Network Funding Mortgage - Real Estate Terms

Adjustable Rate:

An interest rate that changes periodically in relation to an index. Payments may increase or decrease accordingly. See Adjustable Rate Mortgage for a complete guide.

Adjustable Rate Mortgage (ARM):

A mortgage whose interest rate changes over time based on an index and a margin. Rate changes are made at prescribed times and within prescribed limits (cap) as defined in the mortgage contract.

Annual Percentage Rate (ARP):

The cost of credit on a yearly basis, expressed as a percentage. Required to be disclosed by the lender under the federal Truth im Lending Art, Regulation Z. Includes upfront cost paid to obtain the loan, and is, therefore, usually a higher amount than the interest rate stipulated in the mortgage note. Does not include title insurance, appraisal, or credit report.

Application Fee:

Fee that is paid to me (John Fox) at Network Funding Mortgage due upon application. My application fee is a good faith deposit, and is credited back when the loan is closed. If for any reason the transaction doesn't close a refund is due back less any third party charges in the process.

Application:

An initial statement of personal and financial information which is required to approve your loan.

Appraisal:

A fee charged by an appraiser to render an opinion of fair market value as of a specific date. Required by most lenders to obtain a loan.

Amortize:

Reduce a debt by regular payments of both principal and interest ("Fully amortizing" means payments scheduled to pay off the debt completely during a set term.)

Amortization schedule:

A timetable for payment of a mortgage showing the amount of each payment applied to interest and principal and the remaining balance.

Assessed Value:

The valuation placed upon a property by a public tax assessor for the purposes of taxation.

Balloon Payment:

A lump sum payment for the unpaid balance of the loan.

Cap:

A provision of an ARM limiting how much the intexest rate or mortgage payments may increase.

Cash reserve:

A requirement of many lenders that buyer have sufficient cash remaining after closing to make the first two mortgage payments.

Closing:

The occasion where a sale is finalized; the buyer signs the mortgage, and closing costs are paid. Also called "settlement".

Clear title:

A title that is free of liens and legal questions as to ownership of the property.

Conforming Loan:

Genexally, a mortgage loan under $265,000. Qualifing ratios and underwriting methods are standardized to a large degree.

Closing cost:

Expenses (over and above the price of the property) incurred by buyer and seller in transferring ownership of a property. Also called "settlement cost."

Credit report:

A report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness.

Condominium:

A form of property ownership in which the homeowner holds title to an individual dwelling unity plus an interest in common areas of a multi-unit project.

Convertible ARM:

A type of adjustable rate mortgage that allows the borrower to change fran an ARM to a fixed rate loan according to the term of the note and security instrument.

Ceiling:

The maximum allowable interest rate over the life of the loan of an adjustable rate mortgage.

Contract of Sale:

The agreement between the buyer and seller on the purchase price, terms, and conditions necessary to both parties to convey the title to the buyer.

Default:

Failure to make mortgage payments on a timly basis or to comply with other conditions of a mortgage instrument.

Deficiency Judgement:

A court order to pay the balance owed on a loan if the proceeds from the security are insufficient to pay the loan. Deficiency judgements are not allowed in all states.

Debt Service:

The total amdmt of credit card, auto, mortgage or other debt upon which you must pay.

Deed of trust:

The document used in some states instead of a mortgage; title is conveyed to a trustee ratber than to the borrower.

Delinquency:

A loan in which a payment is overdue but not yet in default.

Discount Points (or Points):

Discount points are paid to obtain a lower interest rate on your mortgage. The more points you pay, the lower the rate you may obtain. The longer you own your property and continue to pay on the loan, the more likely it will be that paying points will be advantagous for you. If you intend to hold the mortgage for only a short period of time, the cost you pay upfront may exceed the benefit you will receive from obtaining this lower rate. Each point is equal to one percent (1%) of the loan amount (i.e., two points on a $100,000. mortgage would equal to $2,000.

Document Preparation:

A fee cbarged by the lender for the preparation of documents necessary to fund the loan. This is a third party fee paid to an attorney.

Down paymnt:

The part of the purchase price that the buyer pays in cash and does not finance with a mortgage.

Due-on-sale clause:

A prevision in a mortgage allowing the lender to demand payment in full if the borrower sells the property securing the mortgage.

Deposit:

Cash paid to the seller when a formal sales contract is signed.

