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HOME EQUITY – A type of loan, which is really a second mortgage, that allows the homeowner to borrow against the equity in their property. Fixed rate and adjustable rate line of credit programs are available. Fixed terms up to 20 years available. Maximum total loan to value (TLTV) up to 90% of appraised value. Minimum credit score 620.
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INDEX: A measurement of an established
interest rate used to establish the periodic rate adjustments
for adjustable-rate mortgages. There are a wide variety of
indexes used, including Treasury bill rates, cost of funds to
lenders, and a few others.
INSURANCE: The policy purchased by a borrower
which shall indemnify the lender in case of foreclosure of the
loan.
INTERIM FINANCING: A loan where the property
owner is unable or unwilling to arrange permanent financing.
Such financing is usually arranged for less than 3 years. <
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INVESTMENT – A type of mortgage used to purchase
a non-owner occupied property. One to four units allowed.
Downpayment requirements are 20% down on 1 and 2 units, and 25%
down on 3 and 4 units.
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JUNIOR MORTGAGE: A mortgage which is paid only
after prior mortgages are settled.
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LIEN: The charge against a property, thus
making it security for the payment of a loan, judgment,
mortgage, or taxes. It is also a type of encumbrance on a
property. A Personal Lien is against all the property owned by
the indebted person.
LIFE OF LOAN CAP: The limitation on the
maximum interest rate that can be charged on an adjustable-rate
mortgage during the term of the loan.
LOAN APPLICATION: Documentation required by a
lender before issuing a loan commitment.
LOAN COMMITMENT: An agreement to lend a
specified amount of money, at specified terms and
conditions.
LOAN-TO-VALUE RATIO (LTV): The proportion of
the amount borrowed compared to the cost or value of the
property purchased.
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MARGIN: The constant amount added to the value
of the index (percentage of interest) for the purpose of
adjusting the interest rate on an adjustable-rate mortgage.
MATURITY: The due date of a loan.
MORTGAGE: The written instrument that creates
a lien upon property as security for the payment of a specified
loan. All mortgages are valued according to the chronological
order in which they are put placed onto a property. The first
mortgage on a property is called a "first" in time, the next
mortgage is "second" in time, and the next one after that is
called "third" in time, and so on. This order is important
because in the event of foreclosure, all the money from a
foreclosure will go to pay off the lender of the first. Only if
there is any money left over will it go to pay off the holder
of the second and the third. The earlier the number, the more
superior the mortgage is considered. Usually, when a first
mortgage is paid off, the second takes the place of the first,
and the third becomes the second, and so on.
MORTGAGE CONSTANT: The percentage ratio
between the annual debt service and the loan principal. The
formula is expressed in this way: Annual Debt/Loan Principal =
mortgage constant.
MORTGAGE LIEN: The encumbrance on a property
used to secure a loan. The holder of the lien has a claim to
the property in case of default. The priority itself depends
upon the agreements and conditions of the loan.
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NEGATIVE AMORTIZATION: The increase in the
outstanding balance of a loan resulting from failure to make
the monthly installments on a loan.
NOTE: The written instrument that acknowledges
a loan and states a promise to pay.
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ORIGINATION FEES: The charges to the borrower
to cover the costs of issuing the loan, such as, credit checks,
appraisals and title expenses.
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PERSONAL PROPERTY: Any property that does not
go with the land. This includes cars, clothing, and furniture.
Some items are disputable, such as, appliances and floor and
wall coverings.
PITI: Principal, Interest, Taxes and
Insurance. These are the monthly payments required for most
home mortgage loans.
POINTS: A point is equal to one percentage
(1%) of a mortgage amount. Lenders use the term "basis points".
A basis point is one hundredth of a point. Thus, for example,
½% is 50 basis points.
PREPAYMENT PENALTY: Fees that must be paid by
the borrower for retiring (see Glossary) a loan early.
PRINCIPAL: The owner of a property. A broker's
or agent's client. The amount of money raised by a mortgage,
separate from the interest paid upon it.
PRINCIPAL AND INTEREST PAYMENT (P&I):
Monthly payment that includes the interest charges for the
period, plus an amount applied to amortization of the principal
balance.
PRIVATE MORTGAGE INSURANCE (PMI): Insurance on
a conventional loan, provided by a private insurance
company.
