Raincross Financial Services

Appraisal: An estimate or opinion of value, generally performed by a state licensed independent contractor.

APR: A measure of the cost of credit, expressed as a yearly rate. It includes interest as well as other charges. Because all lenders follow the same rules to ensure the accuracy of the annual percentage rate, it provides consumers with a good basis for comparing the cost of loans, including mortgage plans.

Adjustable Rate Mortgage (ARM): A mortgage where the interest rate is not fixed, but changes during the life of the loan in line with movements in an index rate. You may also see ARM's referred to as AML's (adjustable mortgage loans) or VRM's (variable rate mortgages).

Balloon Payment: Where one installment payment on a note is at least double that of a regular installment. Frequently this is the final payment on the due date.

Biweekly Payment: Real estate loan payments made every two weeks. A monthly payment divided by two and paid 26 times per year.

Buydown: With a buydown, the seller pays the amount to the lender so that the lender can give you a lower rate and lower payments, usually for an early period in an ARM .The seller may increase the sales price to cover the cost of the buydown. Buydowns can occur in all types of mortgages not just ARMs.

Cap: A limit on how much the interest rate or monthly payment can change, either at each adjustment or during the life of the mortgage. Payment caps don't limit the amount of the interest the lender is earning, so they may cause negative amortization.

Certificate of Veteran Status: Document given to veterans or reservists who have served 90 days of continuous active duty (including training time). It may be obtained by sending DD-214 to the local VA office with form 26-8261a (request for Certificate of Veteran Status). This Document enables veterans to obtain lower down payments on certain FHA insured loans.

Closing Cost: Cost paid by borrower when purchasing, financing property.

Commercial Bank: A financial Institution chartered by a state of the federal government to receive, lend and safeguard money and other items of value.

Conforming: This is the term used for Loan amounts under $322,700* for single family residences (1-Unit) set by the secondary mortgage market ( *this amount may be changed by the FNMA and FHLMC.)

Conventional Loan: Any loan not insured or guaranteed by a government agency.

Conversion Clause: A provision in some Arms that allows you to change the ARM to a fixed-rate loan at some point during the term. Usually conversion is allowed at the end of the first adjustment period. At the time of the conversion, the new fixed rate is generally set at one of the rates then prevailing for fixed-rate mortgages. The conversion feature may be available at an additional cost.

Credit Report: A credit history of a person or business usually issued by a company in the credit reporting business.

Debt Ratio: The total household monthly expenses divided by the total Gross monthly income.

Deed of Trust: Instrument by which title to real estate is transferred to a third party trustee as security for a real estate loan. Used in some states instead of a mortgage.

Down Payment:The difference between the sales price of the property and the loan amount.

Equal Credit Opportunity Act (ECOA): Federal law requiring 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 interest or value that an owner has in real estate over and above any liens against the property. The difference between market value and existing loans.

Escrow: A neutral third party depository, where instructions are carried out for both buyer and seller or lender and borrower and is responsible for handling the paperwork and disbursing funds need in the transaction or transfer of property.

FHLMC: Federal Home Loan Mortgage corporation also called Freddie Mac, which provides a secondary market for savings and loan associations.

FHA: Federal Housing Administration, An agency of the federal government that insures mortgage loans made by approved lenders.

First Deed of Trust or Mortgage: The first recorded loan; it takes precedence over junior or second loans and encumbrance.

FNMA:Federal National Mortgage Association also called Fannie Mae, a private corporation whose primary function is to buy and sell mortgages in the secondary mortgage market.

Gross Monthly Income: Total income before deducting taxes and any misc. deductions.

HUD: An abbreviation for the Department of Housing and Urban Development.

Impounds: That portion of a borrower's monthly payments held by the lender or servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Also known as impound reserves.

Income ratio: The monthly payment on a loan including principal and interest, taxes, insurance, separate maintenance divided by the borrowers Gross Monthly Income.

Index: The index is the measure of interest rate changes that a lender uses to decide how much the interest rate changes on an ARM will change over time. No one can be sure when an index rate will go up or Down. Some index rates tend to be more volatile than others (But if a lender bases an interest rate adjustments on an average value of an index over time, your interest would not be as volatile.) You should ask your lender how the index rate for any ARM you are considering has changed in recent years, and where it is reported.

Interest Rate: The charge made for the loan of money expressed as a percentage of the principal.

Jumbo: The term used for loan amounts greater than $300,701 the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.

Loan Commitment: An agreement by a lender to make a loan subject to certain conditions being satisfied.

