Getting Pre-Approved for a Home Loan Is One of the Best Ways to Get a Leg Up on the Competition When Shopping for a Home
The real estate market is soaring because of low interest rates that have brought home buying to average Americans. All over the country, more renters are buying and homeowners are upgrading their properties. In this hot seller’s market, a pre-approval letter from your mortgage lender can help you secure a winning bid on the home of your dreams. A pre-approval involves much more than filling out a questionnaire. It is essentially going through the entire mortgage application process and having the lender give you an exact figure of how much money they are willing to lend you and at what interest rate. Having the letter is like having the cash in the bank. This shifts your focus from financing to getting the best real estate agent and finding the best home that you can afford. Pay attention to the terms of the letter before you start shopping for your home: What terms did your mortgage lender extend? A simple prequalification where they took down your information and made an informal guess of what type of loan you will receive is usually not very effective. This basic prequalification of course is subject to running a full credit check, full disclosure of your assets, and no drastic changes in your financial situation. Any lapsed payments on credit cards, student loans or a job change, can give your mortgage lender sufficient reasons to back out of the deal. Here’s how to get the maximum benefits out of the pre-approval process: 1. Start by using the resources on any major search engine. Look for “mortgage lenders,” “home loans,” or “pre-qualify for a mortgage”. 2. Fill out an application and make sure it goes through the underwriting process. If you’re not sure, call the lender using their customer service number and ask them what happens after all the information is submitted. 3. Find out if there are any fees involved for pulling your three bureau credit reports, and for the underwriting. Some lenders will charge the fees up front and others will wait until you are approved for the loan. 4. Fill out any extra paperwork such as proof of employments and statement of your resources. You have to prove that you enough cash on hand for a down payment, unless you are getting a no money down home loan. Also, you have to prove that the cash is yours and not a loan. If you want to a loan from your parents for example, try to get it six to eight months in advance and keep it in your savings account. Otherwise, it will count as a debt and could increase your debt to income ratio and have the opposite effect; showing that you don’t have any cash and disqualify you from a much bigger loan. 5. Get a pre-approval letter from the lender stating the exact amount of the loan that you will receive and the interest rate. 6. Pay attention to the expiration date on the letter. If you are in a market such as Southern California where competition is particularly fierce, make sure you have the most flexible expiration date that your lender will allow. Whether it’s 30 days or 60 days, get it stated in writing. If you lose out on your first or second choice for a home (typical), you won’t be stressed to settle for anything just to get a house. About The Author Syd Johnson is the Executive Editor of RapidLingo.com, Financial Solutions Website. You can see more articles at http://www.rapidlingo.com.
How Much House Can You Afford?
Your mortgage calculator says: probably a lot less than your mortgage banker says you can. Sometimes you can qualify for a loan but you should not accept it. Why? The monthly payments are more than you can afford. There are lots of laws in place at the state and federal level to protect customers against predatory lending, but there are still many customers around who will find that six months to a year into their loan they might have to give up their house. They cannot afford the upkeep, insurance and mortgage payments. Your mortgage banker is giving you an estimate of how much they think you can afford, typically based on raw numbers such as your credit score, income, and available cash. What is not included in this equation is the human factor: Your spending habits. One way to quickly look into your financial future is to use a mortgage calculator. Take an independent inventory of your financial situation before you approach your mortgage broker, then compare your list to what is offered by your mortgage lender. If a projected payment schedule feels uncomfortable perhaps you can rework the numbers. For example: They think that you are able to pay $3500 per month for your mortgage, but you would really feel more comfortable with $2500 per month. Maybe you can give a larger down payment and then make smaller monthly payments for the life of the loan. The idea is to confront your hidden fears about how you spend your money, and how you plan to spend it in the future. A Mortgage Calculator is a fast and easy way to get started. There are hundreds of mortgage calculators available to help you get a realistic picture of what your monthly bills will be after you buy a home. Even if your mortgage is the same as your rent or lower than your rent, you can end up with huge bills for heating, oil, water, insurance and incidentals such as water damage. Even if you have the best insurance policies in place, there is always the deductible plus items that are not covered by your insurance policy. Once you move into your new home, there is no apartment manager waiting to take you out of your misery, so crunch the numbers after you are approved. Don't let the excitement cloud your judgment, because it can came back haunt you. About The Author Syd Johnson is the Executive Editor of RapidLingo.com, Financial Solutions Website. You can see more articles at http://www.rapidlingo.com.
