Adjustable Rate Mortgage (ARM) top
A mortgage in which the interest rate is adjusted periodically based on a pre-selected index. Also known as the re-negotiable rate mortgage, the variable rate mortgage or the Canadian rollover mortgage.

Annual Percentage Rate (A.P.R.) top
An 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 costs. The APR allows home buyer to compare different types of mortgages based on the annual cost for each loan.

Assumption top
The agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller. Assuming the loan can usually save the buyer money since this is an existing mortgage debt, unlike a new mortgage with closing costs and possibly higher interest rates.

Buy Down top
When a lender and/or the home builder subsidizes the mortgage by lowering the interest rate during the first few years on the loan. While the payments are initially low, they will increase when the subsidy expires.

Caps (interest) top
Safety precautions taken by the consumer to limit the amount that the interest rate on an adjustable rate mortgage may change per year and/or the life of the loan.

Capital Gains top
The tax paid upon certain types of real estate transactions. Contact accountant for specifics.

Closing Date
Date stated on the purchase agreement that buyer and seller agree to finalize or close the transaction

Commitment top
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 paperwork or compliance with stated conditions.

Condo/Town Home top
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.

Cosigner top
Person who agrees to make loan payments, if you cannot fulfill your financial commitment

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-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 Ratio

Due-on-Sale-Clause top
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.

Equal Credit Opportunity Act (ECOA) top
A Federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, religion, national origin, age, sex, marital status or receipt of income from public assistance programs.

Fannie Mae top
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 top
Short name for Federal Home Loan Mortgage Corporation - see above

FNMA top
The Federal National Mortgage Association is a secondary mortgage institution which is the largest single holder of home mortgage in the United States. FNMA buys VA, FHA, and conventional mortgages from primary lenders. Also known as “Fannie Mae.”

Hazard Insurance top
A form of insurance that protects the insured from specified losses such as fire, wind and storm. Also known as homeowner’s insurance.

Home Equity Line of Credit. Second mortgage product, generally characterized by interest only payments and the ability to draw, pay back, and redraw

Housing Expenses-to-Income Ratio
The ratio, expressed as a percentage, which results when a borrowers housing expenses are divided by his/ her gross income. See Debt-to-Income Ratio

Impound top
The portion of a borrower’s monthly payments which is held by the lender or servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they are due. Also known as reserves.

Index top
A published interest rate against which lenders measure the difference between the current interest rate on an adjustable rate mortage and that earned by other investments (such as U.S. Treasury security yields, monthly average interest rates closed by savings and loan institutions and the monthly average cost of funds incurred by savings and loans). It is then used to adjust the interest rate on an adjustable rate mortgage – up or down.

Interim Financing
A construction loan made during the completion of a building or project. A permanent loan will usually replace this after completion.

Loan-to-Value Ratio top
The relationship, expressed as a percentage, between the amount of the mortgage loan and appraised value of the property.

Margin top
The amount that a lender adds to the index on an adjustable rate mortgage to establish the adjusted interest rate.

Mortgage top
Debt instrument by which the borrower (mortgagor) gives the lender (mortgagee) a lien on the property as security for the repayment of a loan. The borrower has use of the property, and the lien is removed when the obligation is fully paid.

Mortgage Insurance top
Money paid to insure the mortgage when the down payment is less than 20 percent. See Private Mortgage Insurance.

Negative Amortization top
Occurs when your monthly payments are not large enough to pay all of 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 homeowner ends up owing more than the original amount of the loan.

PITI top
Principal, Interet, Taxes and Insurance. Also called monthly housing expense.

Points (loan discount points) top
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 $100,000 mortgage would cost $2,000)

Private Mortgage Insurance (PMI) top
In the event that you do not have a 20 percent down payment, lenders will allow a smaller down payment – as low as 3 1/2% in some cases. With these loans, borrowers are required to carry private mortgage insurance. Private mortgage insurance usually requires an initial premium payment and may require an additional monthly fee, depending on your loan structure

Recording Fee top
Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records.

Real Estate Settlement Procedures Act. RESPA is a Federal law that allows consumers to review information on known or estimated settlement costs once after application and once prior to or at settlement. The law requires lenders to furnish the information after application only.

Title Insurance top
A policy, usually issued by a title insurance company, which insures a homebuyer 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 top
An examination of municipal records to determine the legal ownership of property. Usually performed by a title company.

A Federal law which requires the lender or servicer to disclose the Annual Percentage Rate to home buyers shortly after they apply for the loan. Also known as Regulation Z.

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