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Adjustable Rate Mortgage
A mortgage loan that allows the lenders to periodically adjust the interest rate in accordance with a specified index as agreed to at the inception of the loan.
The time during which an ARM interest rate remains effective. After the initial Adjustment Period, the interest rate may not change more than once in a set peiod of time (i.e.6 months, 12 months etc) based on the movement of the index.
Loan payment by equal periodic payments calculated to retire the principal at the end of a fixed period and to pay accrued interest on the outstanding balance.
Annual Percentage Rate (APR)
APR is a measurement of the full cost of a loan including interest and loan fees expressed as a yearly percentage rate. Because all lenders apply the same rules in calculating the annual percentage rate, it provides customers with a good basis for comparing the cost of loans.
An ARM Rider amends the terms of the Security Instrument by specifying the allowable charges in the interest rate and monthly payment of the adjustable rate loan.
As assumable mortgage can be transferred from the seller to the new buyer. Generally requires a credit review of the new borrower and lenders may charge a fee for the assumption. If a mortgage contains a due-on-sale clause, it may not be assumed by a new buyer.
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A loan which is amortized for a longer period than the term of the loan. At the end of the term of the loan, the remaining outstanding principal on the loan is due. This final payment is known as a balloon payment.
A second trust that is collateralized by the borrower's present home allowing the proceeds to be used to close on a new house before the present home is sold. Also known as "swing loan".
When the lender and/or 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.
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Caps (on an Adjustable Rate Mortgage)
Consumer safeguards which limit the amount the interest rate on an adjustable rate mortgage which may change per year and/or the life of the loan.
Ceiling Rate (aka: LifeCap)
The highest interest rate that can be charged over the life of the loan. For example, if the start rate if 7% and the life cap is 5%, the ceiling rate would be 12%.
Certificate of Eligibility (VA Loan)
The document given to qualified veterans which entitles them to VA guaranteed loans for home, business and mobile homes.
Certificate of Reasonable Value (CRV)
An appraisal issued by the Veterans Administration showing the property's current market value.
The personal name appearing on the loan application with the borrower's. The co-borrower's income, assets and debts are added together with the borrowers for underwriting and ratio analysis. A co-borrower does not have to take title to the property, but if their income is used to qualify, they must sign the mortgage Note. Also referred to as a co-mortgagor.
These are expenses, over and above the price of the property, that are incurred by buyers and sellers when transferring ownership of a property. Closing costs normally include an origination fee, property taxes, charges for title insurance and escrow costs, appraisal fees, etc. Closing costs will vary according to the area country and the lenders used.
An index that is used as a base to determine interest rate changes for certain ARM plans. It represents the weighted average cost of savings, borrowings, and advances for the 11th District members of the Federal Home Loan Bank of San Francisco.
The property that is pledged as security for the satisfaction of a Debt Collateral package: The documents required to verify and secure a mortgage loan.
Combined Loan to Value (CLTV)
The relationship between the unpaid principal balance of all the mortgages on a property and the lesser of the property's appraised value or sales price.
A project that has a rental or registration desk, short-term occupancy, food and telephone services and daily cleaning services. It is operated as a commericial hotel even though the units are individually owned.
A mortgage loan that meets the underwriting guidelines, loan amount limites and regulatory parameters set by FHLMC (Freddie Mac) and FNMA (Fannie Mae).
A mortgage not insured by FHA or guaranteed by VA
A provision on an ARM allowing the loan to be converted to a fixed rate at some point during the term. Usually conversion is allowed at the end of the first adjustment period. The conversion feature may have additional costs involved.
A person who agrees to assume the debt obligation if the principal borrower defaults on the mortgage payments. A co-signer assumes only personal liability and has no ownership interest in the property.
Debt to Income Ratio
A borrower's monthly payment obligation on long-term debts divided by gross monthly income, expressed as a percentage. The DTI ratio consists of two separate calculations: a monthly housing expense to income ratio and a total obligations to income ratio.
