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A Comprehensive Glossary Of Mortgage Terms, in alphabetical order.
Abstract of Title: A written history of all the transactions related to the title for a specific tract of land. An abstract of title covers the period from the original source of the title (often the original land grant from the United States government to an individual) to the present time and summarizes all subsequent documents that have been recorded against that tract.
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.
Acceptance: A buyer’s or seller’s agreement to enter into a contract and be bound by the terms of the offer.
Account Termination Fee: A fee that may be charged if you pay in full and terminate your home equity line of credit during the first 5 years. Paying down to a zero balance does not count as termination.
Automatic Clearing House (ACH): An electronic system that debits an authorized bank account and electronically transfers funds scheduled for remittance.
Acquisition Costs: Costs of acquiring property other than the purchase price, for example, attorney fees, title insurance, and lender's fees.
Addendum: An agreement or list added to a contract, agreement, or another document. FHA and VA loans require an addendum be added to a sales contract (the offer) if it is written before the appraisal is done.
Additional Principal Payment: A payment made by a borrower of more than the scheduled principal amount due in order to reduce the outstanding balance on the loan, to save on interest over the life of the loan and/or pay off the loan early.
Adjustable-Rate Mortgage (ARM): A mortgage in which your interest rate and monthly payments may change periodically during the life of the loan, based on the fluctuation of an index. Lenders may charge a lower interest rate for the initial period of the loan. Most ARMs have a rate cap that limits the amount the interest rate can change, both in an adjustment period and over the life of the loan. Also called a variable-rate mortgage.
Adjusted Basis: The cost of a property plus the value of any capital expenditures for improvements to the property minus any depreciation was taken.
Adjusted Gross Income: A person's total income, as reported on his or her IRS 1040 tax return form, after allowable contributions, deductions, and expenses.
Adjustment Cap: A limit to how much a variable interest rate can increase or decrease in a single adjustment period.
Adjustment Date: The date that the interest rate changes on an adjustable rate mortgage (ARM).
Adjustment Interval: On an adjustable rate mortgage the time between changes in the interest rate and/or monthly payment typically one three or five years depending on the index.
Adjustment Period: The period elapsing between adjustment dates for an adjustable rate mortgage (ARM).
Affiliates: Companies related by common ownership or control.
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.
Agreement/ Offer: An agreement between a buyer and seller of a property that states the price and terms of the sale. Also known as a "purchase contract."
Agricultural Property: Unimproved property available for farming activities.
Alimony: Periodic payments made under a divorce decree or a written separation agreement toward the support of a former spouse.
American Land Title Association (ALTA): A national association of title insurance companies, abstractors, and attorneys specializing in real property law. The association speaks for the title insurance and abstracting industry and establishes standard procedures and title policy forms.
Amortization: Loan payment divided into equal periodic payments calculated to pay off the debt at the end of a fixed period including accrued interest on the outstanding balance.
Amortization Table or Schedule: A timetable or schedule that gives you a breakdown of your monthly payments into principal and interest. You can use this schedule to figure out the amount of principal you’ll be repaying during your mortgage term.
Amortization Term: The length of time required to amortize the mortgage loan expressed as a number of months. For example, 360 months is the amortization term for a 30-year fixed rate mortgage.
Annual Adjustment Cap: A limit on how much the variable interest rate on a loan can increase or decrease each year.
Annual Percentage Rate (APR): The measurement of the full cost of a loan including interest and loan fees expressed as a yearly percentage rate. Because all lenders apply the same rules in calculating the annual percentage rate it provides consumers with a good basis for comparing the cost of different loans.
Applicant: A prospective borrower who has completed an application.
Application: A collection of data a customer provides (verbally, electronically, or in a printed form) to a mortgage lender that includes required information to begin the home loan process.
Application Fees: Nonrefundable fees paid when you apply for your loan. These fees may include charges for items such as, for example, a credit profile or a property appraisal.
Appraisal: A report that states an estimate or an opinion of the property value as determined by a qualified person known as an appraiser. The term also refers to the process for obtaining the estimate.
Appraisal Contingency: A contingency in a sales contract that the property must appraise at a value that is equal to or greater than your offering price.
Appraisal or Appraised Value: An informed estimate of the value of a property. When made in connection with an application for a loan secured by a home, a professional appraiser usually performs the appraisal.
Appraiser: A person qualified to estimate the value of real estate and personal property.
Appreciation: An increase in the value of property due to a positive improvement to the property or to real estate in the area. Commonly used to describe an increase in value through inflation.
Approved Term (After Approval): The number of months that it will take to pay off your loan. The approved term is used to determine the payment amount, repayment schedule and total interest paid over the life of the loan.
Approved Term (Before Approval): The number of months that it will take to pay off your loan. The approved term is used to determine the payment amount, repayment schedule and total interest paid over the life of the loan.
Arm's-Length Transaction: Legal slang meaning that there existed no special relationship between the parties involved in a transaction which would contaminate the result.
as Separate Property: Ownership in real property that is to be specifically excluded from community property.
Assessed Value: The value of a property, established by a public tax assessor. The assessed value is used to determine property taxes.
Assessment: A tax/charge against a property representing the homeowner's share of the cost for new projects and improvements in an area, including sidewalks, speed bumps, public utilities, or other special projects.
Assignment: The method of transferring a right or contract, such as the terms of a loan, from one person to another.
Assumability: An assumable mortgage can be transferred from the seller to the new buyer. Generally requires a credit review of the new borrower and lenders may charge a fee for the assumption. If a mortgage contains a due on sale clause it may not be assumed by a new buyer.
Assumable Loan: A loan that may be transferred to someone else while maintaining the same terms. For example, if you have an assumable loan (not all loans are assumable) and you sell your home, you may be able to transfer that loan to the new owner with no change in the interest rate and repayment schedule, though you may need to pay a fee in order to do so.
Assumption: The agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller. Assuming a loan can usually save the buyer money since this is an existing mortgage debt, unlike a new mortgage where closing cost and new probably higher market rate interest charges will apply.
Assumption Fee: The fee paid to a lender (usually by the purchaser of real property) when an assumption takes place.
Attorney Fee: A fee charged by a real estate lawyer for title research, contract review, and other services.
Automated Underwriting: The electronic review of a mortgage application for loan approval.
Balance Sheet: A dated financial statement (in table form) that shows your assets, liabilities and net worth.
Balloon Mortgage: A loan which is amortized over a longer period than the term of the loan. Usually, this refers to a thirty-year amortization and a five or seven-year term. At the end of the term of the loan, the remaining outstanding principal on the loan is due. This final payment is known as a balloon payment.
Balloon Payment: The final lump sum paid at the maturity date of a balloon mortgage.
Bankruptcy: A legal proceeding in which a borrower who owes more than his or her assets may be discharged from repaying his or her debts. Although this may affect a borrower's personal liability for a mortgage debt, it would not affect the mortgage lien.
Base Rate: An interest rate that is used as a benchmark, or index, for pricing variable-rate loans such as adjustable-rate mortgages, auto loans, and credit cards.
Basis Point: An amount equal to 1/100th of a percentage point. For example, a fee calculated as 50 basis points of $200,000 would be 0.50% or $1,000.
Biweekly Mortgage: A plan to reduce the debt every two weeks (instead of the standard monthly payment schedule). The 26 (or possibly 27) biweekly payments are each equal to one half of the monthly payment required if the loan were a standard 30-year fixed rate mortgage. The result for the borrower is a substantial saving in interest.
Blanket Mortgage: A mortgage covering at least two pieces of real estate as security for the same mortgage.
Bond: An interest-bearing certificate of debt with a maturity date. A real estate bond is a written obligation that is usually secured by a mortgage or a deed of trust.
Borrower (Mortgagor): One who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan in full.
Borrower Paid Mortgage Insurance (BPMI): Insurance in which the cost of the mortgage insurance is added to the monthly mortgage payment. Borrowers have the right to request a cancellation of BPMI when the loan-to-value ratio reaches 80% of the original value. When the loan-to-value ratio reaches 78% of the original value, BPMI will be automatically terminated.
Break Even Point: The point at which a revenue or gain is equal to total expenses.
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."
Broker: An individual in the business of assisting in arranging funding or negotiating contracts for a client but who does not loan the money himself. Brokers usually charge a fee or receive a commission for their services.
Broker Fees: Fees charged by a real estate broker or a mortgage broker for providing assistance in a real estate transaction.
Buydown: 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.
Call Option: A provision in a loan that gives the lender the right to accelerate the debt and require full payment of the loan immediately at the end of a specified period or for a specified reason.
Caps (Interest): Consumer safeguards which limit the amount of change to the interest rate for an adjustable rate mortgage.
Caps (Payment): Consumer safeguards which limit the amount of change to the monthly payments for an adjustable rate mortgage.
