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Term

Definition

1 year adjustable (ARM)

A loan with a fixed rate for the first 1 year that has a rate that changes once each year for the remaining life of the loan. Because the interest rate can change after the first 1 year, the monthly payment may also change.

10 year adjustable (ARM)

A loan with a fixed rate for the first 10 years that has a rate that changes once each year for the remaining life of the loan. Because the interest rate can change after the first 10 years, the monthly payment may also change.

2 year adjustable (ARM)

A loan with a fixed rate for the first 2 years that has a rate that changes once each year for the remaining life of the loan. Because the interest rate can change after the first 2 years, the monthly payment may also change.

3 year adjustable (ARM)

A loan with a fixed rate for the first 3 years that has a rate that changes once each year for the remaining life of the loan. Because the interest rate can change after the first 3 years, the monthly payment may also change.

5 year adjustable (ARM)

A loan with a fixed rate for the first 5 years that has a rate that changes once each year for the remaining life of the loan. Because the interest rate can change after the first 5 years, the monthly payment may also change.

7 year adjustable (ARM)

A loan with a fixed rate for the first 7 years that has a rate that changes once each year for the remaining life of the loan. Because the interest rate can change after the first 7 years, the monthly payment may also change.

Abstract (of Title)

A summary of the public records relating to the title to a particular piece of land. If there are any title defects they must be cleared before a buyer can purchase clear, marketable, and insurable title.

Acceleration Clause

Allows the lender to speed up the rate at which your loan comes due or even to demand immediate payment of the entire balance of the loan should you default on you loan.

Adjustable Rate Mortgage (ARM)

A mortgage in which the interest rate is adjusted periodically based on an index. Also known as the renegotiable rate mortgage, the variable rate mortgage or the Canadian rollover mortgage.

Adjustment Interval

On an adjustable rate mortgage, the time between changes in the interest rate and/or monthly payment, usually one, three or five years.

Amortization

The gradual reduction of a debt by periodic payments of interest and principal that are large enough to pay off a loan at maturity. The loan is repaid through regular, monthly payments of principal and interest paid for a predetermined amount of time.

Annual %age Rate (APR)

The annual cost of a loan to a borrower. Like an interest rate, the APR is expressed as a %age of the loan amount. Unlike an interest rate, however, it includes other charges or fees to reflect the total cost of the loan. The Federal Truth in Lending Act requires that every consumer loan agreement disclose the APR in large, bold print. Since all lenders must follow the same rules to ensure the accuracy of the APR, borrowers can use the APR as a good basis for comparing the cost of loans.

Appraisal

A written analysis of the estimated value of a property, as prepared by a qualified appraiser. A fee is typically charged for a real estate appraisal because a home appraisal is time-consuming. An appraisal of an auto is usually not necessary because auto dealers, sellers and buyers all have quick access to the market value of autos.

Appraisal Fee

The charge for estimating the value of property.

Appraiser network

Group of licensed/certified individuals or entities contracted to perform property value assessments.

Assessment Report

Report that appraisers use to record property values, marketability analyses and any pertinent comments regarding the subject property. Assessment reports are classified as appraisal reports or inspection reports.

Assessment Upgrade

Approved recommendation from an appraiser that you must use a more comprehensive type of assessment. An example of an upgrade recommendation includes any adverse/atypical findings or other atypical property or neighborhood condition observed by the appraiser. You must also upgrade an assessment when its value does not support the loan transaction; the appraiser is unable to view the subject property from the public street; the assessment is "subject to" completion; or repair or property rights are leasehold.

Asset

Anything that has monetary or exchange value that is owned by an individual, business or institution. Assets include real estate property, personal property, vehicles and enforceable claims against others (including bank accounts, stocks, mutual funds, and so on). A lender is very interested in the amount and value of any assets you may have because assets can be used as collateral against a loan. Along with other factors such a a borrower's credit rating, assets are also used to help determine the amount of the loan.

Assumable Mortgage

An assumable mortgage is a mortgage that allows you to take over a mortgage on a home you are buying or allows a buyer to take over your mortgage if you are selling your house. The advantage of this is that you assume a mortgage that has a lower interest rate than current rates, and you avoid high closing costs.

