New Home Purchase

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Acquisition cost - the total cost of acquiring a property, in addition to the purchase price, such as title, escrow, and lenders' fees.

Addendum rider - an addition to the standard contract (e.g., the lender attaches the alienation clause to the loan via an addendum)

Adjustable-rate mortgage (ARM) - A mortgage tied to an index that adjusts based on changes in the economy. Also called a variable rate mortgage.

Adjustment period- the period in which an ARM adjusts (e.g., monthly, yearly, or five years).

Alienation clause (due-on-sale clause) - A type of acceleration clause in a loan, calling for payment of the entire principal balance in full, triggered by the sale or transfer of a property.

Amortization - retiring a debt through periodic payments, including principal and interest.

Application Fee - The fee charged by the lender for applying for a loan. Payment of this fee does not guarantee that a loan will be approved. Some lenders may apply the cost of the application fee to the closing costs.

Appraisal- An estimate of value usually obtained through sales comparables.

ARM - see adjustable rate mortgage

Assignment - The transfer of rights to pay an obligation from one party to another, with the original party remaining liable for the debt, should the first party default.

Assumption - To take over one's obligation under an existing agreement. Usually done for a fee.

Balloon payment - a principal payment coming due before the loan is fully amortized.

Bi-weekly mortgage - A mortgage under which one-half of the monthly payment is payable every two weeks, giving the benefit of two extra payments a year; this allows a 30 year loan to be paid off in approximately 18 years.

Broker - An individual in the business of assisting in arranging funding or negotiating contracts for a client but who does not loan the money himself. Brokers usually charge a fee or receive a commission for their services.

Cap - a ceiling, usually found on ARM loans and can be expressed as per adjustment period.

Cash reserves - the amount of buyer's liquid cash remaining after making the down payment and paying closing costs.

Chattel - Personal property

Closing Costs - Fees paid by the borrower when property is purchased or refinanced. These typically include a loan origination fee, discount points, appraisal fee, title search, title insurance, survey, taxes, deed recording fee, and credit report charges. Since points are listed separately, they are not included in the Closing Costs column on the Monstermoving.com mortgage tables. PMI costs are also excluded from this figure.

Collateral agreement - a document that provides additional security for a debt

Commitment period - the period during which a loan approval is valid and binding on the lender if mortgagor meets all conditions.

Conforming Loan - A mortgage loan for up to ,700 in the continental United States.

Construction Loan - A short-term loan for funding the cost of construction. The lender advances funds to the builder as the work progresses.

Conventional Loan - A mortgage neither insured by the FHA nor guaranteed by the VA.

Convertible ARM - An ARM containing a clause allowing the rate to become fixed during the loan (e.g., one year, three years, or within five years of the loan)

Credit Rating - Borrowers are rated by lenders according to the borrower's credit-worthiness or risk profile. Credit ratings are expressed as letter grades such as A-, B, or C+. These ratings are based on various factors such as a borrower's payment history, foreclosures, bankruptcies and charge-offs. Different lenders may assign different grades to the same borrower.

Credit scoring - Mathematically giving a numerical weighting to various financial factors in the borrower's credit history in order to determine risk of lending. (Usually called a FICO score- named for the company Fair, Isaac, & Company)

Debt ratios - the comparison of a buyer's housing costs to their gross income (housing ratio), and the comparison of a buyer's long-term debt, including housing and monthly debt (total debt ratio). This is a percentage calculation and varies based on loan programs.

Deed of trust (trust deed) - A document used to secure the collateral in financing the property; title is transferred to the trustee, with payments made to the beneficiary by the trust or.

Discount points (points) - A point is equal to one percent of the loan amount. Points are used to increase the lender's yield on the loan.

Down Payment - Money paid by a buyer from his own funds, as opposed to that portion of the purchase price which is financed.

Equity - The difference between what a property is worth and the loan balance.

Equity loans - Using the equity in the property to borrow additional cash, usually secured by a second deed of trust.

Escrow - An impartial holding of monies and documents pertinent to the sale and transfer of real estate.

FannieMae Foundation - a nonprofit affiliated with FNMA, designed to educate consumers on home affordability and home buying options.

Federal Home Loan Mortgage Corporation (FHLMC) - Called Freddie Mac; a part of the secondary market that provides liquidity for the originators of mortgages.

Federal Housing Administration (FHA) - The FHA is part of the federal government's Department of Housing and Urban Development. It underwrites insured loans made by lenders who loan to qualified borrowers.

Federal National Mortgage Association (FNMA) - Also called Fannie Mae, a private mortgage buyer that provides liquidity in the mortgage marketplace.

Fixed-rate mortgage - a loan with a single interest rate for the life of the loan.

FICO - The Fair, Isaac, & Company credit scoring system used by most of the lenders to determine a borrower's ability to repay a mortgage. The scoring ranges from 450-850, with the lower the score, the higher the risk.

