A
Abstract of Title: A summary statement of the transfers for a piece of land, including all claims that could be made against it. If there are any title flaws they must be cleared before a buyer can purchase a clear, marketable, and insurable title.
Acceleration Clause: A clause in a home loan agreement thata llows the lender to call for immediate payment in full or speed up the rate at which a loan becomes due in the event of default.
Accrued Interest: The i nterest that has accumulated from the last interest payment. Also, the total amount of interest paid over the term of a loan.
Acceptance: C onsent to enter into an agreement and be bound by the terms of the offer.
Acquisition Fee: Fees and commissions paid out for the selection or purchase of property. For example real estate agent commissions, acquisition costs, and development/construction fees.
Additional principal payment: An additional principle payment or a payment over the amount of the regularly scheduled principle amount due made by a borrower. This helps reduce the remaining balance on the loan.
Add-Ons: Products or services added by dealerships. Common examples are pinstriping, rustproofing, alarm systems, electronic equipment, and extended warranties. Add-ons can really drive up the sticker price of a vehicle, but their actual cost is usually negotiable.
Adjustable Mortgage Loan: Any mortgage that does not have a fixed interest rate and a fixed payment for the term of the loan or does not amortize to zero at the end of the set term, when required payments are made on time.
Adjustable Rate Mortgage (ARM): A mortgage with an interest rate and payment that adjusts periodically over the life of the loan based on changes in a specific index. Also known as the renegotiable rate mortgage, the variable rate mortgage or the Canadian rollover mortgage.
Adjusted basis: The base value of a property that reflects any deductions taken for depreciation, or capital expenditures for improvements made. This is used to compute the gain or loss when sold.
Adjustment date: The date on which there is an interest rate change for an adjustable-rate mortgage (ARM).
Adjustment period: The period that elapses between the adjustment dates for an adjustable-rate mortgage (ARM).
Adjustment Interval: On an adjustable rate mortgage, the time between changes in the interest rate and/or monthly payment, usually one, three or five years.
Administrator: An individual selected by the probate court to take charge of an estate if an person has died without leaving a valid will (intestate) or leaving a will that does not name an executor.
Affordable Gold 5: Mortgage with less than or equal to 95 percent loan-to-value (LTV), when at least 5 percent of the down payment comes from the borrower's personal cash.
Affordable Gold 97: Mortgage with greater than 95 percent loan-to-value (LTV) ratio but less than or equal to 97 percent LTV, when at least 3 percent of the down payment comes from the borrower's personal cash.
Affordable Product Type: Choice of loan determined under the Affordable Gold program. Indicates whether to submit the loan under the Affordable Gold program and, if so, which type of program.
Affordable Seconds: Subsidized secondary financing or other financial assistance provided under an established, documented secondary financing or financial assistance program that has formal procedures in place to provide applicant qualification, loan processing, and loan program administration on an ongoing basis.
Agreement of Sale : A contract stating the price and terms of a purchase. Known by various names, such as contract of purchase, purchase agreement, or sales agreement according to location or jurisdiction.
Amenity: A feature that increases attractiveness, satisfaction or value, especially a physical piece of real estate or a geographic location. Natural amenities include a pleasant or desirable location near water, scenic views of the surrounding area, etc. Human-made amenities include swimming pools, tennis courts, community buildings, and other recreational facilities .
Amortization: The gradual reduction of a debt by periodic payments of interest and principal that are large enough to pay off a loan at maturity. The loan is repaid through regular, monthly payments of principal and interest paid for a predetermined amount of time.
Amount Financed: The part of a vehicle's cost that a lender supplies. To determine the amount financed, multiply the purchase price by the interest rate; subtract that amount from the purchase price; add state purchase tax to that remainder; then subtract the down payment. Put differently, AF = purchase price - (purchase price X interest rate) + tax - down payment.
