- 1003 form
Commonly used mortgage loan application developed by Fannie Mae. Sometimes called the Uniform Residential Loan Application.
- 2/1 Buy Down Mortgage
The 2/1 Buy Down Mortgage allows the borrower to qualify at below market rates so they can borrow more. The initial starting interest rate increases by 1% at the end of the first year and adjusts again by another 1% at the end of the second year. It then remains at a fixed interest rate for the remainder of the loan term. Borrowers often refinance at the end of the second year to obtain the best long term rates; however, even keeping the loan in place for three full years or more will keep their average interest rate in line with the original market conditions.
FHA’s single family program which provides mortgage insurance to lenders to protect against the borrower defaulting; 203(b) is used to finance the purchase of new or existing one to four family housing; 203(b) insured loans are known for requiring a low down payment, flexible qualifying guidelines, limited fees, and a limit on maximum loan amount.
This FHA mortgage insurance program enables homebuyers to finance both the purchase of a house and the cost of its rehabilitation through a single mortgage loan.
- “A” Credit
The highest credit grade available as assigned to a borrower by a lender. A credit rating where the FICO score is 660 or above. There have been no late mortgage payments within a 12-month period. This is the best credit rating to have when entering into a new loan.
- Abstract of Title
Documents recording the ownership of property throughout time.
A verbal or written acceptance of an offer to buy a home, made from the seller to the buyer.
- Acceleration Clause
Provision in a mortgage that allows the lender to demand payment of the entire principal balance if a monthly payment is missed or some other default occurs.
- Accrued Interest
Interest that is earned but not paid, adding to the amount owed.
- Additional Principal Payment
A way to reduce the remaining balance on the loan by paying more than the scheduled principal amount that is due.
- Adjustable rate mortgage (ARM)
A type of mortgage loan that does not have a fixed interest rate. It is instead characterized by interest rates that automatically adjust or fluctuate in concert with certain market indexes. Generally an ARM begins with an introductory or initial interest rate, which then may rise or fall, but monthly payments may not exceed the ARM loan cap.
- Adjusted Basis
The cost of a property plus the value of any capital expenditures for improvements to the property minus any depreciation taken.
- Adjustment Date
The actual date that the interest rate is changed for an ARM.
- Adjustment Index
The published market index used to calculate the interest rate of an ARM at the time of origination or adjustment.
- Adjustment Interval
On an ARM, the time between changes in the interest rate or monthly payment. The rate adjustment interval is often displayed in x/y format, where “x” is the period until the first adjustment, and “y” is the adjustment period thereafter.
- Adjustment Period
The period elapsing between adjustment dates for an ARM.
A signed, sworn statement made by the buyer or seller regarding the truth of information provided.
- Affordability Analysis
An analysis of a buyers ability to afford the purchase of a home. Reviews income, 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 of Sale
A contract signed by buyer and seller stating the terms and conditions under which a property will be sold.
A feature of the home or property that serves as a benefit to the buyer but that is not necessary to its use; may be natural (like location, woods, water) or man-made (like a swimming pool or garden).
A payment plan that enables you to reduce your debt gradually through monthly payments. The payments may be principal and interest, or interest-only. The monthly amount is based on the schedule for the entire term or length of the loan.
- 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 Percentage Rate (APR)
The truest cost of a home loan. A measure of the cost of credit, expressed as a yearly rate. It includes interest as well as other charges. Because all lenders, by federal law, follow the same rules to ensure the accuracy of the annual percentage rate, it provides consumers with a good basis for comparing the cost of loans, including mortgage plans. APR is a higher rate than the simple interest of the mortgage.
The first step in the official loan approval process; this form is used to record important information about the potential borrower necessary to the underwriting process.
- Application Fee
A fee charged by lenders to process a loan application.
A document from a professional that gives an estimate of a property’s fair market value based on the sales of comparable homes in the area and the features of a property; an appraisal is generally required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property.
- Appraisal Fee
Fee charged by an appraiser to estimate the market value of a property.
- Appraised Value
An estimation of the fair market value of a property, based on an appraiser’s knowledge, experience, and analysis of the property.
A qualified individual who uses his or her experience and knowledge to prepare the appraisal estimate.
The measurable value that increases on a home or property. Market improvements and home renovations often drive appreciation value.
A legal method of resolving a dispute without going to court.
- As-is Condition
The purchase or sale of a property in its existing condition without repairs.
