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Short Sale Glossary
Written by admin on April 25th, 2009. Filed under Free Short Sale Questions and .GLOSSARY
Adjustable Rate–An interest rate that changes periodically in relation to an index. Payments may increase or decrease according to the index at the time of adjustment.
Amortization–A repayment method in which the amount you borrow is repaid gradually though regular monthly payments of principal and interest. During the first few years, most of each payment is applied toward the interest owed. During the final years of the loan, payment amounts are applied almost exclusively to the remaining principal.
Annual Percentage Rate (APR)–The cost of credit on a yearly basis, expressed as a percentage. Required to be disclosed by the lender under the federal Truth in Lending Act, Regulation Z. Includes up-front costs paid to obtain the loan, and is, therefore, usually a higher amount than the interest rate stipulated in the mortgage note. Does not include title insurance, appraisal, and credit report.
Application–An initial statement of personal and financial information which is required to approve your loan.
Application Fee–Fees that are paid upon application. An application fee may frequently include charges for property appraisal ($200-$400) and a credit report ($30-50).
Appraisal–A fee charged by an appraiser to render an opinion of market value as of a specific date. This is required by most lenders to obtain a loan.
ARM: Adjustable Rate Mortgage; a mortgage loan subject to changes in interest rates; when rates change, ARM monthly payments increase or decrease at intervals determined by the lender; the Change in monthly -payment amount, however, is usually subject to a Cap. (See Variable)
Assumption of Mortgage–The agreement of a purchaser to become primarily liable for the payments on a mortgage loan. Unless otherwise specified by the lender, the seller may remain secondarily liable for payments.
Balloon Mortgage: a mortgage that typically offers low rates for an initial period of time (usually 5, 7, or 10) years; after that time period elapses, the balance is due or is refinanced by the borrower.
Bankruptcy: a federal law whereby a person’s assets are turned over to a trustee and used to pay off outstanding debts; this usually occurs when someone owes more than they have the ability to repay.
Borrower: a person who has been approved to receive a loan and is then obligated to repay it and any additional fees according to the loan terms.
Cap–The maximum allowable increase, for either payment or interest rate, for a specified amount of time on an adjustable rate mortgage.
Cash Out–Receiving money back when refinancing your present mortgage.
Cash reserves: a cash amount sometimes required to be held in reserve in addition to the down payment and closing costs; the amount is determined by the lender.
Ceiling–The maximum allowable interest rate over the life of the loan of an adjustable rate mortgage.
Closing Costs–Any fees paid by the borrowers or sellers during the closing of the mortgage loan. This normally includes an origination fee, discount points, attorney’s fees, title insurance, survey, and any items which must be prepaid, such as taxes and insurance escrow payments.
Conforming Loan–Generally, a mortgage loan under $417,000. Qualifying ratios and underwriting methods are standardized to a large degree.
Condominium: a form of ownership in which individuals purchase and own a unit of housing in a multi-unit complex; the owner also shares financial responsibility for common areas.
Contract of Sale–The agreement between the buyer and seller on the purchase price, terms, and conditions necessary to both parties to convey the title to the buyer.
Credit history: history of an individual’s debt payment; lenders use this information to gauge a potential borrower’s ability to repay a loan.
Credit report: a record that lists all past and present debts and the timeliness of their repayment; it documents an individual’s credit history.
Credit bureau score: a number representing the possibility a borrower may default; it is based upon credit history and is used to determine ability to qualify for a mortgage loan. Information is obtained from the three credit bureaus: Equifax, Transunion, and Experian
Debt Ratio or Debt to income ratio –The ratio of the total amount of credit card, auto, mortgage or other debt upon which you must pay versus the amount of gross income you bring in.
Debt Service –The total amount of credit card, auto, mortgage or other debt upon which you must pay.
Deed of Trust–Used in many western states, the agreement used to pledge your home or other real estate as security for a loan. Similar to a mortgage.
Default: the inability to pay monthly mortgage payments in a timely manner or to otherwise meet the mortgage terms.
