Adjustable
Rate Mortgage -
A mortgage with an interest rate which changes based on a particular rate index.
Examples of rate indexes are Prime, LIBOR and COSI. Often these types of mortgages
have caps and often come in 1-, 3-, 5- and 7-year terms. The advantage of an
adjustable rate mortgage is the interest rate is usually initially lower than
a fixed rate mortgage. ARM loans are great for people who don't plan to stay
in the property long-term, or expect their income to rise over time.
Amenities -
Features of your home that fit your preferences and can increase
the value of your property. Some examples include the number of bedrooms,
bathrooms, or vicinity to public transportation.
Annual Percentage Rate (A.P.R.)
The actual interest rate, taking into account points and other
finance charges, for the projected life of a mortgage. Disclosure of
APR is required by the Truth-in-Lending Law and allows borrowers to compare the
actual costs of different mortgage loans.
Application Fee -
The fee charged by lenders to cover costs associated with the initial processing
of your loan package.
Appraisal -
An estimate of a property's value as of a given date, determined by a qualified
professional appraiser. The value may be based on replacement cost, the sales
of comparable properties or the property's ability to produce income.
Balloon Mortgage -
A short-term mortgage with principal and interest payments based on a longer
term that do not fully amortize (or pay off) the full principal balance within
the actual loan term. The principal balance then becomes due and payable in a
lump sum at the end of the balloon term. Balloon mortgages can be very risky
and are intended for borrowers who are able to arrange permanent financing before
the balloon term ends.
Bridge Mortgage -
A short-term loan that "bridges" the period between the closing date
of a new home purchase and the sale of your current home.
Buy-Down -
Where the buyer pays additional discount points or makes a substantial down payment
in return for a below market interest rate; or the seller offers 3-2-1 interest
payment plans or pays closing costs such as the origination fee. During times
of high interest rates, buy-downs may induce buyers to purchase property they
may not otherwise have purchased.
Closing Costs -
Costs payable by both seller and buyer at the time of settlement, when the purchase
of a property is finalized. These costs can
be up to ten percent of the mortgage amount.
Conventional Loan -
A mortgage loan that is not insured, guaranteed or funded by the Veterans Administration
(VA), the Federal Housing Administration (FHA) or Rural Economic Community Development
(RECD) (formerly Farmers Home Administration).
Credit Score -
A numeric representation of your creditworthiness at a particular point in time
based on several different factors including, but not limited to, your credit
history, your payment history, the amount of your outstanding debt and the types
of credit you use. Credit scores generally range from 200-900 with the higher
credit score representing a higher level of credit worthiness. If you'd like
to learn more, read Understanding Your Credit Score.
Conforming Loan
A mortgage loan that meets all requirements to be eligible for purchase by federal
agencies such as Fannie Mae and Freddie Mac.
Curtailments -
The borrower's privilege to make payments on a loan's principal before they are
due. Paying off a mortgage before it is due may
incur a penalty if so specified in the mortgage's prepayment clause.
Debt-to-Income Ratio -
The ratio between a borrower's monthly payment obligations divided by his or
her net effective income (FHA or VA loans) or gross monthly income (conventional
loans).
Deed of Trust-
A document, used in many states in place of a mortgage, held by a trustee pending
repayment of the loan. The advantage of a
deed of trust is that the trustee does not have to go to court to proceed with
foreclosure should the borrower default on the loan.
Department of Housing and Urban Development (HUD)
The U.S. government agency that administers FHA, GNMA and other housing programs.
Discount Points -
Amounts paid to the lender based on the loan amount to buy the interest rate
down. Each point is one percent of the loan amount; for example, two points on
a $100,000 mortgage is $2,000.
Earnest Money -
Deposit in the form of cash or a note, given to a seller
by a buyer as good faith assurance that the buyer intends to go
through
with the purchase of a property.
Escape Clause -
A provision allowing one party or more to cancel all or
part of the contract if certain events fail to happen, such as the
ability of the buyer to obtain financing within a specified period.
Escrow -
Money placed with a third party for safekeeping either for
final closing on a property or for payment of taxes and insurance
throughout the year.
FHA Loan -
A mortgage that is guaranteed by the Federal Housing Administration. FHA mortgages
often require lower down payments but require the borrower to pay an FHA mortgage
insurance premium. FHA loans may have fixed or adjustable-rates.
