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Mortgage and Lending |
RAINER 23,880 |
| Shelly Schmidt | ||
| location_on Hermitage, PA | ||
| web Shelly Schmidt's (shellys) Blog | ||
Lenders have developed a formula that says you can afford a house worth about three times your total (gross) annual income. Don't rely solely on this formula, however -- it's much safer to look at your own budget, and figure out how much you have to spare and what the monthly payments on your new house will be (not just on the mortgage -- factor in taxes, insurance, maintenance, remodeling plans, and more).
According to institutional lenders, you should make all your monthly payments -- toward your house as well as other debt obligations -- using no more than 28% to 44% of your monthly income. In other words, if your monthly income is $2,000, the lender would want you to pay no more than $880 (.44 x $2,000) toward all your debts.
For a sneak peak at how much of a mortgage you'll be able to qualify for, see Nolo's calculator on qualifying for mortgages.
Check Your Credit History
When reviewing loan applications and making financing decisions, lenders typically request that the credit bureaus reporting your file -- Equifax, Experian, or TransUnion-- provide your credit score (also known as your FICO score). This seemingly mysterious number represents a statistical summary of the information in your credit report, including things like your history of paying bills on time and the level of your outstanding debts.
The higher your credit score, the easier it will be to get a loan. A score of 730 is considered a minimum for conventional loans these days.
If you routinely pay your bills late, expect a lower score, in which case a lender may either reject your loan application or insist on a very large down payment or high interest rate (to lower its risk). For more information, see Nolo's article on Credit Scoring. Even if you've paid your rent late -- no matter that it was for a justifiable reason -- this may count against you, as explained in Nolo's article Rent Payment History on Your Credit Report? What Tenants Need to Know.
Because your credit history has such an important effect on the type and amount of mortgage loan you'll be offered, check your credit report and clean up your file if necessary -- well before, not after, you apply for a mortgage.
Loan Preapproval vs. Loan Prequalification
Once you've done the basic calculations and completed a financial statement, you can ask a lender or loan broker for a prequalification letter saying that loan approval for a specified amount is likely based on your income and credit history. Prequalifying lets you determine exactly how much you'll be able to borrow and how much you'll need for a down payment and closing costs.
It's best to do more than prequalify for a loan: You should also try to be preapproved for a specific loan amount. This means a lender has already indicated a willingness to approve you loan based on having checked your credit and evaluated your financial situation, rather than simply relied on your own statements. Preapproval isn't an all-out guarantee that the lender would actually fund the loan, but it's as close as you're going to get to one, and your home seller will want to see it. The lender will make actual loan approval conditional on an appraisal of the property, a title report, and other conditions.
With all the choices out there, shopping for a mortgage can seem like an overwhelming task. There's good news, however: Despite the many choices of where to get loans (banks, credit unions, savings and loans, insurance companies, and mortgage bankers) their offerings are pretty well standardized, in order to comply with government rules. (The Federal National Mortgage Association or "Fannie Mae," as well as other quasi-governmental corporations, set these rules as a condition for buying loans off the lenders.) What's more, some of the creative mortgage variations that were available before the real estate bubble burst have gone the way of the dodo bird.
Start by deciding what type of mortgage you're interested in. The main choices are between a fixed rate and adjustable rate mortgage, though some hybrids of the two are still available. Once you've narrowed your sights -- for example, to a 30-year fixed term mortgage for $300,000 -- you'll be ready to compare apples to apples.
At that point, you can either start looking at mortgage rates yourself or go straight to a loan broker. Mortgage rates and fees are usually published in the real estate sections of metropolitan newspapers and on mortgage websites. (See Nolo's article Where to Shop for a Mortgage.) Realize, however, that the published rates assume that you've got stellar credit and a good income -- anything less and you'll pay more to borrow money.
It's wise to do some advance research even if you decide to work with a loan broker, so that you'll have a sense of the market. Some loan brokers charge the consumer directly, others collect a fee from the lender (though this ultimately adds a little to what you pay for your mortgage).
Be sure to check out government-subsidized mortgages, which offer both no down payment and low down payment plans. (See the question What kinds of government loans are available to homebuyers?, below.) Also, ask banks and other private lenders about any first-time buyer programs that offer low down payment plans and flexible qualifying guidelines to low- and moderate-income buyers with good credit.
Finally, don't forget private sources of mortgage money -- parents, other relatives, friends, or even the seller of the house you want to buy. Borrowing money privately is usually the most cost-efficient mortgage of all. And its popularity is increasing as credit tightens.
With many lenders selling your mortgage to a larger bank, they have to price that mortgage according to the guidelines of that bank. When you work with a portfolio lender you are working with the actual institution that is going to lend you the money and will be collecting your payment. Here are some examples of the benefits of portfolio lending:
- The rate for a given product is not infuenced by your home style or loan amount
* No price-ups for over 417k loan amounts
* No price-ups for lending on a condominium over 75% LTV (loan to value)
* No price-ups for 2 Family homes as your primary home
* No Charge to NOT escrow, in fact many Porfolio Lenders do not escrow tax and insurance
- No private mortgage insurance is charged for a Portfolio Mortgage
- The FICO credit score used to qualify is the HIGHER of either borrower
- You can speak directly with the underwriter and loan officer anytime you want, most are local
- Your mortgage will never be sold and you can even meet in person if you have a question
- No miminum equity in rental in order to use the rental income
- Very rarely do we require Tax returns for a W2 paid employee, EVEN if commision based
Actual Interest Rate - One of two interest rates associated with a loan. The Actual Interest Rate is the annual rate of interest you pay on your loan. It is also called the "note rate." It is the rate used to calculate your monthly payments.