Cash Available for Closing: Borrower funds that are available to cover down payment and closing costs. If lending guidelines require the borrower to have cash reserves at the time the loan closes or that the down payment come from specified sources, the borrower’s cash available for closing does not include cash reserves or money from those specified sources.
Cash Flow: The amount of cash derived over a certain period of time from an income producing property. The cash flow should be large enough to pay the expenses of the income producing property (mortgage payment maintenance utilities etc...).
Cash Reserve: Cash that a borrower will have after the loan closing. Cash reserves may be required as part of the loan process, so the borrower has financial flexibility after the closing.
Cash to Close: Cash the borrower will use to pay the closing costs for getting a mortgage.
Cash-Out Refinancing: When a portion of the equity from a home refinance is converted to funds for the borrower to use.
Ceiling Rate: The maximum interest rate that can accrue on a variable rate loan or adjustable-rate mortgage (ARM).
Certificate of Eligibility: The document given to qualified veterans which entitles them to VA guaranteed loans for homes business and mobile homes. Certificates of eligibility may be obtained by sending form DADA (Separation Paper) to the local VA office with VA form 1880 (Request for Certificate of Eligibility).
Certificate of Occupancy: Written authorization given by a local municipality that allows a newly completed or substantially renovated structure to be lived in.
Certificate of Reasonable Value (CRV): An appraisal issued by the Veterans Administration showing the property's current market value.
Certificate of Title: A statement provided by an abstract company, title company or attorney stating who holds title to real estate based on the public record.
Certificate of Veteran Status: The 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.
Chain of Title: The history of all of the documents affecting title to a parcel of real property, starting with the earliest existing document and ending with the most recent.
Change Frequency: The frequency (in months) of payment and/or interest rate changes in an adjustable rate mortgage (ARM).
Changed Circumstance: A situation that requires the lender to provide a revised Loan Estimate or Closing Disclosure before closing, that describes any changes in fees or other loan terms.
Clear Title: Titles that are marketable and are free of liens or disputed legal questions as to ownership of the property.
Closing: The meeting between the buyer-seller and lender or their agents where the property and funds legally change hands also called settlement. Closing costs usually include an origination fee discount points appraisal fee title search and insurance survey taxes deed recording fee credit report charge and other costs assessed at settlement. The cost of closing usually is about 3 percent to 6 percent of the mortgage amount.
Closing Agent/ Settlement Agent: Usually an attorney or title agency representative who oversees the loan closing and witnesses signing of the closing documents.
Closing Costs: Expenses over and above the price of the property that are incurred by buyers and sellers when transferring ownership of a property. Closing costs normally include an origination fee property taxes charges for title insurance and escrow costs appraisal fees etc. Closing costs will vary according to the area country and the lenders used.
Closing Date: The date your loan is finalized.
Closing Disclosure (CD): A closing document which provides key information such as interest rate, monthly payments, and costs to close the loan. Consumers are required to receive this form no later than 3 business days before they close on the loan.
Closing Statement: A form used at closing that gives an account of the funds received and paid at the closing, including the sales price, closing costs, escrow deposits for taxes, hazard insurance, and mortgage insurance.
Co-Borrower(s): Additional named borrower(s) whose income contributes to qualifying for a loan and who is equally obligated to repay the principal balance with interest.
Co-Signer: A second person who signs your loan and assumes equal responsibility for payment of the loan but receives no benefit from the loan proceeds.
Cobra (Consolidated Omnibus Budget Reconciliation Act): Requires employers with more than 20 employees to make group health care coverage available for 18 months, at the employee’s expense, to employees who leave the employer for any reason other than gross misconduct.
Coinsurance: A sharing of insurance risk between the insurer and the insured. Coinsurance depends on the relationship between the amount of the policy and a specified percentage of the actual value of the property insured at the time of the loss.
Collateral: Property used to help secure a home loan, such as the home itself. If the loan isn't repaid by the borrower, the lender can take possession of the home.
Collection: The process used by mortgage servicing companies to bring a past-due mortgage current and to file foreclosure notices, if necessary.
Combination Loan: A combination loan pairs a conforming first mortgage with a home equity second mortgage for up to 80% of the property's value in a single application with 1 down payment. Combination loans may help you avoid the higher rates of a jumbo first mortgage. Combination loans are made up of 3 parts: 70% first mortgage, 10% home equity second mortgage and 20% down payment.
Combined Liens: The outstanding balance of all mortgages held on a property. Used to determine the total available equity when considering the appraised value of the property less total combined or outstanding liens.
Combined Loan-To-Value Ratio (CLTV): The combined loan-to-value (CLTV) ratio is calculated when financing a home with a first mortgage and a home equity line of credit. For example, if your first mortgage is 70% of your home's value and your home equity line of credit is 10% of your home's value, your CLTV ratio is 80%.
Commitment (Loan): A binding pledge made by the lender to the borrower to make a loan, at certain (or maximum) loan terms within a given period of time for a given purpose, subject to various stated conditions.
Commitment Letter: A lender's formal letter to a potential customer that states the terms and conditions under which the lender agrees to lend money to that customer.
Comparable Properties: Recently sold properties with similar characteristics that are used to help determine a fair market value of another property for sale.
Compensating Factors: Positive characteristics of a borrower's credit, employment, or savings history which may be used to offset high debt-to-income ratios in the underwriting process.
Compound Interest: Interest paid on the principal balance and on the accrued and unpaid interest.
Concession: A discount or incentive a seller gives to a prospective buyer to encourage him or her to purchase a property.
Conforming Loan: A mortgage that conforms to the guidelines set by the Federal National Mortgage Association (also known as "Fannie Mae") or the Federal Home Loan Mortgage Corporation (also know as "Freddie Mac"). These mortgages are eligible for sale and delivery to these government-sponsored organizations.
Construction Loan: A short-term interim loan to pay for the construction of buildings or homes. These are usually designed to provide periodic disbursements to the builder as he or she progresses.
Consumer Reporting Agency (Or Bureau): An organization that handles the preparation of reports used by lenders to determine a potential borrower's credit history. The agency gets data for these reports from a credit repository and other sources.
Contingency: A specified condition in a sales contract that must be satisfied before the home sale can occur. When buying a home, the 2 most common contingencies are that the house must pass inspection and that the borrower must be approved for a loan.
Contract Sale or Deed: A contract between a purchaser and a seller of real estate to convey title after certain conditions have been met. It is a form of installment sale.
Conventional Loan: A mortgage not insured by FHA or guaranteed by VA.
Conventional Mortgage: A conventional mortgage is any mortgage loan that is not insured or guaranteed by the government (such as under Federal Housing Administration, Department of Veterans Affairs, or Department of Agriculture loan programs).
Conversion Clause: A provision in an ARM allowing the loan to be converted to a fixed-rate at some point during the term. Usually, conversion is allowed at the end of the first adjustment period. The conversion feature may cost extra.
Convertible Arm: An adjustable-rate mortgage that can be converted to a fixed-rate mortgage under specified conditions.
Convey: To transfer or deliver title to property from one to another by deed or contract. When an item becomes a part of the transfer of title, it is conveyed with the property.
Cooperative: A building of two or more dwelling units that is owned by a corporation made up of people in the building. The right to occupy a unit is obtained by buying shares of stock in the corporation and signing an occupancy agreement known as a "proprietary lease".
Cost of Funds Index (COFI): An adjustable-rate mortgage with a rate that adjusts based on a cost-of-funds index often the 11th District Cost of Funds.
Covenant: A clause in a contract that, if violated, can result in legal action.
Credit Bureau: An organization that gathers, records, updates and stores financial and public records of individuals who have been granted credit and provides this information to lenders and other authorized users for a fee. The 3 major credit bureaus are Equifax, Experian, and TransUnion and you are legally entitled to receive 1 free report each year from each of these agencies.
Credit Limit: The maximum amount a customer is approved to borrow for a home equity line of credit.
Credit Monitoring Service: A service that offers the benefit of early detection of unauthorized activity in order to limit the amount of financial damage that a person may suffer at the hands of an identity thief.
Credit Report: A report documenting the credit history and current status of a borrower's credit standing.
Credit Reporting: The process of sharing your credit activity to one of the three credit reporting agencies.
Credit Reporting Agency: An agency that collects information about your credit accounts and uses it to produce your credit report and calculate your credit score.
Credit Risk: The likelihood that a borrower will pay their obligations as agreed. Borrowers who pay as agreed pose less credit risk to lenders.
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 to the credit underwriting process for a mortgage loan.
Credit Score: A number that rates the quality of an individual’s credit. The number helps predict the relative likelihood that a person will repay a credit obligation, such as a mortgage loan. In general, the higher your credit score, the more likely you are to be approved for and to pay a lower interest rate on a loan.
Creditor: A person or business from whom you borrow or to whom you owe money.