Delinquency: failure of a borrower to make timely mortgage payments under a loan agreement.
Discount Points (or Points)–The amount paid either to maintain or lower the interest rate charged. Each point is equal to one percent (1%) of the loan amount (i.e., two points on a $100,000 mortgage would equal $2,000).
Down Payment–The difference between the purchase price and that portion of the purchase price being financed. Most lenders require the down payment to be paid from the buyer’s own funds. Gifts from related parties are sometimes acceptable, and must be disclosed to the lender.
Due on Sale–A clause in a mortgage agreement providing that, if the mortgagor (the borrower) sells, transfers, or, in some instances, encumbers the property, the mortgagee (the lender) has the right to demand the outstanding balance in full.
Effective Interest Rate–The cost of credit on a yearly basis expressed as a percentage. Includes up-front costs paid to obtain the loan, and is, therefore, usually a higher amount than the interest rate stipulated in the mortgage note. Useful in comparing loan programs with different rates and points.
Encumbrance–A claim against a property by another party which usually affects the ability to transfer ownership of the property.
Equity–The difference between the fair market value (appraised value) of your home and your outstanding mortgage balance.
Escrow account: a separate account into which the lender puts a portion of each monthly mortgage payment; an escrow account provides the funds needed for such expenses as property taxes, homeowners insurance, mortgage insurance, etc.
Fannie Mae: Federal National Mortgage Association (FNMA); a federally-chartered enterprise owned by private stockholders that purchases residential mortgages and converts them into securities for sale to investors; by purchasing mortgages, Fannie Mae supplies funds that lenders may loan to potential homebuyers.
First Mortgage–A mortgage which is in first lien position, taking priority over all other liens (which are financial encumbrances).
Fixed Rate–An interest rate which is fixed for the term of the loan. Payments as well are fixed at one amount.
FHA Loan–More appropriately termed “FHA Insured Loan.” A loan for which the Federal Housing Administration insures the lender against losses the lender may incur due to your default.
Fixed-rate mortgage: a mortgage with payments that remain the same throughout the life of the loan because the interest rate and other terms are fixed and do not change.
Flood insurance: insurance that protects homeowners against losses from a flood; if a home is located in a flood plain; the lender will require flood insurance before approving a loan.
Foreclosure: a legal process in which mortgaged property is sold to pay the loan of the defaulting borrower.
Freddie Mac: Federal Home Loan Mortgage Corporation (FHLM); a federally-chartered corporation that purchases residential mortgages, securitizes them, and sells them to investors; this provides lenders with funds for new homebuyers.
Ginnie Mae: Government National Mortgage Association (GNMA); a government-owned corporation overseen by the U.S. Department of Housing and Urban Development, Ginnie Mae pools FHA-insured and VA-guaranteed loans to back securities for private investment; as With Fannie Mae and Freddie Mac, the investment income provides funding that may then be lent to eligible borrowers by lenders.
Good Faith Estimate–A written estimate of closing costs which a lender must provide you within three days of submitting an application.
Grace Period–A period of time during which a loan payment may be paid after its due date but not incur a late penalty. Such late payments may be reported on your credit report.
Gross Income–For qualifying purposes, the income of the borrower before taxes or expenses are deducted.
Home Equity Line of Credit–A loan providing you with the ability to borrow funds at the time and in the amount you choose, up to a maximum credit limit for which you have qualified. Repayment is secured by the equity in your home. Simple interest (interest-only payments on the outstanding balance) is usually tax-deductible. Often used for home improvements, major purchases or expenses, and debt consolidation.
Home Equity Loan–A fixed or adjustable rate loan obtained for a variety of purposes, secured by the equity in your home. Interest paid is usually tax -deductible. Often used for home improvement or freeing of equity for investment in other real estate or investment. Recommended by many to replace or substitute for consumer loans whose interest is not tax-deductible, such as auto or boat loans, credit card debt, medical debt, and education loans.
