Usually is performed by a title company.
- A federal law requiring disclosure of the Annual Percentage
Rate to home buyers shortly after they apply for the loan. Also
known as Regulation Z.
- Two-Step Mortgage
- A mortgage in which the borrower receives a below-market
interest rate for a specified number of years (most often seven
or 10), and then receives a new interest rate adjusted (within
certain limits) to market conditions at that time. The lender
sometimes has the option to call the loan due with 30 days notice
at the end of seven or 10 years. Also called "Super Seven" or
- The decision whether to make a loan to a potential home buyer
based on credit, employment, assets, and other factors and the
matching of this risk to an appropriate rate and term or loan
- Interest charged in excess of the legal rate established
- A long-term, low-or no-down payment loan guaranteed by the
Department of Veterans Affairs. Restricted to individuals qualified
by military service or other entitlements.
Mortgage Funding Fee
- A premium of up to 1-7/8 percent (depending on the size of
the down payment) paid on a VA-backed loan. On a ,000 fixed-rate
mortgage with no down payment, this would amount to ,406 either
paid at closing or added to the amount financed.
- Variable Rate Mortgage (VRM)
- See adjustable rate mortgage.
- Verification of Deposit (VOD)
- A document signed by the borrower's financial institution
verifying the status and balance of his/her financial accounts.
- Verification of Employment (VOE)
- A document signed by the borrower's employer verifying his/her
position and salary.
- Warehouse Fee
- Many mortgage firms must borrow funds on a short term basis
in order to originate loans which are to be sold later in the
secondary mortgage market (or to investors). When the prime rate
of interest is higher on short term loans than on mortgage loans,
the mortgage firm has an economic loss which is offset by charging
a warehouse fee.
- Wraparound mortgage
- Results when an existing assumable loan is combined with
a new loan, resulting in an interest rate somewhere
between the old rate and the current
market rate. The payments are made to a second lender or the previous
homeowner, who then forwards the payments to the first lender
after taking the additional amount off the top.
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American Custom Builders - 322 Clinton St., Defiance OH.