- Asking Price
A seller’s stated price for a property.
- Assessed Value
The value that a public official has placed on any asset (used to determine taxes).
The method of placing value on an asset for taxation purposes.
A government official who is responsible for determining the value of a property for the purpose of taxation.
Anything owned of monetary value including real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, etc.).
The transfer of a mortgage from one person to another.
- Assumable mortgage
A mortgage contract that allows, or does not prohibit, a creditworthy buyer from assuming the mortgage contract of the seller. Assuming a loan will save the buyer money if the rate on the existing loan is below the current market rate, and closing costs are avoided as well. A loan with a “due-on-sale” clause stipulating that the mortgage must be repaid upon sale of the property, is not assumable.
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.
- Assumption Fee
The fee paid to a lender (usually by the purchaser of real property) when an assumption takes place.
- Automated Underwriting
Loan processing completed through a computer-based system that evaluates past credit history to determine if a loan should be approved. This system removes the possibility of personal bias against the buyer.
- “B” Credit
FICO scores from 620 – 659. Factors include two 30 day late mortgage payments and two to three 30 day late installment loan payments in the last 12 months. No delinquencies over 60 days are allowed. Should be two to four years since a bankruptcy. Also referred to as Sub-Prime.
- Back End Ratio (debt ratio)
A ratio that compares the total of all monthly debt payments (mortgage, real estate taxes and insurance, car loans, and other consumer loans) to gross monthly income.
- Balance Sheet
A financial statement that shows assets, liabilities, and net worth as of a specific date.
- Balloon Mortgage
A mortgage with level monthly payments that amortizes over a stated term but also requires that a lump sum payment be paid at the end of an earlier specified term. Otherwise, a short-term high-risk loan that leaves the borrower with a potentially high loan balance at the end of the loan term.
- Balloon Payment
The final lump sum paid at the maturity date of a balloon mortgage.
A federal law whereby a person’s assets are turned over to a trustee and used to pay off outstanding debts; this usually occurs when someone owes more than they have the ability to repay.
- Before-tax Income
Income before taxes are deducted.
- Biweekly Payment 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 savings in interest.
The individual or individuals extended a loan and mortgage for the purchase of a house and/or property. Borrower is responsible for making all payments and fees associated with the loan over the life of the loan. Legal mortgagor.
- 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.”
An individual or company that brings borrowers and lenders together for the purpose of loan origination.
A detailed record of all income earned and spent during a specific period of time.
When the seller, builder or buyer pays an amount of money up front to the lender to reduce monthly payments during the first few years of a mortgage. Buy-downs can occur in both fixed and adjustable rate mortgages.
- “C” Credit
FICO scores typically from 580 to 619. Factors include three to four 30-day late mortgage payments and four to six 30 day late installment loan payments or two to four 60 day late payments. Should be one to two years since bankruptcy.
- Callable Debt
A debt security whose issuer has the right to redeem the security at a specified price on or after a specified date, but prior to its stated final maturity.
Limits how much the interest rate or the monthly payment can increase, either at each adjustment or during the life of the mortgage. Payment caps don’t limit the amount of interest the lender is earning and may cause negative amortization.
- Capital gain
Profit earned on an asset, such as a home or property.
- Capital gain tax
A tax levied against the profit made on the sale of a home and/or property.
- Cash out refinance
A second mortgage in which the borrower extracts home equity at the same time a refinance deal is made; an alternative to a home equity loan.
- Cash Reserves
A cash amount sometimes required of the buyer to be held in reserve in addition to the down payment and closing costs; the amount is determined by the lender.
- Certificate of Eligibility
A document issued by the federal government certifying a veteran’s eligibility for a Department of Veterans Affairs (VA) mortgage.
- Certificate of Reasonable Value (CRV)
A document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA mortgage.
- Change Frequency
The frequency (in months) of payment and/or interest rate changes in an adjustable-rate mortgage (ARM).
The portion of principal and interest due on a loan that is written off when deemed to be uncollectible.
A formal documented meeting held to finalize the sale of a property that includes signing all documents associated with the exchange and payment of required closing fees.
- Closing agent
The person responsible for mediating the closing, documenting the process and assuring all associated paperwork is completed. May be an attorney or official from a title or mortgage company.
- Closing Costs
These are 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.
A borrower with good credit that agrees to take on shared responsibility for a home loan so that the primary borrower may purchase property.