Most and least expensive cars to insure
Wondering which cars are going to cost you the most in premiums and which might help you get a better insurance deal? The Highway Loss Data Institute evaluates the cost to insurance companies from theft, collision and injury claims associated with various models. If you own a convertible Porsche Boxster, you'll likely do better on the theft portion of your coverage than if you own a four-door Dodge Stratus. Boxster owners face a lower than average chance of theft-related claims, while the odds with the Stratus are three times the norm. And even though the 2002 Lexus IS 300 gets a "best pick" rating from the Insurance Institute for Highway Safety for its performance on crash tests, previous years' models of the same car are some of the most costly in terms of collision claims. "One of the factors that comes into play there is the cost of repairing an expensive vehicle," says Russ Rader, with the Insurance Institute for Highway Safety. Read Full Story
How Creditors Measure Your Credit Rating
Creditors will measure your credit rating based on the following three main things. Capacity Collateral Character The three "C's" show creditors your: "Capacity" or income to pay the debt "Collateral" or assets to secure the obligation "Character" shows your compliance to repay the debt 1. Capacity The very first question is whether you have sufficient income to repay the debt. Creditors will definitely check to see if your income exceeds your expenses so that you ca comfortably pay the debt. A creditor will then want to know: Your income - from all sources Your fixed expenses Your other debts The amount remaining from your total net income, after deducting your fixed monthly expenses and other debts, is your capacity. If your net income is $3,000 a month and your total living expenses is $2,500, then your credit capacity is an amount that requires no more than $500 in monthly payments. If you now pay $400 a month for other credit obligations, then your remaining capacity is a $100 a month, and a creditor should extend you that amount of credit. There are three techniques that will allow you to maximize your income: Increase your income Decrease your expenses (easier to do than the first one) Reduce your other debts 2. Collateral A lender or creditor can be secured or unsecured. Secured lenders hold a lien against specific assets, such as real estate, an automobile, or boat. If you fail to pay, the secured lender can sell the pledged asset to recover debt owed. Secured lenders seldom loan more than the auction value of the collateral. Secured credit, is an almost guaranteed way to rebuild your credit. Even with poor credit, a lender may advance your credit if you ca secure the credit with a lien against some valuable asset. Many creditors extend credit entirely on the strength of the pledged assets. Other credit considerations are either ignored or carry comparatively little weight in the credit decision. What can you use as a collateral to secure your debts and rebuild your credit? You may be appreciably wealthier than you think. Add the value of your various assets (property that you own) and subtract any existing mortgages or lies against those assets. The difference is your equity or net worth in the asset. This is what you have available to secure a loan. Do not overlook any asset: Home Investment real estate Stocks, bonds, mutual funds, Automobile Boats, planes, recreational vehicles Notes and mortgages due you Art, jewelry, antiques Pensions, IRAs, and Keoghs Royalty income Income from trusts You may have other assets to pledge. The point is that collateral gives you a borrowing power approximately equal to your equity in your assets. Regardless of your credit history, if you have collateral worth a solid $100,000, you should be able to borrow close to that amount. 3. Character Creditors next consider your character. How important this is depends upon the type of credit, and who your creditors are. Asset based lenders rely chiefly on collateral, and they are less concerned with your character than are unsecured creditors who can only rely on your prior reliability for honoring your obligations. When creditors check your character, they basically look at how you satisfied your past obligations. Meaning they want to know: How many credit defaults have you had? What was the reason for the defaults? How recent are they? Do you own your own home? If you rent, for how long have you rented the same apartment or house? Do you have a checking account? Do you have a savings account with regular deposits? Do you have a payroll savings plan at work? Do you have a telephone in your own name? Do you have a criminal record? Have you filed bankruptcy? Positive answers to these nine questions will often offset an otherwise negative credit report. Basically your credit character boils down to your credit history in the past. In the eyes of creditors, if your past credit character is good, there is no reason to believe why your future won't look promising. About The Author © Copyright. http://www.deleteuglycredit.com
ARMs Gain Clout
When Mike Ansani bought a $780,000 house in Chicago's Lakeview neighborhood, he chose not to lock in a conventional mortgage, even though its rate was a low 5.5 percent. Instead, he picked a 5-year adjustable-rate mortgage at 4.5 percent, and estimates he saves about $400 to $500 a month. Read Full Story
Mortgage Consumer Bill of Rights
This bill of rights was laid out by Franklin Raines, president of Fannie Mae on January 15, 2000. The Mortgage Consumer Bill of Rights is a pledge fof $2 trillion over 10 years to help consumers gain access to home ownership. It also includes an “Open Book” approach to underwriting where customers can see all of the factors that go into evaluating their creditworthiness and the process of applying for a home loan. One of the most ambitious parts of this plan is to bring more technology to the Mortgage Industry and reduce their paperwork by over 17%. Less reliance on paper, equals more automated evaluations and quicker loan approvals. This means customers who look for lenders and apply online are definitely at the forefront of the Mortgage industry. The basic tenets of the Mortgage Consumer Bill of Rights All Americans Have A Right to Access to Mortgage Credit Fannie Mae hopes to decrease the gap in home ownership between whites and blacks, low income earners and middle class families, and other underserved populations. There are more procedures and practices in place to prevent predatory lending, fraud