NEGATIVE AMORTIZATION – The loan balance increasing over time (often due to monthly payments being less than the interest owned).
PARTY-HAT MORTGAGE – Michael made this up to be funny.
PITI – An acronym for payments to a lender that cover principle, interest, taxes and insurance on a property.
PMI – PRIVATE MORTGAGE INSURANCE – Insurance protecting the bank against foreclosure covering a percentage of property value. This is required on most loans with an LTV of 80% or greater.
POINTS – Up-front charge for making the loan (1 point = 1% of loan amount).
PREPAYMENT PENALTY – A fee paid by the borrower if they pay their loan before it is due.
PRINCIPAL – The balance still owed or the amount of money borrowed on a loan.
PROMISSORY NOTE – This document is signed and given to the lender by the borrower. It will explain what is owed and how it will be paid.
RATE CAP – A limit on how much the variable-interest rate can increase during the life of the loan.
REFINANCING – This process involves getting a new mortgage, usually with a lower rate to pay off your existing loan.
REVERSE MORTGAGE – The lender makes payments to the borrower (a form of negative amortization). Certain restrictions apply.
SECONDARY MARKET – The buying and selling of mortgages after closing.
SONYMA (STATE OF NEW YORK MORTGAGE ASSOCIATION) – This is a state-funded program for first-time home buyers who may be eligible for special mortgage rates. Check with your lender to see if you can qualify.
TITLE – A document showing ownership of property.
TITLE INSURANCE – Insurance against defects in title.
TITLE SEARCH – This report offers the present condition of property and reviews a specific piece of real estate to guarantee there are no liens, encumbrances, ownership concerns, etc.
TRANSFER TAX – City, county, or state taxes imposed when property passes from one person to another.
VA (VETERAN’S ADMINISTRATION) – A government agency that insures loans for those involved in the armed services (service persons/veterans).
VARIABLE RATE MORTGAGE – A mortgage loan in which the interest rate may increase or decrease at specified intervals within certain limits based upon an economic indicator.
ABSTRACT – A written history of public records on property.
ADJUSTABLE RATE MORTGATE (ARM) – These loans have an interest rate which changes periodically according to a specified financial index.
AMORTIZATION – Repayment of your loan through scheduled installment payments.
APPRAISAL – A report made by a qualified person indicating the value of a property as of a given date. During the course of a real estate transaction, this person represents the bank. In addition to value, they may report on repairs required for financing.
APPLICATION FEE – The amount you pay to a lender to process your application.
ASSUMABLE MORTGATE – The buyer takes over the seller’s mortgage, and the buyer then accepts the responsibility for the payments. These are becoming more rare as banks have eliminated this option on most new loans.
BALLOON MORTGAGE – Scheduled repayment of the loan balance at one time.
BINDER – A preliminary agreement to purchase, often secured by the payment of money in earnest. Also known as a purchase offer.
BLANKET MORTGATGE – This is one mortgage that covers 2 or more properties.
BUY-DOWN – Money advanced by an individual (e.g., builder, seller, buyer, developer) to lower monthly mortgage payments for a few years or for the whole term.
CAP (INTEREST RATE) – The maximum interest rate increase allowable on an adjustable rate mortgage.
CAP (PAYMENT RATE) – The maximum payment amount increase allowable on an adjustable rate mortgage.
CLOSING – The actual legal transfer of property from seller to buyer.
CLOSING COSTS – Fees paid at the time of closing. Costs may vary from lender to lender.
CONVENTIONAL MORTGAGE – A loan that is not insured or guaranteed by a government or private source.
DEED – this is the written transfer of property ownership.
DEFAULT – Failure to meet an obligation when due.
EASEMENT – The legal right for limited use of another’s land.
ENCUMBRANCE – A claim, lien, or liability that has been attached to the title of a property. This may affect its value. This is a valid claim against property.
EQUITY – The difference between the fair market value (appraised value) of your home and your outstanding mortgage balance. It is the portion of property you own.
ESCROW – Deposits made to a special account until the terms of a contract are fulfilled.
EXECUTION DATE – The starting point for the contract is the execution date. It’s best to give an example- the buyer signs the contract to make an offer, perhaps there are some changes and some negotiation that takes a day or two. Buyer and seller then come to an agreement. The buyer then initials the changes and gives the contract to the seller. The actual date that the seller signs becomes the execution date. It doesn’t matter if it’s a business day, a holiday or a weekend.
FANNIE MAE (FNMA) – Federal National Mortgage Association – quasi-government corporation that buys and sells mortgages.
FEDERAL HOUSING ADMINISTRATION (FHA) LOAN – This agency insures mortgages on residential property with a low down payment.
FIXED RATE MORTGAGE (FRM) – The interest rate always remains the same on this loan.
FORECLOSURE – The procedure where the lender reacquires property after default.
FREDDIE MAC (FHLMC) – Federal Home Loan Mortgage Corporation – quasi-government agency that pools mortgages and sells participation agreements.
GRANTEE – Buyer of property.
GRANTOR – Seller of property.
INDEX – The guide for rate changes that lenders use to decide how much the annual percentage rate will change over time.
INTEREST RATE – The periodic charge, expressed as a percentage, for use of credit.
LIEN – A legal claim on property used as security for a debt.
LOAN-TO-VALUE RATIO – The relationship, expressed as a percentage between the property’s mortgage and its value. For example, if you owe $75,000 on a $100,000 home, your ratio is 75%.
MARGIN – On an adjustable mortgage, the number of percentage points the lender adds to the index rate to determine the adjusted rate.
MIP – MORTGAGE INSURANCE PREMIUM – Insurance protecting the bank against foreclosure on all FHA mortgages.
MORTGAGE – A legal document where the owner uses the new property as security to guarantee repayment of the loan. The mortgagee is also known as the lender. The mortgagor is known as the borrower.
Home renovations can be daunting, but financing them doesn’t need to be. Homebuyers considering a fixer-upper and home owners thinking about doing major rehab work might want to consider an FHA 203K loan.
Often called rehab or renovation loans, 203K loans differ from traditional mortgage loans. Buyers who want to purchase a home in need of repair usually have to secure a loan to buy the property, get additional financing to complete the renovation and then get a permanent mortgage to pay off the interim loans. 203K loans, however, are made based on the after-repair value and include an escrow account, in which the money is dispersed in draws as the necessary renovations are being completed.
Renovation loans can be used in three ways: to purchase an existing home (and the land attached to it) and renovate it; to pay off existing debt on a current residence and renovate it; or to purchase an existing property and move it to a new piece of land. The types of improvements allowed on 203K loans are extensive – painting, room additions, decks, bathroom and kitchen remodels, and even going green. Luxury items and improvements are generally not eligible.
Homebuyers need to work closely with their REALTOR as well as a contractor to get a detailed statement about the extent and general cost of the rehab work and the expected market value of the property after the completion of the work. After finding a HUD-approved lender – not all banks administer these loans – and inspections and appraisals, the work can begin. For more information, go to www.hud.gov.