Creditworthiness: The likely ability of a borrower to repay debt.
Cumulative Interest: Total interest accrued.
Curtailment: A payment that reduces the principal balance of a loan.
De Minimis Pud: A Planned Unit Development (PUD) in which the common property has less than a 2% influence on the value of the premises. The 2% rule of thumb is calculated by dividing the dollar amount of amenities by the total number of units.
Debt Consolidation: A single loan to pay off multiple debts, usually over a longer term. This is a popular use for a home equity line of credit.
Debt-To-Income Ratio (DTI): 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.
Deed: A legal document that conveys ownership of a property.
Deed (Warranty or Quit-Claim): A document that legally transfers ownership of real estate from a seller to a buyer and delivered to the buyer at closing. Before making a loan, a lender will usually require a title search or a title report to make sure the borrower legally owns the real estate that is being used to secure the loan.
Deed of Trust: In many states, this document is used in place of a mortgage to secure the payment of a note.
Default: Failure to meet legal obligations in a contract specifically failure to make the monthly payments on a mortgage.
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.
Delinquency: Failure to make payments on time. This can lead to foreclosure.
Department of Housing and Urban Development (HUD): A government agency that implements and administers housing and urban development programs.
Department of Veterans Affairs (VA): An independent agency of the federal government which guarantees long-term low-or-no-down payment mortgages to eligible veterans.
Deposit: A sum of money a buyer provides to show good faith when offering to buy a home.
Depreciation: The decrease in property value caused by age, physical deterioration, or other factors.
Disclosure: Important information relevant to a specific product or transaction.
Discount Points: What a buyer or seller pays at closing to reduce the interest rate on the mortgage.
Discounted Loan: When the interest rate on a loan is less than the market rate, it is a discounted loan. However, the lender requires additional discount points to raise the yield or return on the loan to the market rate.
Down Payment: Money paid to make up the difference between the purchase price and the mortgage amount.
Down Payment Assistance Program: Programs offered by various state, county, city, and governmental coalitions including non-profit organizations designed to help more families become homeowners by providing assistance with the cost of the down payment, closing costs, or in some cases both.
Draw: The process of obtaining an advance against your available line of credit.
Draw Period: The fixed period of time — for example, 10 or 15 years — when a customer can access money from a home equity line of credit.
Due-On-Sale Provision: A provision in a mortgage home loan that allows the lender to demand repayment in full if the borrower sells the property that serves as security for the loan.
Earnest Money: A deposit made for a down payment as a sign of good faith. The deposit is typically made when a purchase agreement is signed.
Encroachment: An improvement that illegally violates another's property or right to use that property.
Encumbrance: Any lien or liability attached to a property that affects or limits the title to that property, for example, unpaid taxes, mortgages, and leases.
End of Draw: This applies to home equity lines of credit. It is the point when you can no longer access funds from the line. Depending on the original terms, you may be required to repay the outstanding balance as a single lump-sum payment, or with fully amortized monthly payments that include principal and interest.
End of Term: For a balloon home equity line of credit or an existing balloon home equity loan, end of term refers to the date the outstanding balance becomes due in full.
Equal Credit Opportunity Act (ECOA): A federal law that requires lenders and other creditors to make credit 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 (appraised value) of your home and your outstanding mortgage balances and other liens.
Escrow: Funds deposited with a third party, to be held until a specific date is reached and/or a specific condition is met.
Escrow Account: An account held by a lender that's used to pay real estate taxes, homeowners insurance, other periodic debts against the property, and mortgage insurance (if applicable), on behalf of a customer. The lender collects a portion of these funds with each monthly mortgage payment the customer makes, and those funds are deposited into the escrow account.
Escrow: Agent A person or organization that ensures the terms of the loan transaction are carried out on behalf of all parties. Also referred to as an escrow company or escrow depository.
Escrow Analysis: The periodic examination of escrow accounts to determine if current monthly deposits will provide sufficient funds to pay taxes, insurance, and other bills when due.
Escrow Impound Account: Typically refers to an account set up by a lender in which funds to pay for real estate taxes and homeowners insurance are deposited as part of the borrower's monthly mortgage payment, then disbursed as tax and insurance payments come due.
Escrow Payment: The portion of a homeowner's monthly mortgage payment that is held by a lender or servicer to pay taxes and insurance, including mortgage insurance and hazard insurance, on your behalf.
Fair Credit Reporting Act (FCRA): This law requires consumer reporting agencies to exercise fairness, confidentiality, and accuracy in preparing and disclosing credit information.
Fair Market Value: The likely selling price of a home. The fair market value is usually determined by an appraisal.
Farmers Home Administration (FMHA): Provides financing to farmers and other qualified borrowers who are unable to obtain loans elsewhere.
Federal Home Loan Bank Board (FHLBB): The former name for the regulatory and supervisory agency for federally chartered savings institutions. The agency is now called the Office of Thrift Supervision
Federal Home Loan Mortgage Corporation(FHLMC) Also Called "Freddie Mac": A government sponsored entity that purchases conventional mortgage from insured depository institutions and HUD-approved mortgage bankers.
Federal Housing Administration (FHA): A division of the Department of Housing and Urban Development. Its main activity is the insuring of residential mortgage loans made by private lenders. FHA also sets standards for underwriting mortgages.
Federal National Mortgage Association (FNMA) Also Know as "Fannie Mae": A government sponsored entity that purchases and sells conventional residential mortgages as well as those insured by FHA or guaranteed by VA.
Fee Simple: Clear and absolute ownership of a piece of property. The fee simple owner of a property has the right to use the land in any way desired, for example: build on it, sell it or lease it.
FHA Loan: A loan insured by the Federal Housing Administration open to all qualified home purchasers. While there are limits to the size of FHA loans they are generous enough to handle moderately priced homes almost anywhere in the country.
FHA Mortgage Insurance: Requires a fee (up to 2.25 percent of the loan amount) paid at closing to ensure the loan with FHA. In addition, FHA mortgage insurance requires an annual fee of up to 0.5 percent of the current loan amount paid in monthly installments. The lower the down payment the more years the fee must be paid.
Finance Charge: The cost of consumer credit expressed as a dollar amount. It includes the amount of interest you will pay during the terms of the loan, origination points and certain other items. Some closing costs are not treated as finance charges.
Firm Commitment: A promise by FHA to insure a mortgage loan for a specified property and borrower. A promise from a lender to make a mortgage loan.
First Adjusted Payment: At the end of the initial fixed-rate period, the amount that's due each month on an adjustable-rate mortgage. Interest rate adjustments are based on a market index and may significantly increase or decrease the payment amount due.
First Mortgage: A mortgage that is the senior lien against a property.
Fixed Installment: The monthly payment due on a mortgage loan including payment of both principal and interest.
Fixed Rate Mortgage: The mortgage interest rate will remain the same on these mortgages throughout the term of the mortgage for the original borrower.
Fixed-Rate Option (Fixed-Rate Loan Option): An option available on certain home equity lines of credit allowing borrowers to fix the payments and interest rate on a portion of their outstanding principal balance for a specific term. Customers may be charged a fee for this privilege.
Floating Rate: A loan rate for which the lender has not "locked" or committed to lending at a particular interest rate. The floating interest rate and any discount points are not guaranteed. Your actual interest rate and discount points will be based on the market price available for your loan product at the time your interest rate is locked.
Flood Certification: A determination by a reputable source about whether a property is located within a special flood hazard zone.
Flood Insurance: Insurance that protects against loss due to floods. When available, this type of insurance is required by law when a property is located within a special flood hazard zone.
Forbearance: A period during which your monthly loan payments are temporarily suspended or reduced. You may qualify for forbearance if you are willing but unable to make loan payments due to certain types of financial hardships. During forbearance, principal payments are postponed but interest continues to accrue.
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.
Forfeiture: The loss of money, property, rights or privileges due to a breach of legal obligation.
Form 1098: A legal tax form that reports the amount of interest and points paid during the previous year.
Fully Amortized Arm: An adjustable rate mortgage (ARM) with a monthly payment that is sufficient to amortize the remaining balance at the interest accrual rate over the amortization term.
Funding Date: The date on which the proceeds from a loan are available to or disbursed for the benefit of the borrowers.
Gift Letter: A written explanation, signed by the individual giving the gift, stating that money was given to a homebuyer as a gift without any obligation to repay it.
Ginnie Mae: Created in 1968 by an amendment to Title III of the National Housing Act (12 USC 1716 et seq.), this federal government corporation is a constituent part of the Department of Housing and Urban Development. Among other governmental functions, it guarantees securities backed by mortgages that are insured or guaranteed by other government agencies. Also called Government National Mortgage Association (GNMA).
Good Faith Estimate (GFE): For purchase and refinance applications taken before October 3, 2015, lenders must deliver or mail a Good Faith Estimate (GFE) to the customer within 3 business days of application. The GFE shows approximate costs the customer will pay at or before closing.
