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Mortgage Glossary
A Credit Mortgages
Mortgages
which generally meet the credit underwriting guidelines of Fannie Mae, Freddie
Mac, FHA, VA or major jumbo purchasers. Those who have credit ratings or other
qualification deficiencies would be rated as A-, B, C or D credit.
Above Par
When
a mortgage is sold for more than its face value because it has an above market
interest rate. For example, a $100,000 mortgage may be sold for 101.00, or
$101,000.
Abstract (Of Title)
A summary of the public records relating to the title to a particular piece of land. An attorney or title insurance company reviews an abstract of title to determine whether there are any title defects which must be cleared before a buyer can purchase a clear, marketable, and insurable title.
Acceleration Clause
A condition in a mortgage that could require the balance of the loan to become due immediately because regular mortgage payments were not made or there existed other breaches of the mortgage.
Acquisition Cost
The
sales price of a property plus FHA allowable closing costs. Before down payment simplification, FHA
allowed certain closing costs to be financed by adding them to the sales price
before calculating the required down payment. This is now reflected in tables
for low closing cost and high closing cost states with different down payment
requirements for each.
Additional Borrowers
Borrowers who contribute income and credit history to the qualification process of a loan and whose names appear on all closing documents. Each additional borrower is equally liable for the debt and condition of the property.
Adjustable Rate Mortgage (ARM)
A mortgage loan in which the interest rate is adjusted periodically according to a pre-determined adjustment criteria.
Adjusted Sale Price
Adjusted Sales Price. IRS term for the sales price of a home minus the costs of the sale. Used to calculate capital gains.
Adjustment Date
The date the interest rate changes for an adjustable rate mortgage (ARM).
Adjustment Period
The interval of months between the interest rate adjustment dates for an adjustable rate mortgage (ARM).
Adjustment Period Cap
The
amount that the interest rate is allowed to increase or decrease at the time of
adjustment of an adjustable rate mortgage. A one-year adjustable would have an annual cap, since the adjustment period
is every year.
Agreement of Sale
Known by various names, such as contract of purchase, purchase agreement or sales agreement. (depending upon location or jurisdiction) A contract in which a seller agrees to sell and a buyer agrees to buy, under certain specific terms and conditions spelled out in writing and signed by both parties.
Alternative Documentation
Use
of bank statements, W-2's, and pay stubs to document an applicant's income and
assets instead of verification forms mailed by the lender.
Amortization
A payment plan which enables the borrower to reduce his debt gradually through monthly payments of principal.
Amortization Schedule
Amortization Schedule. A table that shows the principal changes of a mortgage balance on a monthly or annual basis.
Amount Financed
The Amount Financed is not the amount of the loan. It is the requested loan amount minus the prepaid finance charge. The Amount Financed is the amount on which the APR is based. For example, if the borrower requests $100,000 and the Prepaid Finance Charge totals $4,000, the Amount Financed would be $96,000.
Annual Percentage Rate (APR)
The actual cost of a mortgage loan expressed as a yearly rate. The APR will be higher than the interest rate stated on the application and note if it includes fees which are categorized as pre-paid finance charges such as: interest, discount points, origination fee, required mortgage insurance and other related fees. The Truth in Lending Act requires lenders to disclose an APR to assist the borrower in measuring the actual cost of a loan on an annualized basis.
Application
A form used by mortgage lenders to document necessary information concerning the mortgage loan applicant(s).
Application Fee
Application Fee. Fee charged by a lender at the time of loan application. This fee may include the cost of an appraisal, credit report, lock-in fee or other closing costs which are incurred during the process or the fee may be in addition to other charges.
Appraisal
An expert judgment or estimate of the quality or value of real estate as of a given date.
Appraised Value
An opinion or estimate of property value provided by a certified property appraiser. The estimate of value is generally obtained by comparing homes similar to the "subject" home that are within the same location or neighborhood.
Assumption of Mortgage
An obligation undertaken by the purchaser of property to be personally liable for payment of an existing mortgage. In an assumption, the purchaser is substituted for the original mortgagor in the mortgage instrument and the original mortgagor is to be released from further liability in the assumption, the mortgagee's consent is usually required.
The original mortgagor should always obtain a written release from further liability if he desires to be fully released under the assumption. Failure to obtain such a release renders the original mortgagor liable if the person assuming the mortgage fails to make the monthly payments.
An "Assumption of Mortgage" is often confused with "purchasing subject to a mortgage." When one purchases subject to a mortgage, the purchaser agrees to make the monthly mortgage payments on an existing mortgage, but the original mortgagor remains personally liable if the purchaser fails to make the monthly payments. Since the original mortgagor remains liable in the event of default, the mortgagee's consent is not required to a sale subject to a mortgage.
Both "Assumption of Mortgage" and "Purchasing Subject to a Mortgage" are used to finance the sale of property. They may also be used when a mortgagor is in financial difficulty and desires to sell the property to avoid foreclosure.
Automated Underwriting Systems
Automated Underwriting Systems. Technological systems that take into account credit scores and other characteristics of borrowers (such as job histories) to develop a rating upon which an underwriting decision can be based. These systems include Desktop Underwriter (Fannie Mae) and Loan Prospector (Freddie Mac).
Available Cash
The amount of liquid assets (i.e. checking, savings, mutual funds, etc.) immediately available to pay closing costs and down payment.
Average Interest Rate
The actual average interest rate for a combination of debts based upon a total weighted interest rate calculation. Utilizing each loan balance and interest rate, the calculator determines an average interest rate for multiple debts.
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