Buying Process In most cases, you need to follow these steps to get a VA home loan. Eligibility Requirements for VA Home Loans Find a real estate professional to work with. Perhaps a friend has someone to recommend. Or you could look under "Real Estate" in your yellow pages or on the web. Find a Lender Locate a lending institution that participates in the VA program. You may want to get "pre-qualified" at this point - that is, find out how big a loan you can afford. Lenders set their own interest rates, discount points, and closing points, so you may want to shop around. Get a Certificate of Eligibility The Certificate of Eligibility (COE) verifies to the lender that you meet the eligibility requirements for a VA loan. Learn more about the evidence you submit and how to apply for a COE on our Eligibility page. Find a Home and Sign a Purchase Agreement Work with a real estate professional and negotiate a purchase agreement. Make sure the purchase and sales agreement contains a "VA Option Clause." Here's a sample of a "VA Option Clause": "It is expressly agreed that, notwithstanding any other provisions of this contract, the purchaser shall not incur any penalty by forfeiture of earnest money or otherwise be obligated to complete the purchase of the property described herein, if the contract purchase price or cost exceeds the reasonable value of the property established by the Department of Veterans Affairs. The purchaser shall, however, have the privilege and option of proceeding with the consummation of this contract without regard to the amount of the reasonable value established by the Department of Veterans Affairs." You may also want the purchase agreement to allow you to "escape" from the contract without penalty if you can't get a VA loan. Apply for your VA Loan Work with the lender to complete a loan application and gather the needed documents, such as pay stubs and bank statements. Loan The lender orders a VA appraisal and begins to "process" all the credit and income information. (Note: VA's appraisal is not a home inspection or a guaranty of value. It's just an estimate of the market value on the date of the inspection. Although the appraiser does look for obviously needed repairs, VA doesn't guarantee the condition of the house. The appraiser, who is licensed, is not a VA employee. The lender can't request a specific appraiser; assignments are made on a rotating basis.) The lending institution reviews the appraisal and all the documentation of credit, income, and assets. The lender then decides whether the loan should be granted. Closing The lender chooses a title company, an attorney, or one of their own representatives to conduct the closing. This person will coordinate the date/time and the property is transferred.

LET FHA LOANS HELP YOU FHA loans have been helping people become homeowners since 1934. How do we do it? The Federal Housing Administration (FHA) - which is part of HUD - insures the loan, so your lender can offer you a better deal. Low down payments Low closing costs Easy credit qualifying Buying your first home? FHA might be just what you need. Your down payment can be as low as 3.5% of the purchase price. Available on 1-4 unit properties. Financial help for seniors Are you 62 or older? Do you live in your home? Do you own it outright or have a low loan balance? If you can answer "yes" to all of these questions, then the FHA Reverse Mortgage might be right for you. It lets you convert a portion of your equity into cash. Want to make your home more energy efficient? You can include the costs of energy improvements into an FHA Energy-Efficient Mortgage. How about manufactured housing and mobile homes? Yes, FHA has financing for mobile homes and factory-built housing. We have two loan products - one for those who own the land that the home is on and another for mobile homes that are - or will be - located in mobile home parks. FHA mortgage loans are issued by federally qualified lenders certified by the U.S. Federal Housing Authority, a division of the U.S. Department of Housing and Urban Development. FHA loans are an attractive option, especially for first-time homeowners: Generally easier to qualify for than conventional loans. Lower down payment requirements. Cannot exceed statutory loan limits.

Refinancing to cash out on home equity entails qualifying for a loan amount that's higher than your current mortgage balance. A no cash-out refinance allows you to change your interest rate and lengthen or shorten your repayment term. Refinancing involves many of the same closing costs as a purchase mortgage.

How Cashing Out Is Different In an ordinary refinance, the primary purpose of refinancing is to obtain better loan terms. "Better" often means a lower interest rate, a shorter term or a predictable monthly payment like a fixed-rate loan rather than an ARM. The borrower keeps the amount of money he or she owes on his or her house the same, but receives a new interest rate and loan term. For example, if the borrower has $175,000 remaining on his or her current 30-year fixed, 7.0% mortgage for a home that he or she purchased for $250,000, he or she might refinance the $175,000 for 15 years at 4.5%. He or she would still have the same amount of equity after refinancing that he or she had before refinancing. However, if the borrower were doing a cash-out refinance, he or she might refinance $200,000 for 15 years at 4.5%, increasing his or her loan balance by $25,000. Since there is only $175,000 remaining on his or her old loan, when that loan is paid off, he or she receives the $25,000 difference in cash. The $25,000 has to be paid back at 4.5% interest over 15 years under his or her new $200,000 mortgage. The monthly payment is higher and the borrower will pay more interest, but also has $25,000 more in the bank. Advantages of Cash-Out Refinancing in Today's Market There are some ways in which borrowers currently doing cash-out refinancing are making a smart move: They're borrowing money at record-low interest rates. They're borrowing money at the lowest interest rate available. Home equity loans and home equity lines of credit have higher interest rates than first mortgages. Mortgage interest is tax-deductible. The interest on other types of loans, like personal loans, credit card loans and auto loans, is not. The question is what homeowners are doing with their cash-out money, which is beyond the scope of Freddie's survey. (To help you determine if an interest rate drops is your sign to refinance, read Should You Refinance Your Mortgage When Interest Rates Drop?)

