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Adjustable Rate Mortgage
A mortgage where the interest rate is periodically adjusted usually in relation
to a specified financial index.

Amortization
The gradual reduction of a debt through regular periodic payments including
principal and interest.

Annual Percentage Rate (APR)
APR is a measure of the cost of credit, expressed as a yearly rate. The APR
includes the interest rate, points and certain other credit charges.

Appraisal Report
A written report provided by an appraiser containing his/her opinion as to the
value of a property.

Assumable Mortgage
A mortgage that can be taken over by the buyer when the house is sold.

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Back Ratio
See Debt-to-Income Ratio

Balloon (Payment) Mortgage
Usually a short-term, fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a time specified in the contract.

Broker
An individual in the business of assisting in arranging funding or negotiating contracts for a client but who does not loan the money himself. Brokers usually charge a fee or receive a commission for their services.

Buydown
When the lender and/or the home builder subsidizes the 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.

 

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Cap
A provision of an adjustable rate mortgage that limits how much the interest
rate or mortgage payments may change.

Clear Title
An interest in land which is not encumbered with defects.

Closing
The final procedure in which documents are executed, closing costs are paid
and the loan is completed. It is sometimes referred to as settlement.

Closing Costs
Expenses over and above the sales price of a property incurred by buyers and
sellers in transferring ownership of a property. In a refinance, it is the costs associated with the new loan.

Co-Borrower
If more than one person will be responsible for repaying the loan, the second
person listed on the application is the Co-Borrower. If there will be more than
one borrower, either one can be listed as the Borrower and/or Co-Borrower.

Combined Loan to Value (CLTV)
The relationship of the total of the first and any subordinate mortgages to the appraised value or sales price, whichever is the lesser of the two.

Co-Signer
One who only signs the note and is as equally responsible for repayment as
the borrower.

Contingent Liabilities
When an applicant is a co-signer/guarantor on a debt (including mortgage debt)
for another person.

Convertible ARM
A type of adjustable rate mortgage that provides an option to change the
mortgage to a fixed rate mortgage for the remaining life of the original loan
term under specified conditions.

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Debt-to-Income Ratio
A ratio used in conventional real estate financing that is based on the sum
of the applicant's following monthly charges:

      1- Monthly house expenses
         Payments on all installment debts with more than 10 months of payments
         remaining.

      2- Alimony, child support or maintenance payments, with more than
         10 months remaining.
     3- Monthly payments on revolving or open-end accounts, regardless of the
         balance.

      4- Car lease payments, regardless of the number payments remaining.
     5- Aggregate negative net rental income from all investment properties owned.
     6- Monthly mortgage payment (PITI) for second home.
         The monthly charges are then divided by the applicant's stable monthly income.

Deed
A written instrument by which ownership of land is transferred.

Default
Failure to meet legal obligations in a contract, specifically, failure to make the
monthly payments on a mortgage.

Deliquency
Failure to make payments on time. This can lead to foreclosure.

Department of Veterans Affairs (VA)
An independent agency of the federal government which guarantees long-term,
low or no-down payment mortgages to eligible veterans.

Discount Points
A one-time charge by the lender to increase the yield of the loan. Each point
equals one percent of the loan amount. Typically the more points that are paid
the lower the interest rate will be. However, the more points that are paid, the
higher the costs will be at closing.

Doc Stamps on the Deed
A Florida tax for the transfer of real property. The current tax rate is $.70 on
each $100, or fraction thereof, of the sales price.

Doc Stamps on the Note
A Florida tax on the note. The current tax rate is $.35 for each $100, or fraction thereof, of the loan amount.

Down Payment
In a purchase transaction, it is the amount of money to be paid by the buyer
to the seller which represents the difference between the sales price and the
loan amount.

Due-On-Sale Clause
A form of demand note requiring payment of the outstanding balance of a loan
upon sale of the property it secures.

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Earnest Money Deposit
The money given to the seller or his/her agent by prospective buyers to show
they are serious about buying the house.

