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Mortgage Loan Terms

Adjustable Rate Mortgage (ARM) - A mortgage with an interest rate that fluctuates according to the movements of a predefined index. There are several types of ARM's, some change quicker than others, but all have a ceiling cap.

Amortization - The gradual repayment of a mortgage by installments.

Amortization Schedule - A timetable for payment of a mortgage showing the amount of each payment applied to interest and principal and the remaining balance of the loan.

Annual Percentage Rate (APR) - The total cost of your mortgage loan expressed an annual interest rate. This includes the base interest rate, mortgage insurance, origination fees, and some other related fees.

Appraisal - An opinion by a licensed real estate appraiser regarding the fair market value of a property.

Appreciation - Difference between the increased value of a property and the original cost of the property.

Assumable Loan - Usually for a small assumption fee, a new buyer can take over or assume the loan of the previous homeowner, saving closing cost and loan origination fees.

Cap - A provision of an ARM limiting how much the interest rate or mortgage payments may increase or decrease.

Cash Reserve - A requirement of some lenders that buyers have sufficient cash remaining after closing to make the first two monthly mortgage payments.

Closing - The meeting at which a sale of a property is finalized by the buyer signing the mortgage documents and paying closing cost. Also know as "settlement".

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". Here is a whole page about closing costs.

Combined Loan-to-Value (CLTV) - The LTV of the first mortgage plus the LTV of the second mortgage.

Community Home Buyer's Program - An alternative financing option that allows households of modest means to qualify for mortgages using nontraditional credit histories.

Conventional Mortgage - Any mortgage that is not insured or guaranteed by the federal government.

Credit Report - A report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's credit worthiness.

Debt-to-Income Ratio - Formula used to qualify borrowers. The ratio expresses, as a percent, the amount of monthly debt payments in relation to the amount of monthly income of a borrower(s).

Default - See Delinquency.

Deed - The legal document conveying title to a property.

Delinquency - The failure of a borrower to make a mortgage payment when due.

Disclosure - Document which describes all conditions of a mortgage loan including terms and interest rates.

Discount Points - A one time charge by the lender to increase the yield of a loan. A point is one percent of the amount of the mortgage.

Down Payment - The part of the purchase price which the buyer pays in cash and does not finance with a mortgage.

Earnest Money - A deposit made by the potential home buyer to show that he or she is serious about buying the house.

Escrow - The holding of documents and money by a neutral third party prior to closing; also, an account held by the lender (or servicer) into which a homeowner pays money for taxes and insurance.

Escrow Waiver - If the borrower's LTV is 80% or less, the borrower may elect to waive having the lender hold money for taxes and insurance in an escrow account.  Addie Mae generally can offer escrow waivers to borrowers with loans higher than 80% LTV.

FHA Mortgage - A mortgage that is insured by the Federal Housing Administration("FHA"). Also referred to as a "government" mortgage.

Fixed Rate Mortgage - A mortgage in which the interest rate does not change during the entire term of the loan.

Hazard Insurance - Insurance coverage that compensates for physical damage to a property from fire, wind, vandalism, or other hazards.

Homeowner's Insurance - An insurance policy that combines personal liability coverage and hazard insurance coverage for a dwelling and its contents.

Index - The interest rate to which changes in an adjustable-rate mortgage are pegged.

Interest Rate - The fee charged for borrowing money.

Jumbo Loan -Any conventional loan with a loan amount in excess of the current FNMA/FHLMC loan amount limits. Currently the loan limit is $214,600.

Lifetime Cap - A provision of an ARM that limits the highest rate that can occur over the life of the loan.

Loan Application Fee - A lender's fee, usually ranging from $75 to $300, which is sometimes required at application.

Loan-to-Value Ratio (LTV) - The relationship between the unpaid principal balance of the mortgage and the appraised value (or sales price if it is lower) of the property.

Lock-In - A written agreement guaranteeing the home buyer a specified interest rate provided the loan is closed within a set period of time. The lock-in also usually specifies the number of points to be paid at closing.

Margin - The set percentage the lender adds to the index rate to determine the current interest rate of an ARM.

Mortgage Insurance - (Also known as Private Mortgage Insurance (PMI)). Insurance provided by non-government insurers that protects lenders against loss if a borrower defaults. Federal National Mortgage Assoc. ("Fannie Mae") generally requires PMI private mortgage insurance for loans with loan-to-value (LTV) ratios greater than 80 percent.  Addie Mae generally does not require private mortgage insurance for any loans we originate.. 

Mortgage Insurance Premium (MIP) - The fee paid by a borrower to FHA for mortgage insurance.

Mortgagee - The lender in a mortgage agreement.

Mortgagor - The borrower in a mortgage agreement.

Payment Cap - A provision of some ARM's limiting the amount by which a borrower's payments may increase regardless of any interest rate increase, may result in negative amortization.

NIV Loan - A loan program which requires no verification of income, but requires verification of assets.

Origination Points - The fee(s) sometimes charged by a vendor to originate a loan. The fee(s) are usually computed as a percentage of the face value of the mortgage.

PITI - Acronym for principal, interest, taxes and insurance - the components of a monthly mortgage payment.

Pre-approval - The process of determining that a borrower is credit approved up to a predetermined amount. The borrower is credit approved pending the locating of a home that meets the predetermined loan criteria.

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

Private Mortgage Insurance - Insurance provided by non-government insurers that protects lenders against loss if a borrower defaults. Fannie Mae generally requires private mortgage insurance for loans with loan-to-value (LTV) ratios greater than 80 percent.

Rate Lock - A written agreement guaranteeing the home buyer a specified interest rate provided the loan is closed within a set period of time. Also know as a Lock-In, usually specifies the number of points to be paid at closing. .

Temporary Interest Rate Buydown - An arrangement wherein the property seller (or any other third party) deposits money into an account so that it can be released each month to reduce the mortgagor's monthly payments during the early years of the mortgage. During the specified period, the mortgagor's effective interest rate is "brought down" below the actual mortgage interest rate.

Title Company - A company that specializes in examining and insuring titles to real estate.

Title Insurance - A type of insurance that insures against defects in title that were not listed in the title report or abstract.

Title Search - A check of the title record to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.

Truth-in-Lending (TIL) - A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage including the "annual percentage rate (APR)" and other charges.

Underwriting - The process of evaluating a loan application to determine the risk involved for the lender. It involves an analysis of the borrower's credit worthiness and the quality of the property itself.

VA Loan - A loan that is guaranteed by the Department of Veterans Affairs. Also referred to as a "government" mortgage.

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