Borrow against the equity: You can also get cash and use it for just about anything with a home equity loan (also known as a second mortgage). However, it’s wise to put that money toward a long-term investment in your future—paying your current expenses with a home equity loan is risky. Potential effects of refinancing on credit health. When you apply for new loans, including refinance loans, creditors will run your credit report, which results in new hard inquiries. Hard inquiries typically lower your credit score by a few points. ... If you didn't follow this suggestion when you refinanced, don't worry.

Termite Inspection Tips for preparing for a Termite inspection An inspection while selling a home or just for a routine “check-up” by a homeowner can seem like a daunting task, but there are a few tips for preparing for a termite inspection that may ease the stress. This advice will make it easier for the inspector to do his job and prevent problems for the homeowner before they start. First, keep the perimeter of the exterior of the house clear of debris. Trim back excess bushes and plants, especially those that cover the walls or the foundation. The termite inspector will need at least two feet of cleared space to work. After you have checked to see that the plants are cleared, take a look at the soil. It should be lower than the siding of the house. If it is higher, ground water can seep in and allow termite’s easy access into the home. Next, remove any storage that may be blocking the inspector’s path. This means moving anything that may be under sinks in the bathroom. It also means moving all items two feet away from the interior garage walls and clearing the openings to attics and crawlspaces. While these storage items will obviously need to be put back and cannot be cleared at all times, wood should not be stacked against the walls of the garage. This is breeding ground for termites. Finally, do a routine check your self occasionally. By keeping the plants that hug the exterior of the home trimmed regularly, there is less of a chance that you will become infested. You can also decrease your chances by keeping a clean garage, basement, and attic. Termites are damaging to a house and difficult to remove, but catching them early greatly increases the likelihood that any irreparable damage will need to be done. These tips for preparing for a termite inspection will make the process easier for all involved. The seller, the homeowner, and the inspector can all benefit from these small tasks. It is important to remember that most homes will have termites at some point. No matter where you may live, you are not immune to an infestation.

Prepare your home for Appraisal How can you prepare your home for appraisal? Prepare for your home appraisal like you would for a home sale. You are in essence re-selling your home. Make sure all the maintenance you can do is done; this includes clearing and trimming the yard to painting the house – hopefully most of this was already done for the sale and should at most need only a minor touch up. Be polite to the appraiser and give them full access to your home; work with them not against. Inform the appraiser of your home improvements. Let them know about the new windows, new floors, the finished basement, etc. And finally, don't be caught off guard. Do your homework! Know what similar homes are selling for in your neighborhood. This is something that should be done before setting your selling price. But in case your home has been on the market for a month or two, keep your research current. Let the appraiser know about similar homes and what they have sold for, especially if you know why a particular home that is like yours sold for less let them know why your house is different. To facilitate the appraisal process, it's beneficial to have these documents ready for the appraiser: A plot plan or survey of the house and land (if readily available) Information on the latest purchase of the property in the last three years Written property agreements, such as a maintenance agreement for a shared driveway List of personal property to be sold with the home Title policy that describes encroachments or easements Most recent real estate tax bill and or legal description of the property Home inspection reports, or other recent reports for termites, EIFS (synthetic stucco) wall systems, septic systems and wells Brag sheet that lists major home improvements and upgrades, the date of their installation and their cost (for example, the addition of central air conditioning or roof repairs) and permit confirmation (if available) A copy of the current listing agreement and broker's data sheet and Purchase Agreement if a sale is "pending". Information on "Homeowners Associations" or condominium covenants and fees. A list of "Proposed" improvements if the property is to be appraised "As Complete". Once your appraiser has arrived, you do not need to accompany him or her along on the entire site inspection, but you should be available to answer questions about your property and be willing to point out any home improvements. Here are some other suggestions: Accessibility: Make sure that all areas of the home are accessible, especially to the attic and crawl space Housekeeping: Appraisers see hundreds of homes a year and will look past most clutter, but they're human beings too! A good impression can translate into a higher home value Maintenance: Repair minor things like leaky faucets, missing door handles and trim FHA/VA Inspection Items: If your borrower is applying for an FHA/VA loan, be sure to ask your appraiser if there are specific things that should be done before they come. Some items they may recommend might be: Install smoke detectors on all levels (especially near bedrooms); install handrails on all stairways; remove peeling paint and repaint the affected area; provide inspection access to the attic and crawl spaces.