FICO -
The credit score developed by Fair Issac & Co. It is a scoring method widely
used to determine your creditworthiness and is computed by data provided by the
three credit bureaus: Experian, Trans Union, and Equifax. The credit score takes
into account your payment history, of amount of your outstanding debts, and any
negative credit information like charge-offs, etc. Scores range from 200-900
with the higher score representing a higher level of creditworthiness.
Fixed Rate Mortgage -
A mortgage whose rate remains constant throughout the life of the mortgage.
Flood Certification --
An investigation to determine if the house is on a flood plain. Flood insurance
is required for homes located in a flood zone.
Forbearance -
When a lender refrains from taking action on a homeowner who becomes delinquent
on their mortgage loan, a forbearance agreement may be reached. The agreement
may include arrangements to pay any past due amounts over a period of time.
Foreclosure -
Also known as repossession, this is the legal process by which a lender acquires
possession of the property securing a mortgage loan when the borrower defaults.
If you are having trouble meeting your monthly payments on a Wachovia mortgage,
there are options for you. Let us help you try to keep your home and retain your
credit standing.
Gift -
This includes amounts from a relative or a grant from the borrower's employer,
a municipality, non-profit religious organization, or non-profit community organization
that does not have to be repaid.
Good Faith Estimate -
Estimate on closing costs and monthly mortgage payments provided by the lender
to the homebuyer within 3 days of applying for a loan.
Hazard Insurance -
A form of insurance that protects the insured property against physical damage
such as fire and tornadoes. Mortgage lenders often require a borrower to maintain
an amount of hazard insurance on the property that is equal at least to the amount
of the mortgage loan.
Home Equity Loan -
A mortgage on the borrower's principal residence, usually for the purpose of
making home improvements or debt consolidation. .
Home Inspection -
A thorough review of the physical aspects and condition of a home by a professional
home inspector. This inspection should be completed prior to closing so that
any repairs or changes can be completed before the home is sold.
Homeowners Insurance -
A form of insurance that protects the insured property against loss from theft,
liability and most common disasters.
Housing and Urban Development (HUD) -
The U.S. government agency that administers FHA, GNMA and other housing programs.
Jumbo Loan -
Also known as a non-conforming loan, a Jumbo Loan is typically a home loan amount
larger than the conforming loan limit, and may require a higher interest rate.
Lender Origination Fee -
The lender may charge an origination fee. The typical origination fee is one
point, or one percent of the loan amount.
Lien -
A claim against a property for the payment of a debt. A mortgage is a lien; other
types of liens a property might have include a tax lien for overdue taxes or
a mechanics lien for unpaid debt to a subcontractor.
Loan-To-Value ratio (LTV)
The relationship, expressed as a percentage, between the amount of the proposed
loan and a property's appraised value. For example, a $75,000 loan on a property
appraised at $100,000 is a 75% loan-to-value.
Lock-In -
Also known as a rate lock, a lock-in is a set period of time that a lender will
guarantee an interest rate and discount points required to obtain that rate.
This lock-in protects you against market increases from the time you lock in
your interest rate until you close as long as your loan closes according to the
terms of your rate lock agreement. The lock-in period is typically between 15-60
days, and you must close within the lock period at the terms specified to receive
the locked interest rate.
Margin -
The amount a lender adds to the index of an adjustable rate mortgage to establish
an adjusted interest rate. For example, a margin of 1.50 added to a 7 percent
index establishes an adjusted interest rate of 8.50 percent.
Market Value -
The price a property can realistically sell for, based upon comparable selling
prices of other properties in the same area.
Negative Amortization -
A situation in which a borrower is paying less interest than what is actually
being charged for a mortgage loan. The unpaid interest is added to the loan's
principal. The borrower may end up owing more than the original amount of the
mortgage.
Non-Assumption Clause-
In a mortgage contract, a statement that prohibits a new buyer from assuming
a mortgage loan without the approval of the lender.
Non-Conforming Loan -
A loan that does not conform to Federal National Mortgage Association (FNMA)
or Federal Home Loan Mortgage Corporation (FHLMC) guidelines. Jumbo loans are
nonconforming.