The time period in which the borrower may access and use the Home Equty Line of Credit (HELOC).
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Equal Credit Opportunity Act (ECOA)
A federal law that requires lenders and other creditors to make credit equally available regardless of race, sex, color, religion, national origin, marital status, age of receipt of public assistance or the exercise of rights under the Consumer Credit Protection Act.
The difference between the appraised value of the property and the outstanding mortgage balance(s).
Any portion of a loan that is held until some additional requirement, such as completion of or an improvement project is attained. Escrow holdbacks are a borrower accommodation that may allow the loan to close and the borrower to occupy the property while incidental work is in progress.
That portion of the borrower's monthly payment held by the lender or servicer to pay for taxes, hazard insurance, flood insurance, mortgage insurance, lease payments and other items that become due.
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Factory Built Housing
Housing in which the actual unit and/or components are constructed in a factory and then transported to the site where the structure will be permanently located. Manufactured, mobile, modular, panelized and prefabricated are all classifications of factory-built housing.
Fair Credit Reporting Act
The act is designed to regulate the consumer reporting industry, place disclosure obligation on users of consumer reports, and ensure fair, timely and accurate reporting of credit information.
Fixed Rate Mortgage (FRM)
A mortgage that provides for only one interest rate for the entire term of the mortgage.
A legal procedure in which a mortgaged property is sold by the trustee to pay the outstanding debt following default.
A citizen of another country who periodically visits the U.S. and is purchasing a property to reside in during visits to the U.S. A foreign national is not a permanent resident or permanent resident alien, and does not have full or partial diplomatic.
Fully Indexed Rate
An interest rate on an adjustable rate mortgage (ARM) which equals the index (i.e. COFI, MTA, LIBOR, Treasury) plus the margin.
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Funds given to the borrower by a relative, church, municipality or non-profit organization which do not have to be re-paid. Gifts funds may be applied towards the down payment, closing costs and/or reserves.
Good Faith Estimate
At the time of application, the borrower must be provided with a Good Faith Estimate, or it equivalent, itemizing closing costs.
Graduate Payment Mortgage (GPM)
A mortgage with lower initial monthly payments than required for full amortization of the loan. Payments are then increased by a specified percent each year of the graduated payment period. At the end of the period, payments are in an amount that will fully amortize the mortgage.
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Insurance coverage that compensates the property owner for physical damage to the dwelling caused by wind, fire or other natural disasters. It generally does not over damage caused by flood, earthquake and/or other types of hazards that typically require special coverage or separate endorsements.
A condominium project that is 5 or more stories high. These types of projects are restricted to market areas where the appraisal validates that high-rise condos are common to the area and acceptable to buyers.
Home Equity Line of Credit (HELOC)
A revolving line of credit loan based on the equity in the subject property. The HELOC is typically in a subordinated lien position and permits borrowers to obtain cash advances on the approved line of credit.
In some states, the home and property ownership by an owner are protected by law, up to a certain amount, from attachment and sale for the clams of creditors. Depending upon state law, certain judgments are not protected by homestead, and homestead can be waived.
HUD-1 Settlement Statement
A standard form used to disclose at closing. All charges imposed in the transaction, including escrow deposits for taxes, hazard insurance and mortgage insurance must be disclosed separately.
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A specified portion of a borrower's monthly payments held by the lender or servicer to pay for taxes, hazard insurance, or mortgage insurance as they become due. In some states, also referred to as escrow or reserves.
The interest rate for an adjustable rate mortgage is tied to a published rate called an "index". The index is the base for the "cost" of the money that is loaned to the borrower. by law, the index to which an adjustable rate mortgage is tied must be published regularly and cannot be under the control of any one financial institution. In addition, the borrower must be able to independently verify the index. The most commonly used indices used for an adjustable rate mortgage are the LIBOR, U.S Treasury and COFI..
Interest Rate Ceiling
For an adjustable rate mortgage (ARM), the maximum interest rate, as specified in the mortgage note.
