Mortgage Glossary
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acceleration clause
A clause in your mortgage which allows the
lender to demand payment of the outstanding loan
balance for various reasons. The most common
reasons for accelerating a loan are if the
borrower defaults on the loan or transfers title
to another individual without informing the
lender.
adjustable-rate mortgage (ARM)
A mortgage in which the interest changes
periodically, according to corresponding
fluctuations in an index. All ARMs are tied to
indexes.
adjustment date
The date the interest rate changes on an
adjustable-rate mortgage
amortization
The loan payment consists of a portion which will be
applied to pay the accruing interest on a loan, with
the remainder being applied to the principal. Over
time, the interest portion decreases as the loan
balance decreases, and the amount applied to
principal increases so that the loan is paid off
(amortized) in the specified time.
amortization
schedule
A table which shows how much of each payment will be
applied toward principal and how much toward
interest over the life of the loan. It also shows
the gradual decrease of the loan balance until it
reaches zero.
annual
percentage rate (APR)
This is not the note rate on your loan. It is a
value created according to a government formula
intended to reflect the true annual cost of
borrowing, expressed as a percentage. It works sort
of like this, but not exactly, so only use this as a
guideline: deduct the closing costs from your loan
amount, then using your actual loan payment,
calculate what the interest rate would be on this
amount instead of your actual loan amount. You will
come up with a number close to the APR. Because you
are using the same payment on a smaller amount, the
APR is always higher than the actual not rate on
your loan.
application
The form used to apply for a mortgage loan,
containing information about a borrower’s income,
savings, assets, debts, and more.
appraisal
A written justification of the price paid for a
property, primarily based on an analysis of
comparable sales of similar homes nearby.
appraised value
An opinion of a property's fair market value, based
on an appraiser's knowledge, experience, and
analysis of the property. Since an appraisal is
based primarily on comparable sales, and the most
recent sale is the one on the property in question,
the appraisal usually comes out at the purchase
price.
appraiser
An individual qualified by education, training, and
experience to estimate the value of real property
and personal property. Although some appraisers work
directly for mortgage lenders, most are independent.
appreciation
The increase in the value of a property due to
changes in market conditions, inflation, or other
causes.
assessed value
The valuation placed on property by a public tax
assessor for purposes of taxation.
assessment
The placing of a value on property for the purpose
of taxation.
assessor
A public official who establishes the value of a
property for taxation purposes.
asset
Items of value owned by an individual. Assets that
can be quickly converted into cash are considered
"liquid assets." These include bank accounts,
stocks, bonds, mutual funds, and so on. Other assets
include real estate, personal property, and debts
owed to an individual by others.
assignment
When ownership of your mortgage is transferred from
one company or individual to another, it is called
an assignment.
assumable mortgage
A mortgage that can be assumed by the buyer when a
home is sold. Usually, the borrower must "qualify"
in order to assume the loan.
assumption
The term applied when a buyer assumes the
seller’s mortgage.
balloon mortgage
A mortgage loan that requires the remaining
principal balance be paid at a specific point in
time. For example, a loan may be amortized as if it
would be paid over a thirty year period, but
requires that at the end of the tenth year the
entire remaining balance must be paid.
balloon payment
The final lump sum payment that is due at the
termination of a balloon mortgage.
bankruptcy
By filing in federal bankruptcy court, an individual
or individuals can restructure or relieve themselves
of debts and liabilities. Bankruptcies are of
various types, but the most common for an individual
seem to be a "Chapter 7 No Asset" bankruptcy which
relieves the borrower of most types of debts. A
borrower cannot usually qualify for an "A" paper
loan for a period of two years after the bankruptcy
has been discharged and requires the
re-establishment of an ability to repay debt.
bill of sale
A written document that transfers title to personal
property. For example, when selling an automobile to
acquire funds which will be used as a source of down
payment or for closing costs, the lender will
usually require the bill of sale (in addition to
other items) to help document this source of funds.
biweekly mortgage
A mortgage in which you make payments every two
weeks instead of once a month. The basic result is
that instead of making twelve monthly payments
during the year, you make thirteen. The extra
payment reduces the principal, substantially
reducing the time it takes to pay off a thirty year
mortgage. Note: there are independent
companies that encourage you to set up bi-weekly
payment schedules with them on your thirty year
mortgage. They charge a set-up fee and a transfer
fee for every payment. Your funds are deposited into
a trust account from which your monthly payment is
then made, and the excess funds then remain in the
trust account until enough has accrued to make the
additional payment which will then be paid to reduce
your principle. You could save money by doing the
same thing yourself, plus you have to have faith
that once you transfer money to them that they will
actually transfer your funds to your lender.
bond market
Usually refers to the daily buying and selling of
thirty year treasury bonds. Lenders follow this
market intensely because as the yields of bonds go
up and down, fixed rate mortgages do approximately
the same thing. The same factors that affect the
Treasury Bond market also affect mortgage rates at
the same time. That is why rates change daily, and
in a volatile market can and do change during the
day as well.
bridge loan
Not used much anymore, bridge loans are obtained by
those who have not yet sold their previous property,
but must close on a purchase property. The bridge
loan becomes the source of their funds for the down
payment. One reason for their fall from favor is
that there are more and more second mortgage lenders
now that will lend at a high loan to value. In
addition, sellers often prefer to accept offers from
buyers who have already sold their property.
broker
Broker has several meanings in different situations.