Easement
A right-of-way granted to a person or company authorizing access to or over
the owner's land.

Encroachment
An obstruction, building, or part of a building that intrudes beyond a legal
boundary onto neighboring private or public land, or a building extending beyond
the building line.

Equity
The difference between the value of a home and the outstanding loan balance
on the home.

Escrow
Funds paid by one party to another (the escrow agent) to hold until the
occurrence of a specific event, after which the funds are released.

Escrow Payments
The portion of a mortgagor's monthly payment held by the lender or servicer to
pay for taxes, hazard insurance, mortgage insurance and other items as they
become due.

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
The difference between the fair market value and current indebtedness, also referred to as the owner's interest.

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Fannie Mae (FNMA)
Federal National Mortgage Association

Farmers Home Administration (FmHA)
Provides financing to farmers and other qualified borrowers who are unable to obtain loans elsewhere.

Federal Home Loan Mortgage Corporation (FHLMC)
Also called Freddie Mac, is a quasi-governmental agency that purchases conventional mortgages from insured depository institutions and HUD-approved mortgage bankers.

Federal Housing Administration (FHA)
A division of the Department of Housing and Urban Development. Its main activity is the insuring of residential mortgage loans made by private lenders. FHA also sets standards for underwriting mortgages.

Federal National Mortgage Association (FNMA)
Also known as Fannie Mae, a tax-paying corporation created by Congress that purchases and sells conventional residential mortgages as well as those insured by FHA or guaranteed by VA. This institution, which provides funds for one in seven mortgages, makes mortgage money more available and more affordable.

FHA Loan
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 moderate-priced homes almost anywhere in the country.

FHA Mortgage Insurance
Requires a small fee (up to 2.25% of the loan amount) paid at closing or a portion of this fee added to each monthly payment of an FHA loan to insure the loan with FHA. On a 9.5% $75,000 30-year fixed-rate FHA loan, this fee would amount to either $1,688 at closing or an extra $14 a month for the life of the loan. In addition, FHA mortgage insurance requires an annual fee of 0.5% of the current loan amount; the higher the loan to value, the more years the fee must be paid.

Finance Charge
The cost of credit as a dollar amount.

Fixed Rate Loan
A loan secured by a mortgage with an interest rate that is fixed for the entire
term of the loan.

Fixed-Rate Mortgage
A mortgage on which the interest rate is set for the term of the loan.

Florida Form 9 Endorsement
An endorsement to the title policy that provides broad coverage for the lender
with regard to survey and restriction matters.

Float
An option which the borrower may choose at the time of application which allows
the borrower to lock in his/her interest rate and discount point(s) at a future date. Interest rates and discount points may vary with changes in market conditions
while a borrower is floating; therefore there is no price protection if interest rates
and discount points should increase.

Flood Certification Fee
A fee to certify the location of a property in a flood plain.

Flood Insurance
Insurance required for properties in federally designated flood areas. All lending institutions are required to obtain flood certifications in the mortgage loan process.

Foreclosure
A legal procedure in which property securing debt is sold by the lender to pay a defaulting borrower's debt .

Freddie Mac (FHLMC)
Federal Home Loan Mortgage Corporation

Front Ratio
See Housing Expense Ratio.

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Graduated Payment Mortgage (GPM)
A type of flexible-payment mortgage where the payments increase for a specified period of time and then level off. This type of mortgage has negative amortization built into it.

Gross Monthly Income
The total amount the borrower earns per month before any expenses are deducted.

Government National Mortgage Association (GNMA)
Also known as Ginnie Mae, provides sources of funds for residential mortgages insured or guaranteed by FHA or VA.

Good Faith Estimate
An estimate of the amount of or range of charges for the specific settlement
services a borrower is likely to incur in connection with the settlement. Under
the terms of the Real Estate Settlement Procedures Act, a lender shall provide
a good faith estimate either by delivering the good faith estimate or by placing
it in the mail to the loan applicant no later than three business days after the application is received or prepared.

