Adjustable Rate Mortgage (ARM)
stands for Adjustable Rate Mortgage, also referred to as a Variable Rate Mortgage. They both mean the same thing. An ARM is a mortgage with an interest rate that adjusts periodically to reflect changes in market conditions. Your mortgage payments are adjusted up or down (usually on an annual basis) as the interest rate changes. To protect you in a rising interest market, rate increases are limited (usually 2 percentage points annually; 6 percentage points over the life of the loan).
The gradual repayment of a home loan by periodic installments.
Annual Percentage Rate (APR)
stands for Annual Percentage Rate. This refers to the interest rate that reflects the actual cost of a mortgage as a yearly rate. Because APR includes points and other costs associated with the mortgage, it's usually higher than the advertised simple interest rate. The APR more accurately reflects what you'll be paying and allows you to compare different mortgages based on actual costs.
A fee usually paid at the time an application is given to a lender for helping to complete and review an application. Some lenders collect fees for a property appraisal and a credit report, instead of an application fee, at the time of application.
An increase in the value of a property due to changes in market conditions or other causes. Inflation, increased demand, home improvement, and sweat equity are all causes of appreciation. The opposite of depreciation.
The value used to determine property taxes, based on a public tax assessor's opinion. Contrast with appraised value.
A home loan that allows a new purchaser of the home to take over ("assume") the loan obligations of the seller when a home is sold.
Local regulations that specify minimum structural requirements for design of, construction of, and materials used in a home or office building. Building codes are based
Cash Available For Closing
Borrower funds available to cover down payment and closing costs. If lending guidelines require the borrower to have cash reserves at the time the loan closes or that the down payment come from certain sources, borrower's cash available for closing does not include cash reserves or money from other sources.
Cash Flow Basis
This calculation shows when your monthly payment savings exceed your estimated closing costs and discount points. It does not consider the tax impact or differences in principal balance reduction between your current loan and the refinance suggestions. You can use the Amortization Schedule Calculator to compare principal reduction.
A title that is marketable and is free of liens or disputed legal questions as to ownership of the property.
The conclusion or consummation of a transaction. In real estate, closing includes the delivery of a deed, the signing of notes and security instruments, and the disbursement of funds necessary to the sale or loan transaction. Also referred to as settlement.
Various expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Closing costs normally include items such as broker's commissions, discount points, origination fees, attorney's fees, taxes, title insurance premiums, escrow agent fees, and charges for obtaining appraisals, inspections and surveys. Closing costs will vary according to the area of the country. Lenders or real estate professionals often provide estimates of closing costs to prospective home buyers even before the HUD-1 settlement statement is delivered.
An accounting of funds given to both buyer and seller before real estate is sold. See HUD-1 settlement statement.
pools, tennis courts, and other recreational facilities, as well as common corridors of buildings, parking areas, means of ingress and egress, etc.
An abbreviation for "comparable properties"; used for comparative purposes in the appraisal process. Comparables are properties like the property under consideration; they have reasonably the same size, location, and amenities and have recently been sold. Comparables help the appraiser determine the approximate fair market value of the subject property.
A real estate project in which each unit owner has title to a unit in a multi-unit building, an undivided interest in the common areas of the project, and sometimes the exclusive use of certain limited common areas.
A home loan with a maximum loan amount of $252,700 that is eligible for purchase by FNMA and FHLMC
A short-term, interim loan for financing the cost of home construction. The lender makes payments to the builder at periodic intervals as the work progresses.
A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector.
An oral or written agreement to do or not do something
A home loan that is not insured or guaranteed by the federal government. Contrast with government loan. Can be for conforming or non-conforming loan amounts.
A promise in a mortgage or deed that requires or prevents certain uses of the property that, if violated, may result in loss or foreclosure of the property.
A detailed account of the credit, employment and residence history of an individual used by a prospective lender to help determine creditworthiness. Credit reports also list any judgments, tax liens, bankruptcies or similar matters of public record entered against the individual.
Credit scores are numerical values that rank individuals according to their credit history at a given point in time. Your score is based on your past payment history, the amount of credit you have outstanding, the amount of credit you have available, and other factors. According to Fannie Mae--one of the major investors in home loans, credit scores have proven to be very good predictors of whether a borrower will repay his or her loan.
