Glossary of Terms
Adjustable Rate Mortgage (ARM): A mortgage with an interest rate that changes over time in line with movements in the index. ARMs are referred to as AMLs (adjustable mortgage loans) or VRMs (variable rate mortgages). Your payment could change over the term of the loan.
Adjustment Period: The length of time between interest rate changes on the ARM. For example, a loan with an adjustable period of one year is called a one year ARM, which means that the interest rate can change once a year.
Amortization: Repayment of a loan in installments of principal and interest, rather than interest-only payments.
Annual Percentage Rates (APR): The total finance charge (interest, loan fees, points) expressed as a percentage of the loan amount.
Appraisal: An estimate of the property's value.
Balloon Payment: A lump sum principal payment due at the end of some mortgages or other long-term loans.
Binder: Sometimes known as an offer to purchase or an earnest money receipt. A binder is the acknowledgement of a deposit along with a brief written agreement to enter into a contract for the sale of real estate.
Certificate of Commitment: The lender's approval of a VA loan, which is usually good for up to six months.
Certificate of Reasonable Value (CRV): A document that establishes the maximum value and loan amount for a VA guaranteed mortgage.
Closing Statement: The financial disclosure statement that accounts for all of the funds received and expected at the closing, including deposits for taxes, hazard insurance, and mortgage insurance.
Contingency: A condition that must be satisfied before a contract is binding. For instance, a sales agreement may be contingent upon the buyer obtaining financing.
Debt Ratios: The comparison of a buyer's housing costs to his or her gross or net effective income, and the comparison of a buyer's total long-term debt to his or her gross or net effective income. The first ratio is housing ratio; the second ratio is total debt ratio.
Earnest Money: The portion of the down payment delivered to the seller or escrow agent by the purchaser with a written offer as evidence of good faith.
Escrow: A procedure in which a third party acts as a stakeholder for both the buyer and the seller, carrying out both parties' instructions and assuming responsibility for handling all the paperwork and distribution of funds. For example, the PrimeWest Servicing Department gives homeowners the options of bundling the payment for homeowner's insurance and taxes with their principal and interest payment.
Equity: The difference between what is owed and what the property could be sold for.
FHA Loan: A loan insured by the Federal Housing Administration (of the Department of Housing and Urban Development).
Federal Home Loan Mortgage Corporation (FLHMC): Called "Freddie Mac"; a part of the secondary market, particularly used to purchase loans from savings and loan lenders within the Federal Home Loan Bank Board.
Federal National Mortgage Association (FNMA): Popularly known as "Fannie Mae"; a privately owned corporation created by Congress to support the secondary mortgage market. It purchases and sells residential mortgages insured by FHA or guaranteed by the VA, as well as conventional home mortgages.
Finance Charge: The total cost a borrower must pay, directly or indirectly, to obtain credit.
Fixed Rate Mortgage: A conventional loan with a single interest rate for the life of the loan
Gift Letter: A letter from a relative stating that an amount will be gifted to the buyer and the said amount is not to be repaid.
Home Inspection Report: A qualified inspector's report on a property's overall condition. The report usually includes evaluation of both the structure and mechanical systems.
Index: A measure of interest rate changes used to determine changes in an ARM's interest rate over the term of the loan.
Jumbo Loans: Mortgage loans that exceed the loan amounts acceptable for sale in the secondary market; these jumbos must be packaged and sold differently to investors and, therefore, have separate underwriting guidelines. Jumbo loans start at $417,000.
Lien: A legal hold or claim on property as security for a debt or charge.
Loan-to-Value Ratio: The relationship between the amount of the mortgage and the appraised value of the property, expressed as a percentage of the appraised value.
Lock-In: The fixing of an interest rate or points at a certain level during the loan application process. It is usually done for a certain period of time, such as 60 days, and may require a fee or premium in the form of a higher interest rate.
Mortgage Insurance Premium (MIP): The mortgage insurance required n FHA loans for the life of said loans; MIP can either be paid in cash at closing or financed in its entirety in the loan. The premium varies depending on the method of payment.
Origination Fee: A fee or charge for work involved in evaluating, preparing, and submitting a proposed mortgage loan. The fee is limited to one percent for FHA and VA loans.
PITI: Principal, interest, taxes and insurance.
Planned Unit Development (PUD): A zoning designation for property development at the same or slightly greater overall density than a conventional development, sometimes with improvements clustered between open common areas. Use may be residential, commercial or industrial.
Point: An amount equal to one percent of the principal amount of the investment or note. Lender assesses loan discount points at closing to increase the yield on the mortgage to a position competitive with other types of investments.
Private Mortgage Insurance (PMI): Insurance written by a private company protecting the lender against loss if the borrower defaults on the mortgage.
Purchase Agreement: A written document in which the purchaser agrees to buy certain real estate and the seller agrees to sell under stated terms and conditions. This may also be referred to as a sales contract, earnest money contract, or agreement for sale.
Itemized Settlement Statement: A standard form which shows itemize services and fees charged to the borrower by the lender. The form will tell you the amount you will need to present at closing.
Title Insurance Policy: A policy that protects the purchaser, mortgagee, or other party against loss.
VA Loans: A loan, made by a private lender, which is partially guaranteed by the Veterans Administration.
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