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Mortgage Terms

 


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.

For the kind of service that accomplishes what you want and need to accomplish - with experience and expertise backing it up - and for answers to today's real estate financing questions and opportunities, call today!

"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]

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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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