This is an abbreviation for a monthly payment that includes principal, interest, taxes and insurance. In mortgage lending it is common for the monthly mortgage payment to include not only the principal and interest payment on the loan, but an escrow amount for real estate taxes and hazard insurance as well.
The legal document conveying title to a property.
Deed Of Trust
The document used in some states instead of a mortgage; title is vested in a trustee to secure repayment of the loan.
A decline in the value of property because of physical or economic changes such as wear and tear; the opposite of appreciation.
Amounts paid to the lender at origination to lower the rate on the face of the note. See point.
This fee covers the expenses associated with this process of preparing some of the legal documents that you will be signing at the time of closing, such as the mortgage, note, and truth-in-lending statement.
The part of the purchase price of a property that the buyer pays in cash and does not finance with a home loan.
Due Diligence Period
Buyers opportunity to investigate the property and the transaction contemplated by the contract, including but not limited to inspections, review of documents, insurance, appraisals, survey, zoning and governmental regulation, flood zone and financing.
Earnest Money Deposit (Earnest Money)
A deposit made by the potential home buyer to show that he or she is serious about buying the house.
A right of way giving to persons other than the owner to access to or over a property.
An improvement that physically intrudes or trespasses on another's property.
Anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements, deeds, or restrictions.
The value of your home after the outstanding balance of any loans are subtracted. If you make a 5 percent down payment, you have 5 percent of the price of your home in equity. As you make payments toward principal over time, the equity in your home grows.
The account in which a loan servicer holds the borrower's escrow payments prior to paying property expenses, such as property taxes or homeowners insurance.
Examination Of Title
The report on the title of a property from the public records or an abstract of the title.
A written contract that gives a licensed real estate agent the exclusive right to sell a property for a specified time, but reserving the owner's right to sell the property alone without the payment of a commission.
Fair Credit Reporting Act
A consumer protection law that regulates the disclosure and use of consumer credit information, establishes rules for credit reporting to consumer credit reporting agencies, and establishes procedures for a consumer to view his or her credit report and correct mistakes on it.
Fannie Mae (Federal National Mortgage Association FNMA)
A New York Stock Exchange company and the largest non-bank financial services company in the world. It operates pursuant to a federal charter and is the nation's largest source of financing for home mortgages. It adds liquidity to the mortgage market by investing in home loans through the country.
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 loan underwriting but does not lend money or plan or construct housing.
FHA Home Loan
A mortgage home loan that is insured by the Federal Housing Administration (FHA). Also known as a government loan.
Fixed Rate Mortgage
A mortgage with an interest rate that stays the same (fixed) over the life of the mortgage. Monthly payments for a fixed rate mortgage are very stable and will not change.
Personal property that becomes real property when attached in a permanent manner to real estate (such as a lighting fixture or an in-ground spa).
Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.
The legal process by which a borrower's interest in mortgaged property is taken because of a default on the loan. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.
Freddie Mac (Federal Home Loan Mortgage Corporation)
A federal agency within the Department of Housing and Urban Development (HUD), which insures residential mortgage loans made by private lenders and sets standards for underwriting mortgage loans.
Good Faith Estimate
A document provided when you apply for a loan. It provides estimates of all costs associated with obtaining and closing a mortgage loan.
Homeowner's Insurance (Hazard Insurance)
Insurance coverage that compensates for physical damage to a property from fire, wind, vandalism, or other hazards. The policy typically combines personal liability insurance and property hazard insurance coverage for a dwelling and its contents. See also homeowner's insurance.
Home Equity Line Of Credit (HELOC)
A mortgage loan, which is usually in a subordinate position, that allows the borrower to obtain multiple advances of the loan proceeds at his or her own discretion, up to an amount that represents a specified percentage of the borrower's equity in a property.
A thorough inspection that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser. Contrast with appraisal.
A nonprofit association that manages the common areas of a planned unit development (PUD) or condominium project. In a condominium project, it has no ownership interest in the common elements. In a PUD project, it holds title to the common elements. See also master association.