Assumption

The agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller. Assuming a loan can usually save the buyer money since this is an existing mortgage debt.

5-Year Balloon Mortgage

The payment is calculated over a stated term and the balance must be repaid or refinanced at the end of the 5th year.

7-Year Balloon Mortgage

The payment is calculated over a stated term and the balance must be repaid or refinanced at the end of the 7th year.

Balloon (Payment) Mortgage

Usually a short-term fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a specific time.

Bank Draft

A payment method where your loan payment is automatically deducted from your checking or savings account, so you don't have to mail in your payment each month.

Bankruptcy

A proceeding in a federal court in which a borrower who owes more than his or her assets can relieve the debts by transferring his or her assets to a trustee. Different chapters or types of bankruptcy exist. If a person files bankruptcy, a record of the filing appears on the borrower's credit report for up to 10 years.

Borrower

One who receives funds in the form of a loan with the obligation of repaying the loan in full with interest

Bridge Loan

A bridge loan is a short-term loan that covers the time between your closing date of a home you are buying and the closing date of the home you are selling. You usually need a contract to sell your current house.

Broker

An individual in the business of assisting in arranging funding or negotiating contracts for a client but who does not loan the money himself.

Buydown

When the lender and/or the home builder subsidizes 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.

Caps (Interest)

Consumer safeguards which limit the amount the interest rate on an adjustable rate mortgage may change per year and/or the life of the loan.

Caps (Payment)

Consumer safeguards which limit the amount monthly payments on an adjustable rate mortgage may change.

Cash-out Refinance

Refinancing transaction in which the money the borrower receives from the new loan exceeds the total amount he uses to repay the existing first mortgage, closing costs, points; and satisfy any outstanding subordinate mortgage liens. In other words, a refinance transaction in which the borrower receives additional cash he can use for any purpose.

Closing

The meeting between the buyer, seller and lender where the property and funds legally change hands. Also called settlement.

Closing Costs

Includes a loan origination fee, points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. The closing costs usually are about 2 % to 6 % of the mortgage amount.

Collateral

Property offered to support a loan that can be seized if you default.

Commission

The fee charged by or paid to a broker, agent or auto sales rep for negotiating a real estate, car sale or loan transaction. A commission is generally a %age of the sales price.

Commitment

An agreement, often in writing, between a lender and a borrower to loan money at a future date subject to the stated conditions.

Compounded Interest

Interest is computed on the principal balance of a mortgage plus accrued interest.

Conforming Loan

Any loan that meets the criteria and limits set forth by the largest buyers of loans, Fannie Mae or Freddie Mac.

Construction Loan

A short term interim loan for financing the cost of construction. The lender advances funds to the builder as the work progresses.

Conventional Loan

A mortgage not insured by FHA or guarantee by the VA or Farmers Home Administration (FMHA).

Conventional Mortgage

Any mortgage which is not insured or guaranteed by a government agency such as HUD/FHA, VA, or the Farmers Home Administration.

Conversion Option

A conversion option allows you to convert an ARM to a fixed rate mortgage. You will likely pay a higher rate or more points to have this option.

Correspondent

An entity that typically sells the Mortgages it originates to other lenders. The Correspondent performs some or all of the loan processing functions such as taking the loan application, ordering credit reports, appraisals, title reports, and verifying the borrower's income and employment. The Correspondent may or may not have delegated underwriting and typically funds the loans at settlement. The Mortgage is closed in the Correspondent's name and the Correspondent may or may not service the Mortgage. The Correspondent could commission a Mortgage Broker to perform some of the processing functions.

Cost of Funds

These ARMs are indexed to the actual costs of what banks pay to borrow money. Rates can adjust every month, six months, or every year.

Credit

The right granted by a creditor to pay in the future in order to buy or borrow in the present; also, a sum of money owed to a person or business.

Credit Bureau

An agency that keeps your credit record.

Credit Card

Any card used from time to time to borrow money or buy goods or services on credit.

