2/1 buy
Down Mortgage
The 2/1 Buy Down Mortgage allows the borrower to qualify at below
market rates so they can borrow more. The initial starting
interest rate increases by 1% at the end of the first year and
adjusts again by another 1% at the end of the second year. It then
remains at a fixed interest rate for the remainder of the loan
term.
Borrowers often refinance at the end of the second year to obtain
the best long term rates, however even keeping the loan in place
for three full years or more will keep their average interest rate
in line with the original market conditions.
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Acceleration
Clause
Provision in a mortgage that allows the lender to demand payment
of the entire principal balance if a monthly payment is missed or
some other default occurs.
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Additional
Principal Payment
A way to reduce the remaining balance on the loan by paying more
than the scheduled principal amount due.
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Adjustable-Rate
Mortgage (ARM)
A mortgage with an interest rate that changes during the life of
the loan according to movements in an index rate. Sometimes called
AMLs (adjustable mortgage loans) or VRMs (variable-rate
mortgages).
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Adjusted
Basis
The cost of a property plus the value of any capital expenditures
for improvements to the property minus any depreciation taken.
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Adjustment
Date
The date that the interest rate changes on an adjustable-rate
mortgage (ARM).
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Adjustment
Period
The period elapsing between adjustment dates for an
adjustable-rate mortgage (ARM).
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Affordability
Analysis
An analysis of a buyers ability to afford the purchase of a home.
Reviews income, liabilities, and available funds, and considers
the type of mortgage you plan to use, the area where you want to
purchase a home, and the closing costs that are likely.
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Amortization
The gradual repayment of a mortgage loan, both principal and
interest, by installments.
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Amortization
Term
The length of time required to amortize the mortgage loan
expressed as a number of months. For example, 360 months is the
amortization term for a 30-year fixed-rate mortgage.
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Annual
Percentage Rate (APR)
The cost of credit, expressed as a yearly rate including interest
and mortgage insurance and loan origination fees. This allows the
buyer to compare loans, however APR should not be confused with
the actual note rate.
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Appraisal
A written analysis prepared by a qualified appraiser and
estimating the value of a property.
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Appraised
Value
An opinion of a property's fair market value, based on an
appraiser's knowledge, experience, and analysis of the property.
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Asset
Anything owned of monetary value including real property, personal
property, and enforceable claims against others (including bank
accounts, stocks, mutual funds, etc.).
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Assignment
The transfer of a mortgage from one person to another.
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Assumability
An assumable mortgage can be transferred from the seller to the
new buyer. Generally requires a credit review of the new borrower
and lenders may charge a fee for the assumption. If a mortgage
contains a due-on-sale clause, it may not be assumed by a new
buyer.
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Assumption
Fee
The fee paid to a lender (usually by the purchaser of real
property) when an assumption takes place.
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Balance
Sheet
A financial statement that shows assets, liabilities, and net
worth as of a specific date.
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Balloon
Mortgage
A mortgage with level monthly payments that amortizes over a
stated term but also requires that a lump sum payment be paid at
the end of an earlier specified term.
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Balloon
Payment
The final lump sum paid at the maturity date of a balloon
mortgage.
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Before-tax
Income
Income before taxes are deducted.
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Bi-weekly
Payment Mortgage
A plan to reduce the debt every two weeks (instead of the standard
monthly payment schedule). The 26 (or possibly 27) biweekly
payments are each equal to one-half of the monthly payment
required if the loan were a standard 30-year fixed-rate mortgage.
The result for the borrower is a substantial savings in interest.
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Bridge
Loan
A second trust that is collateralized by the borrower's present
home allowing the proceeds to be used to close on a new house
before the present home is sold. Also known as "swing
loan."
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Broker
An individual or company that brings borrowers and lenders
together for the purpose of loan origination.
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Buydown
When the
seller, builder or buyer pays an amount of money up front to the
lender to reduce monthly payments during the first few years of a
mortgage. Buydowns can occur in both fixed and adjustable rate
mortgages.
