Mid Valley Financial Services

A

Acceleration - The right of the mortgagee (lender) to demand the immediate repayment of the mortgage loan balance upon the default of the mortgagor (borrower), or by using the right vested in the Due-on-Sale Clause.

Adjustable Rate Mortgage (ARM) - The interest rate is adjusted periodically based on a financial index. Also known as Variable Rate Mortgage.

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 - Equal periodic payments intended to pay off a loan in a fixed amount of time.

Annual Percentage Rate (APR) - The interest rate reflecting the cost of a loan as a yearly rate. This rate takes into account points and other credit costs.

Appraisal - Estimated property value.

Assessment - A local tax levied against a property for a specific purpose, such as a sewer or street lights.

Assumption - An agreement where the buyer takes over an existing loan.

B

Balloon Payment - Usually a short-term loan where the buyer makes a large payment at the end of a specific term.

Blanket Mortgage - A mortgage covering at least two pieces of real estate as security for the same mortgage.

Borrower (Mortgagor) - One who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan in full.

Broker - An individual in the business of assisting in arranging funding or negotiating contracts for a client buy who does not loan the money himself. Brokers usually charge a fee or receive a commission for their services.
Buy-down - When the lender and/or the home builder subsidized 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.

C

Cash Flow - The amount of cash derived over a certain period of time from an income-producing property. The cash flow should be large enough to pay the expenses of the income producing property (mortgage payment, maintenance, utilities, etc).

Caps (Interest) - Consumer safeguards which limit the amount the interest rate on an adjustable rate mortgage 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 may change.

Certificate of Eligibility - The document given to qualified veterans which entitles them to VA guaranteed loans for homes, business, and mobile homes. Certificates of eligibility may be obtained by sending DD-214 (Separation Paper) to the local VA office with VA form 1880 (request for Certificate of Eligibility).

Certificate of Reasonable Value (CRV) - An appraisal issued by the Veterans Administration showing the property's current market value.

Certificate of Veteran Status - The document given to veterans or reservists who have served 90 days of continuous active duty (including training time) It may be obtained by sending DD 214 to the local VA office with form 26-8261a (request for certificate of veteran status). This document enables veterans to obtain lower down payments on certain FHA insured loans.

Closing Costs - Includes costs incurred in obtaining a loan, such as appraisal fees, origination fees, title search, taxes, credit report charge(s), etc.

Commitment - A promise by a lender to make a loan on specific terms or conditions to a borrower or builder. A promise by an investor to purchase mortgages from a lender with specific terms or conditions. An agreement, often in writing, between a lender and a borrower to loan money at a future date subject to the completion of paper work or compliance with stated conditions.

Construction Loans - Short-term loan to finance construction costs.

Contract Sale or Deed - A contract between purchaser and a seller of real estate to convey title after certain conditions have been met. It is a form of installment sale.

Conventional Loans - Loan not insured by FHA, VA, or Farmers Home Administration.

Credit Report - A report documenting the credit history and current status of a borrower's credit standing.

D

Debt-to-Income 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. See housing expenses-to-income ratio.

Deed of Trust - Document used to secure the payment of a note.

Default - Failure to make required payments on a loan.

Deferred Interest - When a mortgage is written with a monthly payment that is less than required to satisfy the note rate, the unpaid interest is deferred by adding it to the loan balance. See negative amortization.

Delinquency - Failure to make loan payments on time.

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 Point - See point.

Down Payment - Amount of money paid to make up the difference between the purchase price and the loan amount.

Due on Sale Clause - A provision in a contract which allows the lender to demand immediate payment of the mortgage if the borrower sells the home.

E

Earnest Money - Money given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment.

Entitlement - The VA home loan benefit is called entitlement. Entitlement for a VA guaranteed home loan. This is also known as eligibility.

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 market value and the amount owed.

Escrow - A neutral third party that carries out instructions of the buyer and seller.

Escrow Account - An account in which fees for insurance or taxes may be held.