Credit History

The record of how you've borrowed and repaid debts.

Credit Ratio

The ratio, expressed as a %age, which results when a borrower's monthly payment obligation on long-term debts is divided by his or her net income (FHA/VA loans) or gross monthly income (Conventional loans).

Credit Report

Report of an individual's credit history that a credit reporting company (CRC) or credit repository prepares that you use to determine a borrower's creditworthiness.

Credit Reporting Company

Company that collects information received from more than one credit repository, merges all the information, and reports it in one form; merged credit reports.

Credit Repository

Company that collects information on an individual's credit history and reports it in one form, the in-file credit report.

Creditor

A person or business from whom you borrow or to whom you owe money.

Current Index Value

Your current index value is the index that is used to figure your interest adjustment on ARMs.

Deed of Trust

In many states, this document is used in place of a mortgage to secure the payment of a note.

Default

Failure to repay a loan or otherwise meet the terms of your credit agreement.

Deferred Interest

Occurs when your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan. The danger of deffering your interest is that the buyer ends up owing more than the original amount of the loan. Also called Negative Amortization.

Delinquency

Failure to make payments on time. This can lead to foreclosure.

Department of Veterans Affairs (VA)

An independent agency of the federal government which guarantees long-term, low- or no-down payment mortgages to eligible veterans.

Depreciation

Decline in value of a house due to wear and tear, adverse changes in the neighborhood, or any other reason.

Disclosures

Information that must be given to consumers about their financial dealings.

Discount Points

Additional points you can pay a lender to lower the interest rate on your loan at closing. Each point is equal to 1 % of the loan amount (e.g. two points on a $100,000 mortgage would cost $2,000). Also referred to as Points.

Down Payment and Fees

Money paid to make up the difference between the purchase price and mortgage amount plus the closing cost fees to close the loan.

10 year fixed

A loan with the same interest rate and payment over the entire 10 year life of the loan. As one of the shorter loan terms available, 10 year fixed loans offer lower lifetime interest payments than similar loans with longer terms, but you also have a higher monthly payment.

15 year fixed

You generally pay a lower interest rate with a 15 year loan. You will pay less interest and build equity quickly.

20 year fixed

The 20 year fixed loan is a good way to have fixed payments and shorten the term of your loan. You will build equity faster, pay less interest, and own your home sooner. Your monthly payments will be higher since the term is shorter.

25 year fixed

A loan with the same interest rate and payment over the entire 25 year life of the loan. As one of the longer loan terms available, 25 year fixed loans offer lower payments, but you will pay more in interest over the life of this loan than a similar loan with a shorter term.

30 year fixed

The 30 year fixed is one of the most popular loans. Many people like the fixed interest rate and lower monthly payments. But since the term of the loan is long, you will pay more interest over the life of the loan.

40 year fixed

A loan with the same interest rate and payment over the entire 40 year life of the loan. As one of the longer loan terms available, 40 year fixed loans offer lower payments, but you will pay more in interest over the life of this loan than a similar loan with a shorter term.

Fannie Mae

A tax-paying corporation created by Congress that purchases and sells conventional residential mortgages as well as those insured by FHA or guaranteed by VA. This institution, which provides funds for one in seven mortgages, makes mortgage money more available and more affordable. Also Referred to as Federal National Mortgage Association.

Federal Home Loan Mortgage Corporation (FHLMC)

Also called Freddie Mac, is a governmental agency that purchases conventional mortgages from insured depository institutions and HUD-approved mortgage bankers.

Federal Housing Administration (FHA)

A division of the Department of Housing and Urban Development. Its main activity is the insuring of residential mortgage loans made by private lenders. FHA also sets standard for underwriting mortgages.

Federal National Mortgage Association (FNMA)

Also known as Fannie Mae. A tax-paying corporation created by Congress that purchases and sells conventional residential mortgages as well as those insured by FHA or guaranteed by VA. This institution, which provides funds for one in seven mortgages, makes mortgage money more available and more affordable.

