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The mortgage industry is
continuously changing - it's a challenge just to keep up. New regulations,
government programs and terms are always being created. Therefore, the
first step in understanding the refinancing process is to learn the
language!
ADJUSTABLE RATE MORTGAGE (ARM) - A loan that allows the lender to
adjust the borrower's interest rate and payments at prescribed times and
sometimes with prescribed limits. Lower interest rates are customary.
AMORTIZED LOAN - A loan which is paid off in equal installments
during its term.
ANNUAL PERCENTAGE RATE - The actual interest rate the borrower pays
when all the costs of obtaining credit are included.
APPRAISAL - A report made by a qualified appraiser setting forth an
opinion of estimate of value. The term also refers to the process by which
the estimate is obtained.
APPRAISED VALUE - An estimation of property value made by a
qualified expert.
APPRECIATION - An increase in the value of a property. Appreciation
may be the result of an increased demand for property, any improvements or
additions made, improvements to the neighborhood, etc.
BALLOON MORTGAGE - A mortgage with periodic installments of
principal and interest that, at the end of such a period, do not fully
amortize the loan. The balance of the mortgage due is usually paid in a
lump sum at a specified date, usually at the end of the term of such
periodic installments.
CLOSING - The process that brings a loan into legal existence,
including the signing of all loan documents, their delivery to the
appropriate parties, and the disbursing of at least some of the loan
funds.
CLOSING COSTS - These are costs which are not controlled by the
lender, and are required for anyone purchasing a home regardless of loan
amount or lender. These include expenses such as attorney fees, title
insurance, survey, recording fees, appraisal, and termite inspection. All
of these services are provided by independent professionals who are not
affiliated with your lender. You can usually figure on your closing costs
being approximately one to one & a half percent of your loan amount.
COMPARABLES - Properties used in an appraisal report that are
substantially equivalent to the subject property.
CONVENTIONAL LOAN - A loan that may or may not require Private
Mortgage Insurance. (Any loan amount with 20% or more down payment will
not require PMI. Any loan amount with zero or 3% - 19% down payment will
require PMI.) This type of loan is subject to the qualifying guidelines
set forth by FNMA (Fannie Mae) or FHLMC (Freddy Mac).
CREDIT HISTORY - This is a "snap-shot" of your past and
present debt, current available credit, and a rating of your debt
repayment history. This is very important to a lender so that they can
know if you are a good credit risk.
CREDIT REPORT - A document completed by a credit-reporting agency
providing information about the buyer's credit cards, previous mortgage
history, bank loans and public records dealing with financial matters.
DEED - The formal written document that transfers the rights of
ownership and possession (that is, the title) from the seller to the
buyer.
DISCOUNT POINT - A unit of measurement used for various loan
charges; one point equals one percent of the amount of the loan.
DOWN PAYMENT - The difference between the loan amount and the sales
price of the home you are purchasing. This is measured in a percentage;
for example, a 3% down payment on a $70,000 home would be $2100.
EQUITY - The owner's interest, or the amount of cash the owner has,
realized, paid in or invested in real estate.
ESCROW PAYMENT - The portion of a borrower's monthly payment that
is set aside by the lender in an escrow account to pay the taxes, hazard
insurance, mortgage insurance, ground rents and other special items as
they come due.
FHA LOAN - A loan that is insured by the Federal Housing Authority.
This type of loan is geared toward providing moderate to low income
families mortgages, and is subject to the qualifying guidelines set forth
by the Federal Housing Authority.
FIXED-RATE MORTGAGE - The type of loan where the interest will not
change for the entire term of the loan.
GOOD FAITH ESTIMATE - Provides a breakdown of the estimated closing
charges.
HOME EQUITY LOAN - A loan under which a property owner uses his or
her residence as collateral and can then drew funds up to a prearranged
amount against the property.
INTEREST RATE - The percentage of interest charged on the amount of
money borrowed. This rate will vary slightly from lender to lender, and
will vary according to the type of mortgage chosen (30 year fixed, 3 year
adjustable, etc.). Now is an excellent time for mortgage interest rates,
as 1996 has ushered in consistently low rates that are in fact the lowest
in over 30 years!
LOAN-TO-VALUE RATIO (LTV) - The ratio, expressed as a percentage,
of the amount of a loan (numerator) to the value or selling price of the
property (denominator). Usually, the higher the percentage, the greater
the interest charged.
MORTGAGE BROKER - A mortgage broker is different from a single
lender/bank, in that they represent many different lenders in much the
same way a travel agent represents many different airlines. Most people
don't call a single airline and expect to get a complete picture of all
available flights and prices, and yet some people will call a single
lender/bank and end up choosing the wrong type of financing which can
literally cost them thousands of dollars. A mortgage broker's knowledge
and complete view of all financing options can enable people with low
income, self-employment, commissioned income, or even credit problems to
obtain excellent financing. A mortgage broker's compensation as your
consultant (much the same as a travel agent) is a finders fee paid by the
lender. These lenders always offer better rates and superior prepayment
privileges and often shave as much as a half percent point off the normal
market rate.
ORIGINATION FEE - The fee that the lender charges the borrower to
cover the cost of issuing a loan commitment. It pays for processing the
loan which includes collecting information about the borrower's
ceditworthiness and the property. The fee is usually computed as a
percentage of the mortgage loan. It usually does not include fees for
appraisals, credit reports, inspections and loan document preparation.
POINTS - An amount equal to one percent of the principal amount of
a note. Loan discount points are a one-time charge assessed at closing by
the lender to increase the yield on the mortgage loan to a competitive
position with other types of investments.
PRE-PAID COSTS - These are the costs that cover your escrow account
for the future payment of interest, property taxes and homeowners
insurance. Property taxes are set by the appropriate government taxing
authority and, unfortunately, are not negotiable. Depending on the
regulatory agency, (FHA, Fannie Mae, etc.) you will be required to pre-pay
anywhere from 2 to 11 months of property taxes at closing. Premiums for
homeowners insurance are set by the insurance company you select, and you
are required to pay your first year homeowners' insurance plus two
additional months at closing. You can usually figure on your pre-paid
costs being approximately one to one & a half percent of your loan
amount.
PRIVATE MORTGAGE INSURANCE - This insurance is required for most
loans that have a down payment of 20% or less. Private Mortgage Insurance
insures the lender in the event that you default on your mortgage payment
and the lender is forced to sell your property at a loss.
THDA FUNDING - The Tennessee Housing Development Agency is a state
subsidized program funded by proceeds of federal tax exempt bonds,
otherwise known as Mortgage Revenue Bonds. Recipients are first time
homebuyers with a limited income, looking for modest housing.
TITLE - The evidence of the right to or ownership in property. In
the case of real estate, the documentary evidence of ownership is the
title deed, which specifies in whom the legal state is vested and the
history of ownership and transfers. Title may be acquired through
purchase, inheritance, devise, gift or through the foreclosure of a
mortgage.
TITLE INSURANCE - An insurance policy which protects the insured
(purchaser or lender) against loss arising from defects in title.
UNDERWRITING - In mortgage lending, the process of approving or
denying a loan based on an evaluation of the property and the applicant's
creditworthiness and ability to repay the loan. The underwriter analyzes
the risks involved and selects an appropriate loan term and interest rate.
VA LOAN - A loan that is insured by the Department of Veteran's
Affairs. This type of loan is available only to veterans, and is subject
to the qualifying guidelines set forth by the Department of Veteran's
Affairs.
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