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Glossary

 

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

 

ADJUSTABLE RATE MORTGAGE (ARM)
A mortgage that has an interest rate that adjusts periodically. The interest rate adjustment is based upon the movement of an underlying index. A predetermined margin is added to the index to compute the interest rate.

AMORTIZATION
The gradual reduction of a mortgage debt through periodic payments according to a schedule over a specified mortgage term.

AMOUNT FINANCED
The loan amount less the prepaid finance charges. Prepaid finance charges can be found on the good faith estimate or settlement statement (HUD-1A). For example, if the borrower’s note is for $100,000 and the prepaid finance charge is $2,500, the Amount Financed would be $97,500. The Amount Financed is the figure on which the annual percentage rate is based.

ANNUAL PERCENTAGE RATE (APR)
An interest rate reflecting the cost of mortgages 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 points and other costs. The APR allows homebuyers to compare different types of mortgages based on the annual cost for each loan. If interest was the only finance charge, then the interest rate and the annual percentage rate would be the same.

APPRAISAL
An professional appraiser's estimate of the value of a home at a given point in time.   Appraisers consider square footage, construction quality, design, floor plan, neighborhood, and availability of transportation, shopping, and schools.  Appraisers also take lot size, topography, view, and landscaping into account. Most appraisals cost about $350.

APPRAISER
A person who make an appraisal.

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BALLOON PAYMENT
Usually a short term fixed rate loan that allows 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 contract.

BUY-DOWN
A loan where a lender is paid an up-front fee, or premium, to "buy down" the interest rate on a loan for a specified length of time, usually one to three years. A buy-down is usually expressed as two numbers. For example a 2/1 buy-down represents a 2% rate buy down the first year and a 1% buydown the second year, the third year the rate would revert to the note rate.

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CAPS (Interest)
Borrower safeguards that limit the amount the interest rate on an adjustable rate mortgage may change per year and over the life of the loan.

CAPS (Payment)
Borrower safeguards that limit the amount monthly payments on an adjustable rate mortgage may change. Payment Caps have the potential of creating negative amortization.

CASH-OUT REFINANCE
A refinance transaction that provides cash proceeds to the borrower in excess of 1% of the mortgage amount.

CASH RESERVES
The amount of liquid assets the borrower has remaining after the mortgage loan transaction is completed.

CLOSING COSTS
Money paid by buyers, sellers, and borrowers to effect the closing of a real estate transaction. Typical closing costs include appraisal fees, credit report fees, title insurance fees, escrow fees, and origination fees.

COMBINED LOAN-TO-VALUE RATIO (CLTV)
The ratio of the total mortgage liens against the subject property to the lesser of either the appraised value or the sales price.

COMPARABLES
Properties used as comparisons to determine the value of a specific property.

COMPARATIVE MARKET ANALYSIS
A real estate broker's or agent's informal estimate of a home's market value, based on sales of comparable homes in a neighborhood. Most agents will give you a comparative market analysis for free.

COMPENSATING FACTORS
Borrower strengths that mitigate or compensate for a borrower’s weaknesses (i.e. length of employment, considerable cash reserves, etc.)

CONFORMING LOANS
Loans that conform to FHLMC and FNMA guidelines and do not exceed the maximum loan amount and LTV limitations established by FNMA or FHLMC:

1 UNIT $417,000
2 UNITS $533,850
3 UNITS $645,300
4 UNITS $801,950

as of January 1, 2007

COST OF FUNDS INDEX (COFI)
An index used to determine interest rate changes for certain ARMS. It represents the weighted average cost of savings, borrowing, and advances of the 11th District members of the Federal Home Loan Bank of San Francisco.

CREDIT REPORT
A report documenting the credit history and current status of a borrower’s credit standing.

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DEED OF TRUST
In certain states, a legal instrument that secures a note and perfects a security interest upon real property.

DISCOUNT POINTS
One Discount Point is equal to 1% of the loan amount. Discount Points are payable to a lender for the purpose of obtaining a below market interest rate.

DRIVE BY APPRAISAL
An appraisal that is based mainly on recent comparable sales.

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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.

EQUITY
The value an owner has in real estate over and above the obligations against the property.

ESCROW
A neutral third party who carries out escrow instructions for borrowers, buyers, sellers, and lenders to facilitate the closing of a real estate transaction.

ESCROW ACCOUNT
Funds held by a lender on behalf of a borrower for the payment of taxes, insurance, or special assessments. Also referred to as "Impound Account".

