Glossary of Terms

A

Adjustable Rate Mortgage : A loan agreement in which the lender may adjust the interest rate from time to time to reflect changed conditions in the mortgage money market. These changes can be based on a variety of indexes.

Amortization : A reduction of a debt (the principal) by installment payments.

APR : A standard calculation used by lenders. It is designed to help borrowers compare different loan options. For example, a loan with a lower stated interest rate may be a bad value if its fees are too high. Likewise, a loan with a higher stated rate with very low fees could be an exceptional value. APR calculations incorporate these fees into a single rate. You can then compare loans with different fees, rates or different terms.

Appraisal : An estimate or opinion of value of a subject property.

Association and Maintenance Fees : Any association fees you are required to pay with the ownership of this home. Also include any other maintenance costs you expect to incur with the ownership of this home that you are not paying while you continue to rent.

Assumption : The buyer assumes the existing debt obligation and primary personal liability to repay the loan.

Assumption Fee : A fee lender’s charge for processing new records for a buyer who assumes an existing loan.

B

Balloon Payment : The final payment on an amortized loan, which is significantly larger than the regular payments.

C

Cal-Vet : A loan, which is administered through the California Department of Veterans Affairs.

Cash in Hand : Cash you have for the down payment and all closing costs.

CC&R’s : Covenants, Conditions and Restrictions.

Closing Statement : A written accounting of all funds handled by escrow, which is issued to the buyer and seller at the close escrow.

Commission : An agent’s fee for negotiating a loan or real estate transaction.

Condominium : A subdivision containing 5 or more units in a residential, commercial, or industrial property.

Conforming Loan : A loan written to FNMA/FHLMC specifications. The maximum conforming loan limit is currently $275,000.

D

Deed of Trust : The deed, which conveys legal title to a trustee to be held as security for a loan on real property.

Discount Fee : To negotiate a lower interest rate.

E

Escrow : A bonded neutral depository, which acts as a dual agent for the buyer and seller in a real estate transaction.

Equity : The value an owner has in a property in excess of the debt against it.

F

FHA : The Federal Housing Administration.

FHLMC (or Freddie Mac) : The Federal Home Loan Mortgage Corporation. FHLMC has authority to buy and sell conventional, FHA and VA loans

FNMA (or FannieMae) : The Federal National Mortgage Association. FNMA buys existing FHA, VA and Conventional loans.

Finance Charge : The total dollar about that the credit will cost which would include interest, loan fees, assumption fees, finder’s fees, premiums for mortgage insurance and points paid by buyer.

Fully Amortized : When the principal is paid off entirely in scheduled installments.

G

Grant Deed : Document used in California to transfer title to real property.

H

Hazard Insurance : Homeowners insurance which covers the dwelling/property.

HOA (HomeOwners Association) : An organized group of homeowners whose members help to regulate and enforce the rules and standards of their respective communities.

Home Insurance Rate : Your homeowner’s insurance rate. 0.5% for a $100,000 home equals $500 per year for homeowner’s insurance.

I

Impounds : A reserve account to accumulate funds to insure payment of insurance and county taxes on the property.

Index : Is a financial indicator used for adjustable rate mortgages.

Installment Loan : A loan providing for payment of the principal in two or more payments at different stated times.

Interest Rate : Annual interest rate for this mortgage.

J

Joint Tenancy : A type of ownership of property by two or more people with the right of survivorship.

L

Legal Description : A formal method of describing a parcel of real estate that is recognized by law.

Loan to Value : The percentage of the market value established in determining the amount of a new mortgage or trust deed loan.

Loan Origination Fee : A “one-time” fee paid by the borrower to cover the costs of setting up the loan file. This is a non-recurring cost.

Loan Origination Percent : The percent of your loan charged as a loan origination fee. For example, a 1% fee on a $120,000 loan would cost $1,200.

M

Monthly Payment : Monthly principal and interest payment (PI).

Monthly PI Payment : Monthly principal and interest payment.