Annual Percentage Rate (APR ): The annual cost of a loan to a borrower. Like an interest rate, the APR is expressed as a percentage of the loan amount. Unlike an interest rate, however, it includes other charges or fees to reflect the total cost of the loan. The Federal Truth in Lending Act requires that every consumer loan agreement disclose the APR in large, bold print. Since all lenders must follow the same rules to ensure the accuracy of the APR, borrowers can use the APR as a good basis for comparing the cost of loans.
Application: A written statement of personal and financial information that is required to approve a loan. Note that application fees are usually required for home loans but not for auto loans.
Appraisal : A written estimate and opinion of value; a conclusion resulting from the analysis of facts by an appraiser. A fee is typically charged for a real estate appraisal because a home appraisal is time-consuming.
Appraisal Fee: The charge for estimating the value of property.
Assessment : The valuation of property for the purpose of levying a tax or the amount of the tax levied.
Assessor: The official who has the responsibility of determining assessed real estate values.
Assessment Report: Report that appraisers use to record property values, marketability analyses and any pertinent comments regarding the subject property. Assessment reports are classified as appraisal reports or inspection reports.
Assessment Upgrade: Approved recommendation from an appraiser that you must use a more comprehensive type of assessment. You must also upgrade an assessment when its value does not support the loan transaction; the appraiser is unable to view the subject property from the public street; the assessment is "subject to" completion; or repair or property rights are leasehold.
Asset: Any item of monetary or exchange value owned by an individual or corporation. Assets include cash, real estate, personal property, vehicles and enforceable claims against others (including bank accounts, stocks, mutual funds, and so on). A lender is very interested in the amount and value of any assets you may have because assets can be used as collateral against a home loan. Assets are also used to help determine the amount of the home loan and the interest rate.
Assignment: A transfer or making over to another person the whole of any property, real or personal, in possession or in action, of any estate or right therein.
Assumption of Mortgage: The taking of title of a property by a grantee, wherein he assumes liability for payment of an existing note secured by a mortgage or deed of trust against the property. Assuming a loan can usually save the buyer money since this is an existing mortgage debt.
Automated Underwriting: Automated underwriting is used to offer an instant decision regarding your loan request. You are usually required to provide additional information for to the lender to close your loan.
B
Balloon (Payment) Mortgage: Usually a short-term fixed-rate loan where the final installment payment on a note is greater than the preceding installment payments and it pays the note in full, such final installment is termed a balloon payment.
Bank Draft: A payment method where your loan payment is automatically deducted from your checking or savings account, so you don't have to mail in your payment each month.
Bankruptcy: A proceeding in a federal court in which a borrower who owes more than his or her assets can relieve further liability of debts by liquidating assets. Chapter 7 of the Bankruptcy Reform Act deals with liquidation, while Chapter 11 deals with reorganization. If a person files bankruptcy, a record of the filing appears on the borrower's credit report for up to 10 years.
Billing Error: Any mistake in your monthly statement as defined by the Fair Credit Billing Act.
Binder or "Offer to Purchase": An agreement to consider a down payment for the purchase of real estate as evidence of good faith on the part of the purchaser. A binder secures the right to purchase real estate upon agreed terms for a limited period of time. If the buyer changes his mind or is unable to purchase, the earnest money is forfeited unless the binder expressly provides that it is to be refunded.
Borrower: One who applies for a loan and receives funds with the obligation of repaying the loan in full with interest.
Bridge Loan: A short-term loan that covers the time
between your closing date of a home you are buying and the closing date
of the home you are selling. You usually need a contract to sell your current
house. Also called a Gap Loan or a Swing Loan
Broker: A person employed by another, to carry on any of the activities listed in the license law definition of a broker, for a fee.
Building Line or Setback : A line set by law a certain distance from a street line in front of which an owner cannot build on his lot.
Buydown: A loan where the seller pays points to a lender so that the lender can offer below market financing.
C
CC&Rs: Abbreviation for covenants, conditions, and restrictions.
