Section 1031 of the United States Internal Revenue Code states that a taxpayer may defer federal income tax liability and the recognition of capital gains during the exchange of certain types of property. This is also known as the 1031 Exchange.In other words, a 1031 exchange is a swap of one type of property for another. Although most property exchanges are taxable, if your swap falls under the rules and regulations of the 1031 exchange, you may either have no tax or the tax requirement will be limited due to the time at which the exchange took place. This can continue indefinitely as long as the swap falls under the 1031 - thus allowing for your investment to grow tax-deferred. However, although you may experience an increase in profit during each swap, you will have to pay taxes when you decide to cash out. This means you'll likely only have to pay taxes once during the lifetime of your investment.
A 15-year fixed mortgage is a mortgage loan whereby the interest rate and the monthly payment amount are fixed for the lifespan of the loan - 15 years. Many homebuyers opt for a 15-year plan over a 30-year conventional loan as it can often save a significant amount of money on interest payments. Despite the dip in overall interest payments over the course of the loan, the buyer is forced to save a bit more each month as their monthly costs will be significantly higher than those of a 30-year fixed mortgage loan.
Section 203(k) is a unique mortgage loan for homebuyers. If the homebuyer is looking to buy a house that needs repair or modernization, they often have to follow through an expensive and complicated process. Most repair loans often have high-interest rates, short repayment terms, and what is called a balloon payment (a large end-of-term payment). However, a Section 203(k) loan mitigates high-costs and complicated term lengths for both the lender and the borrower. 203(k) Loans help with both the acquisition and the rehabilitation of the property, saving the borrower both time and money. They are also insured, thus protecting the lender's security during the transaction even before the value of the property begins to offer adequate security.
An adjustable-rate mortgage (aka ARM) is typically a 30-year home loan with an interest rate that changes often during the term length. You may notice two numbers before some of the common ARM loan types. The first number stands for how long the fixed rate will last for. The second number indicates how often your rate can change per year once the fixed rate period has passed. If you take out a 3/1 ARM , you'll be paying a fixed rate for a total of three years and an adjusted rate for a total of 27 years. With an adjustable rate, you take the risk of paying an increased interest rate some years and the benefit of paying a lower interest rate during other years. There is no guarantee as to how high or low the interest rate will be from year to year.
An adjustable-rate mortgage (aka ARM) is typically a 30-year home loan with an interest rate that changes often during the term length. You may notice two numbers before some of the common ARM loan types. The first number stands for how long the fixed rate will last for. The second number indicates how often your rate can change per year once the fixed rate period has passed.If you take out a 5/1 ARM, you’ll pay a fixed interest rate for the first 5 years of your loan and then begin paying an adjustable rate for up to 25 years. The adjustable rate may be higher or lower depending on the index rate.
An abstract of title is a record of the chronological history of legal documentation handed from property or asset owner to owner. These documents may include titles, transfers, and claims against the property. When reading the document, you will likely begin with the original grant deed. This will include all subsequent changes in ownership as well as a history of claims. Namely, easements encroachments, encumbrances, liens, restrictions, litigations, and tax sales. Unless the abstract of title has been lost for some reason, most prospective buyers will receive a copy of an abstract of title before negotiating a purchase. Likewise, each property owner should maintain a copy of their abstract of title as it can be fairly costly to replace.
For a HELOC loan, your lender will expect or require you to have your account open for a certain period of time. If you happen to pay your loan early or decide to refinance and close your account, your lender may charge you with an early termination or cancellation fee. In order for your account to be terminated, you must pay the loan amount in full. If you happen to pay for HELOC in 5 years and choose to terminate your account, you will likely incur a fee. Most lenders charge around 2% of the principal balance (a maximum of $450) if you close the account before the five year mark.
When a borrower first acquires a loan, an amortization schedule is created showing how much principal and interest is required to be paid each month. When the loan term first begins, the payment will attack the interest at its highest. As the borrower continues to pay their monthly fee, the interest rate will decrease overtime. During the loan term, the borrower can begin to pay off their loan before the maturity date. When this occurs, it is called an additional principal payment, as the borrower is paying off the lien amount rather than paying toward interest. However, overtime, the additional principal payments will reduce the amount of interest paid.
An adjustable-rate mortgage (aka ARM) is a type of mortgage whose interest rate varies throughout the life of the loan. However, for a certain period of time at the loan's outset, the interest rate is fixed - meaning unchanging. After the period of time in which the fixed rate ends, the rate can reset periodically, often at yearly intervals. ARMs are often referred to as variable-rate mortgages or floating mortgages. The interest rate of an ARM is reset based on a benchmark or index as well as an additional spread called an ARM margin.
ARM loans have three different kinds of interest rate caps. These include:
1. The initial adjustment cap. This type of cap refers to the initial increase percentage your ARM will rise after the fixed-rate period. The rate most often rises between 2% and 5%. This means that the first rate change cannot rise above 5% higher than your initial interest rate.
2. The second type of ARM cap is called a subsequent adjustment cap. This cap will determine how often and how high your interest rate will change during the adjustable-rate period. This rate often never rises above 2%, meaning that it will likely never rise higher than 2% more than the previous rate.
3. The third and final cap applied to ARMs is called the lifetime adjustment cap. This type of cap will determine how much the interest rate can increase in total, over the entire term period. This cap often sits around 5%. This means that your interest payment may never rise above 5% more than the initial rate. However, this is not always the case, some lenders may have a higher cap.
The adjustment date is the date in which an ARMs interest rate is scheduled to change. An ARMs interest rate is typically fixed at a discounted rate for the initial lien period before it will be reset (or adjusted). According to the parties' agreement, the interest rate will be adjusted on a previously arranged date to reflect the current market's interest rates. The period of time in between each adjustment is called the adjustment period.
An adjustment period refers to the span of time in between a rate change in an adjustable-rate mortgage (ARM). The adjustment periods range between one, three, and five years depending on the lender and the length of your loan.
The most commonly used definition of amortization is that which refers to the period of time a borrower will need in order to pay the regular principal amount along with the expected interest. In the event of a mortgage loan, the amortization schedule is often set by the lender. The purpose of an amortization schedule is to reduce the current or outstanding balance of a mortgage loan through installment payments.
A schedule or timeline, often provided by your lender, breaking down your monthly payments into principal and interest over the course of your entire loan term.
The amount of time in which it will take you to pay off your loan.
An annual percentage rate (APR) is a term used to describe the annual rate at which interest is paid on an investment. The annual percentage rate calculates the percentage of the principal (the overall amount owed) you will pay each year at a monthly rate. However, APR does not account for the possible compounding interest your loan may incur over a given year. APR is an expressed estimate for the likely interest you will pay in a given year. An APR may also include other charges and fees. For example, the mortgage insurance cost, closing costs, discount points, and loan origination fees.
Just as with any other profession, loan processors should be compensated for their job. Many lenders offset this fee by charging their customers an application fee. An application fee may range anywhere between $0 to upwards of $500 and is often non-refundable. If you're working with a mortgage broker rather than a Credit Union or Bank, your application fee is likely to be a bit higher as the broker is serving as an intermediary. However, some online lenders do not charge an application fee. Do your research though, you may be able to avoid an application fee regardless of buying or refinancing a home.
An appraisal contingency is a clause in a mortgage transaction that provides security for the buyer. This contract allows for the homebuyer to back out of the transaction if the home is appraised at a lower value than the purchase price included in the initial contract. Appraisal contingencies are often used by homebuyers who are using financing for their home purchase, or if the person is buying a home in an area where prices are unpredictable.
The appraised value of a home is an evaluation of the value of a property based on a specific point in time. This evaluation is performed by a professional appraiser during the origination of the mortgage process. Oftentimes, the appraiser is chosen by the lender but is often paid for by the borrower.
In economics, appreciation is a general term used to describe the increase in value of an asset over time. The increase can occur for many reasons. These often include an increase in demand or a shorter supply, or it could be associated with changes in inflation or interest rates. In a mortgage contract, the term appreciation describes the appraised value of the home.
An assignment of a mortgage is the act of transferring all of the original mortgagee's interest held under their original loan or the deed of trust to a new bank. When the property is initially purchased, the mortgagor signs the deed of trust and it is recorded as part of the abstract title. Whenever the mortgage is subsequently transferred, each re-assignment is to be recorded in the county land records.
An assumable mortgage is one which provides a buyer with an opportunity to purchase their new home by taking over the mortgage payments of the previous owner. One of the primary benefits of choosing this method is that many buyers find they are assuming a mortgage with better financing and a lower interest rate - that is, if the seller purchased the home at a time when pricing and interest rates were lower. However, purchasing a home this way is not always the best option for a home buyer. Talk with a specialist today to see if this option is the best for you.
The act of a buyer taking over the mortgage payments of the seller in order to purchase a home. When assuming a loan, the outstanding balance, lien's interest rate, the repayment period, and often other terms and agreements attached to that specific loan are unchanged.
A balance sheet is a financial document that is designed to communicate to a lender or bank the overall net worth of a mortgagor. The balance sheet helps achieve this by listing out and tallying the individual's assets, liabilities, and the equity they may have on a particular date - that is, the "reporting date."
A balloon loan is a certain type of loan that does not fully amortize overtime. This means that the lien holder does not set a paid-in-full repayment schedule at the outset of the loan period. The borrower is then required to, after an agreed upon period, pay a "balloon" payment in order to fully repay the remaining principal balance. Many people opt for a balloon loan as it has a short-term repayment period and typically has lower interest rates than longer terms. However, a borrower must be made aware of the risks of refinancing as the loan may reset to a higher interest rate.
A base rate refers to the interest rate a central bank - like the Federal Reserve - will charge commercial banks during a transfer of funds. While most banks are free to set their own interest rates for lending money, the overall rates charged on mortgages and other loans are influenced by the base rate of a Central Bank. This allows central banks like the Federal Reserve to encourage or discourage spending depending on the state of the US economy.
A bi-weekly mortgage is one which allows for the borrower to make payments every other week rather than only once a month. This effectively results in 26 half payments (or 13 full payments) over the course of a year, thus accelerating the repayment of the loan. The extra payment made can save the borrower a significant amount of money that would have been spent on interest over the course of the loan term. However, this is not always the case. Be sure to research properly before making any financial decision.
A blanket mortgage is a term that refers to a single mortgage loan that covers two or more real estate properties. In a loan such as this, the properties being financed are held as collateral in the case of a default. However, an individual property may be sold without retiring the entire mortgage. A blanket mortgage can help make financing multiple properties at once more accessible than taking out multiple mortgages at once.
A mortgage bond is a bond secured by real estate holdings or real property. This adds an extra layer of security for investors as the principal is secured by a valuable asset. If the mortgage owner were to default on their property, bondholders would be able to sell the secured property to compensate for the failed repayment. Yet, due to the inherent safety of a mortgage bond, the rate of return tends to be lower than a traditional corporate bond, which is secured only by a corporation's promise to pay.
