Common Terms to Know When Searching for a Mortgage
Adjustable Rate Mortgage (ARM) - often called a variable rate mortgage (VRM). Interest rates in these mortgages are not fixed and rise or fall depending on a linked fund.
Adjustment Period – the time period when the interest rate changes from fixed to variable.
Amortization – details the principal and interest breakdown of each monthly payment for the life of the mortgage.
Annual Percentage Rate (APR) – the effective rate of interest per year for a mortgage. The APR is often higher than the interest rate of the loan because it includes the closing costs.
Appraisal - an opinion of real property value determined by a licensed and independent third party appraiser.
Broker – can mean a licensed real estate broker or a licensed mortgage broker.
Caveat Emptor – means “buyer beware” especially applicable when the property is sold “as is” as in foreclosures or short sales.
Certificate of Title – an opinion by an attorney or title company as to the status of the property.
Closing Costs – Expenses, either recurring or non-recurring, incurred by the buyer and seller in closing a real estate or mortgage transaction.
Contingency – Definitive clauses, like a mortgage contingency, used in contracts for purchase and sale of real estate that define a condition that must be satisfied by a specific date.
Convertible ARMs – Variable mortgages that have an option to convert to a fixed rate mortgage from a variable rate mortgage.
Credit Report – is composed of information about the borrower’s credit history including various elements such as revolving accounts and installment loans and payment history and liens.
Deed - A legal document that is used to transfer real property from one titleholder to another.
Federal National Mortgage Association (FNMA, Fannie Mae) - Mortgage loans that are securitized by real property and are sold in mortgage-backed securities offered by financial and investment companies.
Federal Home Loan Mortgage Corporation (FHLMC, Freddie Mac) - loans purchased by the Federal Reserve and the Federal Home Loan Bank Systems that are securitized and sold to investment houses.
Federal Housing Administration (FHA) - Operates under the auspices of the U.S. Department of Housing and Urban Development (HUD) that administers loan programs that include loan guarantees and insurances so local banks will make mortgage loans.
Government National Mortgage Association (GNMA, Ginnie Mae) – Another HUD program that acquires VA and FHA loans from lenders and then secures the loan and sells them as Ginnie Mae securities to investment houses.
Housing and Urban Development – a federal government agency that is mandated to implement local community development programs.
Market Value – is determined by the highest price or lowest price a real estate property would bring on the open market in an arm’s length transaction.
Mortgagee – the lender of a mortgage loan.
Mortgagor - the borrower of a mortgage loan.
Refinancing – the process by which an existing mortgage is paid by the proceeds from a new mortgage.
Title – proof of ownership is verified by a title.
Title Insurance – a form of insurance that protects the mortgagee and the mortgagor against defects in the title.
Title Report – a researched document that reflects the condition of the current title. This reflects the current ownership, any and all outstanding deeds of trust and liens, easements, covenants, and defects.
Title Search – the search and examination of public records that designates the ownership and any encumbrances attached to the property.
Truth in Lending – plain language rules with which lenders must comply. Truth in lending requires lenders to reveal all costs regarding a loan and assures the borrower three days to accept or reject the loan without penalty.