Insurance coverage that compensates for physical damage to a property from fire, wind, vandalism, or other hazards. The policy typically combines personal liability insurance and property hazard insurance coverage for a dwelling and its contents.
Homeowner's Warranty (HOW)
A type of insurance that covers repairs to specified parts of a house for a specific period of time. It may be provided by the builder or property seller as a condition of the sale but homeowners can also purchase it.
HUD-1 Settlement Statement
A document that provides an itemized listing of the funds that are payable at closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow amounts. Each item on the statement is represented by a separate number within a standardized numbering system. The totals at the bottom of the HUD-1 statement define the seller's net proceeds and the buyer's net payment at closing. The blank form for the statement is published by the Department of Housing and Urban Development (HUD). The HUD-1 statement is also known as the "closing statement" or "settlement sheet."
Real estate developed or improved to produce income.
A number used to compute the interest rate for an adjustable-rate mortgage (ARM). The index is generally a published number or percentage, such as the average interest rate or yield on Treasury bills. A margin is added to the index to determine the interest rate that will be charged on the ARM. Some lenders provide caps that limit how much the interest rate or loan payments may increase or decrease.
A property title that a title insurance company agrees to insure against defects and disputes.
A document that states that insurance is temporarily in effect. Because the coverage will expire by a specified date, a permanent policy must be obtained before the expiration date.
A property that is not occupied by the owner and is generally rented to a tenant to produce income.
Any loan amount in excess of $417,000. Also called a nonconforming loan.
A property description, recognized by law, using a government rectangular survey, metes and bounds, or a plot map to sufficiently locate and identify a property.
Insurance coverage that offers protection against claims alleging that a property owner's negligence or inappropriate action resulted in bodily injury or property damage to another party. See also homeowners insurance.
A legal claim against a property that must be paid off when the property is sold. A lien is created when you borrow money to purchase or refinance a home loan or and with obtain a home equity loan.
A lender's agreement to advance money on specified terms after specified conditions are met. See commitment letter.
The process by which a mortgage lender makes a home loan and records a mortgage against the borrower's real property as security for repayment of the loan.
The ratio of the total amount borrowed on a mortgage against a property compared to the appraised value of the property. For example, if you have an $80,000 1st mortgage on a home with an appraised value of $100,000, the LTV is 80% ($80,000 / $100,000 = 80%).
A written agreement in which the lender guarantees a specified loan program interest rate and points if a mortgage goes to closing within a set period of time.
A homeowners' association in a large condominium or planned unit development (PUD) project that is made up of representatives from associations covering specific areas within the project. In effect, it is a "second-level" association that handles matters affecting the entire development, while the "first-level" associations handle matters affecting their particular portions of the project.
A legal document that pledges a property to the lender as security for payment of a debt.
A company that originates, sells and services mortgages exclusively for resale in the secondary mortgage market.
An individual or company that brings borrowers and lenders together for the purpose of loan origination. Mortgage brokers typically require a fee or a commission for their services.
Net Cash Flow
The income that remains for an investment property after the monthly operating income is reduced by the monthly housing expense, which includes principal, interest, taxes, and insurance (PITI) for the mortgage, homeowners' association dues, leasehold payments, and subordinate financing payments.
A fee paid to a lender for processing a loan application, making a home loan, and recording a mortgage against the borrower's real property as security for repayment of the loan. The origination fee is stated in the form of points. One point is 1% of the mortgage amount (e.g., 1,000 on a $100,000 loan).
A property purchase transaction in which the property seller provides all or part of the financing and takes back a security instrument.
Any property that is not real property or is not permanently fixed to land. Cash, furniture, and cars are all examples of personal property.
(Loan Discount Points) - Points are prepaid interest on your mortgage. A one-time fee charged by the lender at the time of closing for originating a loan. Each point is 1% of the loan amount - that is, 2 points on a $100,000 mortgage would be $2,000.
Power Of Attorney
A legal document authorizing one person to act on another's behalf. A power of attorney can grant complete authority or can be limited to certain acts and/or certain periods of time.
A lender's conditional agreement to lend a specific amount on specific terms to a homebuyer. (subject to satisfactory appraisal and no change in financial condition). You can shop with assurance, because you'll know up-front how large a loan you could qualify for.
