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Adjustable Rate Mortgage (ARM):
A mortgage with an
interest rate that changes over time in line with movements in the index.
ARMs are also referred to as AMLs (adjustable mortgage loans) or VRMs
(variable rate mortgages).
Adjustment Period:
The length of time between interest rate changes on an ARM. For example, a
loan with an adjustment period of one year is called a one-year ARM, which
means that the interest rate can change once a year.
Amortization:
Repayment of a loan in equal installments of principal and interest,
rather than interest only payments.
Annual Percentage Rate
(APR): The
total finance charge (interest, loan fees, points) expressed as a
percentage of the loan amount.
Assumption of
Mortgage: A
buyer’s agreement to assume the liability under an existing note that is
secured by a mortgage or deed of trust. The lender must approve the buyer
in order to release the original borrower (usually the seller) from
liability.
Balloon Payment:
A lump sum principal
payment due at the end of some mortgages or other long-term loans.
Binder:
Sometimes known as an
offer to purchase or an earnest money request. A binder is the
acknowledgment of a deposit along with a brief written agreement to enter
into a contract for the sale of real estate.
Cap:
The limit
on how much an interest rate or monthly payment can change, either at each
adjustment or over the life of the mortgage.
CC&R’s:
Covenants, Conditions
and Restrictions. A document that controls the use, requirements and
restrictions of a property.
Certificate of
Reasonable Value (Covenants):
A document that
establishes the maximum value and loan amount for a VA guaranteed
mortgage.
Closing Statement:
The
financial disclosure statement that accounts for all of the funds received
and expected at the closing, including deposits for taxes, hazard
insurance, and mortgage
insurance.
Condominium:
A form of real
estate ownership where the owner receives title to a particular unit and
has a proportionate interest in certain common areas. The unit itself is
generally a separately owned space whose interior surfaces (walls, floors,
and ceilings) serve as its boundaries.
Contingency:
A condition that
must be satisfied before a contract is binding. For instance, a sales
agreement may be contingent upon the buyer obtaining financing.
Conversion Clause:
A provision in some ARMs that enables you to change an ARM to a fixed-rate
loan, usually after the first adjustment period. The new fixed rate is
generally set at the prevailing interest rate for fixed-rate mortgages.
This conversion feature may cost extra.
Cooperative:
A form of multiple ownership in which a corporation or a business trust
entity holds title to a property and grants occupancy rights to
shareholders by means of proprietary leases or similar arrangements.
CRS:
Certified Residential Specialist.
CRB:
Certified Residential
Broker: To be certified a broker must be a member of the National
Association of Realtors®, have five years experience as a licensed broker
and have completed five required Residential Division courses.
Due-On-Sale Clause:
An acceleration clause
that requires full payment of a mortgage or deed of trust when the secured
property changes ownership.
Earnest Money:
The portion of the
down payment delivered to the seller or escrow agent by the purchaser with
a written offer as evidence of good faith.
Escrow:
A procedure in which a
third party acts as a stakeholder for both the buyer and the seller,
carrying out both parties’ instructions and assuming responsibility for
handling all of the paperwork and distribution of funds.
FHA
Loan: A
loan insured by the Insuring Office of the Department of Housing and Urban
Development; the Federal Housing Administration.
Federal National
Mortgage Association (FNMA):
Popularly known as
Fannie Mae. A privately owned corporation created by Congress to support
the secondary mortgage market. It purchases and sells residential
mortgages insured by FHA or guaranteed by the VA, as well as conventional
home mortgages.
Fee Simple:
An estate in which
the owner has unrestricted power to dispose of the property as he wishes,
including leaving by will or inheritance. It is the greatest interest a
person can have in real estate.
Graduated Payment Mortgage:
A residential mortgage
with monthly payments that start at a low level and increase at a
predetermined rate.
GRI: Graduate,
Realtors Institute. A professional designation granted to a member of the
National Association of Realtors® who has successfully completed three
courses covering Law, Finance and Principles of Real Estate.
Home
Inspection Report:
A qualified
inspector’s report on a property’s overall condition. The report usually
includes an evaluation of both the structure and mechanical systems.
Home Warranty Plan:
Protection against
failure of mechanical systems within the property. Usually includes
plumbing, electrical, heating systems and installed appliances.
Index:
A measure of interest
rate changes used to determine changes in an ARM’s interest rate over the
term of the loan.
Joint
Tenancy:
An equal undivided
ownership of property by two or more persons. Upon the death of any owner,
the survivors take the decedent’s interest in the property.
Lien:
A legal hold or claim
on property as security for a specified amount on specified terms.
Loan Commitment:
A written promise to
make a loan for a specified amount on specified terms.
Loan-To-Value Ratio:
The relationship
between the amount of the mortgage and the appraised value of the
property, expressed as a percentage of the appraised value.
Margin: The
number of percentage points the lender adds to the index rate to calculate
the ARM interest rate at each adjustment.
Mortgage Life
Insurance:
A type of term life insurance often bought by mortgagors. The coverage
decreases as the mortgage balance declines. If the borrower dies while the
policy is in force, the debt is automatically covered by insurance
proceeds.
Negative Amortization:
Negative amortization
occurs when monthly payments fail to cover the interest cost. The interest
that isn’t covered is added to the unpaid principal balance, which means
that even after several payments you could owe more than you did at the
beginning of the loan, Negative amortization can occur when an ARM has a
payment cap that results in monthly payments that aren’t high enough to
cover the interest.
Origination Fee: A fee or charge for work involved in evaluating,
preparing, and submitting a proposed mortgage loan. The fee is limited to
1 percent for FHA and VA loans.
PITI:
Principal,
interest, taxes and insurance.
Planned Unit
Development (PUD):
A zoning designation
for property developed at the same or slightly greater overall density
than conventional development, sometimes with improvements clustered
between open, common areas. Uses may be residential, commercial or
industrial.
Point:
An amount equal to 1
percent of the principal amount of the investment or note. The lender
assesses loan discount points at closing to increase the yield on the
mortgage to a position competitive with other types of investments.
Prepayment Penalty:
A fee
charged to a mortgagor who pays a loan before it is due. Not allowed for
FHA or VA loans.
Private Mortgage
Insurance (PMI):
Insurance written by a
private company protecting the lender against loss if the borrower
defaults on the mortgage.
Purchase Agreement:
A written
document in which the purchaser agrees to buy certain real estate and the
seller agrees to sell under stated terms and conditions. Also call a sales
contract, earnest money contract, or agreement for sale.
Realtor®: A real estate broker or associate active in a local real
estate board affiliated with the National Association of Realtors®.
Tenancy in Common:
A type of joint
ownership of property by two or more persons with no right of
survivorship.
Tenants by the
Entirety: A
type of joint ownership reserved for married couples only with equal
interest. In the event of a death by either spouse interest in the
property passes to the surviving party.
Title Insurance
Policy: A
policy that protects the purchaser, mortgagee or other party against
losses.
VA
Loan: A
loan that is partially guaranteed by the Veterans Administration and made
by a private lender.
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