Untitled Document

ADJUSTABLE RATE MORTGAGE (ARM) - Is a mortgage in which the interest rate is
adjusted periodically based on a pre-selected index. Also sometimes known as the
renegotiable rate mortgage, the variable rate mortgage or the Canadian rollover
mortgage. Back to Top

AMORTIZATION - The periodic principal pay down of a loan. Back to Top

ANNUAL PERCENTAGE RATE (APR) - Is a interest rate reflecting the cost of a mortgage
as a yearly rate. This rate is likely to be higher than the stated note rate or advertised
rate on the mortgage, because it takes into account points and other credit costs the
APR allows home buyers to compare different types of mortgages based on the annual
cost for each loan. Back to Top

BALLOON (payment) MORTGAGE - Usually a short-term fixed-rate loan which involves
small payments for a certain period of time and one large payment for the remaining
amount of the principal at a time specified in the contract. Back to Top

BROKER - An individual in the business of assisting in arranging funding or negotiating
contracts for a client to buy who does not loan the money himself. Back to Top

CAPS (interest) - Consumer safeguards which limit the amount the interest rate on an
adjustable rate mortgage may change per year and/or on the life of the loan. Back to Top

CERTIFICATE OF ELIGIBILITY - The document given to qualified veterans which entitles
them to VA guaranteed loans for homes, business, and mobile homes. Certificates of
eligibility may be obtained by sending DD-214 (Separation Paper) to the local VA office
with VA form 1880 (request for Certificate of Eligibility) Back to Top

CERTIFICATE OF REASONABLE VALUE (CRV) - An appraisal issued by the Veterans
Administration showing the property's current market value Back to Top

CERTIFICATE OF TITLE - A written opinion by an attorney setting forth the status of
title to the property as shown on the public records. The certificate does not certify as
to matters not of record and affords no protection unless the author was negligent. Back to Top

CLOSINGS - The meeting between the buyer, seller and lender or their agents where the
property and funds legally change hands. Also called settlement. Closing costs usually
include an origination fee, discount points, appraisal fee, title search and insurance,
survey, taxes, deed recording fee, credit report charge and other costs assessed at
settlement. The cost of closing usually are about 3 percent to 6 percent of the mortgage
amount. Commitment an agreement often in writing, between a lender and a borrower to
loan money at a future date subject to the completion of paperwork or compliance with
stated conditions. Back to Top

CONSTRUCTION LOAN - A short term interim loan for financing the cost of construction.
The lender advances funds to the builder at periodic intervals as the work progresses. Back to Top

CONVENTIONAL LOAN - A mortgage not insured by FHA or guaranteed by the VA. Back to Top

CREDIT REPORT - A report documenting the credit history and current status of a
borrower's credit standing. Back to Top

DEBT-TO-INCOME RATIO - The ratio, expressed as a percentage, which results when a
borrower's monthly payment obligation on long-term debts is divided by his or her net
effective income (FHA/VA loans) or gross monthly income (conventional loans). Back to Top

DEED - The written document conveying real property. Once recorded at the
Courthouse, the original piece of paper is not needed to convey title in the future. Back to Top

DEFAULT - Failure to meet legal obligations in a contract, specifically, failure to make the
monthly payments on a mortgage. Back to Top

DEFERRED INTEREST - When a mortgage is written with a monthly payment that is less
than required to satisfy the note rate, the unpaid interest is deferred by adding it to the
loan balance. Back to Top

DELINQUENCY - Failure to make payments on time. this can lead to foreclosure. Back to Top

DOWN PAYMENT - Money paid to make up the difference between the purchase price
and the mortgage amount. Down payments usually are 10 percent to 20 percent of the
sales price on conventional mortgages. Back to Top

EARNEST MONEY - Money given by a buyer to a seller as part of the purchase price to
bind a transaction or assure payment. Back to Top

EASEMENT - The right to use the land of another for a specific limited purpose. Back to Top

ENTITLEMENT - The VA home loan benefit is called entitlement. Entitlement for a VA
guaranteed home loan. This is also known as eligibility. Back to Top

EQUAL CREDIT OPPORTUNITY ACT (ECOA) - Is a federal law that requires lenders and
other creditors to make credit equally available without discrimination based on race,
color, religion, national origin, age, sex, marital status or receipt of income from public
assistance programs Back to Top