FHA Loan

A loan insured by the Federal Housing Administration open to all qualified home purchasers. While there are limits to the size of FHA loans, they are generous enough to handle moderate-priced homes almost anywhere in the country.

FHA Mortgage Insurance

Requires a small fee (up to 3 % of the loan amount) paid at closing or a portion of this fee added to each monthly payment of an FHA loan to insure the loan with FHA. On a 9.5 % $75,000 30-year fixed-rate FHA loan, this fee would amount t o either $2,250 at closing or an extra $31 a month for the life of the loan. In addition, FHA mortgage insurance requires an annual fee of 0.5 % of the current loan amount, the more years the fee must be paid.

Finance Charge

The total dollar amount credit will cost.

Financing Concessions

Funds originating from an interested party to the transaction used to reduce the mortgage interest rate, subsidize the borrower's monthly payment, contribute to the financing charges (such as discount points, loan fees, commitment and/or origination fees), and pay borrower expenses (such as application fees, homeowner association fees, appraisal fees, transfer taxes, tax stamps, attorney fees, surveys, closing costs, and title insurance).

Fixed Rate Mortgage

A mortgage on which the interest rate is set for the term of the loan.

Fixed Rate Mortgages

Characteristics of a fixed rate mortgage: A rate that does not change during the life of the loan. A consistent payment. Less risk because of payment stability.

Float Period

The float period refers to the time between when you accept a loan and when you lock-in your rate. During this time the interest rate and points on your loan will fluctuate with the market until you lock.

Foreclosure

A legal procedure in which property securing debt is sold by the lender to pay a defaulting borrower's debt.

Freddie Mac

Is a quasi-governmental agency that purchases conventional mortgages from insured depository institutions and HUD-approved mortgage bankers. Also Referred to as Federal Home Loan Mortgage Corporation

Hazard Insurance

A form of insurance in which the insurance company protects the insured from specified losses, such as fire, windstorm and the like.

Home Equity Line of Credit (HELOC)

Secondary financing that consists of a revolving line of credit secured by a lien junior to a mortgage.

Home Equity Loan

A loan in real estate property that is used to secure or guarantee the amount borrowed. Sometimes referred to as a second mortgage or borrowing against your home. The loan allows you to tap into your home's built-up equity, which is the difference between the amount your home could be sold for, and any claims held against it. People often use a home equity loan for home improvements or to pay for a new car. A home equity loan is a good way to borrow money for two main reasons. First, the interest rate is usually one of the lowest loan rates a borrower can get. Also, the interest you pay on the loan is usually tax-deductible. But taking out a home equity loan also means the lender can take possession of the home if the loan isn't repaid. This is why some people decide to not borrow against their home, and may decide to take out a personal loan. But for many borrowers, a home equity loan can be the best loan option. Your best loan option is the loan that best meets your needs.

Home Value models

Standard used to derive data from millions of transactions; supported by property values for hundreds of counties in all 50 states. When you submit a conventional/conforming transaction, the service automatically searches Home ValueSM models to determine if it can support the value of the transaction, based on the loan's overall risk profile.

Housing Expenses-to-Income Ratio

The ratio, expressed as a %age, which results when a borrower's housing expenses are divided by his/her net effective income (FHA/VA loans) or gross monthly income (Conventional loans).

HUD

U.S. Department of Housing and Urban Development. Office of Housing/Federal Housing Administration within HUD insures home mortgage loans made by lenders and sets minimum standards for such homes

Impound

That portion of a borrower's monthly payments held by the lender or servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Also known as reserves.

Index

A published interest rate against which lenders measure the difference between the current interest rate on an adjustable rate mortgage and that earned by other investments (such as one- three-, and five-year U.S. Treasury Security yields, the monthly average interest rate on loans closed by savings and loan institutions, and the monthly average Costs-of-Funds incurred by savings and loans), which is then used to adjust the interest rate on an adjustable mortgage up or down.

Initial Interest Rate

The initial interest rate is the rate you pay when you first get your loan. On an ARM, this rate may be for 5 years (5/1 ARM) or only a month.

