OakStar Bank Mortgage

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Amortization: repayment of a mortgage loan through monthly installments of principal and interest; the monthly payment amount is based on a schedule that will allow you to own your home at the end of a specific time period (for example, 15 or 30 years)

Annual Percentage Rate (APR): calculated by using a standard formula, the APR shows the cost of a loan, expressed as a yearly interest rate. The APR calculation includes interest, points, mortgage insurance, and other fees associated with the loan.

Appraisal: a document that gives an estimate of a property's fair market value. An appraisal is required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property.

Appraiser: a qualified individual who uses his or her knowledge in conjunction with recent market data to prepare the appraisal estimate.

ARM (Adjustable Rate Mortgage): a mortgage loan subject to changes in interest rates. When rates change, ARM monthly payments increase or decrease at intervals determined by the current interest rate and the caps defined by the lender at the time of your loan closing.

Assessor: a government official who is responsible for determining the value of a property for the purpose of taxation.

Assumable mortgage: a mortgage that can be transferred from a seller to a buyer. Once the loan is assumed by the buyer the seller is no longer responsible for repaying it; there may be a fee and/or a credit package involved in the transfer of an assumable mortgage.

Balloon Mortgage: a mortgage that typically offers low rates for an initial period of time (usually 5, 7, or 10) years. After that time period elapses, the balance is due or is refinanced by the borrower.

Cap: a limit, such as that placed on an adjustable rate mortgage, on how much a monthly payment or interest rate can increase or decrease at a specified period of time.

Cash reserves: a cash amount required to be held in reserve in addition to the down payment and closing costs. Cash reserves are determined by individual loan programs.

Closing: also known as settlement, is the time at which the property is formally sold and transferred from the seller to the buyer. It is at this time that the borrower accepts the loan obligation, pays all closing costs, and receives title from the seller.

Closing costs: cost involved in the processing and closing of your loan transaction. Closing costs are in addition to the sale price of the property. An estimate of these costs must be disclosed to the borrower within three business days of the loan application.

Condominium: a form of ownership in which individuals purchase and own a unit of housing in a multi-unit complex; the owner also shares financial responsibility for common areas.

Conventional loan: a private sector loan, one that is not guaranteed or insured by the U.S. government.

Credit report: a record that lists all past and present debts and the timeliness of their repayment; it documents an individual's credit history.

Credit bureau score: a number representing the possibility a borrower may default; it is based upon credit history and is used to determine ability to qualify for a mortgage loan.

Debt-to-income ratio: a comparison of gross income to housing and non-housing expenses. The maximum debt-to-income ratio is determined by individual loan programs.

Deed of Trust: the document you will sign at closing that pledges the subject property as collateral for the loan. This document will be recorded at the county court house as a public record.

Discount point: normally paid at closing and calculated to be equivalent to 1% of the total loan amount. Discount points are charged to reduce the interest rate on a loan.

Down payment: the portion of a home's purchase price that is paid in cash and is not part of the mortgage loan.

Earnest money: money put down by a potential buyer to show that he or she is committed to purchasing a specific home. The earnest money is paid at the time a contract to purchase property is accepted by both the seller and the buyer.

Equity: an owner's financial interest in a property; calculated by subtracting the amount still owed on the mortgage loan(s) from the fair market value of the property.

Escrow account: a separate account into which the lender places monthly mortgage insurance, hazard insurance and real estate taxes paid by the borrower in their monthly mortgage payment. This account is a place these funds are held until such time they are due and payable.

Fair Housing Act: a law that prohibits discrimination in all facets of the homebuying process on the basis of race, color, national origin, religion, sex, familial status, or disability.

Fannie Mae (FNMA): Federal National Mortgage Association; a federally-chartered enterprise owned by private stockholders that purchases residential mortgages and converts them into securities for sale to investors; by purchasing mortgages, Fannie Mae supplies funds that lenders may loan to potential homebuyers.

FHA: Federal Housing Administration; established in 1934 to advance homeownership opportunities for all Americans; assists homebuyers by providing mortgage insurance to lenders to cover most losses that may occur when a borrower defaults; this encourages lenders to make loans to borrowers who might not qualify for conventional mortgages.

Fixed-rate mortgage: a mortgage with payments that remain the same throughout the life of the loan because the interest rate and other terms are fixed and do not change.

Flood insurance: insurance that protects homeowners against losses from a flood; if a home is located in a flood plain, the lender will require flood insurance before approving a loan.

Foreclosure: a legal process in which mortgaged property is sold to pay the loan of the defaulting borrower.

Freddie Mac (FHLM): Federal Home Loan Mortgage Corporation; a federally-chartered corporation that purchases residential mortgages, securitizes them, and sells them to investors; this provides lenders with funds for new homebuyers.

Ginnie Mae (GNMA): Government National Mortgage Association; a government-owned corporation overseen by the U.S. Department of Housing and Urban Development, Ginnie Mae pools FHA-insured and VA-guaranteed loans to back securities for private investment; as With Fannie Mae and Freddie Mac, the investment income provides funding that may then be lent to eligible borrowers by lenders.

