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Mortgage Central
LLC wants everyone to feel comfortable and
knowledgeable about the entire loan process. To
help achieve that, we have provided a glossary
of financial terms that may prove helpful to
you. If you have questions or need further
clarification, please feel free to contact us. |
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Adjustable
Rate Mortgage (ARM)--.Is
a mortgage in which the interest rate is
adjusted periodically based on a
pre-selected index. Also sometimes known
as the re-negotiable rate mortgage, or
the variable rate mortgage.
Amortization--.A
repayment method in which the amount you
borrow is repaid gradually though regular
monthly payments of principal and
interest. During the first few years,
most of each payment is applied toward
the interest owed. During the final years
of the loan, payment amounts are applied
almost exclusively to the remaining
principal.
Annual Percentage Rate (APR)--.The
cost of credit on a yearly basis,
expressed as a percentage. Required to be
disclosed by the lender under the federal
Truth in Lending Act, Regulation Z.
Includes up-front costs paid to obtain
the loan, and is, therefore, usually a
higher amount than the interest rate
stipulated in the mortgage note. Does not
include title insurance, appraisal, and
credit report.
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Balloon
Mortgage--.a mortgage
that requires a lump sum payment of the
unpaid balance at a specified date in the
future.
Broker--.arranges
financing for a borrower by placing loans
with lenders. Mortgage brokers are paid a
fee by the borrower or lender when the
loan closes.
Cash Out--.Receiving
money back when refinancing your present
mortgage.
Closing
Costs--.any fees
paid by the borrower or seller during the
closing of the mortgage loan. This
normally includes items like broker fee,
discount points, appraisal fee, attorney
fee, title search and insurance, deed
recording fee and any other fees
associated with the closing. These costs
are usually three to six percent of the
mortgage amount.
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Credit Score--.A
means in which the lender may evaluate
the credit rating of the potential
borrower using standardized guidelines.
The credit score takes into account such
things as the amount of money owed in
relationship to the credit limit, the
number of open credit lines, the length
of the credit history, the number of
recent credit inquiries and numerous
other factors.
Conforming Loan--.Generally,
a mortgage with a loan amount under the
maximum limits set by FNMA and
FHLMC. Qualifying ratios and
underwriting methods are standardized to
a large degree.
Conventional Loan--.A
mortgage not insured by FHA or guaranteed
by the VA.
Debt Ratio--.The total
of all of the borrowers monthly payments
including the proposed house payment
(PITI), divided by the borrowers gross
income.
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Deposit/Earnest
Money--.Good
faith money provided to seller by the
potential buyer to show he is serious
about purchasing the home. This amount
may be applied to the down payment, but
if the deal does not go through it may be
forfeited, although in some cases it's
returned.
Discount
Points--.The
amount paid either to maintain or lower
the interest rate charged. Each point is
equal to one percent (1%) of the loan
amount (i.e., two points on a $100,000
mortgage would equal $2,000).
Down
Payment--.The
difference between the purchase price and
that portion of the purchase price being
financed. Most lenders require the down
payment to be paid from the buyer's own
funds. Gifts from related parties are
sometimes acceptable, and must be
disclosed to the lender.
Escrow/Impound
Account--.A
savings account for accumulating that
portion of a borrower's monthly payments
designated for future payments of taxes
and/or insurance. Required by certain
lenders or with certain types of
financing.
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Escrow
Waiver--.When a
loan value is 80% or less, you may elect
not to open an escrow account and pay the
hazard insurance and property taxes
yourself. There is a one time charge by
the Investor of 1/4 of a percent to 3/8
of a percent (0.0025 - 0.0375) of the
loan amount.
Equal
Credit Opportunity Act (ECOA)--.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
(appraised value) of your home and your
outstanding mortgage balance.
Fair
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.
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Fannie
Mae (FNMA)--.The Federal
National Mortgage Association is a major
secondary market investor that purchases
mortgage loans from mortgage bankers and
other financial institutions. Also known
as "Fannie Mae."
Fixed
Rate Mortgage--.A mortgage
loan based on an interest rate which is
fixed for the term of the loan. Payments
are also fixed at one amount.
Freddic
Mac (FHLMC)--.Federal Home
Loan Mortgage Corporation, also called
"Freddie Mac", is a
quasi-governmental agency that purchases
conventional mortgages from insured
depository institutions and HUD-approved
mortgage bankers.
Full
Income Verification--.A
requirement for fully documented proof of
income; loans that contain this
requirement can usually offer lower
interest rates than no-income
verification programs.
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Good
Faith Estimate (GFE)--.A
written estimate of closing costs which a
lender must provide you within three days
of submitting an application.
Home Equity Loan--.A
fixed or adjustable rate loan obtained
for a variety of purposes, secured by the
equity in your home. Interest paid is
usually tax-deductible. Often used for
home improvement or freeing of equity for
other real estate or investments.
Recommended by many to replace or
substitute for consumer loans whose
interest is not tax-deductible, such as
auto or boat loans, credit card debt,
medical debt, and education loans.
HUD 1 Settlement Statement--.A
form utilized at loan closing to itemize
the costs associated with purchasing the
home. Used universally by mandate of HUD,
the Department of Housing and Urban
Development.
Interim
Interest--.Depending on
the day of the month you close, you will
have to pay interest from the date of
closing to the end of the month. Then,
usually, the first mortgage payment will
be due the first of the following month.
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