and discrimination. You can be assured that you can usually find a lender that will approve and finance your loan even if you are not extremely wealthy or you don’t have perfect credit. Consumers have a right to the lowest-cost mortgage for which they qualify. Fannie Mae is chartered as a private company to hold down the costs of mortgages. Their strategy is to offer mortgage products that allow lenders to qualify more home buyers for low cost conventional financing. There are mortgage programs to allow lenders to serve the needs of first time home buyers, women, minorities, rural and inner city residents, singles and more. One of their most popular packages is the Timely Rewards Program. If you have less than ideal credit, you can qualify for mortgage rates that are up to 2% lower than the sub-prime market, and the rate can be reduced another 1% if you make all of your loan payments on time for the first 24 months. Homeowners have a right to know the true cost of a mortgage Customers have a right know the true cost of their mortgage. There are many components that make up a mortgage package, each with its own variable cost. Make sure that you know what is in your package and the exact dollar amounts before you close on your home loan. Some of the items are down payments, interest rates, points, closing fee, appraisal costs and insurance payment for the first month. To encourage this open practice nationwide, Fannie Mae has created a True Cost Calculator. Customers can enter their information and see what the true total cost will be for their mortgage, and their options for saving some money. Homeowners have right to be free of regulatory burden You have the right to get new homes and mortgage financing without too much intrusion from the government as far as regulatory fees, paperwork and time are concerned. This does not free your or your builder from abiding by local laws and zoning ordinances. Instead, this type interference will be reduced and not hamper your ability to qualify for a mortgage, or leave you open to huge fees when you try to close. Homeowners have a right to know about mortgage decisions There will be more transparency among lenders and brokers so that customers know what goes into a mortgage package, who makes the decisions, when are decisions being made, and what you can do if the outcome is not what you intended, or what you would like to happen. It should always be clear, or feel free to ask your Broker, Banker or Lender: what else can you do to make the application process smooth and efficient? And what are your rights as far as making changes later on and if there are any fees attached to changing your mind. Every banker or lender in the industry should be familiar with your Mortgage Bill of Rights. You can find out more at the Fannie Mae Website. About The Author Syd Johnson is the Executive Editor of RapidLingo.com, the Mortgage and Real Estate Financing solutions site. You can see more articles at http://www.rapidlingo.com.
Mortgage Glossary
Glossary of Terms
Select the first letter of the word from the list below to jump to the appropriate section of the glossary.
A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
- A -
- abstract of title
A historical summary provided by a title insurance company of
all records affecting the title to a property.
- acceleration clause
- A clause that allows a lender to declare the entire outstanding balance of a loan
immediately due and payable should a borrower violate specific loan provisions
or default on the loan.
- adjustable rate mortgage
(ARM)
- A variable or flexible rate mortgage with an interest rate that varies
according to the financial index it is based upon. To limit the borrower's risk,
the ARM may have a payment or rate cap. See also: cap.
- amenities
- Features of your home that fit your preferences and can increase the value
of your property. Some examples include the number of bedrooms, bathrooms, or
vicinity to public transportation.
- amortization
- The liquidation of a debt by regular, usually monthly, installments of
principal and interest. An amortization schedule is a table showing the payment
amount, interest, principal and unpaid balance for the entire term of the loan.
- annual cap
- See: cap.
- annual percentage rate
(A.P.R.)
- The actual interest rate, taking into account points and other finance
charges, for the projected life of a mortgage. Disclosure of APR is required by
the Truth-in-Lending Law and allows borrowers to compare the actual costs of
different mortgage loans.
- appraisal
- An estimate of a property's value as of a given date, determined by a
qualified professional appraiser. The value may be based on replacement cost,
the sales of comparable properties or the property's income-producing ability.
- appreciation
- A property's increase in value due to inflation or economic factors.
- A.P.R.
- See: annual percentage rate.
- ARM
- See:
adjustable rate mortgage.
- assessment
- Charges levied against a property for tax purposes or to pay for
municipal or association improvements such as curbs, sewers, or grounds
maintenance.
- assignment
- The transfer of a contract or a right to buy property at given rates and
terms from a mortgagee to another person.
- assumption
- An agreement between a buyer and a seller, requiring lender approval, where
the buyer takes over the payments for a mortgage and accepts the liability.
Assuming a loan can be advantageous for a buyer because there are no closing
costs and the loan's interest rate may be lower than current market rates.
Depending on what is in the mortgage or deed of trust, the lender may raise the
interest rate, require the buyer to qualify for the mortgage, or not permit the
buyer to assume the loan at all.
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- balloon mortgage
- Mortgage with a final lump sum payment that is greater than preceding
payments and pays the loan in full.
- biweekly mortgage
- A loan requiring payments of principal and interest at two-week intervals.
This type of loan amortizes much faster than monthly payment loans. The payment
for a biweekly mortgage is half what a monthly payment would be.
- bond
- A certificate serving as security for payment of a debt. Bonds backed by
mortgage loans are pooled together and sold in the
secondary market.
- bridge loan
- A loan to "bridge" the gap between the termination of one mortgage and the
beginning of another, such as when a borrower purchases a new home before
receiving cash proceeds from the sale of a prior home. Also known as a swing
loan.