F

Fannie Mae - See Federal National Mortgage Association.
Farmers Home Administration - Provides loans to farmers or other qualified borrowers unable to obtain other financing.

Federal Home Loan Bank Board (FHLBB) - The former name for the regulatory and supervisory agency for federally chartered savings institutions. Agency is now called the Office of Thrift Supervision.

Federal Home Loan Mortgage Corporation (FHLMC) - Also called "Freddie Mac", FHLMC is a quasi-governmental agency that purchases conventional mortgage from insured depository institutions and HUD-approved mortgage bankers.

Federal Housing Authority (FHA) - A division of the government's Department of Housing and Urban Development (HUD) which insures residential mortgage loans made by private lenders.
Federal National Mortgage Association (FNMA) - Also know as "Fannie Mae", FNMA is 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 - Loan insured by the Federal Housing Authority.

FHA Mortgage Insurance - Requires a fee (up to 2.25 percent of the loan amount) paid at closing to insure the loan with FHA. In addition, FHA mortgage insurance requires an annual fee of up to 0.5 percent of the current loan amount, paid in monthly installments. The lower the down payment, the more years the fee must be paid.

FHLMC - The Federal Home Loan Mortgage Corporation provides a secondary market for savings and loans by purchasing their conventional loans. Also known as "Freddie Mac."
Firm Commitment - A promise by FHA to insure a mortgage loan for a specified property and borrower. A promise from a lender to make a mortgage loan.

Fixed Rate Mortgage - Loan where the interest rate is fixed for the term of the loan.

FNMA - The Federal National Mortgage Association is a secondary mortgage institution which is the largest single holder of home mortgages in the United States. FNMA buys VA, FHA, and conventional mortgages from primary lenders. Also known as "Fannie Mae."
Foreclosure - A legal procedure where the property is sold by the lender to pay the defaulting borrower's debt.
Freddie Mac - See Federal Home Loan Mortgage Corporation.

G

Graduated Payment Mortgage (GPM) - A type of flexible-payment mortgage where the payments increase for a specified period of time and then level off. This type of mortgage has negative amortization built into it.

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

H

Hazard Insurance - A form of insurance in which the insurance company protects the insured from specified losses, such as fire, windstorm 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. See debt-to-income ratio.

I

Impound Account - A portion of the monthly payment is collected to pay property taxes, insurance, etc.

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.

Interim Financing - A construction loan made during completion of a building or a project. A permanent loan usually replaces this loan after completion.
Investor - A money source for a lender.

J

Jumbo Loan - A loan which is larger (more than $214,600 as of 1/1/97) 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.

L

Lien - A claim placed upon property to satisfy the payment of a debt.
Loan-to-Value Ratio - The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.

M

Margin - The amount a lender adds to the index on an adjustable rate mortgage to establish the adjusted 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.

MIP (Mortgage Insurance Premium) - It is insurance from FHA to the lender against incurring a loss on account of the borrower's default.

Mortgage Insurance - Insures that the mortgage is paid. Usually in effect when the down payment is less than 20% of the loan amount.

Mortgagee - The lender.

Mortgagor - The borrower or homeowner.

N

Negative Amortization - When the monthly payments are not large enough to pay all the interest due on a loan. The unpaid interest is then added to the principal.

Net Effective Income - The borrower's gross income minus federal income tax.

Non Assumption Clause - A statement in a mortgage contract forbidding the assumption of the mortgage without the prior approval of the lender. Note: The signed obligation to pay a debt, as a mortgage note.

O

Office of Thrift Supervision (OTS) - The regulatory and supervisory agency for federally chartered savings institutions. Formally known as Federal Home Loan Bank Board.

Origination Fee - Fee charge by the lender to prepare documents, credit checks, etc.

P

Permanent Loan - A long term mortgage, usually ten years or more. Also called an "end loan."

PITI - Principal, Interest, Taxes, and Insurance (PITI).

Pledged Account Mortgage (PAM) - Money is placed in a pledged savings account and this fund plus earned interest is gradually used to reduce mortgage payments.

Points - Prepaid interest collected at closing. Each point is equal to 1% of the loan amount.

