Category Archives: Real Estate Terms

What Is A VA Loan?

The VA Loan became known in 1944 through the original Servicemen’s Readjustment Act also known as the GI Bill of Rights. The GI Bill was signed into law by President Franklin D. Roosevelt and provided veterans with a federally guaranteed home with no down payment. This feature was designed to provide housing and assistance for veterans and their families, and the dream of home ownership became a reality for millions of veterans. The GI Bill contributed more than any other program in history to the welfare of veterans and their families, and to the growth of the nation’s economy.With more than 25.5 million veterans and service personnel eligible for VA financing, this loan is attractive and has many advantages. Eligibility for the VA loan is defined as Veterans who served on active duty and have a discharge other than dishonorable after a minimum of 90 days of service during wartime or a minimum of 181 continuous days during peacetime. There is a two-year requirement if the veteran enlisted and began service after September 7, 1980 or was an officer and began service after October 16, 1981. There is a six-year requirement for National guards and reservists with certain criteria and there are specific rules concerning the eligibility of surviving spouses.

VA will guarantee a maximum of 25 percent of a home loan amount up to $104,250, which limits the maximum loan amount to $417,000. Generally, the reasonable value of the property or the purchase price, whichever is less, plus the funding fee may be borrowed. All veterans must qualify, for they are not automatically eligible for the program.

VA guaranteed loans are made by private lenders, such as banks, savings & loans, or mortgage companies to eligible veterans for the purchase of a home, which must be for their own personal occupancy. The guaranty means the lender is protected against loss if you or a later owner fails to repay the loan. The guaranty replaces the protection the lender normally receives by requiring a down payment allowing you to obtain favorable financing terms.

Why Do Mortgage Interest Rates Change? Part I

To understand why mortgage rates change we need to know why do interest rates change and there is not one interest rate, but many interest rates!

Prime rate: The rate offered to a bank’s best customers.
Treasury bill rates: Treasury bills are short-term debt instruments used by the U.S. Government to finance their debt. Commonly called T-bills they come in denominations of 3 months, 6 months and 1 year. Each treasury bill has a corresponding interest rate (i.e. 3-month T-bill rate, 1-year T-bill rate).
Treasury Notes: Intermediate-term debt instruments used by the U.S. Government to finance their debt. They come in denominations of 2 years, 5 years and 10 years.
Treasury Bonds: Long debt instruments used by the U.S. Government to finance its debt. Treasury bonds come in 30-year denominations.
Federal Funds Rate: Rates banks charge each other for overnight loans.
Federal Discount Rate: Rate New York Fed charges to member banks.
Libor: : London Interbank Offered Rates. Average London Eurodollar rates.
6-month CD rate: The average rate that you get when you invest in a 6-month CD.
11th District Cost of Funds: Rate determined by averaging a composite of other rates.
Fannie Mae Backed Security rates: Fannie Mae, a quasi-government agency, pools large quantities of mortgages, creates securities with them, and sells them as Fannie Mae backed securities. The rates on these securities influence mortgage rates very strongly.
Ginnie Mae-Backed Security rates: Ginnie Mae, a quasi-government agency, pools large quantities of mortgages, securitizes them and sells them as Ginnie Mae-backed securities. The rates on these securities affect mortgage rates on FHA and VA loans.

Interest-rates move because of the laws of supply and demand. If the demand for credit (loans) increases, so do interest rates. This is because there are more people who want money, buyers, so people who are willing to lend it, sellers, can command a better price, i.e. higher interest rates. If you have questions about your mortgage please contact me or visit my web site at www.mortgagelinkhome.com.

Today’s Vocabulary Lesson (and the last one!)

Title: Ownership of a property. A clear title is one without any outstanding liens or encumbrances. A cloud on title refers to any outstanding liens or encumbrances which could impair the title.

Title Insurance Policy: A policy designed to protect the buyer or lender after closing from financial losses arising from any defects in the title that may have occurred prior to purchase.

Title Search: A check of public record to disclose the past and current facts regarding ownership of a particular piece of property.

Transfer Tax: In some areas city, county or state taxes imposed when property passes from one person to another.

Truth-In-Lending: Federal law that requires lenders to disclose the terms and conditions of a mortgage, including the APR, based on certain charges incurred by the borrower. If the charges were $0, the APR would be equal to that actual interest rate on the loan.

Underwriting: The process of evaluating a loan application to determine the risk involved for the lender.

That’s it, that’s all I have. You are now one step closer to being a savvy mortgagor! For more mortgage information, go to my web site at Mortgage Link!

Ellen

Today’s Vocabulary Lesson

Second Mortgage: A loan issued on property that is already encumbered by an existing mortgage (ie: the first mortgage). The second mortgage is subordinate to the first.

Secondary Mortgage Market: The market wherein home loans are sold by the lender after closing to Fannie Mae, Freddie Mac or a variety of other institutional investors.