Adjustable Rate Mortgage (ARM) - A mortgage loan or deed of trust which allows the lender to adjust the interest rate in accordance with a specified index periodically and as agreed to at the inception of the loan.
Adjustment Interval - This is the time between changes in your interest rate and monthly payments on an Adjustable Rate Mortgage.
Affordability - An estimate of the amount you can afford to pay when you buy a home. A mortgage banker or realtor can provide this estimated figure to help you determine the likely range for which you could qualify to borrow from a lender.
Agency Disclosure - A real estate agency must declare where their interest lies. Most states require that an agent disclose who they represent in a real estate transaction. The "buyer's agent" is supporting the interests of the buyer and the "seller's agent" is supporting the interests of the seller in negotiating a sale.
Amortization - A calculation that shows the periodic payments of both principal and interest over the life of the loan from start to maturity. The amortization shows how the loan balance declines by the amount of the total scheduled payment, the amount of any extra payment, and how each payment is allocated between principal and interest. The scheduled payment less the interest equals amortization.
Amortization Schedule - A table showing the amounts of principal and interest due at regular intervals and the unpaid balance of the loan after each payment is made.
Amount Financed - This figure is used to calculate your Annual Percentage Rate. It represents your loan amount less any prepaid finance charges. It assumes you will keep the loan to maturity, and will make only the required monthly payments.
Annual Percentage Rate - One of two interest rates associated with a loan. The Annual Percentage Rate (APR) includes the interest and any additional costs or prepaid finance charges you might pay. Additional costs that are considered in the APR include prepaid interest, private mortgage insurance, closing fees, points, etc. The APR represents the total annual cost of credit with all charges included. It will usually be slightly higher than the Actual Interest Rate because it includes these additional costs, assuming you keep the loan to maturity.
Application Fee - A lender may charge a fee to cover the costs of initiating a loan application. Costs such as a property appraisal, credit report, or a rate-lock fee may also be included in the application fee. This fee is typically credited toward your closing costs.
Appraisal - A written analysis of the value of your home. An appraisal is performed and prepared by a licensed professional, using objective criteria, to set an estimated property value. The appraisal will determine an approximate fair market value based on recent sales of similar homes in your area. New mortgages and most refinancing packages require an appraisal as part of the loan process.
Appraisal Fee - The fee charged by a licensed, certified appraiser to prepare the written appraisal as described above. The appraisal fee will vary based on your geographic region and the type of property.
Arrearages - The amounts which are past due on a loan (usually past due payments), excluding any amounts which become due through acceleration.
Assessment - The value placed on property for the purpose of taxation. May also refer to a levy against property for a special purpose, such as a sewer assessment.
Assignment - The transfer of ownership, rights, or interests in a property by one person, called the "assignor," to another, called the "assignee."
Assignment of Mortgage - A document which transfers ownership of a mortgage from one mortgagee to another (as from the originator of the loan to the permanent investor).
Assumable Mortgage - A mortgage that lets you transfer your mortgage and its terms to the purchaser of your home. This can be an advantage if and when you sell.
Assumption - A method of selling real estate where the buyer of the property agrees to become responsible for the repayment of an existing loan on the property.
B
Backup offer - An alternate offer to buy a property that will be accepted if the first offer fails to close as planned.
Balloon mortgage - A short-term fixed-rate loan with fixed monthly payments for a set number of years followed by a single balloon payment for the entire amount of remaining principal at the end of the term. Typically, the balloon payment may be due at the end of five, seven, or ten years. Borrowers with balloon loans may have the right to refinance the loan when the balloon payment is due, but the right to refinance is not guaranteed.
Bankruptcy - A proceeding in a federal court to relieve certain debts of a person or a business unable to pay its debts. The person's assets are then turned over to a trustee and used to pay outstanding bills.
Base loan amount - The foundation amount used to calculate loan payments. If any other charges are to be included in the loan payment, those costs will be added to the base loan amount.
Bi-weekly Mortgage - A payment plan that allows the borrower to pay half their monthly payment every two weeks.
Blanket Mortgage - A lien on more than one parcel or unit of land, frequently incurred by subdividers or developers who have purchased a single tract of land for the purpose of dividing it into smaller parcels for sale or development. Also called a blanket trust deed.
Borrower - The person(s) who applies for and receives a loan and accepts the obligation to repay the loan in full according
Buydown Mortgage - A mortgage loan with a below-market rate for a period of time, usually one to three years. A borrower may want this option because they expect their earnings to go up but want a lower payment right now.
Buyer's Market - Market conditions that favor buyers. With more sellers than buyers in the market, sellers may be forced to make substantial price concessions.
C
Call Option - A provision of a note that allows the lender to require repayment of the loan in full before the end of the loan term. The option may be exercised if the terms of the loan are breached, or at the discretion of the lender.
Caps - Safeguards that limit how much your ARM interest rates and payments can go up or down at any one time and over the life of the loan.
Cash Out - The cash you receive when refinancing with a new loan that is larger than the amount you owe on the existing loan, based on your equity in the house. The cash out amount is calculated by subtracting the sum of the old loan and fees from the new mortgage loan. For example, if your existing loan is $150,000, you might refinance it with a loan of $170,000. After you pay off your current loan ($150,000), you would be left with $20,000 cash out, unless there were other costs or fees to be deducted from the $20,000.
