Quick Find: A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

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.

 

Additional Borrowers

Borrowers who contribute income and credit history to the qualification process of a loan and whose names appear on all closing documents. Each additional borrower is equally liable for the debt and condition of the property.

 

Adjustable rate mortgage (ARM)

A mortgage in which the interest rate is adjusted periodically based on a preselected index. Also sometimes known as the re-negotiable rate mortgage, the variable rate mortgage or the Canadian rollover mortgage.

 

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.

 

Amortization

Means loan payment by equal periodic payment calculated to pay off the debt at the end of a fixed period, including accrued interest on the outstanding balance.

 

Amount Financed

The Amount Financed is not the amount of the loan. It is the requested loan amount minus the prepaid finance charge. The Amount Financed is the amount on which the APR is based. For example, if the borrower requests $100,000 and the Prepaid Finance Charge totals $4,000, the Amount Financed would be $96,000.

 

Annual percentage rate (A.P.R.)

The actual cost of a mortgage loan expressed as a yearly rate. The APR will be higher than the interest rate stated on the application and note if it includes fees which are categorized as pre-paid finance charges such as: interest, discount points, origination fee, required mortgage insurance and other related fees. The Truth in Lending Act requires lenders to disclose an APR to assist the borrower in measuring the actual cost of a loan on an annualized basis.

 

Application

A form used by mortgage lenders to document necessary information concerning the mortgage loan applicant(s).

 

 

Appraisal

An estimate of the value of property, made by a qualified professional called an "appraiser".

 

Appraised Value

An opinion or estimate of property value provided by a certified property appraiser. The estimate of value is generally obtained by comparing homes similar to the "subject" home that are within the same location or neighborhood.

 

Assessment

A local tax levied against a property for a specific purpose, such as a sewer or street lights.

 

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.

 

Available Cash

The amount of liquid assets (i.e. checking, savings, mutual funds, etc.) immediately available to pay closing costs and down payment.

 

Average Interest Rate

The actual average interest rate for a combination of debts based upon a total weighted interest rate calculation. Utilizing each loan balance and interest rate, the calculator determines an average interest rate for multiple debts.

 

 

Balloon (payment) mortgage

Usually a short-term fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a time specified in the contract.

Blanket Mortgage

A mortgage covering at least two pieces of real estate as security for the same mortgage.

 

 

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.

 

Broker

An individual in the business of assisting in arranging funding or negotiating contracts for a client buy who does not loan the money himself. Brokers usually charge a fee or receive a commission for their services.

 

Buy-down

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.

 

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).

 

Caps (interest)

Consumer safeguards which limit the amount the interest rate on an adjustable rate mortgage may change per year and/or the life of the loan.

 

Caps (payment)

Consumer safeguards which limit the amount monthly payments on an adjustable rate mortgage may change.

 

Cash Out Refinance

A mortgage loan that allows the borrower to pay off an existing debt and obtain excess money from the equity of their home for payment of closing costs and additional funds for personal needs (i.e., college tuition, home improvement, remodel home, purchase automobile and etc).

 

 

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 DD-214 (Separation Paper) to the local VA office with VA form 1880 (request for Certificate of Eligibility).

 

Certificate of Reasonable Value (CRV)

An appraisal issued by the Veterans Administration showing the property's current market value

 

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.

 

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 are about 3 percent to 6 percent of the mortgage amount.

 

 

Co-borrower

Borrower(s) who contribute income and credit history to the qualification process of a loan and whose name(s) appear(s) on all closing documents. The co-borrower is also liable for the debt and condition of property.

 

Collateral

An item of value pledged as security for a debt. The real estate is pledged as collateral for a mortgage loan and is bound by signing and recording a mortgage or deed of trust.

Commitment

A promise by a lender to make a loan on specific terms or conditions to a borrower or builder. A promise by an investor to purchase mortgages from a lender with specific terms or conditions. An agreement, often in writing, between a lender and a borrower to loan money at a future date subject to the completion of paper work or compliance with stated conditions.

 

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 progresses.

 

Contract sale or deed:

A contract between 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 the VA.

 

Cost to Refinance a Loan

The fees and total cost associated with obtaining a new mortgage loan and refinancing an existing mortgage loan. Generally fees are assessed at closing and may include: insurance, title fees, transfer fees, taxes, settlement or closing fee, survey fee, title insurance , appraisal fees, etc. The total closing cost is typically 5% of the mortgage loan amount.

 

Credit Report

A report documenting the credit history and current status of a borrower's credit standing.

 

Debt Consolidation Loan

A type of loan that allows the borrower to payoff all or a portion of existing debt (including the existing mortgage loan) from loan proceeds.

 

 

Debt-to-Income Ratio

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. See housing expenses-to-income ratio.

 

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. See negative amortization.

Delinquency

Failure to make payments on time. This can lead to foreclosure.

 

Deposit

A sum of money given to the seller, real estate broker or escrow agent with an offer to purchase real estate as evidence of good faith. Also known as earnest money.

