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Qualifying ratios
The ratio of your fixed monthly expenses to your gross monthly income, used to determine how much you can afford to borrow. The fixed monthly expenses would include PITI along with other obligations such as student loans, car loans, or credit card payments.
Rate cap
A limit on how much the interest rate can change, either at each adjustment period or over the life of the loan.
Rate lock-in
A written agreement in which the lender guarantees the borrower a specified interest rate, provided the loan closes within a set period of time.
Real estate agent - an individual who is licensed to negotiate and arrange real estate sales; works for a real estate broker.
REALTOR - a real estate agent or broker who is a member of the NATIONAL ASSOCIATION OF REALTORS, and its local and state associations.
Rebate
Compensation received from a wholesale lender which can be used to cover closing costs or as a refund to the borrower. Loans with rebates often carry higher interest rates than loans with "points".
Refinancing
The process of paying off one loan with the proceeds from a new loan using the same property as security.
Seller carry back
An agreement in which the owner of a property provides financing, often in combination with an assumed mortgage.
Settlement - another name for closing .
Special Forbearance - a loss mitigation option where the lender arranges a revised repayment plan for the borrower that may include a temporary reduction or suspension of monthly loan payments.
Subordinate - to place in a rank of lesser importance or to make one claim secondary to another.
Survey - a property diagram that indicates legal boundaries, easements, encroachments, rights of way, improvement locations, etc.
Title
The evidence one has of right to possession of land.
Title insurance
Insurance against loss resulting from defects of title to a specifically described parcel of real property.
Title search
A check of public records to be sure that the seller is the recognized owner of the real estate and that there are no unsettled liens or other claims against the property.
Total debt ratio
Monthly debt and housing payments divided by gross monthly income. Also known as Obligations-to-Income Ratio or Back-End Ratio.
Truth-in-Lending Act - Federal law obligating a lender to give fuII written disclosure of aII fees, terms, and conditions associated with the loan initial period and then adjusts to another rate that lasts for the term of the loan.
Veterans Administration (VA)
A government agency guaranteeing mortgage loans with no down payment to qualified veterans.
Understanding Mortgage Terminology
A
Adjustable-rate mortgage (ARM)
Is a mortgage in which the interest rate is adjusted periodically based on a preselected index. Also sometimes known as the re negotiable rate mortgage, the variable rate mortgage or the Canadian rollover mortgage.
Adjustment date
The date on which the interest rate changes for an adjustable-rate mortgage (ARM).
Adjustment period
The period that elapses between the adjustment dates for an adjustable-rate mortgage (ARM).
Amortization
The repayment of a mortgage loan by installments with regular payments to cover the principal and interest.
Annual percentage rate (APR)
The cost of a mortgage stated as a yearly rate; includes such items as interest, mortgage insurance, and loan origination fee (points).
Application
the first step in the official loan approval process; this form is used to record important information about the potential borrower necessary to the underwriting process.
Appraisal
A document that gives an estimate of a property's fair market value; an appraisal is generally required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property.
Appraiser
A person qualified by education, training, and experience to estimate the value of real property and personal property.
Appreciation
An increase in the value of a property due to changes in market conditions or other causes.
Asset
Anything of monetary value that is owned by a person. Assets include real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, and so on).
Assignment
The transfer of a mortgage from one person to another.
Assumable mortgage
A mortgage that can be taken over by the buyer when a home is sold.
Assumption
The transfer of the seller's existing mortgage to the buyer.
Assumption clause
A provision in an assumable mortgage that allows a buyer to assume responsibility for the mortgage from the seller. The loan does not need to be paid in full by the original borrower upon sale or transfer of the property.
Assumption fee
The fee paid to a lender (usually by the purchaser of real property) resulting from the assumption of an existing mortgage.
Balance sheet
A financial statement that shows assets, liabilities, and net worth.
Balloon mortgage
A mortgage that has level monthly payments that will amortize it over a stated term but that provides for a lump sum payment to be due at the end of an earlier specified term.