Ceiling - The maximum allowable interest rate of an adjustable rate mortgage.
Certificate of Title - The document showing the current legal owner of a certain property. A title company prepares the certificate of title. The certificate of title alone does not offer the protection given by title insurance.
Chronic Delinquents - Borrowers who are seriously or repeatedly late in making payments and the lateness is not caused by circumstances beyond their control.
Closing (or Settlement) - The settlement or closing is the conclusion of your purchase or sale. It includes the disbursement of funds, signing of legal documents and transfer of title necessary to the conclude the sale of your home (or loan transaction for a refinance).
Closing Statement - A document issued in a real estate transaction to outline the fees, insurance, commissions, and other costs that are associated with a transfer of ownership to occur. This is sometimes referred to as a "settlement statement" and is commonly prepared by the closing agent.
Closing Costs - Also known as "settlement costs," these represent fees for services that must be performed in order to process and close your loan. Examples include title fees, recording fees, appraisal fee, credit report fee, pest inspection, attorney's fees, taxes, and surveying fees. Closing costs vary by geographic location.
Collateral - Assets (such as your home) pledged as security for a debt. With collateral, the borrower risks losing the property if the loan is not repaid according to the terms of the mortgage or deed of trust.
Collection - The servicing procedure followed to bring a delinquent mortgage current to file the required notices to begin foreclosure when necessary.
Commission - Money paid to a real estate agent or broker for negotiating a real estate or loan transaction. The amount will vary based on individual terms or shared interests in the commission amount.
Commitment - A promise to lend and a statement by the lender of the terms and conditions for a loan.
Comparables - An abbreviation for "comparable properties." An appraiser compares properties with similar amenities, size and location as a property that is being appraised, together with the price for which they have recently been sold. Comparables help the appraiser determine the approximate fair market value of the subject property.
Comparative Market Analysis - An informal estimate of what a home or property is worth if put up for sale. A real estate agent or broker can calculate a selling price range based on sales of comparable properties. An appraisal or a comparative market analysis are the most accurate ways to determine what your home is worth.
Condominium - A home in which the owner holds title to a certain unit of a building or development and shares an interest in the common areas of the project. The condominium may be attached or detached. There is usually an association that oversees the development and each condominium unit owner pays monthly dues for the services provided through the association (such as lawn care or trash service, for example).
Conforming Loan - A mortgage loan that meets all requirements to be eligible for purchase by federal agencies such as Fannie Mae and Freddie Mac.
Contingency - A condition that must be satisfied before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until they receive a satisfactory home inspection report from a qualified home inspector.
Conventional Loan - Loans made by a bank to a party that do not include any government housing program or subsidy.
Conversion Clause - A provision in some adjustable rate mortgages (ARM) that allows you to opt for a fixed-rate, usually after the first adjustment period. The new fixed rate will be set at current rates, and there may be a charge for the conversion feature.
Convertible ARM - The type of adjustable rate loan that includes the conversion clause, allowing the borrower the opportunity to convert to a fixed-rate loan at a certain point in time during the life of the loan.
Conveyance - The document, such as a deed, lease, or mortgage, used to effect a transfer.
Correspondent - A specialized type of mortgage banker whose function is limited to the origination of mortgage loans that are sold to other mortgage bankers or investment bankers.
Coupon Book - A book of printed tickets furnished to the borrower. One coupon is returned each month with a check or money order, enabling the mortgage servicer to identify the payment by name and loan number.
Covenant - A legally enforceable promise, as the covenant in a mortgage by which the borrower agrees to keep the property in good repair, adequately insures against fire and other casualties, etc. The breach of a covenant in the mortgage usually creates a default as defined by the mortgage and can be a basis for foreclosure.
Credit Bureau - A credit bureau is a clearinghouse for credit history information. Every person who has purchased anything by a means other than cash or check has credit history on file with the three major U.S. credit bureaus, Transunion, Experian and Equifax. Credit grantors provide these bureaus with information on how customers pay their bills. The bureaus regularly assemble this information, along with public record information obtained from courthouses around the country. Credit Bureaus provide the credit score information on a credit report.
Credit Instrument - The note or other document evidencing the debt (as distinguished from the mortgage or other security instrument).
Credit Rating - A rating given to a person or company to establish creditworthiness based upon present financial condition, experience, and past credit history.
Credit Report - The report that issues a "credit score" based on the results of the three major U.S. credit bureaus (Equifax, Experian, and TransUnion). The individual scores from all three bureaus are averaged into an overall score. Lenders obtain a credit report for any loan application to determine eligibility and interest rates available to that applicant. The higher the score, the easier it is for that person to obtain a loan. The cost for this is usually between $15 and $40.
Credit Score - A statistical method of rating your creditworthiness. It considers your credit card history; outstanding debt; the types of credit you use. Some items that may adversely effect your credit score are late or missed payments; collection accounts and judgments; too many credit lines with the maximum amount borrowed; or even too little credit history.
Custodial Accounts - Bank account used for deposit of funds belonging to others (see 'Escrow Account').
Cut-Off Date - The date up to which loan collections are included in remittances to investors.
D
Debt to Income Ratio - The comparison of your gross (before-tax) monthly income to housing expenses as compared to non-housing expenses. For certain loans, such as government-backed FHA loans, monthly mortgage payments can't exceed 29% of monthly gross income (before taxes) and the mortgage payment combined with non-housing debt can't exceed 41% of income.