Most Realtors are "agents" who work under a
"broker." Some agents are brokers as well, either
working form themselves or under another broker. In
the mortgage industry, broker usually refers to a
company or individual that does not lend the money
for the loans themselves, but broker loans to larger
lenders or investors. (See the Home Loan Library
that discusses the different types of lenders). As a
normal definition, a broker is anyone who acts as an
agent, bringing two parties together for any type of
transaction and earns a fee for doing so.
buydown
Usually refers to a fixed rate mortgage where the
interest rate is "bought down" for a temporary
period, usually one to three years. After that time
and for the remainder of the term, the borrower’s
payment is calculated at the note rate. In order to
buy down the initial rate for the temporary payment,
a lump sum is paid and held in an account used to
supplement the borrower’s monthly payment. These
funds usually come from the seller (or some other
source) as a financial incentive to induce someone
to buy their property. A "lender funded buydown" is
when the lender pays the initial lump sum. They can
accomplish this because the note rate on the loan
(after the buydown adjustments) will be higher than
the current market rate. One reason for doing this
is because the borrower may get to "qualify" at the
start rate and can qualify for a higher loan amount.
Another reason is that a borrower may expect his
earnings to go up substantially in the near future,
but wants a lower payment right now.
call option
Similar to the acceleration clause.
cap
Adjustable Rate Mortgages have fluctuating interest
rates, but those fluctuations are usually limited to
a certain amount. Those limitations may apply to how
much the loan may adjust over a six month period, an
annual period, and over the life of the loan, and
are referred to as "caps." Some ARMs, although they
may have a life cap, allow the interest rate to
fluctuate freely, but require a certain minimum
payment which can change once a year. There is a
limit on how much that payment can change each year,
and that limit is also referred to as a cap.
cash-out refinance
When a borrower refinances his mortgage at a higher
amount than the current loan balance with the
intention of pulling out money for personal use, it
is referred to as a "cash out refinance."
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certificate of deposit
A time deposit held in a bank which pays a certain
amount of interest to the depositor.
(top)
certificate of deposit index
One of the indexes used for determining interest
rate changes on some adjustable rate mortgages. It
is an average of what banks are paying on
certificates of deposit.
(top)
Certificate
of Eligibility
A document issued by the Veterans Administration
that certifies a veteran’s eligibility for a VA
loan.(top)
Certificate of Reasonable Value (CRV)
Once the appraisal has been performed on a property
being bought with a VA loan, the Veterans
Administration issues a CRV.
chain of title
An analysis of the transfers of title to a piece of
property over the years.
clear title
A title that is free of liens or legal questions as
to ownership of the property.
closing
This has different meanings in different states. In
some states a real estate transaction is not
consider "closed" until the documents record at the
local recorders office. In others, the "closing" is
a meeting where all of the documents are signed and
money changes hands.
closing costs
Closing costs are separated into what are called
"non-recurring closing costs" and "pre-paid items."
Non-recurring closing costs are any items which are
paid just once as a result of buying the property or
obtaining a loan. "Pre-paids" are items which recur
over time, such as property taxes and homeowners
insurance. A lender makes an attempt to estimate the
amount of non-recurring closing costs and prepaid
items on the Good Faith Estimate which they must
issue to the borrower within three days of receiving
a home loan application.
closing statement
See Settlement Statement.
cloud on title
Any conditions revealed by a title search that
adversely affect the title to real estate. Usually
clouds on title cannot be removed except by deed,
release, or court action.
co-borrower
IAn additional individual who is both obligated on
the loan and is on title to the property.
collateral
In a home loan, the property is the collateral. The
borrower risks losing the property if the loan is
not repaid according to the terms of the mortgage or
deed of trust.
collection
When a borrower falls behind, the lender contacts
them in an effort to bring the loan current. The
loan goes to "collection." As part of the collection
effort, the lender must mail and record certain
documents in case they are eventually required to
foreclose on the property.
commission
Most salespeople earn commissions for the work that
they do and there are many sales professionals
involved in each transaction, including Realtors,
loan officers, title representatives, attorneys,
escrow representative, and representatives for pest
companies, home warranty companies, home inspection
companies, insurance agents, and more. The
commissions are paid out of the charges paid by the
seller or buyer in the purchase transaction.
Realtors generally earn the largest commissions,
followed by lenders, then the others.(top)
common area
assessments
In some areas they are called Homeowners Association
Fees. They are charges paid to the Homeowners
Association by the owners of the individual units in
a condominium or planned unit development (PUD) and
are generally used to maintain the property and
common areas.
