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| Adjustable Rate | An interest rate that changes periodically in relation to an index. Payments may increase or decrease accordingly.
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| Amortization | A repayment method in which the amount you borrow is repaid gradually through regular monthly payments of principal and interest. During the first few years, most of each payment is applied toward the interest owed. During the final years of the loan, payment amounts are applied almost exclusively to the remaining principal. |
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| Annual Membership | An amount that may be charged annually for having a line of credit available. Often charged regardless of whether or not you use the line. Also referred to as a "participation fee". |
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| Annual Percentage Rate | The cost of credit on a yearly basis, expressed as a percentage. Required to be disclosed by the lender under the federal Truth in Lending Act, Regulation Z. Includes up-front costs paid to obtain the loan, and is, therefore, usually a higher amount than the interest rate stipulated in the mortgage note. Does not include title insurance, appraisal, and credit report. |
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| Application | An initial statement of personal and financial information that is required to approve your loan. |
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| Application Fee | Fees that are paid upon application. An application fee may frequently include charges for property appraisal ($200-$400) and a credit report ($30-50). |
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| Appraisal | A third-party opinion of market value as of a specific date. Required by most lenders to obtain a loan. |
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| Assumption of Mortgage | The agreement of a purchaser to become primarily liable for the payments on a mortgage loan. Unless otherwise specified by the lender, the seller may remain secondarily liable for payments. |
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| Balloon Payment | A lump sum payment for the unpaid balance of the loan. |
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| Cap | The maximum allowable increase, for either payment or interest rate, for a specified amount of time on an adjustable rate mortgage. |
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| Cash Out | Receiving money back when refinancing your present mortgage. |
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| Cashier’s Check | A check that’s guaranteed by a bank and therefore treated as cash because most banks clear them instantly. Sometimes called a bank check, official check, teller’s check, bank draft, or treasurer's check. |
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| Ceiling | The maximum allowable interest rate over the life of the loan of an adjustable rate mortgage. |
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| Certified Check | A check for which the bank verifies that sufficient funds exist in the account to cover it at the time it is written. The bank then sets those funds aside until the check is cashed or returned by the payee. Thus, it cannot “bounce”. |
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| Closing Agent | A person who assures that all documentation related to the sale of a house had been completed properly, including the title search and title insurance. Sometimes an attorney. |
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| Closing Costs | Any fees paid by the borrower or seller during the closing of a mortgage loan. This normally includes an origination fee, discount points, attorney’s fees, title insurance, survey, and any items that must be prepaid, such as taxes and insurance escrow payments. |
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| Closing Date | The date set upon which the transaction is to be completed, the purchase price paid, and the transfer of title registered. |
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| Conforming Loan | Generally, a mortgage loan under $203,150. Qualifying ratios and underwriting methods are standardized to a large degree. |
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| Contract of Sale | The agreement between the buyer and seller on the purchase price, terms, and conditions necessary to both parties to convey the title to the buyer. Also known as a Offer to Purchase. |
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| Credit Limit | The maximum amount that you can borrow under a home equity plan. |
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| Debt Service | The total amount of credit card, auto, mortgage or other debt upon which you must pay. |
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| Declarations Page | The section of an insurance contract listing the name, description, and location of insured property; the name and address of the insured; the period for which the policy is in force; premiums payable; and the amount of coverage. |
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| Deed of Trust | Used in many western states, the agreement used to pledge your home or other real estate as security for a loan. Similar to a mortgage. |
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| Discount Points | Also known simply as “points”, the amount paid either to maintain or lower the interest rate charged. Each point is equal to one percent (1%) of the loan amount (i.e., two points on a $100,000 mortgage would equal $2,000). |
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| Down Payment | The difference between the purchase price and that portion of the purchase price being financed. Most lenders require the down payment to be paid from the buyer’s own funds. Gifts from related parties are sometimes acceptable, and must be disclosed to the lender. |
