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Home Mortgage and Financing Terms By Mark Nash

Every business has it's jargon and residential real estate is no exception. Mark Nash author of 1001 Tips for Buying and Selling a Home shares commonly used mortgage and financing terms with home buyers and sellers.

-Adjustable rate mortgage (ARM): A type of mortgage loan whose interest rate is tied to an economic index, which fluctuates with the market. Typical ARM periods are one, three, five, and seven years.

-Affordable housing loan: umbrella term used to cover various loan products targeted to first-time homebuyers.

-Annual percentage rate (APR): The total costs (interest rate, closing costs, fees, and so on) that are part of a borrowers loan, expressed as a percentage rate of interest. The total costs are amortized over the term of the loan.

-Application fees: Fees that mortgage companies charge buyers at the time of written application for a loan; for example, fees for running credit reports of borrowers, property appraisal fees, and lender-specific fees.

Appraisal: A document of opinion of property value at a specific point in time.

-Assumable loan: existing mortgage loan that can be assumed by another person; most conventional loans are not assumable; government loans are assumable with qualification of the new person.

-Balloon mortgage: A type of mortgage that is generally paid over a short period of time, but is amortized over a longer period of time. The borrower typically pays a combination of principal and interest. At the end of the loan term, the entire unpaid balance must be repaid.

-Bi-weekly mortgage: one-half of the mortgage payment is paid every two weeks, resulting in one extra full payment toward principal each year.

-Blanket mortgage: mortgage secured by more than one piece of property.

-Blended rate (or wraparound) mortgage: refinancing plan that combines the interest rate on an existing mortgage loan with current interest rate for an additional amount of loan.

-Bridge (or swing): loan used to bridge the gap when someone is purchasing a new home before they have gone to settlement on their previous home.-

-Budget mortgage: another name for a loan that included taxes and insurance along with the principal and interest payment (PITI).

-Installment sale (also called a land contract): usually a private agreement between a seller and buyer where title is not conveyed until all payments have been made.

-Carry-back financing: whenever a seller agrees to finance either the first or a second mortgage on the property.

-Chattel mortgage: a pledge of personal property to secure a note.

-Construction loan: short-term loan made during the construction of a house.

-Conventional mortgage: A type of mortgage that has certain limitations placed on it to meet secondary market guidelines. Mortgage companies, banks, and savings and loans underwrite conventional mortgages.

-Credit report: Includes all of the history for a borrowers credit accounts, outstanding debts, and payment timelines on past or current debts.

-Credit score: A score assigned to a borrowers credit report based on information contained therein.

-Down payment: The amount of cash put toward a purchase by the borrower.

-Earnest money deposit: The money given to the seller at the time the offer is made as a sign of the buyers good faith.

-Escrow account for real estate taxes and insurance: An account into which borrowers pay monthly prorations for real estate taxes and property insurance.

-FHA (Federal Housing Administration) Loan Guarantee: A guarantee by the FHA that a percentage of a loan will be underwritten by a mortgage company or banker.

-Gift letter: A letter to a lender stating that a gift of cash has been made to the buyer(s) and that the person gifting the cash to the buyer is not expecting the gift to be repaid. The exact wording of the gift letter should be requested of the lender.

-Good faith estimate: Under the Real Estate Settlement Procedures Act, within three days of an application submission, lenders are required to provide in writing to potential borrowers a good faith estimate of closing costs.

-Home equity loan: either a lump sum or a line of credit made against the equity in a home.

HUD/RESPA (Housing and Urban Development/Real Estate Settlement Procedures Act): A document and statement that details all of the monies paid out and received at a real estate property closing.

-Hybrid adjustable rate mortgage: Offers a fixed rate the first 5 years and then adjusts annually for the next 25 years.

-Interest rate float: The borrower decides to delay locking their interest rate on their loan. They can float their rate in expectation of the rate moving down. At the end of the float period they must lock a rate.