Interest

A charge paid for borrowing money. Interest is usually expressed as a %age of the amount borrowed or interest rate.

Interest Rate

The annual rate of interest on the loan, expressed as a %age of 100.

Interest Rate Adjustment Period

The interest rate adjustment period is how often your rate is adjusted on an ARM after the initial rate period is over. For example, a 5/1 ARM means you have an initial rate period of 5 years that is fixed and then after 5 years, your rate changes every year.

Interest Rate Ceiling

The interest rate ceiling is the highest interest rate possible under an ARM. You may hear this called the lifetime cap and it based on the number of %age points your rate can increase from your initial rate.

Interest Rate Decrease Cap

An interest rate decrease cap is the maximum allowable decrease in your interest rate (on an ARM) each time your rate is adjusted. It is usually 1 or 2 %age points. If rates go down 4% your rate may only go down 2% due to the cap.

Interest Rate Floor

The rate floor is the lowest interest rate possible under an ARM loan.

Interest Rate Increase Cap

The interest rate increase cap is the maximum allowable increase in your interest rate (on an ARM) each time your rate is adjusted. It is usually 1 or 2 %age points. For example, if your rate adjusts every year, each year it cannot exceed the stated cap.

Interest Rate Index

The interest rate index is the specific fund/security that your interest rate on an ARM is tied to. Common indexes are Treasury Constant Maturities or Cost of Funds indices. All the indices are published regularly in readily available sources.

Jumbo Loan

A loan which is larger (more than $417,000) than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.

Lender

Company that performs the functions necessary to complete a mortgage transaction. Lenders include approved sellers, mortgage brokers, and third-party originators (TPOs).

Lender Fees

These are items payable in connection with the loan and contribute to the total amount of the loan's closing costs. These are the fees that lenders charge to process, approve and make the mortgage loan. See Closing Costs for more information.

Liability on an Account

Legal responsibility to repay debt.

Lien

A claim upon a piece of property for the payment or satisfaction of a debt or obligation.

Liquid Assets

Cash or assets that can be immediately converted to cash

Loan Amount

The amount of debt not including interest.

Loan Program

Defines the scope of your mortgage, including the type of interest rate you have and the mortgage term. For example, your loan program may be for 30 years with a fixed rate or may be for 5 years with an adjustable rate.

Loan-To-Value Ratio

The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a %age.

Lock Period

A lock period refers to the amount of time prior to closing that you can secure an interest rate for your loan. Generally, lock periods range from 30 days to over 90 days. Generally, the longer the lock period, the more you pay in points or interest. If your loan is "lockable", your Lender will identify the available lock period.

Margin

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

Market Value

The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.

Minimum Down Payment

Minimum down payment is the amount of money you are required to put down at closing. If the minimum is 10%, you must make a down payment of at least $10,000 on a $100,000 house.

Monthly Payment

The amount paid each month towards the principal and interest amount of a loan. The monthly payment may or may not include taxes and insurance.

Monthly Payment (P&I)

The monthly payment amount shown includes only principal and interest. When comparing with other offers please take this into consideration.

Mortgage

A lien or claim against real property given by the buyer to the lender as security for money borrowed. Under government-insured or loan-guarantee provisions, the payments may include escrow amounts covering taxes, hazard insurance, water charges, and special assessments. Mortgages generally run from 10 to 30 years, during which the loan is to be paid off.

Mortgage (Open-End)

A mortgage with a provision that permits borrowing additional money in the future without refinancing the loan or paying additional financing charges. Open-end provisions often limit such borrowing to no more than would raise the balance to the original loan figure.

Mortgage Broker

A person or entity that specializes in loan originations, receiving a commission to match borrowers and lenders. The Mortgage Broker performs some or most of the loan processing functions such as taking loan applications, ordering credit reports, appraisals, and title reports. Typically the Mortgage Broker does not underwrite the loan and generally does not use its own funds for closing. The Mortgage is generally closed in the name of the lender who commissioned the broker's services. A Mortgage Broker will not service the Mortgage. An entity or individual engaged to handle or perform, for a Seller or correspondent, part of the mortgage application processing, underwriting, funding or post-closing functions, but not any activities related to obtaining an application for a wholesale origination. This entity is typically paid on a fee basis for services performed, with the payment of fees not being contingent on Mortgage approval or closing.

