GLOSSARY OF FINANCING TERMS
AMORTIZED LOAN - A loan which is fully paid its term. A fully amortized loan will have no balloon payment or amount owing at the end of its term. A loan which has a thirty year amortization with a shorter due date, such as five, seven, or ten years will have a balloon payment due at the end of it's term.
ANNUAL PERCENTAGE RATE (APR) - A figure which reflects the true cost of borrowing money due to the fact that there are fees involved with borrowing that are one time nonrefundable costs (i.e. points, appraisal fee, credit fee). These one time fees are added to the first years interest payments to obtain the APR.
ASSUMABLE LOAN - A loan that allows a buyer to take over the seller's responsibility for payments of the unpaid balance of the mortgage encumbering a property.
DISCOUNT- The discount is determined by the desired interest rate. The lower the interest rate the higher the discount. Discount is charged as a percentage of the loan amount. Typically 1-1. 5% discount will buy your interest rate down by .25%.
ESCROW COMPANY - A company which acts as an independent and objective third party repository for all contracts, documents, and money involved in a real estate transaction. The escrow officer collects all the information regarding transfer of property and funding of loans, informs all parties as to what is needed from them, arranges for everything to happen when it needs to, and collects and distributes funds. An escrow officer is the objective third party who works with everyone to close the transaction in a timely manner.
FANNIE MAE - Nickname for the Federal National Mortgage Association (FNMA), a tax paying corporation created by Congress to set guidelines for mortgage loans and purchase mortgages on the secondary market.
FREDDIE MAC - Nickname for the Federal Home Loan Mortgage corporation (FHLMC), a federally controlled and operated corporation which sets guidelines for, purchases and sells residential home mortgages.
"DOCS" - Loan documents which the borrower signs in the presence of a public notary, usually at an escrow company. These documents are the legal and binding agreements, representations and/or security instruments between the borrower, seller, and lender.
INVESTOR - Any person or institution that invests in the purchase of home mortgages.
LOAN TO VALUE RATIO (LTV) - The ratio of the mortgage loan principle (amount borrowed) to the property's appraised value (selling price). On a $100,00.00 home with a mortgage loan of $80,000.00 the loan to value ratio is 80%.
MORTGAGE / DEED OF TRUST - Pledge of real property (real estate) to secure a debt by written document given by the mortgagor and recorded in the County Recorder's Office.
MORTGAGEE - The lender of money or the receiver of the mortgage document.
MORTGAGOR - The borrower of money or the giver of the mortgage document.
NOTE - A written promise to pay a certain amount of money.
ORIGINATION FEE - A fee or charged for work involved in the evaluation, preparation, submission, and securing of a proposed mortgage loan.
POINT - One percent of the loan. Points can be paid to buy a lower interest rate.
PREPAYMENT PENALTY - A fee paid to the lender for paying off the mortgage before it comes due.
PRIVATE MORTGAGE INSURANCE ( PMI ) - Insurance written by a private company protecting the mortgage lender against loss due to default on the part of the borrower. PMI is often required when the down payment is less than 20%. RATIOS -When lenders speak of "ratios" they are referring to the ratios of borrower's income to the monthly payments. The "top" ratio is the ratio of income to principle, interest, taxes and insurance (PITI); the "bottom" ratio is the ratio of income to PITI combined with all other monthly obligations.
SECOND MORTGAGE - An additional loan placed on a property with a first trust deed. Also called a home equity loan, a second is usually at a higher interest rate and shorter term than the first trust deeds.
TITLE INSURANCE - An insurance policy which protects the insured (purchaser and/or lender) against loss arising from defects in title.
UNDERWRITER -A person who checks and audits all aspects of a loan file to evaluate the information contained therein. Underwriters protect lenders against clerical errors, omissions and incorrect or questionable documentation.
Collateral Loan:
Collateral refers to assets that you are willing to put up to secure credit, such as a small business loan. Your house (if you own it outright), your car, property, or equipment are all examples of tangible assets that you may be able to use as collateral. One potential problem with collateral is that if you are unable to pay off your loan as scheduled, the assets you used as collateral will be seized and sold, and the money raised by selling the assets will be used to repay the loan.
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