PMI -
Private Mortgage Insurance (PMI) insures the lender against a portion of the
losses realized when a borrower defaults on a mortgage loan. If your down payment
is less than 20% of the total amount of the home's purchase price or appraised
value, whichever is applicable the lender will typically require PMI to mitigate
risk associated with this higher loan-to-value. PMI may be tax-deductible. (Please
consult your tax advisor for more information.)
Points -
Charges levied by the lender based on the loan amount. Each point equals one
percent of the loan amount; for example, two points
on a $100,000 mortgage is $2,000. Discount points are used to buy down the interest
rate. Points can also include a loan origination fee, which is usually one point.
Pre-Qualification -
Tentative establishment of a borrower's qualification for a mortgage loan amount
of a specific range, based on the borrower's assets, debts, and income.
Prime Rate -
The interest rate commercial banks charge their most creditworthy customers.
Principal -
The amount of the entire mortgage loan, not counting interest. Also, as a part
of PITI, the amount of the monthly mortgage payment which does not include the
interest, insurance, and taxes.
Preapproval -
The process of finding out how much money you appear eligible to borrow. A lender
will need your application and credit information to determine your preapproval
status. All information is subject to verification during the loan process. You
may receive a pre-approval letter that states the loan amount for which you were
pre-approved. This can be a valuable tool when house hunting.
Pre-Paid Interest Accrued -
The loan interest between the first day of the month until the day you close
that month. Also known as pre-paid interest, it is a line item on your Good Faith
Estimate.
Property Taxes -
Annual state and local taxes that a property owner pays to the government. Real
estate property taxes on mortgaged property are typically paid monthly with the
mortgage payment. That portion of your payment is set aside into an escrow account.
The lender then pays the annual taxes when they are due out of the escrow account.
Qualification -
As determined by a lender, the ability of the borrower
to repay a mortgage loan based on the borrower's credit history,
employment history, assets, debts and income.
Recording Fees -
Fees for recording documents at the county clerk's office. Recording fees vary
by state and county.
Right of Rescission -
When a borrower's principal dwelling is going to secure a loan, the borrower
has three business days following signing of the loan documents to rescind or
cancel the transaction. Any and all money paid by the borrower must be refunded
upon rescission. The right to rescind does not apply to loans to purchase real
estate or to refinance a loan under the same terms and conditions where no additional
funds will be added to the existing loan.
Second Mortgage -
A loan that is junior to a primary or first mortgage and often has a higher interest
rate and a shorter term.
Servicing -
The responsibility of collecting monthly mortgage payments and properly crediting
them to the principal, taxes and insurance, as well as keeping the borrower informed
of any changes in the status of the loan.
Tax -
As a part of PITI, the amount of the monthly mortgage payment which does not
include the principal, interest, and insurance.
TENANCY:
Joint Tenancy - equal ownership of property
by two or more parties, each with the right of survivorship.
Tenancy by the Entireties - ownership of property
only between husband and wife in which neither can sell without
the consent
of the other and the property is owned by the survivor in the event of death
of either party.
Tenancy in Common - equal ownership of property
by two or more parties without the right of survivorship.
Tenancy in Severalty - ownership of property
by one legal entity or a sole party.
Tenancy at Will - a license to use or occupy
a property at the will of the owner.
Title -
A formal document establishing ownership of property.
Title Insurance -
A policy issued by a title insurance company insuring the purchaser against any
errors in the title search. The cost of title insurance may be paid for by the
buyer, the seller or both.
Underwriter -
A professional who approves or denies a loan to a potential
homebuyer based on the homebuyer's credit history, employment
history, assets, debts and other factors such as loan guidelines.
VA Loan -
The federal agency responsible for the VA loan guarantee program as well as other
services for eligible veterans. In general, qualified veterans can apply for
home loans with no down payment and a funding fee of 1 percent of the loan amount.
Warranty Deed -
A document protecting a homebuyer against any and all claims
to the property.
W-2 -
A tax form used to report wages you earn and the taxes withheld by your employer.
This is a common document requested by a lender at the time you apply for a mortgage,
along with recent pay stubs and checking account statements, in order to verify
your income and assets.
Yield -
The rate of earnings from an investment.
Zoning -
The ability of local governments to specify the use of private property in order
to control development within designated areas of land. For example, some areas
of a neighborhood may be designated only for residential use and others for commercial
use such as stores, gas stations, etc.
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