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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
borrower’s 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
borrower’s credit accounts, outstanding debts, and payment
timelines on past or current debts.
-Credit score: A score assigned to a borrower’s 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 buyer’s 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 borrower’s 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
borrower’s 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 buyer’s funds and the borrower’s loan for closing.
-Loan underwriter: One who underwrites a loan for
another. Some lenders have investors underwrite a buyer’s
loan.
-Mortgage banker: One who lends the bank’s 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 seller’s
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 borrower’s 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 Investor’s
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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