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Mortgage terms a to z

By Trulia | Published: Oct 14, 2009 | 10 Comments

The world of mortgage finance is fraught with jargon—some of it legalistic, some from the banking industry, some from Wall Street, and much of it from the offices of real estate brokers and appraisers. Here we attempt to demystify at least one term for every letter of the alphabet.

  1. Adjustable rate:

    An interest rate that that may change over the life of the loan, and the essence of an Adjustable Rate Mortgage or ARM. Some rates vary according to an established financial index such as COFI—the Cost of Funds Index—typically adding a set “margin” of percentage points.

    Appraisal:

    A report expressing the estimated value of a property based on a comparison of similar saleable properties. Also, the act of appraising a property.

    Assumable mortgage:

    A loan that can be transferred with a sold property to a new buyer.

  2. Balloon payment:

    A final lump sum payment, typically larger than previous payments, due at the end of balloon-type loan.

  3. Collateral:

    Property pledged as security for a debt, such as real estate that secures a mortgage. Collateral can be repossessed if the loan is not repaid.

    Conventional loan:

    A mortgage loan not insured or guaranteed by a federal government entity such as the Federal Housing Administration.

  4. Deed:

    A document that legally transfers ownership of property from one person to another. The deed is recorded on public record with the property description.

    Deed of trust:

    Used in some states, it serves the same purpose as a mortgage. It conveys “title” to a real estate property to a disinterested third (a trustee), who holds the title until the owner of the property has repaid the debt.

    Dude:

    A guy who purchases property and then records the deed.

  5. Escrow:

    A third-party financial instrument to hold funds on behalf of the other two parties in a transaction. In a real estate transaction, if there are conditions to the sale such as passing an inspection, the buyer and seller may agree to use an escrow account. Once the conditions are met, the escrow transfers the payment to the seller and title is transferred to the buyer.

  6. Fixed-rate mortgage:

    A mortgage with payments that remain the same throughout the life of the loan. The interest rate is fixed (unlike an adjustable rate).

  7. Good faith:

    Refers to settlement charges paid by a by the borrower at closing. A Good Faith Estimate of the charges is required by The Real Estate Settlement Procedures Act.

  8. HELOC:

    Home Equity Line of Credit—usually a second mortgage allowing the borrower to obtain cash against the equity of a home up to a predetermined amount.

    HUD:

    The U.S. Department of Housing and Urban Development, created to address public housing needs, improve and develop American communities, and enforce fair housing laws.

    HUD-1:

    Also known as the "settlement sheet," it itemizes all closing costs such as real estate commissions, loan fees, points, and escrow amounts.

  9. Interest-only mortgage:

    A mortgage in which, for period of time, the monthly mortgage payment consists of interest only. During that period, the loan balance remains unchanged.

  10. Jumbo loan:

    Also called a non-conforming loan, it is a loan above a certain dollar amount. In 2009, the amount for single-family homes in most states was $417,000. Above that limit, the loan is ineligible to be purchased by the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac).

  11. Lien:

    A legal claim against a property that must be paid off when the property is sold. A lien is created when you borrow money and use your home as collateral for the loan.

    Loan-to-value ratio:

    Expressed as a percentage, the amount of the loan divided by the value of a property. For example, if you have a $120,000 mortgage against a $200,000 home, the LTV is 60 percent.

  12. Mortgage:

    The instrument used to pledge title to a property as security for repayment of a debt.

  13. Owner-occupied:

    Used to describe a home occupied by a borrower or a member of the immediate family as a primary residence—as opposed to a rental property. The distinction significantly affects mortgage rates.

  14. PITI:

    Principal, Interest, Taxes, and Insurance—the four elements of a monthly mortgage payment.

    Points:

    Mortgage industry synonym for “one percent,” typically of the principal loan amount. To pay an origination fee of two points on a $100,000 loan, for example, you’d pay $2,000 to the lender.

  15. Quitclaim deed:

    An instrument transferring ownership of a property, typically with no guarantee of an unencumbered “clear” title.

  16. Realtor®:

    A real estate broker or associate with an active membership in the National Association of Realtors®. Not all brokers are Realtors®.