CPM: Certified Property Manager, a designation of the Institute of Real Estate Management .
Caps (Interest): A provision of an adjustable rate mortgage limiting how much interest rates can rise to in a specified period of time
Caps (Payment): A provision of an adjustable rate mortgage which limits the amount monthly payments on an adjustable rate mortgage may change.
Cash-out Refinance: A refinance transaction in which the borrower receives additional cash to use for any purpose. This amount is over the amount necessary to cover existing mortgage loans, closing costs and other debts required to be paid off.
CD indexed: These ARMs are indexed to Certificate of Deposits (CDs). Adjustments occur every six months, with a per adjustment cap of 1 percent and a lifetime cap of 6 percent.
Certificate of Title: A written statement by an attorney or certification of a title company as to the status of a property title. A certificate of title offers no protection against any hidden defects in the title when a thorough investigation of records was performed and information was undetectable or misleading. The issuer of a certificate of title is liable only for damages due to negligence.
Closing: The final stage between the buyer, seller and lender for the sale of the property. Title is transferred from seller to buyer. Also called settlement.
Closing Costs: Fees and expenses, incurred by the buyer and/or seller or borrower in a real estate transaction. These fees Include loan deed filing fees, points, origination fee, appraisal fee, lawyer’s fees, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. The closing costs usually are about 2 percent to 6 percent of the mortgage amount. Also called settlement costs.
Closing Statement: An accounting of funds made to the buyer and seller separately.
Closing Date: The date on which the seller of a property delivers the deed and the buyer pays for it. All parties sign necessary documents to complete the transfer.
Cloud (On Title): Any conditions revealed by a title search which affect the marketability of title to property .
Collateral: Property offered to support a loan that can be seized if you default.
Collateral Security: A separate obligation attached to contract to guarantee its performance; the transfer of property or of other contracts, or valuables, to insure the performance of a principal agreement.
Commission: A broker’s or agent's compensation for performing the duties of his agency; in real estate practice, a percentage of the selling price of property, percentage of rentals, etc.
Commitment: A pledge or a promise or firm agreement, often in writing, between a lender and a borrower to loan money at a future date subject to the stated conditions.
Competitive Market Analysis (CMA): A report prepared by a real estate agent that determines the current market value of a property. The agent administers a search for similar properties in the area that have recently sold or are still on the market. The CMA is often used to establish the listing price.
Compound Interest: Interest paid on original principal and also on the accrued and unpaid interest which has accumulated.
Condemnation: An act by a governmental agency of taking property for public use. This can also be a declaration that a particular building is unsafe or unfit for use.
Condominium: Individual ownership of a unit in a multifamily structure, combined with joint ownership of common areas of the structure and the land.
Conduits: Individuals or firms that purchase loans from originators to resell to investors. Conduits provide expertise to evaluate, price, purchase, and service nonconforming loans.
Conforming Loan: Loans that meet the purchase requirement set forth by the largest buyers of loans, Fannie Mae or Freddie Mac.
Consideration: Anything of value given to induce entering into a contract; it may be money,
personal services, or anything having value.
Construction Loan: Loans made for the construction of homes or commercial buildings. The lender advances funds to the builder as the work progresses. Disbursements are based on an agreement between borrower and lender.
Contractor: A person who contracts to oversees a construction site and makes improvements to real property. There are also contractors for each phase of construction: heating, electrical, plumbing, air conditioning, road building and others.
Conventional Mortgage: Any mortgage which is not insured or guaranteed by a governmental underwriting i.e. not HUD/FHA, VA, or the Farmers Home Administration.
Conversion Option: A conversion option allows you to convert an ARM to a fixed rate mortgage. You will likely pay a higher rate or more points to have this option.