Security in the form of money or property pledged for the payment of a loan. For example, on a home loan, the home is the collateral and can be taken away from the borrower if mortgage payments are not made.
- Combination loan
Type of loan that combines an initial loan typically for new home construction, with a second conventional home loan that supplants the first.
An amount, usually a percentage of the property sales price that is collected by a real estate professional as a fee for negotiating the transaction. Traditionally the home seller pays the commission. The amount of commission is determined by the real estate professional and the seller and can be as much as 6% of the sales price.
- Commitment letter
A document from a lender to a borrower that officially lays out the terms of a loan.
- Comparable sales, comps
Similar home sale prices in the region used as a metric in the calculation of a home’s appraised value.
- Compound Interest
Interest paid on the original principal balance and on the accrued and unpaid interest.
- Conforming loan
A conventional loan characterized by loan limits that fall within those guidelines laid out by the Government Sponsored Enterprises (GSEs) such as Freddie Mac and Fannie Mae.
An item of value given in exchange for a promise or act.
- 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 from other sources.
- Construction loan
A short-term loan for new home construction that is supplanted with a conventional long-term home loan. See combination loan.
Any one of a number of common clauses added to real estate agreements that provide buyer or seller rights during various stages of a transaction.
- Conventional mortgage
A mortgage offered by any one of the Government sponsored entities, different from an FHA loan.
- 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 provides the borrower the ability to convert to a fixed-rate within a specified time.
- Cost of Funds Index (COFI)
An index used to determine interest rate changes for some adjustable-rate mortgages.
- Counter Offer
A rejection to all or part of a purchase offer that negotiates different terms to reach an acceptable sales contract.
Legally enforceable terms that govern the use of property. These terms are transferred with the property deed. Discriminatory covenants are illegal and unenforceable. Also known as a condition, restriction, deed restriction or restrictive covenant.
An agreement that a person will borrow money and repay it to the lender over time.
- Credit Report
A report detailing an individual’s credit history that is prepared by a credit bureau and used by a lender to determine a loan applicant’s creditworthiness.
- Credit Risk Score
A credit score measures a consumer’s credit risk relative to the rest of the U.S. population, based on the individual’s credit usage history. The credit score most widely used by lenders is the FICO® score, developed by Fair, Issac and Company. This 3-digit number, ranging from 300 to 850, is calculated by a mathematical equation that evaluates many types of information that are on your credit report. Higher FICO® scores represents lower credit risks, which typically equate to better loan terms. In general, credit scores are critical in the mortgage loan underwriting process.
- Date of closing
Date upon which all paperwork associated with a mortgage/property sales exchange is finalized.
- Date of possession
Actual date upon which the buyer will move into a home or property; it is usually the closing date, but may be another agreed upon date as well.
- Debt Amount of money a borrower owes to creditors. A metric used to calculate creditworthiness.
- Debt-to-Income Ratio A comparison or ratio of gross income to housing and non-housing expenses; With the FHA, the-monthly mortgage payment should be no more than 29% of monthly gross income (before taxes) and the mortgage payment combined with non-housing debts should not exceed 41% of income.
- Debt Security A security that represents a loan from an investor to an issuer. The issuer in turn agrees to pay interest in addition to the principal amount borrowed.
- Deductible The amount of cash payment that is made by the insured (the homeowner) to cover a portion of a damage or loss. Sometimes also called “out-of-pocket expenses.
- Deed An official and public document that establishes property ownership.
- Deed of re-conveyance When a borrower has paid in full on a mortgage, the lender then awards the borrower a deed of re-conveyance. This document becomes also a part of public record. Also known as re-conveyance deed and recon.
- Deed of Trust The document used in some states instead of a mortgage. Title is conveyed to a trustee.
- Default Failure to make mortgage payments on a timely basis or to comply with other requirements of a mortgage.
- Delinquency Failure to make mortgage payments on time.
- Depreciation The measure of loss in value of a home or property. Depreciation could be driven by poor economic factors or property damage.
- Discount Points A measure of interest; 1 point = 1% of the home loan value. In an ARM with an initial rate discount, the lender gives up a number of percentage points in interest to reduce the rate and lower the payments for part of the mortgage term (usually for one year or less). After the discount period, the ARM rate usually increases according to its index rate.
- Down Payment Part of the purchase price of a property that is paid in cash and not financed with a mortgage.
- Due on Sale Clause A provision of a loan allowing the lender to demand full repayment of the loan if the property is sold.
