Glossary of Mortgage Terms

Glossary of Mortgage Terms

401(k) A tax-deferred retirement savings account that allows employees to contribute a fixed amount of their income until withdrawn.

A Adjustable rate mortgages (ARMs) A mortgage in which the rate of interest adjusts based on an independently set index.

Administration fee A fee imposed to cover the administrative portion of settling a loan.

Affordability calculator One of many calculators on the Internet which measures how much home a person can afford.

Agent fee(s) A fee imposed by the real estate agent for providing the buyer with realty services.

Amortization A timetable for the gradual repayment of a mortgage loan.

APR The Annual Percentage Rate refers to the actual cost of a loan including the rate, points, insurance, and any other related fees (not including credit reports or appraisal charges.)

Application fee A fee charged by the lender to cover the origination cost of the loan.

Appraisal The estimate of a property’s value performed by an appraiser on a specific date.

Appraisal fee The fee an appraiser charges to assess the property value of a home.

Appreciation The increase in value of a home over time.

B Balloon A final lump sum mortgage payment due in full after a set period of time.

Better Business Bureau (BBB) A nationwide organization supported by businesses who investigate customer complaints regarding dishonest businesses.

Borrower(s) A person who borrows money from a lender.

Broker(s) An intermediary between a borrower and a lender.

Buyer The person buying a piece of property.

Buyer(s) agent The real estate agent who represents the buyer in a sales transaction.

C Carry-back mortgage A financing arrangement where the seller holds a second trust deed or mortgage on the property to allow the buyer to buy the property.

Closing costs All expenses related to transferring home ownership from the seller to the buyer.

Commission The amount a real estate broker earns (usually 3-6% of the sales price of a home) for selling a home.

Conforming A loan that conforms to the standard rules for purchase by Freddie Mac or Fannie Mae.

Constant Maturity Treasury (CMT) A common index rate which changes weekly that many mortgages are tied to.

Construction cost(s) The amount it costs to finance the construction of a property.

Conversion fee The fee charged to convert an adjustable rate mortgage to a fixed-rate loan.

Credit history A borrower’s record of past payment history.

Credit report A comprehensive report issued by a credit reporting agency which profiles a borrower’s credit history.

Credit score(s) See FICO score.

Credit union A non-profit, cooperative organization which gives its members access to low-cost loans.

D Debt ratio(s) A measure of a borrower’s ability to repay a loan. Also referred to as debt-to-income ratio.

Discount broker A broker who discount his/her commission fees to buy or sell your property.

Document preparation The process of preparing closing documents for a mortgage.

Down payment The amount a buyer pays in cash for a home.

E Equity The current market value of a property minus what is owed.

Escrow Funds held by a third-party account which are paid-out once certain conditions are met.

Escrow agent The person or company which handles the distribution of escrow funds.

F FICO® Score A credit score developed by the Fair Issac Corporation® used to determine a borrower’s level of risk.

Fannie Mae (FNMA) The Federal National Mortgage Association is a public company that operates under a federal charter. As the nation's largest source of financing for home mortgages, Fannie Mae does not lend money directly to consumers, but instead works to ensure that mortgage funds are available and affordable, by purchasing mortgage loans from institutions that lend directly to consumers.

Federal Housing Administration (FHA) The Federal Housing Administration is a United States government agency which insures loans made by approved lenders to qualified borrowers, in accordance with its regulations.

Finance charge(s) Interest or other charges paid by a borrower on a revolving mortgage loan.

Fire insurance Insurance covering a borrower’s home from fire damage.

Fixed rate loan A fixed interest rate mortgage which doesn’t change or adjust during the course of the loan.

Flat fee A set management fee which doesn’t change or fluctuate.

Flood certificate Insurance coverage for homes that are in known flood areas.

Freddie Mac The Federal Home Loan Mortgage Corporation, also known as Freddie Mac, is a congressionally chartered institution that buys mortgages from lenders and resells them as securities on the secondary mortgage market.

G Government loan A mortgage that is insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA). Mortgages that are not government loans are classified as conventional loans.

H Hazard insurance Insurance covering a borrower’s home against hazards.

Home builder(s) A construction company or general contractor who builds homes.

Home improvement Any interior or exterior projects which improve the overall appearance of an existing home.

Homeowner’s association fees Fees paid by homeowners who live in a common property development and share amenities like grounds maintenance, swimming pool upkeep, use of the community room, etc.

I Index A published cost of money measurement that lenders use to calculate the rate on a mortgage (e.g., T-bill, LIBOR, CMT.)

Insurance Coverage against unforeseen property losses in exchange for premiums paid.

Internet A global communication network that allows computers worldwide to connect and exchange information.

Interest rate A rate that is charged or paid for the exchange to borrow money.

L Lawyer A person whose profession involves giving legal advice.