EQUITY - The value an owner has in real estate over and above the obligation against
the property. Back to Top

EQUITY SHARING - A form of joint ownership between an owner/occupant and an
owner/investor. The investor takes depreciation deductions for his share of the
ownership. The occupant receives a portion of the tax write-offs for interest and taxes
and a part of his monthly payment is treated as rent. The co-owners divide the profit
upon sale of the property. Back to Top

ESCROW - Funds that are set aside and held in trust, usually for payment of taxes and
insurance on real property. Also earnest deposits held pending loan closing. Back to Top

FARMERS HOME ADMINISTRATION (FmHA) - Provides financing to farmers and other
qualified borrowers who are unable to obtain loans elsewhere. Back to Top

FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) - The Federal Home Loan
Mortgage Corporation provides a secondary market for saving and loans by purchasing
their conventional loans. Also known as "Freddie Mac." Back to Top

FEDERAL HOUSING ADMINISTRATION (FHA) - A division of the Department of Housing
and Urban Development. Its main activity is the insuring of residential mortgage loans
made by private lenders. FHA also sets standards for underwriting mortgages. Back to Top

FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) - Secondary mortgage
institution which is the largest single holder of home mortgages in the United States.
FNMA buys VA, FHA, and conventional mortgages from primary lenders. Also known as
"Fannie Mae." Back to Top

FHA LOAN - A loan insured by the Federal Housing Administration open to all qualified
home purchasers. While there are limits to the size of FHA loans ($124,875), they are
generous enough to handle moderately-priced homes almost anywhere in the country. Back to Top

FHA MORTGAGE INSURANCE - Requires a small fee (up to 3.8 percent of the loan
amount) paid at closing or a portion of this fee added to each monthly payment of an FHA
loan to insure the loan with FHA. On a 9.5 percent $75,000 30-year fixed rate FHA loan,
this fee would amount to either $2,850 at closing or an extra $31 a month for the life of
the loan. In addition, FHA mortgage insurance requires an annual fee of 0.5 percent of
the current loan amount, paid in monthly installments. The lower the down payment, the
more years the fee must be paid. Back to Top

FIXED RATE MORTGAGE - The mortgage interest rate will remain the same on these
mortgages throughout the term of the mortgage for the original borrower. Back to Top

FORECLOSURE - A legal process by which the lender or the seller forces a sale of a
mortgaged property because the borrower has not met the terms of the mortgage. Also
known as a repossession of property. Back to Top

GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) - Also known as "Ginnie
Mae", provides sources of funds for residential mortgage, insured or guaranteed by FHA or
VA. Back to Top

GRADUATED PAYMENT MORTGAGE (GPM) - A type of flexible-payment mortgage where
the payments increase for a specified period of time and then level off. This type of
mortgage has negative amortization built into it. Back to Top

HAZARD INSURANCE - A form of insurance in which the insurance company protects the
insured from specified losses, such as fire, windstorm and the like. Back to Top

HOUSING EXPENSES-TO-INCOME RATIO - The ratio, expressed as a percentage, which
results when a borrower's housing expenses are divided by his/her net effective income
(FHA/VA loans) or gross monthly income (conventional loans). Back to Top

IMPOUND - That portion of a borrower's monthly payments held by the lender or servicer
to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items
as they become due. Also known as reserves. Back to Top

INDEX - A published interest rate against which lenders measure the difference between
the current interest rate on an adjustable rate mortgage and that earned by other
investments (such as one- three-, and five-year U.S. Treasury security yields, the
monthly average interest rate on loans closed by savings and loan institutions, and the
monthly average costs-of-funds incurred by savings and loans), which is then used to
adjust the interest rate on an adjustable mortgage up or down. Back to Top

INTERIM FINANCING - A construction loan made during completion of a building or a
project. A permanent loan usually replaces this loan after completion. Back to Top

JOINT TENANCY - Two or more persons own a property. Joint tenants with the common
law right of survivorship means the survivor inherits the property without reference to the
decedent's will. Creditors may sue to have the property divided to settle claims against
one of the owners. Back to Top