This is a sum of money given to bind the sale of real estate, or a sum of money given to ensure payment or an advance of funds in the processing of a loan.
- Earnest money A sum of money usually put up by the buyer when an offer on a home or property is made. The purpose of earnest money is as a token of good faith, a symbol that the buyer is seriously pursuing purchase.
- Easements The legal rights that give someone other than the owner access to use property for a specific purpose. Easements may affect property values and are sometimes a part of the deed.
- Effective Gross Income A borrowers normal annual income, including overtime that is regular or guaranteed. Salary is usually the principal source, but other income may qualify if it is significant and stable.
- Energy Efficient Mortgage (EEM) An FHA program that helps homebuyers save money on utility bills by enabling them to finance the cost of adding energy efficiency features to a new or existing home as part of the home purchase
- Encroachments A structure that extends over the legal property line on to another individual’s property. The property surveyor will note any encroachment on the lot survey done before property transfer. The person who owns the structure will be asked to remove it to prevent future problems.
- Encumbrance Anything that affects title to a property, such as loans, leases, easements, or restrictions.
- Equity The amount of financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on the mortgage.
- Escape Clause A provision in a purchase contract that allows either party to cancel part or the entire contract if the other does not respond to changes to the sale within a set period. The most common use of the escape clause is if the buyer makes the purchase offer contingent on the sale of another house.
- Escrow An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the deposit of funds or documents into an escrow account to be disbursed upon the closing of a sale of real estate.
- Escrow Disbursements The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.
- Escrow Payment The part of a mortgagor’s monthly payment that is held by the servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due.
- Fair-market-value The price that a piece of property will bear in the current market.
- Fannie Mae A congressionally chartered, shareholder-owned company that is the nation’s largest supplier of home mortgage funds.
- FHA Mortgage A mortgage that is insured by the Federal Housing Administration (FHA) amd are designed to assist borrowers unable for various reasons to get the approval necessary for conventional home loans. Also known as a government mortgage.
- FICO Score FICO® scores are the most widely used credit score in U.S. mortgage loan underwriting. This 3-digit number, ranging from 300 to 850, is calculated by a mathematical equation that evaluates many types of information that are on your credit report. Higher FICO® scores represent lower credit risks, which typically equate to better loan terms.
- First Mortgage The primary lien against a property.
- Fixed Installment The monthly payment due on a mortgage loan including payment of both principal and interest.
- Fixed-Rate Mortgage (FRM) A conventional mortgage that is outfitted with a fixed interest throughout the entire term of the loan. Monthly payments are the same from month to month.
- Float The act of allowing an interest rate and discount points to fluctuate with changes in the market.
- Flood certification In most real estate cases a lender will require a flood certification before making a loan on a home. In areas where a property falls in a flood zone, the borrower may be required to purchase standalone flood insurance before a mortgage and/or home loan is approved.
- Foreclosure The repossession of a home and/or property by a lender in the event of borrower loan default or the inability to meet mortgage agreements.
- Freddie Mac In concert with Fannie Mae, Freddie Mac is a leading government sponsored enterprise (GSE) and is responsible for maintaining reasonable mortgage market stability, this assuring that Americans are able to purchase homes. Freddie Mac is a secondary mortgage market, meaning the corporation lends to lenders, which in turn extend mortgage products directly to borrowers.
- 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.
- Ginnie Mae
A government-owned corporation that assumed responsibility for the special assistance loan program formerly administered by Fannie Mae.
- Good Faith Estimate
An itemized list of anticipated loan costs and closing fees passed from a lender to a potential borrower within three days of an application for a home loan. This is a required step in the loan application process per the Real Estate Settlement Procedures Act.
- Graduated Payment Mortgages
Mortgages that begin with lower monthly payments that get slowly larger over a period of years, eventually reaching a fixed level and remaining there for the life of the loan. Graduated payment loans may be good if you expect your annual income to increase.
- 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.
- Hazard insurance Also known as homeowner’s insurance; extra insurance taken out on a home that protects the borrower and lender in the event of damage. Usually covers the value of the home.
- High-risk loan A home loan extended to borrowers with poor credit history or that fall outside the conventional or conforming loan limits set by Fannie Mae and Freddie Mac. Sub-prime loan is an example of a high-risk loan.
- Home inspection A comprehensive and exhaustive examination of a home by a licensed inspector. Often required as part of a mortgage and home loan process.