- broker
- An intermediary between the borrower and the lender. The broker may
represent several lending sources and charges a fee or commission for services.
- buy-down
- A type of mortgage which requires the buyer to pay additional discount points or make a substantial down
payment in return for a below market interest rate. Another form of a buy-down is one in which the seller offers 3-2-1
interest payment plans or pays closing costs such as the origination fee. During
times of high interest rates buy-downs may induce buyers to purchase property
they might otherwise not have purchased.
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- cap
- A limit in how much an adjustable rate mortgage's monthly payment or
interest rate can increase. A cap is meant to protect the borrower from large
increases and may be a payment cap, an interest cap, a life-of-loan cap or an
annual cap. A payment cap is a limit on the monthly payment. An
interest cap is a limit on the amount of the interest rate. A
life-of-loan cap restricts the amount the interest rate can
increase over the entire term of the loan. An annual cap limits
the amount the interest rate can increase over a twelve-month period.
- certificate of
reasonable value (CRV)
- A Veterans Administration appraisal that establishes the maximum VA
mortgage loan amount for a specified property.
- certificate of title
- A document rendering an opinion on the status of a property's title based on
public records.
- closed-end mortgage
- A mortgage principal amount that is fixed and cannot be increased during the
life of the loan. See also:
open-end mortgage.
- closing costs
- Costs payable by both seller and buyer at the time of settlement, when the
purchase of a property is finalized. These costs can be up to ten percent of the
mortgage amount and usually include but are not limited to the following:
Fees Paid to the Lender
|
Fees Paid in Advance |
Other Charges |
Origination fee
Discount points
Credit report
fee
Appraisal fee
Assumption fee if loan
is assumed
|
Interest
from the closing date to the beginning of the 1st
payment
Hazard insurance
premium
Mortgage insurance premium
|
Title search and title insurance
Sales
commissions
Legal and recording
fees
Inspection and survey fees
Property
taxes and other adjustments
Processing and document
preparation fees
|
- cloud
- A claim to the title of a property that, if valid, would prevent a purchaser
from obtaining a clear title.
- collateral
- Something of value pledged as security for a loan. In mortgage lending the
property itself serves as collateral for a mortgage loan.
- commitment fee
- A fee charged when a) an agreement is reached between a lender and a borrower
for a loan at a specific rate and points and b) the lender guarantees to lock in
that rate.
- co-mortgagor
- One who is individually and jointly obligated to repay a mortgage loan and
shares ownership of the property with one or more borrowers. See also:
co-signer.
- condominium
- An individually owned unit within a multi-unit building where others or the
Condominium Owners Association share ownership of common areas such as
grounds, parking facilities and tennis courts.
- conforming loan
- A loan that conforms to Federal National Mortgage Association (FNMA) or
Federal Home Loan Mortgage Corporation (FHLMC) guidelines.
- See also: non-conforming
loan.
- construction loan
- A short-term loan financing improvements to real estate, such as the
building of a new home. The lender advances funds to the borrower as needed
while construction progresses. Upon completion of the construction the borrower
must obtain permanent financing or repay the construction loan in full.
- consumer handbook on
adjustable rate mortgages (C.H.A.R.M.)
- A disclosure required by the federal government to be given to any borrower
applying for an adjustable rate mortgage (ARM).
- conventional loan
- A mortgage loan that is not insured, guaranteed or funded by the Veterans
Administration (VA), the Federal Housing Administration (FHA) or Rural Economic
Community Development (RECD) (formerly Farmers Home Administration).
- convertible mortgage
- An adjustable rate mortgage (ARM) that allows a
borrower to switch to a fixed-rate mortgage at a specified point in the loan
term.
- co-signer
- A person who is obligated to repay a mortgage loan should the borrower default
but who does not share ownership in the property. See also:
co-mortgagor.
- covenants
- Rules and restrictions governing the use of property.
- CRV
- See:
certificate of reasonable value.
- curtailments
- The borrower's privilege to make payments on a loan's principal before they
are due. Paying off a mortgage before it is due may incur a penalty if so
specified in the mortgage's prepayment clause.
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- debt
- Money owed to repay someone.
- debt-to-income ratio
- The ratio between a borrower's monthly payment obligations divided by his or
her net effective income (FHA or VA loans) or gross monthly income (conventional
loans).
- deed
- The legal document that transfers the ownership of real property from one party to another.
- deed of trust
- A document, used in many states in place of a mortgage, held by a trustee pending repayment of the
loan. The advantage of a deed of trust is that the trustee does not have to go
to court to proceed with foreclosure should the borrower default on the loan.
- Department of Housing and
Urban Development (HUD)
- The U.S. government agency that administers FHA, GNMA and other housing
programs.
- discount points
- A percentage of the loan amount paid to the lender to buy down the interest rate.
Each point is one percent of the loan amount; for example, two points on a
$100,000 mortgage is $2,000.