Survey: A map prepared by an engineer or surveyor charting a particular piece of real estate.

Go to the Mortgage Glossary at Mortgage Link to see the rest of the alphabet!

Ellen

Today’s Vocabulary Lesson

Qualifying Ratios: Guidelines used by lenders to determine how much of a loan a home buyer qualifies for. Often referred to as debt-to-income ratios (or DTI).

Real Estate Settlement Statement: Final settlement statement often referred to as the HUD-1 form, used to itemize buyer, seller, broker, and lender charges and credits at closing.

Realtor: A real estate broker or sales associate affiliated with the National Association of Realtors.

Recording Fee: The charges made by the register of deeds to record the legal documents.

Refinancing: Repaying a debt with the proceeds of a new loan, using the same property as collateral.

Go to the Mortgage Glossary at Mortgage Link to see the rest of the alphabet!

Ellen

Today’s Vocabulary Lesson

PITI: An acronym for payments to lender that cover principal, interest, taxes and insurance on a property.

Plat: A map of a piece of land showing boundary lines, streets, actual measurements and easements.

Point: A fee paid to the lender on closing day to increase the effective yield of the mortgage. A point is one percent of the amount of the mortgage loan. Also called a discount point.

Prepayment Penalty: A charge paid to the lender by the borrower if a mortgage loan is repaid before its term is over.

Pre-Approval: A commitment by a lender to extend credit provided that specific conditions are met.

Pre-Qualification: A preliminary assessment of a buyer’s ability to secure a loan, based on a specific set of lending guidelines and buyer representations made. This is not a guarantee or commitment by a lender to extend credit.

Prime Rate: The interest rate charged by banks to their preferred corporate customers, it tends to be an estimator for general trends in short term interest rates.

Principal: The amount borrowed or remaining unpaid; also, that part of the monthly payment that reduces the outstanding balance of a mortgage.

PMI (Private Mortgage Insurance): Insurance written by a private mortgage insurance company to protect the lender against losses caused by mortgage default. This is commonly required on loan transactions involving less than a 20% down payment or equity position.

Go to the Mortgage Glossary at Mortgage Link to see the rest of the alphabet!

Ellen

Today’s Vocabulary Lesson

Negative Amortization: A loan in which the outstanding principal balance goes up instead of down because the monthly payments are not large enough to cover the full amount of interest due. Also called deferred interest.

Offer to Purchase: A written proposal to buy a piece of real estate that becomes binding when accepted by the seller. Also called a sales contract.

Origination Fee: A fee charged for the work involved in the evaluation preparation and submission of a proposed mortgage loan.

Owner Financing: A purchase in which the seller provides all or part of the financing.

Go to the Mortgage Glossary at Mortgage Link to see the rest of the alphabet!

Ellen

Today’s Vocabulary Lesson

Market Value: The price at which a property will sell, assuming a knowledgeable buyer and seller, both operating without undue pressure.

Mortgage: A contract in which a borrower’s property is pledged as security for a loan which is to be repaid on an installment basis.

Mortgage Note: A written promise to pay a debt at a stated interest rate during a specified term. The agreement is secured by a mortgage.

Mortgagee: The lender in a mortgage contract.

Mortgagor: The borrower in a mortgage contract.

Go to the Mortgage Glossary at Mortgage Link to see the rest of the alphabet!

Ellen

Today’s Vocabulary Lesson

Income Property: Real estate that is owned for investment purposes and not used as the owner’s residence.

Interest: A charge paid for the use of money.

Interim Financing: See Bridge Loan.

(What?! No Js or Ks? If you know any J or K mortgage terms, send them to me!)

Land Contract: When the buyer agrees to make payments directly to the seller at pre-negotiated terms. The seller agrees to deed the property to the buyer upon completion of the agreement. The buyer becomes the owner of equity in this type of sale. (Also see Owner Financing.)

Lien: A legal claim on a property used as security for a debt.

Loan-To-Value Ratio: The relationship between the amount of the mortgage and property value, usually shown as a percentage.

Go to the Mortgage Glossary at Mortgage Link to see the rest of the alphabet!

Ellen

Today’s Vocabulary Lesson

Graduated Payment Mortgage: A fixed rate loan with monthly payments that start low, increasing by a fixed amount for a specific number of years. After that period, the payments typically remain constant for the duration of the loan.

Gross Income: Normal income, including overtime, prior to any payroll deductions, that is regular and dependable. This income may come from more than one source.

Hazard Insurance: Insurance protection against damage to a property from fire, windstorms, and other common hazards.

Homeowner’s Insurance: An insurance policy that covers the dwelling and its contents in case of fire or wind damage, theft, liability for property damage and personal liability.

HUD-1 Form: See Real Estate Settlement Statement.

Go to the Mortgage Glossary at Mortgage Link to see the rest of the alphabet!

Ellen