Balloon payment
The final lump sum payment that is made at the maturity date of a balloon mortgage.
Bankruptcy
a federal law Whereby a person's assets are turned over to a trustee and used to pay off outstanding debts; this usually occurs when someone owes more than they have the ability to repay.
Before-tax income
Income before taxes are deducted.
Beneficiary
The person designated to receive the income from a trust, estate, or a deed of trust.
Binder A preliminary agreement, secured by the payment of an earnest money deposit, under which a buyer offers to purchase real estate.
Biweekly payment mortgage
A mortgage that requires payments to reduce the debt every two weeks.
Bridge loan
A form of second trust that is collateralized by the borrowers present home in a manner that allows the proceeds to be used for closing on a new house before the present home is sold.
Broker
A person who, for a commission or a fee, brings parties together and assists in negotiating contracts between them.
Buydown mortgage
A mortgage on which an initial lump sum payment is made by any party to reduce a borrower's monthly payments during the first few years of a mortgage. A permanent buydown reduces the interest rate over the entire life of a mortgage.
Cap
A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or mortgage payments may increase or decrease.
Cash-out refinance
A refinance transaction in which the amount of money received from the new loan exceeds the total of the money needed to repay the existing first mortgage, closing costs, points, and the amount required to satisfy any outstanding subordinate mortgage liens. In other words, a refinance transaction in which the borrower receives additional cash that can be used for any purpose.
Cash reserves - a cash amount sometimes required to be held in reserve in addition to the down payment and closing costs; the amount is determined by the lender.
Certificate of Eligibility
A document issued by the federal government certifying a veteran's eligibility for a Department of Veterans Affairs (VA) mortgage.
Certificate of title
A statement provided by an abstract company, title company, or attorney stating that the title to real estate is legally held by the current owner.
Chain of title
The history of all of the documents that transfer title to a parcel of real property, starting with the earliest existing document and ending with the most recent.
Clear title
A title that is free of liens as to ownership of the property.
Closing
A meeting at which a sale of a property is finalized by the buyer signing the mortgage documents and paying closing costs.
Closing cost item
A fee or amount that a home buyer must pay at closing for a single service, tax, or product. Closing costs are made up of individual closing cost items such as origination fees.
Closing costs
Expenses incurred by buyers and sellers in transferring ownership of a property. Closing costs normally include an origination fee, an attorney's fee, taxes, an amount placed in escrow, and charges for obtaining title insurance and a survey.
Closing statement
Also referred to as the HUD1. The final statement of costs incurred to close on a loan or to purchase a home.
Collateral
An asset (such as a car or a home) that guarantees the repayment of a loan. The borrower risks losing the asset if the loan is not repaid according to the terms of the loan contract.
Collection
The efforts used to bring a delinquent mortgage current and to file the necessary notices to proceed with foreclosure when necessary.
Co-maker
A person who signs a promissory note along with the borrower. A co-maker's signature guarantees that the loan will be repaid, because the borrower and the co-maker are equally responsible for the repayment.
Commission
The fee charged by a broker or agent for negotiating a real estate or loan transaction. A commission is generally a percentage of the price of the property or loan.
Commitment letter
A formal offer by a lender stating the terms under which it agrees to lend money to a home buyer.
Community property
In some western and southwestern states, a form of ownership under which property acquired during a marriage is presumed to be owned jointly unless acquired as separate property of either spouse.
Comparables
An abbreviation for used for comparative purposes in the appraisal process. Comparables are properties like the property under consideration; they have reasonably the same size, location , and amenities and have recently been sold. Comparables help the appraiser determine the approximate fair market value of the subject property.
Condominium
A form of ownership in which individuals purchase and own a unit of housing in a multi-unit complex; the owner also shares financial responsibility for common areas.
Construction loan
A short-term, interim loan for financing the cost of construction. The lender makes payments to the builder as the work progresses.
