Jargon Buster

Abstract of Title
Documents recording the ownership of property throughout time.

Acceleration
The right of the lender to demand payment on the outstanding balance of a loan.

Acceptance
The written approval of the buyer’s offer by the seller.

Adjustable-Rate Mortgage (ARM)
A mortgage where the interest rate is not fixed, but changes during the life of the loan in line with movements in an index rate. You may also see ARMs referred to as AMLs (adjustable mortgage loans) or VRMs (variable-rate mortgages).

Additional Principal Payment
Money paid to the lender in addition to the established payment amount used directly against the loan principal to shorten the length of the loan.

Adjustable-Rate Mortgage (ARM)
Mortgage loan that does not have a fixed interest rate. During the life of the loan the interest rate will change based on the index rate. Also referred to as adjustable mortgage loans (AMLs) or variable-rate mortgages (VRMs).

Adjustment Date
The actual date that the interest rate is changed for an ARM.

Adjustment Index
The published market index used to calculate the interest rate of an ARM at the time of origination or adjustment.

Adjustment Interval
The time between the interest rate change and the monthly payment for an ARM. The interval is usually every one, three or five years depending on the index.

Affidavit
A signed, sworn statement made by the buyer or seller regarding the truth of information provided.

Amenity
A feature of the home or property that serves as a benefit to the buyer but that is not necessary to its use; may be natural (like location, woods, water) or man-made (like a swimming pool or garden).

American Society of Home Inspectors

The American Society of Home Inspectors is a professional association of independent home inspectors. Phone: (800) 743-2744 begin_of_the_skype_highlighting              (800) 743-2744      end_of_the_skype_highlighting begin_of_the_skype_highlighting              (800) 743-2744      end_of_the_skype_highlighting begin_of_the_skype_highlighting              (800) 743-2744      end_of_the_skype_highlighting

Amortization
A payment plan that enables you to reduce your debt gradually through monthly payments. The payments may be principal and interest, or interest-only. The monthly amount is based on the schedule for the entire term or length of the loan.

Annual Mortgagor Statement

Yearly statement to borrowers detailing the remaining principal and amounts paid for taxes and interest.

Annual Percentage Rate (APR)
A measure of the cost of credit, expressed as a yearly rate. It includes interest as well as other charges. Because all lenders follow the same rules to ensure the accuracy of the annual percentage rate, it provides consumers with a good basis for comparing the cost of loans, including mortgage plans.

Application
The first step in the official loan approval process; this form is used to record important information about the potential borrower necessary to the underwriting process.

Application Fee
A fee charged by lenders to process a loan application.

Appraisal
A professional analysis used to estimate the value of the property. This includes examples of sales of similar properties.

Appraised Value
An estimation of the current market value of a property.

Appraiser
A qualified individual who uses his or her experience and knowledge to prepare the appraisal estimate.

Appreciation
An increase in property value.

Arbitration
A legal method of resolving a dispute without going to court.

As-is Condition
The purchase or sale of a property in its existing condition without repairs.

Asking Price
A seller’s stated price for a property.

Assessed Value

The value that a public official has placed on any asset (used to determine taxes).

Assessments
The method of placing value on an asset for taxation purposes.

Assessor
A government official who is responsible for determining the value of a property for the purpose of taxation.

Assets
Any item with measurable value.

Assumable Mortgage
When a home is sold, the seller may be able to transfer the mortgage to the new buyer. This means the mortgage is assumable. Lenders generally require a credit review of the new borrower and may charge a fee for the assumption. Some mortgages contain a due-on-sale clause, which means that the mortgage may not be transferable to a new buyer. Instead, the lender may make you pay the entire balance that is due when you sell the home. An assumable mortgage can help you attract buyers if you sell your home.

Assumption Clause
A provision in the terms of a loan that allows the buyer to take legal responsibility for the mortgage from the seller.

Automated Underwriting
Loan processing completed through a computer-based system that evaluates past credit history to determine if a loan should be approved. This system removes the possibility of personal bias against the buyer.

Average Price
Determining the cost of a home by totaling the cost of all houses sold in one area and dividing by the number of homes sold.

“B” Loan or “B” Paper
FICO scores from 620 – 659. Factors include two 30 day late mortgage payments and two to three 30 day late installment loan payments in the last 12 months. No delinquencies over 60 days are allowed. Should be two to four years since a bankruptcy. Also referred to as Sub-Prime.

Back End Ratio (debt ratio)
A ratio that compares the total of all monthly debt payments (mortgage, real estate taxes and insurance, car loans, and other consumer loans) to gross monthly income.

Back to Back Escrow
Arrangements that an owner makes to oversee the sale of one property and the purchase of another at the same time.

Balance Sheet
A financial statement that shows the assets, liabilities and net worth of an individual or company.

Balloon Loan or 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.

Balloon Payment
The final lump sum payment due at the end of a balloon mortgage.

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.

Biweekly Payment Mortgage

A mortgage paid twice a month instead of once a month, reducing the amount of interest to be paid on the loan.

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.

Bridge Loan
A short-term loan paid back relatively fast. Normally used until a long-term loan can be processed.