    Reverse mortgage:

    An instrument used by senior homeowners age 62 and older to convert the equity in their home into a monthly stream of income.

  17. Survey:

    A measurement description of land prepared by a registered land surveyor. Typically it shows the property’s dimensions and its location relative to known landmarks, plus the location and dimensions of any improvements.

  18. Title:

    The evidence to the right to, or ownership of, property.

    Title insurance:

    A policy that guarantees the accuracy of a title search and protects against errors. Most lenders require the buyer to purchase title insurance to protect the lender against loss in the event of a title defect. This charge is included in the closing costs.

  19. Underwriting:

    The process of analyzing a loan application to determine the amount of risk involved in making the loan; it includes a review of the potential borrower's credit history and a judgment of the property value.

  20. VA loan:

    A loan guaranteed by the U.S. Department of Veterans Affairs as a benefit to military veterans.

  21. Warranty deed:

    A legal document which guarantees that the seller is the true owner of the property and has the right to sell the property.

  22. Yield curve:

    A graph that compares long-term lending rates to short-term rates. Lenders “borrow short” at lower rates to “lend long” at higher rates. A “steep” curve spells bigger profits for lenders.

  23. Zero-down mortgage:

    A loan that finances 100 percent of the purchase price.

Comments

By Kenneth Creightney,  Mon Nov 30 2009, 21:07
Please visit my website http://www.cash4cashflows.com/kcreightney
You can post your notes yourself
By Javier Rodriguez,  Sun Jan 31 2010, 14:34
When I have my appointments with my customers I take the approach of using words and terms that are realtively general and self explanatory....down payment, interest rate, monthly payment). The advise I would give to customers applying for a mortgage is to not be afraid to ask the mortgage advisor to explain what a word or term means. Many times mortgage advisors use mortgage terms so much when dealing with banks and other mortgage advisors all day that they take it for granted and think a ordinary customer may know what they mean. Always ask questions if something is not clear. Feel free to go to my company website at http://www.leonmortgage.com.
By Fran Rokicki,  Sun Dec 19 2010, 15:39
A good attorney or accountant, would be the person that I would discuss a mortgage with, if you had concerns. Of course, you can always, Google the phrase and have the explanation at your fingertips!
By MARCO HAUMAN,  Fri Apr 1 2011, 12:47
I agree with Fran. Have an expert's advise, when entering into a contractual agreement in a world that has not created a clear rule of the scope of the technical terminology.
By Shawn Rosa,  Tue Dec 13 2011, 13:43
Good post - distribute to all first time buyers!
By Ebrokert,  Fri Apr 6 2012, 14:10
USDA Loan:
A loan guaranteed by the U.S. Department of Agriculture that benefits rural communities.

For more info on USDA loans check out http://www.usdaloans.net/
By Chris Jastrzebski,  Mon Nov 26 2012, 22:54
Reverse Mortgage:
A reverse mortgage is a federal loan, guaranteed by the FHA, available to seniors aged 62 or older and is used to release the home equity in the property as one lump sum or multiple payments. Learn more at http://www.reversemortgagela.com
By amarr3ddy,  Sun Apr 14 2013, 10:18
FHA Streamline:

A streamlined refinance for both 203(B) and 203(K) FHA insured loan programs. The rates are quite comparable to other refinance loans offered by conventional lenders. The process and qualifying guidelines are much easier to meet.

For further info: http://fharefinancerates.net/
By Usda Home Loans,  Sun May 19 2013, 22:32
You do not ought to do your IRRRL through the financial institution financial organization holding your VA Mortgage. you'll opt for any investor to subsume. in fact you'll desire a investor who is qualified to try to to VA Loans and can answer your emails or calls during a timely manner and takes your finance as seriously as they'd if they were engaged on their house loan.

For More Info- http://www.usdaloansdirect.com
By Kevin Richey,  Wed Dec 25 2013, 09:37
It is a good idea to get financing in order prior to looking for a home. This applies to any type of loan. In my opinion, unless a person knows how much home they can afford they are wasting their time looking. They may be looking at homes they can not afford. I have an article about this on my site if you would like to read more about it. http://ownsg.com/real-estate-101/new-home-buyers-information/

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