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common areas
Those portions of a building, land, and amenities
owned (or managed) by a planned unit development (PUD)
or condominium project's homeowners' association (or
a cooperative project's cooperative corporation)
that are used by all of the unit owners, who share
in the common expenses of their operation and
maintenance. Common areas include swimming pools,
tennis courts, and other recreational facilities, as
well as common corridors of buildings, parking
areas, means of ingress and egress, etc.
common law
An unwritten body of law based on general custom in
England and used to an extent in some states.
community property
In some states, especially the southwest, property
acquired by a married couple during their marriage
is considered to be owned jointly, except under
special circumstances. This is an outgrowth of the
Spanish and Mexican heritage of the area.
comparable sales
Recent sales of similar properties in nearby areas
and used to help determine the market value of a
property. Also referred to as "comps."
condominium
A type of ownership in real property where all of
the owners own the property, common areas and
buildings together, with the exception of the
interior of the unit to which they have title. Often
mistakenly referred to as a type of construction or
development, it actually refers to the type of
ownership.
condominium
conversion
Changing the ownership of an existing building
(usually a rental project) to the condominium form
of ownership.
condominium hotel
A condominium project that has rental or
registration desks, short-term occupancy, food and
telephone services, and daily cleaning services and
that is operated as a commercial hotel even though
the units are individually owned. These are often
found in resort areas like Hawaii.
construction loan
A short-term, interim loan for financing the cost of
construction. The lender makes payments to the
builder at periodic intervals as the work
progresses.
contingency
A condition that must be met before a contract is
legally binding. For example, home purchasers often
include a contingency that specifies that the
contract is not binding until the purchaser obtains
a satisfactory home inspection report from a
qualified home inspector.
contract
An oral or written agreement to do or not to do a
certain thing.
conventional
mortgage
Refers to home loans other than government loans (VA
and FHA).
convertible ARM
IAn adjustable-rate mortgage that allows the
borrower to change the ARM to a fixed-rate mortgage
within a specific time.
cooperative (co-op)
A type of multiple ownership in which the residents
of a multiunit housing complex own shares in the
cooperative corporation that owns the property,
giving each resident the right to occupy a specific
apartment or unit.
cost of
funds index (COFI)
One of the indexes that is used to determine
interest rate changes for certain adjustable-rate
mortgages. It represents the weighted-average cost
of savings, borrowings, and advances of the
financial institutions such as banks and savings &
loans, in the 11th District of the Federal Home Loan
Bank.
credit
An agreement in which a borrower receives something
of value in exchange for a promise to repay the
lender at a later date.
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credit history
A record of an individual's repayment of debt.
Credit histories are reviewed my mortgage lenders as
one of the underwriting criteria in determining
credit risk.
creditor
A person to whom money is owed.
credit report
A report of an individual's credit history prepared
by a credit bureau and used by a lender in
determining a loan applicant's creditworthiness.
credit repository
An organization that gathers, records, updates, and
stores financial and public records information
about the payment records of individuals who are
being considered for credit.
debt
An amount owed to another.
deed
The legal document conveying title to a property.
deed-in-lieu
Short for "deed in lieu of foreclosure," this
conveys title to the lender when the borrower is in
default and wants to avoid foreclosure. The lender
may or may not cease foreclosure activities if a
borrower asks to provide a deed-in-lieu. Regardless
of whether the lender accepts the deed-in-lieu, the
avoidance and non-repayment of debt will most likely
show on a credit history. What a deed-in-lieu may
prevent is having the documents preparatory to a
foreclosure being recorded and become a matter of
public record.
deed of trust
Some states, like California, do not record
mortgages. Instead, they record a deed of trust
which is essentially the same thing.
default
Failure to make the mortgage payment within a
specified period of time. For first mortgages or
first trust deeds, if a payment has still not been
made within 30 days of the due date, the loan is
considered to be in default.
delinquency
Failure to make mortgage payments when mortgage
payments are due. For most mortgages, payments are
due on the first day of the month. Even though they
may not charge a "late fee" for a number of days,
the payment is still considered to be late and the
loan delinquent. When a loan payment is more than 30
days late, most lenders report the late payment to
one or more credit bureaus.
deposit
A sum of money given in advance of a larger amount
being expected in the future. Often called in real
estate as an "earnest money deposit."
depreciation
A decline in the value of property; the opposite of
appreciation. Depreciation is also an accounting
term which shows the declining monetary value of an
asset and is used as an expense to reduce taxable
income. Since this is not a true expense where money
is actually paid, lenders will add back depreciation
expense for self-employed borrowers and count it as
income.
discount points
In the mortgage industry, this term is usually used
in only in reference to government loans, meaning
FHA and VA loans. Discount points refer to any
"points" paid in addition to the one percent loan
origination fee. A "point" is one percent of the
loan amount.
down payment
The part of the purchase price of a property that
the buyer pays in cash and does not finance with a
mortgage.
due-on-sale
provision
A provision in a mortgage that allows the lender to
demand repayment in full if the borrower sells the
property that serves as security for the mortgage.
earnest money deposit
A deposit made by the potential home buyer to show
that he or she is serious about buying the house.
easement
A right of way giving persons other than the owner
access to or over a property.
effective age
An appraiser’s estimate of the physical condition of
a building. The actual age of a building may be
shorter or longer than its effective age.
eminent domain
The right of a government to take private property
for public use upon payment of its fair market
value. Eminent domain is the basis for condemnation
proceedings.
encroachment
An improvement that intrudes illegally on another’s
property.
encumbrance
Anything that affects or limits the fee simple title
to a property, such as mortgages, leases, easements,
or restrictions.