Earnest Money:

A deposit given to the seller to show that a prospective buyer is serious about buying the home.

Escrow:

The holding of documents and money by a neutral third party prior to closing.

Escrow Account:

The portion of a borrower's monthly payment which is held by the servicer. (lender will pay items such as property taxes, hazard insurance, and other items as they become due.

Escrow Officer:

Usually the employee of the title company who will be handling all aspects of the closing. The Escrow fee found on the Settlement Statement is the Escrow Officers charge (i.e.Title Company) for handling the transaction.

Effective Interest Rate:

The cost of credit on a yearly basis expressed as a percentage. Includes up-front cost paid to obtain the loan, and is, therefore, usually a higher amount than interest rate stipulated in the mortgage note. Useful in comparing loan programs with different rates and points.

Encumbrance:

A claim agairist a property by another party which usually affects the ability to transfer ownership of the property.

Equity:

The difference between the fair market value (appraised value) of your home and your outstanding mortgage balance.

First Mortgage:

A mortgage which is in first lein position, taking priorty over all other items, in the event of default.

Fixed-Rate:

An interest rate wbich is fixed for the life of the loan. Payments as well are fixed at one amount.

Flood Insurance:

Insurance required for properties in federally designated flood areas. These maps are constantly changing.

Good Faith Estimate:

A written estimate of closing costs which a lender must provide you within three days of you submitting an application.

Graduated Payment Mortgage (GPM):

A mortgage that starts with low monthly payments that increase at a predetermined rate. Be aware that most GFM's include a negative amortization clause.

Gross Income:

For qualifying purposes, the income of the borrower before taxes or expenses are deducted.

Hazard Insurance:

Insurance to protect the homeowner and the lender against physical damage to a property from fire, wind, vandalism and other bazards.

Homeowner's Insurance:

An insurance policy that combines liability coverage and hazard insurance.

HUD 1 Settlement Statement:

A form utilized at loan closing to itemize the costs associated with purchasing the home. Used universally by mandate of HUD, the Department of Housing and Urban Development.

HUD:

A Cabinet department responsible for the implementation and administration of government housing and urban development. The broad range of programs include community planning and development, low-rent public housing, mortgage insurance for residential mortgages (FHA), equal opportunity in housing, and research and technology.

Index:

(Also called "Rate Index") A regularly published rate, independent of the lending institution, that measures the prevailing cost of funds, and is used periodically with the margin to set ARM rates.

Interest Rate Cap:

A provision of an ARM limiting how much interest rates may increase in a given adjustment period.

Jumbo Loans:

A Standard set Minimum Loan Program amount. $275,000. and everything above. Usually a set of different products and pricing slightly higher.

Lien:

A legal claim against a property that must be paid when the property is sold.

Lifetime Cap:

A provision of an ARM that limits the total increase in interest rates over the life of the loan.

Loan Servicing:

The collection of mortgage payments from borrowers and the related responsibilities of a loan servicer, such as foreclosure, tax and insurance escrow, ect.

Loan-to-Value Ratio (LTV):

The total loan amount divided by the value of the house.

*loan amount $160,000.(divided by value) $200,000. = 80% LTV.

Lock-in:

A written agreement guaranteeing the home buyer a specified interest rate provided the loan is closed with that buyer within a set period of time. The lock-in also specifies the points to be paid at closing as well.

Margin:

An amount, usually a percentage, which is added to the index to determine the interest rate for adjustable rate mortgages.

Mortgage:

A legal document that pledges a property to the lender as security for payment of a debt, usually a loan on the house itself.

Mortgage Banker:

Originates mortgage loans, loaning you their funds and closing the loan in their name. Usually an employee of a bank, S&L.

Mortgage Broker:

As mortgage bankers, takes loan application and processes the necessary paperwork. Unlike a mortgage banker, brokers do not fund the loan with their own money, but work on behalf of several investors, such as mortgage bankers, S&L's, banks, or investment bankers. In my situation at Network Funding Mortgage, never at a higher consumer cost. And in most cases a discount. I'm a Mortgage Broker Licensed by the State of Texas, License #2084.

Mortgage Insurance Premium (MIP):

The fee paid by a borrower to FHA or a private insurer for mortgage insurance.

Mortgagee:

The lender in a mortgage agreement.

Mortgagor:

The borrower in a mortgage agreement.

Mortgage Note:

A legal document obligating a borrower to repay a loan at a stated interest rate during a specified period of time; The agreement is secured by a mortgage.

