Mortgage Glossary
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203(b)
FHA program which provides mortgage insurance to protect lenders from default; used to finance the purchase of new or existing one- to four family housing; characterized by low down payment, flexible qualifying guidelines, limited fees, and a limit on maximum loan amount.
203(k)
This FHA mortgage insurance program enables homebuyers to finance both the purchase of a house and the cost of its rehabilitation through a single mortgage loan.
3/2 Down payment
Programs offered by some lenders under which a borrower who is able to secure a grant or gift equal to 2% of the down-payment will only have to provide a 3% down payment from their own funds. This can be a good deal for a cash-short borrower.
401(k)/403(b)
An employer-sponsored investment plan that allows individuals to set aside tax-deferred income for retirement or emergency purposes. Employers that are private corporations provide 401(k) plans. Employers that are not for profit organizations provide 403(b) plans.
401(k)/403(b) Loan
Some administrators of 401(k)/403(b) plans allow for loans against the monies you have accumulated in these plans. Loans against these plans are an acceptable source of down payment for most types of loans.
7/23 and 5/25 Mortgages
Balloon mortgages with a one time rate adjustment after seven years and five years respectively.
80/20 Mortgage Loan
80/20 mortgage loans are also called combination financing
or piggyback loans. They offer a convenient way to provide creative financing
in a purchase, refinance, home improvement, or debt consolidation transaction.
In a purchase transaction, a second trust is frequently used in combination
with a first trust to avoid paying Private Mortgage Insurance or PMI.
The first trust is always set at 80% of your purchase price which eliminates
the need for PMI. A second trust of 20% of the purchase price or home
value is then added.
Some advantages to consumers using this approach include:
Your entire payment is tax deductible mortgage insurance is not)
You may decide to pay off your second early reducing your total payment.
Abstract (of Title)
A written summary of the title history of a particular piece of real estate.
Acceleration Clause
A clause in your mortgage that allows the lender to demand payment of the outstanding loan balance for various reasons. The most common reasons for accelerating a loan are if the borrower defaults on the loan or transfers title to another individual without informing the lender.
Adjustable Rate Mortgage (ARM)
A mortgage in which the interest rate changes periodically, according to corresponding fluctuations in an index. All ARMs are tied to indexes. See the complete ARM Glossary.
Adjusted Basis
The cost of a property plus the value of any capital expenditures for improvements to the property minus any depreciation taken.
Affordability Analysis
An analysis of a buyer's ability to afford the purchase of a home. Reviews income, liabilities, and available funds, and considers the type of mortgage you plan to use, the area where you want to purchase a home, and the closing costs that are likely.
Alternative Documentation
Expedited and simpler documentation requirements designed to speed up the loan approval process. The documentation modifications can range from the modest, such as substituting payroll stubs for tax returns, to no documentation whatever. Borrowers looking for the latter should expect to pay at least 30%, and more likely 40% down.
Amenity
A feature of the home or property that serves as a benefit to the buyer but that is not necessary to its use; may be natural (like location, woods, water) or man-made (like a swimming pool or garden).
Amortization
The loan payment consists of a portion that will be applied to pay the accruing interest on a loan, with the remainder being applied to the principal. Over time, the interest portion decreases as the loan balance decreases, and the amount applied to principal increases so that the loan is paid off (amortized) in the specified time.
Amortization Schedule
A table which shows how much of each payment will be applied toward principal and how much toward interest over the life of the loan. It also shows the gradual decrease of the loan balance until it reaches zero.
Amortization Term
The amount of time required to amortize the mortgage loan. The amortization term is expressed as a number of months. For example, for a 30-year fixed-rate mortgage, the amortization term is 360.
Annual Membership
An amount that may be charged annually for having a line of credit available. Often charged regardless of whether or not you use the line. Also referred to as a "participation fee."
Annual Percentage Rate (APR)
This is not the note rate on your loan. It is a value created according to a government formula intended to reflect the true annual cost of borrowing, expressed as a percentage. As a guideline: deduct the closing costs from your loan amount, then using your actual loan payment, calculate what the interest rate would be on this amount instead of your actual loan amount. You will come up with a number close to the APR. Because you are using the same payment on a smaller amount, the APR is always higher than the actual note rate on your loan.
Application
The form used to apply for a mortgage loan, containing information about a borrower's income, savings, assets, debts, and more.
Application Fee
The fee charged by the lender to the borrower for applying for a loan. Payment of this fee does not guarantee that a loan will be approved. Some lenders may apply the cost of the application fee to certain closing costs.
Appraisal
A written justification of the price paid for a property, primarily based on an analysis of comparable sales of similar homes nearby.
Appraised Value
An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property.
Appraiser
An individual qualified by education, training, and experience to estimate the value of real property and personal property. Although some appraisers work directly for mortgage lenders, most are independent.
Appreciation
The increase in the value of a property due to changes in market conditions, inflation, or other causes.
Approval
Acceptance of the borrower's loan application. Approval means that the borrower meets the lender's qualification requirements and also its underwriting requirements. In some cases, especially where approval is provided quickly as with automated underwriting systems, the approval may be conditional on further verification of information provided by the borrower.
Assessed Value
The valuation placed on property by a public tax assessor for purposes of taxation.
Assessment
The placing of a value on property for the purpose of taxation.
Assessor
A public official who establishes the value of a property for taxation purposes.
Asset
Items of value owned by an individual. Assets that can be quickly converted into cash are considered "liquid assets." These include bank accounts, stocks, bonds, mutual funds, and so on. Other assets include real estate, personal property, and debts owed to an individual by others.
Assignment
When ownership of your mortgage is transferred from one company or individual to another, it is called an assignment.
Assumable Loan
These loans may be passed on from a seller of a home to the buyer. The buyer "assumes" all outstanding payments.
Assumable Mortgage
A mortgage that can be assumed by the buyer when a home is sold. Usually, the borrower must "qualify" in order to assume the loan.
Assumption
The term applied when a buyer assumes the seller's mortgage.
Assumption Fee
The fee paid to a lender (usually by the purchaser of real property) when an assumption takes place.
Assumption of Mortgage
The purchaser takes over mortgage payments for the balance of the loan, assuming primary liability. Unless specifically released by the lender, the seller remains secondarily liable.
Automated Underwriting
A computer-driven process for informing the loan applicant very quickly, sometimes within a few minutes, whether the applicant will be approved, rejected, or asked for additional information. The quick decision is based on information provided by the applicant, which is subject to later verification, and other information retrieved electronically including information about the borrower's credit history and the subject property.
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