Adjustable Rate Mortgage (ARM) Adjustable Rate Mortgage (ARM): An ARM is a mortgage with an interest rate that may vary over the term of the loan — usually in response to changes in the prime rate or Treasury Bill rate. The purpose of the interest rate adjustment is primarily to bring the interest rate on the mortgage in line with market rates. Mortgage holders are protected by a ceiling, or maximum interest rate, which can be reset annually. ARMs typically begin with more attractive rates than fixed rate mortgages — compensating the borrower for the risk of future interest rate fluctuations. Choosing an ARM is a good idea when: Interest rates are going down You intend to keep your home less than 5 years ARMs have the following distinguishing features: Index Margin Adjustment Frequency Initial Interest Rate Interest Rate Caps Convertibility Index An adjustable rate mortgage’s interest rate increases and decreases based on publicly published indexes. ARMS are based on different indexes including: United States Treasury Bills (T-bills) The 11th District Cost of Funds Index (COFI) London Interbank Offering Rate Index (LIBOR) Certificate of Deposit Indexes (CODI) 12-Month Treasury Average (MTA or MAT) Cost of Savings Index (COSI) Bank Prime Loan (Prime Rate) Margin Margin is a fixed percentage amount that is pointed added to the index – accounting for the profit the lender makes on the loan. Margins are fixed for the term of the loan. interest rate = index + margin Adjustment Frequency Adjustment frequency reflects how often the interest rate changes – also known as the reset date. Most ARMs adjust yearly, but some ARMs adjust as often as once a month or as infrequently as every five years. Initial Interest Rate The initial interest rate is the interest rate paid until the first reset date. The initial interest rate determines your initial monthly payment, which the lender may use to qualify you for a loan. Often the initial interest rate is less than the sum of the current index plus margin so your interest rate and monthly payment will probably go up on the first reset date. Interest Rate Caps Interest rate caps put limits on interest rates and monthly payments. Common caps: Initial Adjustment Cap An initial adjustment cap limits how much the interest rate can change at the first adjustment period. Example: If your ARM has a 1% initial adjustment cap, your interest rate may only increase or decrease by a maximum of 1% at the first adjustment period. Periodic Adjustment Cap A periodic adjustment cap limits how much your interest rate can change from one adjustment period to the next. Usually a six-month adjustable rate mortgage will have a one percent periodic adjustment cap while a one-year adjustable rate mortgage will have a two percent periodic adjustment cap. Example: If your loan has a 2% periodic adjustment cap, your interest rate may only increase or decrease by a maximum of 2% per adjustment period. Lifetime Cap A lifetime cap sets the maximum and minimum interest rate that you may be charged for the life of the loan. Most ARMs have caps of 5% or 6% above the initial interest rate. Example: If your loan has a 6% lifetime cap, your interest rate may only increase or decrease by a maximum of 6% for the life of the loan. Initial adjustment caps, periodic adjustment caps, and lifetime caps make up an adjustable rate mortgage’s cap structure, and are usually represented as three numbers: Example: 1/2/6 — Initial adjustment cap is 1 %/ periodic cap is 2% / lifetime cap is 6%. Negatively Amortizing Loans Because Negatively Amortizing Loans provide payments caps instead of interest rate caps, they limit the amount the monthly payment can increase. However, there is a risk interest rates could potentially escalate to a point where the monthly payment would not cover the interest being charged. If this scenario were to occur, the extra interest charges would be added to the principle of the loan, resulting in the borrower owing more than was initially borrowed. Borrowers are usually allowed to make payments over the loan amount to pay down the mortgage and guard against this scenario. There are certain times when having a negatively amortizing mortgage could be beneficial. If a borrower were to lose a job or have an unexpected financial emergency a negative amortization option could ease cash flow situation. However, this should only be used as a short-term solution. Option ARM loans Option ARM loans allow the borrower to choose the amount to pay toward the mortgage each month. Make a minimum payment, interest-only payment, 30-year amortized payment or 15-year amortized payment. Pay the minimum amount to free up funds for other uses, or make larger payments for faster equity build up. Option Arms offer much more cash flow flexibility but must be used wisely by the borrower. Always consult a qualified loan officer to learn about all of the risks associated with these types of loans. He or she will also be able to offer valuable advice on properly managing your monthly payments.

Combined/Hybrid ARMs A combination of fixed rate and adjustable rate loans: Fixed-Period ARMs Borrows often lock into 3 to 10 years of fixed rate payments before the initial interest rate change. At the end of the fixed period, the interest rate adjusts annually. Fixed-period ARMs are typically tied to the one-year Treasury securities index: 3/1, 5/1, 7/1 and 10/1. ARMs with an initial fixed period beside of lifetime and adjustment caps usually have also first adjustment cap. It limits the interest rate you will pay the first time your rate is adjusted. First adjustment caps vary with type of loan program. The advantage of these loans is that the interest rate is lower than for a 30-year fixed (the lender is not locked in for as long so their risk is lower and they can charge less) but you still get the advantage of a fixed rate for a period of time. Balloon Loan Balloon Loans offer a fixed rate for a specified time period, typically 5 or 7 years, and then adjust to the current market rate. After the adjustment the mortgage stays at the new fixed rate for the remainder of the loan period. Graduated Payment ARMs Graduated payment mortgages initially offer lower payments at the start of the loan that gradually increase at preset times. Lower initial payments allow borrowers to qualify for a larger loan amount. Loan amounts negatively amortize during the early years of the loan then pay off the principal at an accelerated rate through the later years. GPM payment plans will vary by rate of payment increases and number of years over which payments will increase. The greater the rate of increase, or the longer the period of increase — the lower the initial mortgage payments. Convertible ARMs If an adjustable rate mortgage is convertible, the borrower may convert to a fixed rate mortgage, when interest rates begin to rise, without refinancing. The new rate is established at the current market rate for fixed-rate mortgages. The terms of convertibility vary among lenders. Typically it involves a nominal fee and minimal paperwork. The downside is that the conversion interest rate is often a little higher than the market rate at the time of conversion. A fixed rate loan with a rate reduction option allows borrowers, under predetermined conditions, to adjust to the current market rate for a nominal fee. The discount points or interest rates are often slightly higher for convertible loans. Buydown Mortgage A temporary buydown initially offers a lower interest rate and lower monthly payments. In order to reduce monthly payments during the first years, borrowers make an initial lump sum payment or agree to a higher interest rate. Over the years, the interest rate gradually increases until it peaks at a fixed rate. Borrowers who chose this loan often expect a significant increase in their income.

