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Definitions of mortgage
terms
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| Ginnie Mae |
Nickname for the Government
National Mortgage Association (GNMA). |
| Good Faith Estimate |
A written
estimate of closing costs that a lender must provide a prospective
home buyer within three days of submitting a mortgage loan application.
The best approach is to request this list before choosing a loan. |
| Government
National Mortgage Association (GNMA) |
A government-owned
corporation within the U.S. Department of Housing and Urban Development
(HUD). Created by Congress in 1968, GNMA has responsibility for the
special assistance loan program known as Ginnie
Mae. |
| Hazard insurance |
Insurance coverage that compensates for physical damage to
a property from natural disasters such as fire or other hazards. Depending
where a piece of property is located, lenders may also require flood
insurance or policies covering windstorms (hurricanes) or earthquakes. |
| Home inspection |
An
inspection by a building professional that evaluates the structural
and mechanical condition of a property. The inspection may reveal
the need for repairs that the seller may have to complete before the
sale of the house will go through. The buyer may also make the house
sale contingent on a satisfactory inspection. |
| Homeowners association |
A nonprofit
association that manages the common areas of a condominium
or planned
unit development (PUD). Unit owners pay to the association a fee
to maintain areas owned jointly. See common
area assessment. |
| Homeowner's insurance |
An
insurance policy that combines personal liability insurance and hazard
insurance coverage for a residence and its contents. |
| Housing expense ratio |
The
percentage of gross monthly income that goes toward paying a mortgage
or rent on a home. |
| HUD-1 statement |
A document
with an itemized listing of closing
costs payable at the closing
or settlement meeting when buying property. The closing costs can
include a commission,
loan fees and points,
and sums set aside for escrow
payments, taxes and insurance. It is signed by both the buyer
and the seller, who may be paying some of the closing
costs. The statement form is published by the Department of Housing
and Urban Development (HUD). |
| Hybrid mortgage |
See
alternative
mortgage products. |
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| Index |
A published
measure of the cost of money that lenders use to calculate the rate
on an adjustable
rate mortgage (ARM). The most common indexes are the one-year
Treasury Constant Maturity Yield and the FHLB 11th District Cost of
Funds. |
| Indexed rate |
The
sum of the published index plus the margin. For example, if the index
were 9 percent and the margin 2.75 percent, the indexed rate would
be 11.75 percent. Often, lenders charge less than the indexed rate
the first year of an adjustable
rate mortgage (ARM). |
| Initial interest rate |
Starting rate of an adjustable-rate loan. |
| Interest tax deduction |
Most mortgage holders can deduct all the interest paid on the
loan in filing income tax. The deduction applies to people with just
one mortgage on a primary residence, as well as those with a combination
of loans. Within certain limits set by the IRS, points
paid up front on a mortgage are usually deductible in the year the
house was purchased. |
| Jumbo mortgages |
Mortgages larger than the limits set by Fannie Mae and Freddie
Mac ($252,700 this year; $379,050 in Alaska and Hawaii). A jumbo mortgage
will carry a higher interest rate than a conventional
mortgage. |
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| Lease-purchase mortgage |
A financing
option that allows a potential home buyer to lease a property with
the option to buy. Often constructed so the monthly rent payment covers
the owner's first
mortgage payment, plus an additional amount as a savings deposit
to accumulate cash for a down payment. A seller may agree to a lease-purchase
option if the housing market is saturated and the seller is having
difficult selling the property. |
| Lien |
A legal
hold or claim from one person on the property of another. The lien
placed by a first
mortgage is special; it is called the first lien and takes precedence
over others. |
| Lifetime rate cap |
In
an adjustable
rate mortgage (ARM), it limits the amount that the interest rate
can increase or decrease over the life of the loan. See also caps. |
| Lis pendens |
A pending
lawsuit; in real estate, the constructive notice filed in public records
that a legal dispute exists over a piece of property. |
| Livery of seizin |
Under common law, the process of transferring title |
| Loan origination |
The
process by which a mortgage lender obtains a mortgage secured by real
property. An origination
fee is charged by the lender to process all the forms involved
in obtaining a mortgage. |
| Loan-to-value (LTV)
ratio |
The
ratio of the mortgage loan amount to the property's appraised
value or selling price, whichever is less. For example, if a home
is sold for $100,000 and the mortgage amount is $80,000, the house
has an 80 percent LTV. |
| Lock or lock-in |
Lender's guarantee that the mortgage rate quoted will be good
for a specific amount of time. The home buyer usually wants the lock
to stay in effect until the date of the closing. |
| Lock-and-float |
Rate programs offered by companies that allow borrowers to
lock in the current interest rate on a mortgage for a specified period
of time, while also letting them "float" the rate down if market conditions
improve before closing. |
| Low-down mortgages |
Mortgages with a low down
payment, usually less than 10 percent. Fannie
Mae and Freddie
Mac design loan programs that spell out a set of standards for
lenders. In recent years these government-chartered agencies have
made low-down mortgages more available through programs such as Fannie
Mae's Flexible 97 and Freddie Mac's Alt 97. The "97" refers to the
amount of the home's value a lender will cover in a mortgage, leaving
a low 3 percent down payment required. |
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| Margin |
The
number of percentage points added to the index
on a one-year adjustable
rate mortgage (ARM). For example, if the index rate is 9 percent
and the margin is 3 percent, then the fully indexed rate is 12 percent. |
| Maturity |
The
date on which the principal balance of a loan becomes due and payable. |
| Mortgage |
A legal
document that uses property as collateral to secure payment of a debt. |
| Mortgage banker |
The
lender that originates the mortgage loan; the one making the loan
directly and closing the loan. |
| Mortgage broker |
An
individual or company that brings borrowers and lenders together for
the purpose of loan
origination. Unlike a mortgage
banker, brokers do not fund the loan but work on behalf of several
lenders. Brokers typically require a fee or a commission
for their services. See broker
premium. |
| Mortgage insurance |
A policy
that insures the lender against loss should the homeowner default
on a mortgage. Depending on the loan, the insurance can be issued
by a government agency such as the Federal
Housing Administration (FHA) or a private company. It is part
of the monthly mortgage payment. See also private mortgage
insurance (PMI). |
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