Glossary of Mortgage Related Terms
Adjustable Rate Mortgage ("ARM")
Amortization
Annual Percentage Rate ("APR")
Appraisal
Balloon Mortgage
Buy Down
Buyer's Agent
Cap
Closing
Closing Costs
Combined Loan-to-Value ("CLTV")
Commitment
Conforming Loan
Conventional Mortgage
Construction Loan
Credit Pre-Approval
Credit Report
Credit Score
Debt-to-Income Ratio
Deed
Discount Points
Equity
Escrow Payment
Federal Housing Authority ("FHA")
Finance Charge
Fixed Rate Mortgage
Floating
FSBO
Hazard Insurance/Homeowners Insurance
Home Inspector
HUD-1
Index
Interest
Investor
Jumbo
Listing Broker
Loan-to-Value ("LTV")
Loan Term
Locking Your Rate
Margin
Maine State Housing Authority ("MSHA")
New Hampshire Housing Finance Authority ("NHHFA")
Origination Fee
Pest Inspection
PITI
Point
Processor
Principal
PMI
Rate Lock
Recording Fees
Refinance
Rural Development ("RD")
Subordination Agreement
Title
Title Insurance
Title Search
Underwriting
VA
For more detailed explanations on any of the terms
listed above or otherwise, please contact
one of our Loan Officers at Downeast Mortgage Corporation.
Adjustable Rate Mortgage ("ARM")
: A mortgage loan in which the interest rate fluctuates in accordance
with a formula specified in the mortgage note.
Amortization: The paying
off of a debt such as a mortgage in periodic installments for the length
or term of the loan.
Annual Percentage Rate ("APR"):
The actual cost of credit to the borrower, including interest and
certain other charges, expressed as a yearly rate and calculated over
the life of the loan.
Appraisal: A written estimate,
provided by a State licensed Appraiser, of the value of a home.
Balloon Mortgage: A mortgage
with periodic installments of principal and interest that do not fully
amortize the loan. The balance of the mortgage is due in a lump sum at
a specified date prior to the end of the amortization period.
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Buy Down: A method of lowering
the interest rate on a mortgage, either temporarily or for the entire
term of the loan. Permanent Buydowns require the payment of points at
closing, while Temporary Buydowns require the payment of a lump-sum interest
payment up front which can subsidize the mortgage payments over the first
one to three years of the loan.
Buyer's Agent: This is the
real estate broker that represents the buyers. They will make appointments
to show you properties and help you to negotiate the terms of your home
purchase.
Cap: To prevent excessively
high payment increases, ARM's place a cap on the amount by which the interest
rate may rise at any single adjustment, over the life of the loan, or
both.
Closing or Settlement: The
meeting between the seller, buyer and closing attorney when the property
legally changes hands, the transaction is legally closed, or both.
Closing Costs or Settlement
Fees: Fees paid to effect the closing of a mortgage. (Such as points,
title fees, survey fees, etc.) Contact Downeast Mortgage Corporation for
a complete list of closing costs applicable to your transaction.
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Combined Loan-to-Value ("CLTV"):
The relationship of the outstanding balances of a first and second
mortgage to the value of the home used to determine the maximum percentage
of value which may be lendable. (1st mortgage amount plus second mortgage
amount divided by value or sales price.)
Commitment: An offer to
grant a mortgage loan which outlines the terms, the amount of the loan,
the interest rate and any conditions that the commitment or approval is
subject to.
Conforming Loan: A loan
which meets all requirements to be eligible for purchase or securitization
by FNMA or FHLMC (Fannie Mae or Freddie Mac) which has a loan amount below
the level deemed to be the limit for "Jumbo" loans.
Conventional Mortgage:
A mortgage loan which is not insured or guaranteed by a government agency
such as FHA or VA.
Construction Loan: A short-term,
interim loan that provides disbursements to facilitate the construction
of a home. Funds are disbursed at intervals as work progresses.
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Credit Pre-Approval: A
process in which an individual can apply for a credit approval decision
before he/she actually finds a home and enters into a Purchase and Sales
Agreement.
Credit Report: A report
on the credit standing of a prospective borrower, used to aid in the determination
of credit worthiness.
Credit Score: A score based
upon present financial condition, experience and past credit history used
to help determine the credit standing and credit worthiness of a prospective
borrower.
Debt-to-Income Ratio: A
measure of creditworthiness computed by dividing the dollar amount of
monthly debts by total gross monthly income, then converting the result
to a percentage.
Deed: The legal document
that is used to transfer the title from one owner to another.
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Discount Points: Amount
paid to the lender by the borrower or seller to decrease or "buy
down" the borrower's interest rate. One point is equal to one percent
of the loan amount.
Equity: The difference
between the current market value of a property and the total amount of
outstanding liens against the property.
Escrow Payment: The portion
of a mortgage payment used to pay taxes and insurance premiums by Downeast
Mortgage Corporation or the designated loan servicer. May also be called
impounds or reserves.
FHA: Federal Housing Authority, also
known as HUD (Department of Housing and Urban Development). The Federal Housing
Authority is a federal entity that governs the FHA mortgage program, which is a
low down-payment mortgage program with flexible credit and qualifying guidelines.
We are a "direct-endorsed" FHA lender, which means that our company has the authority
to underwrite, approve and close mortgages on behalf of the Federal Housing Authority.
Finance Charge: The cost
of interest and other charges involved in borrowing money.
Fixed Rate Mortgage: A
mortgage in which the interest rate and monthly payments of principal
and interest remain the same for the life of the loan.
