Mortgage Terminology

A limit, such as one placed on an adjustable rate mortgage, on how much a monthly payment or interest rate can increase or decrease, either at each adjustment period or during the life of the mortgage. payment caps do not limit the amount of interest the lender is earning, so they may cause negative amortization.

When a borrower refinances a mortgage at a higher principal amount to get additional money. usually this occurs when the property has appreciated in value. for example, if a home has a current value of $100,000 and an outstanding mortgage of $60,000, the owner could refinance $80,000 and have additional $20,000 in cash.

A cash amount sometimes required of the buyer to be held in reserve in addition to the down payment and closing costs; the amount is determined by the lender.

property insurance that covers any damage to the home and personal property either inside or outside the home.

This type of bankruptcy sets a payment plan between the borrower and the creditor monitored by the court. the homeowner can keep the property, but must make payments according to the court's terms within a 3 to 5 year period.

A bankruptcy that requires assets be liquidated in exchange for the cancellation of debt.

The portion of principal and interest due on a loan that is written off when deemed to be noncollectable.

A property title that has no defects. properties with clear titles are marketable for sale.

The final step in property purchase where the title is transferred from the seller to the buyer. closing occurs at a meeting between the buyer, seller, settlement agent, and other agents. at the closing the seller receives payment for the property. also known as settlement.

Fees for final property transfer not included in the price of the property. typical closing costs include charges for the mortgage loan such as origination fees, discount points, appraisal fee, survey, title insurance, legal fees, real estate professional fees, prepayment of taxes and insurance, and real estate transfer taxes. a common estimate of a buyer's closing costs is 2 to 4 percent of the purchase price of the home. a common estimate for seller's closing costs is 3 to 9 percent.

An additional person that is responsible for loan repayment and is listed on the title.

Security in the form of money or property pledged for the payment of a loan. for example, on a home loan, the home is the collateral and can be taken away from the borrower if mortgage payments are not made.

An unpaid debt referred to a collection agency to collect on the bad debt. this type of account is reported to the credit bureau and will show on the borrower's credit report.

An amount, usually a percentage of the property sales price that is collected by a real estate professional as a fee for negotiating the transaction. traditionally the home seller pays the commission. the amount of commission is determined by the real estate professional and the seller and can be as much as 6% of the sales price.

Factors that show the ability to repay a loan based on less traditional criteria, such as employment, rent, and utility payment history.

A form of ownership in which individuals purchase and own a unit of housing in a multi-unit complex. the owner also shares financial responsibility for common areas.

Is a loan that does not exceed fannie mae's and freddie mac's loan limits. freddie mac and fannie mae loans are referred to as conforming loans.

A short-term, to finance the cost of building a new home. the lender pays the builder based on milestones accomplished during the building process. for example, once a sub-contractor pours the foundation and it is approved by inspectors the lender will pay for their service.

A clause in a purchase contract outlining conditions that must be fulfilled before the contract is executed. both, buyer or seller may include contingencies in a contract, but both parties must accept the contingency.

A private sector loan, one that is not guaranteed or insured by the u.s. government.

A provision in some arms allowing it to change to a fixed-rate loan at some point during the term. usually conversions are allowed at the end of the first adjustment period. at the time of the conversion, the new fixed rate is generally set at one of the rates then prevailing for fixed rate mortgages. there may be additional cost for this clause.

An adjustable-rate mortgage that provides the borrower the ability to convert to a fixed-rate within a specified time.

Residents purchase stock in a cooperative corporation that owns a structure; each stockholder is then entitled to live in a specific unit of the structure and is responsible for paying a portion of the loan.

An account signed by someone in addition to the primary borrower, making both people responsible for the amount borrowed.

A person that signs a credit application with another person, agreeing to be equally responsible for the repayment of the loan.

A rejection to all or part of a purchase offer that negotiates different terms to reach an acceptable sales contract.

Legally enforceable terms that govern the use of property. these terms are transferred with the property deed. discriminatory covenants are illegal and unenforceable. also known as a condition, restriction, deed restriction or restrictive covenant.

An agreement that a person will borrow money and repay it to the lender over time.

An agency that provides financial information and payment history to lenders about potential borrowers. also known as a national credit repository.

Education on how to improve bad credit and how to avoid having more debt than can be repaid.

A method used by a lender to reduce default of a loan by requiring collateral, mortgage insurance, or other agreements.

The lender that provides a loan or credit.

A record of an individual that lists all debts and the payment history for each. the report that is generated from the history is called a credit report. lenders use this information to gauge a potential borrower's ability to repay a loan.

The ratio of credit-related losses to the dollar amount of mbs outstanding and total mortgages owned by the corporation.

The lending institution providing a loan or credit.

Foreclosed property expenses plus the provision for losses.

Foreclosed property expenses combined with charge-offs.

Private, for-profit businesses that claim to offer consumers credit and debt repayment difficulties assistance with their credit problems and a bad credit report.

A report generated by the credit bureau that contains the borrower's credit history for the past seven years. lenders use this information to determine if a loan will be granted.

A term used to describe the possibility of default on a loan by a borrower.

A score calculated by using a person's credit report to determine the likelihood of a loan being repaid on time. scores range from about 360 - 840

A non-profit financial institution federally regulated and owned by the members or people who use their services. credit unions serve groups that hold a common interest and you have to become a member to use the available services.

The way a lender measures the ability of a person to qualify and repay a loan.