Government Loan: A loan that is insured by the Federal Housing Administration (FHA), guaranteed by the Department of Veterans Affairs (VA) or guaranteed by the Rural Housing Service (RHS). The insurance protects the lender (not the borrower) if a borrower defaults on the loan. This insurance enables a lender to provide loan options and benefits often not available through conventional financing.
Government National Mortgage Association (GNMA): Also known as "Ginnie Mae." Provides sources of funds for residential mortgages insured or guaranteed by FHA or VA.
Graduated Payment Mortgage (GPM): A type of flexible payment mortgage where the payments increase for a specified period of time and then level off. This type of mortgage has negative amortization built into it.
Gross Income: Total income before any expenses are deducted.
Gross Monthly Income: Total monthly income earned before tax and other deductions.
Growing Equity Mortgage (GEM): A fixed rate mortgage that provides scheduled payment increases over an established period of time. The increased amount of the monthly payment is applied directly toward reducing the remaining balance of the mortgage.
Guarantee Mortgage: A mortgage that is guaranteed by a third party.
Guaranty: A promise by one party to pay a debt or perform an obligation contracted by another if the original party fails to pay or perform according to a contract.
Hazard Insurance: A form of insurance in which the insurance company protects the insured from specified losses such as fire windstorm and the like.
High-Ratio Loan: A Mortgage loan with a loan-to-value higher than 80 percent. Calculated using the loan amount divided by the lower of the sales price or appraised value.
Home Equity Line of Credit: A form of revolving credit secured by a borrower's home. A borrower is approved for a specific credit limit and can draw on those funds up to the limit as needed during the draw period, making monthly payments as required according to the signed contract.
Home Equity Line of Credit (HELOC): A line of credit secured by the borrower's residence. The typical HELOC term is 30 years: a 10-year draw period followed by a 20-year repayment period. A HELOC is often used for home improvements, debt consolidation or other major expenses. In most cases, you can withdraw funds up to your available credit limit for the first 10 years (your draw period) using convenience checks, debit cards or money transfer via Online Banking.
Home Equity Loan: A loan secured by a customer's home. The customer receives the full loan amount upfront, then makes monthly payments as required by the loan terms.
Home Loan Processor: The team member who collects the mortgage application and supporting documents for review.
Home Mortgage Consultant: The team member who helps customers understand their home financing options.
Home Mortgage Disclosure Act (HMDA): Federal legislation that requires certain types of lenders to compile and disclose data on where and to whom their mortgage and home improvement loans are being made.
Home Valuation Code of Conduct (HVCC): The Home Valuation Code of Conduct establishes standards for solicitation, selection, compensation, conflicts of interest, and appraiser independence. It became effective May 1, 2009, for any mortgage that will be sold to Fannie Mae or Freddie Mac; Federal Housing Administration (FHA) and Federal Home Loan Bank (FHLB) mortgages are not covered in the agreement.
Homeowner's Insurance Policy: A multiple-peril insurance policy available to owners of private dwellings that covers the dwelling and its contents, as well as personal liability.
Homeowners Association Dues: Fees a homeowner is required to pay to a condominium or homeowners association for maintenance of common areas.
Homeowners Insurance: An insurance policy that protects the property against losses, combining liability coverage and hazard insurance.
Housing and Economic Recovery Act (HERA): Federal legislation enacted in 2008 to address the subprime mortgage crisis. It was intended to restore confidence in Fannie Mae and Freddie Mac by strengthening regulations and injecting capital into the two large U.S. suppliers of mortgage funding.
Housing Expense Ratio: The ratio comparing housing expenses to before-tax income that's used by lenders to qualify customers for a mortgage.
Housing Expenses-To-Income Ratio: The ratio expressed as a percentage which results when a borrower's housing expenses are divided by his/ her gross monthly income.
HUD: An acronym for the U.S. Department of Housing and Urban Development. HUD is a government agency responsible for the implementation and administration of housing and urban development programs. Among other things, HUD administers the Federal Housing Administration, enforces RESPA regulations and oversees Fannie Mae and Freddie Mac.
HUD-1 Statement: A document that provides an itemized listing of the funds that are payable at closing. Items that appear on the statement include real estate commissions loan fees points and initial escrow amounts. Each item on the statement is represented by a separate number within a standardized numbering system. The totals at the bottom of the HUD-1 statement define the seller's net proceeds and the buyer's net payment at closing.
Impound: The 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 reserves.
Impounding: The collection and placement of monies by a lender into an account in order to pay the borrower’s property taxes and insurance premiums when they become due.
Income: Regular income from earnings, commissions, investments, rental payments or other sources.
Income Property: Real estate developed or improved to produce income.
Index: A published interest rate against which lenders measure the difference between the current interest rate on an adjustable rate mortgage and that earned by other investments (such as one three and five year U.S. Treasury security yields the monthly average interest rate on loans closed by savings and loan institutions and the monthly average costs-of-funds incurred by savings and loans) which is then used to adjust the interest rate on an adjustable mortgage up or down.
Indexed Rate: The sum of the published index plus the margin. For example, if the index is 4% and the margin is 2.75% the indexed rate would be 6.75%. Often lenders charge less than the indexed rate the first year of an adjustable rate mortgage.
Inflation Rate: An increase in the price of consumer goods, usually expressed as a percentage over a specific period of time.
Initial Advance: The process of obtaining an advance against available credit under your line of credit.
Initial Advance of $25,000 or More: The initial advance of $25,000 or more discount applies for drawing an initial advance of $25,000 or more, and maintaining at least that minimum balance for the first 3 full consecutive billing cycles.
Initial Draw Amount: The proceeds of the home equity line of credit or construction loan up to an amount the borrower is allowed to request at closing.
Initial Interest Rate: This refers to the original interest rate of the mortgage at the time of closing. This rate changes for an adjustable rate mortgage (ARM). It's also known as "start rate" or "teaser."
Initial Rate: The starting interest rate. Some people call this the “teaser rate,” because it gives you low interest and low monthly payments at the beginning, but may adjust up at the next adjustment period (it will usually adjust even if the index doesn’t go up, since it’s lower than index plus margin for the initial period).
Inquiry: A request for your credit report, made by you or a company considering you for an offer of credit.
Installment: The regular periodic payment that a borrower agrees to make to a lender.
Installment Loan: A loan that is repaid in equal payments, known as installments.
Insurance: A contract that provides compensation for specific losses in exchange for a periodic payment. An individual contract is known as an insurance policy, and the periodic payment is known as an insurance premium.
Insurance Binder: A document that states that insurance is temporarily in effect. Because the coverage will expire by a specified date, a permanent policy must be obtained before the expiration date.
Insured Mortgage: A mortgage that is protected by the Federal Housing Administration (FHA) or by private mortgage insurance (MI).
Interest: The fee charged for borrowing money.
Interest Accrual Rate: The percentage rate at which interest accrues on the mortgage. In most cases, it is also the rate used to calculate the monthly payments.
Interest Rate: The cost a customer pays to a lender for borrowing funds over a period of time expressed as a percentage rate of the loan amount.
Interest Rate Buydown Plan: An arrangement that allows the property seller to deposit money into an account. That money is then released each month to reduce the mortgagor's monthly payments during the early years of a mortgage.
Interest Rate Cap: A provision of an ARM limiting how much the interest rate may increase per adjustment period.
Interest Rate Ceiling: For an adjustable rate mortgage (ARM) the maximum interest rate as specified in the mortgage note.
Interest Rate Floor: For an adjustable rate mortgage (ARM) the minimum interest rate as specified in the mortgage note.
Interest Rate Range: The lowest to highest interest rates available for a particular loan or line of credit.
Interest-Only Loan: A loan for which you pay only the interest due for a portion of the loan term. This lowers your periodic payment but does not decrease your principal balance on the loan. Making interest-only payments will result in larger payments being due at the end of the interest-only payment period.
Interest-Only Payments: A type of payment available on certain loans that minimizes the amount you pay for a set period of time. The payment is applied only to interest, and the principal balance is not reduced. At the end of the interest-only period, the payments will adjust to include principal and interest resulting in a higher monthly payment.
Interim Financing: A construction loan made during completion of a building or a project. A permanent loan usually replaces this loan after completion.
Interim Interest: The interest accrued between the date a loan closes and the end of the month, which is paid at the time of closing.
Investment Property: Real estate property owned with the intent to earn income, either through rent, future resale, or both, and not intended for owner occupancy.
Investor: A money source for a lender.
Jumbo Loan: A loan which is larger than 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.
Joint Tenancy: A property owned by more than one person, each with equal rights and obligations.
Judgment: Final determination by a court of law regarding the rights and claims of the parties to a legal action.
Land Acquisition Loan: A loan made for the purpose of purchasing land only. This does not include improvements on or to the land.
