Glossary - WMC Action News 5 - Memphis, Tennessee



Adjustable-Rate Mortgage (ARM) - A loan in which the interest rate is adjusted periodically to show changes in a given financial index.

Amortization - Making principal and interest payments on a loan in regularly scheduled installments.

Annual Percentage Rate (APR) - The cost of the loan expressed as a yearly rate on the balance of the loan.

Appraisal - An estimate of the value of property, made by a qualified professional called an "appraiser".

Assets - When completing your loan application, you will have to provide the following information regarding your assets: complete information on all bank and money market accounts, two months of current bank statements, current values of stocks, bonds, mutual funds, and other investments, vested interest in retirement funds, face amount and cash value of life insurance, information on any cars you own and real estate you own and the value of any significant personal property you own.

Attached Home - Properties that include, but are not limited to, farms, ranches over five acres, commercial or industrial property, residential lots, raw land, recreation land and other unique properties with limited marketability. These properties are not usually part of the loan analysis.



Balloon Loan - A mortgage in which a lump sum of the remaining balance is due at the end of the loan term for when the monthly payments are not large enough to repay the loan during the term.



Cap - A limit on the amount the interest rate or monthly payment can increase in an adjustable-rate mortgage (ARM).

Certified Funds - Buyer must bring certified funds for the exact amount to closing.

Closing - The meeting between the buyer, seller and lender where the property and funds legally change hands. Also called settlement. The closing costs usually include an origination fee, discount points, appraisal fee, survey, taxes, deed recording fee, credit report charge, title searches and insurance and other costs assessed at the time of settlement. The cost of closing are usually about 3 percent to 6 percent of the mortgage amount.

Condominium - A condominium is a unit of a multi-unit housing structure with a proportional interest in the common areas.

Contract of Sale - A contract between a buyer and a seller of property to convey title after certain conditions have been met and payments have been made. A complete version should be sent to the closing agent.

Conventional Loan - A common long-term loan that a lender makes for the purchase of a home.

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



Debts - The following information will be requested of you on your loan application, regarding your liabilities and debts: an itemized list of all current debts such as loans and credit cards, a written explanation of any past credit problems, and the full details of bankruptcy during the last seven years, if applicable.

Deed of Trust - A document used in many states in place of a mortgage to secure the payment of a note.

Down Payment - Money paid to make up the difference between the purchase price and the mortgage amount.



Employment - Your loan application will ask for certain information regarding your employment history and income: two years of employment history, with complete job details, recent pay stubs and two years of W-2 forms, complete tax returns and financial statements if self-employed, a written explanation of employment gaps, records of dividends and interest received and proof of other income.

Equity - The difference between the fair market value and current indebtedness, also called the owner's interest. It is the value an owner has in real estate over and above the obligation against the property.

Escrow - An account held by the lender into which the home buyer pays money as tax or insurance payments. It is also where deposits are held pending a loan closing.



Fannie Mae - See Federal National Mortgage Association.

Federal Housing Administration (FHA) - A government agency which controls a variety of home-loan programs, including the Sec. 203(b) program which provides low-rate mortgages to qualified buyers who make a down payment as small as 3 percent.

Federal National Mortgage Association (FNMA) - A tax-paying corporation, also known as "Fannie Mae", 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.

Fees - The fees charged for the credit report and appraisal are usually $500 or less.

Financial Index - A published number or percentage, such as the average interest rate or yield on Treasury Bills.

Fixed Rate Mortgage - A home loan with an interest rate that will remain the same rate for the life of the loan. About 75 percent of all home mortgages have fixed rates.

Foreclosure - A legal process by which the lender or the seller forces a sale of a mortgaged property because the borrower has failed to meet the terms of the mortgage. Also known as a repossession of property.



Good Faith Estimate - An estimate from an institutional lender that outlines the costs a borrower will have, including loan-processing charges and inspection fees.



Index - Financial tables used by lenders to calculate interest rates on adjustable mortgages and on Treasury Bills.

Installment - An Installment loan, such as a student loan or car loan, is a debt that is regularly reported for a specific amount and for a specific term.

Insurance - A homeowner's insurance policy must be procured by the purchaser in an amount equal to the loan amount (or as required by state law) and brought to the closing. Your processor can advise you of the coverage required for your area. The premium must be paid and a receipt produced at closing or the amount of the premium must appear on the closing statement for payment at the time of closing.