- Home Equity Line of Credit A mortgage loan, usually in second mortgage, allowing a borrower to obtain cash against the equity of a home, up to a predetermined amount.
- Home Equity Loan A loan backed by the value of a home (real estate). If the borrower defaults or does not pay the loan, the lender has some rights to the property. The borrower can usually claim a home equity loan as a tax deduction.
- Home inspection contingency clause A clause added to an offer letter that gives the buyer certain rights pending home inspection. A buyer may ask the seller to repair defects discovered during the home inspection or even request release from the offer to buy in light of a home inspection.
- Home loan Not a mortgage, but the actual amount of money a buyer owes the lender in the purchase of a home.
- Home price index Financial and market tool that provides historical data on residential home prices in various regions.
- Homeowner's association An association attached to a neighborhood, apartment, condo or town home complex that establishes certain rules of ownership. Common, but not exhaustive, responsibilities of a homeowner’s association includes collection of neighborhood dues for landscape maintenance or membership in recreation and entertainment facilities.
- Homeowner's insurance Insurance that protects the value of the home for both lender and borrower. Homeowner’s insurance typically covers the cost of replacing the home and various parts of the same. Most mortgage lenders require borrowers to carry a term of insurance.
- House flipping The purchase of a house or property at a reduced market rate for the purpose of a quick turnaround, a “flip,” and profit. Most house flippers must do some renovation or home fix-up in order to turn a profit on a home.
- Housing co-op A real estate corporation in which buyers own a share of real estate holdings and may reside in a co-op unit. Shareholders do not have mortgages, but pay on a cut of the shares and earn equity over the long term.
- Housing Expense Ratio The percentage of gross monthly income budgeted to pay housing expenses.
- HUD The U.S. Department of Housing and Urban Development; established in 1965, HUD works to create a decent home and suitable living environment for all Americans; it does this by addressing housing needs, improving and developing American communities, and enforcing fair housing laws.
- 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.
- Hybrid ARM (3/1 ARM, 5/1 ARM, 7/1 ARM) A combination fixed rate and adjustable rate loan – also called 3/1,5/1,7/1 – can offer the best of both worlds: lower interest rates (like ARMs) and a fixed payment for a longer period of time than most adjustable rate loans. For example, a “5/1 loan” has a fixed monthly payment and interest for the first five years and then turns into a traditional adjustable rate loan, based on then-current rates for the remaining 25 years. It’s a good choice for people who expect to move or refinance, before or shortly after, the adjustment occurs.
The index is the measure of interest rate changes a lender uses to decide the amount an interest rate on an ARM will change over time.The index is generally a published number or percentage, such as the average interest rate or yield on Treasury bills. Some index rates tend to be higher than others and some more volatile.
The number of dollars in circulation exceeds the amount of goods and services available for purchase; inflation results in a decrease in the dollar’s value.
- Inflation Coverage
Endorsement to a homeowner’s policy that automatically adjusts the amount of insurance to compensate for inflationary rises in the home’s value. This type of coverage does not adjust for increases in the home’s value due to improvements.
- 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.”
The regular periodic payment that a borrower agrees to make to a lender.
Protection against a specific loss, such as fire, wind etc., over a period of time that is secured by the payment of a regularly scheduled premium.
- Insured Mortgage
A mortgage that is protected by the Federal Housing Administration (FHA) or by private mortgage insurance (MI).
- Interest Rate
A figure calculated as a percentage that is used in the financial industry to indicate the rate charged for use of money in a loan. Interest rates may be fixed or variable.
- 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 Buy-down Plan
An arrangement that allows the property seller to deposit money to 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 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.
- Investment property
Real estate bought for investment purposes as opposed to private residential. Often the property will be used for rental purposes, such as rental home, apartments or other spaces that give owners the opportunity to create profit and income over the long term.
- Joint ownership
A type of property ownership in which two people share equally in a home and/or property; common for spouses.
- Joint tenancy
A type of property ownership in which two or more people share.
- Jumbo mortgage loan
A type of high-risk loan, or non-conforming loan, in which the loan limit is higher than that of a conventional loan.
- Late Charge
The penalty a borrower must pay when a payment is made a stated number of days (usually 15) after the due date.
A written agreement between a property owner and a tenant (resident) that stipulates the payment and conditions under which the tenant may occupy a home or apartment and states a specified period of time.
- 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 downpayment.