PURCHASE MONEY MORTGAGE: A mortgage given by a
buyer to a seller in partial payment of the purchase price of
property.
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REAL ESTATE SETTLEMENT PROCEDURES ACT (RESPA):
This act requires lenders to provide the buyer with specified
information regarding the cost of securing financing, along
with a break-down of actual costs.
REAL PROPERTY: Another term for real estate,
including the house and the adjoining land.
REFINANCE: The substitution of a new loan for
an old loan.
RETIRING (a debt): To fully pay off the
principal on a loan
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SAVINGS AND LOANS ASSOCIATIONS (S&Ls):
Institutions that specialize in giving, servicing, and holding
mortgage loans, primarily on owner-occupied, residential
property.
SECOND MORTGAGE: A subordinated lien, created
by a mortgage loan, over the amount of a first mortgage. Second
mortgages are often used to reduce the amount of a cash down
payment.
SOCIETY OF REAL ESTATE APPRAISERS (SREA): A
professional association to which most qualified appraisers
belong. It is best to use an SREA designated appraiser.
SUBJECT PROPERTY: The property being
appraised.
SUBJECT-TO MORTGAGE: Condition in which the
buyer takes title to a mortgaged property but is not personally
liable for the payment of the amount due. The buyer does have
to make payments in order to keep the property. In case of
default, only the buyer's equity in the property is lost.
SUBORDINATION CLAUSE: A clause that can be
inserted into a mortgage document to keep the mortgage
secondary to any other mortgages. (See Mortgage for more
details).
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TAX BRACKET: Marginal rate for income taxes.
It is the percentage of each additional dollar in income
required to be paid as income taxes.
TEASER RATE: Interest rate charged on an
adjustable-rate mortgage for the initial adjustment interval
that is usually much lower than the fully indexed rate. The
Teaser Rate is an incentive to encourage borrowers to accept an
adjustable-rate mortgage loan. Usually, the interest rate jumps
back to the indexed rate at the adjustment date.
TERM: The period of time during which
principal and interest payments must be made on a regular
basis.
TITLE: This is evidence that you actually have
the right of ownership of real property. It takes the form of a
deed that specifies the kind of title you have (whether joint,
common, or some other).
TITLE INSURANCE POLICY: An insurance policy
that covers the title to your home. It may list you or the
lender as a beneficiary. This policy is issued by a title
insurance company, or by an attorney (underwritten by an
insurance company). The policy states that if for any covered
reason your title is defective, the company will correct the
title or pay you up to a specified amount (usually the purchase
price or mortgage). Before issuing this policy, an insurance
company fully investigates the chain of title and notifies all
parties of any defect (such as liens). These must then be paid
off.
TRANSACTION COSTS: Costs associated with
buying and selling a home. These include: Appraisal Fee,
Brokerage Commission (paid by the seller), Legal Fees, Mortgage
Discount Points, Mortgage Origination Fees, Recording Fees,
Survey Fees, and Title Search Fees.
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USDA Guaranteed Rural Housing – A
program is to assist moderate income applicants through the
Guarantee of Loans, in the acquisition of modest single family
homes, in eligible rural areas. Allows zero downpayment and
fixed rates up to 30 years. Subject to acceptable credit
history and income limits. Call YES
Financial for details.
VA LOANS: Home loans guaranteed by the
Veterans Administration (VA) under the Servicemen's
Readjustment Act of 1944 and its later revisions. The VA
guarantees payment to the lender in case of default. The home
must be the buyer's principal place of residence. Minimum
credit score down to 580 - subject to credit requirements of
the program. Contact YES Financial for eligibility
requirements. Fixed rates up to 30 years.
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WRAP-AROUND OR WRAP FINANCING: This is a
combination of two mortgages. If the lender is the seller, then
he does not get all cash. Instead of giving the buyer/borrower
a simple second mortgage, the lender combines the balance due
on a previous, existing mortgage (usually a first) with an
additional loan. In this way, the wrap-around includes both the
second and the first mortgages. The borrower then makes
payments to the lender, who keeps part of the payment, and then
makes payments on the existing mortgage. The wrap is typically
used by a seller who either does not trust the buyer to make
payments on a first, or who wants to get a higher interest
rate.