JUMBO LOAN - A loan which is larger (more than $191,250) than the limits set by the
Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation.
Because jumbo loans cannot be funded by these two agencies, they usually carry a
higher interest rate. Back to Top

LIEN - A claim or charge against property. Property is said to be encumbered by a lien
and the lien must be removed to clear title Back to Top

LOAN-TO-VALUE RATIO (LTV) - The relationship between the amount of the mortgage loan
and the appraised value of the property expressed as a percentage. Back to Top

MARGIN - The amount a lender adds to the index on an adjustable rate mortgage to
establish the adjusted interest rate. Back to Top

MARKET VALUE - The highest price that a buyer would pay and the lowest price a seller
would accept on a property. Market value may be different from the price a property
could actually be sold for at a given time. Back to Top

MORTGAGE - A voluntary lien filed against property to secure a debt, usually a loan. To
foreclose, the lender must often institute a court action and the borrower may have the
right to reclaim the property after foreclosure. Back to Top

MORTGAGE INSURANCE - Money paid to insure the mortgage when the down payment is
less than 20 percent. Back to Top

MORTGAGE INSURANCE PREMIUM (MIP) - One-half percent borrowers pay each month
on FHA insured mortgage loans. It is insurance from FHA to the lender against incurring a
loss on account of the borrower's default. On September 1, 1983, the MIP was changed
to a one-time charge to the borrowers. Back to Top

MORTGAGEE - The lender. Back to Top

MORTGAGOR - The borrower or homeowner. Back to Top

NEGATIVE AMORTIZATION - Occurs when your monthly payments are not large enough
to pay all the interest due on the loan. This unpaid interest is added to the unpaid
balance of the loan. The danger of negative amortization is that the home buyer ends up
owing more than the original amount of the loan. Back to Top

NEGOTIABLE RATE MORTGAGE (RBM) - Loan in which the interest rate is adjusted
periodically. Back to Top

NET EFFECTIVE INCOME - The borrower's gross income minus federal income tax. Back to Top

NON ASSUMPTION CLAUSE - A statement in a mortgage contract forbidding the
assumption of the mortgage without the prior approval of the lender. Note: The signed
obligation to pay a debt, as a mortgage note. Back to Top

NOTE - A written promise to pay a certain sum of money at a certain time. A negotiable
note starts "Pay to the order of" and is transferable by endorsement similar to a check. Back to Top

ORIGINATION FEE - The fee charged by a lender to prepare loan documents, perform
credit checks, inspect and sometimes appraise a property; usually computed as a
percentage of the face value of the loan. Back to Top

PERMANENT LOAN - A long term mortgage, usually ten years or more. Also called an
"end loan." Back to Top

PITI - Principal, Interest, Taxes and Insurance. Also called monthly housing expense. Back to Top

PLEDGED ACCOUNT MORTGAGE (PAM) - Money is placed in a pledged savings account
and this fund plus earned interest is gradually used to reduce mortgage payments. Back to Top

POINTS - Prepaid interest assessed at closing by the lender. Each point is equal to 1
percent of the loan amount (e.g., two points on a $100,000 mortgage would cost
$2,000). Back to Top

POWER OF ATTORNEY - A written document authorizing another to act on his behalf as
an Attorney in Fact. One does not need to be a licensed attorney to act as an attorney
in fact but, power of attorney forms are powerful legal documents that should be used
only under advice of a licensed attorney at law. Back to Top

PREPAID EXPENSES - Necessary to create an escrow account or to adjust the seller's
existing escrow account. Can include taxes, hazard insurance, private mortgage insurance
and special assessments. Back to Top

PREPAYMENT - A privilege in a mortgage permitting the borrower to make payments in
advance of their due date. Back to Top

PREPAYMENT PENALTY - An additional charge imposed by the lender for paying off a
loan before the due date. Back to Top

PRINCIPAL - The amount of debt, not counting interest, left on a loan. Back to Top

PRIVATE MORTGAGE INSURANCE (PMI) - In the event that you do not have a 20
percent down payment, lenders will allow a smaller down payment - as low as 5 percent
in some cases. With the smaller down payment loans, however, borrowers are usually
required to carry private mortgage insurance. Private mortgage insurance will require an
initial premium payment of 1.0 percent to 5.0 percent of your mortgage amount and may
require an additional monthly fee depending on your loan's structure. On a $75,000 house
with a 10 percent down payment, this would mean either an initial premium payment of
$2,025 to $3,375, or an initial premium of $675 to $1,130 combined with a monthly
payment of $25 to $30. Back to Top