Consumer reporting agency (or bureau)
An organization that prepares reports that are used by lenders to determine a potential borrower's credit history. The agency obtains data for these reports from a credit repository as well as from other sources.
Contingency
A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector.
Contract
An oral or written agreement.
Conventional mortgage
A mortgage that is not insured or guaranteed by the federal government.
Credit
An agreement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date.
Credit History
A record of an individual's open and fully repaid debts. A credit history helps a lender to determine whether a potential borrower has a history of repaying debts in a timely manner.
Credit report
A record that lists all past and present debts and the timeliness of their repayment; it documents an individual's credit history.
Debt - An amount owed to another.
Deed -The legal document conveying title to a property.
Default - The inability to pay monthly mortgage payments in a timely manner or to otherwise meet the mortgage terms.
Delinquency - Failure of a borrower to make timely mortgage payments under a loan agreement.
Deposit - A sum of money given to bind the sale of real estate, or a sum of money given to ensure payment or an advance of funds in the processing of a loan.
Depreciation - A decline in the value of property; the opposite of appreciation.
Discount point - normally paid at closing and generally calculated to be equivalent to 1% of the total loan amount, discount points are paid to reduce the interest rate on a loan.
Down payment - The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.
Earnest money deposit - A deposit made by the potential home buyer to show they want to buy the house.
Easement - A right of way giving persons other than the owner access to or over a property.
Endorser A person who signs ownership interest to another party.
Equal Credit Opportunity Act (ECOA) - A federal law that requires 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.
Equity - A homeowner's financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on its mortgage.
Escrow- An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition.
Escrow account - A separate account into which the lender puts a portion of each monthly mortgage payment; an escrow account provides the funds needed for such expenses as property taxes, homeowners insurance, mortgage insurance, etc.
Escrow disbursements - The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.
Escrow payment - The portion of a mortgagor's monthly payment that is held by the servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due.
Estate - The ownership interest of an individual in real property. The sum total of all the real property and personal property owned by an individual at time of death.
Eviction - The lawful expulsion of an occupant from real property.
Examination of title - The report on the title of a property from the public records or an abstract of the title.
Fair market value - the hypothetical price that a willing buyer and seller will agree upon when they are acting freely, carefully, and with complete knowledge of the situation
Fannie Mae - Federal National Mortgage Association (FNMA); a federally-chartered enterprise owned by private stockholders that purchases residential mortgages and converts them into securities for sale to investors; by purchasing mortgages, Fannie Mae supplies funds that lenders may loan to potential homebuyers.
Federal Housing Administration (FHA) An agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity is the insuring of residential mortgage loans made by private lenders.
FHA mortgage A mortgage that is insured by the Federal Housing Administration (FHA). Also known as a government mortgage.
FHA LOANS (Federal Housing Administration) FHA loans are available to help people who can't necessarily afford a 10% down payment on their new home.
Fixed-rate mortgage (FRM) A mortgage in which the interest rate does not change during the entire term of the loan.
Flood insurance - Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.
Foreclosure - The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property.
Good faith estimate - An estimate of charges which a borrower is likely to incur in connection with a settlement.
Hazard insurance - Insurance protecting against loss to real estate caused by fire, some natural causes, vandalism, etc., depending upon the terms of the policy.
Home inspection - an examination of the structure and mechanical systems to determine a home's safety; makes the potential homebuyer aware of any repairs that may be needed.
Home warranty - offers protection for mechanical systems and attached appliances against unexpected repairs not covered by homeowner's insurance,overage extends over a specific time period and does not cover the home's structure.
Homeowner's insurance - an insurance policy that .combines protection against damage to a dwelling and Is contents with protection against claims of negligence or inappropriate action that result in someone's injury or property damage.
HUD - The U.S. Department of Housing and Urban Development.
Index - A published interest rate to which the interest rate on an Adjustable Rate Mortgage (ARM) is tied. Some commonly used indeces include the 1 Year Treasury Bill, 6 Month LIBOR, and the 11th District Cost of Funds (COFI).