A break-even point for any type of trade or investment is often determined by comparing the current market price of the property or asset to the original cost. The break-even point is reached when the current market price matches that of the original cost. In real estate, the break-even point is typically a term used during a refinance. During the refinance process, the lien holder will reach the break-even point when they have completely recouped the closing costs. Every mortgagor should consider the closing costs of a refinance in comparison to the break-even price when shopping for a refinance lender.
A bridge loan is a temporary financing opportunity a mortgagor can receive that serves to fund the purchase of a piece of property until an individual or company can secure permanent financing or an existing debt obligation has been removed. Most bridge loans are short-term, lasting roughly 6 months to a year, and are used most often in real estate transactions. Many individuals use bridge loans to finance the purchase of a new home before they are able to sell their existing residence.
A mortgage broker is a licensed and regulated financial professional who acts as an intermediary between a mortgagor and a potential lender. Many brokers work alongside a host of lenders. A broker's job is to compare mortgage rates and lenders on the lien holders' behalf. This can make the borrower's life much easier as the broker gathers the necessary documents, credit history information, and verifies income and employment, and utilizes all the information gathered to help the borrower apply for the best loans while negotiating terms.
A broker fee is the amount of money a broker will charge when a home buyer or renter requests a broker's services for finding their future home or rental home. A broker fee is the equivalent of a commission fee or, what is often termed, "finder's fee" and must be paid before the new tenant moves in. You may also hear it referred to as a brokerage fee.
Buydown refers to a mortgage financing technique in which the buyer attempts to obtain a lower mortgage interest rate for the first few years of the term length. In some cases, the buyer may be able to acquire the lower interest rate for the entire life of the loan. There are several types of buydown techniques. The most common is a 2-1 buydown, which helps save the homebuyer on interest for the first two years of their loan. Some buydowns can use a 3-2-1 structure as well.
Call options are typically financial contracts that offer the buyer a right (not an obligation) to buy a stock, commodity, bond, or other assets or instruments at a specified price at a precise time. The stock, commodity, bond, or else wise is called an underlying asset. The call buyer will profit once the underlying asset increases in price.
When a realtor or real estate agent uses the phrase "cash-to-close," they are referring to the number of funds a home buyer needs in order to finalize their real estate purchase. These funds can help cover the costs of the initial down payment and additional fees, including appraisal fees, insurance coverage, legal counsel, and escrow. The total amount must be paid at closing, so the buyer must have the "cash-to-close" prepared for closing day.
When a homeowner decides to make a lump-sum payment on their mortgage loan during a refinance period it is called a cash-in refinance. This is a type of cash-in refinance. Many homeowners opt for this type of refinancing opportunity in order to replace their current mortgage with a smaller principal balance. In a way, a cash-in refinance is similar to a mortgage recast, where lenders will make changes to the mortgage loan terms after the homeowner pays the initial lump sum.
Occurs when a loan is taken out against the equity the mortgage owner already has in the property. The loan amount must be above the cost of transaction, pay off of existing liens, and other related expenses.
An interest rate ceiling, or ceiling rate, refers to the maximum interest rate legally permitted during a particular transaction. A ceiling rate is the opposite of an interest rate floor. In most financial transactions, an interest ceiling rate is included as a part of the contractual provisions the seller provides. The most common use of an interest ceiling rate is in an adjustable-rate mortgage agreement (ARM).
A certificate of eligibility (COE) is a document provided by the Department of Veterans Affairs confirming the eligibility of a veteran to receive financial assistance when purchasing a home. A certificate of eligibility (COE) details the available VA loan entitlement and will enclose whether or not you are required to pay the VA funding fee.
A document issued by the Department of Veterans Affairs establishing the maximum loan amount a veteran can receive based on the appraisal of the property being purchased.
A document issued by an abstract company, title company, or attorney detailing the owner of the property in question, based on public records.
The chain of title is the historical record of a specific piece of property's ownership transfers. The chain of title is critical for establishing legal ownership of real estate, automobiles, patents, and other tangible and intangible property. State governments and some private companies have title registry systems that keep accurate records of ownership dating back to the original owner. When attempting to purchase real estate or other property with a title, a title company should be retained to trace the chain of title to ensure the seller has valid ownership. If the seller did not have a valid title, the buyer may be paying for something worthless, and the individual who has actual ownership or registration of title retains ownership of the property. Individuals must frequently go to court to resolve discrepancies in the chain of title, and many people purchase title insurance to cover losses from imperfect titles.
A clear title is one that is free of claims, uncertainties, or conflicts over ownership. These claims, concerns, or arguments over title might result from liens or encumbrances. Clear title is devoid of material defects and is required before property can be sold. Typically, title searches are performed to determine whether the property has clear title, as a search of the local public land records should reveal any easements, mortgages, or other encumbrances. When a title has material flaws, it is said to have a cloud on it.
A term used to describe the date and final step in order to sign your new loan.
The status of a loan when no further action is required.
The action of signing, dating, and notarizing all documents associated with finalizing a mortgage.
Closing expenses normally vary from 3% to 6% of the home's buying price. 1 As an example, if you purchase a $200,000 home, your closing expenses could range from $6,000 to $12,000. Closing costs vary depending on your state, loan type, and your mortgage lender, so it's critical to keep track of these costs.
The date all documents are signed and fees are paid toward a loan.
A Closing Disclosure is a five-page form that contains final information on the mortgage loan you've chosen. It comprises the loan terms, your expected monthly payments, and the fees and other costs associated with obtaining your mortgage (closing costs).
A closing statement is a document that details a financial transaction. A closing statement is provided by the bank to a homebuyer who finances the purchase, whereas a closing statement is provided by the real estate agent who handled the sale to the home seller.
A co-borrower, also known as a co-applicant, is someone who shares responsibility for repaying a loan with another person. When you apply for a loan with a co-borrower, you reassure the lender that you have several sources of income that can be used to repay the debt.
A cosigner agrees to assume responsibility for debt repayment if the principal borrower fails to make a payment. The cosigner usually has better credit or a greater income than the principal borrower, who would not be able to receive a loan without the support of a cosigner.
Closing expenses normally vary from 3% to 6% of the home's buying price. 1 As an example, if you purchase a $200,000 home, your closing expenses could range fCollateral is an asset that a lender accepts as security for a loan. Depending on the purpose of the loan, collateral may take the shape of real estate or other types of assets. The collateral serves as a type of insurance for the lender. That is, if the borrower fails to make loan payments, the lender can seize and sell the collateral to recuperate some or all of its losses.
rom $6,000 to $12,000. Closing costs vary depending on your state, loan type, and your mortgage lender, so it's critical to keep track of these costs.
Unpaid debts that are transferred to a company's collections department or an outside collection agency are referred to as collection accounts. Collection accounts show on your credit report in order to alert lenders of your ability to repay debt. Unpaid collection accounts may prohibit you from obtaining a loan or reduce the amount of money your lender is willing to grant when applying for a mortgage.
A combination loan is made up of two independent mortgage loans made to the same borrower by the same lender. One sort of combination loan funds the construction of a new home, followed by a standard mortgage once the construction is finished. Another sort of combination loan offers two loans at the same time for the purchase of an existing home. It's frequently used when a buyer can't afford a 20% down payment but wants to avoid paying for private mortgage insurance (PMI).
The balance due on all outstanding loans held on a home.
The combined loan-to-value (CLTV) ratio is the sum of all secured loans on a property divided by the property's value. When more than one loan is used, lenders use the CLTV ratio to estimate a prospective home buyer's risk of default.Lenders are generally prepared to lend at CLTV ratios of 80% or higher to borrowers with excellent credit. The CLTV differs from the simple loan to value (LTV) ratio in that the LTV only takes into account the first or principal mortgage.
Compound interest is the interest on a loan or deposit calculated using both the starting principal and the accrued interest from prior periods. Compound interest, considered to have originated in 17th-century Italy, can be thought of as "interest on interest," and will cause a sum to increase at a quicker rate than simple interest, which is computed just on the principal amount.
A conforming loan is a mortgage that fits the Federal Housing Finance Agency's (FHFA) dollar restrictions as well as the funding standards of Freddie Mac and Fannie Mae. Conforming loans are helpful for customers with excellent credit because of their low interest rates.
A short-term loan acquired by a builder during the building process. The loan amount is due upon completion of the project.
A clause in a real-estate contract that a buyer must meet before the property can be purchased. The two most common contingencies often include a home inspection and loan approval.
The required monthly payment amount for the loan is set by the lender. This payment will include principal and interest due, homeowners/mortgage insurance, and property taxes.
A home equity loan is a fixed-rate loan secured by your house. Just like your initial mortgage, you return the loan with equal monthly payments over a certain period of time. Your lender may foreclose on your home if you do not repay the debt as agreed.
A conventional loan is one that is not guaranteed by a government entity. Conventional loans are classified as "conforming" or "non-conforming." Conforming conventional loans adhere to the lending guidelines established by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). Some lenders, however, may allow some wiggle room with non-conforming conventional loans.
A clause that allows the borrower of an ARM loan to change the ARM to a fixed-rate loan at a specified time during the loan period.
A convertible ARM is an adjustable-rate mortgage (ARM) that allows the borrower to convert to a fixed-rate mortgage after a set time period. Convertible ARMs are typically offered as a method to capitalize on dropping interest rates and have specified criteria.
An agreement made when acquiring a loan or owning property that requires or prevents certain actions being done. If violated, there is a risk of loss or foreclosure of property.
A credit report is a synopsis of your credit history. Personal credit report contains your identifying information, such as your address and date of birth, as well as information about your credit history, such as how you pay your bills and whether or not you have filed for bankruptcy. This information is collected and updated by three major credit agencies (Equifax, Experian, and TransUnion). Most national department store and bank credit card accounts, as well as loans, are included in your file, but not all creditors disclose information to credit bureaus.
A number which rates or predicts the relative likelihood an individual has of repaying a credit obligation. The higher the credit score, the more likely a lender will approve a loan at a lower interest rate.
A creditor is a person or institution that gives credit by granting another entity permission to borrow money that will be repaid later. A creditor is a company that delivers goods or services to a company or individual and does not demand immediate payment, despite the fact that the client owes the company money for services already delivered.
Creditworthiness is how a lender decides whether you will default on your financial obligations or whether you are worthy of receiving additional credit. Creditors check at your creditworthiness before approving additional credit for you. Several criteria, including your payback history and credit score, affect your creditworthiness. When determining the likelihood of default, certain lending institutions examine available assets as well as the quantity of liabilities you have.
The sum of all interest payments made on a loan over a specific time period is known as cumulative interest. Cumulative interest on an amortizing loan grows at a decreasing rate since each consecutive periodic payment is a bigger percentage of the loan's principal and a lower percentage of its interest.
Curtailment is the act of restricting, reducing, or shortening something. The term is frequently used in business announcements and has various applications in the mortgage industry:
When a homeowner pays off the balance of a mortgage loan ahead of time, the debt may be discharged by curtailment.
A mortgage principal curtailment occurs when a borrower makes an additional payment against the principal owing in order to lower the remaining balance. This is known as a partial curtailment.