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FHA
Federal Housing Administration - A federal agency which insures mortgages enabling lenders to make home loans with very low down payments.

FHLMC
The Federal Home Loan Mortgage Corporation was created by Congress to purchase conventional mortgages in the secondary mortgage market. Also known as "Freddie Mac".

FINANCE CHARGE
The amount of interest, prepaid finance charge and certain insurance premiums (if any) which the borrower will be expected to pay over the life of the loan.

FIXED RATE MORTGAGE
A mortgage with one set interest rate for the entire term of the mortgage.

FNMA
The Federal National Mortgage Association was created by Congress to purchase conventional mortgages in the secondary mortgage market. Also known as "Fannie Mae". Fannie Mae is the largest single holder of home mortgages in the United States.

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GOOD FAITH ESTIMATE
A written estimate given to a prospective borrower by a Loan Officer or Realtor which outlines the costs and expenses which will be paid in order to obtain a loan.

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HAZARD INSURANCE
Property insurance coverage that compensates for physical damage by fire, wind or other natural disasters.

HOME INSPECTION
A third-party inspection of a home which is useful in determining the integrity of the internal and external components of a dwelling.  Some of the items included in the final report are structural, electrical, plumbing, built-in appliances, safety hazards, roof, and patio.

HOME INSPECTOR
Someone who performs a Home Inspection.

HOME WARRANTY
An insurance for buyer's protection against defects in a recently purchased home which usually covers plumbing, heating, electrical, and kitchen appliances.  Coverage starts upon receipt of payment at close of escrow and continues for one year.

HOMEOWNERS ASSOCIATION (HOA)
A non-profit association whose directors and officers are elected by the unit owners of a condominium or PUD project. Typical HOA responsibilities are to manage the common area's expenses and services.

HOMEOWNERS ASSOCIATION DUES (HOA DUES)
The amount that each homeowner in a condominium or PUD project pays the HOA for their share of the common area’s expenses.

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IMPOUND ACCOUNT
See "ESCROW ACCOUNT"

INDEX
A published interest rate such as the Prime Rate, LIBOR, T-Bill, or the 11th District COFI.  Lenders use indexes to establish interest rates charged on mortgages or to compare investment returns.

INSTALLMENT DEBT
Borrowed money that is repaid in regular payments.

INVESTMENT PROPERTY
A non-owner occupied residential property used to generate income.

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JUMBO LOAN
A loan that exceeds FNMA and FHLMC loan limits. Since jumbo loans cannot be funded by these agencies, they usually carry a higher interest rate.

JUNIOR LIEN
Any lien that is subordinate or subsequent to the claims of a prior or senior lien.

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LOAN-TO-VALUE RATIO (LTV)
The ratio of the amount of the mortgage loan and the lesser of either the appraised value or the sales price.  For example, if a property is appraised at $100,000 and a buyer makes a down payment of 10%, then the loan-to-value is 90%.

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MARGIN
The amount that is added to the index to determine the interest rate for an ARM.

MARKET VALUE
The highest price that a buyer would pay and the lowest price a seller would accept on a property.

MLS
Multiple Listing Service - A service provided by a real estate association for Realtors for submitting property for sale so that all members of the association have an opportunity to sell it.

MORTGAGE
In some states, a note or other evidence of real property being pledged as the security for a debt. Sometimes referred to as a "Deed of Trust", "Trust Deed", or "Security Instrument".

MORTGAGE INSURANCE (MI)
Insurance that protects a mortgage lender against loss in the event of default by the borrower. This insurance allows lenders to make loans with low down payments.

MORTGAGEE
The lender.

MORTGAGOR
The borrower.

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NEGATIVE AMORTIZATION
A gradual increase in the mortgage balance caused by unpaid interest that is added to the mortgage principal because the payments being made are not sufficient to cover the full amount of interest due.

NET SHEET
A written estimate of the amount a seller will receive after all selling expenses and costs are deducted from the sales price.

NON-CONFORMING LOANS
Loans that do not conform to FNMA or FHLMC guidelines.

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ORIGINATION FEE
A fee charged to the borrower by a lender or broker to originate a mortgage loan. Usually expressed as a percentage.

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PAYMENT SCHEDULE
A table showing the payments scheduled to be made for a particular loan. The dollar figures in the Payment Schedule represent principal, interest, and PMI (if applicable) over the life of the loan. These figures will not reflect taxes, insurance, or any temporary buydown payments.

PITI
Principal, Interest, Taxes, and Insurance. This is also referred to as monthly housing expense.