Inflation - the number of dollars in circulation exceeds the amount of goods and services available for purchase; inflation results in a decrease in the dollar's value.
Interest - a fee charged for the use of money .
Interest rate - the amount of interest charged on a monthly loan payment; usually expressed as a percentage.
Insurance - protection against a specific loss over a period of time that is secured by the payment of a regularly scheduled premium.
Lien - A legal claim against property that must be satisfied When the property is sold
Loan - Money borrowed that is usually repaid with interest.
Lock-in - A written agreement guaranteeing the home buyer a specified interest rate provided the loan is closed within a set period of time.
Margin
The number of percentage points a lender adds to the index value to calculate the ARM interest rate at each adjustment period. A representative margin would be 2.75%.
Mortgage
A legal document that pledges a property to the lender as security for payment of a debt
Mortgage broker - A firm that originates and processes loans for a number of lenders.
Mortgage disability insurance A disability insurance policy which will pay the monthly mortgage payment in the event of a covered disability of an insured borrower for a specified period of time.
Mortgage insurance (MI)
Insurance written by an independent mortgage insurance company protecting the mortgage lender against loss incurred by a mortgage default. Usually required for loans with an LTV of 80.01% or higher.
Mortgagee
The person or company who receives the mortgage as a pledge for repayment of the loan. The mortgage lender.
Mortgagor
The mortgage borrower who gives the mortgage as a pledge to repay.
Non-conforming loan
Conventional home mortgages not eligible for sale and delivery to either Fannie Mae (FNMA) or Freddie Mac (FHLMC) because of various reasons, including loan amount, loan characteristics or underwriting guidelines.
Note
A written agreement containing a promise of the signer to pay to a named person, or bearer, a definite sum of money at a specified date or on demand.
Offer- indication by a potential buyer of a willingness to purchase a home at a specific price; generally put forth in writing.
Origination- the process of preparing, submitting, and evaluating a loan application; generally includes a credit check, verification of employment, and a property appraisal.
Origination fee- the charge for originating a loan; is usually calculated in the form of points and paid at closing.
Owner financing
A property purchase transaction in which the property seller provides all or part of the financing.
PITI
Principal, interest, taxes and insurance--the components of a monthly mortgage payment.
Points
Charges levied by the mortgage lender and usually payable at closing. One point represents 1% of the face value of the mortgage loan.
Prepaids
Those expenses of property which are paid in advance of their due date and will usually be prorated upon sale, such as taxes, insurance, rent, etc.
Prepayment penalty
A charge imposed by a mortgage lender on a borrower who wants to pay off part or all of a mortgage loan in advance of schedule.
Principal
The amount borrowed from a lender; doesn't include interest or additional fees.
Private mortgage insurance (PMI)
Insurance provided by nongovernment insurers that protects lenders against loss if a borrower defaults.
Pre-approve - lender commits to lend to a potential borrower; commitment remains as long as the borrower still meets the qualification requirements at the time of purchase.
Pre-foreclosure sale - allows a defaulting borrower to sell the mortgaged property to satisfy the loan and avoid foreclosure.
Pre-qualify - a lender informally determines the maximum amount an individual is eligible to borrow.
Kevin Lutz
Senior Mortgage Broker
EXECUTIVE MORTGAGE OF MICHIGAN
Toll Free Phone: 1-800-404-3462
* EXECUTIVE MORTGAGE OF MICHIGAN is a fully licenced Michigan mortgage broker and is Fannie Mae/Freddie Mac approved. Contact the Webmaster at patty@lutzmortgage.com with questions or comments about this web site. Copyright © 2004 EXECUTIVE MORTGAGE OF MICHIGAN. All Rights Reserved
Kevin Lutz
Senior Mortgage Broker
"Your Key to Home Ownership"
EXECUTIVE MORTGAGE OF MICHIGAN