Late Charge: The penalty a borrower must pay when a payment is made a stated number of days after the due date.
Lease-Purchase Mortgage Loan: An alternative financing option that allows low and moderate-income home buyers to lease a home with an option to buy. Each month's rent payment consists of principal interest taxes and insurance (PITI) payments on the first mortgage plus an extra amount that accumulates in a savings account for a down payment.
Lender Paid Mortgage Insurance (LPMI): Mortgage insurance with its cost included in the interest rate. Although the interest rate is slightly higher with LPMI, this option usually results in a lower monthly payment and a potential tax deduction. (Consult your tax advisor).
Liabilities: A person's financial obligations. Liabilities include long-term and short-term debt.
Liability coverage: Optional insurance designed to protect against expenses incurred due to property damage or injury occurring on the property.
Lien: A claim upon a piece of property for the payment or satisfaction of a debt or obligation.
Lien Holder: An individual or entity that has placed a lien on real property.
Lifetime Adjustment Cap: A limit on how much the variable interest rate can increase during the term of a loan.
Lifetime Cap: The limit on how much an interest rate can increase over the life of an adjustable-rate mortgage or variable-rate home equity line of credit.
Lifetime Payment Cap: For an adjustable rate mortgage (ARM) a limit on the amount that payments can increase or decrease over the life of the mortgage.
Lifetime Rate Cap: For an adjustable rate mortgage (ARM) a limit on the amount that the interest rate can increase or decrease over the life of the loan.
Limited Partnership: A form of business ownership that consists of one or more general partners who are fully liable, and one or more limited partners who are liable only for the amount of their investment.
Line of Credit: An agreement by a lender to extend credit up to a maximum amount for a specified time. In a home equity line of credit, the line of credit is secured by the borrower’s home.
Liquidity: The ability to readily convert assets or investments into cash.
Loan: A sum of borrowed money (principal) that is generally repaid with interest.
Loan Commitment: A formal notification from a lender stating that the borrower’s loan has been conditionally approved and specifying the terms under which the lender agrees to make the loan.
Loan Conditions: Terms under which a lender agrees to make a loan. They include the interest rate, number of years of the loan, and any requirements the borrower must meet before closing.
Loan Estimate: A document delivered or mailed to customers by a lender within 3 business days of the mortgage application. The Loan Estimate provides an estimate of closing costs and fees as well as the loan terms.
Loan Modification: An agreement to revise the terms of a mortgage, often used to help qualified customers bring their mortgage current or reduce their mortgage payment.
Loan Origination: The process by which a mortgage lender makes a home loan and records a mortgage against the borrower’s real property as security for repayment of the loan.
Loan Product: Describes the type of loan and includes fixed- or adjustable-rate (ARM) options; the loan term, which is the time you will spend repaying the loan; and whether the loan is insured by a government agency (such as the FHA or VA), or non-government loan.
Loan Purpose: Indicates whether the loan is intended for purchasing or refinancing real estate.
Loan-To-Value Ratio (LTV): The ratio between the unpaid principal amount of your loan, or your credit limit in the case of a line of credit, and the appraised value of your collateral. Expressed as a percentage. For example, if you have an $80,000 first mortgage on a property with an appraised value of $100,000, the LTV is 80% ($80,000 / $100,000 = 80%).
Lock: A lender's guarantee that the mortgage rate quoted will be good for a specific number of days from the day of application.
Lock Expiration Date: The date on which the interest rate lock-in period ends, allowing the interest rate to fluctuate with the market.
Lock Period: The amount of time prior to closing that you can secure an interest rate for your loan. Lock periods typically range from 30 days to more than 90 days. Generally, the longer the lock period, the more you pay in points or interest.
Lock-In Period: A set number of days during which the interest rate is secured and not subject to market fluctuation.
London Interbank Offered Rate (LIBOR): The rate at which banks in the foreign market lend dollars to one another. LIBOR varies by deposit maturity. A common interest rate index; one of the most valid barometers of the international cost of money.
Loss Payable Clause: An insurance policy provides for payment of a claim to someone, other than the insured, who holds an insurable interest in the insured property.
Manufactured Home: Factory-built or prefabricated housing, including mobile homes and modular homes.
Manufactured Housing: A structure that has been partially or entirely constructed at another location and moved onto the property (on a permanent foundation). A manufactured home may or may not be a mobile home.
Margin: The amount a lender adds to the index on an adjustable rate mortgage to establish the adjusted interest rate.
Market Price: The amount actually paid in current market conditions.
Market Rate: The estimated average interest rate that lenders charge for conventional loans.
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.
Maturity: The date on which the principal balance of a loan becomes due and payable.
Maturity Date: The date when a loan's final payment or loan balance must be paid in full. For a balloon home equity line of credit or an existing balloon home equity loan, the maturity date is when the outstanding balance becomes due in full.
Maximum Interest Rate/maximum Monthly Payment: The highest interest rate and monthly principal-and-interest payment amount allowed if the homeowner's adjustable interest rate increases at the scheduled adjustment dates.
Mobile Home: A factory-assembled residence consisting of one or more modules, built on a chassis and wheels, connected to utilities, designed without a permanent foundation, and intended for year-round living.
Modular House: A factory-assembled residence built in sections in a factory and then transported to a permanent site where it is constructed on a foundation. Excludes mobile homes.
Monthly Fixed Installment: The portion of the total monthly payment that is applied toward principal and interest. When a mortgage negatively amortizes the monthly fixed installment does not include any amount for principal reduction and doesn't cover all of the interest. The loan balance therefore increases instead of decreasing.
Monthly Payment: The amount of principal, interest, taxes, and insurance (PITI), if escrow is included in your loan payment, paid each month on a mortgage loan.
Mortgage: A legal document that pledges a property to the lender as security for payment of a debt.
Mortgage Banker: A company that originates mortgages for resale in the secondary mortgage market.
Mortgage Broker: An individual or company that charges a service fee to bring borrowers and lenders together for the purpose of loan origination.
Mortgage Commitment: An agreement between lender and borrower detailing the terms of a mortgage loan such as interest rate, loan type, term, and amount.
Mortgage Insurance: Money paid to ensure the mortgage when the down payment is less than 20 percent.
Mortgage Insurance Premium (MIP): The consideration a mortgagor (borrower) pays to either the FHA or a private insurer for mortgage insurance.
Mortgage Life Insurance: A type of term life insurance. In the event that the borrower dies while the policy is in force, the mortgage debt is automatically paid by insurance proceeds.
Mortgage Loan Originator: Someone who accepts a fee to take a mortgage loan application or to negotiate its terms.
Mortgage Note: A document signed by a customer that is an acknowledgment and agreement to repay a sum of money at a stated interest rate for a specific term. When the note is secured by a property, it is called a mortgage note.
Mortgage Type: Generally, there are three basic mortgage programs: Federal Housing Administration (FHA) loans, Department of Veterans Affairs (VA) loans and conventional mortgage loans. VA loans are only offered to qualifying veterans and surviving spouses, while FHA loans are available to all qualifying borrowers. Both VA and FHA loans are guaranteed/insured by the federal government. This insurance protects the lender (not the borrower) should the borrower default and the lender sustains a loss. Conventional loans are available to all qualifying borrowers and are not insured or guaranteed by the federal government.
Mortgagee: The lender.
Mortgagor: The borrower or homeowner.
Multi-Family Residence (2 to 4 Units): A residential property with 2 to 4 individual housing units (duplex, triplex or quadplex).
Nationwide Mortgage Licensing System and Registry (NMLSR): The Nationwide Mortgage Licensing System and Registry (NMLSR) is a repository developed and maintained by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators. The purpose of the NMLSR is to streamline the licensing process, improve supervision, and increase transparency in residential lending.
Negative Amortization: When your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan. The home buyer ends up owing more than the original amount of the loan.
Negative Points: A cash rebate paid by lenders to a mortgage broker or the borrower for a mortgage with an interest rate above the lender's par interest rate. A rebate credited to the borrower is typically used to defray loan settlement costs. The rebate may not exceed loan settlement costs, nor be used as part of the down payment.
Neighborhood Stabilization Program (NSP): A program funded by the Department of Housing and Urban Development (HUD) through the American Recovery and Reinvestment Act (ARRA) of 2009 and designed to provide funds to assist homebuyers in purchasing foreclosed residential properties in targeted areas for the purpose of stabilizing neighborhood property values.
Net Effective Income: The borrower's gross income minus federal income tax.
New Line Amount: The sum of the existing credit line and the amount of additional credit requested.
New Principal Balance: The recalculated loan amount in a loan modification agreement, which includes the original principal amount and may include previously unpaid interest charges or fees.