A total mortgage curtailment occurs when the loan balance is paid off in one single sum ahead of time.
Debt consolidation combines several debts, often high-interest debt such as credit card bills, into a single payment. If you can secure a reduced interest rate, debt consolidation could be a viable option for you. This can help you minimize your total debt and restructure it so you can pay it off faster. If you have a reasonable amount of debt and just want to rearrange various bills with varied interest rates, payments, and due dates, debt consolidation is a viable option that you may pursue on your own
The ratio of monthly expenses and liabilities divided by the gross, monthly income of a borrower.
A warranty deed guarantees that the grantor has legal title and rights to the property. A quitclaim deed provides the grantee with little to no protection. Warranty deeds guarantee that the grantor has the right to sell the property and that there are no liens or encumbrances on the land.
A Deed of Trust is a sort of secured real-estate transaction that is used in some states instead of mortgages. A trust deed consists of three parties: a lender, a borrower, and a trustee. The lender lends money to the borrower. In exchange, the borrower hands over one or more promissory notes to the lender.
A deed in lieu indicates that you and your lender have mutually agreed that you will be unable to make your loan installments. When you hand over the property amicably, the lender agrees to avoid foreclosure. In exchange, the lender relieves you from your mortgage responsibilities.
A mortgage default occurs when a borrower fails to make monthly payments on a house loan's principal or interest. However, credit card and student loan defaults are also possible. When a borrower consistently misses payments or stops making them altogether, there can be substantial long-term and short-term consequences.A mortgage default can result in a borrower losing their home and harming their credit score. Defaulting might also raise the borrower's interest rate on other loans and make it difficult to qualify for a future loan in the long run.
Deferred interest occurs when interest payments on a loan are postponed for a set length of time. You will not pay any interest as long as your entire loan balance is paid off before the end of this period. If you do not pay off the loan debt before the grace period expires, interest charges will begin to accrue.
When a borrower fails to make the required payments, the mortgage becomes delinquent. If the borrower continues to fall behind on payments, the lender may foreclose on the property and reclaim it from the borrower. Other methods for resolving the borrower's delinquency exist, such as altering the loan to make it easier to make payments.
A down payment is an amount of money paid by a buyer at the beginning of the process of purchasing a costly commodity or service. The down payment is a percentage of the entire purchase price, and the buyer will frequently take out a loan to fund the remaining.A down payment on a house is a classic example of a down payment. The home buyer may pay 5% to 25% of the entire price of the home up front, with the remaining covered by a mortgage from a bank or other financial institution.
Taking an advance against available funds in a line of credit.
A home equity line of credit (HELOC) is a sort of revolving credit that allows you to borrow against your house's equity. The "draw period" of a HELOC is the amount of time you have to use the available credit.As you pay down your mortgage, you develop equity—the difference between the amount you owe on your mortgage and the current value of your home. If you owe $300,000 on your mortgage and your home is valued at $600,000, you have $300,000 in equity. A HELOC allows you to borrow up to a percentage of your equity—typically 60% to 85%, depending on your credit score, debt-to-income ratio, and other considerations.
A due-on-sale clause is a condition in a mortgage contract that compels the borrower to repay the lender upon the sale or specific conveyance of a partial or complete interest in the property that secures the mortgage. The subsequent buyer of the property cannot assume mortgages with a due-on-sale clause.When selling a home with a due-on-sale clause, homeowners cannot transfer the mortgage to the buyer as they could with an assumable mortgage. Instead, they must use the sale proceeds to pay off the mortgage, and the buyer must acquire a new mortgage on their own.
When you find a home and sign a purchase contract, the seller has the option to remove the property from the market. Earnest money, also known as a good faith deposit, is a sum of money you put down to show that you are serious about purchasing a home.In most circumstances, earnest money serves as a deposit on the property you wish to purchase. When you sign the purchase agreement or sales contract, you deliver the amount. It might potentially be included in the deal. The seller and buyer sign a contract outlining the terms for refunding earnest money.
An encumbrance is a claim made against a property by someone other than the owner. An encumbrance can affect the property's transferability and restrict its free use until the impediment is gone. Mortgages, easements, and property tax liens are the most frequent types of encumbrances on land. Encumbrances are not always monetary; easements are examples of a non-financial encumbrance. Personal property, as opposed to real property, can be encumbered.In accounting, the word refers to restricted funds inside an account set aside for a particular liability.
This Act (Title VII of the Consumer Credit Protection Act) forbids discrimination based on race, color, religion, national origin, gender, marital status, age, receipt of public assistance, or good faith use of any Consumer Credit Protection Act rights. The Act also mandates creditors to furnish applicants with the reasons for credit denials upon request. The Dodd-Frank Act required that creditors give applicants a copy of all appraisals and other documented valuations utilized with the applicant's application for first-lien loans secured by a residence.
Your mortgage servicer manages an escrow account, essentially a savings account. Your mortgage servicer will put a portion of each mortgage payment into escrow to meet projected property taxes as well as homeowners and mortgage insurance premiums. It's as simple as that.In some parts of the country, escrow accounts are also referred to as impound accounts.
An escrow is a legal arrangement in which a third party temporarily holds vast sums of money or property until a specific condition is met (such as the fulfillment of a purchase agreement).An escrow is used in real estate transactions to safeguard both the buyer and seller during the house purchase process. An escrow account will keep funds for taxes and homeowner's insurance during the life of the mortgage.
When you pay too much into escrow, you have an escrow overage. This can happen if your mortgage provider miscalculated the amount of money needed to cover taxes and insurance obligations. When this happens, the mortgage company will issue you a check for the difference.If you do receive a check from the lender as a result of an escrow overage, it's a good idea to put it directly into your savings account so it's there if you end up in an escrow shortfall situation.
An Escrow Analysis is a check of your escrow account to ensure that enough monies are gathered to cover your forthcoming insurance premium(s) or property tax installments. Your Escrow Analysis statement is intended to give you information about the examination of your escrow account and the modifications to your monthly escrow payment that resulted. Please double-check that your name and address are appropriately displayed on the statement.
A payment made that exceeds the monthly contractual amount to reduce the overall unpaid principal.
When your escrow amount goes below a certain threshold, this is an escrow shortfall. We'll get into how that level is defined later, but for now, know that you have a shortage whenever the minimal balance isn't met.
In addition to scarcity, there is something known as an escrow deficiency. This occurs when you do not have enough funds in your escrow account to cover all of your escrow things, such as taxes and insurance. In that situation, you'll have a negative balance in your account, and your mortgage lender will advance the difference between what's in your account and what's owed. You'll have to pay this back when your subsequent escrow analysis is performed.
The Act (Title VI of the Consumer Credit Protection Act) safeguards consumer reporting firms such as credit bureaus, medical information corporations, and tenant screening services. The information contained in a consumer report may not be disclosed to anybody who does not have a legitimate purpose as defined by the Act. Companies that supply information to consumer reporting organizations are also subject to certain legal requirements, such as the responsibility to investigate disputed information. Furthermore, users of the information for credit, insurance, or employment purposes are required to notify the consumer if an adverse action is made based on such reports. The Fair and Accurate Credit Transactions Act supplemented this Act with numerous provisions, the most of which dealt with record accuracy and identity theft.
In real estate, fair market value (FMV) is the determined price for which a property will sell in an open market. The FMV is determined by a willing buyer and seller who are both reasonably knowledgeable about the property in question.
To figure out what fair market value is, you should begin with what it isn't: fair market value isn't what you (the buyer or seller) think the worth is. It's not always the appraised price, and it's not always the tax value.
Also known as Fannie Mae, a government-sponsored enterprise that buys and secures mortgages for resale in a secondary market.
Also known as Freddie Mac, it is one of the largest conventional mortgage financiers on the secondary market.
The Federal Housing Administration (FHA) is a branch of the United States Department of Housing and Urban Development. We offer mortgage insurance on loans originated by FHA-approved lenders. We guarantee mortgages on single-family houses, multifamily complexes, residential care facilities, and hospitals throughout the United States and its territories.
Lenders are protected from losses through FHA mortgage insurance. If a property owner falls behind on their mortgage payments, we will claim against the lender for the unpaid principal sum. Lenders may give more mortgages to homebuyers since they are taking on less risk.
Loans must meet specific criteria to qualify for insurance.
Fee simple refers to the method by which people own real estate. Assume you acquire a house from a seller in the United States. You will now enjoy fee simple ownership of this property in the great majority of circumstances.
You take complete ownership of a piece of land and any structures that sit on it with fee simple. When you buy a house, you own the ground, the home, and any outbuildings on the property, such as sheds, garages, or coach houses.
You have the right to do whatever you want with your land and its properties if you own it in fee simple. This means you can add the main bedroom, build a second-story addition, build a new garage, or knock down the entire house and start again.
The FHA, or Federal Housing Administration, insures mortgages made by FHA-approved lenders. In the United States and its territories, FHA guarantees these loans on single-family and multi-family homes. It is the world's largest insurer of residential mortgages, having insured tens of millions of properties since its inception in 1934.A FICO® score of at least 580 equals a 3.5 percent down payment.
A FICO® score between 500 and 579 equals a 10% down payment.
The payment of MIP (Mortgage Insurance Premium) is necessary.
The debt-to-income ratio is 43 percent.
The borrower's primary residence must be the property.
Borrowers must have a consistent source of income and confirmation of employment.
A finance charge is levied for using a credit or extending current credit. It could be a flat cost or a proportion of the amount borrowed, with the most frequent percentage-based finance charges. A finance charge is frequently an aggregated cost that includes the cost of carrying the debt and any related transaction fees, account management fees, or late fees levied by the lender.
A first mortgage is a primary lien on a piece of real estate. In the case of default, the loan has priority above all other liens or claims on the property because it is the principal loan that pays for the property. A first mortgage is not a borrower's first home; instead, it is the first mortgage taken out on any single property. It is also known as a First Lien. If the house is refinanced, the refinanced mortgage becomes the initial mortgage.
A first-time homebuyer is an individual who has not owned a primary house during the three years preceding the date of acquisition. If one spouse is a homeowner while the other has never owned a property, both spouses are considered first-time homebuyers.
A "fixed-rate mortgage" is a house loan with a fixed interest rate for the loan duration. This means that the mortgage has a fixed interest rate from start to finish. Fixed-rate mortgages are popular among customers who want to know how much they will pay each month.
A fixed-rate mortgage is a house loan with a fixed interest rate over the loan's entire term.
Once locked in, the interest rate does not change in response to market conditions.
Fixed-rate mortgages are preferred by borrowers who seek certainty and who plan to own property for an extended period.
A floating interest rate fluctuates regularly: the interest rate swings up and down, or "floats," in response to economic or financial market conditions. It frequently moves in lockstep with a specific index, benchmark, or prevailing market circumstances. It is also an adjustable or variable interest rate since it might change throughout the debt obligation.
A floating interest rate changes regularly instead of a fixed (or constant) interest rate.
Floating rates are used by credit card firms and are widespread in mortgages.
Floating interest rates track the market, an index, or benchmark interest rate.