Deed - The legal document that transfers the title of ownership of a property from one owner to another. The deed contains a description of the property and is signed, witnessed, and delivered to the buyer at closing.
Deed of Trust - A type of security instrument in which the borrower conveys a trust to hold property to a third party (trustee) as security for the lender, with the condition that the trustee shall reconvey the title upon the payment of the debt, and conversely, will sell the land and pay the debt in the event of a default by the borrower.
Deed-in-Lieu of Foreclosure - A deed given by an owner/borrower to a lender to prevent the lender from bringing foreclosure proceedings. The validity of the deed depends to some degree on 'fairness' under the circumstances, and adequacy of consideration will be considered.
Default - A breach or non-performance of the terms of a note or the covenants under a mortgage.
Deficiency - The difference between the balance outstanding on a loan and proceeds from the sale of the loan collateral.
Deficiency Judgment - A court order to pay the balance owed on a loan if the proceeds from the sale of the security are insufficient to pay off the loan.
Delinquency - A loan in which a payment is overdue but not yet declared to be in default by the lender. A payment is overdue, and therefore the loan is delinquent if it has not been received by the due date.
Delinquency Ratio - Ratio of the number or dollar balance of past due loans to total number or dollar balance of loans serviced.
Direct Memory Access (DMA) - Direct Memory Access provides a way to transfer data between devices and memory at very high speeds.
Discount Points (or Points) - Points are an optional feature of some mortgage loans. They are a fee that can be paid to the lender when you get your loan in order to "buy" a lower interest rate. In general, the more points you pay, the lower your interest rate. A Point is calculated as a percentage of your loan amount. For, example, if you are paying 1 Point, you are paying a fee that is equal to 1% of your new loan amount.
Down Payment - The percentage of your home's purchase price that is paid in cash at closing. Most conventional loans call for a minimum of 20% down payment in order to avoid carrying private mortgage insurance. However, different loan types have different down payment requirements. Your Loan Officer can help you determine what the most affordable program is for you.
Due On Sale Clause - Provision in a mortgage or deed of trust allowing the lender to demand immediate payment of the loan balance upon sale of the property.
Duplex - A two-family dwelling, one unit of which is often owner-occupied.
E
Earnest Money - A deposit made by a buyer toward the down payment to demonstrate a good-faith intent to complete the transaction paid at the time the purchase agreement is signed. The deposit is credited toward the down payment if the offer is accepted, returned to the buyer if the offer is rejected, or is forfeited if the offer is accepted and the buyer subsequently reneges on the deal.
Equity - Net ownership, the difference between the fair market value of a property and the total debt against the property. For example, if you currently owe $100,000 on your mortgage but your home is currently worth $120,000, you have $20,000 equity - or full ownership of $20,000 of the home's value.
Escrow Account - An account held by the lender to which the borrower pays monthly installments as part of the monthly mortgage payment, to cover annual expenses such as taxes and/or homeowners insurance. The lender then disburses escrow account funds on behalf of the borrower when they become due. Also describes a transaction where a third-party acts as the agent for seller and buyer, or for borrower and lender, in handling legal documents and disbursement of funds.
Escrow Analysis - The periodic examination of escrow accounts to determine if current monthly deposits will provide sufficient funds to pay taxes, insurance, and other bills when due.
Escrow Overage or Shortage - The difference, determined by an escrow analysis, between escrow funds on deposit and escrow funds required to make a payment when it becomes due.
Escrow Payment - That portion of a mortgagor's monthly payments held by a lender or servicer to pay taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Also called impounds or reserves in some states.
Estimated Closing Fee - An estimate of the fees that must be paid on or before the closing date by the buyer and/or seller for services, taxes and items necessary to obtain a mortgage. These fees will average between 2% and 5% of the loan amount and vary by lender, property location, and type of mortgage.
Executed - Officially signed, as in the execution of a deed or other document, with the intention that the person signing shall be bound by the contents.
Extending the Term - Lengthening the term of a loan beyond its original maturity.
F
FHA Insurance - An undertaking by FHA to insure the lender against loss arising from a default by the borrower.
Fannie Mae - The official name of the Federal National Mortgage Association, an agency that buys loans from lenders that are structured within its specific guidelines. These guidelines are an industry standard for residential conventional lending, and many lenders sell mortgages to Fannie Mae for handling. The transfer of your mortgage to Fannie Mae does not affect the terms of your loan.
Federal Home Loan Mortgage Corporation (FHLMC) - See 'Freddie Mac'.
Federal Housing Administration - A federal agency within the Department of Housing and Urban Development (HUD) that insures residential mortgage loans made by private lenders. The FHA sets standards for construction and loan underwriting, however it does not lend money, plan, or construct housing.
Federal Housing Administration (or FHA) Mortgage - A low down payment loan that is insured against loss by the Federal Housing Administration. The borrower pays an insurance premium and the loan amount is usually limited. A PNC Mortgage loan professional can tell you the current loan limit, however, the limit is usually well within a range that would be considered acceptable by most consumers.
Federal National Mortgage Association (FNMA) - See 'Fannie Mae'.
Federal Reserve Board - The 7-member Board of Governors that oversees Federal Reserve Banks, establishes monetary policy (interest rates, credit, etc.), and monitors the economic status of the United States. Its members are appointed by the President subject to Senate confirmation, and serve 14-year terms.