Cooperative Housing: An apartment building or a group of dwellings owned by a corporation, the stockholders of which are the residents of the dwellings. It is operated for their benefit by their elected board of directors. In a cooperative, the corporation or association owns title to the real estate. A resident purchases stock in the corporation which entitles him to occupy a unit in the building or property owned by the cooperative. While the resident does not own his unit, he has an absolute right to occupy his unit for as long as he owns the stock.
Correspondent: A bank, brokerage or other financial institution that typically sells the Mortgages it originates to other lenders. The Correspondent performs some or all loan processing functions such as taking the loan application, ordering credit reports, appraisals, title reports, and verifying the borrower's income and employment. The Correspondent may or may not have delegated underwriting and typically funds the loans at settlement. The Mortgage is closed in the Correspondent's name and the Correspondent may or may not service the Mortgage. The Correspondent could commission a Mortgage Broker to perform some of the processing functions.
Cosigner: Involves a promise to pay another person's debt arising out of contract if he fails to do so.
Cost of Funds: I nterest costs that banks pay to borrow money. Rates can adjust every month, six months, or every year.
Credit: Refers to the granting of a loan and the creation of debt.
Credit Bureau: A company that assigns credit scores to individual borrowers. A credit score measures credit worthiness, the ability to pay back a loan, and affects the interest rate applied to loans. Interest rates are not the same for everyone, but instead are based on risk based pricing, a form of price discrimination based on the different expected costs of different borrowers, as set out in their credit rating. Credit bureaus collect and collate personal financial data on individuals, from financial institutions with which they have a relationship.
Credit Card: A credit card allows the consumer to borrow money or buy goods or services on credit, at the cost of having interest charged.
Credit History: Credit history or credit report is a record of an individual's or company's past borrowing and repaying, including information about late payments and bankruptcy.
Credit Ratio: The ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on long-term debts is divided by his or her net income (FHA/VA loans) or gross monthly income (Conventional loans).
Credit Reporting Company: Company that collects information received from more than one credit repository, merges all the information, and reports it in one form.
Credit Repository: Company that collects information on an individual's credit history and reports it in one form.
Credit Scoring System: Statistical system used to rate credit applicants according to various characteristics relevant to creditworthiness.
Credit Warranty: Guarantee or promise by the seller of the loan relating to the creditworthiness of the borrower(s). The seller warrants that the borrower has the willingness to repay and there is evidence of an acceptable credit reputation.
Creditor: A person or business from whom you borrow or to whom you owe money. The term creditor is frequently used in the financial world, especially in reference to short term loans, long term bonds, and mortgages.
Credit-related Insurance: Health, life, or accident insurance designed to pay the outstanding balance of debt.
Creditworthiness: Past and future ability to repay debts.
Current Index Value: T he index that is used to figure the interest adjustment on Adjustable Rate Mortgages.
D
De Minimus Self-employed Borrower: Borrower who earns less than 5 percent of total stable monthly income from self-employed business income.
Debit Card (EFT Card): A plastic card, looks similar to a credit card, that consumers may use to make purchases, withdrawals, or other types of electronic fund transfers.
Deed: A legal instrument used to grant a right. The deed is best known as the method of transferring title to real estate from one person to another. The deed should contain an accurate description of the property being conveyed, should be signed and witnessed according to the laws of the State where the property is located, and should be delivered to the purchaser at closing day. There are two parties to a deed: the grantor and the grantee.
Deed of Trust: In many states, this document is used in place of a mortgage to secure the payment of a note.
Default: Failure to repay a loan or otherwise meet the terms of your credit agreement. Can lead to foreclosure.
Deferred Interest: Occurs when monthly payments are not large enough to pay entire interest due on a loan. This unpaid interest is added to the unpaid balance of the loan. The buyer usually ends up owing more than the original amount of the loan. Also called Negative Amortization.
Delinquency: Failure to make payments on time. This can lead to foreclosure.
Department of Veterans Affairs (VA): An independent agency of the federal government which guarantees long-term, low- or no-down payment mortgages to eligible veterans.
Depreciation: Decline in value of a house due to wear and tear, adverse changes in the neighborhood, or any other reason.
