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Buying a Home > Loan Programs
Glossary of Terms
A
Adjustable Rate Mortgage :
A loan agreement in which the lender may adjust the interest
rate from time to time to reflect changed conditions in
the mortgage money market. These changes can be based on
a variety of indexes.
Amortization : A reduction
of a debt (the principal) by installment payments.
APR : A standard calculation
used by lenders. It is designed to help borrowers compare
different loan options. For example, a loan with a lower
stated interest rate may be a bad value if its fees are
too high. Likewise, a loan with a higher stated rate with
very low fees could be an exceptional value. APR calculations
incorporate these fees into a single rate. You can then
compare loans with different fees, rates or different terms.
Appraisal : An estimate
or opinion of value of a subject property.
Association and Maintenance Fees
: Any association fees you are required to pay with the
ownership of this home. Also include any other maintenance
costs you expect to incur with the ownership of this home
that you are not paying while you continue to rent.
Assumption : The buyer
assumes the existing debt obligation and primary personal
liability to repay the loan.
Assumption Fee : A fee
lender's charge for processing new records for a buyer who
assumes an existing loan.
B
Balloon Payment : The
final payment on an amortized loan, which is significantly
larger than the regular payments.
C
Cal-Vet : A loan, which
is administered through the California Department of Veterans
Affairs.
Cash in Hand : Cash you
have for the down payment and all closing costs.
CC&R's : Covenants,
Conditions and Restrictions.
Closing Statement : A
written accounting of all funds handled by escrow, which
is issued to the buyer and seller at the close escrow.
Commission : An agent's
fee for negotiating a loan or real estate transaction.
Condominium : A subdivision
containing 5 or more units in a residential, commercial,
or industrial property.
Conforming Loan : A loan
written to FNMA/FHLMC specifications. The maximum conforming
loan limit is currently $275,000.
D
Deed of Trust : The deed,
which conveys legal title to a trustee to be held as security
for a loan on real property.
Discount Fee : To negotiate
a lower interest rate.
E
Escrow : A bonded neutral
depository, which acts as a dual agent for the buyer and
seller in a real estate transaction.
Equity : The value an
owner has in a property in excess of the debt against it.
F
FHA : The Federal Housing
Administration.
FHLMC (or Freddie Mac) :
The Federal Home Loan Mortgage Corporation. FHLMC has authority
to buy and sell conventional, FHA and VA loans
FNMA (or FannieMae) :
The Federal National Mortgage Association. FNMA buys existing
FHA, VA and Conventional loans.
Finance Charge : The
total dollar about that the credit will cost which would
include interest, loan fees, assumption fees, finder's fees,
premiums for mortgage insurance and points paid by buyer.
Fully Amortized : When
the principal is paid off entirely in scheduled installments.
G
Grant Deed : Document
used in California to transfer title to real property.
H
Hazard Insurance : Homeowners
insurance which covers the dwelling/property.
HOA (HomeOwners Association) :
An organized group of homeowners whose members help to regulate
and enforce the rules and standards of their respective
communities.
Home Insurance Rate :
Your homeowner's insurance rate. 0.5% for a $100,000 home
equals $500 per year for homeowner's insurance.
I
Impounds : A reserve
account to accumulate funds to insure payment of insurance
and county taxes on the property.
Index : Is a financial
indicator used for adjustable rate mortgages.
Installment Loan : A
loan providing for payment of the principal in two or more
payments at different stated times.
Interest Rate : Annual
interest rate for this mortgage.
J
Joint Tenancy : A type
of ownership of property by two or more people with the
right of survivorship.
L
Legal Description : A
formal method of describing a parcel of real estate that
is recognized by law.
Loan to Value : The percentage
of the market value established in determining the amount
of a new mortgage or trust deed loan.
Loan Origination Fee :
A "one-time" fee paid by the borrower to cover
the costs of setting up the loan file. This is a non-recurring
cost.
Loan Origination Percent :
The percent of your loan charged as a loan origination fee.
For example, a 1% fee on a $120,000 loan would cost $1,200.
M
Monthly Payment : Monthly
principal and interest payment (PI).
Monthly PI Payment :
Monthly principal and interest payment.