Lease An agreement which specifies the terms for occupying a property.

Lease option An agreement which allows a borrower to purchase a property which is being leased from the lender.

Lender(s) A person or company which lends money to borrowers.

Lien(s) A legal claim against a property that must be paid off when the property is sold before the title transfer can occur.

Lifetime cap The maximum interest rate on an adjustable rate mortgage that may be charged at any time over the life of the mortgage.

Loan-to-value (LTV) ratio The amount of a mortgage loan divided by the appraised value or sales price.

Loan officer The person at a lending institution who solicits loans, acts as the representative for the lending institution, and represents the borrower at the lending institution.

Lock(ed)-in A quoted rate guaranteed by a lender for a specified period of time even if rates go up or down during the lock-in period.

London Interbank Offering Rate (LIBOR) An index used to determine interest rate changes for certain ARM plans, based on the average interest rate at which international banks lend to or borrow funds.

Low-interest A special rate which may be lower than the national average and for a specified period of time.

M Margin The difference between the interest rate and the index on an adjustable rate mortgage.

Market price The price a property would be worth on the open market.

Mortgage A legal document between a lender and a borrower drafted for the purpose of repaying a loan.

Mortgage broker(s) An intermediary between a borrower and a lender.

Mortgage lender A lender who specializes in mortgages.

Mortgage payment The monthly payment amount owed to a lender which covers the principal and interest on a property.

Multiple Listing Service (MLS) A nationwide database of properties available for sale used by real estate agents.

N National Board of Realtors A membership group for realtors also known as the National Association of Realtors, or NAR.

Non-conforming A loan which does not conform to any strict lending guidelines.

O Origination fee A fee charged by a lender to the borrower for initiating a real estate loan. See points.

P Pest inspection An inspection required by a lending or government institution prior to lending money to a borrower to insure that a property is free from structural pest damage and decay.

Point(s) An upfront fee that a lender may charge a borrower for originating a loan. One point is equal to one percent of the loan amount.

Pre-approval A confirmation stating the amount a lender is willing to give to a borrower after an application has been filled out.

Pre-payment penalty A penalty for paying a loan early before its due date.

Pre-qualify A lender’s opinion of how much a borrower may qualify for without filling out an application.

Principal and interest The actual mortgage amount and interest paid back to the lender.

Principal, Interest, Taxes and Insurance (PITI) A term used by lenders or brokers to provide a total monthly payment which includes Principal, Interest, Taxes, and Insurance.

Private Mortgage Insurance (PMI) Insurance that is provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults on a mortgage loan.

Processing fee A fee charged by the lender for the work required to process a loan.

Property maintenance The act of keeping a property presentable and livable.

Property tax(es) The tax paid on a property based on its assessed value.

R Realtor A member of the National Association of Realtors.

Real estate agent A person licensed to sell or purchase a property on behalf of the seller or borrower.

Recurring debt A debt obligation which appears month-to-month until the balance is paid in full.

Refinance Replacing an older mortgage with a newer one.

Recording fee A fee that is charged as part of the closing cost to record a home sale as a matter of public record.

Remaining balance The amount of principal left unpaid on a mortgage loan.

Rural Housing Service (RHS) An agency of the U.S. Department of Agriculture that provides financing to farmers and qualified borrowers who buy property in rural areas and are unable to obtain loans elsewhere.

S Sales agent The agent who handles and shows the property to the buyer.

Sales agreement The contract signed by the lender and buyer specifying the terms of the sale.

Secondary market The market where mortgages are bought and sold by investors.

Seller The person who is listing a property for sale.

Settlement cost(s) All expenses related to transferring home ownership from the seller to the buyer. Also referred to as closing costs.

State Board of Realtors A membership group by state which belongs to the National Board of Realtors.

Sub-prime A type of mortgage loan that is offered to individuals with poor credit.

T Tax savings The amount a borrower can save by writing off the interest on a mortgage loan.

Tax-write-off See tax savings.

Teaser rate A special introductory rate on an adjustable rate mortgage which is below current market rates to entice borrowers.

Title The deed to a property.

Title company A company that assures that the title to the property is clear and free from liens.

Title examination The review of a property’s title by the title company against public records.

Title insurance Insurance which protects a lender or buyer against property disputes.

Treasury bill (T-bill) Securities auctioned by the U.S. Government to help pay off its debt obligations.

U Underwriting The process a lender uses to determine risk and whether or not to extend a loan to a borrower.

V Veterans Administration (VA) The Veterans Administration (VA) is a government agency responsible for administering benefits to veterans, their families, and survivors.

Virtual tour A tour of a home which can be viewed on the Internet.

Z Zero-down When a lender requires no money for a down payment from a borrower.

Zoning restrictions The rules and regulations used by municipalities which control the use of lands and buildings.

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