Variable rates are another name for floating rates.
A flood certification, also known as a flood cert in real estate, is a document that declares the flood zone status of a piece of natural land. Flood maps from the Federal Emergency Management Agency (FEMA) are studied using the property's address or geographic coordinates. Based on the property's location on the map, a flood certification provider can then certify if it is in a flood zone.
Floods can occur anywhere; one inch of floodwater can inflict up to $25,000 in damage. Flood damage is typically not covered by most homeowners' insurance policies. Flood insurance is a separate policy covering structures, building contents, or both, so it is critical to secure your most valuable financial assets – your house, company, and possessions.
The National Flood Insurance Program (NFIP) provides flood insurance to property owners, renters, and companies, and having this coverage allows them to recover faster once floodwaters recede. The NFIP works with municipalities obligated to implement and enforce floodplain management laws to lessen the consequences of floods.
"Forbearance" refers to the temporary suspension of loan payments, most commonly for a mortgage or a student loan. Lenders and other creditors grant forbearance as an alternative to placing property into foreclosure or leaving the borrower in default on the debt. Because the losses incurred by foreclosures or bankruptcies often fall on them, loan holding firms and their insurers are usually prepared to negotiate forbearance agreements.
Foreclosure is the legal process by which a lender tries to recoup the amount owed on a defaulted debt by seizing and selling the mortgaged property. Default occurs when a borrower fails to make a certain amount of mortgage payments, but it can also happen when the borrower fails to meet other requirements in the mortgage instrument.
Foreclosure is a legal procedure that allows lenders to recoup the amount owed on a defaulted debt by seizing and selling the mortgaged property.
The foreclosure procedure varies by jurisdiction, but lenders generally try to work with homeowners to catch up on payments and avoid foreclosure.
The current national average number of days for the foreclosure process is 857. However, it varies widely by state.
Forfeiture is the loss of property without compensation due to failing to meet contractual obligations or as a punishment for criminal behavior. Under the provisions of a contract, forfeiture refers to the demand by the defaulting party to relinquish ownership of an asset or cash flows from an investment as compensation for the other party's losses.
When required by law as a punishment for illegal or prohibited action, forfeiture procedures can be criminal or civil. Forfeiture proceedings are frequently held in a court of law.
A form which is used to report the amount of mortgage interest paid each year.
The Funding Date is any Business Day on which a Credit Extension is made to or for the account of the Borrower. The Funding Date is the date on which a Borrowing takes place. The Funding Date is the date on which a loan is funded.
A letter which is required by a borrower to present when using gifted funds to obtain a mortgage.
When someone sells a property to a family member or close acquaintance for less than the current market worth, this is a gift of equity. The difference in pricing indicates the contribution of equity.
In most cases, the gift of equity serves as the homebuyer's down payment. It makes it easier for them to obtain a mortgage by increasing the value of their home.
When family members sell their homes, a gift of equity is frequently employed. For example, while selling the family house to their child, parents may give equity.
A Good Faith Estimate, also known as a GFE, is a form that must be provided by a lender when you apply for a reverse mortgage. The GFE provides basic information regarding the mortgage loan offer's terms.
The GFE comprises the mortgage loan's projected costs. The Good Faith Estimate offers you basic loan information that will assist you in the following ways:
Offers should be compared
Recognize the actual cost of the loan.
Make an informed selection when selecting a loan.
The lender must furnish you with a GFE within three business days of receiving your application or other needed information. Before accepting a GFE, you may be charged a credit report cost. However, you cannot be charged any more fees until you receive the GFE and confirm your intent to proceed with the mortgage loan.
A loan issued or insured by any of the following: Federal Housing Administration (FHA), Department of Veterans Affairs (VA), or Rural Housing Services (RHS). Each loan protects the lender and not the borrower during a default.
An organization that assumed responsibility for the special assistance loan programs formerly administered by the Federal National Mortgage Association (Fannie Mae).
A graded payment mortgage (GPM) is a fixed-rate mortgage in which payments gradually climb from a low starting point to a higher ultimate level. Typically, fees will increase by 7% to 12% every year from the initial base payment amount until the entire monthly payment sum is attained.
A graded payment mortgage (GPM) is a fixed-rate mortgage with an amortization plan that begins with lower payments and gradually increases.
A GPM's objective is to allow homeowners to begin with reduced monthly mortgage payments to assist certain people in qualifying for their loans.
The total expenses of a GPM loan tend to be higher than those of an average mortgage, and homeowners who could manage initial payments may find themselves in financial difficulty as monthly fees climb over time.
A hard money loan is a loan that is secured by real estate. Hard money loans are often referred to as "loans of last resort" or "short-term bridging loans." These loans are primarily employed in real estate transactions, and the lenders are usually individuals or businesses rather than banks.
Hard money loans are typically utilized for real estate purchases and are funded by an individual or business rather than a bank.
A hard money loan, typically taken out for a short period, is a rapid option to raise funds at a higher cost and with a lower LTV ratio.
The Home Affordability Refinance Program, or HARP, allowed qualified United States homeowners with little or no equity in their homes to refinance their mortgages. HARP was created in 2009 to address widespread mortgage troubles during the Great Recession and expired in 2018, but some of its benefits are still available through newer federal mortgage-refinancing programs.
Borrowers who refinanced under HARP received one or more of the following benefits:
A loan with a reduced interest rate
A reduced monthly installment
Conversion from an adjustable-rate loan to a fixed-rate mortgage
A loan with a shorter repayment period (15 years instead of 30 years).
According to the Consumer Financial Protection Bureau, hazard insurance is a word that is occasionally used to describe the coverages that home insurance offers for specific hazards (CFPB). If you hear the term "hazard insurance," it most likely refers to a homes insurance policy. Fire, theft, and vandalism are significant risks (also known as perils) commonly covered by home insurance.
An appraisal is a neutral professional judgment on the worth of a house. Appraisals are virtually always utilized in purchase-and-sale transactions, and they are also frequently employed in refinance transactions. An appraisal is used in a purchase-and-sale transaction to establish whether the contract price for a house is reasonable considering its condition, location, and characteristics. An appraisal ensures the lender does not give the borrower more money than the home is worth in a refinancing deal.
Because the residence acts as security for the mortgage, lenders want to ensure that homeowners are not overborrowing for a property. If the borrower defaults on the mortgage and the house goes into foreclosure, the lender will sell it to repay the money it owes. The evaluation protects the bank against lending more than it can recover in this worst-case situation.
A home equity line of credit, often known as a HELOC, is a revolving credit line secured by your house that you can use for high costs or consolidate higher-interest rate debt on other loansFootnote1 such as credit cards. A HELOC often offers cheaper interest rates than other forms of loans, and the interest may be tax-deductible. Please check with a tax expert regarding interest deductibility as tax regulations may have changed.
Homeowners insurance, often known as house insurance, is a type of property insurance that covers a private residence. A homeowners insurance will typically cover losses and damages to your dwelling, as well as furniture and certain other valuables contained within your home. Home insurance may also include liability coverage for certain types of incidents in or around your home or on your land. Mortgage lenders usually require home insurance coverage.
An acronym for the U.S. Department of Housing and Urban Development.
A mortgage or other loan's first-rate term contains an introductory interest rate (sometimes known as a teaser rate) that sunsets after the period. The first-rate time is only included in loans that provide an initial rate, as short as one month or as long as many years, depending on the loan type.
Teaser loans are mortgages with short starting rate periods that provide meager introductory rates to lure new borrowers. Borrowers must be informed of the interest rates that apply once the first-rate period has expired.
When you buy a new house or automobile, you'll usually require insurance that starts the day you take possession. An insurance binder is a temporary policy that serves as a stand-in for your permanent policy until it is issued. Giving new insurance might take a few days or weeks, depending on the underwriting procedure. This binder serves as proof of adequate insurance coverage to your lender or any other institution requiring proof of insurance.
A mortgage with mortgage default insurance is known as an insured mortgage. Mortgage default insurance is required if you put less than 20% down on the house (between 5% and 19.99%).
The insurance protects the lender if you fail to make your mortgage payments due to default or foreclosure. The cost of your insurance is calculated as a percentage of the entire amount of your mortgage. The greater your down payment, the lower your mortgage default insurance.
An accrual rate is the interest rate charged on a financial commitment such as bonds, mortgages, or credit cards. The accrual rate is the rate at which interest is accumulated, which is frequently daily in the case of credit cards. The accrual rate for paid vacation time and pensions, on the other hand, is the pace at which vacation time or benefits are earned.
The percentage interest rate added to the principal of a financial commitment is known as the accrual rate.
Accrual rates differ depending on the type of financial obligation they are applied to.
Accrual rates are frequently used to compute the total of paid sick leave, vacation time, and pensions.
Accrual rates are critical in determining the actual worth of a financial commitment.
The interest rate is the amount a lender charges to a borrower and is expressed as a percentage of the principal—the amount lent. The annual percentage rate describes the interest rate on loans (APR).An interest rate can also be used to the amount earned from a savings account or certificate of deposit at a bank or credit union (CD). The income generated on these deposit accounts is the annual percentage yield (APY).
Interest-only mortgages are non-conforming loans, making them difficult to discover and (typically) considerably more difficult to obtain. Interest-only choices are limited because only conforming mortgages may be insured, guaranteed, and backed by Fannie Mae and Freddie Mac.
An interest-only mortgage is pretty easy during the first 5 or 10 years of the loan: the borrower pays just the interest payable on the loan.
Things get more expensive when the interest-only period passes. The principle begins to amortize in year 6. The overall monthly mortgage payment on the loan significantly increases since you are now paying both interest and principal over a shorter period.
An investment property is a piece of real estate acquired to generate a return on investment through rental income, eventual sales of the property, or both. An individual investor, a group of investors, or a business may own the property.
An investment property might be a long-term or short-term enterprise. With the latter, investors will frequently participate in flipping, which is the process of purchasing real estate, remodeling or renovating it, and then selling it for a profit in a short time.
The word investment property can also refer to other assets purchased by an investor for future gains, such as art, stocks, land, or other collectibles.
An Islamic mortgage, also known as a halal mortgage, allows you to purchase a home under Sharia law. An Islamic mortgage, often known as a "home purchase plan," will enable Muslims to acquire a property in a Sharia-compliant manner. Sharia is Islam's legal system, which Muslims adhere to. Technically, Islamic banks' property purchase plans are not mortgages but Sharia-compliant mortgage alternatives.
A jumbo loan (or jumbo mortgage) is a type of financing in which the loan amount exceeds the Federal Housing Finance Agency's conforming loan restrictions (FHFA).The conforming loan ceiling for 2021 is $548,250 in most locations and $822,375 in high-cost areas. Jumbo loans are a good option for borrowers who want to buy more expensive houses.
This mortgage option has the extra benefit of not requiring mortgage insurance. However, because this loan may pose a more considerable risk to the lender, it usually has more demanding qualifying standards than standard conforming loans with lesser ceilings.
Lender credits are agreements in which a lender promises to reimburse a portion or all of a borrower's closing fees. In return, the borrower must pay a higher interest rate.