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

Prepaid 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 allowed in some form (but not necessarily imposed) in many states.

Primary Mortgage Market - Lenders making mortgage loans directly to borrower's such as savings and loan associations, commercial banks, and mortgage companies. These lenders sometimes sell their mortgages into the secondary mortgage markets such as to FNMA or GNMA, etc.

Principal - The balance of a loan, not including interest.

Private Mortgage Insurance (PMI) - In the event that you do not have a 20 percent down payment, lenders will allow a smaller down payment - as low as 5 percent in some cases. With the smaller down payment loans, however, borrowers are usually required to carry private mortgage insurance. Private mortgage insurance will usually require an initial premium payment and may require an additional monthly fee depending on you loan's structure.

R

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, the law that gives the homeowner three days to cancel a contract in some cases once it is signed if the transaction uses equity in the home as security.

Recording Fees - Money paid to County to make purchase a part of public record.

Refinance - Obtaining a new mortgage loan on a property already owned. Often to replace existing loans on the property.

Renegotiable Rate Mortgage - A loan in which the interest rate is adjusted periodically. See adjustable rate mortgage.

RESPA - Short for the Real Estate Settlement Procedures Act. RESPA is a federal law that allows consumers to review information on known or estimated settlement cost once after application and once prior to or at a settlement. The law requires lenders to furnish the information after application only.

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 Satisfaction of Mortgage: The document issued by the mortgagee when the mortgage loan is paid in full. Also called a "release of mortgage."

S

Second Mortgage - A mortgage made subsequent to another mortgage and subordinate to the first one.

Secondary Mortgage Market - The place where primary mortgage lenders sell the mortgages they make to obtain more funds to originate more new loans. It provides liquidity for the lenders. Security.

Servicing - All the steps and operations a lender performs to keep a loan in good standing, such as collection of payments, payment of taxes, insurance, property inspections and the like.

Settlement/Settlement Costs - See closing/closing costs.

Shared Appreciation Mortgage (SAM) - A mortgage in which a borrower receives a below-market interest rate in return for which the lender (or another investor such as a family member or other partner) receives a portion of the future appreciation in the value of the property. May also apply to mortgage where the borrowers shares the monthly principal and interest payments with another party in exchange for part of the appreciation.

Simple Interest - Interest which is computed only on the principle balance.

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

Sweat Equity - Equity created by a purchaser performing work on a property being purchased.

T

Title - A document which gives evidence of ownership.

Title Insurance - A policy which insures the buyer against errors in the Title Search.

Title Search - An examination of public records to determine legal ownership.

Truth in Lending - A federal law requiring disclosure of the Annual Percentage Rate.

Two-Step Mortgage - A mortgage in which the borrower receives a below-market interest rate for a specified number of years (most often seven or 10), and then receives a new interest rate adjusted (within certain limits) to market conditions at that time. The lender sometimes has the option to call the loan due with 30 days notice at the end of seven or 10 years. Also called "Super Seven" or "Premier" mortgage.

U

Underwriting - The process used to determine if a loan should be granted.

USURY - Interest charged in excess of the legal rate established by law.

V

VA Loan - A low interest loan guaranteed by the Department of Veterans Affairs.

VA Mortgage Funding Fee - A premium of up to 1-7/8 percent (depending on the size of the down payment) paid on a VA-backed loan. On a $75,000 fixed-rate mortgage with no down payment, this would amount to $1,406 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 his/her financial accounts.

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

W

Warehouse Fee - Many mortgage firms must borrow funds on a short term basis in order to originate loans which are to be sold later in the secondary mortgage market (or to investors). When the prime rate of interest is higher on short term loans than on mortgage loans, the mortgage firm has an economic loss which is offset by charging a warehouse fee.

Wraparound Mortgage - Results when an existing assumable loan is combined with a new loan, resulting in an interest rate somewhere between the old rate and the current market rate. The payments are made to a second lender or the previous homeowner, who then forwards the payments to the first lender after taking the additional amount off the top.