Broker
A licensed individual or firm that charges a fee to serve as the mediator between the buyer and seller. Mortgage brokers are individuals in the business of arranging funding or negotiating contracts for a client, but who does not loan the money. A real estate broker is someone who helps find a house.

Building Code
Based on agreed upon safety standards within a specific area, a building code is a regulation that determines the design, construction, and materials used in building.

Budget
A detailed record of all income earned and spent during a specific period of time.

Buydown
With a buydown, the seller pays an amount to the lender so that the lender can give you a lower rate and lower payments, usually for an early period in an ARM. The seller may increase the sales price to cover the cost of the buydown. Buydowns can occur in all types of mortgages, not just ARMs.

“C” Loan or “C” Paper
FICO scores typically from 580 to 619. Factors include three to four 30 day late mortgage payments and four to six 30 day late installment loan payments or two to four 60 day late payments. Should be one to two years since bankruptcy. Also referred to as Sub – Prime.

Callable Debt
A debt security whose issuer has the right to redeem the security at a specified price on or after a specified date, but prior to its stated final maturity.

Cap
A limit on how much the interest rate or the monthly payment can change, either at each adjustment or during the life of the mortgage. Payment caps don’t limit the amount of interest the lender is earning, so they may cause negative amortization.

Capacity
The ability to make mortgage payments on time, dependant on assets and the amount of income each month after paying housing costs, debts and other obligations.

Capital Gain
The profit received based on the difference of the original purchase price and the total sale price.

Capital Improvements
Property improvements that either will enhance the property value or will increase the useful life of the property.

Capital or Cash Reserves
An individual’s savings, investments, or assets.

Cash-Out Refinance
When a borrower refinances a mortgage at a higher principal amount to get additional money. Usually this occurs when the property has appreciated in value. For example, if a home has a current value of $100,000 and an outstanding mortgage of $60,000, the owner could refinance $80,000 and have additional $20,000 in cash.

Cash Reserves
A cash amount sometimes required of the buyer to be held in reserve in addition to the down payment and closing costs; the amount is determined by the lender.

Casualty Protection
Property insurance that covers any damage to the home and personal property either inside or outside the home.

Certificate of Title
A document provided by a qualified source, such as a title company, that shows the property legally belongs to the current owner; before the title is transferred at closing, it should be clear and free of all liens or other claims.

Chapter 7 Bankruptcy
A bankruptcy that requires assets be liquidated in exchange for the cancellation of debt.

Chapter 13 Bankruptcy
This type of bankruptcy sets a payment plan between the borrower and the creditor monitored by the court. The homeowner can keep the property, but must make payments according to the court’s terms within a 3 to 5 year period.

Charge-Off
The portion of principal and interest due on a loan that is written off when deemed to be uncollectible.

Clear Title
A property title that has no defects. Properties with clear titles are marketable for sale.

Closing
The final step in property purchase where the title is transferred from the seller to the buyer. Closing occurs at a meeting between the buyer, seller, settlement agent, and other agents. At the closing the seller receives payment for the property. Also known as settlement.

Closing Costs
Fees for final property transfer not included in the price of the property. Typical closing costs include charges for the mortgage loan such as origination fees, discount points, appraisal fee, survey, title insurance, legal fees, real estate professional fees, prepayment of taxes and insurance, and real estate transfer taxes. A common estimate of a Buyer’s closing costs is 2 to 4 percent of the purchase price of the home. A common estimate for Seller’s closing costs is 3 to 9 percent.

Cloud On The Title
Any condition which affects the clear title to real property.

Conversion Clause
A provision in some ARMs that allows you to change the ARM to a fixed-rate loan at some point during the term. Usually conversion is allowed at the end of the first adjustment period. At the time of the conversion, the new fixed rate is generally set at one of the rates then prevailing for fixed rate mortgages. The conversion feature may be available at extra cost.

Discount
In an ARM with an initial rate discount, the lender gives up a number of percentage points in interest to give you a lower rate and lower payments for part of the mortgage term (usually for one year or less). After the discount period, the ARM rate will probably go up depending on the index rate.

Index
The index is a measure of interest rate changes that the lender uses to decide how much the interest rate on an ARM will change over time. No one can be sure when an index rate will go up or down. Some index rates tend to be higher than others, and some more volatile. (But if a lender bases interest rate adjustments on the average value of an index over time, your interest rate would not be as volatile.) You should ask your lender how the index for any ARM you are considering has changed in recent years, and where it is reported.

Margin
The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.

Negative Amortization
Amortization means that monthly payments are large enough to pay the interest and reduce the principal on your mortgage. Negative amortization occurs when the monthly payments do not cover all of the interest cost. The interest cost that isn’t covered is added to the unpaid principal balance. This means that even after making many payments, you could owe more than you did at the beginning of the loan. Negative amortization can occur when an ARM has a payment cap that results in monthly payments not high enough to cover the interest due.

Rust Belt Cities
The Rust Belt, also known as the Manufacturing Belt or The Factory Belt, is an area in parts of the Northeastern United States, Mid-Atlantic States, and portions of the eastern Midwest.

Sources:
– U.S. Department of Housing and Urban Development
– Wikipedia

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Abbotsinch Capital LLC
Tel: +44 0141 356 2813
Email: info@abbotsinchcapital.com