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A
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ADJUSTABLE RATE MORTGAGE - A mortgage in which the interest
rate is adjusted periodically based
on a preselected index. Also sometimes known as the re negotiable rate
mortgage, the variable rate mortgage or the Canadian rollover mortgage
adjustment interval. On an adjustable rate mortgage, the time between
changes in the interest rate and/or monthly payment, typically one, three
or five years, depending on the index.
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AMORTIZATION - means
loan payment by equal periodic payment calculated to pay off the debt
at the end of a fixed period, including accrued interest on the outstanding
balance.
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ANNUAL PERCENTAGE RATE
- (A.P.R.) Is an interest rate reflecting the cost of a mortgage as
a yearly rate. This rate is likely to be higher than the stated note
rate or advertised rate on the mortgage, because it takes into account
point and other credit cost. the APR allows home buyers to compare different
types of mortgages based on the annual cost for each loan.
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APPRAISAL - An estimate of the value of property,
made by a qualified professional
called an "appraiser".
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ASSESSMENT
- A local tax levied against a property for a specific purpose, such as
a sewer or street lights.
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ASSUMPTION - The agreement
between buyer and seller where the buyer takes over the payments on an
existing mortgage from the seller. Assuming a loan can usually save the
buyer money since this is an existing mortgage debt, unlike a new mortgage
where closing cost and new, probably higher, market-rate interest charges
will apply.
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B
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BALLOON (PAYMENT) MORTGAGE -
Usually a short-term fixed-rate loan which
involves small payments for a certain period of time and one large payment
for the remaining amount of the principal at a time specified in the contract.
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BLANKET MORTGAGE - A mortgage covering at least
two pieces of real estate as security for the same mortgage.
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BORROWER (MORTGAGOR) -
One who applies for and receives a loan in the
form of a mortgage with the intention of repaying the loan in full.
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BROKER
- An individual
in the business of assisting in arranging funding or negotiating contracts
for a client buy who does not loan the money himself. Brokers usually
charge a fee or receive a commission for their services.
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BUY-DOWN
- When the lender and/or the home builder subsidized the mortgage by lowering
the interest rate during the first few years of the loan. While the payments
are initially low, they will increase when the subsidy expires.
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C
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CASH FLOW -
The amount of cash derived over a certain period of time from an income-producing
property. The cash flow should be large enough to pay the expenses of
the income producing property (mortgage payment, maintenance, utilities,
etc.).
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CAPS (INTEREST) -
Consumer safeguards which limit the amount the interest rate on an adjustable
rate mortgage may change per year and/or the life of the loan.
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CAPS (PAYMENT) -
Consumer safeguards which limit the amount monthly
payments on an adjustable rate mortgage may change. |
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CERTIFICATE OF ELIGIBILITY -
The document given to qualified veterans which
entitles them to VA guaranteed loans for homes, business, and mobile homes.
certificates of eligibility may be obtained by sending DD-214 (Separation
Paper) to the local VA office with VA form 1880 (request for Certificate
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CERTIFICATE OF REASONABLE VALUE (CRV)
- An appraisal issued by the Veterans Administration showing the property's
current market value. |
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CERTIFICATE OF VETERAN STATUS - The document given to veterans or reservists
who have served 90 days of continuous active duty (including training
time) It may be obtained by sending DD 214 to the local VA office with
form 26-8261a (Request for certificate of veteran status. This document
enables veterans to obtain lower down payments on certain FHA insured
loans).
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CLOSING
- The meeting between the buyer, seller and lender or their agents where
the property and funds legally change hands. Also called settlement. closing
costs usually include an origination fee, discount points, appraisal fee,
title search and insurance, survey, taxes, deed recording fee, credit
report charge and other costs assessed at settlement. The cost of closing is
usually about 3 percent to 6 percent of the mortgage amount.