- down payment
- The difference between the purchase price and mortgage amount. The down
payment becomes the property equity. Typically it comes from cash savings, but it
can also be a gift that is not to be repaid or a borrowed amount secured by
assets.
- due-on-sale
- A clause in a mortgage or deed of trust allowing a lender to require
immediate payment of the balance of the loan if the property is sold (subject to
the terms of the security instrument).
- duplex
- A dwelling divided into two units.
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- earnest money
- A deposit in the form of cash or a note given to a seller by a buyer as good
faith assurance that the buyer intends to go through with the purchase of a
property.
- easement
- The right one party has in regard to the property of another, such as the
right of a public utility company to lay lines.
- Equal Credit Opportunity
Act
- A federal law prohibiting lenders and other creditors from discrimination
based on race, color, sex, religion, national origin, age, marital status,
receipt of public assistance or because an applicant has exercised his or her
rights under the Consumer Credit Protection Act.
- equity
- The value of a property beyond any
liens against it. Also referred to as owner's interest.
- escape clause
- A provision allowing one party or more to cancel all or part of the contract
if certain events fail to happen, such as the ability of the buyer to obtain
financing within a specified period.
- escrow
- Money placed with a third party for safekeeping either for final closing on
a property or for payment of taxes and insurance throughout the year.
Go to Top - F -
- fair market value
- The price a property can realistically sell for, based upon comparable
selling prices of other properties in the same area.
- Fannie Mae
- Nickname for Federal National
Mortgage Association (FNMA).
- Federal Home Loan Mortgage
Corporation (FHLMC or Freddie Mac)
- A quasi-governmental, federally-sponsored organization that acts as a href="#secondary_market">secondary market
investor to buy and sell mortgage loans. FHLMC sets many of the guidelines for
conventional mortgage loans, as does FNMA.
- Federal Housing
Administration (FHA)
- An agency within the Department of Housing and Urban Development that sets
underwriting standards and insures residential mortgage loans made by
private lenders. One of FHA's objectives is to help make affordable mortgages available to
homeowners with low or moderate income. FHA loans may be high loan-to-value, and they
are limited by loan amount. FHA mortgage insurance requires a fee of 1.5 percent
of the loan amount to be paid at closing, as well as an annual fee of 0.5
percent of the loan amount added to each monthly payment.
- Federal National Mortgage
Association (FNMA or Fannie Mae)
- A private corporation that acts as a secondary market investor to buy and sell mortgage
loans. FNMA sets many of the guidelines for conventional mortgage loans, as does
FHLMC. The major purpose of this organization is to make mortgage money more
affordable and more available.
- fee simple
- The maximum form of ownership, with the right to occupy a property and sell
it to a buyer at any time. Upon the death of the owner, the property goes to the
owner's designated heirs. Also known as fee absolute.
- FHA
- See: Federal Housing
Administration.
- fifteen-year mortgage
- A loan with a term of 15 years. Although the monthly payment on a 15-year
mortgage is higher than that of a 30-year mortgage, the amount of interest paid
over the life of the loan is substantially less.
- fixed-rate mortgage
- A mortgage whose rate remains constant throughout the life of the mortgage.
- flood insurance
- A form of insurance that protects the owner of the insured property against losses stemming from flood damage. The Federal Flood Disaster Protection Act of 1973 requires that
federally-regulated lenders determine if real estate to be used to secure a loan
is located in a Specially Flood Hazard Area (SFHA). If the property is located
in a SFHA area, the borrower must obtain and maintain flood insurance on the
property. Most insurance agents can assist in obtaining flood insurance.
- FNMA
- See: Federal National Mortgage
Association.
- Freddie Mac
- Nickname for Federal Home Loan
Mortgage Corporation (FHLMC).
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- gift
- A sum of money, including amounts from a relative or a grant from the borrower's
employer, a municipality, non-profit religious organization, or non-profit
community organization that does not have to be repaid.
- Ginnie Mae
- Nickname for Government National
Mortgage Association (GNMA).
- good faith estimate
- The estimate on closing costs and monthly mortgage payments provided by a
lender to the homebuyer within 3 days of applying for a loan.
- Government National Mortgage
Association (GNMA or Ginnie Mae)
- A government organization that participates in the
secondary market,
securitizing pools of FHA, VA, and RHS loans.
- graduated payment mortgage
(GPM)
- A fixed-interest loan with lower payments in the early years than in the later
years. The amount of the payment gradually increases over a period of time and
then levels off at a payment sufficient to pay off the loan over the remaining
amortization period.
Go to Top - H -
- hazard insurance
- A form of insurance that protects the owner of the insured property against losses from physical
damage such as fire and tornadoes. Mortgage lenders often require a borrower to
maintain an amount of hazard insurance on the property that is equal at least to
the amount of the mortgage loan.
- home equity loan
- A mortgage on the borrower's principal residence, usually for the purpose of
making home improvements or debt consolidation.
- home inspection
- A thorough review of the physical aspects and condition of a home by a
professional home inspector. This inspection should be completed prior to
closing so that any repairs or changes can be completed before the transfer of the home is completed.