Interest - The sum paid for borrowing money, which pays the lender's costs of doing business.

Investment/Rental Property - Property that you do not occupy which is rented, leased or used for other investment purposes.



Jumbo Loan - Loans that cannot be funded by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation because they are larger (more than $214,600 as of 1/1/97) than the limits set by these two agencies, and therefore, usually carry a higher interest rate.



Lender Requirements - All lender requirements should be satisfied prior to closing. If, for some reason they are not, the borrower must bring any remaining documents to closing.

Loan Origination Fee - The fee charged by a lender to prepare all the documents associated with your mortgage.



Origination Fee - The fee charged by a lender to prepare loan documents, make credit checks, inspect, and sometimes appraise, a property. This cost is usually computed as a percentage of the full value of the loan.

Other Income - Other income includes dividends/interest, net rental income, alimony, child support and maintenance. Note: Alimony, child support, or separate maintenance income need only be revealed if the applicant opts to have it considered for the repaying of this loan.

Other Debt - Other debt includes, but is not limited to, alimony, child support, maintenance, day care, current housing expense and investment housing expense.



Personal - The loan application requires that you provide the following personal data: social security number, age, education, marital status, number and age of dependents, current address and phone number, address(s) for the past seven years, current housing expenses and the name and address of landlord/mortgage holder of the past two years only.

Points (loan discount points) - The prepaid interest charged at closing by the lender. Each point is equal to 1 percent of the loan amount (e.g., two points on a $100,000 mortgage would cost $2,000).

Powers of Attorney - A legal document authorizing one person to act on behalf of another. Powers of attorney are acceptable in certain circumstances. If needed, contact your loan officer immediately so that proper measures are taken to insure that the power of attorney is legal and acceptable.

Pre-Approval - This means that the bank has determined that your credit report and application have been approved and granted you the money for your loan.

Prepaids - The expenses that are put into escrow at closing, usually including real estate taxes, insurance and interest.

Pre-Qualified - This means that you qualify for a loan based on your application and credit report, but you have not yet obtained it.

Primary Residence - Primary residence is a property that you physically occupy and is your home.

Principal - The amount of debt remaining on a loan, excluding interest.

Private Mortgage Insurance (PMI) - A policy the borrower buys to protect the lender from non-payment of the loan. PMI policies are usually required if you make a down payment that is less than 20 percent of the appraised value of the home.

Property Info - To complete your loan application, you must provide, a complete copy of the sales contract, the mailing address and property description, contact information for access to the property and plans and specifications (for new construction only).



Refinance - Getting a new mortgage loan on a property currently owned. Refinancing often replaces existing loans on the property.

Revolving - The term Revolving refers to a debt that generally has a fixed limit, but the outstanding balance and monthly payment may vary from month to month. The best examples of revolving debt are credit cards and gas cards.



Second Home / Vacation Home - Second home/vacation home is a property that is not your primary residence and that you occupy less than six months a year.

Single Family Home - A single family home is a free-standing housing structure or single unit that does not share walls with any other homes.

Standard Metropolitan Statistical Area - Areas designated by the U.S. Office of Management and Budget that contain a city of 50,000 or more.

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



Termite Letter (state specific) - The seller or agent should call a termite inspector as soon as the contract is signed and bring to closing a certificate stating that the dwelling is free from current infestation and damage from or indications of damage. The signed receipt should be presented for costs involved with the inspection. If repairs or treatment is required, it must be completed prior to closing.

Title - The document that outlines proof of ownership of a property.

Title Insurance - A policy which insures you against errors in the title search (to determine legal ownership), essentially guaranteeing you and your lender's financial interest in the property.

Townhouse - A townhouse is a row house on a small lot that shares walls with other similar units.

Treasury Bills - Securities issued by the Treasury department that have the full backing of the U.S. Government.

Treasury Index - An index used to determine interest rate changes for adjustable rate mortgages (ARMs).



Underwriting - The considerations for making a loan to a potential home buyer. These include: credit, employment, assets and any other factors as well as the choice of an appropriate rate and term or loan amount.



Veterans Administration (VA) - The U.S. Department of Veterans Affairs operates a variety of programs to help veterans. One of the key plans it oversees is the VA Loan Program, which allows most veterans to purchase a house without a down payment.
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