NMLSR ID: A number or other identifier that permanently identifies a registered residential loan originator. The Unique Identifier is assigned by protocols established by the Nationwide Mortgage Licensing System and Registry and other agencies. It also may be referred to as a Unique ID.
No Closing Cost Loan: A loan in which the borrower is not required to pay cash out-of-pocket at closing for the normal closing costs. The lender typically includes the closing costs on the principal balance or charges a higher interest rate than for a loan with closing costs to cover the advance of closing costs.
Non Assumption Clause: A statement in a mortgage contract forbidding the assumption of the mortgage without the prior approval of the lender.
Non-Conforming Loan: A conventional mortgage that is not eligible for sale and delivery to either Fannie Mae or Freddie Mac due to the loan amount, loan characteristics, underwriting guidelines, or other factors.
Nonowner Occupied: Properties in which the owner does not live.
Note: A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.
Note Rate: The interest rate stated in a mortgage note.
Notice of Default: A formal written notice to a borrower that a default has occurred and that legal action may be taken.
Office of Thrift Supervision (OTS): The regulatory and supervisory agency for federally chartered savings institutions. Formally known as Federal Home Loan Bank Board.
One Year Adjustable Rate Mortgage: Mortgage where the annual rate changes yearly. The rate is usually based on movements of a published index plus a specified margin chosen by the lender.
Option ARM: A type of adjustable-rate mortgage (ARM) that offers the borrower a choice of 4 monthly payment options to help provide financial flexibility to manage payments in rising rate markets and take advantage of falling interest rates.
Origination: The act of securing a completed mortgage application from a commercial or residential borrower and seeing that loan through to loan closing.
Origination Charge: An amount that includes all charges (other than discount points) that the lender will receive for originating the loan.
Origination Date: The date on which a loan is funded or disbursed.
Origination Fee: The fee charged by a lender to prepare loan documents make credit checks inspect and sometimes appraise a property; usually computed as a percentage of the face value of the loan.
Owner Financing: A property purchase transaction in which the party selling the property provides all or part of the financing.
Owner Occupancy: The use of a home as a full-time residence by the property owner.
Owner-Occupied: A property that the owner occupies as a principal residence.
Payment Cap: A limit on how much a monthly payment can increase at any one time. Some adjustable-rate mortgages have payment caps in addition to annual (or semi-annual) interest rate caps and lifetime interest rate caps. Payment caps don’t limit the amount of interest charged and may cause negative amortization.
Payment Change Date: The date when a new monthly payment amount takes effect on an adjustable rate mortgage (ARM) or a graduated-payment mortgage (GPM). Generally, the payment change date occurs in the month immediately after the adjustment date.
Payoff: The amount that will pay off a loan in full. In general, a borrower can pay off a loan more quickly by making larger or more principal payments than required. Borrowers should check their contract terms to determine if there are any early payoff fees or penalties.
Payoff Figures: The unpaid principal balance and escrow amounts to be used in calculating full payment of the mortgage or for the closing sale of the property.
Per Diem Interest: The amount of interest that accrues daily on a loan. This is calculated by multiplying the outstanding loan balance by the annual rate of interest, then dividing the result by 365.
Percentage Point: One percent of the loan or a measure of the interest rate.
Periodic Payment Cap: A limit on the amount that payments can increase or decrease during any one adjustment period.
Periodic Rate Cap: A limit on the amount that the interest rate can increase or decrease during any one adjustment period regardless of how high or low the index might be.
Permanent Loan: A long-term mortgage usually ten years or more. Also called an "end loan."
Personal Property: Usually considered to be the property that is moveable, as opposed to real property such as vacant or improved land.
PITI (Principal, Interest, Taxes, and Insurance): Principal, interest, taxes, and insurance are the most common components of a monthly mortgage payment.
Planned Unit Development (PUD): A comprehensive development plan for a large land area. A PUD usually includes residences, roads, schools, recreational facilities, and commercial, office, and industrial areas. A PUD may also be a subdivision with lots of areas owned in common and reserved for the use of some or all of the owners of the separately owned lots.
Plans and Specifications: Architectural and engineering drawings and specifications for construction of a building or project. They include a description of materials to be used and the manner in which they are to be applied.
Pledged Account Mortgage (PAM): Money is placed in a pledged savings account and this fund plus earned interest is gradually used to reduce mortgage payments.
Points: An amount paid to the lender, typically at closing, to lower (or buy down) the interest rate. One discount point equals one percentage point of the loan amount. For example, 2 points on a $100,000 mortgage would cost $2,000. Negative points indicate the amount to be credited at closing to reduce closing costs. Also called discount points or mortgage points.
Power of Attorney: A legal document authorizing one person to act on behalf of another.
Pre-approval: A preapproval letter indicates that you have been preapproved for a specified mortgage amount based on a preliminary review of your credit information.
Prearranged Refinancing Agreement: A formal or informal arrangement between a lender and a borrower where the lender agrees to offer special terms (such as a reduction in the rate or closing costs) for a future refinancing as an inducement for the borrower to enter into the original mortgage transaction.
Preliminary Title Report: The results of a title search by a title company prior to issuing a title binder or commitment to ensure clear title.
Prepaid Expenses: Necessary to create an escrow account or to adjust the seller's existing escrow account. Can include taxes hazard insurance private mortgage insurance and special assessments.
Prepaid Interest: Interest collected at the closing of a first mortgage, covering the period from the date of disbursement to the start of the next payment period.
Prepaids: That portion of your loan closing costs which must be collected at closing to cover taxes, interest, and insurance.
Prepayment: A privilege in a mortgage permitting the borrower to make payments in advance of their due date.
Prepayment Penalty: A penalty assessed by some lenders if a loan is paid off before the specified term. This is a lump-sum amount due and payable in addition to the loan balance and is usually limited to the early years of a mortgage.
Prequalification: The process of providing financial and other information (such as employment history and proposed collateral) by a prospective borrower in order for the lender to preliminarily estimate how much the borrower may obtain for the purchase of a home. A prequalification is not a commitment to lend.
Primary Mortgage Market: Lenders such as savings and loan associations commercial banks and mortgage companies who make mortgage loans directly to borrowers. These lenders sometimes sell their mortgages to the secondary mortgage markets such as FNMA or GNMA etc Interest Taxes and Insurance (PITI)The four components of a monthly mortgage payment. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the monthly cost of property taxes and homeowners insurance whether these amounts are paid into an escrow account each month or not.
Primary Residence: The residence that the borrower intends to occupy as their principal residence.
Prime Rate: The interest rate that banks charge their best customers when lending them money. The U.S. Prime Rate, as published daily by The Wall Street Journal, is based on a survey of the prime rates of the 10 largest banks in the United States. The U.S. Prime Rate is used by some financial institutions to calculate variable interest rates for credit cards. Changes in the U.S. Prime Rate influence changes in other rates, including mortgage interest rates.
Principal: The amount borrowed or the remaining unpaid balance of a loan excluding unpaid accrued interest; also refers to the portion of the monthly payment that reduces the outstanding balance of a loan.
Principal & Interest: The principal is the amount of money borrowed on a loan. The interest is the charge paid for borrowing money. Principal and interest account for the majority of your mortgage payment, which may also include escrow payments for property taxes, homeowners insurance, mortgage insurance and any other costs that are paid monthly, or fees that may come due.
Principal Balance: The remaining balance due on a debt, exclusive of accrued interest.
Principal Payment: The portion of a monthly payment that goes toward reducing the principal balance. Borrowers should strive to make additional principal payments whenever possible to pay down a loan balance faster and possibly reduce the amount of interest paid over the term of the 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.
Processing: The preparation of a mortgage loan application and supporting documentation for consideration by a lender or insurer.
Processing Fee: A fee charged to cover the administrative costs of processing a loan request.
Promissory Note: A written promise to repay a specified amount over a specified period of time.
Property Usage: Denotes whether a property is a first home, second home, vacation home or a rental property.
Purchase Contract (Agreement/ Offer): An agreement between a buyer and seller of real property, setting forth the price and terms of the sale. Also known as a "sales contract".
Qualifying Ratios: Calculations used to determine if a borrower can qualify for a mortgage. They consist of two separate calculations: a housing expense as a percent of income ratio and total debt obligations as a percent of income ratio.
Quitclaim Deed: A deed relinquishing all interest, title, or claim an owner has in a property. A quitclaim deed implies no warranty.
Rate: The amount of interest on a loan, expressed as a percentage.
Rate Cap: The maximum that an interest rate can change on a loan or line of credit.
Rate Lock: A commitment issued by a lender to a borrower or another mortgage originator guaranteeing a specified interest rate and lender costs for a specified period of time.
Rate Lock Expiration: A commitment issued by a lender to a borrower guaranteeing a specific interest rate for a specified period of time. Rate lock periods are for a fixed number of days, and rate lock expiration occurs when that period has passed, subjecting the interest rate on the loan to market fluctuations since the date of the initial rate lock. When a rate lock expires, you will need to contact your lending specialist to establish a new rate lock prior to closing your loan.
