Additional Principal
Additional Prinicpal occurs when the monthly payments cover only part of the
interest then due. The interest cost that is not covered is added to the
unpaid principal balance. This additional amount is additional principal. It
may also be called "negative amortization."
Adjustable Rate Mortgage (ARM)
A mortgage for which the interest rate changes based upon a predetermined
time interval--usually in relation to an index--and payments may go up or down
accordingly.
Amortization
Payment of debt in regular installments of principal and interest, thereby
reducing the mortgage principal owed.
Annual Percentage Rate (APR)
This is the cost of credit expressed as an annual rate. It usually includes a
combination of the interest rate, points and other fees paid to a lender to
acquire a mortgage. The APR is the most meaningful measure for comparing the
cost of mortgage loans offered by different lenders.
Appraisal
A determination of property value based on recent, verifiable information of
sales (and rentals as needed) in the vicinity of the home. Value estimate is
prepared based on legally permissible use at the time.
Certificate of Occupancy
A certificate issued by a local building department to a builder or renovator,
stating that the building is in proper condition to be occupied and stating
the legally permissible use.
Closing
The meeting during which the title to property actually changes hands,
documents are executed and the sale of the property and/or the loan is
completed. It is usually attended by the buyer, the seller, a bank
representative, each party's attorney and the title company representative.
Closing Costs
Costs associated with securing a mortgage and the sale and purchase of
property. These expenses are usually paid on the day the title to the
property is formally transferred from the seller to the buyer.
Commitment
Written agreement detailing the terms and conditions by which the bank will
lend and the borrower will borrow funds to finance a home.
Condominium
A structure of two or more units, the interior space of which are individually
owned. The balance of the property is owned in common by the owners of the
individual units.
Conforming Loan Amount
A Fannie Mae (FNMA) established, maximum loan amount based on the property's
legal number of units (1-family, 2-family, etc.). Loan amounts up to this
maximum dollar amount are considered "conforming loans."
Contract of Sale
Written contract signed by both parties in which the seller agrees to sell and
the buyer agrees to buy under certain specific terms and conditions.
Cooperatives (Co-ops)
A structure of two or more units in which the right to occupy a unit is
obtained by the purchase of stock in the corporation which owns the building.
Counteroffer
An offer to extend credit on different terms than the applicant originally
requested.
Covenant
Generally, almost any promise set forth in a written agreement. Most commonly,
assurances set forth in a deed by the grantor or implied by law.
Deed
A legal document conveying title (ownership) to real property from one
individual to another.
Easement
A right created by grant, reservation, agreement, prescription or necessary
implication which one has on another's land (such as a public utility easement).
Encroachment
Construction, such as a wall, fence, building, etc., on the property of another.
Equity
The market value of property minus any outstanding mortgage or cooperative loan
balance or other encumbrance on the property.
Escrow
Funds held by the lender, set aside for payment of taxes and possible property
and mortgage insurance and other recurring charges against real property.
(Monthly mortgage payments usually include principal, interest and escrow
amounts.)
FHLMC (Freddie Mac)
Federal Home Loan Mortgage Corporation. A federal agency purchasing first
mortgages, both conventional and federally insured, from members of the Federal
Reserve System and the Federal Loan Bank System.
Finance Charge
The total dollar amount your loan will cost you. It includes all interest
payments during the term of the loan, any interim interest paid at closing,
your origination fee and any other charges paid to the lender or to a third
party or an incident or a condition of the extension of credit. Certain
charges like the appraisal, credit report and the title search charges are
not included in the finance charge calculation.
Fixed Rate Mortgage
A mortgage having a rate of interest which remains the same for the life of
the mortgage.
Flood Insurance
Insurance indemnifying against loss by flood damage, required by lenders in
areas designated (federally) as potential flood areas.
FNMA (Fannie Mae)
A private corporation dealing in the purchase of first mortgages, at discounts.
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.
Housing Ratio
The ratio of the monthly housing payment (PITI) to total gross monthly income.
Also called Payment-to-Income Ratio or Front-End Ratio.
Index
A published interest rate not controlled by the lender to which the interest
rate on an Adjustable Rate Mortgage (ARM) is tied. The index and the interest
rate linked to it may increase or decrease.
Interest
A share or right in some property. Also, money charged for the use of money
(principal).
Lien
An encumbrance against property for money due, either voluntary or involuntary.
Life of Loan Cap
The maximum interest rate that can be charged during the life of the loan.
Also called Life Cap or Life Rate.
Loan-to-Value (LTV)
The ratio of the amount of your loan to the value of the home.
Margin
The number of percentage points a lender adds to the index value to calculate
the ARM interest rate at each adjustment period.
Mortgage
To pledge without delivery of title or possession as
security real property for the payment of a debt. The borrower retains
possession of the property as long as the mortgage is paid according to its
terms.
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
Insurance written by an independent mortgage insurance company (MIC)
protecting the mortgage lender against loss incurred by a mortgage default.
Mortgage Life Insurance
A term life insurance policy that covers the declining balance of a loan
secured by a mortgage, and is payable upon death of a covered borrower.
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. Non-conforming
loans usually incur a rate and origination fee premium.
Note
A written agreement containing a promise of the signer to pay to a named
person, or order, or bearer, a definite sum of money at a specified date or
on demand.
Origination Fee
A fee imposed by a lender to cover certain processing expenses in connection
with making a real estate loan. Usually a percentage of the amount loaned,
such as one percent.
Planned Unit Development (PUD)
A subdivision of five or more individually owned lots with one or more other
parcels owned in common or with reciprocal rights in one or more other parcels.
Point
One percent of the amount of the 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.
Principal
Amount of debt, not including interest. The face value of a note or index.
Principal, Interest, Taxes and Insurance (PITI)
The components that make up the total monthly loan payment on your mortgage loan.
Qualifying Ratios
The ratio of your fixed monthly expenses to your gross monthly income, used to
determine how much you can afford to borrow.
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.
Residential Mortgage Credit Report
A report requested by your lender that utilizes information from at least two
of the three national credit bureaus and information provided on your loan
application.
Survey
A print showing the measurements of the boundaries of a parcel of land,
together with the location of all improvements on the land and sometimes its
area and topography.
Tenants-by-Entirety
A form of ownership in which husband and wife are co-owners with rights of
survivorship.
Tenants-in-Common
An undivided interest in property taken by two or more persons. The interest
need not be equal. Upon death of one or more persons, there is no right of
survivorship.
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.
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
A federal law requiring a disclosure of credit terms using a standard format.
This is intended to facilitate comparisons between the lending terms of
different financial institutions.
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© 1998 - 2002 Farris Mortgage
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