FHA Loan and Mortgage Glossary - Terms Beginning with 'A'
A Credit: This is the highest credit rating a person can have. A person can achieve A Credit by never making late payments, not keeping high balances on their accounts and not opening too many revolving charge accounts. A Credit will help a borrower get a lower interest rate and better terms on their mortgage loan.
Acceleration Clause: This is a term of a mortgage loan where the lender can call for the borrower to pay back the entire amount of the loan immediately if the borrower defaults or stops making payments on the loan.
Accrued Interest: This is the type of interest that builds up because it is owed to the lender, but not being paid yet by the borrower. Some mortgage loans offer a no payment period where the borrower does not have to make payments for the first month or two, and during this time the interest that is adding up for the loan is just accrued, or added to the total amount owed for the loan.
Adjustable Rate Mortgages (ARMs): This is a type of mortgage loan which allows the borrower to pay a lower interest rate for a set period of time, usually three years, and then once that fixed period is over the interest rate steadily increases over time. ARMs are good for people who do not plan to live in the home long or who plan to refinance before their fixed term is up.
Adjustment Interval: This is the amount of time that is allowed from one increase in the mortgage loan interest rate to the next increase in interest rate. Many ARMs have terms that specify exactly how much the lender is allowed to raise the rate in a certain interval of time. The mortgage may state that they can only raise the interest rate ½ % every six months, so six months is the adjustment interval.
Aggregate Adjustment: This is the amount of money that is secured by the lender in an escrow account that is paid by the borrower at the closing of a loan. This money is a reserve for homeowners insurance and property taxes. Some mortgage lenders require this and some do not.
Agreement of Sale: Also called a purchase agreement, this is the contract that the buyer and seller of a property sign which lists the terms of the sale and the price the home will be purchased for. At this time the buyer usually puts down a earnest money deposit and begins the process of appraisal and home inspection.
Alternative Documentation: Income verification that is done through pay check stubs, bank statements, or W-2 forms rather than income tax returns.
Amortization: The amortization of a loan is the payment schedule. At the beginning of the loan you are paying more interest and less principal of the loan, and at the end this is reversed. The payment schedule to pay off the loan over the period of time that makes up the term of the loan is the amortization.
Annual Percentage Rate: Also called APR, this is the interest rate that includes the principal balance of your loan plus any closing costs, fees, finance charges, points, or mortgage insurance. If you finance any of these things into your loan then your APR is calculated including all of these costs.
Application: The initial form a borrower must fill out to apply for a loan. Potential borrowers need to give their personal and financial information to the lender to determine if they qualify for a home loan through the application process.
Application Fee: The fee associated with applying for a loan. Some lenders require this fee, and some lenders, like the VA and FHA do not allow a charge for applying for a loan.
Appraisal: The written estimate of market value price of a home. An appraisal compares a home with other homes that are of similar size and have similar attributes that have sold in the area recently. Then the appraisal is generated to estimate the value of the home.
Appraiser: The licensed person that will tour the home, collect the information on the home and others in the area that are similar, and generate the appraisal.
Assignment: the transfer of property from one person to another. When property is transferred between owners the property is assigned to the new owner.
Assignment Recording Fee: This is a fee that is paid to the county and the company that records the transfer of ownership of a property.
Assumption: This is when a buyer takes over the existing loan on a home rather that applying for a new loan. This is done when the existing loan on the house has more favorable terms and a lower interest rate than the buyer can get with the current market rates. The terms of the current loan also have to allow for assumption.