 

Discount Points

An amount payable to the lender paid by the borrower or seller to increase the lender's effective yield and reduce the interest rate. One point is equal to one percent of the loan amount. Also known as discount fee.

 

Down Payment

Money paid to make up the difference between the purchase price and the mortgage amount.

 

Due-on-Sale-Clause

A provision in a mortgage or deed of trust that allows the lender to demand immediate payment of the balance of the mortgage if the mortgage holder sells the home.

 

Earnest Money

Money given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment.

 

Equal Credit Opportunity Act (ECOA)

Is a federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs.

 

Equity

The difference between the fair market value and current indebtedness, also referred to as the owner's interest. The value an owner has in real estate over and above the obligation against the property.

 

Escrow

An account held by the lender into which the home buyer pays money for tax or insurance payments. Also earnest deposits held pending loan closing.

 

Estimated Property Value

The Purchase Price or Current Market value of a specific property.

 

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 ($155,250 as of 1/1/96 ), 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 insure 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 total amount of interest, prepaid finance charge and specific required insurance premiums (if applicable) that the borrower is expected to pay over the life of the loan.

 

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 Mortgage

A real estate loan with a lien (i.e., mortgage or deed of trust) on the subject property that has priority over any subsequently lien.

 

Fixed Rate Mortgage

The mortgage interest rate will remain the same on these mortgages throughout the term of the mortgage for the original borrower.

 

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.

 

Gift Funds

Transfer of funds to assist with payment of closing costs and/or down payment. Investors typically require that gift funds may only be received from the borrower's parents and/or grandparents with no intent for repayment.

 

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 Monthly Income

The total monthly income earned before taxes and any other deductions.

 

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.

 

Home Equity Loan

A type of loan that allows homeowners to acquire a loan in addition to their original mortgage/lien using a portion or all of the equity in their home (primary residence). A home equity loan is a generally a second mortgage on the subject property and may be used for any personal needs (i.e., college education, debt consolidation, home improvement, etc).

 

 

Homeowner's Insurance

Insurance for a specific property that protects the insured for loss caused by natural causes (i.e., fire, disasters and vandalism, depending on the terms of the policy also known as Hazard Insurance).

 

 

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. See debt-to-income ratio.

 

 

Impound

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

 

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.

 

Installment Loans

A loan that has a fixed (or closed-end) term (i.e., 36 months) and fixed unchanging monthly payments. When the loan is paid in full the borrower cannot advance additional money unlike a revolving loan.

 

Interest Rate

The percentage of an amount of money that is borrowed and is paid for during a specific period specified in the terms of the loan.

 

Interim Financing

A construction loan made during completion of a building or a project. A permanent loan usually replaces this loan after completion.

 

Investment Property

A property designated solely as a "rental" or "leased" property.

 

 

Jumbo Loan

A loan which is larger (more than $214,600 as of 1/1/97 ) 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.

 

Lien

A claim upon a piece of property for the payment or satisfaction of a debt or obligation.

 

 

Line of Credit (Revolving Line of Credit)

A loan with a maximum credit limit that allows the borrower(s) to disburse funds up to the maximum credit line as needed. Funds may be disbursed repeatedly as the principal balance is paid down up to the maximum credit limit available. A line of credit functions similar to a credit card and may be accessed by writing a check or a using a debit card.

Loan Amount

The total amount requested by the borrower to be financed. This amount is the basis of many loan fee calculations. For refinance loans, the loan amount will include the balance of all loans the borrower requests to be paid off, including the original mortgage, other personal debt and/or cash out amount.

Loan Balance

The outstanding balance of a loan not paid in full, excluding any accrued interest.

 

Loan Term

The total number of payments required to pay the loan in full. This is also known as amortization term.

 

Loan-to-Value Ratio

The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.

 

Manufactured Home

A type of house that is constructed in a factory, delivered to a property location and set on a foundation. In the past, manufactured homes were called "mobile homes". However, "mobile" is no longer an accurate name because fewer than five percent of such homes are ever moved off the owner's original site.

 

Margin

The amount a lender adds to the index on an adjustable rate mortgage to establish the adjusted interest rate.

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 termination or due date on which final payment of a loan must be paid in full.

 

Maximum Monthly Payment

The maximum payment a borrower may qualify for based on their income and debt. The maximum payment is calculated by using a debt-to-income ratio.

 

Mobile Home

A type of home that is 100% constructed in a factory, delivered to a property location and set on a lot or foundation. A mobile home can generally be moved off of the owner's original site.

 

Monthly Housing Payment

Typically the total amount of principal, interest, taxes, and insurance (PITI) paid each month on a mortgage loan. Many lenders and investors limit the monthly housing payment to 28% of the gross monthly income.

 

Monthly Payment

The amount of principal and interest paid each month on a loan. The monthly payment on a mortgage loan may also include an escrow payment for taxes and insurance.

 

Monthly Payment Savings

The total monthly payment reduction a borrower may gain by refinancing their mortgage loan.

 

Mortgage

An instrument used in some states as a claim in real estate pledging the subject property as collateral for a mortgage loan and terminating once the loan is paid in full.