Mortgage Commitment

A written notice from the bank or other lending institution saying it will advance mortgage funds in a specified amount to enable a buyer to purchase a house.

Mortgage Insurance

Money paid to insure the mortgage when the down payment is less than 20 %.

Mortgage Insurance Premium

The payment made by a borrower to the lender for transmittal to HUD to help defray the cost of the FHA mortgage insurance program and to provide a reserve fund to protect lenders against loss in insured mortgage transactions. In FHA insured mortgages this represents an annual rate of one-half of one % paid by the mortgagor on a monthly basis.

Mortgage Note

A written agreement to repay a loan. The agreement is secured by a mortgage, serves as proof of indebtedness, and states the manner in which it shall be paid. The note states the actual amount of the debt that the mortgage secures and renders the mortgagor personally responsible for repayment.

Negative Amortization

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

No-Doc Mortgage

A no-documentation or "no-doc" mortgage is a product that certain lenders offer to borrowers which generally requires a down payment of at least 5% to 30% or more of the home purchase price or who generally have at least 25% equity in their home. Loan programs featuring lower down payments (5-24%) are also available to borrowers with excellent credit. No-doc mortgages are generally a wise choice for self-employed people, those who do not wish to verify their income, and those with a brief or blemished credit history, or no credit. The benefits of a no-doc mortgage include a shorter application process since you are not required to provide income, employment or asset documentation, as well as a streamlined approval process through the lender because there is little subsequent verification. However, no doc mortgages generally will be at slightly higher interest rates and are offered by fewer lenders.

Non-Conforming Loan

A conventional home mortgage that does not meet the criteria of Fannie Mae or Freddie Mac for various reasons including loan amount, loan characteristics or underwriting guidelines. Non-Conforming loans usually incur a higher rate and/or points.

Piggyback Loan

An alternative to private mortgage insurance, also known as a second trust loan. The most common type is an 80/10/10 where a first mortgage is taken out for 80% of the home's value, a down payment of 10% is made and another 10% is financed in a second trust at a higher interest rate. In some cases, you may even qualify for a piggyback loan with as little as a 5% down payment

PITI

Principal, interest, taxes, and insurance. Also called monthly housing expense.

Points

Additional points you can pay a lender to lower the interest rate on your loan at closing. Each point is equal to 1 % of the loan amount (e.g. two points on a $100,000 mortgage would cost $2,000). Also referred to as Discount Points. Points may include discount points and/or origination fee.

Prepayment

A privilege in a mortgage permitting the borrower to make payments in advance of their due date.

Prepayment Premium

Money charged for an early repayment of debt. Prepayment premiums are allowed in some form (but not necessarily imposed) in 36 states and the District of Columbia .

Prime Rate

The interest rate charged by lenders to their best, most creditworthy customers. A less credit worthy customer may be offered a loan at the prime rate plus anywhere from 2 to 10 %. Borrowing at below-prime also occurs, but is less common and usually applies to businesses, not individual consumers. The Federal Reserve determines whether to lower or raise the prime rate based on a variety of economic factors. Many consumer loans, such as auto, home equity, mortgage and credit card loans are based upon the prime rate. Building and maintaining a good credit history are two of the most important qualifications for prime-rate borrowing.

Principal

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

Private Mortgage Insurance (PMI)

In the event that you do not have a 20 % down payments, lenders will allow a smaller down payment-as low as 5 % in some cases. With the smaller down payments loans, however, borrowers are usually required to carry private mortgage insurance. Private mortgage insurance will require an initial premium payment of 1% to 5% of your mortgage amount and may require an additional monthly fee depending on your loan's structure.

Processing

Processing are the steps a lender takes with your loan application to gather your information for underwriting. Processing involves building your file of information for your loan. Processing includes getting the credit report, appraisal, verification of employment, assets, etc.