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COMMITMENT
- A promise by a lender to make a loan on specific terms or conditions
to a borrower or builder. A promise by an investor to purchase mortgages
from a lender with specific terms or conditions. an agreement, often in
writing, between a lender and a borrower to loan money at a future date
subject to the completion of paperwork or compliance with stated conditions.
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CONSTRUCTION LOAN -
A short term interim loan to pay for the construction
of buildings or homes. These are usually designed to provide periodic
disbursements to the builder as he progresses.
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CONTRACT SALE OR DEED
- A contract between purchaser and a seller of
real estate to convey title after certain conditions have been met. It
is a form of installment sale.
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CONVENTIONAL LOAN - A mortgage not insured by FHA or guaranteed by the VA.
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CREDIT REPORT - A report documenting the credit history and current
status of a borrower's credit standing.
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D
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DEBT-TO-INCOME RATIO -
The ratio, expressed as a percentage, which results when a borrower's
monthly payment obligation on long-term debts is divided by his or her
gross monthly income. See housing expenses-to-income ratio.
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DEED OF TRUST
- In many states, this document is used in place of a mortgage to secure
the payment of a note.
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DEFAULT- Failure to meet legal obligations in a contract, specifically,
failure to make the monthly payments on a mortgage.
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DEFERRED INTEREST - When a mortgage is written with a monthly payment
that is less than required to satisfy the note rate, the unpaid interest
is deferred by adding it to the loan balance.
See negative amortization.
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DELINQUENCY
- Failure to make payments on time. this can lead to foreclosure.
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DEPARTMENT OF VETERANS AFFAIRS - (VA) An independent agency of the federal
government which guarantees long-term, low-or no-down payment mortgages
to eligible veterans.
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DISCOUNT POINT -
See points.
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DOWN PAYMENT
- Money paid to make up the difference between the
purchase price and the mortgage amount.
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DUE-ON-SALE-CLAUSE
- A provision in a mortgage or deed of trust that allows the lender to
demand immediate payment of the balance of the mortgage if the mortgage
holder sells the home.
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E
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EARNEST MONEY -
Money given by a buyer to a seller as part of the purchase
price to bind a transaction or assure payment.
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ENTITLEMENT
- The VA home loan benefit is called entitlement. Entitlement for a VA
guaranteed home loan. This is also known as eligibility.
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EQUAL CREDIT OPPORTUNITY ACT
- (ECOA) Is a federal law that requires
lenders and other creditors to make credit equally available without discrimination
based on race, color, religion, national origin, age, sex, marital status
or receipt of income from public assistance programs.\
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EQUITY
- The difference between the fair market value and current indebtedness,
also referred to as the owner's interest. The value an owner has in real
estate over and above the obligation against the property.
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ESCROW
- An account held by the lender into which the home buyer pays money for
tax or insurance payments. Also earnest deposits held pending loan closing.
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F
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FANNIE MAE -
See Federal National Mortgage Association.
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FARMERS HOME ADMINISTRATION (FMHA) - provides
financing to farmers and other qualified borrowers who are unable to obtain
loans elsewhere.
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FEDERAL HOME LOAN BANK BOARD (FHLBB) - The former name for the regulatory
and supervisory agency for federally chartered savings institutions. Agency
is now called the Office of Thrift Supervision.
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FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) - (Also called "Freddie
Mac") A quasi-governmental agency that purchases conventional mortgage
from insured depository institutions and HUD-approved mortgage bankers.
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FEDERAL HOUSING ADMINISTRATION (FHA) - A division of the Department
of Housing and Urban Development. Its main activity is the insuring of
residential mortgage loans made by private lenders. FHA also sets standards
for underwriting mortgages.
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FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)
- (Also know as "Fannie Mae") - A tax-paying corporation created by Congress that purchases and
sells conventional residential mortgages as well as those insured by FHA
or guaranteed by VA. This institution, which provides funds for one in
seven mortgages, makes mortgage money more available and more affordable.