Interest Rate Floor
For an adjustable rate mortgage (ARM), the minimum interest rate, as specified in the mortgage note.
Inter Vivos Revocable Trust
Inter vivos is the Latin term for "between the living". This means it is a trust that an individual creates and which becomes effective during his or her lifetime, but which can be changed or canceled at any time for any reason during the creators lifetime.
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Joint ownership by two or more persons giving each tenant equal interest and equal rights in the property, including the right of survivorship.
The decision of a court of law. When recorded, the judgement becomes a lien on the real estate property of the defendant. A "vacated" judgement is a judgement that has been set aside or annulled and has no legal effect.
A mortgage loan that has a principal balance greater than the amount eligible for purchase by FNMA or FHLMC.
A lien that is subordinate to the claims of the holder of a prior (senior) lien. Also referred to as a junior mortgage.
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Leasehold or Leasehold Estate
A way of holding title to a property wherein the mortgagor does not actually own the property but rather has a recorded long-term lease on it. When the lease expires, all rights revert back to the owner. The lease term should be at least 5 years longer than the term of the mortgage.
A lease with a clause stating that the lessee has the right to purchase the property. The price and terms must be set forth in writing for the option to be value.
This is the maximum limit the interest rate may change over the life of an ARM loan.
Loan to Value Ratio
The relationship between the unpaid principal balance of the mortgage and the lesser of the property's appraised value or sales price.
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Major Metropolitan Area
A major metropolitan area is a large population nucleus, together with adjacent communities having a high degree of social and economic integration with the core. Major metropolitan areas comprise one or more entire counties, except in New England, where cities and towns are the basic geographic units.
The amount that is added to an index value to create the mortgage interest rate for an ARM loan.
Mixed Use Property
A mixed use property is a property that has a business use in addition to its residential use, such as property with space set aside for a day-care facility, a beauty or barber shop, a doctors office, etc.
Mortgage Backed Security
Securities or investments that represent an undivided interest in a pool of loans secured by mortgages or deeds of trust. Principal reductions from the underlying mortgages are used to pay off the bond or securities.
Insurance that protects mortgage lenders against loss in the event tof default by the borrower. Also, see Private Mortgage Insurance (PMI).
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A loan payment schedule that produces additions to the principal, not a reduction. The unpaid interest is added to the mortgage principal in a loan. This causes the principal balance to increase rather than decrease because the mortgage payments do not cover the full amount of interest due.
Non Arms Length Transaction
A transaction that occurs when a personal or business relationship exists between the borrowers and the builder of property seller. This relationship may influence the transaction. (Refer to individual product description for restrictions that may apply)
Non Conforming Loan
A mortgage loan that does not meet the loan amount limits and/or credit characteristics set by FNMA and FHLMC.
Non Occupant Co-Borrower
A co-borrower that does not occupy the subject property or a unit thereof.
(Refer to individual product description for restrictions that may apply)
Non Permanent Resident Alien
Non-United States citizens who have no valid evidence of permanent residency, but have valid visas.
Non Traditional Mortgage Credit Report
A credit report derived from parties other than normal credit grantors to document all non-traditional or non credit payment references.
Non Warrantable Condos
Condominium projects that do not comply with the standard condominium warranties for minimum pre-sale requirements or maximum concentrations.
(Refer to individual product description for restrictions that may apply)
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Original Appraised Value
On construction to permanent loans, the estimate of value based on plans and specifications at the time of application.
The fees charged by a lender to prepare loan documents, make credit checks, inspect and sometimes appraise a property. The fees are usually computed as a percentage of the face value of the mortgage.
A property that meets the following requirements: -Owners reside in the mortgaged premises, using it as a primary residence; -property is listed by owner of record (by deed)
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Payment Change Date
The date when a new mortgage amount takes effect on an adjustable rate mortgage. Generally, the payment change date occurs in the month immediately after the adjustment date.
This may occur at the first adjustment of an ARM loan and it causes a dramatic increase in the monthly mortgage payment. The result is that the borrower may not be able to afford the payments.