Finance Charge - The total of all the interest you would pay over the entire life of the loan if you kept the loan to maturity and paid exactly as called for by the loan terms with no additional principal payments. It would include all prepaid finance charges paid by the buyer, such as origination fees, discount points, mortgage insurance, and other applicable charges.
Financial Statement - A financial summary of an individual's or business entity's financial situation. The statement includes an individual's assets and liabilities for a given date or a company's Profit and Loss Statement for a given date.
FICO Fair Isaac Co - The most common credit-scoring model used by lenders, it is also known as a Fair Isaac score. Your FICO score can range from 200 to 900. According to this model, the higher your score, the less likely you are to default on your loan.
First Mortgage - A mortgage that is in first lien position. In the event you default on your loan, the first mortgage will take priority over any other liens placed on the property by others using the home as security for a debt. In the case of a foreclosure, the first mortgage will be repaid before any other liens.
Fixed Rate Mortgage - A "traditional mortgage" with an unchanging interest rate for the life of the loan.
Flood Certification Fee - Federal law requires that you obtain flood hazard insurance if your property lies in a flood zone. A flood determination company is used to identify if your house is located in a flood zone. The flood certification fee covers the cost. If your house is located in a flood zone, you will be required to purchase flood Insurance.
Flood Insurance - Protection against flood loss through the 1973 Flood Disaster Protection Act. This insurance compensates for physical damage to a property by flood. Flood is typically excluded from standard homeowner's hazard insurance provisions.
Forbearance - The act of refraining from taking legal action despite the fact that the mortgage is in arrears. It is usually granted only when a mortgagor makes satisfactory arrangements to pay the amount owed at a future date.
Foreclosure (or Repossession) - The legal process by which a property is taken possession of by a lender and sold to pay off a defaulted mortgage.
Foreclosure Complaint - In a judicial foreclosure, the initial petition or pleading filed with the court outlining the terms of the mortgage and the nature and extent of the default, and asking that the property be sold to satisfy the debt.
Foreclosure Expenses - Attorney's fees, title charges, court costs, and other necessary expenses incurred by the mortgagee in connection with foreclosure.
Foreclosure Sale - A forced sale of mortgaged property at public auction conducted either by the court or in some other prescribed fashion, with the proceeds of the sale going to satisfy the debt. The lender is usually the successful bidder at the foreclosure sale.
Freddie Mac - Another name for the Federal Home Loan Mortgage Corporation (FHLMC), a quasi-governmental secondary market organization, which offers various mortgage purchase and securitization programs. Similar to Fannie Mae, this agency buys loans that are underwritten to its specific guidelines. These guidelines are an industry standard for residential conventional lending.
G
Ginnie Mae - Another name for the Government National Mortgage Association (GNMA), a federal agency within the Department of Housing and Urban Development (HUD) who guarantees the timely payment of principal and interest for mortgage-backed securities backed by FHA-insured and VA-guaranteed mortgages.
Good Faith Estimate - Written estimate of the closing costs the borrower can expect at closing. Lenders are required to provide this disclosure to the borrower at different points throughout the loan process.
Government National Mortgage Association (GNMA) - See "Ginnie Mae".
Government Recording Fee - This is a fee paid to your local county recording office for recording your mortgage lien. If you are buying a property, this also completes the transfer of the title to the new owner. Fees for recording vary by county and are set by state and local governments.
Grace Period - Any set period of time during which a loan payment may be made after its due date without incurring a late penalty. The grace period is specified as part of the terms of the loan in the Note. Grace periods are entirely voluntary and apply only to mortgages on which interest is calculated monthly. Simple interest mortgages do not have a grace period because interest accrues daily.
Graduated Mortgage Payment - A mortgage that requires borrowers make larger payments to the loan for specified periods. The GMP starts off low for an initial period of time, but gradually rises for the next few months, and then it remains constant at the fully amortized level.
Gross Income - Total income before taxes or expenses are deducted.
Guaranteed Loans - A loan guaranteed by VA, the Farmer's Home Administration, or any other interested party.
Guideline Ratio - There are two guideline ratios used to qualify you for a mortgage. The first is called the front-end ratio, or top ratio. It is calculated by dividing your total new monthly mortgage payment by your gross monthly income. Typically, this ratio should not exceed 28%. The second is called the back-end, or bottom ratio, and is equal to your new total monthly mortgage payment plus your total monthly debt divided by your gross monthly income. Typically, this ratio should not exceed 36%.
H
Home Equity Line of Credit - A home equity line of credit is a revolving credit line that remains open. As you pay off the credit line, the amount you pay is added to the amount available to borrow. It is like a high limit credit card, typically with a much better interest rate.
Homeowners Insurance - Homeowners insurance protects you from theft and many kinds of potential damage to your home and its contents. It is required by all lenders to protect their investment, and must be obtained before closing. In most cases, coverage must be equal to, or greater than the loan balance, or the value of the home. The cost will vary based on where you live and the value of your home.
Housing Expense Ratio - The percentage of gross monthly income devoted to housing costs. This is a method used in qualifying borrowers.
Housing and Urban Development (HUD) - the U.S. government agency established to implement federal housing and community development programs; oversees the Federal Housing Administration.
I
Index - A published rate used by lenders to calculate the interest adjustments on ARMs. This index can vary from lender to lender.
Initial Rate - The rate charged to the first interval of an ARM. It is often lower than current fixed rates.