Loan Origination Fee: A charge for arranging and processing a real estate loan, included in closing cost.

Loan Discount Fee: A charge associated to buy down the interest rate. See points .

Loan-to-Value Ratio: The percentage of a property's value or sale's price, whichever is lower that a lender can or may loan to a borrower.

Margin: The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.

MIP (Mortgage Insurance Premium): Insurance from FHA to the lender against incurring a loss on account of the borrower's default.

Mortgage: A two party instrument in which the borrower (mortgagor) retains legal title during the loan term while the real estate acts as collateral for the loan.

Mortgagee: The lender.

Mortgagor: The borrower or homeowner.

Mortgage Banker: Packages loans to be sold to a permanent investor with servicing retained for a fee. Mortgage bankers act as correspondents for investors.

Mortgage Broker: Differ from mortgage bankers in that they invest no capitol; their prime function is to bring together borrowers and lenders, and for this they are paid a fee.

Negative Amortization: Amortization means that monthly payments are large enough to pay the interest and reduce the principal on your mortgage. Negative amortization occurs when monthly payments do not cover all the interest cost. The interest cost that isn't covered is added to the unpaid principal balance. This means that even after making many payments, you could owe more than you did at the beginning of the loan. Negative amortization can occur when an ARM has a payment cap that results in monthly payments not high enough to cover interest due.

Nominal Interest Rate: The interest rate that appears on the promissory note . Note the "Effective Rate is also called the "Note Rate".

Non Conforming: This the term used to describe any loan not associated with Normal Conforming loans. For example: Fannie Mae and Freddie Mac conventional financing.

Non-Institutional Lender: Lenders on real estate other than banks, insurance companies and savings and loan associations.

P.I.T.I.: An abbreviation for principal, interest, taxes and insurance; commonly used when referring to the monthly loan payment.

Points: A point is equal to one percent of the principal amount of your mortgage. For example, if you get a mortgage for $50,000, one point means you pay $500 to the lender. Lenders frequently charge points in both fixed and adjustable rate mortgages in order to increase the yield on the mortgage. And to cover loan closing cost. These points usually are collected at closing and maybe paid by the borrower or the home seller, or may be split between them.

Prepayment Penalty: A charge for the payment of a mortgage or trust deed note before it is actually due.

Private Mortgage insurance (PMI): Insurance written by a private company protecting the mortgage lender against loss in case of default.

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

Rescission: The cancellation of a contract. With respect to mortgage refinancing, the law that gives, in some cases, the homeowner three days to cancel a contract once it is signed if the transaction uses equity in the home as security.

Refinance: To renew or replace the existing financing with additional financing, or to secure a loan on a free and clear property already owned by the borrower.

RESPA: Short for the Real Estate Settlement Procedures Act. RESPA is a federal law that allows consumers to review information on known or estimated settlement cost once after application and once prior to or at a settlement. The law requires lenders to furnish the information after application only.

Secondary Financing: A loan secured by a junior trust deed or mortgage, such as a second trust deed. It is encumbered after the first mortgage, generally held in second position. Home equity lines fall into this category mostly.

Secondary Mortgage Market: The place where primary mortgage lenders sell the mortgages they bought to obtain more funds to originate more new loans. It provides liquidity for the lenders.

Sub-prime: Is a term used to describe loans that do not fit with in the conforming loan guidelines. Typically associated for loans for consumers with less than perfect credit who need special financing.

Super Jumbo: The term used for loan amounts greater than $750,001 and are funded generally buy insurance companies, because of the size of these loans are not funded in the secondary mortgage market by FNMA and FHLMC the interest rates are generally higher.

Tax Service: A fee paid to a tax service agency which each year reviews the records of taxing bodies and reports any delinquencies to the lender. The fee is usually paid by the borrower.

Term: The defined period for the length of financing the principal amount borrowed.

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

Title Insurance: An insurance written by a title company to protect property owners and lenders against loss because of certain lien defects.

Truth-In-Lending: A federal law requiring disclosure of the Annual Percentage Rate to home buyers/ borrowers shortly after they apply for the loan. Also known as Regulation Z.

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

Usury: Interest charged in excess of the legal rate established by law.

VA Loan: A long-term, low- or no-down payment loan guaranteed by the Department of Veterans Affairs. Restricted to individuals qualified by military service or other entitlements.

VA Mortgage Funding Fee: A premium of up to 1-7/8 percent (depending on the size of the down payment) paid on a VA-backed loan. Based on a $75,000 fixed-rate mortgage with no down payment, this would amount to $1,406 either paid at closing or added to the amount financed.