Spectrum Planning Group

The mortgage industry is full of terms that are foreign to many people. The following glossary of terms should help you translate the mortgage language into English and help you make sense of the mortgage process.

Amortization
The repayment of a debt in a specified number of equal periodic installments that may include a portion of principal and accrued interest.

Annual Percentage Rate (APR)
This is not the note rate applied for, but rather is a government mandated formula that shows the cost of the loan in a yearly rate by using the note rate plus certain other upfront costs including interest and loan fees.

Appraised Value
The estimated value of a home established by a professional who has a knowledge of real estate prices and markets.

ARM Loan
Adjustable Rate Mortgage. Mortgage characterized by an interest rate that can adjust up or down at certain intervals based on a current index (commonly the 1 year T-Bill) plus a preset margin.

Balloon
Mortgage characterized by level fixed payments for a predetermined time frame followed by either a refinance or adjustment in interest rate

Capital Gains
The tax paid upon certain types of real estate transactions. Contact accountant for specifics

Cash to Close
The amount needed from the borrower at closing. Consists of down payment, closing costs and prepaid items. This amount needs to be in the form of a cashier check made payable to the buyer.

Closing Date
Date stated on the purchase agreement that buyer and seller agree to finalize or close the transaction

Closing Costs
Various costs of setting up and funding the transaction - including closing fee, title insurance, appraisal fees, underwriting fee, mortgage recording fee, etc.

Condo/Town Home
Property types that usually have the following characteristics: they are attached, have a homeowners association and dues, the outside maintenance is taken care of by the association, and common areas and amenities available to all owners in the association.

Conventional Financing
Standard, non-government financing.

Credit Bureaus
Agencies that provide compilations of your credit history. The three main credit bureaus are Experian, Trans Union, and Equifax

Credit Report
Report provided by the credit bureaus which shows the history, current status, and profile of an individual

Credit Scores
The number generated by the credit bureaus which is a numerical representation of the subjects credit profile, range is from 450 on the low side to 900 being the highest score possible.

Debt Ratios
Ratio of monthly debt payments to monthly gross income, often expressed as a front (housing payment only) or back (all debt) ratio. Example: $5000 monthly income, $1400 housing payment, $1700 total debt would equal ratios of 28% / 34%.

Deferred Interest
When monthly mortgage payment do not cover all the interest due, the interest not covered is added to the unpaid balance. Also referred to as negative amortization.

Discount Points
One point equals one percent of the loan amount. Points are used to lower the interest rate. One point does not equate to lowering the interest rate one percent. Generally lowering the interest rate 1/8 will cost about 1/2 point, although this can vary based on daily pricing. Typically is tax deductible.

Down Payment
The difference between loan amount and purchase price.

Earnest Money
Deposit toward down payment submitted with a purchase agreement as evidence of the buyers’ commitment

Equifax Information Services
PO Box 740243
Atlanta, GA 30374
(800) 685-1111

Escrows
The portion of the monthly payment that is not applied to principal or interest, but rather is used to pay mortgage insurance, homeowners insurance and property taxes.

Experian Information Services
PO Box 2002,
Allen, TX 75013-3742
(888) 397-3742

Fannie Mae
Short name for the Federal National Mortgage Association. One of the main Government Sponsored Agencies that sell mortgage backed bonds to investors. They are the ultimate source of the money that we lend. Fannie Mae protects its investors by issuing underwriting guidelines that are to be followed to ensure quality lending.

Freddie Mac
Short name for Federal Home Loan Mortgage Corporation - see above

FHA Financing
Government backed minimum down payment financing program which has a lower mortgage insurance premium and greater credit leeway as compared to conventional minimum down payment programs

Fixed Rate Mortgage
Most common type of financing. A mortgage loan with a constant interest rate and payment throughout the life of the loan. Terms range from 10 to 30 years.

Floating
Not locking in a rate, but rather choosing to float the interest rate as the market moves up or down.

Flood Certification
Required document on all loans. Confirms if the property is in or out of a FEMA designated flood zone.

Fully Indexed Interest Rate
The sum of the index rate on an adjustable rate mortgage plus the margin.

Funds held in Escrow
Monies held from the seller to provide payment for repairs or non completed items in new construction.

Good Faith Estimate
Document prepared by lender which estimates and delineates the various fees and closing costs associated with the home purchase.

Government Financing
Financing provided from government agencies such as FHA, VA etc…

HELOC
Home Equity Line of Credit. Second mortgage product, generally characterized by interest only payments and the ability to draw, pay back, and redraw

Home Inspection
Not required by lender. This is a private inspection done by the buyers choice to confirm that the property is in acceptable condition.

Homeowners Association Dues
Amount paid by owner of a townhome or condo to cover various amenities or services provided by the homeowners association (examples -- common areas, hazard insurance, garbage removal, lawn maintenance,)

Homeowners/hazard Insurance
Insurance which covers damage or loss to the property. The premium may be paid into an escrow account held by the mortgage company, which then pays the insurance company once a year

HUD-I (Settlement statement)
Document prepared by title company at closing which shows where all of the money in the transaction was coming from and going to.

Index
Any number of economic indicators lenders use to calculate interest rate adjustment for adjustable rate mortgages. Example: 12-MTA, LIBOR, CMT (Constant Maturity Treasury)

Interest Rate Cap
The most the interest rate on an ARM can increase or decrease at each adjustment period.

Jumbo Loan
Loan with an initial balance greater than $417,000.00.

Jumbo Pricing
Refers to the fact that rates are generally slightly higher on jumbo loans.

Loan-to-Value (LTV)
The ratio that the principal amount of the loan has to the property’s appraised value. Example: 80,000 owed on a property worth 100,000 equals an 80% LTV.

Lock-in Period
Time period that a rate is protected for during the loan process.

Locking in
Choosing to protect a particular rate and program for a specific period of time.

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