Inspection Fee - The cost of a complete inspection of a home by a professional home inspector. He will evaluate the structural and mechanical condition of a home and identify potential trouble spots or necessary repairs that may not be easily detectable. This will inform the potential buyer of possible hazards or home repairs that may be needed. A typical inspection costs around $225 - $450.
Interest - The fee a lender charges for allowing the borrower to use their money for a specific length of time.
Interest Adjustment - The amount of interest due between the date your mortgage starts and the date of the first mortgage payment. Commonly, there is a gap between your closing date of your mortgage and the due date of your first payment. The interest due for those days is not included in your mortgage payment. Generally, this payment is expected at closing. If you plan your closing for exactly one month from the date your first payment will be due, no interest adjustment is necessary.
Interest-only Mortgage - An interest-only mortgage gives you the option of paying just the interest for the first 10 years of the loan. You can pay any amount you choose, or nothing, towards the principal during this time period. Interest-only loans can be fixed-rate mortgages or adjustable rate mortgages.
Interest Rate - The rate of interest a lender receives for permitting the borrower to use money for a specific length of time.
Interest Rate Cap - A protection measure for the borrower that sets a limit on the amount the interest rate on an ARM loan can change in an adjustment interval and/or over the life of the loan.
Interest Rate Ceiling - The highest interest rate that you can be charged on your Adjustable Rate Mortgage.
Investor - Any person or institution who invests in mortgages or mortgage-backed securities.
J
Joint Liability - Liability shared by two or more people, each of whom is responsible for the full amount of the debt.
Joint Tenancy - Property ownership that gives each person equal interest in a property, including rights of survivorship.
Jumbo Mortgage - A mortgage larger than the limits set by Fannie Mae and Freddie Mac. This limit is changed periodically. A PNC Mortgage loan consultant can tell you the current limit. This does not mean that you cannot borrow more than the limit, it simply means that the Fannie Mae and Freddie Mac agencies would not service the loan.
Junior Liens - Liens or claims against a property which are secondary or inferior to the lien of the first mortgage (i.e, a second mortgage).
K
L
Late Charge - An additional charge that a borrower is required to pay as a penalty for failure to pay a regular installment when due.
Legal Fees and Disbursement - Costs for work done by attorney(s) associated with the sale or purchase of a property.
Lender - The bank, mortgage company, or mortgage broker offering the loan.
Lender Processing Fee - The cost of handling your loan application and compiling and packaging the necessary documentation to close your loan.
Lien - A formally recorded claim by a party placed on the property of another for security against a debt. If someone files a lien against your property, it means that if you do not pay the debt they are owed, they can collect the funds from the proceeds when your property is sold.
Liquidation - Conversion of a debt or asset to cash through negotiated settlement or legal proceedings, as the liquidation of a mortgage debt through foreclosure and sale of the foreclosed property.
Loan Administration - A mortgage banking function which includes the receipt of payments, customer service, escrow administration, investor accounting, collections, and foreclosure. Also called 'servicing'.
Loan Documents - The legal documents evidencing or supporting the debt and legal status of the mortgage (i.e., note, mortgage or trust deed, assignment(s) of mortgage, and mortgage title policy).
Loan Fraud - Providing false information to qualify for a loan.
Loan Origination Fee - Fee charged by a lender to cover administrative costs of processing a loan. This usually includes the evaluation, preparation, and submittal of the loan.
Loan-to-Value Ratio (LTV) - The percent of the appraised value of the property that the lender is willing to lend. For example, if a home is appraised at $45,000 and the lender has an 80% loan-to-value ratio, the most you could borrow would be $36,000 (45,000 x .80).
Lock or Lock-in - A lender's guarantee of an interest rate for a set period of time - usually between loan application approval and loan closing. The lock-in protects you against rate increases during that time.
Loss Draft - A bank draft from an insurer in settlement of a loss covered by hazard insurance.
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Manufactured Home - A factory-assembled home built in units or sections that are transported to a permanent site and built onto a foundation. Manufactured homes are subject to federal building codes administered by HUD.
Margin (spread) - The amount added to an index to determine the interest rate on an ARM.
Market Value - The approximate price at which a home or property is likely to sell in a particular location at a particular time, depending on market conditions.
Maturity - The date when the principal loan balance is paid off, or the last payment to be made on a loan that has "reached maturity."
Maximum Cash Out - The maximum amount of money you are eligible to receive from your refinancing transaction based on the loan information provided and the amount of equity you have in your home.
Modification - The act of changing the terms of a note, such as by reducing payments.
Mortgage Payment - Typically a monthly payment that may contain up to four parts: principal, interest, taxes, and insurance. If you pay your taxes and insurance on your own (not included in an escrow account with your mortgage), you pay only principal and interest to your lender.
Mortgage - The legal document by which your home or property is pledged as security for the repayment of a loan.
Mortgage Banker - A firm which conducts mortgage lending activities from its own funds. Newly formed mortgages are sold to investors in the secondary market, providing funds for subsequent lending. The mortgage banker generally continues to service the loans.
Mortgage Broker - A third party that arranges financing for borrowers with a lender. The mortgage broker does not provide the funds for the loan, but they receive a payment from the lender for their services. PNC Mortgage is a direct lender, not a broker.
Mortgage Insurance - Insurance to protect the lender in the event that the loan defaults. Mortgage insurance is generally not required if you make a down payment of at least 20% of the home's appraised value. FHA and VA loans have different insurance guidelines and are designed to accommodate low or no down payment options.
