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.
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. < align="left">
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.
JUNIOR MORTGAGE: A mortgage which is paid only after prior mortgages are settled.
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.
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.
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.
ORIGINATION FEES: The charges to the borrower to cover the costs of issuing the loan, such as, credit checks, appraisals and title expenses.
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.
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
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).
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.
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.
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.