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FHA LOAN - A loan insured by the Federal Housing Administration
open to all qualified home purchasers. While there are limits to the size
of FHA loans ($155,250 as of 1/1/96), they are generous enough to handle
moderately-priced homes almost anywhere in the country.
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FHA MORTGAGE INSURANCE -
Requires a fee (up to 2.25 percent of
the loan amount) paid at closing to insure the loan with FHA. In addition,
FHA mortgage insurance requires an annual fee of up to 0.5 percent of
the current loan amount, paid in monthly installments. The lower the down
payment, the more years the fee must be paid.
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FHLMC - The Federal Home
Loan Mortgage Corporation provides a secondary market for savings and
loans by purchasing their conventional loans. Also known as "Freddie Mac."
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FIRM COMMITMENT - A promise by FHA to insure a mortgage loam for
a specified property and borrower. A promise from a lender to make a mortgage
loan.
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FIXED RATE MORTGAGE -
The mortgage interest rate will remain the
same on these mortgages throughout the term of the mortgage for the original
borrower.
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FNMA - The Federal National Mortgage Association is a secondary mortgage institution
which is the largest single holder of home mortgages in the United States.
FNMA buys VA, FHA, and conventional mortgages from primary lenders. Also
known as "Fannie Mae."
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FORECLOSURE - A legal process by which
the lender or the seller forces a sale of a
mortgaged property because the borrower has not met the terms of the mortgage.
Also known as a repossession of property.
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FREDDIE MAC -
See Federal Home Loan Mortgage Corporation
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G
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GINNIE MAE -
See Government National Mortgage Association.
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GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
- (GNMA)
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GRADUATED PAYMENT MORTGAGE - (GPM) A type of flexible-payment mortgage
where the payments increase for a specified period of time and then level
off. This type of mortgage has negative amortization built into it.
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GUARANTY - A Promise by one party to pay a debt or perform an obligation contracted
by another if the original party fails to pay or perform according to
a contract.
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H
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HAZARD INSURANCE - A form of insurance in which the insurance company
protects the insured from specified losses, such as fire, windstorm and
the like.
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HOUSING EXPENSES-TO-INCOME RATIO
- The ratio, expressed as a percentage,
which results when a borrower's housing expenses are divided by his/her
gross monthly income. See debt-to-income ratio.
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I
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IMPOUND
- That portion of a borrower's monthly payments held by the lender or
servicer to pay for taxes, hazard insurance, mortgage insurance, lease
payments, and other items as they become due. Also known as reserves.
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INDEX
- A published interest rate against which lenders measure the difference
between the current interest rate on an adjustable rate mortgage and that
earned by other investments (such as one- three-, and five-year U.S. Treasury
security yields, the monthly average interest rate on loans closed by
savings and loan institutions, and the monthly average costs-of-funds
incurred by savings and loans), which is then used to adjust the interest
rate on an adjustable mortgage up or down.
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INTERIM FINANCING - A construction loam made during completion of a
building or a project. A permanent loan usually replaces this loan after
completion.
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INVESTOR - A money source for a lender.
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J
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JUMBO LOAN - A loan which is larger (more than $214,600 as of 1/1/97)
than the limits set by the Federal National Mortgage Association and the
Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be
funded by these two agencies, they usually carry a higher interest rate.
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L
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LIEN
- A claim upon a piece of property for the payment or satisfaction of
a debt or obligation.
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LOAN-TO-VALUE RATIO - The relationship between the amount of the mortgage
loan and the appraised value of the property expressed as a percentage.
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M
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MARGIN
- The amount a lender adds to the index on an adjustable rate mortgage
to establish the adjusted interest rate.
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MARKET VALUE - The highest price that 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.
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MIP -
(MORTGAGE INSURANCE PREMIUM) - Insurance from FHA to the lender against
incurring a loss on account of the borrower's default.
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MORTGAGE INSURANCE - Money paid to insure the mortgage when the down
payment is less than 20 percent.
See private mortgage insurance,
FHA mortgage insurance.
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MORTGAGEE
- The lender.
