De-Mystifying Some of the Gobbly-Gook...
ADDENDUM - Any addition to the basic contract that includes additional terms to the original. Contracts often contain a financing addendum as well as a home inspection addendum
AGENT-Representative of the Broker.
AMORTIZATION - Payment of debt in regular, periodic installments of principal and interest, as opposed to interest only payments. Amortization is the process of reducing principal and interest in equal installment payments at specific intervals over a set term. For example, a fully amortized loan payment is a portion of which will be applied to pay the accruing interest on the loan with the remainder being applied to principal. Over time, the interest portion decreases as the loan balance decreases and the amount applied to principal increases so that the loan is paid off in the specified term.
APPRAISAL - An estimate of the value of a property as determined by comparing facts about the property to comparable sales of similar homes nearby. The appraiser works for the bank or mortgage company.
ARM - A mortgage loan where the interest rate is not fixed for the entire term of the loan, and can change during the life of the loan in line with movements of an index rate. Aka Adjustable Rate Mortgage.
ASSESSED VALUE - Value placed upon property for property-tax purposes by the tax assessor.
BROKER - A professional who offers a commission- or fee- based service to bring together parties interested in buying, selling, exchanging, or leasing real property. Long & Foster is a broker.
CLOSING - The completion of the real estate transaction that culminates in the transfer of title from the seller to the buyer. Aka Settlement.
CLOSING AGENT - The party designated to conduct the loan closing, and to ensure the mortgage or deed is recorded and the funds disbursed on time.
CLOSING COSTS - Money paid by the borrower to effect the closing of a mortgage loan, including such costs as title insurance premiums, appraisal fees, lender fees, closing agent fees, recording fees, etc.
CLOSING STATEMENT - A statement required by Federal law (the Real Estate Settlement Procedures Act) that itemizes all changes imposed on the borrower and seller (if any) in connection with a mortgage secured loan transaction. Also known as a settlement statement, HUD-1 or HUD-1A
CMA – A comprehensive analysis detailing how much a house is worth (market value) based upon comparing the property in question to similar houses which have sold recently (usually in the past six months). Aka Comparative Market Analysis.
COMMITMENT LETTER - A written commitment from a lender to lend mortgage funds to a specific borrower as long as certain conditions are met within a specified time period before closing. A key component of the commitment, particularly in a period of volatile interest rates, is the "rate hold", where a lender may "cap" a rate for a defined period, such as 60 days or 90 days. Commitments on financing for new homes, which usually have longer closing dates, can be negotiated between the lender and the builder and be held for as long as 6 months, and even a year.
CONTINGENCY - A condition that must be met before a contract is legally binding. Buyers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector.
BACK-END DEBT RATIO - This refers to the borrower's debt ratio and is calculated using a borrower’s total of monthly payments due on credit obligations divided by the borrower’s gross monthly income. It’s expressed as a percentage.
CONVENTIONAL MORTGAGE - A mortgage usually amounting to 75% (Loan to Value ratio) or less of the value of the property and not underwritten by HUD, VA, or the FHA.
CREDIT SCORE - A numerical assessment assigned to the customer by credit bureaus that represents a measurement of the customer’s overall credit rating. The scores are weighted and range from approximately 365 to 840. Low scores reflect a “high risk”, while higher scores reflect a “lower risk”. Each credit bureau has its own credit score system.
CURRENT LIBOR INDEX - A interest rate indicator used in adjustable-rate mortgage loans. The LIBOR Index changes daily and is published in The Wall Street Journal.
DEBT - Owed amount
DEBT LOAD - The total amount of debt a customer currently owes.
DEBT RATIO - The percentage of the customers’ gross monthly income allocated to pay the monthly installments on their debt owing
DOWN PAYMENT - The amount of cash paid towards the purchase transaction by the buyer of a home. This is also known as the purchaser's initial "equity" in the property, but is used by a lender to judge the personal commitment to the property. For example, a lender considers that, if a buyer saved the down payment, or received it as a gift from a loved one, they will be far more committed to maintaining the property value and making the mortgage payments than if they acquired it for "no money down".
EARNEST MONEY DEPOSIT - A sum of money given in advance of a larger amount being expected in the future. The amount is dictated by how strong an offer the Buyer would like to present and given to show a good faith intention to complete the real estate transaction.
EQUITY - The difference between the value for which you could sell your property and what is owed against it. There is an important distinction from "down payment" to a lender. For example, if a buyer purchases a home without a down payment, he/ she can have "equity" if the value of the property quickly goes up.
ESCROW - Delivery of something of value by a grantor to a 3rd party for delivery to the grantee upon the happening of a contingent event. In some states, all instruments necessary to the sale are delivered to a 3rd party, with instructions as to their use.
FHA – A federal agency of the U.S. Department of Housing and Urban Development (HUD) that insures first mortgages, enabling private lenders to loan a very high percentage of the sales price, thereby allowing the buyer to purchase a home with a relatively small down payment amount. Aka Federal Housing Administration.
FIXED-RATE MORTGAGE - A mortgage having a rate of interest that remains the same for the life of the mortgage.
FRONT-END DEBT RATIO - This refers to the debt ratio calculation using only principal, interest, tax and insurance divided by gross monthly income. It’s expressed as a percentage.
FULL DISCLOSURE – A revelation of all the known facts that may affect the decision of a buyer or tenant.