Disclosures: Information that must be given to consumers about their financial dealings.
Discount Points: Additional points paid to a lender to lower the interest rate on your loan at closing. Each point is equal to 1 percent of the loan amount (e.g. two points on a $100,000 mortgage would cost $2,000). Also referred to as Points.
Documentary Stamps: A State tax, in the forms of stamps, required on deeds and mortgages when real estate title passes from one owner to another. The amount of stamps required varies with each State.
Documentation: Documents you will be required to provide when submitting a loan application, i.e. w2's, signed sales contract, bank account statements etc.
Documentation Class: Category determined by Loan Prospector to indicate the minimum level of documentation you must obtain to underwrite the loan. The three possible classes are: Accept Plus, Accept and Caution.
Down Payment: Money paid to make up the difference between the purchase price and mortgage.
Due-On-Sale Clause: A provision in a mortgage or deed of trust that allows the lender to demand immediate payment of the balance of the mortgage if the mortgage holder sells the home.
E
Earnest Money: Money given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment.
Easement Rights: A right-of-way granted to a person or company authorizing access to or over the owner's land, i.e. an electric company obtaining a right-of-way across private property.
Elderly Applicant: A person 62 or older, as defined in the Equal Credit Opportunity Act.
Electronic Fund Transfer (EFT) Systems: A variety of systems and technologies for transferring funds electronically rather than by check.
Electronic Payment: A time saving payment method where your loan payment is automatically deducted from the checking or savings account you provide. This option may grant a lower interest rate and the ability to choose your payment date. An additional benefit is that monthly payments do not have to be mailed.
Encroachment: An obstruction, building, or part of a building that intrudes beyond a legal boundary onto neighboring private or public land, or a building extending beyond the building line.
Encumbrance: A legal right or interest in land that affects a good or clear title, and diminishes the land's value. It can take numerous forms, such as zoning ordinances, easement rights, claims, mortgages, liens, charges, a pending legal action, unpaid taxes, or restrictive convenants. An encumbrance does not legally prevent transfer of the property to another. A title search is all that is usually done to reveal the existence of such encumbrances, and it is up to the buyer to determine whether he wants to purchase with the encumbrance, or what can be done to remove it.
Equal Credit Opportunity Act (ECOA): Is a federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs.
Equity: The difference between the fair market value and current mortgage balance also referred to as the owner's interest.
Equity and Fees: The difference between the Fair Market Value and current indebtedness, plus the Closing Cost Fees to close the loan.
Escrow: Refers to a neutral third party who carries out the instructions of both the buyer and seller to handle all the paperwork of settlement or closing. Escrow may also refer to an account held by the lender into which the homebuyer pays money for tax or insurance payments.
F
Fannie Mae: The Federal National Mortgage Association commonly known as Fannie Mae, is a United States Government-sponsored corporation created in 1938 to establish a secondary market for mortgages insured by the Federal Housing Administration (FHA). Fannie Mae buys mortgages on the secondary market, pools them and sells them as mortgage-backed securities to investors on the open market.
Farmers Home Administration (FmHA): Provides financing to farmers and other qualified borrowers who are unable to obtain loans elsewhere.
Federal Home Loan Mortgage Corporation (FHLMC): The Federal Home Loan Mortgage Corporation ("Freddie Mac") is a government sponsored enterprise, a stockholder-owned, publicly-traded company chartered by the United States federal government in 1970 to purchase mortgages and related securities, and then issue securities and bonds in financial markets backed by those mortgages in secondary markets. Fannie Mae is a competitor.
Federal Housing Administration (FHA): A division of the Department of Housing and Urban Development. Its main activity is the insuring of residential mortgage loans made by private lenders. FHA also sets standard for underwriting mortgages.
FHA Loan: A loan insured by the Federal Housing Administration open to all qualified home purchasers. While there are limits to the size of FHA loans, they are generous enough to handle moderate-priced homes almost anywhere in the country.