Negative Amortization:

Payment terms under which the borrower's monthly payments do not cover the interest due, as a result, the balance due is added to the loan balance making it (loan balance) rise- thus "negative amortization" occurs.

No Closing Cost Deal:

In refinance or purchases many programs are available with no closing cost. The rate is raised slightly higher to absorb the cost, the lender gives a rebate which is then applied to closing cost.

Origination Fee:

A fee paid to a lender for processing a loan application. It is stated as a percentage of the mortgage amount. Usually is equal to 1% or less of the loan amount.

PITI:

Stands for principal, interest, taxes and insurance...the components of a monthly mortgage payment.

Points:

A one-time charge by the lender to increase or decrease the stated interest rate on a lone. To decrease the interest rate, the borrower "pays" points, to increase the interest rate, the borrower receives points which can be used to reduce the closing cost. Each point is equal to one percent (1%) of the loan amount.

Prepayment Penalty:

A fee paid to the lending institution for paying a loan off prior to the scheduled maturity date. Most everything I sell has no Prepayment Penalty Clause. Very important to know on your new loan.

Prequalification:

The process of determining how much money a prospective home buyer will be eligible to borrower before a loan is applied for.

Prepaid Interest:

The amount of interest to cover the period from close of escrows until the beginning of the first payment.

Private Mortgage Insurance (PMI):

Insurance provided by a nongovernmental insurer that protects lenders against a loss if a borrower defaults. Usually required on all loans with an 'LTV' of more than 80%.

Qualifying Ratios:

Guidelines applied by lenders to determine how large a loan to grant the home buyer. The debt-to-income ratio is your current monthly debt on loans and credit cards divided by your gross income. The housing-to-income ratio is your new housing total payment divided by your gross income. Standard ratios 28/36 on many special products the ratios are much greater for eaiser qualifying. In todays market, many lenders have expanded the bottom ratio in some cases up to 50%.

Radon:

A radioactive gas found in some homes that in sufficient concentrations can cause health problems. Usually found in areas with basements. Depending on your area the lender may require a radon check in your home.

Recording Fees:

Fee charged by the County Clerk's office for recordation of Deed, Mortgage or Deed of Trust, and, at times, additional documents requiring public notice. This is a fee paid at closing for exact charges.

Real Estate Agent:

A person licensed to negotiate and transact the sale of real estate on behalf of either the borrower or seller, or in some cases both parties. Unless a Buyer Agent is employeed the buyer isn't fully represented.

Real Estate Settlement Procedures Act:

A customer protection law that requires lenders to give borrowers advanced notice of closing cost, including an "ARP".

Second Mortgage:

A mortgage that has rights that are subordinate to the rights of the first mortgage. As such, these loans are often less secure and may demand a slightly higher interest rate.

Secondary Mortgage Market:

The buying and selling of existing mortgages.

Settlement Sheet:

The computation of cost payable at closing which determines the seller's net proceeds and the buyer's net payment.

Survey:

A drawing showing the legal boundaries of the property, it's fixtures, and any easements or encroachments.

Tenancy by entirety:

A type of joint ownership of a property available only to a husband & wife.

Tenancy in common:

A type of joint ownership in a property without right of suvivorship.

Title:

The written evidence that proves the right of ownership of a specific piece of property.

Title Company:

A company that specializes in title searches and insuring title to property. Title companies are the third, neutral party in a transaction. This company does not work for any specific person in the transaction, in accordinance with state law. Usually, the seller picks, but negotiable in todays sales contract.

Title Insurance:

Protection for lenders or homeowners against financial loss resulting from legal defects in the title.

Title Search:

A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.

Transfer Tax:

State or local tax payable when title passes from one owner to another.

Truth-In-Lending:

A federal law that requires lenders to full disclose, in writing, the terms and conditions of a mortgage, including the ARP and other charges.

Tax Impound:

An amount for taxes required and collected by the lender/collection agent and held in the impound account to insure adequate funds are available to pay the taxes.

Tax Service:

A fee charged by the lender to insure that the tax bill is mailed to the lender for payment from the appropriate impound account. ($60-110).

Underwriting:

A fee charged by the lender to approve the loan.($100-350). The process of evaluating a loan application to determine the risk involved for the lender.

Variable Rate:

An interest rate that changes periodically in relationship to an index. Payments may increase or decrease accordingly.