Pre-Paid Items (Prepaids)
Items required by lender to be paid at closing prior to the period they cover such as prorated property taxes, homeowners insurance and pre-paid interest.
Mortgage interest that is paid in advance of when it is due.
A fee that may be charged to a borrower who pays off a loan before it is due. Generally, a prepayment penalty is added to a loan in exchange for a discounted rate.
A preliminary analysis of a borrower's ability to afford the purchase of a home. An affordability analysis takes into consideration factors such as income, liabilities, and available funds, along with the type of home loan, the likely taxes and insurance for the home, and the estimated closing costs.
The place someone lives most of the time
Principal, Interest, Taxes, and Insurance (PITI)
Four potential components of a monthly mortgage payment. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the amounts that may be paid into an escrow account each month for property taxes and mortgage and hazard insurance.
Portion of your monthly payment that reduces the remaining balance of a home loan.
Private Mortgage Insurance (PMI)
Mortgage insurance that is provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require PMI for a loan with a loan-to-value (LTV) percentage in excess of 80 %.
A written promise to repay a specified amount over a specified period of time.
LTV or Loan to Value Ratio refers to the relationship between the unpaid principal balance of the mortgage and the property's appraised value (or sales price if it is lower).
PUD (Planned Unit Development)
A project or subdivision that includes common property that is owned and maintained by a homeowners' association for the benefit and use of the individual PUD unit owners.
A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.
A commitment issued by a lender to a borrower guaranteeing a specified interest rate for a specified period of time. See lock-in.
Real Estate Settlement Procedures Act (RESPA)
A consumer protection law that, among other things, requires advance disclosure of settlement costs to home buyers and sellers, prohibits certain types of referral and other fees, sets rules for escrow accounts, and requires notice to borrowers when servicing of a home loan is transferred.
Land and appurtenances, including anything of a permanent nature such as structures, trees, minerals, and the interest, benefits, and inherent rights thereof.
A real estate broker or an associate who holds active membership in a local real estate board that is affiliated with the National Association of Realtors.
Filing a document in the public records, thereby giving constructive notice to the world of the existence of the document and its contents.
A mortgage created to cover the costs of repairing, improving, and sometimes acquiring an existing property.
A property occupied part-time by a person in addition to his or her primary residence.
A sale of a house in which the proceeds fall short of what the owner still owes on the mortgage. Many lenders will agree to accept the proceeds of a short sale and forgive the rest of what is owed on the mortgage when the owner cannot make the mortgage payments.
A housing development that is created by dividing a tract of land into individual lots for sale or lease.
A drawing or map showing the precise legal boundaries of a property, the location of improvements, easements, rights of way, encroachments, and other physical features.
Title A legal document evidencing a person's right to or ownership of a property.
A company that specializes in examining and insuring titles to real estate.
Insurance that protects the lender (lender's policy) or the buyer (owner's policy) against loss arising from disputes over ownership of a property.
A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.
A fee charged each time the borrower draws on the credit line.
Transfer of Ownership
Any means by which the ownership of a property changes hands. Lenders consider all of the following situations to be a transfer of ownership: the purchase of a property "subject to" the mortgage, the assumption of the mortgage debt by the property purchaser, and any exchange of possession of the property under a land sales contract or any other land trust device.
State or local tax payable when title to a property passes from one owner to another.
A federal law that requires lenders to fully disclose, in writing, the terms and conditions of credit, such as a mortgage, including the annual percentage rate (APR) and other charges.
The analysis of risk, the determination of the appropriate loan amount, and the setting of loan terms and conditions, based on the borrower's creditworthiness and the value of the real property that will secure the loan.
A mortgage that is guaranteed by the Department of Veterans Affairs (VA). Also known as a government mortgage.
An interest rate that changes periodically in relation to an index. Payments may increase or decrease per the terms of the loan agreement or note.
Having the right to use a portion of a fund such as an individual retirement fund. For example, individuals who are 100 percent vested can withdraw all of the funds that are set aside for them in a retirement fund. However, taxes may be due on any funds that are actually withdrawn.