- homeowners insurance
- A form of insurance that protects the owner of the insured property against loss from
theft, liability and most common disasters.
- Housing and Urban Development
(HUD)
- The U.S. government agency that administers FHA, GNMA and other housing
programs.
- housing affordability
index
- An index that indicates what proportion of homebuyers can afford to buy an average-priced
home in specified areas. The most well known housing affordability index is
published by the National Association of Realtors.
- housing expenses-to-income
ratio
- See: debt-to-income
ratio.
- HUD
- See: Housing and Urban
Development.
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- I -
- income approach to value
- A method used by real estate appraisers to predict a property's anticipated
future income. Income property includes shopping centers, hotels, motels,
restaurants, apartment buildings, office space, etc.
- income-to-debt ratio>
- See: debt-to-income
ratio.
- index
- A published interest rate compiled from other indicators such as U.S.
Treasury bills or the monthly average interest rate on loans closed by savings
and loan organizations. Mortgage lenders use the index figure to establish rates
on adjustable rate mortgages (ARMs).
- insurance
- As a part of PITI, the amount of the monthly mortgage payment that
does not include the principal, interest, and taxes.
- Also see: homeowners
insurance.
- interest
- The amount of the entire mortgage loan which does not include the
principal. Also, as a part of PITI, the amount of the monthly mortgage
payment which does not include the principal, taxes, and insurance.
- interest cap
- See: cap
- interest rate
- The simple interest rate, stated as a percentage, charged by a lender on the
principal amount of borrowed money. See also:
Annual Percentage
Rate.
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- J -
- joint tenancy
- See: tenancy.
- jumbo loan
- A nonconforming loan that is larger than the limits set by the Federal
National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation
(FHLMC) guidelines.
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- K -
- key lot
- Real estate deemed highly valuable because of its location.
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- L -
- lien
- A claim against a property for the payment of a debt. A mortgage is a lien;
other types of liens a property might have include a tax lien for overdue taxes
or a mechanic's lien for unpaid debt to a subcontractor.
- life-of-loan cap
- See: cap.
- liquidity
- The ease with which an asset can be converted into cash.
- loan discount
- See: points.
- loan origination fee
- See: origination
fee.
- loan-to-value ratio
(LTV)
- The relationship, expressed as a percentage, between the amount of the
proposed loan and a property's appraised value. For example, a $75,000 loan on a
property appraised at $100,000 is a 75% loan-to-value ratio.
- lock-in
- The guaranty of a specific interest rate and/or points for a specific
period of time. Some lenders will charge a fee for locking in an interest rate.
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- M -
- maintenance costs
- The cost of the upkeep of the house. These costs may be minor in cost and
nature (replacing washers in the faucets) or major in cost and nature (new
heating system or a new roof) and can apply to either the interior or exterior
of the house.
- margin
- The amount a lender adds to the index of an adjustable rate mortgage to
establish an adjusted interest rate. For example, a margin of 1.50 added to a 7
percent index establishes an adjusted interest rate of 8.50 percent.
- market value
- The price a property can realistically sell for, based upon comparable
selling prices of other properties in the same geographical area.
- modification
- A change in the terms of the mortgage note, such as a reduction in the
interest rate or a change in maturity date.
- mortgage
- A legal instrument in which property serves as security for the repayment of
a loan. In some states, a deed of
trust is used rather than a mortgage.
- mortgage banker
- A lender that originates, closes, services and sells mortgage loans to the
secondary market.
- mortgage broker
- An intermediary between a borrower and a lender. A mortgage broker's expertise lies in
helping borrowers find financing that they might not otherwise find themselves.
- mortgage insurance
- Money paid to insure the lender against loss due to foreclosure or loan
default. Mortgage insurance is required on conventional loans with less than a
20 percent down payment. FHA mortgage insurance requires a payment of 1.5
percent of the loan amount to be paid at closing, as well as an annual fee of
0.5 percent of the loan amount added to each monthly payment.
- mortgage interest
- The interest rate charge for borrowing the money for the mortgage. It is used
to calculate the interest payment on the mortgage each month.
- mortgage term
- The length of time that a mortgage is scheduled to exist. Example: a 30-year
mortgage term is for 30 years.
- mortgagee
- The lender.
- mortgagor
- The borrower.
Go to Top
- N -
- negative amortization
- A situation in which a borrower is paying less interest than what is
actually being charged for a mortgage loan. The unpaid interest is added to the
loan's principal. The borrower may end up owing more than the original amount of
the mortgage.
- non-assumption clause
- In a mortgage contract, a statement that prohibits a new buyer from assuming
a mortgage loan without the approval of the lender.
- non-conforming loan
- A loan that does not conform to Federal National Mortgage Association (FNMA)
or Federal Home Loan Mortgage Corporation (FHLMC) guidelines. Jumbo loans are
nonconforming.
- See also: conforming
loan.
