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Mortgage Glossary

ARM (Adjustable Rate Mortgage)

 

A Mortgage in which the interest rate is adjusted periodically, based on the movement of a financial index.

 

APR (Annual Percentage Rate)

 

The annual percentage rate refers to the total cost of the loan, expressed as a yearly rate.

 

APPLICATION FEE

 

Diversified Financial Services will never charge an application fee.

 

APPRAISAL

 

A report made by a qualified person as to the value of a property as of a given date.

 

ASSESSED VALUE

 

The value placed on a piece of real estate by the taxing authority for the purpose of taxation. Also called an assessment.

 

CAP (INTEREST RATE)

 

The maximum interest rate increase allowable on an adjustable rate mortgage.  Does not result in negative amortization. (see negative amortization)

 

CAP (PAYMENT RATE)

 

The maximum payment amount increase allowable on an adjustable rate mortgage.  May result in negative amortization. (see negative amortization)

 

CLOSING

 

The concluding day of the real estate transaction, when title and deed pass from seller to buyer, the buyer signs the mortgage.

 

CLOSING COSTS

 

Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property.  Also called "Settlement Costs"

 

DEED

 

A legal written document by which title to property is transferred.

 

EARNEST MONEY

 

The deposit money given to seller or his agent by the potential buyer at the time of the purchase offer. If the offer is accepted, the money will become part of the down payment.

 

ESCROW

 

Funds and/or deed left in trust to a third party.  Generally, a portion of the monthly mortgage payment is held in escrow by the lender to pay for taxes, hazard insurance and yearly mortgage insurance premiums.

 

HAZARD INSURANCE

 

Insurance protection against damage to a property from fire, windstorms, and other common hazards.

 

HUD 1 - STATEMENT

 

See Real Estate Settlement Statement

 

LOAN TO VALUE RATIO

 

The relationship between the amount of the mortgage and property value, usually shown as a percentage.

 

MORTGAGE NOTE

 

A written promise to pay a debt at a stated interest rate during a specified term. The agreement is secured by a mortgage.

 

MORTGAGEE

 

The lender in a mortgage contract

 

MORTGAGOR

 

The borrower in a mortgage contract

 

NEGATIVE AMORTIZATION

 

A Loan in which the outstanding principal balance goes up instead of down because the monthly payments are not large enough to cover the full amount of interest due.  Also called deferred interest.

 

ORIGINATION FEE

 

A Fee charged for the work involved in the evaluation, preparation and submission of a proposed mortgage loan.

 

PITI

 

An acronym for payments to lender that cover principal, interest, taxes and insurance on a property.

 

POINT

 

A Fee paid to the lender on closing day to increase the effective yield of the mortgage.  A point is one percent of the amount of the mortgage loan. Also called a discount point.

 

PRE-QUALIFICATION

 

A preliminary assessment of a buyer's ability to secure a loan, based on a specific set of lending guidelines and buyer representations made.  This is not a guarantee or commitment by a lender to extend credit.

 

PRIME RATE

 

The interest rate charged by banks to their preferred corporate customers, it tends to be an estimator for general trends in short term interest rates.

 

PRINCIPAL

 

The amount borrowed or remaining unpaid; also, that part of the monthly payment that reduces the outstanding balance of a mortgage.

 

PMI (PRIVATE MORTGAGE INSURANCE)

 

Insurance written by a private mortgage insurance company to protect the lender against losses caused by mortgage default.  This is commonly required on loan transactions involving less than a 20% down payment or equity position.

 

QUALIFYING RATIOS

 

Guidelines used by lenders to determine how much of a loan a home buyer qualifies for.  Often referred to as debt-to income ratios (or DTI)

 

REAL ESTATE SETTLEMENT STATEMENT

 

Final settlement statement often referred to as the HUD-1 form, used to itemize buyer, seller, broker, and lender charges and credits at closing.

 

TITLE

 

Ownership of a property.  A clear title is one without any outstanding liens or encumbrances.  A cloud on a title refers to any outstanding liens or encumbrances which could impair the title.

 

TITLE INSURANCE POLICY

 

A policy designed to protect the buyer or lender after closing from financial losses arising from any defects in the title that may have occurred prior to purchase.

 

TITLE SEARCH

 

A check of public recored to disclose the past and current facts regarding ownership of a particular piece of property.

 

TRUTH IN LENDING

 

Federal law that requires lenders to disclose the terms and conditions of a mortgage, including the APR, based on certain charges incurred by the borrower.  If the charges were $0, the APR would be equal to that actual interest rate on the loan.

 

UNDERWRITING

 

The process of evaluating a loan application to determine the risk for the lender.

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