Equal Credit Opportunity Act (ECOA)
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
A homeowner's financial interest in a property.
Equity is the difference between the fair market
value of the property and the amount still owed on
its mortgage and other liens.
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 earnest money
deposit is put into escrow until delivered to the
seller when the transaction is closed.
escrow account
Once you close your purchase transaction, you may
have an escrow account or impound account with your
lender. This means the amount you pay each month
includes an amount above what would be required if
you were only paying your principal and interest.
The extra money is held in your impound account
(escrow account) for the payment of items like
property taxes and homeowner’s insurance when they
come due. The lender pays them with your money
instead of you paying them yourself.
escrow analysis
Once each year your lender will perform an "escrow
analysis" to make sure they are collecting the
correct amount of money for the anticipated
expenditures.
escrow
disbursements
The use of escrow funds to pay real estate taxes,
hazard insurance, mortgage insurance, and other
property expenses as they become due.
estate
The ownership interest of an individual in real
property. The sum total of all the real property and
personal property owned by an individual at time of
death.
eviction
The lawful expulsion of an occupant from real
property.
examination of
title
The report on the title of a property from the
public records or an abstract of the title.
exclusive listing
A written contract that gives a licensed real estate
agent the exclusive right to sell a property for a
specified time.
executor
A person named in a will to administer an estate.
The court will appoint an administrator if no
executor is named. "Executrix" is the feminine form.
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Fair Credit
Reporting Act
A consumer protection law that regulates the
disclosure of consumer credit reports by
consumer/credit reporting agencies and establishes
procedures for correcting mistakes on one's credit
record.
fair market value
The highest price that a buyer, willing but not
compelled to buy, would pay, and the lowest a
seller, willing but not compelled to sell, would
accept.
Fannie Mae (FNMA)
The Federal National Mortgage Association, which is
a congressionally chartered, shareholder-owned
company that is the nation's largest supplier of
home mortgage funds. For a discussion of the roles
of Fannie Mae, Freddie Mac (FHLMC), and Ginnie Mae (GNMA),
see the Library.
Fannie Mae's Community Home Buyer's Program
An income-based community lending model, under which
mortgage insurers and Fannie Mae offer flexible
underwriting guidelines to increase a low- or
moderate-income family's buying power and to
decrease the total amount of cash needed to purchase
a home. Borrowers who participate in this model are
required to attend pre-purchase home-buyer education
sessions.
Federal Housing Administration (FHA)
An agency of the U.S. Department of Housing and
Urban Development (HUD). Its main activity is the
insuring of residential mortgage loans made by
private lenders. The FHA sets standards for
construction and underwriting but does not lend
money or plan or construct housing.
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fee simple
The greatest possible interest a person can have in
real estate.
fee simple estate
An unconditional, unlimited estate of inheritance
that represents the greatest estate and most
extensive interest in land that can be enjoyed. It
is of perpetual duration. When the real estate is in
a condominium project, the unit owner is the
exclusive owner only of the air space within his or
her portion of the building (the unit) and is an
owner in common with respect to the land and other
common portions of the property.
FHA mortgage
A mortgage that is insured by the Federal Housing
Administration (FHA). Along with VA loans, an FHA
loan will often be referred to as a government loan.
firm commitment
A lender’s agreement to make a loan to a specific
borrower on a specific property.
first mortgage
The mortgage that is in first place among any loans
recorded against a property. Usually refers to the
date in which loans are recorded, but there are
exceptions.
fixed-rate mortgage
A mortgage in which the interest rate does not
change during the entire term of the loan.
fixture
Personal property that becomes real property when
attached in a permanent manner to real estate.
flood insurance
Insurance that compensates for physical property
damage resulting from flooding. It is required for
properties located in federally designated flood
areas.
foreclosure
The legal process by which a borrower in default
under a mortgage is deprived of his or her interest
in the mortgaged property. This usually involves a
forced sale of the property at public auction with
the proceeds of the sale being applied to the
mortgage debt.
401(k)/403(b)
An employer-sponsored investment plan that allows
individuals to set aside tax-deferred income for
retirement or emergency purposes. 401(k) plans are
provided by employers that are private corporations.
403(b) plans are provided by employers that are not
for profit organizations.
