NEA Home Financing Program: Glossary

A B C D E F G H I L M N O P R S T U

Adjustable Rate Mortgage (ARM)

• A mortgage in which the interest rate is adjusted periodically
  according to a pre-selected index.

Amortization

• Payment of a debt in regular, periodic installments of principal and interest as opposed to interest-only payments.

Annual Percentage Rate (APR)

• A term used in the Truth-in-Lending Act to represent the percentage relationship of the total finance charge to the amount of the loan. The APR reflects the cost of your mortgage loan as a yearly rate. It will be generally higher than the interest rate stated on the note because it includes, in addition to the interest rate, certain pre-paid finance charges such as loan discount points and fees and mortgage insurance, if applicable.

Application Fee

• A sum of money paid towards estimated initial mortgages processing expenses, such as appraisal and credit report.

Appraisal

• A report made by a qualified person setting forth an opinion or estimate of property value. This term also refers to the process by which this estimate is obtained.

Assessed Valuation

• The value that a taxing authority places on real or personal property for the purpose of taxation.

Assessment

• A charge against a property for purposes of taxation. This may take the form of a levy for a special purpose or a tax in which the property owner pays a share of the cost of community improvements according to the valuation of his or her property.

Borrower

• A person (also known as Mortgagor) who receives funds in the form of a loan with an obligation to repay principal with interest.

Buydown

• A payment to the lender from the seller, buyer, or third party, causing the lender to reduce the interest rate.

Cash to Close

• Liquid assets that are readily available to be used to pay the closing costs involved in a closing of a mortgage transaction.

Closing

• The consummation of a real estate transaction. The closing includes the delivery of a deed, financial adjustments, the signing of notes, and the disbursement of funds necessary to complete the sale and loan transaction.

Closing Costs

• Money paid by the borrower in connection with the closing of a mortgage loan. This generally involves an origination fee, discount points, appraisal, credit report, title insurance, attorney’s fees, survey, and pre-paid items, such as taxes and insurance escrow payments.

Closing Statement

• A form used at closing that gives an account of the funds received and paid at the closing, including the escrow deposits for taxes, hazard insurance and mortgage insurance.

Co-Borrower

• Additional borrower(s) whose income contributes to qualifying for a loan and whose name(s) appears on all documents with equal legal obligations.

Collateral

• Property pledged as security for a debt, such as the real estate pledged as security for a mortgage.

Commitment (Loan)

• A binding pledge made by the lender to the borrower to make a loan, usually at a stated interest rate within a given period of time for a given purpose, subject to the compliance of the borrower to stated conditions.

Commitment Fee (Loan)

• Any fee paid by a potential borrower to a lender for the lender’s promise to lend money at a specified rate and within a given time.

Conforming Loan

• Conventional home mortgages, first mortgages up to loan amounts mandated by Congressional directive, eligible for sale or delivery to either the Federal National Mortgage Association (FNMA) or the Federal Home Loan Mortgage Corporation (FHLMC).

Conventional Mortgage

• A mortgage not obtained under a government-insured program (such as FHA or VA).

Deed of Trust

• An instrument used in many states in place of mortgage. Property is transferred to a trustee by the borrower (trustor), in favor of the lender (beneficiary) and reconveyed upon payment in full.

Delinquency

• A loan payment that is overdue but within the period allowed before actual default is declared.

Depreciation

• A loss of value in real property brought about by age, physical deterioration, functional or economic obsolescence.

Discount Points

See Points.

Discounted Loan

• When the note rate on a loan is less than the market rate, the lender requires additional points to raise the yield on the loan to the market rate.

Earnest Money

• A portion of the down payment delivered with a purchase offer by the purchasor of real estate to the seller or an escrow agent as evidence of good faith. Also known as a deposit.

Equal Credit Opportunity Act (ECOA)

• A Federal law requiring lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, sex, age, marital status, receipt of income from public assistance programs or past exercising of rights under the Consumer Credit Protection Act.

Equity

• The ownership interest - that portion of a property’s value over and above the liens against it.

Escrow

• In general, a procedure whereby a disinterested third party handles legal documents and/or funds on behalf of a seller or buyer. An escrow account can be created by an attorney to handle the buyer’s deposit on the property, by the lender to cover repairs that will not be completed before the closing or by the lender to pay the property taxes and insurance premiums.

Fair Credit Reporting Act (FCRA)

• A federal law which requires consumer reporting agencies to exercise fairness, confidentiality and accuracy in preparing and disclosing credit information.

Federal Home Loan Mortgage Corporation - FHLMC (FREDDIE MAC)

• A corporation authorized by Congress. It purchases residential mortgages insured by the Federal Housing Administration or guaranteed by the Veterans Administration as well as conventional home mortgages. It sells participation certificates whose principal and interest are guaranteed by FHLMC.