-Interest rate lock: When the borrower and lender agree to lock a rate on loan. Can have terms and conditions attached to the lock.

-Loan: An amount of money that is lent to a borrower who agrees to repay the amount plus interest.

-Loan application: A document that buyers who are requesting a loan fill out and submit to their lender.

-Loan closing costs: The costs a lender charges to close a borrowers loan. These costs vary from lender to lender and from market to market.

-Loan commitment: A written document telling the borrowers that the mortgage company has agreed to lend them a specific amount of money at a specific interest rate for a specific period of time. The loan commitment may also contain conditions upon which the loan commitment is based.

-Loan package: The group of mortgage documents that the borrowers lender sends to the closing or escrow.

-Loan processor: An administrative individual who is assigned to check, verify, and assemble all of the documents and the buyers funds and the borrowers loan for closing.

-Loan underwriter: One who underwrites a loan for another. Some lenders have investors underwrite a buyers loan.

-Mortgage banker: One who lends the banks funds to borrowers and brings lenders and borrowers together.

-Mortgage broker: A business that or an individual who unites lenders and borrowers and processes mortgage applications.

-Mortgage loan servicing company: A company that collects monthly mortgage payments from borrowers.

-Open-end mortgage: one where additional funds may be borrowed without changing other terms of the mortgage, typical for construction loans.

-Package mortgage: mortgage secured by a combination of real and personal property; often used for vacation property such as a cabin, beach condo, or ski chalet.

-Payoff letter: A written document from a sellers mortgage company stating the amount of money needed to pay the loan in full.

-Portable mortgage: new concept; mortgage loan can be carried with you from one property to another.

-Pre-approval: A higher level of buyer/borrower prequalification required by a mortgage lender. Some preapprovals have conditions the borrower must meet.

-Pre-paid interest: Funds paid by the borrower at closing based on the number of days left in the month of closing.

-Pre-payment penalty: A fine imposed on the borrower by the lender when the loan is paid off before it comes due.

-Pre-qualification: The mortgage company tells a buyer in advance of the formal mortgage application, how much money the borrower can afford to borrow. Some prequalifications have conditions that the borrower must meet.

-Principal: The amount of money a buyer borrows.

-Principal, interest, taxes, and insurance (PITI): The four parts that make up a borrowers monthly mortgage payment. Private mortgage insurance (PMI): A special insurance paid by a borrower in monthly installments, typically of loans of more than 80 percent of the value of the property.

-Purchase money mortgage: any loan used to purchase the real property that serves as collateral but usually refers to seller-held financing.

-Reverse mortgage: special program for senior citizens (62 or older), which utilizes the equity in the seniors home to provide additional income without having to sell their home.

-Secondary market: An institutional investment market that purchases mortgages from mortgage lenders.

-Sub-prime loan: loan with risk-based pricing for persons unable to qualify for prime conventional loans; typically has higher rate of interest; credit scoring and appraisal are critical.

-VA (Veterans Administration) Loan Guarantee: A guarantee on a mortgage amount backed by the Department of Veterans Affairs.

-W-2: The Internal Revenue form issued by employer to employee to reflect compensation and deductions to compensation.

-W-9: The Internal Revenue form requesting taxpayer identification number and certification.

-1031 exchange or Starker exchange: The delayed exchange of properties that qualifies for tax purposes as a tax-deferred exchange.

-1099: The statement of income reported to the IRS for an independent contractor

Mark Nash's fourth real estate book, "1001 Tips for Buying and Selling a Home" (2005), and working as a real estate broker in Chicago are the foundation for his consumer-centric real estate perspective which has been featured on ABC-TV, CBS The Early Show, Bloomberg TV, CNN-TV, Chicago Sun Times & Tribune, Fidelity Investors Weekly, Dow Jones Market Watch, HGTVpro.com, MSNBC.com, The New York Times, Realty Times, Universal Press Syndicate and USA Today.





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