Conforming Loans Conforming loans are conventional loans that meet bank-funding criteria set by Fannie Mae (FNMA) and Freddie Mac (FHLMC). Both of these stock-holding companies buy mortgage loans from lending institutions and secure them for resale to the investment community. All year round, Fannie Mae and Freddie Mac are working for you, establishing limits on what constitutes a conforming loan in a mean home price. Buying back mortgage loans allows these agencies to provide a continuous flow of affordable funding to banks that reinvest money back into additional mortgage loans. Fannie Mae and Freddie Mac exclusively buy loans that are conforming, to repackage into the secondary market and effectively decreasing the demand for non-conforming loans. Conforming Loan Limits: Number of UnitsMaximum original principal balanceAlaska, Guam, Hawaii, and U.S. Virgin Islands only 1 $417,000$625,500 2 $533,850$800,775 3 $645,300$967,950 4 $801,950$1,202,925 NOTE: The conforming loan limit in Alaska, Hawaii, Guam and the Virgin Islands is 50% hi

Conventional Loans Conventional loans are mortgage loans offered by non-government sponsored lenders. These loan types include: Fixed Rate Loans Adjustable Rate Loans (ARMs) Combination (Hybrid) Loans Balloon Mortgages and Pledge Asset Loans Jumbo / Construction Loans Reverse Mortgage

The most important thing to recognize is the loan approval process is 100% dependent on documentation. Documents apply to which program you are applying for: (P) Purchase (C)Cash-out (S) Streamline % Rate Reduction VA Eligibility Information DD214 (P) (C) Employment Information Most recent two years’ complete tax returns with all schedules (P) (C) (Only if you receive overtime income) Most recent two years’ W-2’s, 1099s, etc. (P) (C) Most recent pay stubs, covering one month’s time (P) (C) If applicable, self-employed will need two years’ tax returns and YTD profit & loss statement Bank Account Information Most recent months’ complete bank statement (P) (C) Must reflect deposits for VA, Disability, Retirement Income, Social Security Credit Information Most recent statements for your bills, indicating minimum payments and account numbers (C) Name, Address, and phone number for your landlord, or 12 months’ canceled rent checks (P) If applicable: Should you have no credit, copies of your most recent utility bills will be needed (P) If applicable: Copy of complete bankruptcy and discharge papers (P)(C) If applicable: If you co-signed a mortgage, car, credit card, etc., 12 months’ canceled checks, front and back, indicating you are not making payments (P) (C) (Depends on debt ratios) Personal Information Copy of your driver’s license (P) (C) (S) Copy of Social Security card (P) (C) (S) If applicable: Copy of complete divorce, palimony, alimony papers (P) (C) (S) If applicable: Copy of Green Card (P) (C) (S) If It’s For A Refinance And You Own A Rental Property Or Second Home Copy of note Copy of property tax bill Copy of hazard (homeowner’s) insurance policy Copy of payment coupon for current mortgage If property is a rental, need rental agreement for lease *If you’re looking for a VA Loan in La Jolla, or anywhere in California, contact John Hooper at (888) 733-7790*

You are here: Home / Loan Options / Featured / Fixed Rate Mortgage Fixed Rate Mortgage: With a fixed rate mortgage, the interest rate does not change for the term of the loan; the monthly payment is always the same. Typically, the shorter the loan period, the more attractive the interest rate will be. Payments on fixed-rate fully amortizing loans are calculated so that the loan is paid in full at the end of the term. In the early amortization period of the mortgage, a large percentage of the monthly payment pays the interest on the loan. As the mortgage is paid down, more of the monthly payment is applied toward the principal. A 30 year fixed rate mortgage is the most popular type of loan when borrowers are able to lock into a low rate. Benefits: · Lower monthly payments than a 15 year fixed rate mortgage · Interest rate does not go up · Payment does not go up, it stays the same for 30 years Drawbacks: · Higher interest rate than a 15 year fixed rate mortgage · Interest rate stays the same even if interest rates go down A 15 year fixed rate mortgage allows you to pay off your loan quicker and lock into an attractive lower interest rate. Benefits: · Lower interest rate · Build equity faster · If interest rates go up, yours is fixed Drawbacks: · Higher monthly payment stays the same if interest rates go down · Interest rate stays the same even if interest rates go down

The Home Affordable Refinance Program (HARP) was created by the Federal Housing Finance Agency in March 2009 to allow those with a loan-to-value ratio exceeding 80% to refinance without paying for mortgage insurance. Originally, only those with an LTV of 105% could qualify. Later that same year, the program was expanded to include those with an LTV up to 125%. This meant that if someone owed $125,000 on a property that is currently worth $100,000, they would still be able to refinance and lock in a lower interest rate. In December 2011, the rule was altered once again to state there would be no limit on negative equity for mortgages up to 30 years and now individuals owing more than 125% of their home value could refinance without PMI. Qualifying criteria Certain criteria must be met to qualify for HARP. While there may be additional criteria imposed by the mortgage servicer, the government requirements are as follows: The mortgage must be owned or guaranteed by Freddie Mac or Fannie Mae. Many homeowners are unaware that their mortgages are linked to one of these organizations, since neither Freddie Mac nor Fannie Mae deals directly with the public. The mortgage must have been completed on or before May 31, 2009. The homeowner must not have a previous HARP refinance of the mortgage, unless it is a Fannie Mae loan that was refinanced under HARP during March-May 2009. The homeowner must be current on their mortgage payments, with no (30-day) late payments in the last six months and no more than one late payment in the last twelve months. The current loan-to-value ratio (LTV) of the property must be greater than 80%. The homeowner must benefit from the loan by either lower monthly payments or movement to a more stable product (such as going from an adjustable-rate mortgage(ARM) to a fixed-rate mortgage). Appraisal waiver Another feature of HARP is that applicants can forgo a home appraisal if a reliable automated valuation model is available in the area. This can save the borrower time and money, but is subject to the discretion of the mortgage servicer. Deadline HARP is scheduled to end on December 31, 2013. Click here to see if you qualify

