Adjustable Rate Mortgage: Is a mortgage that has an initial rate which adjusts periodically. The initial rate adjusts based upon the movement of an underlying index. There are number of different indexes (i.e.; LIBOR or London Interbank Offer Rate, 11th District cost of funds, T-Bill, etc.). On ARMs, a predetermined margin is added to the index to compute the interest rate.
Administration Fee: A American Nationwide Mortgage Funding fee that includes the following: Processing fee, underwriting fee, and document preparation fee. Amortization: – gradual reduction of a mortgage debt through periodic payments according to a schedule over a specified mortgage term.
Appraisal: A report that sets forth an estimate or opinion of fair market value: also refers to the process by which a value estimate is obtained.
Arms-Length Transaction: A transaction negotiated by unrelated parties, each acting in his/her own best interest.
Back-End Ratio: Total debt-to-income ratio. Total monthly obligations divided by gross monthly income. Monthly obligations include: mortgage payment, property taxes, insurance premiums, installment loans, and revolving debt.
Balloon Mortgage: A mortgage that has level monthly payments over a stated term but which provides for a lump-sum payment to be due at the end of an earlier specified time (i.e.; 5 & 7 year balloon mortgages, where the payment is fixed for 5 or 7 years then becomes due and payable at the end of the term).
Bankruptcy: A proceeding in a federal court in which a debtor (one who owes more than his/her assets) is relieved from the payment of debts.
Buy Down: An arrangement where a party pays a lender an up-front fee, or premium, to “buy down” the interest rate on a loan for a temporary time period, usually one to three years: usually expressed as two numbers. For example, 2/1 where the two represents a 2% rate buydown the first year and the one represents 1% buy down the second year, the third year the rate would revert to the “straight” note rate.
Cash-Out Refinance: A transaction that provides cash proceeds to the borrower in excess of 1% of the mortgage amount or provides cash that is used to pay-off consumer debt.
Cash Reserves: The amount of liquid assets the borrower has remaining after the mortgage loan transaction is completed.
Closing Costs: Money paid by borrowers and sellers to effect the closing of a loan: could include origination fees, discount fees, title insurance, survey fees, attorney’s fees, appraisal fees, credit report fees, and prepaid items such as taxes and insurance.
Combined Loan-to-Value (CLTV): The ratio of the total mortgage liens against the subject property to the lesser of either the appraised value or the sales price.
Compensating Factors: Borrower strengths that mitigate or compensate for a borrower’s weakness (i.e.; length of employment, considerable cash reserves, etc.).
Conforming Loans: loans that do not exceed the maximum loan amount and LTV limitations established by FNMA or FHLMC:
$424,100 1 unit
$543,000 2 units
$656,350 3 units
$815,650 4 units
Co-borrower: Is a person who is jointly and equally liable for repayment of the mortgage obligation. A co-borrower completes an application and submits all documentation and may not be on the security instrument.
Construction Perm: Construction-to-permanent financing involves the granting of a long term mortgage for the purpose of replacing interim construction financing that the borrower obtained to fund the construction of a new residence. The transaction may be considered as a purchase or a refinance.
Convertible ARM: A type of ARM that includes an option for the mortgagor to change the mortgage to a fixed rate mortgage at specified intervals during a predetermined time.
Cost of Funds Index: Or COFI is an index that is used to determine interest rate changes for certain ARMs. It represents the weighted average cost of interest paid on savings, checking, and advances of the 11th District members of the Federal Home Loan Bank of San Francisco.
Credit Bureau Repository: An organization that compiles credit history data directly from lenders and creditors to build in-file credit reports for individuals: the main repositories are TransUnion, Experian and Equifax.
Debt-to-Income Ratio: Is the ratio of the borrowers total monthly obligations, including housing expenses and recurring debts to monthly income. It is used to determine the borrower’s capacity to repay the mortgage and all other debts.
Deed of Trust: In certain states, a legal instrument that secures a note and perfects a security interest upon real property.
Discount Points: Are payable to the lender by the borrower or seller to decrease the interest rate. One point is equal to 1% of the loan amount.
Drive-by Appraisal: Is an estimate of value given that is based mainly on recent comparable sales
Escrow Account: Is held by the lender on behalf of the borrower for the payment of taxes, insurance or special assessments: also called an impound account.
Federal Housing Administration (FHA): Is a government mortgage insurance agency under direction of the Department of Housing and Urban Development (HUD) that insures lenders against loss from default of borrowers on residential properties.
Federal National Mortgage Association (FNMA) AKA Fannie Mae: Is a tax-paying corporation, created by Congress to support the secondary mortgage market.
Federal Home Loan Mortgage Corporation (FHLMC) AKA FreddieMac: Is a tax-paying corporation, created by Congress that purchases conventional mortgages in the secondary mortgage market
Fixed Rate Mortgage: A mortgage with one set interest rate for the entire term of the mortgage.
Foreclosure: The legal process by which a borrower is in default under a mortgage or deed of trust, loses his/her interest in the mortgaged property: this process usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt
Gift Funds: Funds donated on behalf of the borrower from certain eligible sources to assist the borrower in meeting closing costs. Generally eligible sources are: relatives, church, municipality, or a nonprofit organization
Hazard Insurance: Insurance coverage that compensates for physical damage by fire, wind or other natural disasters to the property.
HOA: Or homeowners association – is a nonprofit association, whose directors and officers are elected by the unit owners of a condominium or PUD project; primary responsibilities are to manage the common areas, expenses and services of the project.