Lender credits might be a sensible strategy to save the upfront costs of purchasing or refinancing a home.
Having no closing costs allows you to put more of your funds toward a down payment – or, in the event of a refinancing, lock in a cheaper interest rate without paying any upfront fees.
However, lender credits are not always the best option. It makes sense for specific borrowers to pay more upfront to obtain a lower interest rate.
A mortgage lender overlay is a qualifying condition imposed by a lender that exceeds the loan program's standard qualification requirements. Borrowers should consider that the lender overlays an additional layer of requirements they must fulfill to qualify for a mortgage. In a nutshell, using overlays implies that lenders adopt stricter borrower qualifying standards than are needed by conventional mortgage industry norms.
LPMI, or lender-paid mortgage insurance, refers to a situation in which your mortgage lender pays for your mortgage insurance.
While there are various ways to pay for mortgage insurance, the most typical is a monthly charge added to your mortgage payment. Lender-paid mortgage insurance incorporates the cost of insurance coverage into the mortgage rate. In essence, instead of a more outstanding monthly mortgage payment, you'll pay a higher interest rate.
A letter of explanation is a concise document that you may use to explain anything in your financial or employment papers that may cause an underwriter to hesitate. For example, if you have unexpected or abrupt activity in your credit report or financial accounts, you may need to send a letter of explanation.
If your lender requires one of these letters, don't think they won't be able to provide you a loan — the reverse is often true. They may want clarification or further information on your credit report or bank account.
In many circumstances, letters of explanation are required from secondary authorities that own or support the debt. Such underwriting rules are imposed on lenders by the Federal Housing Administration (for FHA loans), the Department of Veterans Affairs (for VA loans), and Fannie Mae or Freddie Mac (for conventional loans). Furthermore, lenders who offer jumbo loans may have stricter qualifying requirements.
A liability is anything that a person or corporation owes, generally monetary. Liabilities are resolved over time by transferring economic advantages such as money, products, or services. Liabilities recorded on the balance sheet's right side include loans, accounts payable, mortgages, deferred revenues, bonds, warranties, and accumulated costs.
In general, a liability is an unfulfilled or unpaid commitment between one party and another. A financial liability is also an obligation in the world of accounting. Still, it is better defined by prior business transactions, events, sales, exchange of goods or services, or anything that might offer economic gain later. Current obligations are often short-term (anticipated to be completed in 12 months or less), whereas non-current liabilities are long-term (12 months or greater).
A lien is a claim or legal right placed on assets often used as collateral to repay a debt. A creditor or a court judgment might form a lien. A lien is used to ensure an underlying obligation, such as debt repayment. If the underlying obligation is not met, the creditor may take the asset covered by the lien. Liens are used to secure investments in a variety of ways.
A lienholder (also known as a lienor) is a person, corporation, or financial institution that co-buys or sells you the property on credit. For example, if your local bank provides you with an auto loan to fund the purchase of a car, they are the lienholder. You are the car's practical owner. If you can pay off the loan, you have the sole right to use and even sell the vehicle.
However, as long as the lienholder has a financial investment in your car, they are the legal owner, and their name will appear on crucial paperwork. This is not the same as leasing a car since when you lease a vehicle, the lessor is the complete owner of the car, and you are only borrowing it from them. An automobile that is just leased cannot be lawfully sold.
A line of credit (LOC) is a type of account that allows you to borrow money when you need it, up to a predetermined limit, by writing checks or using a bank card to make purchases or cash withdrawals. Lines of credit are available from many banks and credit unions and are sometimes referred to as bank lines or personal lines of credit.
A personal credit line is a revolving credit that functions similarly to a credit card. You can write checks or use a credit card to pay any amount up to your borrowing limit, and you can make variable payments as long as you satisfy a monthly minimum requirement. You pay interest on the cash borrowed, and when you pay down your balance, your available credit is restored.
A loan commitment is a formal letter from a lender saying that the applicant has completed all of the loan requirements. The lender commits the borrower a particular sum of money.
Many loan agreements are open-ended, which means the loan is not a one-time, lump-sum payment that the borrower must repay. Instead, the borrower can keep using this amount as long as they continue to pay it back. As a result, it is comparable to a revolving line of credit, such as a credit card. If the borrower repays a portion of the loan amount, the lender deducts the borrower's principal debt payment.
An open-ended loan promise is subject to the borrower's credit history and the fulfillment of specific requirements. A loan promise may be secured or unsecured.
A loan modification is a change made by a lender to the terms of an existing loan. It might include lowering the interest rate, extending the payback period, switching to a different form of loan, or combining the three.
Typically, such revisions are made because the borrower cannot repay the initial loan. The majority of successful loan modification processes include the assistance of an attorney or a settlement business. Some debtors are eligible for federal loan modification aid.
A loan officer is a bank, credit union, or another financial institution official who assists borrowers with applying. Because mortgage loans are the most complex and expensive form of loan that most customers face, loan officers are sometimes referred to as mortgage loan officers. On the other hand, most loan officers help consumers and small business owners with a wide range of secured and unsecured loans.
Loan officers must be well-versed in lending products, banking sector norms and regulations, and the documents necessary to acquire a loan.
A loan processor, also known as a mortgage processor, is in charge of processing your loan and sending it to an underwriter for final approval. Processing the loan entails evaluating the mortgage application and ensuring that the borrower has given all required papers and correct information.
A loan officer or loan originator is responsible for assisting you in selecting the appropriate form of a mortgage when you take out a mortgage. However, after you submit your application, loan processing, which is the realm of the mortgage processor, begins. Obtaining a mortgage necessitates a significant amount of documentation, and it is the loan processor's responsibility to double-check all of your personal information and financial papers. They contact essential third parties for verification (such as your job or a credit reporting agency) and arrange house appraisals.
The loan-to-value (LTV) ratio is a risk evaluation used by financial institutions and other lenders before authorizing a mortgage. Loan evaluations with high LTV ratios are often considered higher-risk loans. As a result, the loan's interest rate will be greater if the mortgage is approved.
Furthermore, a loan with a high LTV ratio may need the purchase of mortgage insurance by the borrower to mitigate the lender's risk. This is referred to as private mortgage insurance (PMI).
A lock period is often 30 to 90 days, during which a mortgage lender is required to keep a specific loan offer access to a borrower. During this time, the borrower is preparing for the loan closure while the lender processes the loan application.
A mortgage rate lock is an agreement between a lender and a borrower that guarantees the borrower a fixed interest rate on the mortgage for the duration of the lock term, generally at the market interest rate. A loan lock protects the borrower from increased interest rates throughout the lock term.
Manufactured housing (MH) is a dwelling unit built mostly or off-site at a factory before being relocated to a piece of land where it will be placed. The cost of building per square foot for prefabricated housing is often far lower than for traditional on-site dwellings. Long known (maybe somewhat disparagingly) as mobile houses, manufactured housing has gone a long way in appearance, amenities, building quality, and public image. Yet, it still retains some of its fundamental characteristics.
"Modular houses," or dwellings divided into various components created off-site and then assembled like building blocks on the land, are a subset of manufactured housing. If made in a modular form, a prefabricated housing unit can be as little as 500 square feet and 3,000 square feet.
Margin is the collateral that an investor must deposit with their broker or exchange to cover the credit risk that the holder provides to the broker or business.
When an investor buys an asset on margin, they borrow the balance from a broker. The first payment made to the broker for the investment is referred to as buying on margin; the investor utilizes the marginal assets in their brokerage account as collateral.
In broad business terms, the margin is the difference between the selling price of a product or service and the cost of production, or the profit-to-revenue ratio. Margin may also refer to the part of an adjustable-rate mortgage (ARM) interest rate that is added to the adjustment-index rate.
The maturity date is when an investment, such as a CD or bond becomes due and is reimbursed to the investor. At that moment, the investment will no longer pay interest, and investors will be able to redeem their accrued interest and capital without penalty.
A mobile home is a prefabricated construction produced in a factory and often towed to a separate location. Mobile Homes are often called a park home, trailer, trailer home, house trailer, static caravan, RV, residential caravan, motorhome, or simply caravan. They are commonly left continuously or semi-permanently in one area but can be relocated and may be obliged to move from time to time for legal reasons, whether used as permanent residences or for vacation or temporary lodging.
Modular houses are residences produced in pieces or modules in a controlled manufacturing setting and then transported to the building site. They are built on stable foundations and finished by expert installers there.
Modular houses may save building time by more than 35%, allowing you to move into your new home sooner and enjoy it for longer. Site-built homes might take several weeks to build, but modular homes are erected on-site and typically completed in less than a week.
Modular houses provide cost reductions that other methods do not. Because most modular construction takes less time to complete than site-built construction, the cost of interim construction finance is considerably lower or eliminated.
A mortgage is a loan used to buy or maintain a home, land, or another sort of real estate. The borrower promises to repay the lender over time, often in a series of monthly payments divided into principal and interest. The property acts as collateral for the loan. A borrower must apply for a mortgage through their preferred lender and fulfill specific criteria, including minimum credit scores and down payments. Before they reach the closing stage, mortgage applications are subject to a stringent underwriting procedure. Mortgage kinds differ depending on the borrower's demands, such as conventional and fixed-rate loans.
Mortgage points, also known as discount points, are payments paid directly to the lender (often a bank) in return for a lower interest rate. This is sometimes referred to as "buying down the rate.
"In essence, you pay interest upfront in return for a cheaper interest rate throughout the life of your loan. Each point you purchase costs 1% of your entire loan amount.
Purchasing points to reduce your monthly mortgage payments may make sense if you choose a fixed-rate mortgage and intend to keep the house after the break-even period. The break-even period is the amount of time required to recuperate the cost of purchasing points.
If you just obtained a mortgage or are considering acquiring real estate, you may be wondering when your monthly mortgage payments will be due, among other things (like how late Ikea is open).Mortgage payments are typically required on the first of the month, every month until the loan is paid off or you sell the home.
So it doesn't matter when your mortgage funds — whether you close on the 5th or the 15th, the mortgage is still due on the first.
Mortgage insurance reduces the lender's risk of providing a loan to you, allowing you to qualify for a loan that you would not have been able to acquire otherwise.
Borrowers who make a down payment of less than 20% of the buying price of a property will often be required to pay mortgage insurance. Mortgage insurance is usually needed on FHA and USDA loans as well. Mortgage insurance reduces the lender's risk of providing a loan to you, allowing you to qualify for a loan that you would not have been able to acquire otherwise. However, it raises the interest rate on your loan. If you must pay mortgage insurance, it will include your total monthly payment to your lender, closing expenses, or both.
When it comes to mortgage payments, there are three options. To begin, you are late if you pay one day beyond the due date. Second, after 15 days past the due date, your lender or servicer deems mortgage payments late and assesses late penalties. Third, while prices received after the 15th typically result in a sizable late charge, your credit score should only suffer if your payment is more than 30 days late.
A mortgage lender is a financial entity or bank that provides and underwrites house loans. Lenders use specific lending rules to determine your creditworthiness and capacity to repay a loan. They decide on the terms, interest rate, repayment schedule, and other essential components of your loan.