Guarantee
A promise by one party to pay a debt or perform an obligation contracted by another if the original party fails to pay or perform according to a contract.

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Hazard Insurance
Insurance to protect the homeowner and the lender against physical damage
by fire, wind, vandalism, or other hazards.

Homeowner's Insurance
An insurance policy that combines personal liability coverage and hazard insurance.

Housing Expense Ratio
A ratio used in conventional real estate financing that is based on the sum of the following monthly charges on the applicant's primary residence:

HUD -1
A uniform settlement statement required by RESPA that enumerates the final
costs associated with either the purchase or refinancing of a 1-4 family
residential property..

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Index
The index is the measure of interest rate changes that the lender uses to decide
how much the interest rate on an adjustable rate mortgage will change over time.

Intangible Tax on the Mortgage
A Florida tax on new mortgages (20 cents on every 100 dollars).

Interest Rate Cap
A provision of an adjustable rate mortgage limiting how much interest rates may increase per adjustment period.

Interim Interest
Interest collected on a per diem basis, (per day), from the date of closing until
the last day of the month in which the loan closes.

Impound
That portion of a borrower's monthly payments held by the lender or servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Also known as reserves.

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Jumbo Loan
A loan which is larger (more than $207,000) than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.

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Lifetime Cap
A provision of an adjustable rate mortgage that limits the total increase in
interest rates over the life of the loan.

Loan Discount
Often referred to as loan discount point(s), it is a one-time charge by the
lender or broker to lower the interest rate which the lender or broker would
otherwise offer on the loan.

Legal Homestead
Status in the property that is the legal residence of the owner. In Florida, even though a person may acquire title in his/her own name, if the property is the
"legal" residence, the spouse automatically has an interest in that property.
That interest must be mortgaged when a mortgage is taken out on the property.
That interest must be deeded when the property is sold.

Lender's Title Insurance Policy
Insures the lender against losses due to defects or problems not identified by
the title search or examination. It is sometimes referred to as the simultaneous
issue. The insurance is usually based upon the loan amount.

Loan Origination Fee
A fee that covers the lender's administrative costs in processing the loan. It is
often expressed as a percentage of the loan amount.

Loan to Value (LTV)
A percentage which represents the relationship between the unpaid principal
balance of the mortgage and the sales price or appraised value whichever is the
lesser of the two.

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Margin
The amount added to the index to determine a new interest rate at each
adjustment on adjustable rate mortgages. It may be expressed as a percentage
or as basis points.

Market Value
The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.

Mortgage
A written instrument that is signed by the borrower which pledges the property
to the lender as security for repayment of a debt.

Mortgagor
The borrower in a mortgage agreement.

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Negative Amortization
Occurs when your 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.

Net Effective Income
The borrower's gross income minus federal income tax.

Non-Assumption Clause
A statement in a mortgage contract forbidding the assumption of the mortgage without the prior approval of the lender.

Non-Owner Occupant
An investor.

Note
A written promise to repay money loaned which includes the amount of the
loan and the terms of repayment.

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Origination Fee
The fee charged by a lender to prepare loan documents, make credit checks,
inspect and sometimes appraise a property; usually computed as a percentage
of the face value of the loan.

Owner Occupant
An owner occupant is an individual who resides in the mortgaged premises,
uses the property as his/her primary residence and is listed as the owner of
record by deed.

Owner's Title Insurance
Insures the owner against losses due to title defects. The charge is based
upon the sales price of the property.

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PITI
Principal, interest, taxes and insurance.

Primary Residence
The residential property physically occupied by an owner as the principal
home domicile.

Power of Attorney
A legal document authorizing one person to act on behalf of another.

Prepaids
Expenses necessary to create an escrow account or to adjust the seller's existing escrow account. Can include taxes, hazard insurance, private mortgage insurance and special assessments.

