Web Sites:
www.fanniemae.com
www.hud.gov
Loan Terms:
Adjustable-Rate Mortgage (ARM): A mortgage whose interest rate changes periodically based on the changes in a specified index.
Appraisal: A written analysis of the estimated value of a property prepared by a qualified appraiser.
Asset: Anything of monetary value that is owned by a person. Assets include real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, and so on).
Balloon Mortgage: A mortgage that has level monthly payments that will amortize it over a stated term but that provides for a lump sum payment to be due at the end of an earlier specified term.
Bi-weekly Mortgage Payment: A mortgage that requires payments to reduce the debt every two weeks (instead of the standard monthly payment schedule). The 26 (or possibly 27) biweekly payments are each equal to one-half of the monthly payment that would be required if the loan were a standard 30-year fixed-rate mortgage, and they are usually drafted from the borrower's bank account. The result for the borrower is a substantial savings in interest.
Cap: A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or mortgage payments may increase or decrease.
Cash-Out Refinance: A refinance transaction in which the amount of money received from the new loan exceeds the total of the money needed to repay the existing first mortgage, closing costs, points, and the amount required to satisfy any outstanding subordinate mortgage liens. In other words, a refinance transaction in which the borrower receives additional cash that can be used for any purpose.
Closing Cost Item: A fee or amount that a home buyer must pay at closing for a single service, tax, or product. Closing costs are made up of individual closing cost items such as origination fees and attorney's fees. Many closing cost items are included as numbered items on the HUD-1 statement. Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Closing costs normally include an origination fee, an attorney's fee, taxes, an amount placed in escrow, and charges for obtaining title insurance and a survey. Closing costs percentage will vary according to the area of the country.
Closing Statement: Also referred to as the HUD-1. The final statement of costs incurred to close on a loan or to purchase a home.
Conforming Loan: The current conforming loan limit is $417,000 and below. Conforming loan limits change annually.
Credit Report: A report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness.
Deed: The legal document conveying title to a property.
Earnest Money Deposit: A deposit made by the potential home buyer to show that he or she is serious about buying the house.
Equal Credit Opportunity Act (ECOA): 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.
Equity: A homeowner's financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on its mortgage.
Escrow: An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the deposit by a borrower with the lender of funds to pay taxes and insurance premiums when they become due, or the deposit of funds or documents with an attorney or escrow agent to be disbursed upon the closing of a sale of real estate.
Escrow Account: The account in which a mortgage servicer holds the borrower's escrow payments prior to paying property expenses.
Escrow Disbursements: The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.
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: A congressionally chartered, shareholder-owned company that is the nation's largest supplier of home mortgage funds.
Federal Housing Administration (FHA): An agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity is the insuring of residential mortgage loans made by private lenders. The FHA sets standards for construction and underwriting but does not lend money or plan or construct housing.
FHA Mortgage: A mortgage that is insured by the Federal Housing Administration (FHA). Also known as a government mortgage.
First Mortgage: A mortgage that is the primary lien against a property.
Fixed-Rate Mortgage (FRM): A mortgage in which the interest rate does not change during the entire term of the loan.
Foreclosure: The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.
Good Faith Estimate: An estimate of charges which a borrower is likely to incur in connection with a settlement.
Hazard Insurance: Insurance protecting against loss to real estate caused by fire, some natural causes, vandalism, etc., depending upon the terms of the policy.
Home Equity Line of Credit (HELOC): a credit line that is secured by a second deed of trust on a house. Equity lines of credit are revolving accounts that work like a credit card, which can be paid down or charged up for the term of the loan. The minimum payment due each month is interest only.
Housing Ratio: The ratio of the monthly housing payment in total (PITI - Principal, Interest, Taxes, and Insurance) divided by the gross monthly income. This ratio is sometimes referred to as the top ratio or front end ratio.
HUD: The U.S. Department of Housing and Urban Development.
Index: A published interest rate to which the interest rate on an Adjustable Rate Mortgage (ARM) is tied. Some commonly used indices include the 1 Year Treasury Bill, 6 Month LIBOR, and the 11th District Cost of Funds (COFI).
Impound Account: An impound account is an account established by the lender to pay a borrower's tax and insurance costs. The borrower's monthly mortgage payment is then increased to cover these costs, with the additional amount being held in the impound account and disbursed by the lender when the payments are due. Lenders typically prefer this arrangement because it reduces the possibility of a lapse in tax or insurance payments that could diminish the value of the lender's investment (your house). Therefore, while it is often possible to opt out of an impound account it will result in additional charges.
Interest-Only Loan Option: Loan payments have two components, principal and interest. An interest-only loan has no principal component for a specified period of time. These special loans minimize your monthly payments by eliminating the need to pay down your balance during the interest-only period, giving you greater cash flow control and/or increased purchasing power.