The cost of a mortgage loan, often paid monthly.
The distinction between your principal and interest payment and your total monthly payment is that your entire monthly payment frequently includes other charges such as homeowners insurance, taxes, and perhaps mortgage insurance.
The principal and interest payment is most likely an essential component of your monthly mortgage payment. The principal is the amount borrowed and must be repaid, while interest is the fee charged by the lender for lending you the money.
Most borrowers' total monthly payment to their mortgage company includes other items such as homeowners insurance and taxes, which may be stored in an escrow account.
A mortgage rate is the interest rate on a mortgage. Mortgage rates are set by the lender and can be fixed, remaining constant during the loan period, or variable, varying with a benchmark interest rate. Borrowers' mortgage rates differ depending on their credit profile. Mortgage rate averages rise and fall with interest rate cycles, which can significantly impact the homebuyers' market.
The mortgage rate is a significant issue for homebuyers wanting to finance a new home purchase with a mortgage loan. Collateral, principle, interest, taxes, and insurance are all considered. A mortgage's collateral is the home itself, and the principal is the loan's initial amount. Taxes and insurance vary depending on where the house is located and are usually an estimate until purchase.
The amount of years you have to pay off your mortgage is the mortgage term. A 15-year term implies you have 15 years to pay off your mortgage, whereas a 30-year period means you have 30 years to pay it off. Each month, you must make a payment. Because your total mortgage debt is spread out over a more extended period, 30-year mortgages often have lower monthly payments than 15-year mortgages. A shorter term implies that your amount is spread out over a shorter period, resulting in larger monthly payments.
An underwriter is a financial specialist who examines your finances and determines how much risk a lender will take on if you are approved for a loan. Underwriters precisely assess your credit history, assets, the quantity of the loan you want, and how well they predict you will be able to repay the loan.
The underwriter assists the mortgage lender in determining whether or not you will receive loan approval and will work with you to ensure that all required paperwork is submitted. Finally, the underwriter will ensure that you do not close on a loan that you cannot afford. If you do not qualify, the mortgage underwriter has the authority to refuse your loan.
A mortgagee is a lender: specifically, an entity that loans money to a borrower to purchase real estate. The lender is known as the mortgagee in a mortgage transaction, while the borrower is known as the mortgagor.
A mortgagor is someone who borrows money from a lender to buy a house or other piece of real estate. Mortgage loans with varying lengths are available to borrowers based on their credit history and collateral. The mortgagor must pledge the title to the actual property as security to get a mortgage loan.
On the other hand, a mortgagee is a company that loans money to a borrower to acquire real estate.
A multi-family home is a single structure designed to house more than one family living independently. This can range from a duplex (two houses in a single building) to single-family homes or small apartment complexes with up to four apartments. (A building with more than four apartments is classified as a commercial property.)
The owner of a multi-family home can either live in one of the apartments while renting out the others or live on another property while renting out all of them. If you do not reside in the property, you are classified as an investor, and the conditions for obtaining a mortgage alter. You may be able to utilize the property's projected rental revenue to help you qualify for a mortgage, and you may also be able to be eligible for a more considerable loan amount.
Amortization is the process of repaying debt through monthly installments, such that the amount owed decreases with each payment. Negative amortization means that even if you make payments, what you owe will increase since you are not paying enough to cover the interest.
Your lender may allow you to pay a minimum payment that does not cover the interest you owe. The unpaid interest is added to the amount borrowed, increasing the amount due.
An industry slang for a loan approved for an individual who has no income, no job, and no assests - NoIncomeNoJobAssests.
A NINJA loan is a loan given to a borrower with little or no effort made by the lender to check the borrower's capacity to repay. It is an abbreviation for "no income, no employment, and no assets." Whereas most lenders require loan applicants to demonstrate proof of a steady source of income or sufficient collateral, a NINJA loan does not.
Before the 2008 financial crisis, NINJA loans were more frequent. The US government established new measures to strengthen standard lending standards across the credit sector following the crisis, including tightening loan-granting procedures. NINJA loans are now highly unusual, if not extinct.
When you buy a house, you will incur various expenditures and fees that are collectively referred to as "closing costs." The sum can vary, but it can rapidly add up to be rather large depending on several circumstances. Applying for a no-closing-cost mortgage helps with these expenses since the lender commits to paying them upfront and makes up the difference later by charging a higher interest rate for the loan term.
As the name implies, a no-closing-cost refinancing is a refinance in which you do not have to pay closing fees when you obtain a new loan. However, just because there are no upfront expenses does not imply that your lender will foot the tab for you. A no-closing-cost refinance does not eliminate a borrower's expenditures; instead, they transfer them to your principal or swap them for a higher interest rate.
The most basic no-closing-cost refinancing adds the amount you would have paid at closing to your new mortgage. In other words, your lender adds your closing fees to your principal - the amount yet to be paid. This raises your monthly payments while not affecting your interest rate.
Non-owner occupied is a term used in mortgage origination, risk-based pricing, and housing statistics for one- to four-unit investment buildings. The categorization indicates that the owner does not live on the property. Non-owner occupied is not a phrase commonly applied to multi-family rental structures such as apartment complexes.
Non-owner occupied is a real estate categorization that indicates that the owner does not use the property as their primary residence.
The correct designation of a property as non-owner occupied is critical for lenders to determine the interest rate they will charge borrowers and ensure they are fairly paid for the risks they face when lending money.
A notice of default is a public notification issued by a court that declares that a mortgage borrower defaults on a loan. When a borrower falls behind on their mortgage payments, the lender may submit a notice of default. Notices of default often include:
The borrower's and lender's names and addresses.
The legal address of the property.
The reason for the default.
Other applicable information.
A notice of default is sometimes seen as the initial step toward foreclosure.
An option adjustable-rate mortgage (option ARM) is a form of ARM mortgage in which the borrower has numerous payment alternatives to the lender. In addition to the option of paying interest and principal payments comparable to those produced in traditional mortgages, option ARMs allow the mortgagor to make much lesser payments by making interest-only payments or minimum payments. A flexible payment ARM is another name for an option ARM.
Because many option ARMs provide a low teaser rate, many homeowners unintentionally refinance their existing mortgage in the expectation of making cheaper payments. Unfortunately, after these short-term teaser rates expire, the interest rates revert to those seen in traditional mortgages.
The term "Origination Date" refers to the date of the Mortgage Note relating to each Mortgage Loan, unless such information is not provided by the Borrower concerning such Mortgage Loan, in which case the Origination Date is deemed to be the date that is 40 days before the date of the first payment under the Mortgage Note relating to such Mortgage Loan.
A mortgage origination fee is a one-time cost imposed by a lender to execute a new loan application. The price is remuneration for carrying out the loan. Loan origination costs are often specified as a percentage of the entire loan and range between 0.5 and 1 percent of a mortgage loan in the United States.
Origination fees, sometimes known as "discount fees" or "points" when they equal 1% of the loan amount, pay for services like processing, underwriting, and financing.
Owner financing is a transaction in which the property seller funds the purchase directly with the person or entity purchasing it, either entirely or partially.
Because it avoids the overhead of a bank middleman, this sort of agreement can benefit both sellers and purchasers. On the other hand, owner financing might expose the owner to far more risk and responsibility.
Owner finance is sometimes known as "creative financing" or "seller financing.
"When owner financing is a possibility, this sort of financing is often indicated in a property advertisement.
Owner financing requires the seller to assume the buyer's default risk, although owners are generally more ready to bargain than traditional lenders.
Owner-occupied property is a piece of real estate in which the individual who holds the title (or owns the property) also resides in the dwelling. The phrase "owner-occupied" is frequently connected with real estate investors who live in a home while renting out separate sections to tenants.
In the context of real estate investing, owner-occupied homes can take advantage of appealing financing choices. After all, most homeowners can get considerably better mortgage conditions than real estate speculators. However, you will still have the opportunity to generate rental money from the house by renting out spaces that you aren't utilizing.
The mortgage lending interest rate for a loan that does not require any lender credit or discount points from the borrower is known as the par rate.
A par rate is the interest rate you'll be charged depending on the sort of loan you're receiving and your credit history, with no further modifications for things like "buying down" your rate.
Your par rate is not always the amount you'll end up paying; you may choose to pay discount points or request a lender credit to reduce your closing expenses, which may cause your rate to be modified up or down from your initial par rate. Let's go through a handful of methods for adjusting your rate from your initial par rate.
A payment shock is a sudden rise in a person's debts and liabilities that may drive them to default on their financial responsibilities. Simply put, payment shock happens when a person is suddenly required to pay more in monthly debt than they can afford on their salary.
This notion is frequently used to highlight how much extra a borrower must pay to a lender when taking out a mortgage. Payment shock is also dangerous with variable-rate or teaser-rate mortgage products, such as payment option adjustable-rate mortgages (ARMs) and interest-only loans with a balloon payment.
The final payment on the outstanding balance of your mortgage loan.
Per diem interest is the daily interest imposed on a loan, most often on mortgages. This type of interest is computed as part of the administrative procedure between the loan's closing date and when the mortgage loan begins. If a borrower gets their principal payment and begins the loan payback term on a day other than the first of the month, per diem interest charges may apply.
A piggyback mortgage is an additional debt that might include any mortgage or loan backed by the same collateral as the borrower's original mortgage loan. Home equity loans and home equity lines of credit are two common forms of piggyback mortgages (HELOCs).
Piggyback mortgages can be used for a variety of objectives. Some piggyback mortgages are permitted to assist borrowers with down payments. Because all of the loans are backed by the same collateral, most borrowers will only take on one or two piggyback mortgages.
An acronym expressing monthly housing expenses: principal, interest, taxes, insurance.
Most home buyers are aware that they must pre-qualify or get pre-approved for a mortgage to purchase a home. These are the two most essential phases in the mortgage application process. Although some individuals use the phrases interchangeably, there are significant differences that every homebuyer should be aware of.
Pre-qualification is only the first step. It tells you how much of a loan you're likely to qualify for. The second stage is pre-approval, a conditional commitment to give you the mortgage.
An agreement made between the lender and borrower (formal or informal) for any future refinancing as an incentive to enter into the initial mortgage transaction.
A prepaid expense is a balance-sheet asset that emerges from a company making advance payments for products or services that will be received in the future. Prepaid costs are originally represented as assets, but their value is deducted from the income statement over time. Unlike traditional costs, the prepaid expense will provide value to the firm throughout numerous accounting periods.
Some lenders levy a prepayment penalty if you pay off all or a portion of your mortgage early. If you have a prepayment penalty, you agreed to it when you closed on your house. Prepayment penalties do not apply to all mortgages.
Typically, a prepayment penalty only occurs if you pay off the whole mortgage sum within a certain number of years because you sold your property or refinanced your mortgage (usually three or five years). If you pay off a considerable portion of your mortgage at once, you may be subject to a prepayment penalty in some instances. Prepayment penalties are usually waived if you pay additional principal on your mortgage in tiny increments–but it's always a good idea to double-check with your lender.