Mortgage Insurance Certificate (MIC) - Certificate issued by HUD/FHA as evidence that a mortgage has been insured, and that a contract of mortgage insurance exists between HUD/FHA and the lender incorporating the HUD/FHA regulations identified in the certificate.
Mortgage Note - See "Promissory Note."
Mortgage Title Policy - A policy issued by a title insurance company insuring the mortgagee against loss due to any existing defect in the title to the mortgaged property or to any claim against the property having legal priority over the mortgage existing prior to the issuance of the policy (see 'Owner's Title Insurance Policy').
Mortgagee - The lender in a mortgage transaction.
Mortgagee Clause - A clause within a hazard insurance policy naming the mortgagee as a beneficiary of the policy.
Mortgagor - The borrower in a mortgage transaction who pledges property as a security for a debt. See "Borrower."
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Negative Amortization - A loan payment schedule in which the outstanding principal balance of a loan goes up rather than down because the payments do not cover the full amount of interest due. The monthly shortfall in payment is added to the unpaid principal balance of the loan.
Non-assumption Clause - A statement in a mortgage contract forbidding the assumption of the mortgage by another borrower without the prior approval of the lender.
Note - A general term for any kind of paper or document signed by a borrower which is an acknowledgement of the debt, and is, by inference, a promise to pay. When the note is secured by a mortgage, it is called a mortgage note and the mortgagee is named as the payee.
Notice of Default - Written notice to a borrower that they have failed to meet some or all of the terms of their loan. The notice states that a default has occurred and that legal action may be taken if the default is not rectified within a certain period of time.
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Origination - The process of creating both commercial and residential mortgages.
Origination Fee - The lender's fee charged to a borrower to prepare documents, make credit checks, inspect and sometimes appraise a property. Usually stated as a percentage of the face value of the loan.
Owner's Title Insurance Policy - A policy issued by a title insurance company insuring the owner against loss due to any defect in his title to real property existing prior to the issuance of the policy.
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Partial Payment- In loan collection, less than the full payment due, usually not credited until the balance is received.
Payoff Figure- Information released to the borrower or to his/her representative giving the unpaid principal balance and interest amounts, to be used for payment in full of the mortgage.
Periodic Cap - A protective measure for you that limits the amount the interest rate on an adjustable rate mortgage (ARM) can change in an adjustment interval. It also places a limit on the amount by which payments can increase (or decrease) during any one adjustment period.
PITI - Abbreviation for principal, interest, taxes and insurance - the components of the typical monthly mortgage payment.
Points - An up-front fee; one point is equal to one percent of the loan amount. Many lenders allow customers the option of paying 'points' in exchange for a lower interest rate on the loan. See "Discount Points."
Power of Attorney - A legal document that authorizes one person to act on behalf of another. A power of attorney can grant complete authority or can be limited to certain acts and/or certain periods of time. You may use a power of attorney if you have a closing scheduled but due to an extenuating circumstance, are unable to attend. It names the person who is authorized to act on your behalf. The legal document must be notarized and should be prepared by an attorney so that it meets the requirements needed to close the transaction
Pre-approval - The process of determining how much money you will be able to borrow for a new mortgage or refinance before you actually apply for a loan. A pre-approval includes a preliminary screening of a borrower's credit history. Information submitted during pre-approval is subject to verification at application.
Prepaid Expenses - Taxes, insurance and assessments paid in advance of their due dates. These expenses are often included at closing, to ensure that insurance and taxes are up to date when a new mortgage is taken out.
Prepaid Interest - Interest that is paid in advance of when it is due. Typically charged to a borrower at closing to cover interest on the loan between the closing date and the first payment date.
Pre-payment - Repayment of the principal before the maturity date of the loan.
Pre-payment Penalty - A fee that may be charged if you pay off your loan within a pre-determined period of time. Many loans do not charge a penalty for early payment. Check with your loan consultant for specific information about your loan.
Pre-qualification - See "Pre-approval."
Principal - The base amount borrowed from the lender, excluding interest.
Principal Payment - A payment applied entirely to the principal balance of the loan; formerly called 'curtailment'.
Private Mortgage Insurance (PMI) - Insurance written by a private company protecting the mortgage lender against financial loss occasioned by a borrower defaulting on the mortgage. See "Mortgage Insurance"
Property Taxes - The taxes assessed on the property by the local government (e.g. city, county, village or township) for the various services provided to the property owner.
Purchase Agreement - Contract signed by buyer and seller stating the terms and conditions under which a property will be sold.
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Rate Protection - A guarantee that the rate in effect when you apply will be the final rate when you close your loan. Good for a specific time only. See "Lock."
Real Estate Settlement Procedures Act (RESPA) - A federal law that gives consumers the right to review information about loan costs after you apply for a loan and again at loan settlement. The law requires lenders to provide a list of settlement costs only after you apply for a loan.
Real Property - Land and any improvements permanently affixed to it, such as the home and garage.
Recorded - The noting in the office of the Recorder (or other public office in a political subdivision who keeps records or transactions affecting real property in the area) of the details of a properly executed legal document such as a deed, mortgage, or satisfaction of mortgage, thereby making it a part of the public record as of a specific date and time.
Refinance - The process of paying off one loan with the proceeds from a new loan secured by the same property.
Reinstatement- The acknowledgement by a mortgagee that a delinquent loan has been brought current by the mortgagor.