Good faith estimate: an estimate of all closing fees including pre-paid and escrow items as well as third party and lender charges. Federal law requires a Good Faith Estimate to be provided to the borrower within three days after submission of a loan application.

Home inspection: an examination of the structure and mechanical systems to determine a home's safety. This makes the potential homebuyer aware of any repairs that may be needed.

Home warranty: offers protection for mechanical systems and attached appliances against unexpected repairs not covered by homeowner's insurance; coverage extends over a specific time period and does not cover the home's structure.

Homeowner's insurance: an insurance policy that combines protection against damage to a dwelling and its contents with protection against claims of negligence or inappropriate action that result in someone's injury or property damage.

HUD: the U.S. Department of Housing and Urban Development; established in 1965, HUD works to create a decent home and suitable living environment for all Americans; it does this by addressing housing needs, improving and developing American communities, and enforcing fair housing laws.

HUD1 Statement: also known as the "settlement sheet", itemizes all closing costs involved with the transaction. The HUD1 Settlement Statement is prepared by the closing company and is explained to the buyer and seller at the time of closing.

Index: a measurement used by lenders to determine changes to the interest rate charged on an adjustable rate mortgage.

Inflation: created when the number of dollars in circulation exceeds the amount of goods and services available for purchase. Inflation results in a decrease in the dollar's value.

Judgment: a legal decision typically reflected on a borrower’s credit report. When requiring debt repayment, a judgment may include a property lien that secures the creditor's claim by providing a collateral source.

Lease purchase: assists buyers in purchasing a home by allowing them to lease a home with an option to buy. The rent payment is made up of the monthly rental payment plus an additional amount that is credited to an account for use as a down payment.

Lien: a legal claim against property that must be satisfied when the property is sold.

Loan fraud: purposely giving incorrect information on a loan application in order to better qualify for a loan. Loan fraud may result in civil liability or criminal penalties.

Loan-to-value (LTV) ratio: a percentage calculated by dividing the desired loan amount by the price or appraised value of the home to be purchased.

Lock-in: since interest rates can change frequently, lenders offer an interest rate lock-in that guarantees a specific interest rate if the loan is closed within a specific time.

Margin: an amount the lender adds to an index to determine the interest rate on an adjustable rate mortgage.

Mortgage: a lien on the property that secures the promise to repay a loan.

Mortgage insurance: a policy that protects lenders against losses that can occur when a borrower defaults on a mortgage loan. Mortgage insurance is required for borrowers with a down payment of less than 20% of the home's purchase price.

Origination: the process of preparing, submitting, and evaluating a loan application.

Origination fee: the charge for originating a loan. This fee is calculated in the form of points (% of loan amount) and paid at closing.

PITI: Principal, Interest, Taxes, and Insurance - the four elements of a monthly mortgage payment. Payments of principal and interest go directly towards repaying the loan while the portion that covers taxes and insurance goes into an escrow account to cover the fees when they are due.

PMI: Private Mortgage Insurance; privately-owned companies that offer standard and special affordable mortgage insurance programs for qualified borrowers with down payments of less than 20% of a purchase price.

Pre-approve: lender commits to lend to a potential borrower. Commitment remains as long as the borrower still meets the qualification requirements at the time of purchase.

Pre-qualify: a lender informally determines the maximum amount an individual is eligible to borrow. This is not a loan approval; a pre-qualification is subject to verification of income, assets, credit, and a satisfactory appraisal.

Prepayment: payment of the mortgage loan before the scheduled due date. Some loan programs may be subject to a prepayment penalty.

Principal: the amount borrowed from a lender and does not include interest or additional fees.

Real estate agent: an individual who is licensed to negotiate and arrange real estate sales.

Realtor: a real estate agent or broker who is a member of the NATIONAL ASSOCIATION OF REALTORS and its local and state associations.

Refinancing: paying off one loan by obtaining another. Refinancing is generally done to secure better loan terms (like a lower interest rate).

RESPA: Real Estate Settlement Procedures Act; a law protecting consumers from abuses during the residential real estate purchase and loan process by requiring lenders to disclose all settlement costs, practices, and relationships.

Settlement: another name for closing.

Subordinate: to place in a rank of lesser importance or to make one claim secondary to another.

Survey: a property diagram that indicates legal boundaries, easements, encroachments, rights of way, improvement locations, etc.

Sweat equity: using labor to build or improve a property as part of the down payment.

Title insurance: insurance that protects the homeowner and lender against any claims that arise from arguments about ownership of the property.

Title search: a check of public records to be sure that the seller is the recognized owner of the real estate and that there are no unsettled liens or other claims against the property.

Truth-in-Lending: a federal law obligating a lender to give full written disclosure of all fees, terms, and conditions associated with a loan.

Underwriting: the process of analyzing a loan application to determine the amount of risk involved in making the loan. This review is performed by an underwriter and will be used to determine if the loan is accepted or denied.

VA: Department of Veterans Affairs: a federal agency which guarantees loans made to veterans. Similar to mortgage insurance, a loan guarantee protects lenders against loss that may result from a borrower default.

Warranty Deed: the document that transfers ownership of a property.