Monthly PMI Payment :
Monthly cost of Principal Mortgage Insurance (PMI). For
loans secured with less than 20% down, PMI is estimated
at 0.5% of your loan balance each year. Monthly PMI is calculated
by multiplying your starting loan balance by this percent
and dividing by 12. When the equity in your home exceeds
the percentage required for PMI, your PMI payment drops
to zero. Please note that this is only an estimate of your
actual PMI. The amount you may be required to pay may be
higher or lower than our estimate.
Mortgage : A contract
that makes a specific property the security for the payment
of a debt.
Mortgage Amount : Original
or expected balance for your mortgage.
N
Net House Payment : Your
house payment minus the value of the tax deduction and principal
payment.
Non-Conforming (or Jumbo) : This
is a term used for loans that exceed the FNMA/FHLMC loan
limits established by Congress.
O
Other to Include Fees
: Any other fees that should be included in the APR calculation.
These fees can vary by lender, but at a minimum usually
includes prepaid interest.
P
PITI : Principal, interest,
taxes and insurance.
Points : Total number
of "points" purchased to reduce your mortgage's interest
rate. Each "point" costs 1% of your loan amount.
Preliminary Title Insurance :
A report, which shows the owner of record and the present
condition of title prior to the issuance of the policy of
title insurance.
Prepaid Interest : Interest
paid to the lender to offset a delay in the start of loan
payments.
Prepayment Amount : Amount
that will be prepaid on your mortgage. This amount will
be applied to the mortgage principal balance, based on the
prepayment type.
Prepayment Type : The
frequency of prepayment. The options are: none, monthly,
yearly, and one-time payment.
Prepayment Penalty : When
the loan balance is paid prior to loan maturity, a penalty
will be charged based on a percentage of the original loan
amount.
Prime Rate : A reference
rate used to index the cost of money.
Private Mortgage Insurance (PMI)
: An insurance policy, which insures the lender
against loss caused by default of the borrower.
Property Tax Rate : Your
property tax rate. 1% for a $100,000 home equals $1,000
per year in property taxes.
Purchase Price : The
price of the home you wish to purchase. This is the actual
price you'll pay, not including any closing costs.
Q
Qualify Amount : Shown
as "Total monthly payment." This is the total amount you
qualify for per month. This amount is the total of "Principal,
Interest, Tax and Insurance" for your home.
R
Real Property Tax : Is
a specific lien the county charges on each parcel.
Record : To file for
record in the office of the county recorder.
Recurring Costs : Expenses
that the buyer can expect again, year after year, such as
property taxes, fire insurance and interest.
RESPA : The Real Estate
Settlement Procedures Act. A federal law to protect and
inform homebuyers regarding closing costs. This provides
disclosure of settlement costs at the origination of a loan
transaction.
S
Sales Contract : Contract
wherein a seller agrees to give possession and title of
real property upon full payment of purchase price.
Savings : Total amount
of interest you will save by prepaying your mortgage.
SFR : Single Family Residence
Start with Payments :
This is the payment number that your prepayments will begin
with. For a one time payment, this is the payment number
that the single prepayment will be included in. All prepayments
of principal are assumed to be received by your lender in
time to be included in the following month's interest calculation.
If you choose to prepay with a one-time payment for payment
number ZERO, the prepayment is assumed to happen before
the first payment of the loan.
T
Tax Savings : The value
of the tax deduction you receive on your mortgage's interest
and home's property taxes. For example, if you have $900
in interest and $100 property taxes per month, the value
of the tax deduction would be $280. (At a tax rate of 28%).
Terms in Year : The number
of years over which you will repay this loan. The most common
mortgage terms are 15 years and 30 years.
Title Insurance : An
insurance policy, which protects the insured against claims
arising from title imperfections.
Total Annual Income Debt Percentage
: Not shown. This is the percentage of your annual income
your financial institution allows you to use for debt installment
payments. This includes car payments, credit card payments,
other loan payments and your "Principal, Interest, Tax and
Insurance" payment for your home. The default rate is 36%.
Total Interest : Total
of all interest paid over the full term of the mortgage.
This total interest amount assumes that there are no prepayments
of principal.
Total Payments : Total
of all monthly payments over the full term of the mortgage.
This total payment amount assumes that there are no prepayments
of principal.
Truth-In-Lending : Also
known as the Federal Reserve Regulation Z, which requires
disclosure of certain loan terms to the borrower.
V
VA : U.S. Department
of Veteran's Affairs.
VA Loan : A loan guaranteed
by the U.S. Veterans Administration
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