Jumbo Mortgage: The current loan limit for a conforming loan is $417,000. Loan amounts of $417,001 and above are considered non-conforming or jumbo mortgages and are usually subject to higher pricing.
Lender: The bank, mortgage company, or mortgage broker offering the loan.
LIBOR: LIBOR stands for London Inter-Bank Offered Rate. This is a favorable interest rate offered for U.S. dollar deposits between a group of London banks. There are several different LIBOR rates, defined by the maturity of their deposit. The LIBOR is an international index that follows world economic conditions. LIBOR-indexed ARMs offer borrowers aggressive initial rates and have proven to be competitive with popular ARM indexes like the Treasury bill.
Lifetime Cap: A provision of an ARM that limits the highest rate that can occur over the life of the loan.
Loan To Value Ratio (LTV): The unpaid principal balance of the mortgage on a property divided by the property's appraised value. The LTV will affect programs available to the borrower and generally, the lower the LTV the more favorable the terms of the programs offered by lenders.
Lock Period: The amount of time that a lender will guarantee a loan's interest rate. Once you've locked in the interest rate on a loan, the lender will guarantee that rate for a certain period of time, usually for 30, 45 or 60 days.
Margin: The number of percentage points a lender adds to the index value to calculate the ARM interest rate at each adjustment period.
Mortgage: A legal document that pledges a property to the lender as security for payment of a debt
Mortgage Insurance (MI): Insurance written by an independent mortgage insurance company protecting the mortgage lender against loss incurred by a mortgage default. Usually required for loans with an LTV of 80.01% or higher.
Negative Amortization: Negative Amortization, or "deferred interest," occurs when the mortgage payment is less than a loan's accruing interest. This causes a loan's balance to grow instead of reduce or "amortize."
Non-Conforming Loan: Also called a jumbo loan. Conventional home mortgages not eligible for sale and delivery to either Fannie Mae (FNMA) or Freddie Mac (FHLMC) because of various reasons, including loan amount, loan characteristics or underwriting guidelines. Non-conforming loans usually incur a rate and origination fee premium. The current non-conforming loan limit is $333,701 and above.
Note: A written agreement containing a promise of the signer to pay to a named person, or order, or bearer, a definite sum of money at a specified date or on demand.
Origination Fee: A fee imposed by a lender to cover certain processing expenses in connection with making a real estate loan. Usually a percentage of the amount loaned, such as one percent.
PITI: Principal, interest, taxes and insurance--the components of a monthly mortgage payment.
Planned Unit Developments (PUD): A subdivision of five or more individually owned lots with one or more other parcels owned in common or with reciprocal rights in one or more other parcels.
Prepayment Penalty: A charge imposed by a mortgage lender on a borrower who wants to pay off part or all of a mortgage loan in advance of schedule.
Principal: This term refers to the total amount of money originally deposited into a Savings or CD account. When taking out a loan however, it refers to the amount of debt, not including interest.
Private Mortgage Insurance (PMI): Insurance provided by nongovernment insurers that protects lenders against loss if a borrower defaults. Fannie Mae generally requires private mortgage insurance for loans with loan-to-value (LTV) percentages greater than 80%.
Qualifying Ratios: The ratio of your fixed monthly expenses to your gross monthly income, used to determine how much you can afford to borrow. The fixed monthly expenses would include PITI along with other obligations such as student loans, car loans, or credit card payments.
Rate: The annual rate of interest on a loan, expressed as a percentage of 100.
Rate Cap: A limit on how much the interest rate can change, either at each adjustment period or over the life of the loan.
Rate Lock-In: A written agreement in which the lender guarantees the borrower a specified interest rate, provided the loan closes within a set period of time.
Refinancing: The process of paying off one loan with the proceeds from a new loan using the same property as security.
Stated/Documented Income: Some loan products require only that applicants "state" the source of their income without providing supporting documentation such as tax returns.
Subordination: If you are refinancing your first mortgage and have an existing second or home equity line, one option is to "subordinate" the second mortgage: request that your second mortgage holder go back into the second lien position when you replace your existing first mortgage with the new refinance loan.
Term: The length of time your money must remain in a CD without incurring an early withdrawal penalty. This term also refers to the period of time that covers the life of a loan.
Title: The evidence one has of right to possession of land.
Title Insurance: Insurance against loss resulting from defects of title to a specifically described parcel of real property.
Total Debt Ratio: Monthly debt and housing payments divided by gross monthly income. Also known as Obligations-to-Income Ratio or Back-End Ratio.
Truth in Lending Act: A federal law requiring a disclosure of credit terms using a standard format. This is intended to facilitate comparisons between the lending terms of different financial institutions.
Variable Rate: An interest rate that may change once an account opens.
Yield: The amount generated in interest on an account.