Jumbo Loans Jumbo Loans exceed the maximum loan amounts established by Fannie Mae and Freddie Mac conventional loan limits. Rates on jumbo loans are typically higher than conforming loans. Jumbo Loans are typically used to buy more expensive homes and high-end custom construction homes. Typically Jumbo Loans require a higher down payment than traditional loans.

State and Local Housing Programs: Many state, county and local government programs offer financing for qualifying low-to-moderate income families wishing to purchase their first home. Loan assistance programs like Mortgage Credit Certificate (MCC) offer a partial tax credit for interest on the loan. These programs typically offer: More relaxed qualifying guidelines Lower upfront fees Lower interest rate Fixed rate

Glossary A -abstract of title A historical summary provided by a title insurance company of all records affecting the title to a property. - acceleration clause Allows a lender to declare the entire outstanding balance of a loan immediately due and payable should a borrower violate specific loan provisions or default on the loan. - adjustable rate mortgage (ARM) A variable or flexible rate mortgage with an interest rate that varies according to the financial index it is based upon. To limit the borrower's risk, the ARM may have a payment or rate cap. See also: cap. - amenities Features of your home that fit your preferences and can increase the value of your property. Some examples include the number of bedrooms, bathrooms, or vicinity to public transportation. -amortization The liquidation of a debt by regular, usually monthly, installments of principal and interest. An amortization schedule is a table showing the payment amount, interest, principal and unpaid balance for the entire term of the loan. - annual cap See: cap. -annual percentage rate (A.P.R.) The actual interest rate, taking into account points and other finance charges, for the projected life of a mortgage. Disclosure of APR is required by the Truth-in-Lending Law and allows borrowers to compare the actual costs of different mortgage loans. - appraisal An estimate of a property's value as of a given date, determined by a qualified professional appraiser. The value may be based on replacement cost, the sales of comparable properties or the property's ability to produce income. - appreciation A property's increase in value due to inflation or economic factors. -A.P.R. See: annual percentage rate. -ARM See: adjustable rate mortgage. -assessment Charges levied against a property for tax purposes or to pay for municipality or association improvements such as curbs, sewers, or grounds maintenance. -assignment The transfer of a contract or a right to buy property at given rates and terms from a mortgagee to another person. - assumption An agreement between a buyer and a seller, requiring lender approval, where the buyer takes over the payments for a mortgage and accepts the liability. Assuming a loan can be advantageous for a buyer because there are no closing costs and the loan's interest rate may be lower than current market rates. Depending on what is in the mortgage or deed of trust, the lender may raise the interest rate, require the buyer to qualify for the mortgage, or not permit the buyer to assume the loan at all. B -balloon mortgage Mortgage with a final lump sum payment that is greater than preceding payments and pays the loan in full. -biweekly mortgage A loan requiring payments of principal and interest at two-week intervals. This type of loan amortizes much faster than monthly payment loans. The payment for a biweekly mortgage is half what a monthly payment would be. -bond A certificate serving as security for payment of a debt. Bonds backed by mortgage loans are pooled together and sold in the secondary market. -bridge loan A loan to "bridge" the gap between the termination of one mortgage and the beginning of another, such as when a borrower purchases a new home before receiving cash proceeds from the sale of a prior home. Also known as a swing loan. -broker An intermediary between the borrower and the lender. The broker may represent several lending sources and charges a fee or commission for services. -buy-down Where the buyer pays additional discount points or makes a substantial down payment in return for a below market interest rate; or the seller offers 3-2-1 interest payment plans or pays closing costs such as the origination fee. During times of high interest rates, buy-downs may induce buyers to purchase property they may not otherwise have purchased. C -cap A limit in how much an adjustable rate mortgage's monthly payment or interest rate can increase. A cap is meant to protect the borrower from large increases and may be a payment cap, an interest cap, a life-of-loan cap or an annual cap. A payment cap is a limit on the monthly payment. An interest cap is a limit on the amount of the interest rate. A life-of-loan cap restricts the amount the interest rate can increase over the entire term of the loan. An annual cap limits the amount the interest rate can increase over a twelve-month period. -certificate of reasonable value (CRV) A Veteran's Administration appraisal that establishes the maximum VA mortgage loan amount for a specified property. -certificate of title Document rendering an opinion on the status of a property's title based on public records. -closed-end mortgage A mortgage principal amount that is fixed and cannot be increased during the life of the loan. See also: open-end mortgage. -closing costs Costs payable by both seller and buyer at the time of settlement, when the purchase of a property is finalized. These costs can be up to ten percent of the mortgage amount and usually include but are not limited to the following: -cloud A claim to the title of a property that, if valid, would prevent a purchaser from obtaining a clear title. -collateral Something of value pledged as security for a loan. In mortgage lending, the property itself serves as collateral for a mortgage loan. . -commitment fee A fee charged when an agreement is reached between a lender and a borrower for a loan at a specific rate and points and the lender guarantees to lock in that rate. -co-mortgagor One who is individually and jointly obligated to repay a mortgage loan and shares ownership of the property with one or more borrowers. See also: co-signer. -condominium An individually owned unit within a multi-unit building where others or the Condominium Owners Association share ownership of common areas such as the grounds, the parking facilities and the tennis courts. -conforming loan A loan that conforms to Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC) guidelines. See also: non-conforming loan. -construction loan A short-term loan financing improvements to real estate, such as the building of a new home. The lender advances funds to the borrower as needed while construction progresses. Upon completion of the construction, the borrower must obtain permanent financing or pay the construction loan in full. -consumer handbook on adjustable rate mortgages (C.H.A.R.M.) A disclosure required by the federal government to be given to any borrower applying for an adjustable rate mortgage (ARM). -conventional loan A mortgage loan that is not insured, guaranteed or funded by the Veterans Administration (VA), the Federal Housing Administration (FHA) or Rural Economic Community Development (RECD) (formerly Farmers Home Administration). -convertible mortgage An adjustable rate mortgage (ARM) that allows a borrower to switch to a fixed-rate mortgage at a specified point in the loan term. -co-signer One who is obligated to repay a mortgage loan should the borrower default but who does not share ownership in the property. See also: co-mortgagor. -covenants Rules and restrictions governing the use of property. -CRV See: certificate of reasonable value. -curtailments The borrower's privilege to make payments on a loan's principal before they are due. Paying off a mortgage before it is due may incur a penalty if so specified in the mortgage's prepayment clause. D -debt Money owed to repay someone. -debt-to-income ratio The ratio between a borrower's monthly payment obligations divided by his or her net effective income (FHA or VA loans) or gross monthly income (conventional loans). -deed of trust A document, used in many states in place of a mortgage, held by a trustee pending repayment of the loan. The advantage of a deed of trust is that the trustee does not have to go to court to proceed with foreclosure should the borrower default on the loan. -Department of Housing and Urban Development (HUD) The U.S. government agency that administers FHA, GNMA and other housing programs. -discount points Amounts paid to the lender based on the loan amount to buy the interest rate down. Each point is one percent of the loan amount; for example, two points on a $100,000 mortgage is $2,000. -down payment The difference between the purchase price and mortgage amount. The down payment becomes the property equity. Typically it should be cash savings, but it can also be a gift that is not to be repaid or a borrowed amount secured by assets. -due-on-sale A clause in a mortgage or deed of trust allowing a lender to require immediate payment of the balance of the loan if the property is sold (subject to the terms of the security instrument). -duplex Dwelling divided into two units. E -earnest money Deposit in the form of cash or a note, given to a seller by a buyer as good faith assurance that the buyer intends to go through with the purchase of a property. -easement The right one party has in regard to the property of another, such as the right of a public utility company to lay lines. -Equa l Credit Opportunity Act A federal law prohibiting lenders and other creditors from discrimination based on race, color, sex, religion, national origin, age, marital status, receipt of public assistance or because an applicant has exercised his or her rights under the Consumer Credit Protection Act. -equity The value of a property beyond any liens against it. Also referred to as owner's interest. -escape clause A provision allowing one party or more to cancel all or part of the contract if certain events fail to happen, such as the ability of the buyer to obtain financing within a specified period. -escrow Money placed with a third party for safekeeping either for final closing on a property or for payment of taxes and insurance throughout the year. F -fair market value The price a property can realistically sell for, based upon comparable selling prices of other properties in the same area. -Fannie Mae Nickname for Federal National Mortgage Association (FNMA). -Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac) A quasi-governmental, federally-sponsored organization that acts as a secondary market.investor to buy and sell mortgage loans. FHLMC sets many of the guidelines for conventional mortgage loans, as does FNMA. -Federal Housing Administration (FHA) An agency within the Department of Housing and Urban Development that sets standards for underwriting and insures residential mortgage loans made by private lenders. One of FHA's objectives is to ensure affordable mortgages to those with low or moderate income. FHA loans may be high loan-to-value, and they are limited by loan amount. FHA mortgage insurance requires a fee of 1.5 percent of the loan amount to be paid at closing, as well as an annual fee of 0.5 percent of the loan amount added to each monthly payment. -Federal National Mortgage Association (FNMA or Fannie Mae) A private corporation that acts as a secondary market. investor to buy and sell mortgage loans. FNMA sets many of the guidelines for conventional mortgage loans, as does FHLMC. The major purpose of this organization is to make mortgage money more affordable and more available. -fee simple The maximum form of ownership, with the right to occupy a property and sell it to a buyer at any time. Upon the death of the owner, the property goes to the owner's designated heirs. Also known as fee absolute. -FHA See: Federal Housing Administration. -fifteen-year mortgage A loan with a term of 15 years. Although the monthly payment on a 15-year mortgage is higher than that of a 30-year mortgage, the amount of interest paid over the life of the loan is substantially less. -fixed-rate mortgage A mortgage whose rate remains constant throughout the life of the mortgage. -flood insurance The Federal Flood Disaster Protection Act of 1973 requires that federally-regulated lenders determine if real estate to be used to secure a loan is located in a Specially Flood Hazard Area (SFHA). If the property is located in a SFHA area, the borrower must obtain and maintain flood insurance on the property. Most insurance agents can assist in obtaining flood insurance. -FNMA See: Federal National Mortgage Association -Freddie Mac Nickname for Federal Home Loan Mortgage Corporation (FHLMC). G -gift This includes amounts from a relative or a grant from the borrower's employer, a municipality, non-profit religious organization, or non-profit community organization that does not have to be repaid. -Ginnie Mae Nickname for Government National Mortgage Association (GNMA). -good faith estimate