Hazard Insurance–A contract between purchaser and an insurer, to compensate the insured for loss of property due to hazards (fire, hail damage, etc.), for a premium.
Home inspection: an examination of the structure and mechanical systems to determine a home’s safety; makes the potential homebuyer aware of any repairs that may be needed.
HUD I Settlement Statement–A form utilized at loan closing to itemize the costs associated with purchasing the home. Used universally by mandate of HUD, the Department of Housing and Urban Development.
Index–A number, usually a percentage, upon which future interest rates for adjustable rate mortgages are based. Common indexes include the Cost of Funds for the Eleventh Federal District of banks or the average rate of a one year Government Treasury Security.
Inflation: the number of dollars in circulation exceeds the amount of goods and services available for purchase; inflation results in a decrease in the dollar’s value.
Interest Rate–The periodic charge, expressed as a percentage, for use of credit.
Jumbo Loan–Mortgage loans over $417,000. Terms and underwriting requirements may vary from conforming loans.
Loan to Value Ratio (LTV)–A ratio determined by dividing the sales price or appraised value into the loan amount, expressed as a percentage. For example, with a sales price of $100,000 and a mortgage loan of $80,000, your loan to value ratio would be 80%. Loans with an LTV over 80% may require Private Mortgage Insurance, defined below.
Lock or Lock In–A commitment you obtain from a lender assuring you a particular interest rate or feature for a definite time period. Provides protection should interest rates rise between the time you apply for a loan, acquire loan approval, and, subsequently, close the loan and receive the funds you have borrowed.
Margin–An amount, usually a percentage, which is added to the index to determine the interest rate for adjustable rate mortgage.
Minimum Payment–The minimum amount that you must pay, usually monthly, on a home equity loan or line of credit. In some plans, the minimum payment may be “interest only,” (simple interest). In other plans, the minimum payment may include principal and interest (amortized).
Mortgage Banker–Originates mortgage loans, loaning you their funds and closing the loan in their name.
Mortgage Broker–As do mortgage bankers, takes loan application and processes the necessary paperwork. Unlike a mortgage banker, brokers do not fund the loan with their own money, but work on behalf of several investors, such as mortgage bankers, S and L’s, banks, or investment bankers.
Mortgage Insurance (MIP or PMI)–Insurance purchased by the borrower to insure the lender or the government against loss should you default. MIP, or Mortgage Insurance Premium, is paid on government-insured loans (FHA or VA loans) regardless of your LTV (loan-to-value). Should you pay off a government-insured loan in advance of maturity, you may be entitled to a small refund of MIP. PMI, or Private Mortgage Insurance, is paid on those loans which are not government-insured and whose LTV is greater than 80%. When you have accumulated 20% of your home’s value as equity, your lender may waive PMI at your request. Please note that such insurance does not constitute a form of life insurance which pays off the loan in case of death.
Mortgage Loan–A loan which utilizes real estate as security or collateral to provide for repayment should you default on the terms of your loan. The mortgage or Deed of Trust is your agreement to pledge your home or other real estate as security.
Mortgagee–The lender in a mortgage loan transaction.
Mortgagor–The borrower in a mortgage loan transaction.
Negative Amortization–Amortization in which the payment made is insufficient to fund complete repayment of the loan at its termination. Usually occurs when the increase in the monthly payment is limited by a ceiling. The portion of the payment which should be paid is added to the remaining balance owed. The balance owed may increase, rather than decrease over the life of the loan.
PITI–Principal, interest, taxes and insurance, which comprise your monthly mortgage payment.
Points–The amount paid either to maintain or lower the interest rate charged. Each point is equal to one percent (1%) of the loan amount (i.e., two points on a $100,000 mortgage would equal $2,000).
Prepayment Penalty–A fee paid to the lending institution for paying a loan off prior to the scheduled maturity date. A prepayment penalty may also be charged for paying over a certain percentage of the total loan balance in a given year. This varies from lender to lender.