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MORTGAGOR - The borrower or homeowner.
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N
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NEGATIVE AMORTIZATION
- Occurs when your monthly payments are not large
enough to pay all the interest due on the loan. This unpaid interest is
added to the unpaid balance of the loan. the danger of negative amortization
is that the home buyer ends up owing more than the original amount of
the loan.
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NET EFFECTIVE INCOME - The borrower's gross income minus federal
income tax.
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NON ASSUMPTION CLAUSE - A statement in a mortgage contract forbidding
the assumption of the mortgage without the prior approval of the lender.
Note: The signed obligation to pay a debt, as a mortgage note. |
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O
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OFFICE OF THRIFT SUPERVISION (OTS) - The regulatory and supervisory
agency for federally chartered savings institutions. Formally known as
Federal Home Loan Bank Board Origination Fee The fee charged by a lender
to prepare loan documents, make credit checks, inspect and sometimes appraise
a property; usually computed as a percentage of the face value of the
loan.
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P
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PERMANENT LOAN - A long term mortgage, usually ten years or more. Also
called an "end loan." PITI Principal, Interest, Taxes and Insurance. Also
called monthly housing expense.
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PLEDGED ACCOUNT MORTGAGE (PAM) - Money is placed in a pledged savings
account and this fund plus earned interest is gradually used to reduce
mortgage payments.
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POINTS
(LOAN DISCOUNT POINTS) - Prepaid interest assessed at closing by the lender.
Each point is equal to 1 percent of the loan amount (e.g., two points
on a $100,000 mortgage would cost $2,000).
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POWER OF ATTORNEY - A legal document authorizing one person to act
on behalf of another.
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PREPAID EXPENSES - Necessary to create an escrow account or to adjust
the seller's existing escrow account. Can include taxes, hazard insurance,
private mortgage insurance and special assessments.
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PREPAYMENT
- A privilege in a mortgage permitting the borrower to make payments in
advance of their due date.
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PREPAYMENT PENALTY -
Money charged for an early repayment of debt. Prepayment
penalties are allowed in some form (but not necessarily imposed) in many
states.
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PRIMARY MORTGAGE MARKET - Lenders making mortgage loans directly to
borrower's such as savings and loan associations, commercial banks, and
mortgage companies. These lenders sometimes sell their mortgages into
the secondary mortgage markets such as to FNMA or GNMA, etc.
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PRINCIPAL
- The amount of debt, not counting interest, left on a loan.
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PRIVATE MORTGAGE INSURANCE (PMI) - In the event that you do not have
a 20 percent down payment, lenders will allow a smaller down payment -
as low as 5 percent in some cases. With the smaller down payment loans,
however, borrowers are usually required to carry private mortgage insurance.
Private mortgage insurance will usually require an initial premium payment
and may require an additional monthly fee depending on you loan's structure.
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R
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REALTOR - A real estate broker or an associate holding active membership in a
local real estate board affiliated with the National Association of Realtors.
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RECISION
- The cancellation of a contract. With respect to mortgage refinancing,
the law that gives the homeowner three days to cancel a contract in some
cases once it is signed if the transaction uses equity in the home as
security.
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RECORDING FEES - Money paid to the lender for recording a home sale with
the local authorities, thereby making it part of the public records.
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REFINANCE - Obtaining a new mortgage loan on a property already owned. Often to
replace existing loans on the property.
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RENEGOTIABLE RATE MORTGAGE - A loan in which the interest rate is adjusted
periodically. See adjustable rate mortgage. |
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RESPA
- Short for the Real Estate Settlement Procedures Act. RESPA is a federal
law that allows consumers to review information on known or estimated
settlement cost once after application and once prior to or at a settlement.
The law requires lenders to furnish the information after application
only.
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REVERSE
ANNUITY MORTGAGE (RAM) - A form of mortgage in which the lender
makes periodic payments to the borrower using the borrower's equity in
the home as Satisfaction of Mortgage: The document issued by the mortgagee
when the mortgage loam is paid in full. Also called a "release of mortgage."