Reinstatement Program- A program or schedule of partial payments leading to reinstatement of the loan to a current status. Also called a 'forbearance plan'.
Release of Liability- An agreement by a lender to terminate the personal obligation of a mortgagor in connection with the payment of a debt. FHA and VA require approval by regulatory agencies for a release of liability.
Return Premium- The refund of unearned advance premium resulting from cancellation of a hazard insurance policy prior to its expiration date or date to which the premium has been paid (see 'short-rate').
Right to Rescission - Under the provisions of the Truth in Lending Act, the borrower's right, on certain kinds of loans, to cancel the loan within three days of signing a mortgage.
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Satisfaction of Mortgage - The recorded instrument the lender provides to evidence payment in full of the mortgage debt.
Second Mortgage - A mortgage which is subordinate to a first mortgage.
Security - The property being pledged as security for your loan.
Self-employed Borrower - The self-employed borrower works for themselves rather than a company, and must document their income through tax returns and/or other proofs of income.
Self-Insurer - A company or organization which chooses not to buy insurance for certain risks but provides for losses either by absorbing them as they occur or by establishing a fund from which they can be paid. Self-insurance is usually undertaken as a cost-saving device where the risks are well diversified. FHA and VA are self-insurers with respect to fire and similar hazards on properties they own.
Servicing - See "Loan Administration".
Settlement - See "Closing".
Short Rate - A method of calculating the premium refund on a hazard insurance policy cancelled between anniversary dates. To reimburse the insurance company for the additional administrative work involved in mid-term cancellation, a short-rate refund is less than it would be on a prorated basis.
Short Sale - Payment of less than total indebtedness to satisfy debt through sale of property.
Simple Interest - The interest calculated on a principal sum, not compounded on earned interest.
Single Family - A residence that houses one family.
Soldiers & Sailors Civil Relief Act - A federal law restricting the enforcement of civilian debts against military personnel whose ability to pay has been severely hampered by entry into military service after the debt was incurred.
Stay - Enjoin, restrain, delay, hold up.
Structural Improvements - Any permanent improvement made to your property that is not strictly for decorating purposes. Examples include: additions, new flooring, kitchen or bathroom upgrades, new windows or central air conditioning. Swimming pools are considered structural improvements only if they are in- ground and your property is in a year round warm weather climate.
Survey - A "bird's eye" diagram of your property that shows the boundary lines of your lot, and details any encroachments between you and your neighbors.
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Tax Lien - Claim against a property for unpaid taxes.
Term - The period of time which covers the life of the loan from inception to pay-off.
Third Party Purchaser - A successful purchaser at a foreclosure sale other than the mortgagee or mortgagor or their representatives.
Title - The document that states legal ownership of a property. Also indicates the rights of ownership and possession of the property. A title may be obtained through a purchase, personal inheritance, or through the foreclosure of a mortgage.
Title Company - The company that insures proper title to a property.
Title Company Closing Fee - The fee paid to the title insurance company at closing for handling the transfer of funds among the parties.
Title Examination - A search of public records to determine the status of a title (i.e., the identity of the current owner and the existence and nature of any liens or claims outstanding against the property).
Title Insurance - Title insurance protects a lender against any title dispute that may arise over a particular property. It is required to close on a home or property loan. You may also purchase owner's title insurance which protects you as the homeowners.
Title Policy - See "Title Insurance"; "Owner's Title Insurance Policy"; and "Mortgage Title Policy".
Title Search - Examination of local real estate records to ensure that the seller is the legal owner of a property and that there are no liens or other claims against the property.
Transfer Tax - Tax paid when title passes from one owner to another.
Truth-in-Lending Act - Federal law requiring written disclosure of the terms of a mortgage (including the APR and other charges) by a lender to a borrower after application. Also requires the right of rescission period.
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Underwriting - Guidelines the lender uses to determine if a borrower qualifies for a loan.
Underwriting Fee -The fee covering the cost of evaluating your entire loan package, including your credit report and appraisal, to determine whether the lender can approve your loan request.
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Variable Rate Mortgage - See "Adjustable Rate Mortgage (ARM)"
Veteran's Administration (VA) - An independent agency of the Federal Government created in 1930. The Service-Readjustment Act of 1944 authorized the agency to administer a variety of benefit programs designed to facilitate the adjustment of returning veterans to civilian life. Among the benefit programs is the VA Home Loan Guaranty program, which encourages mortgage lenders to offer long-term, low down payment financing to eligible veterans by guaranteeing the lender against loss. The VA attained Department status in March 1989.
VA Guaranty - An undertaking by the Federal government to guarantee the lender, subject to limitations, against loss arising from a default by the borrower.
Veterans Affairs (or VA) Loans - Fixed-rate loans guaranteed by the U.S. Department of Veterans Affairs. They are designed to make housing affordable for eligible U.S. veterans. VA loans are available to veterans, reservists, active-duty personnel, and surviving spouses of veterans with 100% entitlement. Eligible veterans may be able to purchase a home with no down payment, no cash reserve, no application fee, and lower closing costs than other financing options. The maximum loan amount is periodically changed. A PNC Mortgage loan consultant can tell you the current maximum loan amount for a VA loan.
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Walk Through - A final inspection of a home to check for problems that may need to be corrected before closing.
Warranty Deed - A deed in which the grantor or seller warrants or guarantees that he/she is conveying good title, as opposed to a quit-claim deed which contains no representation or warranty as to the quality of title being conveyed