The bank or finance company that directly awards home loan or mortgage money to a borrower or homebuyer. Legal-mortgagee
- Lender fees
Typically included in fees associated with closing costs, sometimes called processing fees; designed to cover costs incurred by lenders during the loan process.
A person’s financial obligations. Liabilities include long-term and short-term debt.
A formal, legal symbol of money owed on a major asset such as property. Also, mortgage.
- 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. See cap.
- Line of Credit
An agreement by a commercial bank or other financial institution to extend credit up to a certain amount for a certain time.
- Liquid Asset
A cash asset or an asset that is easily converted into cash.
A sum of borrowed money (principal) that is generally repaid with interest.
- Loan Acceleration
An acceleration clause in a loan document is a statement in a mortgage that gives the lender the right to demand payment of the entire outstanding balance if a monthly payment is missed.
- Loan Fraud
Purposely giving incorrect information on a loan application in order to better qualify for a loan; may result in civil liability or criminal penalties.
- Loan Officer
A representative of a lending or mortgage company who is responsible for soliciting homebuyers, qualifying and processing of loans. They may also be called lender, loan representative, account executive or loan rep.
- Loan-to-Value (LTV) Percentage
The relationship between the principal balance of the mortgage and the appraised value (or sales price if it is lower) of the property. For example, a $100,000 home with an $80,000 mortgage has an LTV of 80 percent.
- Lock-In Period
The guarantee of an interest rate for a specified period of time by a lender, including loan term and points, if any, to be paid at closing. Short term locks (under 21 days), are usually available after lender loan approval only. However, many lenders may permit a borrower to lock a loan for 30 days or more prior to submission of the loan application.
The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.
The date on which the principal balance of a loan becomes due and payable.
- Monthly Fixed Installment
That 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.
A legal document between a mortgagor and a mortgagee that pledges a property to the lender as security for payment of a home loan.
- Mortgage-Backed Security (MBS)
A Fannie Mae security that represents an undivided interest in a group of mortgages. Principal and interest payments from the individual mortgage loans are grouped and paid out to the MBS holders.
- Mortgage Banker
A company that originates mortgages exclusively for resale in the secondary mortgage market.
- Mortgage Broker
An individual or company that brings borrowers and lenders together for the purpose of loan origination.
- Mortgage calculators
Online financial tools available on many sites that allow potential buyers to plug in various personal financial figures to arrive at a mortgage value they can afford.
- Mortgage Insurance
A contract that insures the lender against loss caused by a mortgagor’s default on a government mortgage or conventional mortgage. Mortgage insurance can be issued by a private company or by a government agency.
- Mortgage Insurance Premium (MIP)
A required 1.5% fee added into a FHA loan, paid at closing by a mortgagor.
- Mortgage Life Insurance
A type of term life insurance In the event that the borrower dies while the policy is in force, the debt is automatically paid by insurance proceeds.
- Mortgage Modification
A loss mitigation option that allows a borrower to refinance and/or extend the term of the mortgage loan and thus reduce the monthly payments.
- Mortgage Qualifying Ratio
Used to calculate the maximum amount of funds that an individual traditionally may be able to afford. A typical mortgage qualifying ratio is 28: 36.
The borrower in a mortgage agreement.
- Multiple Listing Service (MLS)
Within the Metro Columbus area, Realtors submit listings and agree to attempt to sell all properties in the MLS. The MLS is a service of the local Columbus Board of Realtors?. The local MLS has a protocol for updating listings and sharing commissions. The MLS offers the advantage of more timely information, availability, and access to houses and other types of property on the market.
- Negative Amortization
Amortization means that monthly payments are large enough to pay the interest and reduce the principal on your mortgage. Negative amortization occurs when the monthly payments do not cover all of the interest cost. The interest cost that isn’t covered is added to the unpaid principal balance. This means that even after making many payments, you could owe more than you did at the beginning of the loan. Negative amortization can occur when an ARM has a payment cap that results in monthly payments not high enough to cover the interest due.
- Net Worth
The value of all of a person’s assets, including cash.
- No Cash Out Refinance
A refinance of an existing loan only for the amount remaining on the mortgage. The borrower does not get any cash against the equity of the home. Also called a “rate and term refinance.”
- No Cost Loan
There are many variations of a no cost loan. Generally, it is a loan that does not charge for items such as title insurance, escrow fees, settlement fees, appraisal, recording fees or notary fees. It may also offer no points. This lessens the need for upfront cash during the buying process however no cost loans have a higher interest rate.