401(k)/403(b) loan
Some administrators of 401(k)/403(b) plans allow for
loans against the monies you have accumulated in
these plans. Loans against 401K plans are an
acceptable source of down payment for most types of
loans.
government
loan (mortgage)
A mortgage that is insured by the Federal Housing
Administration (FHA) or guaranteed by the Department
of Veterans Affairs (VA) or the Rural Housing
Service (RHS). Mortgages that are not government
loans are classified as conventional loans.
Government National Mortgage Association (Ginnie
Mae)
A government-owned corporation within the U.S.
Department of Housing and Urban Development (HUD).
Created by Congress on September 1, 1968, GNMA
performs the same role as Fannie Mae and Freddie Mac
in providing funds to lenders for making home loans.
The difference is that Ginnie Mae provides funds for
government loans (FHA and VA)
grantee
The person to whom an interest in real property is
conveyed.
grantor
The person conveying an interest in real property.
hazard
insurance
Insurance coverage that in the event of physical
damage to a property from fire, wind, vandalism, or
other hazards.
Home Equity Conversion Mortgage (HECM)
Usually referred to as
a reverse annuity mortgage, what makes this type of
mortgage unique is that instead of making payments
to a lender, the lender makes payments to you. It
enables older home owners to convert the equity they
have in their homes into cash, usually in the form
of monthly payments. Unlike traditional home equity
loans, a borrower does not qualify on the basis of
income but on the value of his or her home. In
addition, the loan does not have to be repaid until
the borrower no longer occupies the property.
home equity line of credit
A mortgage loan,
usually in second position, that allows the borrower
to obtain cash drawn against the equity of his home,
up to a predetermined amount.
home
inspection
A thorough inspection
by a professional that evaluates the structural and
mechanical condition of a property. A satisfactory
home inspection is often included as a contingency
by the purchaser.
homeowners' association
A nonprofit
association that manages the common areas of a
planned unit development (PUD) or condominium
project. In a condominium project, it has no
ownership interest in the common elements. In a PUD
project, it holds title to the common elements.
homeowner's insurance
An insurance policy
that combines personal liability insurance and
hazard
insurance coverage for a dwelling and its contents.
homeowner's warranty
A type of insurance
often purchased by homebuyers that will cover
repairs to certain items, such as heating or air
conditioning, should they break down within the
coverage period. The buyer often requests the seller
to pay for this coverage as a condition of the sale,
but either party can pay.
HUD median income
Median family income
for a particular county or metropolitan statistical
area (MSA), as estimated by the Department of
Housing and Urban Development (HUD).
HUD-1 settlement statement
A document that
provides an itemized listing of the funds that were
paid at closing. Items that appear on the statement
include real estate commissions, loan fees, points,
and initial escrow (impound) amounts. Each type of
expense goes on a specific numbered line on the
sheet. The totals at the bottom of the HUD-1
statement define the seller's net proceeds and the
buyer's net payment at closing. It is called a HUD1
because the form is printed by the Department of
Housing and Urban Development (HUD). The HUD1
statement is also known as the "closing statement"
or "settlement sheet."
joint tenancy
A form of ownership or taking title to property
which means each party owns the whole property and
that ownership is not separate. In the event of the
death of one party, the survivor owns the property
in its entirety.
judgment
A decision made by a
court of law. In judgments that require the
repayment of a debt, the court may place a lien
against the debtor's real property as collateral for
the judgment's creditor.[Top]
judicial foreclosure
A type of foreclosure
proceeding used in some states that is handled as a
civil lawsuit and conducted entirely under the
auspices of a court. Other states use non-judicial
foreclosure.
jumbo
loan
A loan that exceeds
Fannie Mae’s and Freddie Mac’s loan limits,
currently at $227,150. Also called a nonconforming
loan. Freddie Mac and Fannie Mae loans are referred
to as conforming loans.
late
charge
The penalty a borrower
must pay when a payment is made a stated number of
days. On a first trust deed or mortgage, this is
usually fifteen days.
lease
A written agreement
between the property owner and a tenant that
stipulates the payment and conditions under which
the tenant may possess the real estate for a
specified period of time.
[Top]
leasehold estate
A way of holding title
to a property wherein the mortgagor does not
actually own the property but rather has a recorded
long-term lease on it.
[Top]
lease
option
An alternative
financing option that allows home buyers to lease a
home with an option to buy. Each month's rent
payment may consist of not only the rent, but an
additional amount which can be applied toward the
down payment on an already specified price.
legal description
A property
description, recognized by law, that is sufficient
to locate and identify the property without oral
testimony.
lender
A term which can refer to the institution making
the loan or to the individual representing the firm.
For example, loan officers are often referred to as
"lenders."
liabilities
A person's financial
obligations. Liabilities include long-term and
short-term debt, as
well as
any other amounts that are owed to others.
liability insurance
Insurance coverage
that offers protection against claims alleging that
a property owner's negligence or inappropriate
action resulted in bodily injury or property damage
to another party. It is usually part of a
homeowner’s insurance policy.
lien
A legal claim against
a property that must be paid off when the property
is sold. A mortgage or first trust deed is
considered a lien.
life cap
For an adjustable-rate
mortgage (ARM), a limit on the amount that the
enterest rate can increase or decrease over the life
of the mortgage.