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S
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SECOND MORTGAGE - A mortgage made subsequent to another mortgage and
subordinate to the first one.
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SECONDARY MORTGAGE MARKET - The place where primary mortgage lenders
sell the mortgages they make to obtain more funds to originate more new
loans. It provides liquidity for the lenders. security.\
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SERVICING
- All the steps and operations a lender performs to keep a loan in good
standing, such as collection of payments, payment of taxes, insurance,
property inspections and the like.
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SETTLEMENT/SETTLEMENT COSTS - See closing/closing costs
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SHARED APPRECIATION MORTGAGE (SAM) - A mortgage in which a borrower
receives a below-market interest rate in return for which the lender (or
another investor such as a family member or other partner) receives a
portion of the future appreciation in the value of the property. May also
apply to mortgage where the borrowers shares the monthly principal and
interest payments with another party in exchange for part of the appreciation.
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SIMPLE INTEREST - Interest which is computed only on the principle
balance.
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SURVEY
- A measurement of land, prepared by a registered land surveyor, showing
the location of the land with reference to know points, its dimensions,
and the location and dimensions of any buildings.
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SWEAT EQUITY - Equity created by a purchaser performing work on a
property being purchased.
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T
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TITLE
- A document that gives evidence of an individual's ownership of property.
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TITLE INSURANCE - A policy, usually issued by a title insurance company,
which insures a home buyer against errors in the title search. The cost
of the policy is usually a function of the value of the property, and
is often borne by the purchaser and/or seller. Policies are also available
to protect the lender's interests.
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TITLE SEARCH - An examination of municipal records to determine the
legal ownership of property. Usually is performed by a title company.
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TRUTH-IN-LENDING
- A federal law requiring disclosure of the Annual Percentage Rate to
home buyers shortly after they apply for the loan. Also known as Regulation
Z.
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TWO-STEP MORTGAGE - A mortgage in which the borrower receives a below-market
interest rate for a specified number of years (most often seven or 10),
and then receives a new interest rate adjusted (within certain limits)
to market conditions at that time. the lender sometimes has the option
to call the loan due with 30 days notice at the end of seven or 10 years.
also called "Super Seven" or "Premier" mortgage.
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U
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UNDERWRITING
- The decision whether to make a loan to a potential home buyer based
on credit, employment, assets, and other factors and the matching of this
risk to an appropriate rate and term or loan amount.
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USURY - Interest charged in excess of the legal rate established by law.
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V
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VA LOAN
- A long-term, low-or no-down payment loan guaranteed
by the Department of Veterans Affairs. Restricted to individuals qualified
by military service or other entitlements.
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VA MORTGAGE FUNDING FEE - A premium of up to 1-7/8 percent (depending
on the size of the down payment) paid on a VA-backed loan. On a $75,000
fixed-rate mortgage with no down payment, this would amount to $1,406
either paid at closing or added to the amount financed.
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VARIABLE RATE MORTGAGE (VRM) - See adjustable rate mortgage.
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VERIFICATION OF DEPOSIT (VOD) - A document signed by the borrower's financial
institution verifying the status and balance of his/her financial accounts.
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VERIFICATION OF EMPLOYMENT (VOE) - A document signed by the borrower's employer
verifying his/her position and salary.
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W
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WAREHOUSE FEE - Many mortgage firms must borrow funds on a short term
basis in order to originate loans which are to be sold later in the secondary
mortgage market (or to investors). When the prime rate of interest is
higher on short term loans than on mortgage loans, the mortgage firm has
an economic loss which is offset by charging a warehouse fee.
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WRAPAROUND MORTGAGE - Results when an existing assumable loan is combined
with a new loan, resulting in an interest rate somewhere between the old
rate and the current market rate. The payments are made to a second lender
or the previous homeowner, who then forwards the payments to the first
lender after taking the additional amount off the top.
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