A loan on which the monthly payments will increase or decrease over time, based on changes in the ARM’s interest rate index. ARM payments typically are adjusted every six months or once a year. Common indices to which ARMs are tied include the 11th District Cost of Funds, one-year T-note and six-month T-bill.
An analysis of a buyers’ ability to afford the purchase of a home. Reviews income, liabilities and available funds. Considers the type of mortgage you plan to use, the area where you want to purchase a home and the probable closing costs.
The gradual repayment of a mortgage through monthly (e.g. installment) payments. In the early years of a mortgage, most of the monthly payment goes toward interest. Later in the mortgage, more of the payment goes toward reducing the loan?s principal balance.
The term used to describe a form of dispute resolution that occurs outside of the court system, usually by private agreement between parties. Basically, arbitration is a dispute resolution system where the parties submit arguments and evidence to a neutral person, known as the arbitrator, who then renders a decision, called an award, based upon the evidence and arguments presented.
ARM Types 3/1, 5/1, 7/1 and 10/1Betty Goyens2022-01-13T23:27:55-05:00
The transfer of a contractual interest or obligation from one person to another such as, but not limited to, a transfer of a mortgage obligation. Assignment is a legal term used to transfer interest from one contract to another.
An assumable mortgage can be transferred from the seller to the new buyer. Generally requires a credit review of the new borrower and lenders may charge a fee for the assumption. If a mortgage contains a due-on-sale clause, a new buyer may not assume the mortgage.
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 by acquiring an existing mortgage debt, instead of obtaining a new mortgage where closing costs and market-rate interest charges will apply.
A loan that is amortized for a longer period than the term of the loan. Usually this refers to a 30-year amortization and a five-year term. At the end of the term of the loan, the remaining outstanding principal on the loan is due.
A plan to make mortgage payments every two weeks (instead of the standard monthly payment schedule). The 26 (or 27) biweekly payments are each equal to one-half of the monthly payment required if the loan were a standard 30-year fixed-rate mortgage. The result for the borrower is a substantial saving in interest.
An individual who assists with arranging funding or negotiating contracts for a client but who does not loan the money himself or herself. Brokers usually charge a fee or receive a commission for their services.
When the lender and/or the homebuilder subsidize a 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.
Provisions of an adjustable-rate mortgage limiting how much the interest rate can change at each adjustment period (e.g., every six months, once a year) or over the life of the loan (rate cap). A payment cap limits how much the payment due on the loan can increase or decrease.
The amount of cash derived over a certain period of time from an income-producing property. The cash flow should be large enough to pay the expenses of the income-producing property (mortgage payment, maintenance, utilities, etc.).
Certificate of EligibilityBetty Goyens2022-01-13T23:38:10-05:00
The document given to qualified veterans entitling them to VA-guaranteed loans for homes, businesses and mobile homes. Certificates of eligibility may be obtained by sending form DD-214 (Separation Paper) to the local Veterans Affairs office with VA form 1880 (request for Certificate of Eligibility).
Certificate of Reasonable Value (CRV)Betty Goyens2022-01-13T23:38:39-05:00
The document given to veterans or reservists who have served 90 days of continuous active duty (including training time). It may be obtained by sending DD 214 to the local Veterans Affairs office with form 26-8261a (request for certificate of veteran status; this document enables veterans to obtain lower down-payments on certain FHA-insured loans).
The meeting at which a home sale is finalized. The buyer signs the mortgage, pays closing costs and receives title to the home. The seller pays closing costs and receives the net proceeds from the home sale.
Expenses in addition to the price of the home incurred by buyers and sellers when a home is sold. Common closing costs include escrow fees, title insurance fees, document recording fees and real estate commissions.
An organization that handles the preparation of reports used by lenders to determine a potential borrower’s credit history. The agency gets data for these reports from a credit repository and other sources.
A provision in an adjustable-rate mortgage allowing the loan to be converted to a fixed-rate mortgage at some point during the term. Usually conversion is allowed at the end of the first adjustment period. The conversion feature may cost extra.
A credit risk score is a statistical summary of the information contained in a consumer’s credit report. The most well-known type of credit risk score is the Fair, Isaac or FICO score. This form of credit scoring is a mathematical summary calculation that assigns numerical values to various pieces of information in the credit report. The overall credit risk score is highly relative in the credit underwriting process for a mortgage loan.
The ratio of monthly debt payments to monthly gross income. Lenders use a housing DTI ratio (house payment divided by monthly income) and a total DTI ratio (total debt payments including the house payment divided by monthly income) to determine whether a borrower’s income qualifies him or her for a mortgage.
The deposit given by a buyer to a seller to show that the buyer is serious about purchasing the home. Earnest money usually is refundable to homebuyers in the event a contingency of the sales contract cannot be met.
A federal law requiring 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.
A quasi-governmental, privately owned agency that purchases conventional mortgage from insured depository institutions and HUD-approved mortgage bankers. Fannie Mae and Freddie Mac are the key secondary mortgage-market agencies
Federal Housing Administration (FHA)Betty Goyens2022-01-14T00:06:28-05:00
A privately owned corporation created by Congress that purchases and sells conventional residential mortgages as well as those insured by Federal Housing Administration or guaranteed by Veterans Affairs. This institution, which provides funds for one in seven mortgages, makes mortgage money more available and more affordable. Fannie Mae and Freddie Mac are the key secondary mortgage-market agencies.
