Below are definitions to be familiar with, if you are thinking of or are involved in buying or selling North Shore real estate. Or, just for your general knowledge. There are several terms, commonly used jargon, in the real estate industry that may appear to be a peculiar language all its own:

7/23 and 5/25 Mortgages Mortgages with a one-time rate adjustment after seven years and five years respectively.

3/1 5/1 7/1 and 10/1 ARMs Adjustable rate mortgages in which rate is fixed for three year five year seven year and 10-year periods respectively but may adjust annually after that.

Acceleration The right of the mortgagee (lender) to demand the immediate repayment of the mortgage loan balance upon the default of the mortgagor (borrower) or by using the right vested in the Due on Sale Clause.

Adjustable Rate Mortgage (ARM) A mortgage in which the interest rate is adjusted periodically based on a pre-selected index. Also sometimes known as a renegotiable rate mortgage variable rate mortgage or Canadian rollover mortgage. 

Adjustment Date The date that the interest rate changes on an adjustable rate mortgage (ARM).

Affordability Analysis An analysis of a buyer liabilities and available funds and considers the type of mortgage you plan to use the area where you want to purchase a home and the closing costs that are likely.

Appraisal An estimate of the value of property made by a qualified professional called an “appraiser. based on an appraiser’s knowledge experience and analysis of the property.

Assessment A local tax levied against a property for a specific purpose such as a sewer or street lights.

Assumption Fee The fee paid to a lender (usually by the purchaser of real property) when an assumption takes place.

Bridge Loan A second trust that is collateralized by the borrower’s present home allowing the proceeds to be used to close on a new house before the present home is sold. Also known as “swing loan.”

Buy Down When the lender and/or the home builder subsidized the mortgage by lowering the interest rate during the first few years of the loan. While the payments are initially low they will increase when the subsidy expires. 

Conventional Loan A mortgage not insured by FHA or guaranteed by VA.

Credit Report A report documenting the credit history and current status of a borrower’s credit standing.

Credit Risk Score A credit risk score is a statistical summary of the information contained in a consumer’s credit report. The most well-known type of credit risk score is the Fair Isaac or FICO score. This form of credit scoring is a mathematical summary calculation that assigns numerical values to various pieces of information in the credit report. The overall credit risk score is highly relative in the credit underwriting process for a mortgage loan.

Debt-to-Income Ratio The ratio expressed as a percentage which results when a borrower’s monthly payment obligation on long-term debts is divided by his or her gross monthly income. See housing expenses-to-income ratio.

Deferred Interest When a mortgage is written with a monthly payment that is less than required to satisfy the note rate the unpaid interest is deferred by adding it to the loan balance. See negative amortization.

Earnest Money Money given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment.

Equal Credit Opportunity Act (ECOA) A federal law that requires lenders and other creditors to make credit equally available without discrimination based on race color religion national origin age sex marital status or receipt of income from public assistance programs.

Equity The difference between the fair market value and current indebtedness also referred to as the owner’s interest. The value an owner has in real estate over and above the obligation against the property.

Escrow Payment The part of a mortgagor hazard insurance mortgage insurance lease payments and other items as they become due.

Fixed Rate Mortgage The mortgage interest rate will remain the same on these mortgages throughout the term of the mortgage for the original borrower.

Foreclosure A legal process by which the lender or the seller forces a sale of a mortgaged property because the borrower has not met the terms of the mortgage. Also known as a repossession of property.

Market Value The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.

Preapproval The process of determining how much money you will be eligible to borrow before you apply for a loan.

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 3 percent in some cases. With the smaller down payment loans however borrowers are usually required to carry private mortgage insurance. Private mortgage insurance will usually require an initial premium payment and may require an additional monthly fee depending on your loan’s structure.

Realtor® A real estate broker or an associate holding active membership in a local real estate board affiliated with the National Association of Realtors.

Survey A measurement of land prepared by a registered land surveyor showing the location of the land with reference to known points its dimensions and the location and dimensions of any buildings.

Third Party Origination When a lender uses another party to completely or partially originate process underwrite close fund or package the mortgages it plans to deliver to the secondary mortgage market.

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

Underwriting The decision whether to make a loan to a potential home buyer based on credit employment assets and other factors and the matching of this risk to an appropriate rate and term or loan amount.

For More information on these terms as well as other mortgage terminology click HERE. Also, feel free to visit our Coldwell Banker office in Glencoe, IL 60022. 640 Vernon Ave in the heart of the downtown area. We can show you how these terms and others can impact a home for sale, rent, or for first time home buyers. Let our legendary 45 years of North Shore Real estate knowledge work for you!

 

 

 

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