- Non-Conforming loan
Is a loan that exceeds Fannie Mae’s and Freddie Mac’s loan limits. Freddie Mac and Fannie Mae loans are referred to as conforming loans.
- Non-Liquid Asset
An asset that cannot easily be converted into cash.
A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.
- Notice of Incomplete Application, NOIA
A form sent to the buyer that indicates missing or incomplete loan application information. Buyer must provide all required information for the lender to complete the application process.
A verbal and written offer to buy a home for a certain dollar amount made from a buyer to a seller.
- Origination Fee
A fee paid to a lender for processing a loan application. The origination fee is stated in the form of points. One point is 1 percent of the mortgage amount.
- Owner Financing
A property purchase transaction in which the party selling the property provides all or part of the financing.
- 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.
- 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.
- Piggyback loan
A second mortgage “piggybacked” onto a first mortgage and used in lieu of mortgage insurance. Cost effectiveness of a piggyback loan depends on current market factors.
- PITI Reserves
A cash amount that a borrower must have on hand after making a down payment and paying all closing costs for the purchase of a home. The principal, interest, taxes, and insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a predefined number of months (usually three).
- Planned Unit Development (PUD)
A development that is planned, and constructed as one entity. Generally, there are common features in the homes or lots governed by covenants attached to the deed. Most planned developments have common land and facilities owned and managed by the owner’s or neighborhood association. Homeowners usually are required to participate in the association via a payment of annual dues.
A point is equal to one percent of the principal amount of your mortgage. For example, if you get a mortgage for $165,000 one point means $1,650 to the lender. Points usually are collected at closing and may be paid by the borrower or the home seller, or may be split between them.
- Portable mortgage
A type of mortgage that may be carried by the borrower from one home purchase to the next, portable.
- Power of attorney
A legal document that grants an individual the rights to act on behalf of another. For example, if a borrower dies or becomes incapable of managing his or her home loan or mortgage, a power of attorney assigned by that individual could manage his or her mortgage and related decisions.
- Preferred lender
A lender that is closely affiliated with a brokerage based on reputation and other industry factors. A mortgage lender that is recommended by a broker.
- Pre-paid costs or fees
Any of a number of fees associated with a mortgage and usually paid out of pocket at the time of closing; includes origination fees, underwriting fees, attorney fees, etc.
- Pre-payment Penalty
A fee that may be charged to a borrower who pays off a loan before it is due.
The process of determining how much money you will be eligible to borrow before you apply for a loan.
The process in which a homebuyer may find out how much of a home loan he or she would be approved for with a lender; gives many buyers more flexibility when shopping for a home.
- Primary mortgage market
- Prime loan
A conforming loan, one whose loan limits fall within those set by Fannie Mae or Freddie Mac and often awarded to borrowers with good credit.
- Prime Rate
The interest rate that banks charge to their preferred customers. Changes in the prime rate influence changes in other rates, including mortgage interest rates.
The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.
- Principal Balance
The outstanding balance of principal on a mortgage not including interest or any other charges.
- Principal, 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 that are paid into an escrow account each month or not.
- Private label mortgage outsourcing
A process in which a private bank or financial lender outsources mortgage products to another lender.
- Private Mortgage Insurance (PMI)
Mortgage insurance provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require MI for a loan with a loan-to-value (LTV) percentage in excess of 80 percent.
- Processing fees
Lender fees associated with creating the loan or mortgage, usually part of closing costs.
- Promissory Note
A written promise to repay a specified amount over a specified period of time.
- Property address
The physical street address of a home or property, required for mortgage application.
[term term="Property taxes"]Annual local taxes charged against the value of a homeowner’s property.
- Property Tax Deduction
The U.S. tax code allows homeowners to deduct the amount they have paid in property taxes from there total income.
- Quit claim deed A document that releases one party in a home title from any responsibility and grants all responsibility to another. Commonly used for spouses or in family situations in which more than one individual has an interest in a mortgage or property title.
- 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.
- Rate Lock
A short-term commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate and lender costs for a specified period of time while the buyer negotiates a sale transaction.
- Real Estate Agent
A person licensed to negotiate and transact the sale of real estate on behalf of the property owner.
- Real Estate Agent®
A real estate broker or an associate who is an active member in a local real estate board that is affiliated with the National Association of Real Estate Agents.
- Real Estate Settlement Procedures Act (RESPA)
A consumer protection law that requires lenders to give borrowers advance notice of closing costs.