Prepayment
A privilege in a mortgage permitting the borrower to make payments in advance of their due date.

Prepayment Penalty
Money charged for an early repayment of debt. Prepayment penalties are allowed in some form (but not necessarily imposed) in 36 states and the District of Columbia.

Principal
The amount of debt, not counting interest, left on a loan.

Private Mortgage Insurance (PMI)
In the event that you do not have a 20% down payment, lenders will allow a smaller down payment - as low as 5% in some cases. With the smaller down payment loans, however, borrowers are usually required to carry private mortgage insurance. Private mortgage insurance will require an initial premium payment of 1.0% to 5.0% of your mortgage amount and may require an additional monthly fee, depending on your loan's structure. On a $75,000 house with a 10% down payment, this would mean either an initial premium payment of $2,025 to $3,375, or an initial premium of $675 to $1,130 combined with a monthly payment of $25 to $30.

Private Mortgage Insurance
Insurance that protects the lender in the event the borrower defaults on
the loan. It is usually required on loans in which the down payment is less
than 20 percent of the sales price or appraised value whichever is the lesser
of the two. In refinancing situations, when the amount of the new loan is
greater than 80% of the appraised value, it is also required.

(Planned Unit Development) (PUD)
A project or subdivision consisting of residential units located on individual
lots and common areas owned by and reserved for the use of the owners of
those lots.

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Reserves
Servicing Disclosure Statement: The Real Estate Settlement Procedures Act
requires the lender or mortgage broker to tell an applicant in writing within three business days of the receipt of an application, whether it expects that someone
else will be servicing the loan (collecting payments).

RESPA (Real Estate Settlement Procedures Act)
A federal law controlling lending practices in federally related mortgages.

Right of Rescission
Under the Truth In Lending Act (TILA), consumers have the right to cancel
certain home-secured transactions. This is known as the right of recision.
TILA provides that, in certain credit transactions in which the consumer's
principal dwelling secures an extension of credit, the consumer has three
business days after becoming obligated on the debt to rescind the transaction.
TILA, however, exempts purchase money loans from the right of recision.

RMCR
Residential Mortgage Credit Report.

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Shared Appreciation Mortgage (SAM)
A mortgage in which a borrower receives a below-market interest rate in return for which a 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 mortgages where the borrower shares the monthly principal and interest payments with another party in exchange for a part of the appreciation.

Second Home
A property that the borrower occupies in addition to his/her principal residence.
Rental income from the borrower's second home may not be considered as stable monthly income.

Survey
A drawing showing the exact legal boundaries of a property , the location of improvements, encroachments, easements, rights of ways and other physical
features.

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Tax Service Fee
A one time fee for services provided to the lender by a private company to
administer the tax escrow.

Title
A legal document establishing the right to or ownership in real property.

Title Search
An examination of public records to determine ownership interest in and
encumbrances upon property.

Treasury Index
The weekly average yield on US Treasury securities adjusted to a constant
maturity of one, three or five years, as made available by the Federal Reserve
Board.

Truth in Lending Act
Federal legislation that requires lenders to furnish information regarding the cost
of the loan. It is intended to insure that credit terms are disclosed in a meaningful
way to consumers.

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Simultaneous Issue
See Lender's Title Insurance Policy.

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VA Funding Fee
A premium of up to 2% (depending on the size of the down payment) paid on a VA-backed loan. On a $75,000 30-year fixed-rate mortgage with no down payment, this would amount to $1,406 either paid at closing or added to the amount financed.

VA Loan
A long-term, low or no-down payment loan guaranteed by the Department of Veterans Affairs. Restricted to individuals qualified by military service or other entitlements.

Verification of Deposit (VOD)
A document signed by the borrower's financial institution verifying the status and balance of his/her financial accounts.

Verification of Employment
A document signed by the borrower's employer verifying his/her position and salary.

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Warranty Deed
A written conveyance by which title is passed and whereby the seller provides
the buyer with the most comprehensive assurances of lawful ownership.

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