Monthly PMI Payment : Monthly cost of Principal Mortgage Insurance (PMI). For loans secured with less than 20% down, PMI is estimated at 0.5% of your loan balance each year. Monthly PMI is calculated by multiplying your starting loan balance by this percent and dividing by 12. When the equity in your home exceeds the percentage required for PMI, your PMI payment drops to zero. Please note that this is only an estimate of your actual PMI. The amount you may be required to pay may be higher or lower than our estimate.

Mortgage : A contract that makes a specific property the security for the payment of a debt.

Mortgage Amount : Original or expected balance for your mortgage.

N

Net House Payment : Your house payment minus the value of the tax deduction and principal payment.

Non-Conforming (or Jumbo) : This is a term used for loans that exceed the FNMA/FHLMC loan limits established by Congress.

O

Other to Include Fees : Any other fees that should be included in the APR calculation. These fees can vary by lender, but at a minimum usually includes prepaid interest.

P

PITI : Principal, interest, taxes and insurance.

Points : Total number of “points” purchased to reduce your mortgage’s interest rate. Each “point” costs 1% of your loan amount.

Preliminary Title Insurance : A report, which shows the owner of record and the present condition of title prior to the issuance of the policy of title insurance.

Prepaid Interest : Interest paid to the lender to offset a delay in the start of loan payments.

Prepayment Amount : Amount that will be prepaid on your mortgage. This amount will be applied to the mortgage principal balance, based on the prepayment type.

Prepayment Type : The frequency of prepayment. The options are: none, monthly, yearly, and one-time payment.

Prepayment Penalty : When the loan balance is paid prior to loan maturity, a
penalty will be charged based on a percentage of the original loan amount.

Prime Rate : A reference rate used to index the cost of money.

Private Mortgage Insurance (PMI) : An insurance policy, which insures the lender against loss caused by default of the borrower.

Property Tax Rate : Your property tax rate. 1% for a $100,000 home equals $1,000 per year in property taxes.

Purchase Price : The price of the home you wish to purchase. This is the actual price you’ll pay, not including any closing costs.

Q

Qualify Amount : Shown as “Total monthly payment.” This is the total amount you qualify for per month. This amount is the total of “Principal, Interest, Tax and Insurance” for your home.

R

Real Property Tax : Is a specific lien the county charges on each parcel.

Record : To file for record in the office of the county recorder.

Recurring Costs : Expenses that the buyer can expect again, year after year, such as property taxes, fire insurance and interest.

RESPA : The Real Estate Settlement Procedures Act. A federal law to protect and inform homebuyers regarding closing costs. This provides disclosure of settlement costs at the origination of a loan transaction.

S

Sales Contract : Contract wherein a seller agrees to give possession and title of real property upon full payment of purchase price.

Savings : Total amount of interest you will save by prepaying your mortgage.

SFR : Single Family Residence

Start with Payments : This is the payment number that your prepayments will begin with. For a one time payment, this is the payment number that the single prepayment will be included in. All prepayments of principal are assumed to be received by your lender in time to be included in the following month’s interest calculation. If you choose to prepay with a one-time payment for payment number ZERO, the prepayment is assumed to happen before the first payment of the loan.

T

Tax Savings : The value of the tax deduction you receive on your mortgage’s interest and home’s property taxes. For example, if you have $900 in interest and $100 property taxes per month, the value of the tax deduction would be $280. (At a tax rate of 28%).

Terms in Year : The number of years over which you will repay this loan. The most common mortgage terms are 15 years and 30 years.

Title Insurance : An insurance policy, which protects the insured against claims arising from title imperfections.

Total Annual Income Debt Percentage : Not shown. This is the percentage of your annual income your financial institution allows you to use for debt installment payments. This includes car payments, credit card payments, other loan payments and your “Principal, Interest, Tax and Insurance” payment for your home. The default rate is 36%.

Total Interest : Total of all interest paid over the full term of the mortgage. This total interest amount assumes that there are no prepayments of principal.

Total Payments : Total of all monthly payments over the full term of the mortgage. This total payment amount assumes that there are no prepayments of principal.

Truth-In-Lending : Also known as the Federal Reserve Regulation Z, which requires disclosure of certain loan terms to the borrower.

V

VA : U.S. Department of Veteran’s Affairs.

VA Loan : A loan guaranteed by the U.S. Veterans Administration