The noting in the registrar’s office of the details of a properly executed legal document, such as a deed, a mortgage note, a satisfaction of mortgage, or an extension of mortgage, thereby making it a part of the public record.
Paying off one loan with the proceeds from a new loan using the same property as security.
- Reverse mortgage
A type of mortgage designed for homeowners over 62 years of age; gives them access to home’s equity in cash payments, frees up money they may use for other important costs or to make needed home repairs.
- 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.
- Right of First Refusal
A provision in an agreement that requires the owner of a property to give one party an opportunity to purchase or lease a property before it is offered for sale or lease to others.
- Sales contract A real estate sales agreement is a formal written contract made between a homebuyer and seller. The document includes property address, condition, purchase price, inspections, date of closing, date of possession and more.
- Second mortgage Also known as a home equity loan, a second mortgage gives borrowers flexibility to access the cash equity in their home, usually useful for other high-dollar expenses such as auto and college loans.
- Secondary Mortgage Market Where existing mortgages are bought and sold.
- Security The property that will be pledged as collateral for a loan.
- Seller Carry-back An agreement in which the owner of a property provides financing, often in combination with an assumable mortgage. See Owner Financing.
- Servicer An organization that collects principal and interest payments from borrowers and manages borrowers’ escrow accounts. The servicer often services mortgages that have been purchased by an investor in the secondary mortgage market.
- Short sale Useful tool for lenders and homeowners when foreclosure could be a worst-case scenario. In a real estate short-sale lenders give homeowners permission to discount the home value (an outstanding loan balance) to effect a quick sale, thereby averting foreclosure.
- Speculative home market One in which investors snatch up homes for quick re-sale hoping to cash in on improving markets; considered risky by some.
- 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.
- 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.
- Stripped MBS (SMBS) Securities created by “stripping” or separating the principal and interest payments from the underlying pool of mortgages into two classes of securities, with each receiving a different proportion of the principal and interest payments.
- Subordinate financing A second mortgage on the property, which is not paid off when a new loan is taken out. The second mortgage lender must allow subordination of the second to the new first mortgage.
- Sub-prime loan A high-risk loan packaged with non-conforming loan limits and interest rates that make it possible for homebuyers with poor credit to qualify for a mortgage.
- Survey A formal survey of property that establishes boundary lines and defines any types of limits on construction and other features that could affect the value of property; in many cases lenders require buyers to purchase a property survey.
- Tenancy in common One or more persons may possess the property title, but ownership may be declared in various percentages.
- Terms The period of time and the interest rate agreed upon by the lender and the borrower to repay a 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.
- Title The official document used in the real estate industry that specifies at any one time who owns a piece of property.
- Title Company A title company typically handles all tasks associated with the property title, including insurance and search.
- Title insurance Insurance taken out on the property title that protects both borrower and lender in the event of a title dispute.
- Title search Research on a property title usually conducted by a title company to determine if there exist any outstanding liens against the property prior to a sales transaction.
- Total Expense Ratio Total obligations as a percentage of gross monthly income including monthly housing expenses plus other monthly debts.
- Treasury Index An index used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. Based on the results of auctions that the U.S. Treasury holds for its Treasury bills and securities or 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.
- Truth-in-Lending A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the annual percentage rate (APR) and other charges.
- Two-step Mortgage An adjustable-rate mortgage (ARM) with one interest rate for the first five or seven years of its mortgage term and a different interest rate for the remainder of the amortization term.
The process of evaluating a loan application to determine the risk involved for the lender. Underwriting involves an analysis of the borrower’s creditworthiness and the quality of the property itself.
- VA Mortgage
A mortgage that is guaranteed by the Department of Veterans Affairs (VA). Also known as a government mortgage.
- Walk Through
The final inspection of a property being sold by the buyer to confirm that any contingencies specified in the purchase agreement such as repairs have been completed, fixture and non-fixture property is in place and confirm the electrical, mechanical, and plumbing systems are in working order.
- Warranty deed
Indicates no past liens or disputes against the property; the holder of the property deed has the right to sell it to another.
- 'Wrap Around' Mortgage
A mortgage that includes the remaining balance on an existing first mortgage plus an additional amount requested by the mortgagor. Full payments on both mortgages are made to the “Wrap Around” mortgagee, who then forwards the payments on the first mortgage to the first mortgagee. These mortgages may not be allowed by the first mortgage holder, and if discovered, could be subject to a demand for full payment.