Federal National Mortgage Association - FNMA (FANNIE MAE)

• A tax-paying corporation created by Congress to support the secondary mortgage market. It purchases and sells residential mortgages insured by the Federal Housing Administration or guaranteed by the Veterans Administration as well as conventional home mortgages.

First Mortgage

• A real estate loan that has priority over any subsequently recorded mortgages.

Fixed Interest Rate

• An interest rate which does not change during the loan term.

Foreclosure

• A legal procedure in which property mortgaged as security for a loan is sold to pay the defaulting borrower’s debt.

Gift Letter

• A written explanation signed by the individual giving the gift stating, “This is a bona fide gift and there is no obligation expressed or implied to repay this sum at any time.”

Gross Monthly Income

• Total monthly income earned before tax and other deductions.

Hazard Insurance

• A contract whereby an insurer, for a premium, undertakes to compensate the insured for loss on a specific property due to certain hazards (i.e., fire).

Insured Loans

• A loan insured by FHA or a private mortgage insurance company.

Interest

• Consideration in the form of money paid for the use of money. Also a right, share or title in property.

Interest Rate

• The percentage of an amount of money which is paid for its use for a specified time.

Investment Property

• Real estate owned with the intent of supplementing income and not intended for owner occupancy.

Lien

• A legal claim or attachment, against property as security for payment of an obligation.

Loan-To-Value Ratio (LTV)

• The ratio between the amount of a given mortgage loan and the lower of the sale price or appraised value.

Market Value

• The most probable price which a ready, willing and able buyer would pay and a willing seller will accept, both being fully informed under no pressure to act. The market value may be different from the price a property can actually be sold for at a given time (market price).

Maturity

• The termination or due date on which final payment on a loan must be paid in full.

Monthly Payment

• Usually, the amount of PITI (principal, interest, taxes, and insurance) paid each month on a mortgage loan.

Mortgage

• The conveyance of an interest in real property given as security for the payment of a loan.

Mortgages

• The lender in a mortgage transaction.

Mortgage Insurance Premium (MIP)

• The consideration paid by a borrower (mortgagor) for mortgage insurance - either to the FHA or to a private mortgage insurer.

Mortgage Note

• A written promise to pay a sum of money at a stated interest rate during specified term. the note contains a complete description of the conditions under which the loan is to be repaid and when it is due.

Non-Conforming Loan

• Conventional home mortgages not eligible for sale and delivery to either FNMA or FHLMC because of various reasons, including loan amount, loan characteristics or underwriting guidelines.

Occupancy

• The use of a property as a full time residence, either by the title holder (owner-occupancy) or by another party through a formal agreement (rental).

Origination Fee

• The amount charged for services performed by the company handling the initial application and processing of the loan.

Percentage Point

• One percent of the loan amount or a measure of the interest rate.

PITI (Principal, Interest, Taxes and Insurance)

• The most common components of a monthly mortgage payment.

Points

• A one-time charge by the lender to increase the yield of the loan; a point is 1% of the amount of the mortgage.

Preliminary Title Report

• The results of a title search by a title company prior to issuing a title binder or commitment to insure clear title.

Principal Balance

• The remaining balance due on a debt.

Private Mortgage Insurance

• Insurance written by a private company protecting the mortgage lender against loss resulting from a mortgage default.

Purchase Contract (Agreement/Offer)

• An agreement between a buyer and seller of real property, setting forth the price and terms of the sale. Also known as a sales contract.

Real Estate Settlement Procedures Act (RESPA)

• A federal law requiring lenders to provide home mortgage borrowers with information on known or estimated settlement costs. it also establishes procedures for escrow account balances.

Real Property

• Land and that which is affixed to it.

Refinancing

• The repayment of a debt from the proceeds of a new loan using the same property as security.

Second Home (Vacation Home, Weekend Home)

• A residence other than the borrower’s primary residence which the borrower intends to occupy for a portion of each year. Must be suitable for year-round occupancy.

Secondary Mortgage Market

• A market where existing mortgages are bought and sold. it contracts with the primary market where mortgages are originated.

Security

• In lending, the collateral given, deposited, or pledged to secure the payment of a debt.

Settlement Services

• Services provided by the lender at the closing of a loan.

Survey

• The measurement and description of land by a registered surveyor.

Title

• The legal evidence of ownership rights to real property.

Title Insurance Policy

• A contract in which an insurer, usually a title insurance company, agrees to pay the insured party a specific amount for any loss caused by defects of title on real estate in which the insured has an interest as purchased, mortgagee, or otherwise.

Title Search

• An examination of public records to disclose the past and current facts regarding the ownership of a given piece of real estate.

Truth-In-Lending Act

• A federal law requiring full disclosure of credit terms using a standard format. This is intended to facilitate comparisons between the lending terms of financial institutions.

Underwriting

• An analysis of the risk and setting of an appropriate rate and term for a mortgage on a given property for given borrowers.

A B C D E F G H I L M N O P R S T U