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Cap
Limits how much the interest rate or the monthly payment can
increase, either at each adjustment or during the life of the
mortgage. Payment caps don't limit the amount of interest the
lender is earning and may cause negative amortization.
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Certificate
of Eligibility
A document issued by the federal government certifying a
veteran’s eligibility for a Department of Veterans Affairs (VA)
mortgage.
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Certificate
of Reasonable Value (CRV)
A document issued by the Department of Veterans Affairs (VA) that
establishes the maximum value and loan amount for a VA mortgage.
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Change
Frequency
The frequency (in months) of payment and/or interest rate changes
in an adjustable-rate mortgage (ARM).
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Closing
A meeting held to finalize the sale of a property. The buyer signs
the mortgage documents and pays closing costs. Also called
"settlement."
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Closing
Costs
These are expenses - over and above the price of the property-
that are incurred by buyers and sellers when transferring
ownership of a property. Closing costs normally include an
origination fee, property taxes, charges for title insurance and
escrow costs, appraisal fees, etc. Closing costs will vary
according to the area country and the lenders used.
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Compound
Interest
Interest paid on the original principal balance and on the accrued
and unpaid interest.
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Consumer
Reporting Agency (or Bureau)
An organization that handles the preparation of reports used by
lenders to determine a potential borrower's credit history. The
agency gets data for these reports from a credit repository and
from other sources.
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Conversion
Clause
A provision in an ARM allowing the loan to be converted to a
fixed-rate at some point during the term. Usually conversion is
allowed at the end of the first adjustment period. The conversion
feature may cost extra.
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Credit
Report
A report detailing an individual's credit history that is prepared
by a credit bureau and used by a lender to determine a loan
applicant's creditworthiness.
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Credit
Risk Score
A credit risk score is a statistical summary of the
information contained in a consumer's credit report. The most well
known type of credit risk score is the Fair Isaac or FICO score.
This form of credit scoring is a mathematical summary calculation
that assigns numerical values to various pieces of information in
the credit report. The overall credit risk score is highly
relative in the credit underwriting process for a mortgage loan.
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Deed of
Trust
The document used in some states instead of a mortgage. Title is
conveyed to a trustee.
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Default
Failure to make mortgage payments on a timely basis or to comply
with other requirements of a mortgage.
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Delinquency
Failure to make mortgage payments on time.
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Deposit
This is a sum of money given to bind the sale of real estate, or a
sum of money given to ensure payment or an advance of funds in the
processing of a loan.
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Discount
In an ARM with an initial rate discount, the lender gives up a
number of percentage points in interest to reduce the rate and
lower the payments for part of the mortgage term (usually for one
year or less). After the discount period, the ARM rate usually
increases according to its index rate.
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Down
Payment
Part of the purchase price of a property that is paid in cash and
not financed with a mortgage.
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Effective
Gross Income
A borrowers normal annual income, including overtime that is
regular or guaranteed. Salary is usually the principal source, but
other income may qualify if it is significant and stable.
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Equity
The amount of financial interest in a property. Equity is the
difference between the fair market value of the property and the
amount still owed on the mortgage.
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Escrow
An item of value, money, or documents deposited with a third party
to be delivered upon the fulfillment of a condition. For example,
the deposit of funds or documents into an escrow account to be
disbursed upon the closing of a sale of real estate.
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Escrow
Disbursements
The use of escrow funds to pay real estate taxes, hazard
insurance, mortgage insurance, and other property expenses as they
become due.
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Escrow
Payment
The part of a mortgagor’s monthly payment that is held by the
servicer to pay for taxes, hazard insurance, mortgage insurance,
lease payments, and other items as they become due.
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Fannie
Mae
A congressionally chartered, shareholder-owned company that is the
nation's largest supplier of home mortgage funds.
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FHA Mortgage
A mortgage that is insured by the Federal Housing Administration
(FHA). Also known as a government mortgage.
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First
Mortgage
The primary lien against a property.
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Fixed
Installment
The monthly payment due on a mortgage loan including payment of
both principal and interest.
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Fixed-Rate
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