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Acceleration Clause
Allows the lender to speed up the rate at which your loan comes due or even to demand immediate payment of the entire outstanding balance of the loan should you default on your loan or violate it's terms.

Adjustable Rate Mortgage (ARM)
Is a mortgage in which the interest rate is adjusted periodically based on a preselected index.

Adjustment Interval
On an adjustable rate mortgage, the time between changes in the interest rate and/ or monthly payment, typically one, three or five years, depending on the index.

Amortization
Means loan payment by equal periodic payments calculated to pay off the debt at the end of a fixed period, including accrued interest on the outstanding balance.

Annual Percentage Rate (APR)
APR reflects the interest rate charged on the loan plus prepaid finance charges such as points and financing costs you pay in obtaining the loan.

Appraisal
An estimate of value of property, made by a qualified, certified professional called an "appraiser."

Assumption
The agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller. Assuming a loan can usually save the buyer money since this is an existing mortgage debt, unlike a new mortgage where closing costs and new, possibly higher, market-rate interest charge will apply.

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Balloon (Payment) Mortgage
Usually a short-term fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a time specified in the contract.

Buydown
When the lender and/or the homebuilder subsidizes the mortgage by lowering the interest rate during the first few years of the loan. While the payments are initially low, they will increase when the subsidy expires.

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Caps (Interest)
Consumer safeguards, which limit the amount of the interest rate on an adjustable rate mortgage. It may change per year and/or the life of the loan.

Caps (Payment)
Consumer safeguards, which limit the amount monthly payments on an adjustable rate mortgage.

Closing
The meeting between buyer, seller, and lender or their agents where the property and funds legally change hands. Also called settlement.

Closing Costs
Usually include origination points, discount points, appraisal fee,credit bureau title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. The costs of closing usually are about 3 percent to 6 percent of the mortgage amount.

Commitment
An agreement, often in writing, between a lender and a borrower to loan money at a future date subject to the completion of paperwork or compliance with stated conditions.

Construction Loan
A short-term interim loan for financing the cost of construction. The lender advances funds to the builder at periodic intervals as the work progresses.

Conventional Loan
A mortgage not insured by FHA or guarantee by the VA or Farmers Home Administration (FmHA).

Credit Ratio
The ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on long-term debts is divided by his or her gross monthly income.

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Deed of Trust
In many states, this document is used in place of a mortgage to secure the payment of a note.

Default
Failure to meet legal obligations in a contract, specifically, failure to make the monthly payments on a mortgage.

Delinquency
Failure to make payments on time. This can lead to foreclosure.

Department of Veterans Affairs (VA)
An independent agency of the Federal government, which guarantees long-term, low- or no-down payment mortgages to eligible veterans.

Discount Points
Prepaid interest assessed at closing by the lender. Each point is equal to 1 percent of the loan amount (e.g. two points on a $100,000 mortgage would cost $2,000).

Down Payment
Money paid to make up the difference between the purchase price and mortgage amount. Down payments usually are 10 percent to 20 percent of the sales price on Conventional loans and no money down up to 5 percent on FHA and VA loans.

Due-On-Sale Clause
A provision in a mortgage or deed of trust that allows the lender to demand immediate payment of the balance of the mortgage if the mortgage holder sells the home.

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Earnest Money
Money given by a buyer to a seller as part of the purchase price to bind a transaction. This money is usually held at the title company.

Equal Credit Opportunity Act (ECOA)
Is a Federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs.

Equity
The difference between the fair market value and current indebtedness.

Escrow
Refers to a neutral third party who carries out the instructions of both the buyer and seller to handle all the paperwork of settlement or "closing." Escrow may also refer to an account held by the lender into which the homebuyer pays money for tax and/or insurance payments.

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Federal Housing Administration (FHA)
A division of the Department of Housing and Urban Development. Its main activity is the insuring of residential mortgage loans made by private lenders. FHA also sets standard for underwriting mortgages.

Federal National Mortgage Association (FNMA)
Also known as Fannie Mae.
A tax-paying corporation created by Congress that purchases and sells conventional residential mortgages as well as those insured by FHA or guaranteed by VA. This institution, which provides funds for one in seven mortgages, makes mortgage money more available and more affordable.

FHA Loan
A loan insured by the Federal Housing Administration open to all qualified home purchasers. While there are limits to the size of FHA loans, they are generous enough to handle moderate priced homes almost anywhere in the country.

FHA Mortgage Insurance
Requires a small fee (up to 3 percent of the loan amount) paid at closing or a portion of this fee added to each monthly payment of an FHA loan to insure the loan with FHA.

Fixed-Rate Mortgage
A mortgage on which the interest rate is set for the term of the loan.

Foreclosure
A legal procedure in which property securing debt is sold by the lender to pay a defaulting borrower's debt.

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Gross Monthly Income
The total amount the borrower earns per month, before any taxes or expenses are deducted.

Guarantee
A promise by one party to pay a debt or perform an obligation contracted by another party if the original party fails to pay or perform according to a contract.

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Hazard Insurance
A form of insurance in which the insurance company protects the insured from specified losses, such as fire, windstorm, flood and the like.