Purchase option

Typically, the option to buy a leased auto usually during the life of a lease (lease buy out) or when the lease ends.

Real Estate Broker

A middle man or agent who buys and sells real estate for a company, firm, or individual on a commission basis. The broker does not have title to the property, but generally represents the owner.

Real Estate Settlement Procedures Act (RESPA)

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 information after application only.

Rescission

The cancellation of a contract. With respect to mortgage refinancing, the law that gives the homeowner three days to cancel a contract in some cases once it is signed if the transaction uses equity in the home as security.

Recording Fees

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

Refinancing

The process of the same mortgagor paying off one loan with the proceeds from another loan.

Reserves

Verified liquid assets remaining after the borrower pays down-payment and closing costs.

Residential Mortgage Credit Report (RMCR)

Detailed account of the credit, employment, and residence history, as well as public-record information, concerning an individual.

Reverse Annuity Mortgage (RAM)

A form of mortgage in which the lender makes periodic payments to the borrower using the borrower's equity in the home as security.

Second Trust Loan

An alternative to private mortgage insurance, also known as a ?piggyback loan.? The most common type is an 80/10/10 where a first mortgage is taken out for 80% of the home's value, a down payment of 10% is made and another 10% is financed in a second trust at a higher interest rate. In some cases, you may even qualify for a second trust loan with as little as a 5% down payment.

Secured Debt

Money borrowed that is guaranteed (or secured) by the borrower's funds and held by the lender in an interest-bearing account. Typically required when a borrower is without credit or has poor credit. The lender usually returns the secured money plus a nominal rate of earned interest to the borrower with a certain period of time if a good credit history is established. Distinguished from unsecured debt.

Security

Property pledged to the creditor in case of a default on a loan; also referred to as collateral.

Self-Employed Borrower

Applicant who owns 25 % or more interest in a business.

Settlement

The meeting between the buyer, seller and lender where the property and funds legally change hands. Also referred to as Closing.

Settlement Costs

Includes a loan origination fee, points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. The closing costs usually are about 2 % to 6 % of the mortgage amount.

Simple Interest

Interest that is paid on the principal amount borrowed. Considered the best interest term for a borrower because it is not compounded.

Tax Assessed Value

The Tax Assessed Value (TAV) is the dollar amount assigned to your property for the purposes of taxation. The TAV is not necessarily the market value of your home, but the TAV will take into consideration your home's market value, as well other factors, including your property's tax class, maintenance costs, home improvements, etc. The TAV is established by the county's tax assessor who utilizes features such as sales prices from surrounding properties, location, condition and age of the property to determine the TAV.

Term

The period of time between the beginning loan date on the legal documents and the date the entire balance of the loan is due.

Third Party Fees

These are fees charged by vendors to perform services related to your loan, such as title search, mortgage recording and settlement. Third party fees contribute to the total amount of the loan's closing costs. See Closing Costs for more information.

Title

A document that gives evidence of an individual's ownership of property.

Title Insurance

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.

Title Search

An examination of municipal records to determine the legal ownership of property. Usually is performed by a title company.

Treasury Index

These Adjustable rate mortgages are indexed to treasury bills or securities. Depending on the ARM, the rate will adjust every 6 months, every year, or every 3 years.

Truth-in-Lending

A federal law requiring disclosure of the Annual %age Rate to homebuyers shortly after they apply for the loan

VA Loan

Mortgage loan made by an approved lender and guaranteed by the Department of Veterans Affairs. VA loans are made eligible to veterans and those currently serving in the military, and can have lower down-payment than other types of loans.

Variable Rate Mortgage (VRM)

See Adjustable Rate Mortgage.

Verification of Deposit (VOD)

A document signed by the borrower's financial institution verifying the status and balance of his/her financial accounts.

Verification of Employment

A document signed by the borrower's employer verifying his/her position and salary

Wholesale Lender

A wholesale lender is a mortgage lender that offers home loans to borrowers through mortgage brokers or correspondents. The mortgage broker or correspondent works with you and gets your application.

Home Lender

Purchase Loans

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