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| Due on Sale | A clause in a mortgage agreement providing that, if the mortgagor (the borrower) sells, transfers, or, in some instances, encumbers the property, the mortgagee (the lender) has the right to demand the outstanding balance in full. |
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| Earnest Money | A deposit given by the buyer to the seller of a house to show that he or she is serious about the offer and that is not refundable if the buyer fails to carry out the terms of the offer. |
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| Effective Interest Rate | The cost of credit on a yearly basis expressed as a percentage. Includes up-front costs paid to obtain the loan, and is, therefore, usually a higher amount than the interest rate stipulated in the mortgage note. Useful in comparing loan programs with different rates and points. |
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| Encumbrance | A claim against a property by another party, which usually affects the ability to transfer ownership of the property. |
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| Equity | The difference between the fair market value (appraised value) of your home and your outstanding mortgage balance. |
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| Escrow | Temporary deposit of assets with a third party by agreement between the two parties to a contract. The money is released when the conditions of the contract have been met. |
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| FHA Loan | More appropriately called an “FHA Insured Loan”, it’s a loan for which the Federal Housing Administration insures the lender against losses possibly incurred should you default. |
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| First Mortgage | A mortgage that is in first lien position, taking priority over all other liens (that are financial encumbrances). |
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| Fixed Rate | An interest rate that is fixed for the term of the loan. Payments are also fixed at a certain amount. |
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| Form W-2 | Used by employers to report wages paid to employees and the taxes withheld from them. The form is also used to report FICA taxes to the Social Security Administration. |
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| Good Faith Estimate | A written estimate of closing costs that a lender must provide you within three days of submitting an application. |
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| Grace Period | A period of time during which a loan payment may be paid after it’s due date and not incur a late penalty. Such late payments may be reported on your credit report. |
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| Gross Income | For qualifying purposes, the income of the borrower before taxes or expenses are deducted. |
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| Hazard Insurance | A contract between purchaser and an insurer, to compensate the insured for loss of property due to hazards (fire, hail damage, etc.), for a premium. |
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| Home Equity Line of Credit | A loan allowing you to borrow up to a certain amount at the time you choose, limited to the maximum credit limit for which you have qualified. Repayment is secured by the equity in your home. Simple interest (interest-only payments on the outstanding balance) is usually tax-deductible. Often used for home improvements, major purchases or expenses, and debt consolidation. |
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| Home Equity Loan | A fixed or adjustable rate loan that’s secured by the equity in your home. Often used for home improvement, or freeing equity for investment in other real estate or investments. Because interest paid is usually tax -deductible, it’s often recommended over conventional consumer loans, for which interest is not tax-deductible. Typical uses are loans for autos or boats, reducing credit card debt, medical bills, and tuition. |
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| Homeowner’s Insurance | A type of insurance that covers a homeowner against damages to his or her property. It also includes liability protection for lawsuits from people injured while on his or her premises. |
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| HUD I Settlement Statement |
A form used at loan closing to itemize the costs associated with purchasing the home. Used universally by mandate of HUD, the Department of Housing and Urban Development. |
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| Index | A number usually stated as a percentage upon which future interest rates for adjustable rate mortgages are based. Common indexes include the Cost of Funds for the Eleventh Federal District of banks, or the average rate of a one year Government Treasury Security. |
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| Interest Rate | The periodic charge for use of credit, expressed as a percentage. |
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| Jumbo Loan | Mortgage loans over $417,000. Terms and underwriting requirements may vary from conforming loans. |
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| Loan to Value Ratio | A ratio determined by dividing the sales price or appraised value into the loan amount, expressed as a percentage. For example, with a sales price of $100,000 and a mortgage loan of $80,000, your loan to value ratio would be 80 percent. Loans with an LTV over 80 percent may require Mortgage Insurance. |
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| Lock or Lock In | A commitment you obtain from a lender for a particular interest rate or feature for a definite period of time. Provides protection should interest rates rise between the time you apply for a loan, acquire loan approval, close the loan, and ultimately receive the funds you have borrowed. |