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 to a specified borrower.
liquid
asset
A cash asset or an
asset that is easily converted into cash.
loan
A sum of borrowed
money (principal) that is generally repaid with
interest.
loan officer
Also referred to by a variety of other terms,
such as lender, loan representative, loan "rep,"
account executive, and others. The loan officer
serves several functions and has various
responsibilities: they solicit loans, they are the
representative of the lending institution, and they
represent the borrower to the lending institution.
loan origination
How a lender refers to
the process of obtaining new loans.
loan servicing
After you obtain a loan, the company you make
the payments to is "servicing" your loan. They
process payments, send statements, manage the
escrow/impound account, provide collection efforts
on delinquent loans, ensure that insurance and
property taxes are made on the property, handle
pay-offs and assumptions, and provide a variety of
other services.
loan-to-value (LTV)
The percentage
relationship between the amount of the loan and the
appraised value or sales price (whichever is lower).
lock-in
An agreement in which
the lender guarantees a specified interest rate for
a certain amount of time at a certain cost.
lock-in period
The time period during
which the lender has guaranteed an interest rate to
a borrower.
margin
The difference between
the interest rate and the index on an adjustable
rate mortgage. The margin remains stable over the
life of the loan. It is the index which moves up and
down.
maturity
The date on which the
principal balance of a loan, bond, or other
financial instrument becomes due and payable.[Top]
merged credit report
A credit report which
reports the raw data pulled from two or more of the
major credit repositories. Contrast with a
Residential Mortgage Credit Report (RMCR) or a
standard factual credit report.
modification
Occasionally, a lender
will agree to modify the terms of your mortgage
without requiring you t refinance. If any changes
are made, it is called a modification.
mortgage
A legal document that
pledges a property to the lender as security for
payment of a debt. Instead of mortgages, some states
use First Trust Deeds.[
mortgage banker
For a more complete
discussion of mortgage banker, see "Types of
Lenders." A mortgage banker is generally assumed to
originate and fund their own loans, which are then
sold on the secondary market, usually to Fannie Mae,
Freddie Mac, or Ginnie Mae. However, firms rather
loosely apply this term to themselves, whether they
are true mortgage bankers or simply mortgage brokers
or correspondents.
mortgage broker
A mortgage company
that originates loans, then places those loans with
a variety of other lending institutions with whom
they usually have pre-established relationships.
mortgagee
The lender in a
mortgage agreement.
mortgage insurance (MI)
Insurance that covers
the lender against some of the losses incurred as a
result of a default on a home loan. Often mistakenly
referred to as PMI, which is actually the name of
one of the larger mortgage insurers. Mortgage
insurance is usually required in one form or another
on all loans that have a loan-to-value higher than
eighty percent. Mortgages above 80% LTV that call
themselves "No MI" are usually a made at a higher
interest rate. Instead of the borrower paying the
mortgage insurance premiums directly, they pay a
higher interest rate to the lender, which then pays
the mortgage insurance themselves. Also, FHA loans
and certain first-time homebuyer programs require
mortgage insurance regardless of the loan-to-value.
mortgage insurance premium (MIP)
The amount paid by a
mortgagor for mortgage insurance, either to a
government agency such as the Federal Housing
Administration (FHA) or to a private mortgage
insurance (MI) company.
mortgage life and disability
insurance
A type of term life
insurance often bought by borrowers. The amount of
coverage decreases as the principal balance
declines. Some policies also cover the borrower in
the event of disability. In the event that the
borrower dies while the policy is in force, the debt
is automatically satisfied by insurance proceeds. In
the case of disability insurance, the insurance will
make the mortgage payment for a specified amount of
time during the disability. Be careful to read the
terms of coverage, however, because often the
coverage does not start immediately upon the
disability, but after a specified period, sometime
forty-five days.
mortgagor
The borrower in a
mortgage agreement.[Top]
multidwelling units
Properties that
provide separate housing units for more than one
family, although they secure only a single mortgage.
negative amortization
Some adjustable rate
mortgages allow the interest rate to fluctuate
independently of a required minimum payment. If a
borrower makes the minimum payment it may not cover
all of the interest that would normally be due at
the current interest rate. In essence, the borrower
is deferring the interest payment, which is why this
is called "deferred interest." The deferred interest
is added to the balance of the loan and the loan
balance grows larger instead of smaller, which is
called negative amortization.
no cash-out refinance
A refinance
transaction which is not intended to put cash in the
hand of the borrower. Instead, the new balance is
caculated to cover the balance due on the current
loan and any costs associated with obtaining the new
mortgage. Often referred to as a "rate and term
refinance."
no-cost loan
Many lenders offer loans that you can obtain at
"no cost." You should inquire whether this means
there are no "lender" costs associated with the
loan, or if it also covers the other costs you would
normally have in a purchase or refinance
transactions, such as title insurance, escrow fees,
settlement fees, appraisal, recording fees, notary
fees, and others. These are fees and costs which may
be associated with buying a home or obtaining a
loan, but not charged directly by the lender. Keep
in mind that, like a "no-point" loan, the interest
rate will be higher than if you obtain a loan that
has costs associated with it.