Housing Expenses-to-Income Ratio
The ratio, expressed as a percentage, which results when a borrower's housing expenses are divided by his/her gross monthly income.

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Impound / Escrow Account
That portion of a borrower's monthly payments held by the lender or servicer to pay for taxes, hazard insurance, mortgage insurance and other items as they become due.

Index
A published interest rate against which lenders measure the difference between the current interest rate on an adjustable rate mortgage and that earned by other investments (such as one-, three-, and five-year U.S. Treasury Security yields, the monthly average interest rate on loans closed by savings and loan institutions, and the monthly average Costs-of -Funds incurred by savings and loans), which is then used to adjust the interest rate on an adjustable mortgage up or down.

Investor
Money source for a lender.

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Jumbo Loan
A loan which is larger (more than $252,700) than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.

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K - None

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Lien
A claim upon a piece of property for the payment or satisfaction of a debt or obligation.

Loan-To-Value Ratio
The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.

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Margin
The amount a lender adds to the index on an adjustable rate mortgage to establish the borrower's interest rate.

Market Value
The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.

Mortgage Insurance
Money paid to insure the mortgage when the down payment is less than 20 percent (See PMI).

Mortgagee
The lender.

Mortgagor
The borrower or homeowner.

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Negative Amortization
Occurs when your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan. A concern of negative amortization is that the homebuyer may end up owing more than the original amount of the loan.

Non-Assumption Clause
A statement in a mortgage contract forbidding the assumption of the mortgage or writing assumptions without the prior approval of the lender.

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Origination Points
The fee charged by a lender to initiate and complete the loan process, usually computed as a percentage of face value of the loan.

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PITI
Principal, interest, taxes, and insurance. Also called monthly housing expense.

Points
See Discount Points and Origination Points.

Power of Attorney
A legal document authorizing one person to act on behalf of another.

Prepaids
Expenses necessary to create an escrow account or to adjust the seller's existing escrow account. Can include taxes, hazard insurance, private mortgage insurance and special assessments.

Prepayment
A privilege in a mortgage permitting the borrower to make payments in advance of their due date.

Prepayment Penalty
Money charged for an early repayment of debt. Prepayment penalties are calculates in many different ways - check with your loan officer.

Principal
The amount of debt, not counting interest, remaining on a loan.

Private Mortgage Insurance (PMI)
In the event that you do not have a 20 percent down payment, lenders will allow a smaller down payment . With the smaller down payments loans, however, borrowers may be required to carry private mortgage insurance. Private mortgage insurance will be based on the amount or down payment you have below 20% as well as other lender assessed risks.

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Q - None

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Realtor
A real estate broker or an associate holding active membership in a local real estate board affiliated with the National Association of Realtors.

Recision
The cancellation of a contract. With respect to mortgage refinancing, Federal law gives the homeowner three business days to cancel a contract once it is signed.

Reserves
The amount of cash available to make a mortgage payment if you were to have no work.

Recording Fees
Money paid to the title company for recording a home sale with the local authorities, thereby making it part of the public records.

Real Estate Settlement Procedures Act (RESPA)
RESPA is a Federal law that allows consumers to review information on known or estimated settlement costs once after application and once prior to or at settlement.

Reverse Annuity Mortgage (RAM)
A form of mortgage in which the lender makes periodic payments to the borrower using the borrower's equity in the home as security.

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Servicing (Loan Servicing)
All the steps and operations a lender performs after a loan is expected, such as collection of payments, payment of taxes and insurance.

Settlement
See Closing.

Settlement Costs
See Closing Costs.

Survey
A measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to known points, its dimensions, and the location and dimensions of any building.

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Term Mortgage
See Balloon Payment Mortgage.

Title
A document that gives evidence of an individual's ownership of property.

Title Insurance
A policy, usually issued by a Title Insurance company, which insures a homebuyer against errors in the title search. The cost of the policy is usually a function of the value of the property, and is often borne by the purchaser and/or seller.

Title Search
An examination of municipal records to determine the legal ownership of property. Usually is performed by a title company.

Truth-in-Lending
A Federal law requiring disclosure of the Annual Percentage Rate to homebuyers shortly after they apply for the loan.

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Underwriting
The decision whether to make a loan to a potential homebuyer based on credit, employment, assets, and other factors and the matching of this risk to an appropriate rate and term or loan amount.

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VA Loan
A long-term, low-or no-down payment loan guaranteed by the Department of Veterans Affairs. Restricted to individuals qualified by military service or other entitlements.

VA Mortgage Funding Fee
A premium of up to 2 percent paid on a VA backed loan. On a $75,000 30-year fixed-rate mortgage with no down payment, this would amount to $1500 either paid at closing or added to the amount financed.

Variable Rate Mortgage
See Adjustable Rate Mortgage.

Verification of Deposit (VOD)
A document signed by the borrower's financial institution verifying the status and balance of the borrower's financial accounts.

Verification of Employment (VOE)
A document signed by the borrower's employer verifying his/her position and salary.

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W - None

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X - None

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Y - None

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Z - None

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