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| Margin | An amount that is usually a percentage and is added to the index to determine the interest rate for adjustable rate mortgages. |
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| Minimum Payment | The minimum amount that you must pay, usually monthly, on a home equity loan or line of credit. In some plans, the minimum payment might be “interest only” or “simple interest.” In other plans, the minimum payment might be “amortized” and include principal and interest. |
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| Mortgage Banker | Originates mortgage loans, lending you their funds and closing the loan in their name. |
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| Mortgage Broker | Similar to mortgage bankers, they take loan application and processes the necessary paperwork. Unlike mortgage bankers, brokers do not fund the loan with their own money, but work on behalf of several investors, such as mortgage bankers, savings & loan banks, or investment bankers. |
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| Mortgage Insurance | Insurance purchased by the borrower to insure the lender against loss should he or she default. The Mortgage Insurance Premium (MIP) is paid on government-insured mortgages such as FHA or VA loans regardless of the loan‑to-value (LTV). Should you pay off a government-insured loan in advance of maturity, you might be entitled to a small refund of MIP. Private Mortgage Insurance (PMI) is paid on those loans that are not government-insured and that have an LTV greater than 80 percent. When you have accumulated 20% of your home’s value as equity, your lender may waive PMI at your request. Please note that neither MIP nor PMI is life insurance for paying off the loan in the event of death. |
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| Mortgage Loan | A loan that uses real estate as security or collateral to provide for repayment should you default on the terms of your loan. The mortgage or Deed of Trust is your agreement to pledge your home or other real estate as security. |
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| Mortgagee | The lender in a mortgage loan transaction. |
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| Mortgagor | The borrower in a mortgage loan transaction. |
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| Negative Amortization | Amortization in which the payment made is insufficient to fund complete repayment of the loan at its termination. Usually occurs when the increase in the monthly payment is limited by a ceiling. The portion of the payment that should be paid is added to the remaining balance owed. The balance owed may actually increase rather than decrease over the life of the loan. |
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| PITI | These initials stand for “principal, interest, taxes and insurance”, all of which comprise your monthly mortgage payment. |
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| Points | Also known as Discount Points, the amount paid either to maintain or lower the interest rate charged. Each point is equal to one percent (1%) of the loan amount (i.e., two points on a $100,000 mortgage would equal $2,000). |
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| Prepayment Penalty | A fee paid to the lending institution for paying a loan prior to the scheduled maturity date. |
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| Qualifying Ratio | Comparisons of a borrower’s debts against his or her gross monthly income. |
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| Right to Rescission | The legal right to void or cancel your mortgage contract in such a way as if it never existed. Right of rescission is not applicable to mortgages made to purchase a home, but may be applicable to other mortgages, such as home equity loans. |
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| Security Interest | An interest that a lender takes in the borrower’s property to assure repayment of a debt. |
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| Servicing a Loan | The ongoing process of collecting and accounting for your monthly mortgage payment, including payments for your yearly tax and/or homeowners insurance. |
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| Settlement Sheet | A document describing a real estate transaction that includes the escrow deposits for taxes, commissions, loan fees, points, hazard insurance, and mortgage insurance. |
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| Title | The written evidence that proves the right of ownership of a specific piece of property. |
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| Title Insurance | Protection for lenders or homeowners against financial loss resulting from legal defects in the title. |
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| Title Service | A business firm that examines real property titles, reports its findings as to the legal status of such titles, and issues insurance policies to indemnify the owner and lender against financial loss resulting from unknown title defects or prior claims against the property. |
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| Transaction Fee | A fee that may be charged each time you draw on a home equity credit line. |
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| Underwriting | The process of verifying data and approving a loan. |
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| VA Loan | More appropriately called a “VA Insured Loan.” A mortgage for which the Veterans Administration insures the lender against losses the lender may incur due to your default. Available only to veterans possessing a Certificate of Eligibility. |
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| Variable Rate | An interest rate that changes periodically in relation to an index. Payments may increase or decrease accordingly. |
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