- note
- A signed document that acknowledges a debt and shows the borrower is
obligated to pay it.
Go to Top - O -
- open-end mortgage
- A mortgage allowing the borrower to receive advances of principal from the
lender during the life of the loan. See also:
closed-end mortgage.
- origination fee
- The amount charged by a lender to originate and close a mortgage loan.
Origination fees are usually expressed in
points.
Go to Top - P -
- payment cap
- See: cap.
- P&I
- Abbreviation for principal and interest.
- PITI
- Abbreviation for principal, interest, taxes and insurance.
- PITIO
- Abbreviation for principal, interest, taxes, insurance and other monthly non-housing costs.
- points
- Charges levied by the lender based on the loan amount. Each point equals one
percent of the loan amount; for example, two points on a $100,000 mortgage equals
$2,000. Discount points are used to buy down the interest rate. Points can also
include a loan origination fee, which is usually one point.
- pre-qualification
- Tentative establishment of a borrower's qualification for a mortgage loan
amount of a specific range, based on the borrower's assets, debts, income, employment status and credit history.
- prime rate
- The interest rate commercial banks charge their most creditworthy customers.
- principal
- The amount of the entire mortgage loan, not counting interest. Also,
as a part of PITI, the amount of the monthly mortgage payment which does
not include the interest, insurance, and taxes.
- private mortgage insurance
(PMI)
- See: mortgage
insurance.
- property appraisal
- See: appraisal.
- property tax
- The amount which the state and/or locality assesses as a tax on a piece of
property.
- prorate
- To proportionally divide amounts owed by the buyer and the seller at
closing.
Go to Top - Q -
- qualification
- As determined by a lender, the ability of the borrower to repay a mortgage
loan based on the borrower's credit history, employment status, assets, debts
and income.
Go to Top - R -
- rate cap
- See: cap.
- RESPA
- Abbreviation for the Real Estate Settlement Procedures Act. This act allows
consumers to review settlement costs at application and once again prior to
closing.
- reverse annuity
mortgage
- A type of mortgage loan in which the lender makes periodic payments to the
borrower. The borrower's equity in the home is used as security for the loan.
- RHCDS
- Rural Housing and Community Service
-
- right of first refusal
- The right to purchase a property under conditions and terms made by another buyer and
accepted by the seller.
- right of rescission
- The right to back out of a transaction, given automatically by law to the borrower in a real estate purchase transaction.
When a borrower's principal dwelling is going to secure a loan, the borrower
has three business days following signing of the loan documents to rescind or
cancel the transaction. Any and all money paid by the borrower must be refunded
upon rescission. The right to rescind does not apply to loans to purchase real
estate or to refinance a loan under the same terms and conditions where no
additional funds will be added to the existing loan.
- rollover
- The process by which a construction loan becomes a mortgage. At the end of the construction loan period, the borrower's file is delivered
to Bank One Mortgage Loan Servicing Dept. Prior to delivery, CLD contacts the
borrower and obtains funds for the tax and insurance escrows, a final title
policy and homeowner's policy. This process is called a rollover.
- Rural Housing and Community Development
Service
- A federal agency that administers mortgage loans for buyers in rural areas.
Go to Top - S -
- second mortgage
- A loan that is junior to a primary or first mortgage and often has a higher
interest rate and a shorter term.
- secondary market
- A market comprising investors like GNMA, FHLMC and FNMA, who buy large
numbers of mortgages from the primary lenders and resell them to other investors.
- servicing
- The responsibility of collecting monthly mortgage payments and properly
crediting them to the principal, taxes and insurance, as well as keeping the
borrower informed of any changes in the status of the loan.
- settlement costs
- See: closing costs.
- survey
- A physical measurement of property done by a registered professional showing
the dimensions and location of any buildings as well as easements, rights of
way, roads, etc.
Go to Top - T -
- tax deed
- A written document conveying title to property repossessed by the government
due to default on tax payments.
- tax savings
- The deduction a taxpayer can take on their tax form for interest paid on a home mortgage. The amount of money that the homeowner is not required to pay the government
in taxes because he or she owns a home.
- taxes
- As a part of PITI, the amount of the monthly mortgage payment which
does not include the principal, interest, and insurance.
- tenancy
- joint tenancy - equal ownership of property by two or more
parties, each with the right of survivorship.
- tenancy by the entireties - ownership of property only
between husband and wife in which neither can sell without the consent of the
other and the property is owned by the survivor in the event of death of either
party.
- tenancy in common - equal ownership of property by two or
more parties without the right of survivorship.
- tenancy in severalty - ownership of property by one legal
entity or a sole party.
- tenancy at will - a license to use or occupy a property at
the will of the owner.
- title
- A formal document establishing ownership of property.
- title insurance
- A policy issued by a title insurance company insuring the purchaser against
any losses resulting from errors in the title search. The cost of title insurance may be paid for by
the buyer, the seller or both.
- trust deed
- See: deed of trust.