PREPAID FINANCE CHARGES
Certain charges made in connection with a loan which must be paid upon closing of the loan. Examples of Prepaid Finance Charges are loan origination fees, discount points, PMI or FHA mortgage insurance and tax service fees. Some loan charges are specifically excluded from the prepaid finance charge such as appraisal fees and credit report fees.

PREPAID ITEMS
Items that generally must be paid for at the time of closing and are generally recurring charges. Examples of Prepaid Items are taxes, first year premiums for hazard, flood, and mortgage insurance, prorated interest, and any special assessments.

PRINCIPAL BALANCE
The amount of debt not counting interest left on a loan.

PROPERTY TAXES
Taxes collected by a municipality for real property which is based on the value of the property.  In Southern California it is usually estimated at 1.25% of the sales price per year.

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QUALIFYING RATIOS
The percentage of payment-to-income and debt-to-income that is used to measure the borrowers capacity to repay a mortgage debt.

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RATE & TERM REFINANCE
A refinance transaction in which the new mortgage amount is limited to the unpaid principal balance of the existing liens plus any closing costs.

RECISSION
The cancellation of a contract. On most refinance transactions, the borrower's 3-day right to cancel.

REFINANCE
To obtain a new mortgage loan on a property already owned. Often to replace existing loans on the property for the purpose of reducing monthly payments.

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

REVOLVING DEBT
A debt that does not have a fixed payment amount. The payment amount is usually a percentage of the outstanding balance and made at regular intervals. Examples of Revolving Debt are credit cards issued by banks and department stores.

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SECOND MORTGAGE
A mortgage made subsequent and subordinate to another mortgage.  Usually a debt consolidation or home improvement loan.

SECONDARY MORTGAGE MARKET
This is where primary mortgage lenders sell the mortgages they make to obtain more funds to originate more new loans. It provides liquidity for lenders.

SERVICING
The steps and operations a lender performs to keep a loan in good standing. Among other things, Servicing operations include the collection of payments, payment of taxes, and insurance.

SINGLE FAMILY RESIDENCE (SFR)
A residential structure intended to provide housing for one family.

SUBORDINATE FINANCING
A mortgage made subsequent and subordinate to one or more other mortgages.

SUB-PRIME CREDIT
A credit rating or score that does not meet the quidelines of FNMA or FHLMC.

SUPPLEMENTAL INCOME
Income derived from sources such as interest/dividends, capital gains, and rental properties. To be allowed by lenders for qualifying purposes, Supplemental Income must be reflected on tax returns.

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TAX SERVICE CONTRACT
A service lenders use to verify payment of property taxes.

TITLE
A document that evidences an individual’s ownership of property. Usually a Grant Deed.

TITLE INSURANCE
A type of insurance that insures against defects in title that were not listed in the title report or abstract.

TITLE SEARCH
An examination of municipal records to determine the legal ownership of property.

TOTAL OF PAYMENTS
This figure represents the total of all payments made toward principal, interest and mortgage insurance (if applicable) over the life of a loan.

TRUTH-IN-LENDING
A federal law requiring disclosure of the APR to borrowers shortly after they apply for a mortgage loan.

TWO-STEP ARM
An ARM that has a fixed interest rate for the first three, five, seven, or ten years of the mortgage term, then adjusts at the then current market rate plus a predetermined margin, remaining fixed at that rate for the remainder of the term.

TWO-TO-FOUR FAMILY PROPERTIES
A residential structure that provides dwelling units for two, three or four families. Ownership is evidenced by a single deed. Also referred to as Duplex, Triplex, and Fourplex respectively.

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UNDERWRITER
An analyst who reviews a borrower's loan application and supporting documentation to determine the risk associated with a loan request and subsequently makes a decision to approve, suspend, or decline a loan request.

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VERIFICATION OF DEPOSIT (VOD)
A document signed by a borrower’s financial institution verifying among other things, status and balance of financial accounts.

VERIFICATION OF EMPLOYMENT (VOE)
A document signed by a borrower’s employer verifying among other things, position and salary.

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W

X

Y

ZERO-POINT LOAN
A home loan in which the borrower pays no discount points in order to minimize closing costs.  The trade-off is a slightly higher interest rate on the loan.

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Rates as of August 8, 2016 Loan Program

Rate

APR Payment

Payment Calculator

FHA % % $

Loan Amount

5/1 ARM % % $
30 Year Fixed % % $

15 Year Fixed

% % $

 
 
 


 

     
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