Your house is your primary abode (also known as a principal residence). If you live in a house, condo, or townhome for the bulk of the year and can prove it, it's your primary residence, and you might qualify for a reduced mortgage rate.
Your main house may also qualify for income tax benefits, such as a deduction for mortgage interest paid and an exclusion from capital gains tax when you sell it. Because of the tax advantages, the IRS has established some clear instructions to assist you in determining whether your house qualifies as a principal residence.
Except for mortgage rates, the Prime Rate is the interest rate that banks use to calculate other types of loans and lines of credit. Each bank determines its own Prime Rate. However, most banks will use the U.S. Prime Rate for consumer goods as reported in The Wall Street Journal's "Money Rates" section, which is the rate indicated above. The prime rate in the United States is not usually the lowest, best, or most preferred interest rate. Banks utilize several techniques to establish the appropriate Prime Rate for each product and when modifications will be made.
In the case of a mortgage or other debt instrument, the principal balance is the amount owing and owed to meet the payback of an underlying obligation, less any interest or other penalties.
Mortgage loans that are amortized automatically apply a portion of each monthly payment to the principal debt, with the remainder paid as interest.
An interest-only loan does not need payments toward the principal sum each month, but such costs are permitted.
The principal payment is essentially a payment that goes toward repaying the original amount of money borrowed in a loan. On the other hand, interest is a cost you pay to borrow money that is often calculated as a percentage of the loan's yearly value. As a result, when you make a principal payment, you reduce the amount of loan you must repay but not the amount of interest charged on that loan.
A loan application fee is a cost levied to a potential borrower to process and underwrite a loan application, such as a mortgage or auto loan. Loan application fees may be needed for all sorts of loans and are meant to cover the expenses of the loan approval procedure. However, many observers believe they are unnecessary or too pricey.
A promissory note is a written commitment by one party (the note's issuer or maker) to pay another party (the note's payee) a defined amount of money, either on-demand or at a specified future date. The principal amount, interest rate, maturity date, date and location of issuance, and the issuer's signature are often included in a promissory message.
Although financial organizations may issue them (for example, you may be required to sign a promissory note to secure a small personal loan), promissory letters are frequently used by enterprises and individuals to acquire money from sources other than banks. This source can be an individual or a business willing to carry the note (and provide the financing) under the agreed-upon terms. Promissory notes, in effect, make anybody a lender.
A purchase agreement in real estate is a legally binding contract between a buyer and seller that describes the elements of a house selling transaction. The buyer will present contract terms, including their offer price, to which the seller will either agree, reject, or negotiate.
Negotiations between the buyer and seller may continue back and forth until both parties are pleased. When both parties agree on the conditions and sign the purchase agreement, they are said to be "under contract."
A purchase-money mortgage is a loan made by the seller of a home to the buyer as part of the property transaction. A purchase-money mortgage, also known as owner or seller financing, is when the seller acts as the bank, supplying the money to buy the house.
A Qualified Mortgage is a type of loan with particular, more reliable qualities that make it more probable that you'll be able to afford it.
Before you take out a mortgage, a lender must make a good-faith attempt to evaluate your capacity to repay it. This is referred to as the "ability-to-repay" rule. If a lender lends you a Qualified Mortgage, it indicates the lender meets specific criteria and is presumed to have followed the ability-to-repay criterion.
Qualifying ratios are measurement tools banks and other financial organizations use during the loan underwriting process. An applicant's qualifying ratio, represented as a percentage number, is critical in deciding whether they will be authorized for financing and, in many cases, the loan conditions.
In assessing whether to approve loan applications, lenders employ qualifying ratios, which are percentages that relate borrowers' financial commitments to their income.
Qualifying ratios might differ between lenders and lending programs. In reviewing an application, they are frequently utilized with a borrower's credit score.
Quitclaim deeds are most commonly used to transfer property between family members or correct a title defect, such as misspelling a name. Although they are widespread and most real estate brokers have dealt with them, they are often utilized in transactions when the parties know each other and are thus more ready to accept the risks associated with a lack of buyer protection. They can also be used when a property is transferred without being sold, i.e., when no money is exchanged.
Amount of interest due on a loan.
A Reduction-option loan is a mortgage loan with features of both fixed-rate and adjustable-rate mortgages. A reduction-option loan is a fixed-rate mortgage, but the rate can be reduced if interest rates fall by a particular amount in a year. Typically, this decrease must be at least 2%. If this occurs, the new, lower interest rate becomes the mortgage's interest rate for the term.
Congress passed the Real Estate Settlement Procedures Act (RESPA) in 1975 to give comprehensive settlement cost disclosures to purchasers and sellers. RESPA prevents bribes and limits escrow accounts in the real estate settlement process. RESPA is federal legislation presently governed by the Consumer Financial Protection Bureau (CFPB).RESPA, which Congress first approved in 1974, went into effect on June 20, 1975. Several adjustments and amendments to RESPA have occurred throughout the years. Initially, enforcement was the responsibility of the U.S. Department of Housing and Urban Development (HUD). Because of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB took over such responsibilities after 2011.
Reamortization is the process of changing a borrower's monthly payment amount such that the payments cover the accumulated interest and whole principle of a loan by a particular date. Amortized loans typically have the same monthly payment for the duration of the repayment period. Still, some circumstances need the lender to recalculate prices for the loan to be paid off by a particular end date.
A charge for a public official (Registrar of Deeds, County Clerk) officiating the documentation of a transfer of property rights such as a deed, a security instrument, a satisfaction of mortgage, or a mortgage extension.
see Recorder
see Recorder
A low/no documentation loan enables a potential borrower to apply for a mortgage with little or no information about their work, income, or assets. Although regulation of these loans has changed dramatically since 2008, they continue to be an option for some borrowers in unconventional financial situations.
A refinancing, sometimes known as a "refi," is the act of changing and altering the terms of an existing credit arrangement, most commonly a loan or mortgage. When a company or an individual decides to refinance a credit obligation, they attempt to make advantageous modifications to their interest rate, payment schedule, or other contract conditions. The borrower receives a new contract that replaces the old agreement if the loan is granted.
Borrowers frequently prefer to refinance when the interest-rate environment changes significantly, resulting in possible debt-payment savings from a new arrangement.
With the FHA Rehab Loan, you may refinance your house and build your home equity via repairs and renovations. This 203(k) permits you to purchase an older home for a modest cost (and great interest rates). You may then modify your property to suit your wants and style while growing equity with the new changes.
Furthermore, the FHA 203(k) loan is a handy option to buy or refinance a property without requiring a good credit score, a significant down payment, or excessive interest rates. While section 203(k) insured loans save borrowers time and money, they also benefit lenders by allowing them to get the loan guaranteed even if the property has not yet been renovated and the condition and value of the house do not yet provide acceptable security.
Reserve requirements are the amounts of cash that banks must keep in their vaults or at the nearest Federal Reserve branch to meet client deposits. Reserve requirements set by the Fed's board of governors are one of the three primary tools of monetary policy, the other two being open market operations and the discount rate.
The Federal Reserve Board stated on March 15, 2020, those reserve requirements ratios will be adjusted to 0% beginning March 26, 2020. Before the change, which took effect on March 26, 2020, the reserve requirement ratios on net transaction accounts varied depending on the institution's number of net transaction accounts.
Reserves are savings amounts that will remain after your house purchase is completed. They are considered emergency savings, which means that if you lose your job after purchasing a property, you will still be able to pay your mortgage.
Assume your lender demands at least two months' worth of mortgage reserves following closure. If you cannot provide documentation of these monies (known as PITI, which we will explore later in the article), you may be unable to proceed with your application. This is why it is critical to have liquid reserves at this time.
During a refinance, this phrase represents the act of resetting your loan term on your mortgage.
A reverse mortgage is, in a nutshell, a loan. A homeowner 62 or older with significant home equity can borrow against the value of their property and receive cash in the form of a lump sum, set monthly payment, or line of credit. In contrast to a forward mortgage, which is used to purchase a property, a reverse mortgage does not require the homeowner to make any loan payments.
Instead, when the borrower dies, moves away permanently, or sells the residence, the whole loan debt becomes due and payable. Federal laws require lenders to structure the transaction such that the loan amount does not exceed the home's worth. The borrower or borrower's estate is not obligated to pay the difference if the loan balance does exceed the home's value. This might occur due to a decrease in the market value of the borrower's house.
ROFR, also known as first right of refusal, is a contractual right to enter into a commercial agreement with a person or corporation before anybody else. If the party having this right rejects to participate in a transaction, the obligor may accept other offers. This is a standard provision among real estate lessees since it offers them a choice for the properties they inhabit. However, it may limit the amount of money the owner may earn from interested parties vying for the property.
The right of rescission is a privilege granted to borrowers under the Truth in Lending Act (TILA) under U.S. federal law to cancel a loan transaction with a lender other than the present mortgagee within three days of closing. The right is granted without any questions asked, and the lender must relinquish its claim to the property and return all expenses within 20 days after invoking the right of rescission.
The right to rescission applies solely to mortgage refinancing. It is inapplicable to the acquisition of a new home. Suppose a borrower wishes to cancel a loan. In that case, they must do so by midnight on the third day following the completion of the refinancing after receiving a statutory Truth in Lending statement from the lender.
An agency within the Department of Agriculture providing financing opportunities to farmers or other qualified borrowers when buying property in rural areas. RHS provides loans for qualified people who may have been unable to obtain a loan elsewhere.
A second house is one in which you do not reside full-time yet whose primary aim is not to be rented out. However, this is a broad meaning, and in some instances, the word "second home" is more narrowly defined.
This home you own isn't your primary residence but isn't primarily used as an investment property. You must reside in it for at least part of the year to qualify as a second home. Also, the word "second" is a little deceptive. You can possess more than one "second residence.”
A second mortgage is a sort of the second mortgage that is obtained while the initial mortgage is still in force. In the case of a default, the original mortgage would get the full profits of the property's liquidation until it was completely paid off.
Because the second mortgage would only receive repayments after the first mortgage was paid off, the interest rate charged for the second mortgage is greater, and the amount borrowed is less than that of the first mortgage.
A mortgage calculator is a helpful tool for budgeting these expenses.
Secured loans are commercial or personal loans that demand collateral as a condition of borrowing. A bank or lender may need collateral for big loans if the funds are being used to acquire a specific item or when your credit ratings are insufficient to qualify for an unsecured loan. Secured loans may allow borrowers to benefit from cheaper interest rates since they pose less risk to lenders. However, specific fast loans, such as adverse credit personal loans and short-term installment loans, may have higher interest rates.
The collateral property pledged during a secured loan.
A seller carryback financing arrangement is a contract between a seller and a buyer. Instead of a bank or other financial institution, the seller gives credit to the buyer. The buyer and seller sign a promissory note.
A down payment is made, and the purchase amount is paid in installments over time. A seller's carryback is a method of financing a house purchase. The seller receives the revenues of the transaction over time rather than in one large payment. A contract is used by the seller to "carryback" the price.