- Truth In Lending Act
- The Truth In Lending Act requires lenders to disclose the Annual Percentage
Rate and other associated costs to homebuyers within three working days of the
loan application.
Go to Top - U -
- underwriter
- A professional who approves or denies a loan to a potential homebuyer based
on the homebuyer's credit history, employment status, assets, debts and other
factors such as loan guidelines.
- Uniform Settlement
Statement
- A standard document prescribed by the Real Estate Settlement Procedures Act
containing information for closing which must be supplied to both buyer and
seller.
- utility costs
- Periodic housing costs for water, electricity, natural gas, heating oil,
etc.
Go to Top - V -
- VA loan
- See: Veterans
Administration.
- variable rate mortgage
(VRM)
- See:
adjustable rate mortgage.
- Veterans Administration
(VA)
- The federal agency responsible for the VA loan guaranty program as well as
other services for eligible veterans. In general, qualified veterans can apply
for home loans with no down payment and a funding fee of 1 percent of the loan
amount.
Go to Top - W -
- walk-through
- An inspection of a property by the prospective buyer prior to closing on a
mortgage.
- warranty deed
- A document protecting a homebuyer against any and all claims to the
property.
Go to Top - X -
- No entries for "X".
Go to Top - Y -
- yield
- The rate of earnings from an investment.
Go to Top - Z -
- zoning
- The ability of local governments to specify the use of private property in
order to control development within designated areas of land. For example, some
areas of a neighborhood may be designated only for residential use and others
for commercial use such as stores, gas stations, etc.
Go to Top Mortgage Glossary Provided by GINNIE MAE
Should You Buy a House or a Condo?
A big debate these days is whether or not to buy a house, or buy a condo. Most of this debate comes from a lack of understanding about condos, and what they are. Hopefully, the following information will prove to be helpful. When Buying a condo, are you a tenant? No. That simply isn't true. When you buy a condo, you are buying a part of the corporation, and are thus an equal owner. It is true that you can be forced to move, if you are really disturbing the other owners, or causing problems. But this is true of residential homes as well. If your neighbors complain repeatedly about smell, health concerns, or criminal behavior, then you may be forced to move. The same holds true in condos and houses alike. The board can force you to pay thousands of dollars arbitrarily, and without notice. At first glance, this may appear to be true. But keep in mind that the condo association is made up of owners who have the same goal as you… Having a comfortable place to live that is building equity. The members of the condo association do not make any money from their positions. They are owners like yourself, who are volunteering their time. There can, however, be "special levy's" brought about by unexpected maintenance in the building. The same holds true of a house as well; the expenses just come from a different place. Ask anyone who owns a house how much it cost them for their last furnace. Or how much they spent repairing the water leak, and replacing the shingles. The advantage in a condo association is that you share these costs with the other owners, and are forced to save money in advance for these repairs, through the reserve fund. Condo fees cost too much each month! Again, not necessarily true. If you were to add up the amount of money that a family spends over 5 years on the maintenance of their house, you'll usually notice that it equals more than 5 years worth of condo fees. Also, many condo associations pay for their monthly expenses as a group. Heat, water, insurance, and maintenance are examples of such expenses. By purchasing as a group, they can often get these services at a lower rate than a single home owner can. I could never live in such close quarters That's probably true. Condos aren't for everyone. Every person has to make their own decision, based upon their own lifestyle; now and in the future. If you have 3 large dogs, 3.5 children, and 4 cars… a condo probably isn't for you. But, if you're a single young executive who works 80 hours a week, or you're retired and travel most of the year, then perhaps a condo is the right choice for you. Only you can make that decision, as it is a lifestyle choice. Here are some factors to consider in your decision. How much time do you spend at home? Do you want to shovel walks and mow lawns? Are you used to having your neighbours far away from you? Is the condo association that you're considering favorable to your children's lifestyle? Do you want a low maintenance home, or do you like tinkering in the yard and garage? Who's going to be living there? What are the neighbors like? In fact, these are issues to consider on any home, not just a condominium. It's just as easy to get "bad" neighbors when you buy a house as it is when you buy a condo. The best advice that can be given is to research your choices, and be objective when choosing a home. My favorite example of this is as follows: "A friend of mine asked me to help him find a home. He's a single young man who travels 75% of the time for his job and is rarely at home. When he is home, all he wants to do is sleep and watch TV. He wanted to buy an acreage so that he could have privacy. After looking at the amount of continuous maintenance required for an acreage, he realized that acreage living wasn't for him. He's very happy in his apartment style condo." Make your own decisions, based upon what's best for you. If a condo is where you'll be happiest, then buy a condo. If a house is what's right for you, buy a house. About The Author John Carle & Sharon Gregresh are Realtors with Royal LePage - ArTeam in St. Albert, AB. They pride themselves on providing more than just real estate sales and listings. Their clients benefit from a much larger spectrum or real estate services. Contact them any time at information@workingtogether.ca or through their website at www.workingtogether.ca. They can be reached by phone at (780) 458-5595
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