Foreclosure - A legal procedure in which real estate is sold by the lender to pay a defaulting borrower's debt.

Good Faith Estimate - An estimate of charges which a borrower is likely to incur with a loan closing.

Gross Monthly Income - The total amount the borrower earns per month, not counting any taxes or expenses. Often used in calculations to determine whether a borrower qualifies for a particular loan. (It can also be calculated on an annual basis-called Gross Annual Income).

Hazard Insurance - A form of insurance in which the insurance company protects the insured from certain losses, such as fire, vandalism, storms and other natural causes.

Housing Ratio - The ratio of the monthly housing payment to total gross monthly income. Also called Payment-to-Income Ratio or Front-End Ratio.

Income qualifications - the amount of gross income required by the lender.

Index - A published interest rate not controlled by the lender to which the interest rate on an Adjustable Rate Mortgage (ARM) is tied. The index and the interest rate linked may increase or decrease.

Interest only - Payments received are applied to accrued interest only and not to a principal reduction.

Interest Rate - The percentage of an amount of money which is paid for its use for a specified time.

Interest rate cap - the maximum amount of interest that can be charged on an ARM loan.

Jumbo Loan - A loan for ,700 or more in the continental United States. These limits are 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.

Lease option - a lease with an option to buy usually the decision rests with lessor.

Lender - The bank, mortgage company, or mortgage broker offering the loan. Many institutions only "originate" loans and then resell the obligation to third parties.

Loan-To-Value Ratio - The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage. A LTV ratio of 90 means that a borrower is borrowing 90% of the value of the property and paying 10% as a down payment. For purchases, the value of the property is assumed to be the purchase price, for refinances the value is determined by an appraisal.

Lock noun - The period, expressed in days, during which a lender will guarantee a rate. Some lenders will lock rates at the time of application while others will allow the borrower to lock the rate after the application is taken. Request information from your LoanHound lender regarding lock procedures.

Lock verb - The act of committing to a mortgage rate. This action, taken by a borrower some time between the application and the closing dates, is sometimes accompanied by a payment by the borrower to the lender. Opposite of float.

Margin - The amount a lender adds to the quoted index rate for an adjustable rate loan to determine the new interest rate.

Mortgagee - The lender.

Mortgagor - The borrower.

Negative amortization - an interest payment shortfall, which is added back into the principal of the loan.

Note rate - the rate of interest shown on the face of the promissory note; the rate of interest charged on an obligation.

Origination Fee - The fee imposed by a lender to cover certain processing expenses in connection with making a loan. Usually a percentage of the amount loaned.

Owner occupancy - Occupied by the buyer of the property; the best rates are offered on this type of loan, as the risk is less on a primary residence.

Payment cap - the maximum amount the payment can adjust at any one time, as to avoid payment shock.

PITI - Principle, interest, property taxes, and insurance.

Points - Prepaid interest paid by the borrower to the lender at closing. A point is equal to 1 percent of the loan amount (e.g. 1.5 points on a ,000 mortgage would cost the borrower ,500). Generally, by paying more points at closing, the borrower reduces the interest rate of his loan and thus future monthly payments.

Portfolio lending - the lender keeps the loan in-house instead of selling the loan in the secondary market. Usually the guidelines are less stringent and the lender will take into account compensating factors.

Prepayment - The ability to pay off the remaining balance of a loan.

Prepayment Penalty - Lenders who impose prepayment penalties will charge borrowers a fee if they repay part or their entire loan in advance of the regular schedule.

Principal - The amount of debt, not counting interest, left on a loan.

Private Mortgage Insurance (PMI) - Paid by a borrower to protect the lender in case of default. PMI is typically charged to the borrower when the Loan-to-Value Ratio is greater than 80%.

Qualifying Ratio - The ratio of the borrower's fixed monthly expenses to his gross monthly income.

Rate cap - the maximum amount of interest that can be charged on an ARM loan.

Ratio - A percentage; used in qualifying a borrower.

Release clause - a clause allowing a portion of the real estate to be released as security from the loan.

Secondary market - Comprised of FNMA, GNMA, and FHLMC, which provide liquidity for the primary market of mortgage loans.

Security document - a legal document that creates a lien against a property as security for repayment of a debt.

Seller financing - the borrower uses a portion of the seller's equity in the property in exchange for an interest payment.

Tax Lien - A claim against real estate for the amount of its unpaid taxes.

Title - A document that gives evidence of an individual's ownership of property.

Title Insurance - Insurance against loss resulting from defects of title to a specifically described parcel of real estate.

Teaser rate - Am unusually low introductory rate for an ARM used to entice borrowers into a loan and allow them to quality at the lower rate.

Variable Rate Mortgage - See Adjustable Rate Mortgage.

Yield - Return on an investment usually in the form of points and interest rate.