FHA Mortgage Insurance: Requires a small fee (up to 3 percent of the loan amount) paid at closing or a portion of this fee added to each monthly payment of an FHA loan to insure the loan with FHA. In addition, FHA mortgage insurance requires an annual fee of 0.5 percent of the current loan amount, the more years the fee must be paid.
Finance Charge: The total dollar amount credit will cost.
Financing Concessions: Funds from an motivated party to the transaction used to reduce the mortgage interest rate, subsidize the borrower's monthly payment, contribute to the financing charges (such as discount points, loan fees, commitment and/or origination fees), and pay borrower expenses (such as application fees, homeowner association fees, appraisal fees, transfer taxes, tax stamps, attorney fees, surveys, closing costs, and title insurance).
Fixed Rate Mortgage: A mortgage on which the interest rate is set for the term of the loan.
Fixed Rate Mortgages: Characteristics of a fixed rate mortgage: A rate that does not change during the life of the loan. Since this type of mortgage offers a consistent payment schedule and less risk because of payment stability it is more likely more expensive.
Float Period: The float period refers to the time between when a loan is accepted and when the rate is locked-in. During this time the interest rate and points on the loan will fluctuate.
Foreclosure: A legal procedure in which property securing debt is sold by the lender to pay a defaulting borrower's debt.
G
General Warranty Deed: A deed which conveys not only all the grantor's interests in and title to the property to the grantee, but also warrants that if the title is defective or has a "cloud" on it (such as mortgage claims, tax liens, title claims, judgments, or mechanic's liens against it) the grantee may hold the grantor liable.
Ginnie Mae: Provides sources of funds for residential mortgages, insured or guaranteed by FHA or VA. Also referred to as Government National Mortgage Association.
Graduated Payment Mortgage (GPM): A type of flexible-payment mortgage where the payments increase for a specified period of time and then level off. This type of mortgage has negative amortization built into it.
Grantee: That party in the deed who is the buyer or recipient.
Grantor: That party in the deed who is the seller or giver.
Gross Monthly Income: The total amount the borrower earns per month, before any expenses are deducted.
Gross Salary: The total amount of salary earned before taxes and other deductions are made. Different than net pay or take home pay, which is the amount of salary after taxes and other deductions are taken. Lenders look at your gross and net pay to help decide how much money to lend you.
Guarantee: A promise by one party to pay a debt or perform an obligation contracted by another if the original party fails to pay or perform according to a contract.
H
Hazard Insurance: A form of insurance in which the insurance company protects the insured from specified losses, such as fire, windstorm and the like.
Home Equity Line of Credit (HELOC): Secondary financing that consists of a revolving line of credit secured by a lien junior to a mortgage.
Home Equity Loan: This loan allows a homeowner to tap into their home's built-up equity, which is the difference between the amount the home could be sold for, and any claims held against it. People often use a home equity loan for home improvements or to pay for a new car. A home equity loan is a good way to borrow money for two main reasons. First, the interest rate is usually one of the lowest loan rates a borrower can get. Also, the interest paid on the loan is usually tax-deductible. But taking out a home equity loan also means the lender can take possession of the home if the loan isn't repaid. This is why some people decide to not borrow against their home, and may decide to take out a personal loan.
Home Value models: Standard used to derive data from millions of transactions; supported by property values for hundreds of counties in all 50 states. When you submit a conventional/conforming transaction, the service automatically searches Home ValueSM models to determine if it can support the value of the transaction, based on the loan's overall risk profile.
Housing Expenses-to-Income Ratio: The ratio, expressed as a percentage, which results when a borrower's housing expenses are divided by his/her net effective income (FHA/VA loans) or gross monthly income (Conventional loans).
HUD: U.S. Department of Housing and Urban Development. Office of Housing/Federal Housing Administration within HUD insures home mortgage loans made by lenders and sets minimum standards for such homes.