GIFT LETTER - A letter to the lender from the donor stating a gift of money has been made to the buyer in order to purchase specific property. The relationship of the donor and donee is stated, as well as the amount of the gift.
GROSS MONTHLY INCOME (BORROWER) - The total amount the borrower earns per month, before any expenses are deducted.
HAZARD INSURANCE - Insurance protecting real property against loss caused by fire, some natural causes, vandalism, etc., depending upon the terms of the policy.
HOME INSPECTION - A thorough inspection by a professional that evaluates the structural and mechanical condition of a property. The Home Inspector works for the Buyer
HOMEOWNERS’ ASSOCIATION (HOA) - An association of people who own homes in a given area, formed for the purpose of improving or maintaining the quality of the area. Unpaid HOA dues can become a lien against a property.
HOMEOWNERS’ ASSOCIATION DUES - A monthly payment paid to the association for the maintenance and care of the common areas.
HUD-1 (or HUD-1a) – The final statement of the actual settlement costs of the loan and all other disbursements of a loan’s proceeds. The HUD-1 is a federal requirement under RESPA. Aka Settlement Statement.
LOAN APPLICATION (1003) - The form potential customers must complete to apply for a home loan. This application is commonly referred to as “the 1003” and is produced by the Federal government. Aka 1003.
LOAN-TO-VALUE RATIO - The percentage of the value of the property for which a mortgage is required. This ratio is important in determining whether or not default insurance is required, and if so, what the cost of that insurance will be (see "Mortgage Insurance") For example, if the property value is $200,000, the down payment available is $20,000 and the required mortgage is $180,000. The LTV is $180,000 / $200,000 or 90%. The loan amount in relationship to the appraised value or selling price expressed as a percentage . Aka LTV.
MARKET VALUE - The highest price 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.
MARKETABILITY - The probability of selling property at a specific time, price and terms.
MERGED CREDIT PROFILE (MPR) - A report combining credit information from as many as 3 different credit bureaus. Aka Tri-Merge.
MORTGAGE - A written instrument that creates a lien upon real estate as collateral for the payment of a specified debt. The borrower retains possession and use of the property.
MORTGAGE BANKER - A non-depository financial institution that specializes in originating and servicing loans. They generally sell their loans to investors, but may continue to service them.
MORTGAGE BROKER - A mortgage broker is one who arranges financing for a borrower by placing loans with lenders. Mortgage brokers are paid a fee by the borrower or the lender when the loan closes.
MORTGAGEE - The lender.
MORTGAGOR - The borrower.
MORTGAGE INSURANCE - If your down payment is less than 25% of the purchase price of the property, the lender is going to require mortgage insurance. The fee is calculated as a percentage of your mortgage.
ORIGINATION FEE - A 1-time setup fee charged by the lender. One of the lender’s charges to a borrower for handling a loan transaction.
OVERIMPROVEMENT - An improvement, excessive in cost or size, in relation to land value or value of surrounding improvements.
PITI - Principal, Interest, Taxes, Insurance. Otherwise known as your mortgage. This is a basic component of the ratios used to determine whether or not you qualify.
POINTS - Each point is an amount equal to 1% of the loan amount
PRINCIPAL - The amount of money owing on your mortgage, including accrued unpaid interest.
PRIVATE MORTGAGE INSURANCE (PMI) - Insurance against a loss by a lender normally required in the event the lender has lent more than 80% of the value of the property securing the loan. The premium is paid by the borrower and is included in the mortgage payment.
REAL ESTATE SETTLEMENT PROCEDURES ACT (RESPA) - A Federal law that requires lenders to disclose, in advance, an estimate of the costs associated with a loan and prohibits “kickbacks” for referring business to 3rd parties associated with a loan.
REGULATION Z (REG Z) - Federal Reserve regulation issued under the Truth-in-Lending Law, which requires a credit purchaser be advised in writing of all costs connected with the credit portion of the purchase.
SURVEY - The legal written and/ or mapped description of the location and dimensions of your land. The survey should also show the dimensions and placement on the lot of any structure, including additions such as pools, sheds and fences. An up-to-date survey is often required by a lender as part of the mortgage transaction.
TERMITE INSPECTION - A thorough inspection by a professional that evaluates the structural and mechanical condition of a property relevant to termite activity and determines whether there are active termites present or not. A termite inspection and subsequent certification is mandatory for FHA loans.
TITLE COMPANY - A company that specializes in examining and insuring titles, recording deeds to real estate, and conducting the Closing. Aka closing company or settlement company.
TITLE INSURANCE - Insurance against certain loss resulting from undisclosed defects of title to a specifically described parcel of real property.
TITLE SEARCH - A review of all recorded documents affecting a specific piece of property to determine the present condition of claims against the property.
TRUTH-IN-LENDING DISCLOSURE - This disclosure is required by law under the Federal Truth in Lending Act, which requires a full disclosure of a loan amount, finance charges and APR.
UNDERWRITING - The process of deciding whether or not to lend you money (or how much to lend you) based on all the information you have given the lender. Every lender has a different underwriting process and lending criteria which differ to some (usually small) extent from other lenders.
VA – A federal government agency that guarantees residential mortgages made to eligible veterans of the military services. The guarantee protects the lender against loss and thus encourages lenders to make mortgages to veterans. Aka Veteran’s Administration.
WITHHOLD - Portion of a loan held back by the lender until a condition is satisfied or met. Usually regarding the appraisal and repairs to be made to the property which secures the loan. Aka Holdback.
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