QUITCLAIM DEED - A deed releasing whatever interest you may hold in a property but
making no warranty whatsoever. Back to Top

REAL ESTATE SETTLEMENT PROCEDURES ACT (RESPA) - RESPA is a federal law that
allows consumers to review information on known or estimated settlement costs once
after application and once prior to or at a settlement. The law requires lenders to furnish
the information after application only. Back to Top

RESCISSION - The cancellation of a contract. With respect to mortgage refinancing, the
law that gives the homeowner three days to cancel a contract in some cases once it is
signed if the transaction uses equity in the home as security. Back to Top

RECORDING FEES - Money paid to the lender for recording a home sale with the local
authorities, thereby making it part of the public records. Back to Top

REFINANCE - Obtaining a new mortgage loan on a property already owned. Often to
replace existing loans on the property. Back to Top

SECOND MORTGAGE - A mortgage made subsequent to another mortgage and
subordinate to the first one. Back to Top

SECONDARY MORTGAGE MARKET - The place where primary mortgage lenders sell the
mortgages they make to obtain more funds to originate more new loans. It provides
liquidity for the lenders. Back to Top

SERVICING - All the steps and operations a lender performs to keep a loan in good
standing, such as collection of payments, payment of taxes, insurance, property
inspections and the like. Back to Top

SIMPLE INTEREST - Interest which is computed only on the principal balance. Back to Top

SURVEY - A measurement of land, prepared by a registered land surveyor, showing the
location of the land with reference to known points, its dimensions, and the location and
dimensions of any buildings. Back to Top

SWEAT EQUITY - Equity created by a purchaser performing work on a property being
purchased. Back to Top

TENANTS BY THE ENTIRETY - A husband and wife own the property with the common
law right of survivorship so, if one dies, the other automatically inherits. Back to Top

TENANT IN COMMON - Two or more persons own the property with no right of
survivorship. If one dies, his interest passes to his heirs, not necessarily the co-owner.
Either party, or a creditor of one, may sue to partittion the property. Back to Top

TITLE - Document that gives evidence of an individual's ownership of property Back to Top

TITLE INSURANCE - Insurance that provides an indemnity against loss or damage as a
result of defect in title ownership to a particular piece of property. Title insurance covers
mistakes made during a Title Search as well as matters which could not be found or
discovered in the public records such as missing heirs, mistakes, fraud and forgery. Back to Top

TITLE SEARCH - An examination of municipal records to determine the legal ownership of
property. Usually is performed by a title company. Back to Top

TRUTH-IN-LENDING - Federal law requiring disclosure of the Annual Percentage Rate to
home buyers shortly after they apply for the loan. Back to Top

TWO-STEP MORTGAGE - Mortgage in which the borrower receives a below-market
interest rate for a specified number of years (most often seven or 10), and then receives
a new interest rate adjusted (within certain limits) to market conditions at that time the
lender sometimes has the option to call the loan due with 30 days notice at the end of
seven or 10 years. Also called "Super Seven" or "Premier" mortgage. Back to Top

UNDERWRITING - The decision whether to make a loan to a potential home buyer based
on credit, employment, assets, and other factors and the matching of this risk to an
appropriate rate and term or loan amount. Back to Top

VA LOANS - Long-term, low-or no-down payment loan guaranteed by the Department of
Veterans Affairs. Restricted to individuals qualified by military service or other
entitlements. Back to Top

VA MORTGAGE FUNDING FEE - Premium of up to 1-7/8 percent (depending on the size
of the down payment) paid on a VA-backed loan. On a $75,000 fixed-rate mortgage with
no down payment, this would amount to $1,406 either paid at closing or added to the
amount financed. Back to Top

VERIFICATION OF DEPOSITS (VOD) - Document signed by the borrower's financial
institution verifying the status and balance of his/her financial accounts. Back to Top

VERIFICATION OF EMPLOYMENT (VOE) - Document signed by the borrower's employer
verifying his/her position and salary. Back to Top

Ohio Mortgage Broker License #MB1316

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