Rate Reduction Option: A provision in a fixed-rate mortgage that gives the borrower the option to reduce the interest rate at a later date without having to refinance. Exercising a rate reduction option typically does not require requalifying for the loan.
Real Assets: Real estate or real property owned by an individual or business.
Real Estate Agent: A person licensed to negotiate and transact the sale of real estate on behalf of the property owner.
Real Estate Owned (REO): A foreclosed property, also known as a Real Estate Owned (REO) property, is a home that was once customer owned but is now owned by a bank. A foreclosure can occur when mortgage payments are not made over a period of time and measures taken to help are not satisfied.
Real Estate Settlement Procedures Act (RESPA): A consumer protection law that, among other things, requires advance disclosure of settlement costs to home buyers and sellers, prohibits certain types of referral and other fees, sets rules for escrow accounts and requires notice to borrowers when servicing of a home loan is transferred.
Real Estate/ Property Taxes: Taxes assessed on real property, collected by a local government, and usually based on the property's value.
Real Property: Property that includes land and anything affixed to the land, such as buildings and leasehold improvements. It may also include whatever is beneath the land (e.g., minerals, natural gas) and rights to the use of the property.
Realtor: A real estate broker or an associate holding active membership in a local real estate board affiliated with the National Association of Realtors.
Reamortize: To take the remaining balance of a mortgage loan and establish a new period of amortization after which the principal balance will be zero. Typically used after the end of the term of an interest-only loan.
Recission: The cancellation of a contract. With respect to mortgage refinancing, the law that gives the homeowner three days to cancel a contract in some cases once it is signed if the transaction uses the equity in the home as security.
Recorder: A charge for a public official (typically a Registrar of Deeds or County Clerk) noting in the public record the terms of a legal document affecting title to real property such as a deed, a security instrument, a satisfaction of mortgage, or an extension of mortgage.
Recording: A charge for a public official (typically a Registrar of Deeds or County Clerk) noting in the public record the terms of a legal document affecting title to real property such as a deed, a security instrument, a satisfaction of mortgage, or an extension of mortgage.
Recording Fee: A charge for a public official (typically a Registrar of Deeds or County Clerk) noting in the public record the terms of a legal document affecting title to real property such as a deed, a security instrument, a satisfaction of mortgage, or an extension of mortgage.
Reduced Documentation: A method used to determine income when qualifying a borrower for a loan. Borrower(s) provide their income, however, no verification documentation is typically required.
Refinance: Paying off your existing loan with the proceeds from a new loan, generally using the same property as collateral, in order to take advantage of lower monthly payments, lower interest rates or save on financing costs.
Refinancing: The repayment of a debt from the proceeds of a new loan using the same property as security.
Rehabilitation Loan: A first mortgage that enables borrowers to purchase or refinance and rehabilitate homes. With this mortgage product, borrowers can qualify for loan amounts based on the as-completed value of the property, up to the maximum loan limits.
Reissue or Refinance Rate (For Title Insurance): A reissue or refinance rate is a reduced rate for title insurance that a homeowner may be eligible for on a refinance. The reduced rate may be applicable if the property was previously insured within a certain number of years.
Renegotiable Rate Mortgage: A loan in which the interest rate is adjusted periodically.
Repayment Period: For a standard home equity line of credit, the point at which a borrower must begin to make fully amortizing monthly payments, or principal-and-interest payments that will completely repay the outstanding balance during a certain period of time.
Rescission: The cancellation of a contract. In certain real estate-secured transactions that involve the refinance of a primary residence, applicants have 3 business days to cancel the transaction.
Rescission Period: Under federal law, certain loan transactions secured by your home are subject to a rescission, or cancellation, period. Following receipt of all required disclosures and consummation of the contract, each owner of the property has up to three full business days to cancel the transaction. The right to cancel does not apply to loans made to purchase, construct, or acquire a primary residence, or to transactions secured by a secondary residence, vacation home, or rental property.
Reserves: The amount of savings, separate from the down payment, that a homebuyer sets aside in case of unforeseen events or emergencies. During the loan approval process, many lenders require reserves (typically the equivalent of 2 monthly mortgage payments) to be verified.
Reverse Annuity Mortgage (RAM): A form of mortgage in which the lender makes periodic payments to the borrower using the borrower's equity in the home as collateral for and repayment of the loan.
Revolving Liability: A credit arrangement such as a credit card that allows a customer to borrow against a pre-approved line of credit when purchasing goods and services.
Revolving Line of Credit: A line of credit that gives the customer access to available funds during the specified draw period. As the customer repays the principal during the draw period, the funds (up to the credit limit) would be available to draw again.
The Right of First Refusal: A provision in an agreement that requires the owner of a property to give another party the first opportunity to purchase or lease the property before he or she offers it for sale or lease to others.
Rural Housing Loan: A loan offered by the Rural Housing Service (RHS), an agency within the Department of Agriculture. The RHS provides financing to farmers and other qualified borrowers buying property in rural areas who are unable to obtain loans elsewhere. Funds are borrowed from the U.S. Treasury.
Rural Housing Service (RHS): A loan offered by the Rural Housing Service (RHS), an agency within the Department of Agriculture. The RHS provides financing to farmers and other qualified borrowers buying property in rural areas who are unable to obtain loans elsewhere. Funds are borrowed from the U.S. Treasury.
Satisfaction of Mortgage: The document issued by the mortgagee when the mortgage loan is paid in full. Also called a "release of mortgage."
Second Home (Vacation Home, Weekend Home): A residence other than the customer's primary residence where the customer plans to live for a portion of each year. The residence must be fit to occupy year-round.
Second Mortgage: A mortgage that has rights that are subordinate to the rights of the first mortgage holder. Home equity loans are often referred to as second mortgages because the borrower typically is still paying off their home mortgage; if the home mortgage is paid off, the home equity loan is then considered to be the first mortgage.
Secondary Mortgage Market: The place where primary mortgage lenders sell the mortgages they make to obtain more funds to originate more new loans. It provides liquidity for the lenders.
Section 203(K) Loan Program: A 203(k) loan is a first mortgage that covers the costs of rehabilitation and purchase or refinances of an eligible property. The goals of Section 203(k) loan program are community and neighborhood revitalization and expanded opportunities for homeownership for low- and moderate-income families.
Secured Loans: Loans for which the borrower gives the lender a lien on a property such as an automobile, boat, other personal property or real estate that will serve as collateral for the loan.
Security: The property that will be pledged as collateral for a loan. If the borrower defaults, the lender can sell the collateral to satisfy the debt.
Security Instrument: Mortgage or Deed of Trust evidencing the pledge of real estate as collateral for the loan.
Security Interest: The interest of a creditor in the security acting as collateral for an investment.
Seller Carry Back: An agreement in which the owner of a property provides financing often in combination with an assumable mortgage.
Seller Contributions: Payment by the seller of some or all of the buyer's closing costs in a real estate transaction. Depending on the terms of your loan, the amount of seller contributions can be limited.
Servicer: An organization that collects principal and interest payments from borrowers and manages borrower escrow accounts. The servicer often services mortgages that have been purchased by an investor in the secondary mortgage market.
Servicing: All the steps and operations a lender performs to keep a loan in good standing such as collection of payments payment of taxes insurance property inspections and the like.
Servicing Released: A stipulation in the agreement for the sale of mortgages in which the seller is not responsible for loan administration.
Settlement: The completion of a property’s sale or purchase, or the completion of all steps necessary to receive the proceeds of (and create an obligation to repay) a loan.
Settlement Agent: A person or entity that conducts the settlement to transfer title of the property and to close on the mortgage loan. May be an attorney, a title insurer, a title agent, or an escrow agent.
Settlement Costs: Fees and charges associated with the closing of a mortgage loan, such as origination fees, discount points, or payments for title insurance, surveys, attorney services, and taxes.
Settlement Services: Services provided by the lender at the closing of a loan.
Settlement Sheet: The computation of costs payable at closing that determines the seller's net proceeds and the buyer's net payment.
Settlement Statement (HUD-1): For purchase and refinance applications taken before October 3, 2015, customers receive a HUD-1 Settlement Statement at closing that details the fees associated with closing the loan. Note: For new purchase and refinance applications taken on or after October 3, 2015, at closing customers will receive a Closing Disclosure detailing the terms and closing costs of the transaction.
Shared Appreciation Mortgage (SAM): A mortgage in which a borrower receives a below-market interest rate in return for which the lender (or another investor such as a family member or other partner) receives a portion of the future appreciation in the value of the property. May also apply to mortgage where the borrowers share the monthly principal and interest payments with another party in exchange for part of the appreciation.
