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Mortgage Glossary
This page helped me with the terms.
ARM
(Adjustable Rate Mortgage):
A mortgage with an interest rate and payment that change periodically
over the life of the loan based on changes in a specified index.
Cash Out:
The cash back to the borrow if they refinance their current mortgage
for a higher loan amount than currently owed based on the equity
built up in the house. The Cash Out amount is calculated by subtracting
the sum of the remaining old loan and fees from the new mortgage
loan. EXAMPLE: New Loan Amount $140,000 - Old Loan Amount $120,000
- Loan fees $2,000 = Cash Out of $18,000.
Closing (Settlement):
The final step in the mortgage process. This includes the signing
of the legal documents, distribution of funds, and in the case of
a home purchase, transfer of ownership. See also "Closing Costs"
below.
Closing Costs:
Costs paid at closing for services completed to finalize a loan.
Examples include Title Fees and Recording Fees.
Conventional Loan:
A mortgage not insured or guaranteed by FHA and VA which conforms
to the guidelines set by Fannie Mae or Freddie Mac.
Deed of Trust:
A instrument used in place of a mortgage. Property is transferred
to a Trustee by the Borrower (Trustor), in favor of the Lender (Beneficiary),
and returned to the Borrower upon payment in full.
Down Payment:
The amount of your home's price that your pay up-front. The loan
amount is the difference between the home price and the down payment
and is usually expressed as a percentage (i.e. a $100,000 home with
20% down would be an $80,000 loan amount).
Discount Points (Points):
Fee paid to the Lender in exchange for a lower interest rate. A
point is equal to one percent of the loan amount.
FHA (Federal Housing Administration):
A federal agency with the Department of Housing and Urban Development
(HUD), which insures residential mortgage loans made by Private
Lenders and sets standards for underwriting mortgage loans.
Fixed Rate Mortgage:
A mortgage loan in which the interest rate does not change during
the entire term of the loan.
Good Faith Estimate:
A written estimate of the settlement costs the Borrower will likely
have to pay at closing. Under the Real Estate Settlement Procedures
Act (RESPA), the Borrower must receive the estimate from the Lender
within three days of the loan application.
LTV (Loan-To-Value) Ratio:
The relationship between the dollar amount of a Borrower's mortgage
loan and the value of the property.
Mortgage Note (Note):
Legal document obligating a Borrower to repay a loan at a stated
interest during a specified period of time. The note is secured
by a mortgage or or Deed of Trust or other security instrument.
PMI (Private Mortgage Insurance):
"Private" means that it is insurance having to do with
a Conventional, i.e., non-government, Mortgage Loan.
Ratios:
The measurement, expressed as a percentage, which compares your
Monthly Liabilities to your Gross Income.
The
Housing Ratio is your proposed Mortgage Payment devided by your
Gross Monthly Income.
The
Debt Ratio is all of your Monthly Liabilities, including your mortgage,
devided by your Gross Monthly Income.
Underwriters
are usually more flexible on loans with higher down payments and
less flexible on low down payment loans.
Reserves:
The amount of money you have after closing to cover your mortgage
payments. Reserves are often expressed as "months of payments."
For example, if you had $10,000 after closing and your mortgage
payment was $1,000 a month then you would have 10 months of reserves.
Some loan programs require a minimum number of months' reserves.
Title Company:
A company that insures title to property.
Title Insurance:
Insurance which protects the Lender (Lender's policy) or the Buyer
(Owner's policy) against loss due to disputes over ownership of
a property.
Title Search:
Examination of municiple records to ensure that the Seller is the
Legal Owner of a property and that there are no liens or other claims
against the property. The goal of this search is to determine a
"Clear Title" to the property.
Truth-In-Lending Act:
Federal Law requiring written disclosure of the terms of the mortgage,
including the APR (Annual Percentage Rate), and other charges by
a Lender to a Borrower after submission of the application. Also
requires the Right To Rescission period.
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