Estimate on closing costs and monthly mortgage payments provided by the lender to the homebuyer within 3 days of applying for a loan. -Government National Mortgage Association (GNMA or Ginnie Mae) A government organization that participates in the secondary market, securitizing pools of FHA, VA, and RHS loans. -graduated payment mortgage (GPM) A fixed-interest loan with lower payments in the early years than the later years. The amount of the payment gradually increases over a period of time and then levels off at a payment sufficient to pay off the loan over the remaining amortization period. H -hazard insurance A form of insurance that protects the insured property against physical damage such as fire and tornadoes. Mortgage lenders often require a borrower to maintain an amount of hazard insurance on the property that is equal at least to the amount of the mortgage loan. -home equity loan A mortgage on the borrower's principal residence, usually for the purpose of making home improvements or debt consolidation. . -home inspection A thorough review of the physical aspects and condition of a home by a professional home inspector. This inspection should be completed prior to closing so that any repairs or changes can be completed before the home is sold. -homeowners insurance A form of insurance that protects the insured property against loss from theft, liability and most common disasters. -Housing and Urban Development. (HUD) The U.S. government agency that administers FHA, GNMA and other housing programs. -housing affordability index Indicates what proportion of homebuyers can afford to buy an average-priced home in specified areas. The most well known housing affordability index is published by the National Association of Realtors. -housing expenses-to-income ratio See: debt-to-income ratio. -HUD See: Housing and Urban Development. I -income approach to value A method used by real estate appraisers to predict a property's anticipated future income. Income property includes shopping centers, hotels, motels, restaurants, apartment buildings, office space and so forth. -income-to-debt ratio See: debt-to-income ratio. -index A published interest rate compiled from other indicators such as U.S. Treasury bills or the monthly average interest rate on loans closed by savings and loan organizations. Mortgage lenders use the index figure to establish rates on adjustable rate mortgages (ARMs). -insurance As a part of PITI, the amount of the monthly mortgage payment that does not include the principal, interest, and taxes. Also see: homeowners insurance. -interest The amount of the entire mortgage loan which does not include the principal. Also, as a part of PITI, the amount of the monthly mortgage payment which does not include the principal, taxes, and insurance. -interest cap See: cap. -interest rate The simple interest rate, stated as a percentage, charged by a lender on the principal amount of borrowed money. See also: Annual Percentage Rate. J -joint tenancy See: tenancy. -jumbo loan A nonconforming loan that is larger than the limits set by the Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC) guidelines. K -key lot Real estate deemed highly valuable because of its location. L -lien A claim against a property for the payment of a debt. A mortgage is a lien; other types of liens a property might have include a tax lien for overdue taxes or a mechanics lien for unpaid debt to a subcontractor. -life-of-loan cap See: cap. -liquidity The capability of an asset to be readily converted into cash. -loan discount See: points. -loan origination fee See: origination fee. -loan-to-value ratio (LTV) The relationship, expressed as a percentage, between the amount of the proposed loan and a property's appraised value. For example, a $75,000 loan on a property appraised at $100,000 is a 75% loan-to-value. -lock-in: The guarantee of a specific interest rate and/or points for a specific period of time. Some lenders will charge a fee for locking in an interest rate. M -maintenance costs The cost of the upkeep of the house. These costs may be minor in cost and nature (replacing washers in the faucets) or major in cost and nature (new heating system or a new roof) and can apply to either the interior or exterior of the house. -margin The amount a lender adds to the index of an adjustable rate mortgage to establish an adjusted interest rate. For example, a margin of 1.50 added to a 7 percent index establishes an adjusted interest rate of 8.50 percent. -market value The price a property can realistically sell for, based upon comparable selling prices of other properties in the same area. -modification A change in the terms of the mortgage note, such as a reduction in the interest rate or change in maturity date. -mortgage A legal instrument in which property serves as security for the repayment of a loan. In some states, a deed of trust is used rather than a mortgage. -mortgage banker A lender that originates, closes, services and sells mortgage loans to the secondary market. -mortgage broker An intermediary between a borrower and a lender. A broker's expertise is to help borrowers find financing that they might not otherwise find themselves. -mortgage insurance Money paid to insure the lender against loss due to foreclosure or loan default. Mortgage insurance is required on conventional loans with less than a 20 percent down payment. FHA mortgage insurance requires a payment of 1.5 percent of the loan amount to be paid at closing, as well as an annual fee of 0.5 percent of the loan amount added to each monthly payment. -mortgage interest Interest rate charge for borrowing the money for the mortgage. It is a used to calculate the interest payment on the mortgage each month. -mortgage term The length of time that a mortgage is scheduled to exist. Example: a 30-year mortgage term is for 30 years. -mortgagee The lender. -mortgagor The borrower. N -negative amortization A situation in which a borrower is paying less interest than what is actually being charged for a mortgage loan. The unpaid interest is added to the loan's principal. The borrower may end up owing more than the original amount of the mortgage. -non-assumption clause In a mortgage contract, a statement that prohibits a new buyer from assuming a mortgage loan without the approval of the lender. -non-conforming loan A loan that does not conform to Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC) guidelines. Jumbo loans are nonconforming. See also: conforming loan. -note A signed document that acknowledges a debt and shows the borrower is obligated to pay it. O -open-end mortgage A mortgage allowing