Short Sale: A commonly used alternative to a foreclosure. If a homeowner can no longer afford to make mortgage payments and their home is worth less than they owe, a short sale allows them to sell the home to pay off the mortgage. In a short sale, the lender agrees to accept an amount less than is actually owed on the loan, based on a showing of financial hardship.
Simple Interest: Interest which is computed only on the principal balance.
Single-Family Residence: A detached individual housing unit. The property shares no common ground with neighboring properties and shares no wall or roof, but can be part of a planned unit development (PUD).
Site Value: The value of the land without improvements, as if vacant.
Standard Payment Calculation: The method used to determine the monthly payment required to repay the remaining balance of a mortgage in substantially equal installments over the remaining term of the mortgage at the current interest rate.
Start Rate: The starting interest rate for an adjustable-rate mortgage (ARM) loan or variable-rate home equity line of credit. Also known as an initial rate or intro rate. It provides lower interest and lower monthly payments at the beginning but may adjust at the next adjustment period.
Step Rate Mortgage: A mortgage that allows for the interest rate to increase according to a specified schedule (i.e. seven years) resulting in increased payments as well. At the end of the specified period, the rate and payments will remain constant for the remainder of the loan.
Subdivision: Improved or unimproved land divided into parcels for sale, lease, financing, or development.
Subordinate: To make subject or junior to. For example, a loan on vacant land is made subject to a subsequent construction loan. Also described as a Second Mortgage.
Subordinate Financing: Any mortgage or lien that has a priority lower than that of the first mortgage. The subordinate loan has a claim to payment in a foreclosure only after the first mortgage is paid.
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.
Sweat Equity: Equity created by a purchaser performing work on a property being purchased.
Tax Lien: A claim against property for unpaid taxes.
Tenancy: The use of real estate under any kind of right of title.
Term: The number of years it will take to pay off a loan. The loan term is used to determine the payment amount, repayment schedule and total interest paid over the life of the loan.
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.
Third-Party Fees: Fees charged for services rendered by parties other than the borrower or the lender. Such fees may include appraisal, credit report, title and flood certifications.
Title: A document that shows current ownership of a property, plus a history of previous owners.
Title Company: The agency that will investigate a property’s title (or deed) for discrepancies or undiscovered liens and that will issue title insurance to the lender after the title is deemed clear.
Title Insurance: A policy usually issued by a title insurance company which insures a home buyer against errors in the title search. The cost of the policy is usually a function of the value of the property and is often borne by the purchaser and/or seller. Policies are also available to protect the lender's interests.
Title Insurance: An insurance policy that protects a lender and/or homebuyer against any loss resulting from a title error or dispute.
Title Insurance: Insurance that protects an interested party, either the owner or the lender, against issues that would affect legal ownership of the property.
Title Insurance Policy: An insurance contract in which an agreement is made that the insurer, usually a title insurance company, agrees to pay the insured party for losses relating to claims against title.
Title Search: An examination of records used to determine the legal ownership of property and all liens and encumbrances on it. Usually performed by a title company or attorney.
Torrens Certificate: A certificate issued by a public authority called a registrar of titles, establishing the title of an indicated owner. Used when title to a property is registered under the Torrens system of land registration.
Total Expense Ratio: Total obligations as a percentage of gross monthly income including monthly housing expenses plus other monthly debts.
Transaction Fee: The fee that may be charged each time you draw on your credit line.
Transfer Tax: State or local tax payable when ownership of property passes from one owner to another.
Treasury Index: An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It is based on the results of auctions that the U.S. Treasury holds for its Treasury bills and securities or is derived from the U.S. Treasury’s daily yield curve, which is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market.
Trustee: A fiduciary that holds or controls property for the benefit of another.
Truth in Lending: A federal law requiring disclosure of the Annual Percentage Rate to home buyers shortly after they apply for the loan. Also known as Regulation Z.
Truth in Lending Act: A federal law requiring disclosure of credit terms using a standard format. This is intended to facilitate comparisons between the lending terms of different financial institutions.
Two Step Mortgage: A mortgage in which the borrower receives a-below-market interest rate for a specified number of years (most often seven or 10) and then receives a new interest rate adjusted (within certain limits) to market conditions at that time. The lender sometimes has the option to call the loan due within 30 days notice at the end of seven or 10 years. Also called "Super Seven" or "Premier" mortgage.
Underwriter: The team member who reviews the application, documentation, and property information before making a loan decision.
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.
Uniform Residential Loan Application (URLA): A document required for all mortgage applications that includes the customer's income, assets, and a description of the home.
Unsecured Lines of Credit: Typically used when referring to a loan or a line of credit (unsecured loan, unsecured line of credit) that is not backed by collateral.
Unsecured Loan: Typically used when referring to a loan or a line of credit (unsecured loan, unsecured line of credit) that is not backed by collateral.
Upfront Costs: The costs you must pay when applying for a loan. Typically these include loan application fees. Some lenders require some of your closing costs also be paid when you apply.
Upfront Mortgage Insurance Premium (UFMIP): An upfront mortgage insurance premium (UFMIP) is required for all FHA loans, and it is typically financed into the mortgage loan amount or paid by the customer in cash at closing.
Usury: Interest charged in excess of the legal rate established by law.
VA Mortgage Funding Fee: A premium of up to 1-7/ 8 percent (depending on the size of the down payment) paid on a fixed rate loan. On a $75000 fixed-rate mortgage with no down payment this would amount to $1406 either paid at closing or added to the amount financed.
Vacation Home: A vacation home is a single-family property that the borrower occupies in addition to his or her primary residence. The property cannot be considered income-producing and must not be part of a mandatory rental pool, but occasionally may be rented to friends and relatives. When property is classified as a second home, rental income may not be used to qualify the applicant. A 2- to 4-unit property is not eligible for second home status. Also known as second home.
Variable Rate: An interest rate that may fluctuate or change periodically, often in relation to an index such as the prime rate or other criteria. Payments may increase or decrease accordingly.
Variable-Rate Monthly Minimum Payment: The minimum amount you will need to pay each month on your home equity line of credit, or HELOC (does not include any payments for the Fixed- Rate Loan Payment Option). The payment amount includes both principal and interest (minimum of $100). The monthly required payment may vary each month and is based on your outstanding loan balance and fluctuating interest rate. In general, this payment is intended to repay your loan balance in substantially equal principal and interest installments over the remaining loan term, based on the balance and rate information at the time of each monthly calculation.
Verification of Deposit (VOD): A document signed by the borrower's financial institution verifying the status and balance of his/her financial accounts.
Verification of Employment (VOE): A document signed by the borrower's employer verifying his/her position and salary.
Veterans Administration (VA) Mortgage: A mortgage that provides flexible qualifying guidelines for eligible veterans and other eligible borrowers, which may include financing the VA funding fee and obtaining the loan with no down payment. Also, there is no mortgage insurance required.
W-2: A wage and tax statement provided by your employer annually. The W-2 form details your income and the various local and federal taxes withheld from your income. It is provided to the IRS along with your tax return.
Walk-Through: A final inspection shortly before settlement to make sure the property is in the same condition that it was at the time the offer contract was written.
Warehouse Fee: Many mortgage firms must borrow funds on a short-term basis in order to originate loans which are to be sold later in the secondary mortgage market (or to investors). When the prime rate of interest is higher on short-term loans than on mortgage loans the mortgage firm has an economic loss which is offset by charging a warehouse fee.
What-If Analysis: An affordability analysis that is based on a what-if scenario. A what-if analysis is useful if you do not have complete data or if you want to explore the effect of various changes to your income, liabilities, or available funds or to the qualifying ratios or down payment expenses that are used in the analysis.
Windstorm Insurance: This coverage is typically required in coastal areas and pays for property damage resulting from a windstorm. Like flood and earthquake coverage, windstorm insurance covers damage to the dwelling and, in some cases, personal property and living expenses if the dwelling is uninhabitable. Some states offer market assistance programs or joint underwriting associations to help homeowners find coverage in areas where coverage is scarce.
Wire Transfer: A transfer of money from one person’s bank to another person’s bank account, either domestically or internationally.
Wraparound Mortgage: Results when an existing assumable loan is combined with a new loan resulting in an interest rate somewhere between the old rate and the current market rate. The payments are made to a second lender or the previous homeowner who then forwards the payments to the first lender after taking the additional amount off the top.
Yield to Maturity: The lender's percentage of annual return on actual funds loaned, assuming that the loan will be paid in full at maturity.
Year-end Statement: The report shows how much was paid in interest during the year, as well as the remaining mortgage loan balance at the end of the year. If the bank has an impound account for you, it will also show how much was paid and reserved in property taxes. If the bank does not have a property tax impound account, then tax details are not displayed on the report.
Zero Point Option: An option allowing a borrower to pay a slightly higher loan interest rate instead of paying the loan origination points generally charged for the particular loan product.
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