Adjustable rate mortgage, ARM
a type of mortgage loan characterized by interest rates that automatically adjust or fluctuate in concert with certain market indexes. Generally an ARM begins with an introductory or initial interest rate, which then may rise or fall, but monthly payments may not exceed the ARM loan cap.
the process of a loan's value over a period of time. Often amortization is laid out on an amortization schedule or measured by an amortization calculator.
Annual percentage rate, APR
the truest cost of a home loan. Per the Truth in Lending Act, all mortgage lenders must disclose their APR. In the mortgage industry, APR may include fees such as documentation fees, private mortgage insurance and more.
the measurable value that increases on a home or property. Market improvements and home renovations often drive appreciation value.
a value determined by local government assessors and used to calculate annual property or real estate taxes.
a type of mortgage that may be transferred, interest rate and all, from seller to buyer.
a short-term high-risk loan that leaves the borrower with a potentially high loan balance at the end of the loan term.
profit earned on an asset, such as a home or property.
Capital gain tax
a tax levied against the profit made on the sale of a home and/or property.
Cash out refinance
a second mortgage in which the borrower extracts home equity at the same time a refinance deal is made; an alternative to a home equity loan.
the formal documented sale of a home and/or property that includes signing all documents associated with the exchange and payment of required closing fees. A closing agent usually oversees this process.
real estate transaction related fees payable by the buyer and seller during a closing. A wide variety of fees may be included, such as title search, attorney's fees, origination fees, documentation fees and more.
Closing statement – HUD I Settlement Sheet
an itemized list of closing costs.
a borrower with good credit that agrees to take on shared responsibility for a home loan so that the primary borrower may purchase property.
a document from a lender to a borrower that officially lays out the terms of a loan.
a short-term loan for new home construction that is supplanted with a conventional long-term home loan. See combination loan.
any one of a number of common clauses added to real estate agreements that provide buyer or seller rights during various stages of a transaction.
a mortgage offered by any one of the Government sponsored entities, different from an FHA loan.
an official and public document that establishes property ownership.
a measure of interest; 1 point = 1% of the home loan value. Homebuyers may pay points up front, a type of buy-down, in order to lower their overall interest rate and mortgage payment.
a separate account held by a mortgage lender out of which required property bills, separate from the loan payment, are made. Property taxes and insurance are examples of costs paid out of escrow. Sometimes called an “impound account.”
a private mortgage corporation that began as a government subsidized entity in the late 30s. Today Fannie Mae, along with Freddie Mac, is a government sponsored enterprise (GSE) and together they are responsible for setting annual conforming loan limits and assuring that most Americans are able to finance a home. Fannie Mae is commonly known as a secondary mortgage market and lends to mortgage lenders which in turn extend mortgages to borrowers.
Federal Housing Administration.
loans extended by FHA-approved lenders typically are designed to assist borrowers unable for various reasons to get the approval necessary for conventional home loans.
Fixed rate mortgage
a mortgage that is outfitted with a fixed interest rate over the life of the loan. Principle and interest payments are the same month to month.
in most real estate cases a lender will require a flood certification before making a loan on a home. In areas where a property falls in a flood zone, the borrower may be required to purchase standalone flood insurance before a mortgage and/or home loan is approved.
the repossession of a home and/or property by a lender in the event of borrower loan default or the inability to meet mortgage agreements.
in concert with Fannie Mae, Freddie Mac is a leading government sponsored enterprise (GSE) and is responsible for maintaining reasonable mortgage market stability, this assuring that Americans are able to purchase homes. Freddie Mac is a secondary mortgage market, meaning the corporation lends to lenders, which in turn extend mortgage products directly to borrowers.
Good Faith Estimate
an itemized list of anticipated loan costs and closing fees passed from a lender to a potential borrower within three days of an application for a home loan. This is a required step in the loan application process per the Real Estate Settlement Procedures Act.
also known as homeowner’s insurance; extra insurance taken out on a home that protects the borrower and lender in the event of damage. Usually covers the value of the home.
a comprehensive and exhaustive examination of a home by a licensed inspector. Often required as part of a mortgage and home loan process.
an association attached to a neighborhood, apartment, condo or town home complex that establishes certain rules of ownership. Common, but not exhaustive, responsibilities of a homeowner’s association includes collection of neighborhood dues for landscape maintenance or membership in recreation and entertainment facilities.
insurance that protects the value of the home for both lender and borrower. Homeowner’s insurance typically covers the cost of replacing the home and various parts of the same. Most mortgage lenders require borrowers to carry a term of insurance.
a type of loan available to HUD homebuyers that goes toward fixing up a home. The loan is subsequently absorbed into the mortgage. The term “HUD loan” is often confused with “FHA loan.”
a figure calculated as a percentage that is used in the financial industry to indicate the rate charged for use of money in a loan. Interest rates may be fixed or variable. See, Annual percentage rate.
Lender, mortgage lender
the bank or finance company that directly awards home loan or mortgage money to a borrower or homebuyer. Legal-mortgagee.
Power of attorney
a legal document that grants an individual the rights to act on behalf of another. For example, if a borrower becomes incapable of managing his or her home loan or mortgage, a power of attorney assigned by that individual could manage his or her mortgage and related decisions.
the process in which a homebuyer may find out how much of a home loan he or she would be approved for with a lender; gives many buyers more flexibility when shopping for a home.
Private mortgage insurance, PMI
a type of insurance many homebuyers are required to purchase, particularly when they are unable to put down a certain dollar amount on the loan; protects the lender in the event of borrower default.
lender fees associated with creating the loan or mortgage, usually part of closing costs.
a fair market value of property performed by a licensed appraiser; takes into account not only condition, but also the value of similar local properties or comparable sales.
a short-term agreement by a lender to “hold” a certain interest rate on a home loan while the buyer completes the mortgage approval process. Also, Rate commitment option.
process by which a borrower/homeowner may negotiate a lower interest rate on a mortgage, thereby lowering monthly payments.
mortgage payments laid out over the life of the loan. Some mortgage calculators let borrowers see their repayment schedule based on the amount of the home loan, the interest rate and monthly payments. See also Amortization.
a type of mortgage designed for homeowners over 62 years of age; gives them access to home’s equity in cash payments, frees up money they may use for other important costs or to make needed home repairs.
also known as a home equity loan, a second mortgage gives borrowers flexibility to access the cash equity in their home, usually useful for other high-dollar expenses such as auto and college loans.
useful tool for lenders and homeowners when foreclosure could be a worst-case scenario. In a real estate short-sale lenders give homeowners permission to discount the home value (an outstanding loan balance) to effect a quick sale, thereby averting foreclosure.
the official document used in the real estate industry that specifies at any one time who owns a piece of property.
a title company typically handles all tasks associated with the property title, including insurance and search.
insurance taken out on the property title that protects both borrower and lender in the event of a title dispute.
research on a property title usually conducted by a title company to determine if there exist any outstanding liens against the property prior to a sales transaction.
Truth in Lending disclosure
a document that all lenders are required to provide when a borrower applies for a home loan. The document discloses interest rates, the amount to be loaned, plus the final cost of the loan upon maturity.
the company or service that evaluates a borrower’s creditworthiness prior to loan and mortgage approval.
special, often discounted, home loans designed exclusively for military veterans.
indicates no past liens or disputes against the property; the holder of the property deed has the right to sell it to another.