Home Equity Line of Credit: Or HELOC, is a real estate loan, usually in a subordinate position, usually in a subordinate position, that allows a borrower to withdraw equity in real estate owned with specific limitations.
Housing Debt-to-Income Ratio: The sum of all monthly housing mortgage expenses such as PITI, homeowners dues, private mortgage insurance and any special assessments as a percentage of gross qualifying income
Impound Account:- see “Escrow Account”Impound Account: – see “Escrow Account”
Index: A published interest rate, such as the prime rate, LIBOR, T-Bill rate or the 11th District COF. Lenders use indexes to establish interest rates charged on mortgages or to compare investment returns. A predetermined margin is added to the index to compute the interest rate on the ARM.
Installment Debt: Borrowed money that is repaid in successive payments, usually at regular intervals; the monthly debt service can be excluded for D/I purposes if 10 or fewer payments remain to be made.
Investment Property: A non-owner occupied residential property used for the generation of income.
Junior Lien: Any lien that is subordinate or subsequent to the claims of a prior lien
Margin: The amount that is added to the index to create the mortgage interest rate for an ARM.
Mortgage: A note or other evidence of real property being pledged as the security for a debt; also referred to as a “Deed of Trust”, “Trust Deed”, or “Security Instrument”
Mortgage Insurance: Or MI is insurance that protects a mortgage lender against loss in the event of default by the borrower. This insurance allows lenders to make loans with lower down payments (LTVs above 80%, in most cases).
Negative Amortization: A gradual increase in the mortgage debt caused by unpaid interest that is added to the mortgage principal because the payment is not sufficient to cover the full amount of interest due.
Non-Conforming Loans: Those loans that exceed the conforming loan limits. Generally, loans above $214,600 (Jumbo).
Origination Fee: A fee charged to the borrower to reduce the interest rate; this fee is usually stated as a percentage; see “Discount Points”
Prepaid Items: Items that generally must be paid for at the time of closing and are generally recurring charges. Prepaid items may include the following:
First year premiums for hazard, flood and mortgage insurance.
Prorated interest.
Any special assessments which must be prepaid (i.e.; water/sewer connection, etc.).
Escrow account for any of the above.
Private Mortgage Insurance: Or PMI is insurance coverage that lenders require the borrower to obtain to protect the lender against loss in the event of a mortgage default for higher LTV mortgages.
PUD: Or Planned Unit Development is a real estate project in which each unit owner has title to a residential lot and a non-exclusive easement on the common areas of the project.
Purchase Money Mortgage: A mortgage used to purchase real property where title is conveyed from one individual to another.
Qualifying Ratios: The percentage of payment to income (P/I) and debt-to-income (D/I) that is used to measure the borrower’s capacity to repay the mortgage debt
Rate & Term Refinance: A refinance of any mortgage in which the new mortgage amount is limited to the unpaid principal balance of the existing first mortgage plus any closing costs.
Revolving Debt: A debt that does not have a fixed payment, although repayment is usually a percentage of the outstanding balance and made at regular intervals; most common are credit cards issued by banks and department stores.
Second Mortgage:- a mortgage that is in a second position behind the first mortgage; see “Junior Lien.”
Self Employed Borrower: A borrower whose income is derived from a business source in which he/she has an ownership interest of 25% or more.
Servicing: The administration of a loan that includes, but is not limited to, the collection of the monthly payments, and/or related fees, and disbursement of the collections to the investor who owns the loan. Upon selling the loan, servicing may either be retained or released. If retained, the selling lender will be paid a fee for managing the loan account. If servicing is released, the seller is not responsible for the loan administration.
Settlement Costs: See “Closing Costs.”
Single Family Residence: Or SFR is a structure that is intended to house one family.
Subordinate Financing: Secondary financing secured by a lien that is junior to the first mortgage or senior claim.
Supplemental Income: Income derived from sources such as interest/dividends, capital gains, and rental properties; these incomes require tax returns to support the qualifying income.
Sweat Equity: The exchange of labor or services in lieu of paying cash for the purpose of receiving credit towards the down payment: this generally is not an eligible source of down payment.
Tax Service Contract: The lender’s verification of payment of property taxes.
Temporary Buydown: A loan on which the interest rate has been “bought down” for a temporary period of time at the beginning of the loan by escrowing funds at the time of closing, which will be applied to the total monthly mortgage payment as each becomes due. See “Buy Down.”
Timeshare: A real estate development in which a buyer can purchase the exclusive right to occupy a unit for a specified period of time each year, not eligible for financing with American Nationwide Mortgage. Funding.
Title Insurance: A type of insurance that insures against defects in title that were not listed in title work or abstract.
Townhouse: An architectural type of construction; a row house on a small lot that has exterior limits common to other similar units; title to the unit and it’s lot is vested in the individual owner with a fractional interest in common areas.
Two-step ARM: An ARM that has a fixed interest rate for the first five or seven years of the mortgage term, then adjusts at the current market rate plus a predetermined margin, then remaining fixed at that rate for the remainder of the term.
Two-to-Four Family Properties: Consists of a structure that provides dwelling units for two, three or four families, although ownership is evidenced by a single deed.
Underwriter: An analyst who reviews the supportive documentation to determine the risk associated with the loan request. The person who gives final loan approval.
Veterans Administration: Or VA, is a government agency designed to encourage mortgage lenders to offer long term, low down payment financing to eligible veterans by partially guaranteeing the lender against loss from default.
Zoning: The creation of districts by local governments in which specific types of property uses are authorized (e.g., commercial, industrial, residential, high density, mixed use).