The finalization of a property's sale or purchase.
A short refinance is a financial phrase that refers to a lender refinancing a mortgage for a borrower who is currently behind on their mortgage payments. Lenders short refinance mortgages to assist borrowers in avoiding foreclosure.
Typically, the new loan amount is less than the current outstanding loan amount, and the lender occasionally forgives the difference. Although the new loan payment will be smaller, a lender may select a short refinancing since it is less expensive than foreclosure procedures.
In real estate, a short sale occurs when a financially challenged homeowner sells their property for less than the amount owed on the mortgage. The property is purchased by a third party (not the bank), and all revenues go to the lender. The lender has two options: forgive the outstanding sum or pursue the homeowner with a deficiency judgment, which forces them to pay the lender all or part of the difference. This disparity must be legally forgiven in several areas during a short sale.
The most prevalent house listed in the MLS is a single-family dwelling (SFR). This term refers to a residence that is a stand-alone structure with a lot meant for a single-family. Condominiums, townhouses, cooperatives, and multi-family homes are linked properties, but single-family homes are not.
Acronym for Secured Overnight Financing Rate; stands for the measure of cost of borrowing cash overnight secured by the U.S. Treasury.
The initial, discounted interest rate which begins an adjustable-rate mortgage (ARM) loan.
A stated income mortgage is a form of house loan distinguished by its low regulation. It did not compel lenders to check or request income documentation. Banks and other lending organizations are just required to know the borrower's "stated income.
"As a result, stated income loans are sometimes referred to as "liar loans." This is a broader term for mortgages that need little or no documentation. The loan provider underwrites the loan based on the information provided by the borrower.
They now appear to be dangerous, which is understandable. However, these loans were initially designed to assist self-employed borrowers with unpredictable income who could not provide the papers required for a traditional loan. However, liar loans mainly rely on credit ratings to compensate.
Refinance of an existing FHA-insured mortgage with little borrower credit paperwork and underwriting is referred to as a streamlined refinance. There are two types of streamline refinances: credit qualifying and non-credit qualifying. The term "streamline refinancing" relates simply to the amount of documentation and underwriting the lender needs to undertake. It does not imply that there are no fees associated with the process.
Any loan taken out after your first purchase loan is referred to as a junior-lien or subordinate mortgage. As a result, subordinate financing is the utilization of two or more mortgages to fund real estate acquisition or the usage of the equity in your property for liquid cash.
Subordinate finance debt differs from senior mortgage debt in ways beyond the mere sequence in which the loans are taken out. When it comes to repayment, subordinate funding is similarly positioned behind the debt of the first secured lender.
A subprime mortgage is a form of loan given to people with low credit scores—640 or less, and commonly less than 600—who would be unable to qualify for conventional mortgages due to their bad credit histories.
Any subprime mortgage carries a significant degree of risk. The word "subprime" refers to the borrowers and their financial status, not the loan itself. Borrowers with subprime credit are more likely to default than those with good credit ratings.
See Start Rate
Often referred to as the number of years a borrower is given to repay a mortgage loan. A term will set the schedule for monthly payments during the loan period.
Third-party fees are often costs collected by the lender and passed on to the individual who conducted the service. An appraiser, for example, receives the appraisal fee, a credit agency gets the credit report charge, and a title business or an attorney gets the title insurance fees. The appraisal charge, credit report cost, settlement or closing fee, survey fee, tax service fees, title insurance fees, flood certification fees, and courier/mailing fees are examples of third-party expenses. Typically, third-party costs will vary slightly from lender to lender since a lender may have negotiated special pricing from a source they use frequently or chose a service that gives countrywide coverage at a fixed rate. Some lenders may additionally absorb modest third-party expenses, such as the flood certification charge or the tax service fee.
Written documentation securing the ownership of a property.
The title company is one of the players you'll encounter while purchasing a home. A title company's function is to ensure that the title to the real estate is lawfully transferred to the house buyer. In essence, they provide that a seller has the legal right to sell the property to a buyer.
After a title insurance business has completed its verification, it will back that promise with title insurance, which protects the lender or owner if someone comes along later and claims the property.
Title insurance is a type of indemnity insurance that protects lenders and homebuyers against financial loss caused by faults in a property's title. Lender's title insurance is the most frequent kind of title insurance, which the borrower acquires to protect the lender. The owner's title insurance, on the other hand, is frequently paid for by the seller to safeguard the buyer's equity in the property.
A title search is a study of public documents to establish and confirm legal ownership of a property and determine what claims or liens are on the property. Any real estate transaction must be completed with a clear title.
A title search is a procedure by which the ownership and claims on a piece of real estate are reviewed before completing a real estate transaction.
Most real estate transactions require that the title be proven clean—that is, free of liens, back taxes, or other claims.
Title insurance can be acquired to safeguard against financial loss if a title is defective.
A Treasury index is an index that is based on recent auctions of US Treasury notes and is widely used as a benchmark when calculating interest rates, such as mortgage rates.
These indexes are created and published by various financial firms like Vanguard, Fidelity, and Northern Trust. They may also serve as the foundation for Treasury mutual funds launched by these firms.
The Truth in Lending Act (TILA) protects you from erroneous and unfair credit invoicing and credit card practices. It compels lenders to give you loan pricing information so that you may compare shops for certain sorts of loans.
For TILA-covered loans, you have a right of rescission, which gives you three days to review your decision and back out of the loan process without losing any money. This privilege protects you against high-pressure sales methods employed by unscrupulous lenders.
TILA does not specify banks how much interest they can charge or whether they must make a consumer loan. Learn more. Read the Federal Trade Commission's Facts for Consumers: Home Equity Credit Lines and the OCC's Answers About Consumer Loans.
An underwater mortgage, also known as an upside-down mortgage, is a house loan with a principle that is more than the home's value. When property values decline, you still owe the original loan sum.
Mortgages aren't the only kind of debt that might become underwater. Loans for automobiles, motorcycles, and houseboats may all fall underwater.
The process by which a lender determines whether a potential borrower qualifies for a loan based on their credit score, employment status, assets, and other factors. This process will match what is known as the risk of the client to an appropriate interest rate, term length, and the loan amount.
The loan's unpaid principal balance is the portion of the loan that has not yet been repaid to the lender by the borrower. This amount represents the residual risk of nonpayment borne by the lender. Because a typical loan payment includes both an interest charge and the return of some principal, the unpaid principal balance cannot be computed simply by subtracting all loan payments to date from the original loan amount. To calculate the outstanding principal sum, you must remove the interest paid to the lender.
USDA loans are low-interest mortgages with no down payment intended for low-income Americans who do not have good enough credit to qualify for standard mortgages. A USDA loan must be used to purchase a property in a defined region that includes both rural and suburban areas. We'll go over everything you need to know about USDA loans and how to get one. Consider hiring a financial counselor in your region if you want hands-on help with USDA loans.
Private lenders offer VA home loans, such as banks and mortgage firms. The VA guarantees a portion of the loan, allowing the lender to provide you with better terms. A VA Loan is secured and insured by the Department of Veterans Affairs and is available to qualified U.S. veterans.
A variable rate, often known as a variable interest rate, is charged to a borrower on a variable-rate loan, such as a mortgage. A variable rate is often represented as an annual percentage and moves in lockstep with a rate index.
A variable interest rate is dependent on a benchmark rate or index, such as the Wall Street Journal's prime rate. When that index rises or falls, it influences the borrower's interest rate. A variable rate has the advantage that when it fails, so does the borrower's interest payment. However, some variable-rate loans contain conditions that limit rate decreases.
The final walkthrough before closing on a house is one of the final phases in the home-buying process. The final walkthrough is often conducted after the seller has moved out and allows the buyer to ensure that all agreed-upon repairs have been completed and that no new concerns have arisen.
The final tour essentially allows property purchasers to perform one last check. This ensures that the property they're buying is in the same condition as when they agreed to buy it, plus any additional repairs mentioned in the purchase agreement. Nothing has been removed, such as light fixtures or faucets, shouldn't have been.
An affordability analysis used in case a potential mortgagor has missing or incomplete data regarding their credit history. A what-if analysis will explore potential changes to the mortgagor’s income, liabilities, and available funds in order to determine possible interest rates and other expenses in light of a loan agreement.
Section 203(k) is a unique mortgage loan for homebuyers. If the homebuyer is looking to buy a house that needs repair or modernization, they often have to follow through an expensive and complicated process. Most repair loans often have high-interest rates, short repayment terms, and what is called a balloon payment (a large end-of-term payment). However, a Section 203(k) loan mitigates high-costs and complicated term lengths for both the lender and the borrower. 203(k) Loans help with both the acquisition and the rehabilitation of the property, saving the borrower both time and money. They are also insured, thus protecting the lender's security during the transaction even before the value of the property begins to offer adequate security.
An adjustable-rate mortgage (aka ARM) is typically a 30-year home loan with an interest rate that changes often during the term length. You may notice two numbers before some of the common ARM loan types. The first number stands for how long the fixed rate will last for. The second number indicates how often your rate can change per year once the fixed rate period has passed. If you take out a 3/1 ARM , you'll be paying a fixed rate for a total of three years and an adjusted rate for a total of 27 years. With an adjustable rate, you take the risk of paying an increased interest rate some years and the benefit of paying a lower interest rate during other years. There is no guarantee as to how high or low the interest rate will be from year to year.
An adjustable-rate mortgage (aka ARM) is typically a 30-year home loan with an interest rate that changes often during the term length. You may notice two numbers before some of the common ARM loan types. The first number stands for how long the fixed rate will last for. The second number indicates how often your rate can change per year once the fixed rate period has passed.If you take out a 5/1 ARM, you’ll pay a fixed interest rate for the first 5 years of your loan and then begin paying an adjustable rate for up to 25 years. The adjustable rate may be higher or lower depending on the index rate.
A report provided by your lender documenting the annual interest amount paid and the remaining principal balance at the end of the term year. Depending on whether or not you have applied for an escrow account, your tax information will or will not be documented in this report.
A yield spread premium (YSP) is a type of remuneration received by a mortgage broker acting as an intermediary from the originating lender for selling an interest rate to a borrower that is higher than the lender's par rate for which the borrower qualifies. The YSP can occasionally offset loan charges, allowing the borrower to avoid paying additional fees.
As a result of legislation implemented in 1999, the yield spread premium must be tied to the essential services provided by the mortgage broker to the property buyer. The yield spread premium was also required by law to be reported on the HUD-1 Form when the loan was finalized. The Dodd-Frank Financial Reform Act of 2010 later prohibited yield-spread premiums entirely, a rule enacted to safeguard consumers following the 2008-09 financial crisis.
As the name implies, a zero-down mortgage is a house loan that does not need a down payment. A down payment is an initial payment you make toward purchasing a property, and it is due when the loan is closed. Down payments are often calculated as a percentage of the total amount borrowed by lenders.
Only a government-backed loan will allow you to obtain a mortgage with no down payment. The federal government insures government-backed loans. In other words, if you stop paying your mortgage, the government (not your lender) foots the tab.
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