The limit on the maximum amount the interest rate can change in any adjustment period following the initial interest rate change on an ARM loan.
Periodic Payment Cap
The limit on the maximum amount the payment can increase or decrease during any one adjustment period, regardless of how high or low the index might be.
The payment of discount in order to lower the interest rate, and thereby the monthly payment amount, of a mortgage loan for the life of the loan.
P & I
Principal and Interest (payment)
The monthly payment that includes Principal, Interest, Taxes and Insurance.
Preliminary Title Report
A report generated by a title search company for the purpose of determining if a real property has "clear" title or if there are recorded encumbrances, judgements, labor liens, etc.,that would affect the salability of the property.
Paying off a loan prematurely
A charge that a borrower may be required to pay during the early year(s) of a mortgage (1-5 years), if it is paid in full or if a large payment is made in order to reduce the unpaid balance.
(Refer to individual product descriptions for state regulations and prepayment option availability)
A borrower's primary residence. At least one of the borrowers must occupy and hold title to the property, and also execute the Note and mortgage.
Private Mortgage Insurance
Mortgage insurance written by a private company that protects the lender or investor against loss caused by default. Conventional loans with a LTV ratio greater than 80% must have PMI.
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Calculations used in determining whether or not a borrower can qualify for a mortgage. The ratios consist of two separate calculations: monthly housing expense to income and total monthly obligations to income.
A deed relinquishing all interest, title or claim an owner has in a property. A quitclaim deed implies no warranty or covenants for title.
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The cancellation of a contract. With respect to mortgage refinancing, the law that gives the homeowner three days to cancel a contract if the transaction uses equity in the home as security.
Regulation Z, Truth In Lending
A federal regulation that requires borrowers be provided in advance with a full disclosure of all costs included in securing a loan, including the calculation of an annual percentage rate (APR).
an individual who is not a citizen of the United States but is a resident. The Immigration and Naturalization Service issues permanent resident aliens an Alien Registration Card (also called a "green card") as evidence of permanent residency.
An area designated as rural by the Rural Housing and Community Development Service (RHCDS), and as shown on maps in the local Rural Housing Service (RHS) office servicing the sea where the property is located.
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The maturing of a mortgage; the period of time that has passed since origination.
A property that the borrower occupies for some portion of the year, in addition to their primary residence. The property must be located in an area that can reasonably function as a second home and must be suitable for year-round occupancy Typically, this property is located far form the borrower's primary residence, and near either a resort or vacation area, such as mountains, oceanfront, etc.
Any loan other than the first or primary loan, which is secured by a mortgage on a property.
An agreement in which the owner of a property provides financing, often in combination with an assumable mortgage.
A financial disclosure that details all the debits and credits incurred at the closing of a loan.
A first and second lien mortgage loan secured by the same subject property that are originated and closed together.
A loan, usually in junior position , closed independently and at a later date than the first mortgage.
Any mortgage or other lien that has priority lower than that of the first mortgage.
A loan that does not meet the credit underwriting guidelines of FNMA, FHLMC, FHA, VA or major-non conforming purchasers. Subprime loans allow borrowers to qualify with more severe mortgage delinquencies and higher debt ratios. Often referred to as "B/C Loans"
Contribution to the construction or rehabilitation of a property in the form of labor or services rather than cash.
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An arrangement wherein the property seller or other arty deposits money to an account so that it can be released each month to reduce the borrower's monthly payments during the early years of a mortgage. During the specified period the borrower's effective interest rate is "bought down" below the actual mortgage interest rate by this subsidy.
Truth-in-Lending Act (TILA)
The Trust-in-Lending Act is referred to as the National Consumer Credit Protection Act. It requires that all costs involved in securing a loan can be disclosed to the borrower in advance with an effective annual percentage rate clearly specified.
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Verification of Employment
Documentation of a mortgage applicant's work history and/or occupation that is intended to assist with the lender's credit investigation and decision process.
How title is help on a property, i.e. husband and wide, joint tenancy with right of survivorship.
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