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 on a mortgage note.
no-cost loan
Almost all lenders offer loans at "no points."
You will find the interest rate on a "no points"
loan is approximately a quarter percent higher than
on a loan where you pay one point.
notice of
default
A formal written notice to a borrower that a
default has occurred and that legal action may be
taken.
original principal balance
The total amount of principal owed on a
mortgage before any payments are made.
origination fee
On a government loan the loan
origination fee is one percent of the loan amount,
but additional points may be charged which are
called "discount points." One point equals one
percent of the loan amount. On a conventional loan,
the loan origination fee refers to the total number
of points a borrower pays.
owner financing
A property purchase transaction in
which the property seller provides all or part of
the financing.
partial payment
A payment that is not sufficient to
cover the scheduled monthly payment on a mortgage
loan. Normally, a lender will not accept a partial
payment, but in times of hardship you can make this
request of the loan servicing collection department.
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 interest rate adjustment
date.
periodic payment cap
For an
adjustable-rate mortgage where the interest rate and
the minimum payment amount fluctuate independently
of one another, this is a limit on the amount that
payments can increase or decrease during any one
adjustment period.
periodic rate cap
For an
adjustable-rate mortgage, 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.
personal property
Any property that is not real
property.
PITI
This stands for principal, interest,
taxes and insurance. If you have an "impounded"
loan, then your monthly payment to the lender
includes all of these and probably includes mortgage
insurance as well. If you do not have an impounded
account, then the lender still calculates this
amount and uses it as part of determining your
debt-to-income ratio.
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.
planned
unit development (PUD)
A type of
ownership where individuals actually own the
building or unit they live in, but common areas are
owned jointly with the other members of the
development or association. Contrast with
condominium, where an individual actually owns the
airspace of his unit, but the buildings and common
areas are owned jointly with the others in the
development or association.
point
A point is 1
percent of the amount of the mortgage.
power of attorney
A legal document that authorizes
another person to act on one’s behalf. A power of
attorney can grant complete authority or can be
limited to certain acts and/or certain periods of
time.
pre-approval
A loosely
used term which is generally taken to mean that a
borrower has completed a loan application and
provided debt, income, and savings documentation
which an underwriter has reviewed and approved. A
pre-approval is usually done at a certain loan
amount and making assumptions about what the
interest rate will actually be at the time the loan
is actually made, as well as estimates for the
amount that will be paid for property taxes,
insurance and others. A pre-approval applies only to
the borrower. Once a property is chosen, it must
also meet the underwriting
guidelines of the lender. Contrast with
pre-qualification
prepayment
Any amount
paid to reduce the principal balance of a loan
before the due date. Payment in full on a mortgage
that may result from a sale of the property, the
owner's decision to pay off the loan in full, or a
foreclosure. In each case, prepayment means payment
occurs before the loan has been fully amortized.
prepayment penalty
A fee that
may be charged to a borrower who pays off a loan
before it is due.
pre-qualification
This usually refers to the loan
officer’s written opinion of the ability of a
borrower to qualify for a home loan, after the loan
officer has made inquiries about debt, income, and
savings. The information provided to the loan
officer may have been presented verbally or in the
form of documentation, and the loan officer may or
may not have reviewed a credit report on the
borrower.
prime rate
The interest rate that banks charge to
their preferred customers. Changes in the prime rate
are widely publicized in the news media and are used
as the indexes in some adjustable rate mortgages,
especially home equity lines of credit. Changes in
the prime rate do not directly affect other types of
mortgages, but the same factors that influence the
prime rate also affect the interest rates of
mortgage loans.
principal
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. The
principal balance does not include interest or any
other charges. See remaining balance.
principal, interest, taxes, and insurance (PITI)
The four
components of a monthly mortgage payment on
impounded loans. 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
amounts that are paid into an escrow account each
month for property taxes and mortgage and hazard
insurance.
private
mortgage insurance (MI)
Mortgage
insurance that is 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.
promissory note
A written
promise to repay a specified amount over a specified
period of time.
public auction
A meeting in an announced public
location to sell property to repay a mortgage that
is in default.