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Floating: The process of
an applicant deciding against locking-in an interest rate at the time
of application and instead electing to float with the market until a later
date at which time he/she will request Downeast Mortgage Corporation to
lock-in the interest rate at the prevailing rate.
FSBO: Acronym for the term
"For Sale By Owner." Indicative of a real estate transaction
in which the seller is not represented by a real estate broker.
Hazard Insurance/Homeowners
Insurance: Insurance coverage that provides compensation to the insured
in case of property loss or damage.
Home Inspector: You hire
and pay for this individual to analyze the home's physical condition before
you buy it.
HUD-1: Also referred to
as a Closing Statement or Settlement Statement. This is a document prepared
by the Title Company that details the final and specific costs involved
for both the buyer and seller in a real estate transaction.
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Index: The factor that
a particular interest rate is directly related to, some common indexes
are the One Year Treasury Bills, LIBOR, and the prime lending rate.
Interest: The amount paid
for the use of money usually expressed as an annual percentage. Also,
a right, shares, or title in a property.
Investor: Any person or
institution that invests in mortgages or mortgage-backed securities.
Jumbo: A loan that exceeds
the statutory size limit eligible for purchase or securitization by either
FNMA or FHLMC.
Listing Broker: This is
the real estate broker that represents the sellers. They will market the
property to bring buyers, which in turn bring offers to the seller.
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Loan-to-Value Ratios ("LTV"):
The ratio of mortgage amount to value or sales price of a home. (Mortgage
amount divided by value or sales price.)
Loan Term: The period of
time between the start date and the termination date of a note or mortgage.
Locking Your Rate: A procedure
where Downeast Mortgage Corporation agrees to lock-in a specific interest
rate on a mortgage loan request for a specified period of time. This must
be in writing. Contact your Loan Officer for more details.
Margin: Percentage added
to an index by Downeast Mortgage Corporation to determine the interest
rate. (Usually used in conjunction with ARM's.)
MSHA: Maine State Housing
Authority. A mortgage program available only to first-time homebuyers
within the State of Maine. Income limitations are applicable, contact on
of our Loan Officers for complete details on the MSHA mortgage program.
NHHFA: New Hampshire Housing Finance Authority. A
mortgage program available only to first-time homebuyers within the State of New Hampshire.
Income limitations are applicable, contact one of our Loan Officers for complete details on the
NHHFA mortgage program.
Origination Fee: The fee
lenders charge to borrowers to prepare documents, process and close the
loan. Usually stated as a percentage of the loan. In some cases, it may
be charged to offset the interest rate. Sometimes also referred to as
a point.
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Pest Inspection: Required
for FHA loans in some areas to determine if there is an infestation of
wood-boring insects or other pests in the home.
PITI: Acronym for items
included in a monthly mortgage payment: principal, interest, taxes and
insurance.
Point: An amount equal
to one percent of the principal amount of the mortgage.
Processor: Employee of
Downeast Mortgage Corporation that acts as a liason between your Loan
Officer and the Underwriter to help facilitate the flow of paperwork which
takes you from loan application to loan closing. Verifies info in the
file, orders appraisals, title searches, flood certifications, collects
loan approval conditions, coordinates the closing instructions with the
Title Company.
Principal: The original
balance of the money lent, excluding interest.
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PMI: Also called Private
Mortgage Insurance. Insurance provided to Downeast Mortgage Corporation
by private institutions to help lessen the risk of loss on certain loans.
Rate Lock: The period of
time that Downeast Mortgage Corporation will guarantee a loan's interest
rate. Usually 30 or 60 days. Longer rate locks are sometimes available
at higher costs. Contact your Loan Officer for more info.
Recording Fees: Charged
by the Registry of Deeds for the filing of documents or details of a legal
document to make them a matter of public record. Usually requires the
witnessing and notarizing of the documents to be recorded.
Refinance: The repayment
of a debt from the proceeds of a new loan using the same property as security.
RD: Rural Development. The
"Rural Development" mortgage program is governed by the USDA and is designed
to promote homeownership in rural areas.
Subordination Agreement:
An agreement by which a mortgage is granted subject to a junior lien.
In other words, a lender with a loan in second position in the "chain-of-title"
agrees to stay in second position on the property, even when the loan
in first position has been refinanced.
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Title: The right to ownership
in real estate, which is transferred by a deed. Evidence of ownership
in real estate.
Title Insurance: A contract
by which the insurer (commonly referred to as a "Title Company")
agrees to pay the insured a specified amount for any loss caused by defects
of title to real estate.
Title Search: The process
of checking records relating to the title to see that it doesn't have
any liens, mortgages, encumbrances or other claims against it that would
keep it from being transferred or jeopardize Downeast Mortgage Corporation's
security position in the property.
Underwriting: The analysis
of the risk involved in making a mortage loan to determine whether the
risk is acceptable to Downeast Mortgage Corporation. Underwriting involves
the evaluation of the property as outlined in the appraisal, the borrower's
ability to repay the loan, the borrower's creditworthiness and the application
of criteria specified by investors to whom Downeast Mortgage Corporation
might sell or transfer mortgages.
VA: The Department of Veterans
Affairs. VA will insure certain government mortgages that Downeast
Mortgage Corporation provides to Veterans of the U.S. Military, thereby
allowing these loans to be written with more relaxed underwriting criteria
than might be required otherwise. VA does not guarantee a mortgage approval,
though. The applicant still is required to qualify based upon his/her
overall picture of creditworthiness.
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