 | Annual Percentage Rate - APR |
| The effective rate of interest for a loan per year. This rate is typically higher than the note rate because it takes into account closing costs. This is one way to compare loan programs offered by different lenders. Caution: the APR is sometimes computed differently by different lenders and can be misleading. | |
| 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. Example: A balloon mortgage for $25,000 has interest only payments for 5 years at 12% ($250 per month), with the full principal of $25,000 due and payable after 5 years. | |
| Bi-Weekly Mortgage |
| A mortgage, which requires 1/2 the normal monthly payment, every two weeks. Over the course of the year, 26 half payments are made which is equivalent to 13 full mortgage payments. As a result of this extra payment the loan amortizes much faster than a loan with normal monthly payments. | |
| Buy Down |
| Obtaining a lower interest rate (buying down the rate) by paying additional points to the lender. The lower rate may apply for the full duration of the loan or for just the first few years. A buydown may be used to qualify a borrower who would otherwise not qualify. This is because a buydown results in lower payments, which are easier to qualify for. Example: A very popular buydown is the 2-1 buydown. If the interest rate on the note is 9%, the buydown results in the rate being 7% (9% - 2%) for the first year, 8% (9% - 1%) for the second year, and 9% thereafter. | |
| Contingency |
| Conditions, which must be satisfied before the buyer, can close the purchase of a property. Contingencies are generally outlined in the purchase contract between the buyer and seller. Example: the buyer has 14 days to remove the property contingency under the sales contract. In this case the buyer has 14 days to inspect the property and request the seller to perform repairs. If the buyer is not satisfied with the condition of the property or if the buyer and the seller cannot agree on repairs, the buyer may back out of the contract with no penalty. After 14 days the buyer no longer has the right to back out with no penalty as a result of a problem with the condition of the property. | |
| Convertible ARMS |
| Some variable loans come with options to convert them to a fixed loan based on a pre-determined formula, during a given time period. For example the 1-year t-bill adjustable may be converted to a fixed during the first five years on the adjustment date. This means that you could convert during the 13th, 25th, 37th , 49th, and 61st months of the loan. | |
| Escrow |
| Neutral third party that handles all funds in a real estate transaction. The buyer puts his deposit into escrow, the lender funds the loan into escrow. Escrow pays the real estate brokers commission, pays off any loans/liens against the property, pays real estate taxes and any other fees associated with the transaction and send the balance of the money to the seller. | |
| Federal Housing Administration (FHA) |
| An agency within the U.S. Department of Housing and Urban Development (HUD) that administers loan programs, issues loan guarantees to make more housing available. | |
| Jumbo Loan |
| Loan size that is larger than the limit established by Fannie Mac or Freddie Mac. ($252,700) | |
| Loan Origination Fee Or Points |
| Charge by a lender or broker connected with originating a loan. This is different from discount points, which are used to buy down the rate of interest. Fees paid to lenders. 1 point = l% of the loan amount. On a $100,000 loan, 1 point is $1000. Points may be further classified into origination points or discount points. | |
| Negative Amortization |
| An increase in principal balance, which occurs when the monthly payments do not cover all of the interest, cost. The interest cost, which is not covered by the payment, is added to the unpaid principal balance. | |
| Prepaid Interest |
| Prepaid interest is the interest charged to borrowers at closing to pay for the cost of borrowing for a balance of the month. For example, if a loan closes on the 19th of the month and the first payment is due on the 1st of the following month, the lender will charge 12 days of prepaid interest. | |
| 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 2 percent in some cases. With the smaller down payment loans, however, borrowers are usually required to carry private mortgage insurance. Private mortgage insurance payments are normally made annually or monthly. An impound may be required. | |
| Title Insurance |
| An insurance policy, which protects the insured against loss arising from, defects in title. Title insurance policies are typically obtained for the buyer and the lender. | |
| Title Search |
| An examination of the public records to determine the ownership and encumbrances affecting the property. | |
| VA Loan |
| Home loan guaranteed by the U.S. Veterans Administration, enabling a veteran to buy a home with no money down. |