Planned Unit Development (PUD)
A project or subdivision that includes
common property that is owned and maintained by a
homeowners' association for the benefit and use of
the individual PUD unit owners.
purchase agreement
A written contract signed by the buyer
and seller stating the terms and conditions under
which a property will be sold.
purchase money
transaction
The
acquisition of property through the payment of money
or its equivalent.
qualifying ratios
Calculations that are used in determining
whether a borrower can qualify for a mortgage. There
are two ratios. The "top" or "front" ratio is a
calculation of the borrower’s monthly housing costs
(principle, taxes, insurance, mortgage insurance,
homeowner’s association fees) as a percentage of
monthly income. The "back" or "bottom" ratio
includes housing costs as will as all other monthly
debt. [Top]
quitclaim deed
A deed that transfers
without warranty whatever interest or title a
grantor may have at the time the conveyance is
made.
rate lock
A commitment issued by
a lender to a borrower or other mortgage originator
guaranteeing a specified interest rate for a
specified period of time at a specific cost.
real estate agent
A person licensed to
negotiate and transact the sale of real estate.
Real Estate Settlement Procedures
Act (RESPA)
A consumer protection
law that requires lenders to give borrowers advance
notice of closing costs.
real
property
Land and
appurtenances, including anything of a permanent
nature such as structures, trees, minerals, and the
interest, benefits, and inherent rights thereof.
Realtor®
A real estate agent,
broker or an associate who holds active membership
in a local real estate board that is affiliated with
the National Association of Realtors.
recorder
The public official
who keeps records of transactions that affect real
property in the area. Sometimes known as a
"Registrar of Deeds" or "County Clerk."
recording
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.
refinance transaction
The process of paying
off one loan with the proceeds from a new loan using
the same property as security.
remaining balance
The amount of
principal that has not yet been repaid. See
principal balance.
remaining term
The original
amortization term minus the number of payments that
have been applied.
rent loss insurance
Insurance that
protects a landlord against loss of rent or rental
value due to fire or other casualty that renders the
leased premises unavailable for use and as a result
of which the tenant is excused from paying rent.
repayment plan
An arrangement made to
repay delinquent installments or advances.
replacement reserve fund
A fund set aside for replacement of common
property in a condominium, PUD, or cooperative
project -- particularly that which has a short life
expectancy, such as carpeting, furniture, etc.
revolving debt
A credit arrangement,
such as a credit card, that allows a customer to
borrow against a preapproved line of credit when
purchasing goods and services. The borrower is
billed for the amount that is actually borrowed plus
any interest due.
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.
right of ingress or egress
The right to enter or
leave designated premises.
right of survivorship
In joint tenancy, the
right of survivors to acquire the interest of a
deceased joint tenant.
sale-leaseback
A technique in which a
seller deeds property to a buyer for a
consideration, and the buyer simultaneously leases
the property back to the seller.
second mortgage
A mortgage that has a
lien position subordinate to the first mortgage.
secondary market
The buying and selling
of existing mortgages, usually as part of a "pool"
of mortgages.
secured
loan
A loan that is backed
by collateral.
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.
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.
servicing
The collection of
mortgage payments from borrowers and related
responsibilities of a loan servicer.
settlement statement
See HUD1 Settlement
Statement
subdivision
A housing development
that is created by dividing a tract of land into
individual lots for sale or lease.
subordinate financing
Any mortgage or other
lien that has a priority that is lower than that of
the first mortgage.
survey
A drawing or map
showing the precise legal boundaries of a property,
the location of improvements, easements, rights of
way, encroachments, and other physical features.
sweat
equity
Contribution to the
construction or rehabilitation of a property in the
form of labor or services rather than cash.
tenancy in common
As opposed to joint
tenancy, when there are two or more individuals on
title to a piece of property, this type of ownership
does not pass ownership to the others in the event
of death.
third-party origination
A process by which 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
A legal document
evidencing a person's right to or ownership of a
property.
title
company
A company that
specializes in examining and insuring titles to real
estate.
title insurance
Insurance that
protects the lender (lender's policy) or the buyer
(owner's policy) against loss arising from disputes
over ownership of a property.
title
search
A check of the title
records to ensure that the seller is the legal owner
of the property and that there are no liens or other
claims outstanding.
transfer of ownership
Any means by which the
ownership of a property changes hands. Lenders
consider all of the following situations to be a
transfer of ownership: the purchase of a property
"subject to" the mortgage, the assumption of the
mortgage debt by the property purchaser, and any
exchange of possession of the property under a land
sales contract or any other land trust device.
transfer tax
State or local tax payable when title 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. [Top]
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) that has 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.
two- to four-family property
A property that
consists of a structure that provides living space
(dwelling units) for two to four families, although
ownership of the structure is evidenced by a single
deed.
trustee
A fiduciary who holds
or controls property for the benefit of another.
VA
mortgage
A mortgage that is
guaranteed by the Department of Veterans Affairs
(VA).
vested
Having the right to
use a portion of a fund such as an individual
retirement fund. For example, individuals who are
100 percent vested can withdraw all of the funds
that are set aside for them in a retirement fund.
However, taxes may be due on any funds that are
actually withdrawn.
Veterans Administration (VA)
An agency of the
federal government that guarantees residential
mortgages made to eligible veterans of the military
services. The guarantee protects the lender against
loss and thus encourages lenders to make mortgages
to veterans. |
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