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 moderately priced homes almost anywhere in the country.
Requires a fee (up to 2.25 percent of the loan amount) paid at closing to insure the loan with FHA. In addition, FHA mortgage insurance requires an annual fee of up to 0.5 percent of the current loan amount, paid in monthly installments. The lower the down payment, the more years the fee must be paid.
A fixed-rate mortgage that provides scheduled payment increases over an established period of time. The increased amount of the monthly payment is applied directly toward reducing the remaining balance of the mortgage.
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. A separate number within a standardized numbering system represents each item on the statement. The totals at the bottom of the HUD-1 statement define the seller’s net proceeds and the buyer’s net payment at closing.
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.
The sum of the published index plus the margin. For example if the index were 9 percent and the margin 2.75 percent, the indexed rate would be 11.75 percent. Often, lenders charge less than the indexed rate the first year of an adjustable-rate mortgage.
An alternative financing option that allows low- and moderate-income homebuyers to lease a home with an option to buy. Each month’s rent payment consists of principal, interest, taxes and insurance (PITI) payments on the first mortgage plus an extra amount that accumulates in a savings account for a down payment.
Number of days properties stay on the market before escrow opens. This measure is the midpoint at which half of homes sold stay on the market longer and the other half stay on the market for a shorter period of time.
A process used to resolve disputes. In mediation, the parties to the dispute are assisted by a neutral third person called a mediator. The mediator is not empowered to impose a settlement or decision on the parties; rather, the mediator facilitates discussions and negotiation between the parties with the goal of assisting the parties in reaching a mutually acceptable settlement of their dispute.
That portion of the total monthly payment that is applied toward principal and interest. When a mortgage negatively amortizes, the monthly fixed installment does not include any amount for principal reduction and doesn’t cover all of the interest. The loan balance therefore increases instead of decreasing.
Occurs when 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 homebuyer ends up owing more than the original amount of the loan.
The date when a new monthly payment amount takes effect on an adjustable-rate mortgage or a graduated-payment mortgage. Generally, the payment change date occurs in the month immediately after the adjustment date.
One point equals 1 percent of the mortgage amount. Points are charged by lenders to increase the lender’s return on the mortgage. Typically, lenders may charge anywhere from zero to two points. Loan points are tax-deductible.
Lenders, such as savings-and-loan associations, commercial banks and mortgage companies, who make mortgage loans directly to borrowers. These lenders sometimes sell their mortgages to the secondary mortgage markets.
Calculations used to determine if a borrower can qualify for a mortgage. They consist of two separate calculations: a housing expense as a percent of income ratio and total debt obligations as a percent of income ratio.
A consumer protection law that requires lenders to give borrowers advance notice of closing costs. RESPA is a federal law that, among other things, allows consumers to review information on known or estimated settlement cost after application and prior to or at settlement. The law requires lenders to furnish the information after application only.
A real estate broker or agent who, as a member of a local association of REALTORS®, a state association of REALTORS® and the NATIONAL ASSOCIATION OF REALTORS® (link to www.onerealtorplace.com), adheres to high standards of professionalism and a strict code of ethics.
The cancellation of a contract by putting all parties back to the position before they entered the contract. In some mortgage financing situations involving equity in the home as security, the law gives the homeowner three days to cancel a contract.
An organization that collects principal and interest payments from borrowers and manages borrowers? escrow accounts. The servicer often services mortgages that have been purchased by an investor in the secondary mortgage market.
A mortgage in which a borrower receives a below-market interest rate in return for which the lender (or another investor such as a family member or other partner) receives a portion of the future appreciation in the value of the property. May also apply to a mortgage where the borrower shares the monthly principal and interest payments with another party in exchange for part of the appreciation.
The method used to determine the monthly payment required to repay the remaining balance of a mortgage in substantially equal installments over the remaining term of the mortgage at the current interest rate.
A mortgage that allows for the interest rate to increase according to a specified schedule (i.e., seven years), resulting in increased payments as well. At the end of the specified period, the rate and payments will remain constant for the remainder of the loan.
An examination of public records to determine the legal ownership of property. Usually the records are recorded with the County Recorders office. The search is usually performed by a title company using computerized records.
A mortgage in which the borrower receives a below-market interest rate for a specified number of years (most often seven or 10), and then receives a new interest rate adjusted (within certain limits) to market conditions at that time. The lender sometimes has the option to call the loan due with 30 days notice at the end of seven or 10 years.
Number of months it would take to deplete the remaining inventory at the end of a month with the sales rate of the month in consideration. Inventory includes listings with “Active”, “Pending”, and “Contingent” (when available) statuses.
A premium of up to 1.5 percent (depending on the size of the down payment) paid on a VA-backed loan. On a $75,000 fixed-rate mortgage with no down payment, this would amount to $1,406 either paid at closing or added to the amount financed.
Verification of Deposit (VOD)Betty Goyens2022-01-14T00:45:52-05:00
Many mortgage firms must borrow funds on a short-term basis in order to originate loans that are to be sold later in the secondary mortgage market or to investors. When the prime rate of interest is higher on short-term loans than on mortgage loans, the mortgage firm has an economic loss that is offset by charging a warehouse fee.
Results when an existing assumable loan is combined with a new loan, resulting in an interest rate somewhere between the old rate and the current market rate. The payments are made to a second lender or the previous homeowner, who then forwards the payments to the first lender after taking the additional amount off the top.