Principal: the amount borrowed from a lender; doesn’t include interest or additional fees.
Qualifying Ratios–Comparisons of a borrower’s debts and gross monthly income. (See Debt Ratio)
RESPA: Real Estate Settlement Procedures Act; a law protecting consumers from abuses during the residential real estate purchase and loan process by requiring lenders to disclose all settlement costs, practices, and relationships
Right to Rescission–The legal right to void or cancel your mortgage contract in such a way as to treat the contract as if it never existed. Right of rescission is not applicable to mortgages made to purchase a home, but may be applicable to other mortgages, such as home equity loans. Length of right to rescission varies from lender and state, but is typically 3 days.
Security Interest–An interest that a lender takes in the borrower’s property to assure repayment of a debt.
Servicing a Loan–The ongoing process of collecting your monthly mortgage payment, including accounting for and payment of your yearly tax and/or homeowners insurance bills.
Title–The written evidence that proves the right of ownership of a specific piece of property.
Title Insurance–Protection for lenders or homeowners against financial loss resulting from legal defects in the title.
Transaction Fee–A fee which may be charged each time you draw on a home equity credit line.
Truth-in-Lending: a federal law obligating a lender to give full written disclosure of all fees, terms, and conditions associated with the loan initial period and then adjusts to another rate that lasts for the term of the loan.
Underwriting–The process of verifying data and approving a loan.
USDA Rural Development Loan– A loan backed by the USDA that allows for 102% financing and NO MONEY DOWN.
Variable Rate–An interest rate that changes periodically in relation to an index. Payments may increase or decrease accordingly.
VA Loan–More appropriately termed “VA Insured Loan.” A loan for which the Veteran’s Administration insures the lender against losses the lender may incur due to your default. Available only to veterans possessing a Certificate of Eligibility
Glossary provided by www.TeachMeHomeLoans.com and www.usdaloancenter.com
Information on Short Sales
Written by admin on April 22nd, 2009. Filed under Free Short Sale Questions and .For anyone needing information on short sales or free advice on how to do a short sale go to: http://www.freeshortsalenow.com
Why do people do short sales?
Written by admin on April 22nd, 2009. Filed under Free Short Sale Questions and tagged with Free Short Sale, Loan Modification, loan mods, loss mitigation, Short Sale benefits.We get this question often. Many people ask why they should do a short sale. The bottom line is that many people want to keep their house but simply can’t afford it. There is a lot of hype in the media for loan modifications. In some cases you can get a loan modification if you would like to stay in your house, but the problem with many of them is that the loan is only modified for a short period of time (5-7 years). For some people this loan modification will not help them.
A short sale will help people get out of the property in many cases without owing anything. That is sometimes a better solution for you than the temporary fix of a loan modification. Especially when the market is continuing to decline in most areas. FreeShortSaleNow.com will educate you on what your options are. We never charge a fee to you in order to help.
If you owe more that your house is worth…
Written by admin on April 11th, 2009. Filed under Free Short Sale Questions and tagged with House upside down, Owe more than it is worth, Short Sale Questions.Usually your options are loan modification, short sale, deed-in-lieu of foreclosure, and foreclosure. The banks like to prevent foreclosure whenever possible. Call FREE SHORT SALE NOW to see what options you have now.
How long does a Short Sale Take?
Written by admin on April 11th, 2009. Filed under Free Short Sale Questions and tagged with How long does a short sale take?.This is a tough question to answer. It is different for every bank and every state. Generally the bank will send an NOD (NOTICE OF DEFAULT) after missing 3 months of payments. From that time, it usually takes between 3-9 mo for the house to go to auction. It could be much sooner than that however.
Free Short Sale Now
Written by admin on April 11th, 2009. Filed under Free Short Sale Questions and tagged with Free Short Sale Now Blog.Welcome to the Free Short Sale Now Blog. This is a blog to answer questions that many of you have on SHORT SALES and Loss Mitigation. Feel free to post comments and questions to the Free Short Sale Now Blog!