Adjustable Rate Mortgage (ARM)
A variable rate mortgage with an interest rate that adjusts
periodically.
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Annual
Cap
Annual maximum adjustment of your adjustable rate mortgage.
For example, if your annual cap is 2%, your mortgage
interest rate can only increase by a maximum of 2%.
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Appraisal
An estimate of a property’s value as of a given date,
determined by a qualified professional appraiser. The value
may be based on several factors including, recent sales of
comparable properties.
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Assumable
Mortgage
A type of financing arrangement in which the outstanding
mortgage and its terms can be transferred from the current
owner to a buyer. By assuming the previous owner's remaining
debt, the buyer can avoid having to obtain his or her own
mortgage.
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Conforming Loan
A loan that conforms to Federal National Mortgage
Association (FNMA) or Federal Home Loan Mortgage Corporation
(FHLMC) guidelines.
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Conventional Mortgage
A mortgage that is not insured or guaranteed by the federal
government.
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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 by a borrower with the lender of
funds to pay taxes and insurance when they become due.
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Escrow Collections
Funds set aside in an escrow account to pay the borrower’s
property taxes, mortgage insurance, and hazard insurance.
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Fixed
Rate Mortgage
A mortgage in which the interest rate does not change during
the entire term of the loan.
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"The key consideration for
people pondering an ARM is how long they intend to remain in
a house. Some popular ARMs carry a fixed rate during their
first three, five, seven or ten years, making them a good
choice for homeowners who plan to move in a relatively short
period. These so-called hybrid ARMs generally aren't a good
idea if you plan to stay put. Other ARMs adjust every year
or less, making borrowers more vulnerable to short-term
swings in interest rates." [Ruth Simon, The Wall Street
Journal Sunday] top of page
Good
Faith Estimate
An estimate of the fees due at closing for a mortgage loan
that must be provided by a lender to a borrower within three
days of the lender taking a borrower's loan application. A
good faith estimate is required by the Real Estate
Settlement Procedures Act (RESPA). While the form of the
estimate is standardized across the industry to allow
borrowers to compare costs between lenders, it is key to
note that it is only an estimate, and the true figure can
sometimes be different.
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Housing Expense Ratio
A ratio comparing housing expenses to before-tax income that
is used by lenders to qualify borrowers for a mortgage. The
housing expense measure includes mortgage principal,
interest payments, property taxes, hazard insurance,
mortgage insurance and association fees. The limit is
generally 28%Funds set aside in an escrow account to pay the borrower’s
property taxes, mortgage insurance, and hazard insurance.
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HUD-1
Form
A form used by a settlement or closing agent itemizing all
charges imposed on a borrower and seller in a real estate
transaction. This form gives a picture of the closing
transaction, and provides each party with a complete list of
incoming and outgoing funds. "Buyers" are referred to as
"borrowers" on this form even if no loan is involved. The
HUD-1 is also known as a "closing sheet" or "settlement
form". Funds set aside in an escrow account to pay the borrower’s
property taxes, mortgage insurance, and hazard insurance.
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Loan-To-Value Ratio
A lending risk assessment ratio that financial institutions
and others lenders examine before approving a mortgage.
Typically, assessments with high LTV ratios are generally
seen as higher risk and, therefore, if the mortgage is
accepted, the loan will generally cost the borrower more to
borrow or he or she will need to purchase mortgage
insurance. For example, a $100,000 home purchase with a
$20,000 down payment would require a mortgage of $80,000.
This mortgage would be considered to have an 80% LTV.
Funds set aside in an escrow account to pay the borrower’s
property taxes, mortgage insurance, and hazard insurance.
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PITI -
Principal, Interest, Taxes, Insurance
The components of a mortgage payment. Principal is the money
used to pay down the balance of the loan; interest is the
charge you pay to the lender for the privilege of borrowing
the money; taxes refer to the property taxes you pay as a
homeowner and insurance refers to both your property
insurance and your private mortgage insurance. Funds set aside in an escrow account to pay the borrower’s
property taxes, mortgage insurance, and hazard insurance.
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PMI
– Private Mortgage Insurance
A policy provided by private
mortgage insurers to protect lenders against loss if a
borrower defaults. Most lenders require PMI for loans with
loan-to-value (LTV) percentages in excess of 80%.
This allows the borrower to make a smaller down payment of
as low as 3%, instead of about 20%, and usually requires an
initial premium payment and possibly an additional monthly
fee depending on the loan's structure.
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Title
Insurance
Insurance that covers loss of an interest in a property due
to legal defects and that is required if the property has a
mortgage. Most title insurance is lender's title insurance,
which is paid for by the borrower but protects only the
lender.
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