 

Mortgage Insurance (MI)

Insurance required by investors to protect the lender in case the borrower defaults on the loan. Mortgage Insurance is typically required for conventional loans that have a down payment less than 20% of the purchase price. FHA and VA loans have different insurance and guidelines. Also known as Private Mortgage Insurance. (PMI)

 

Mortgagee

The lender.

 

Mortgagor

The borrower or homeowner.

 

Multi Family

A term generally to distinguish a house designed for use by more than one family.

 

 

Negative Amortization

Occurs 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 danger of negative amortization is that the home buyer ends up owing more than the original amount of the loan.

 

Net Effective Income

The borrower's gross income minus federal income tax.

 

 

Non Assumption Clause

A statement in a mortgage contract forbidding the assumption of the mortgage without the prior approval of the lender. Note: The signed obligation to pay a debt, as a mortgage note.

 

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.

 

Outstanding Debt to Consolidate

The total amount of all debt the borrower desires to payoff and consolidate into one loan and monthly payment.

 

Payment Schedule

A schedule detailing the amount and due date of payments required to be paid over the life of the loan. The dollar figures represent principal, interest and private mortgage insurance (if applicable). This schedule does not reflect payment for taxes and insurance.

 

Permanent Loan

A long term mortgage, usually ten years or more. Also called an "end loan."

 

PITI

Principal, Interest, Taxes and Insurance. Also called monthly housing expense.

 

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 (loan discount points)

Prepaid interest assessed at closing by the lender. Each point is equal to 1 percent of the loan amount (e.g., two points on a $100,000 mortgage would cost $2,000).

 

Power of Attorney

A legal document authorizing one person to act on behalf of another.

 

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.

 

Prepayment

A privilege in a mortgage permitting the borrower to make payments in advance of their due date.

 

Prepayment Penalty

Money charged for an early repayment of debt. Prepayment penalties are allowed in some form (but not necessarily imposed) in many states.

 

 

Pre-qualification

A request by a prospective loan applicant for a preliminary determination of whether the prospective applicant would likely qualify for credit under a lender's standards, or of the amount of credit for which the prospective applicant likely would qualify. Some lenders evaluate pre-qualification requests through a procedure that is separate from the lender's normal loan application process; others use the same process. Pre-qualification is generally not a commitment to lend.

 

Primary Borrower

An individual who is listed first on the mortgage loan application and is considered to be the primary borrower. Some lenders allow a non-occupying co-borrower or co-signor to be on the application. In this case, the borrower occupying the property will need to be the primary borrower.

 

Primary Home

A property that the owner intends to occupy and will be their primary residence.

 

Principal

The amount of debt, not counting interest, left on a loan.

 

Principal and Interest (PI)

A portion of the monthly payment that is applied toward the loan balance and accrued interest. Payment for property taxes and insurance is considered PITI (principal, interest, taxes and insurance).

 

 

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 5 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 you loan's structure.

 

Property Taxes

A tax collected on real estate property by local, state and/or federal government. The amount of tax is determined by the value of the property.

 

Property Type

A description of the property that determines whether the property will be used as a Primary Residence Home, Investment Property or Second Home.

 

Qualify

A process of preparing a borrower for a mortgage loan by analyzing their financial data and comparing to loan program criteria to determine the best-fit program based upon loan-to-value ratio, debt-to-income ratio and credit information (if applicable).

 

Rate Type

A factor that determines the payment structure and whether the rate may adjust during the life of the loan. Generally fixed or adjustable (ARM).

 

 

Realtor

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

 

 

Recision

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 equity in the home as security.

 

Recording Fees

Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records.

 

Refinance

Obtaining a new mortgage loan on a property already owned. Often to replace existing loans on the property.

 

Renegotiable Rate Mortgage

A loan in which the interest rate is adjusted periodically. See adjustable rate mortgage.

 

RESPA

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

 

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 Satisfaction of Mortgage: The document issued by the mortgagee when the mortgage loan is paid in full. Also called a "release of mortgage."

 

Second Mortgage

A mortgage made subsequent to another mortgage and subordinate to the first one.

 

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.

Settlement/Settlement Costs

See closing/closing costs.

 

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 shares the monthly principal and interest payments with another party in exchange for part of the appreciation.

 

 

Simple Interest

Interest which is computed only on the principal balance.

 

Survey

A measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to know 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.

 

Term

A period of time (usually months) that a loan must be repaid.

 

 

Title

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

 

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 Search

An examination of municipal records to determine the legal ownership of property. Usually is performed by a title company.

 

Total of Payments

The Total of Payments represents the sum of all payments made toward principal, interest and mortgage insurance (if applicable) for the life of the loan.

 

Total Fixed Monthly Debt

The total monthly sum of all monthly loan payments for all borrowers. This total should only include the minimum required payment and not the actual payment made (if excess payment is made).

 

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.

 

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 with 30 days notice at the end of seven or 10 years. Also called "Super Seven" or "Premier" mortgage.

 

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.

USURY

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

 

Variable Rate Mortgage (VRM)

See adjustable rate mortgage.

 

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.

 

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.