the borrower to receive advances of principal from the lender during the life of the loan. See also: closed-end mortgage. -origination fee The amount charged by a lender to originate and close a mortgage loan. Origination fees are usually expressed in points. P -payment cap See: cap. -P&I Abbreviation for principal and interest. -PITI Abbreviation for principal, interest, taxes and insurance. -points Charges levied by the lender based on the loan amount. Each point equals one percent of the loan amount; for example, two points on a $100,000 mortgage is $2,000. Discount points are used to buy down the interest rate. Points can also include a loan origination fee, which is usually one point. -pre-qualification Tentative establishment of a borrower's qualification for a mortgage loan amount of a specific range, based on the borrower's assets, debts, and income. -prime rate The interest rate commercial banks charge their most creditworthy customers. -principal The amount of the entire mortgage loan, not counting interest. Also, as a part of PITI, the amount of the monthly mortgage payment which does not include the interest, insurance, and taxes. -private mortgage insurance (PMI) See: mortgage insurance. -property appraisal See: appraisal. -property tax The amount which the state and/or locality assesses as a tax on a piece of property. -prorate To proportionally divide amounts owed by the buyer and the seller at closing. Q -qualification As determined by a lender, the ability of the borrower to repay a mortgage loan based on the borrower's credit history, employment history, assets, debts and income. R -rate cap See: cap. -RESPA Abbreviation for the Real Estate Settlement Procedures Act, which allows consumers to review settlement costs at application and once again prior to closing. -reverse annuity mortgage A type of mortgage loan in which the lender makes periodic payments to the borrower. The borrower's equity in the home is used as security for the loan. -RHCDS Rural Housing and Community Service -right of first refusal Purchasing a property under conditions and terms made by another buyer and accepted by the seller. -right of rescission When a borrower's principal dwelling is going to secure a loan, the borrower has three business days following signing of the loan documents to rescind or cancel the transaction. Any and all money paid by the borrower must be refunded upon rescission. The right to rescind does not apply to loans to purchase real estate or to refinance a loan under the same terms and conditions where no additional funds will be added to the existing loan. -rollover At the end of the construction loan period, the borrower's file is delivered to Bank One Mortgage Loan Servicing Dept. Prior to delivery, CLD contacts the borrower and obtains funds for the tax and insurance escrows, a final title policy and homeowner's policy. This process is called a rollover. -Rural Housing and Community Development Service A federal agency that administers mortgage loans for buyers in rural areas. S -second mortgage A loan that is junior to a primary or first mortgage and often has a higher interest rate and a shorter term. -secondary market A market comprising investors like GNMA, FHLMC and FNMA, which buy large numbers of mortgages from the primary lenders and sell them to other investors. -servicing The responsibility of collecting monthly mortgage payments and properly crediting them to the principal, taxes and insurance, as well as keeping the borrower informed of any changes in the status of the loan. -settlement costs See: closing costs. -survey A physical measurement of property done by a registered professional showing the dimensions and location of any buildings as well as easements, rights of way, roads, etc. T -tax deed A written document conveying title to property repossessed by the government due to default on tax payments. -tax savings The amount of money that the homeowner is not required to pay the government in taxes because he or she owns a home. -taxes As a part of PITI, the amount of the monthly mortgage payment which does not include the principal, interest, and insurance. -tenancy joint tenancy – equal ownership of property by two or more parties, each with the right of survivorship. tenancy by the entireties – ownership of property only between husband and wife in which neither can sell without the consent of the other and the property is owned by the survivor in the event of death of either party. tenancy in common – equal ownership of property by two or more parties without the right of survivorship. tenancy in severalty – ownership of property by one legal entity or a sole party. tenancy at will – a license to use or occupy a property at the will of the owner. title A formal document establishing ownership of property. -title insurance A policy issued by a title insurance company insuring the purchaser against any errors in the title search. The cost of title insurance may be paid for by the buyer, the seller or both. -trust deed See: deed of trust. -Truth In Lending Act The Truth In Lending Act requires lenders to disclose the Annual Percentage Rate and other associated costs to homebuyers within three working days of the loan application. U -underwriter A professional who approves or denies a loan to a potential homebuyer based on the homebuyer's credit history, employment history, assets, debts and other factors such as loan guidelines. -Uniform Settlement Statement A standard document prescribed by the Real Estate Settlement Procedures Act containing information for closing which must be supplied to both buyer and seller. -utility costs Periodic housing costs for water, electricity, natural gas, heating oil, etc. V -VA loan See: Veterans Administration. -variable rate mortgage (VRM) See: adjustable rate mortgage. -Veterans Administration (VA) The federal agency responsible for the VA loan guarantee program as well as other services for eligible veterans. In general, qualified veterans can apply for home loans with no down payment and a funding fee of 1 percent of the loan amount. W -walk-through An inspection of a property by the prospective buyer prior to closing on a mortgage. -warranty deed A document protecting a homebuyer against any and all claims to the property. X Y -yield The rate of earnings from an investment. Z -zoning The ability of local governments to specify the use of private property in order to control development within designated areas of land. For example, some areas of a neighborhood may be designated only for residential use and others for commercial use such as stores, gas stations, etc.