I
Impound: That portion of a borrower's monthly payments held by the lender or servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Also known as reserves.
Index: A published interest rate against which lenders measure the difference between the current interest rate on an adjustable rate mortgage and that earned by other investments which is then used to adjust the interest rate on an adjustable mortgage up or down.
In-File Credit Report: Information issued by one credit repository that contains an individual credit history for you to review in determining a loan applicant's creditworthiness.
Initial Interest Rate: The initial interest rate is the rate you pay when you first get your loan. On an ARM, this rate may be for 3 years (3/1 ARM) or only a month.
Installment Debt: Debt that typically has a fixed interest rate, fixed term, and equal payments amortized over a set number of months, agreed upon by the lender and the borrower prior to disbursement.
Interest: A charge paid for borrowing money. Interest is usually expressed as a percentage of the amount borrowed or interest rate.
Interest Cost: Interest cost shows how much you will pay in interest over the life of the loan, assuming you keep the loan for the entire period.
Interest Due: Interest due is the portion of the mortgage payment that goes toward interest.
Interest Rate: The annual rate of interest on the loan, expressed as a percentage of 100.
Interest Rate Adjustment Period: The interest rate adjustment period is how often your rate is adjusted on an ARM after the initial rate period is over.
Interest Rate Ceiling: The interest rate ceiling is the highest interest rate possible under an ARM. Also called the lifetime cap and it based on the number of percentage points a rate can increase from the initial rate.
Interest Rate Decrease Cap: An interest rate decrease cap is the maximum allowable decrease in your interest rate (on an ARM) each time your rate is adjusted. It is usually 1 or 2 percentage points. If rates go down 4% your rate may only go down 2% due to the cap.
Interest Rate Floor: The rate floor is the lowest interest rate possible under an ARM loan.
Interest Rate Increase Cap: The interest rate increase cap is the maximum allowable increase in your interest rate (on an ARM) each time your rate is adjusted. It is usually 1 or 2 percentage points. For example, if your rate adjusts every year, each year it cannot exceed the stated cap.
Interest Rate Index: The interest rate index is the specific fund/security that your interest rate on an ARM is tied to. Common indexes are Treasury Constant Maturities or Cost of Funds indices. All the indices are published regularly in readily available sources.
Investor: Money source for a lender and/or a person who purchases income-producing assets.
J
Joint Account: A credit account held by two or more people so that all have access to account and all assume legal responsibility to repay.
Jumbo Loan: A loan that is larger (more than $322,700) than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.
M
Margin: The amount a lender adds to the index on an adjustable rate mortgage to establish the adjusted interest rate.
Market Value: The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.
Marketable Title: A title that is free and clear of objectionable liens, clouds, or other title defects. A title which enables an owner to sell his property freely to others and which others will accept without objection.
Material Debt: Liability that is substantial. The debt results from a recent inquiry and could affect the ratios used to make a decision on the loan.
Merged Credit Reports: Information issued by one credit reporting company that receives credit history information from more than one credit repository and combines all of it into one concise format. May be individual or joint.
Minimum Down Payment: Minimum down payment is the amount of money you are required to put down at closing.
Monthly Payment: The amount paid each month towards the principal and interest amount of a loan. The monthly payment may or may not include taxes and insurance.
Monthly Payment (P&I): The monthly payment amount shown includes only principal and interest.
Mortgage: Conveyance of title to property that is given to secure an obligation (as a debt) and that is defeated upon payment or performance according to stipulated terms . Mortgages generally run from 10 to 30 years, during which the loan is to be paid off.
Mortgage (Open-End): A mortgage that secures a loan agreement which allows the mortgagor to borrow additional sums usually up to a specified limit . Open-end provisions often limit such borrowing to no more than would raise the balance to the original loan figure.
Mortgage Broker: A person or entity that specializes in loan originations, receiving a commission to match borrowers and lenders. The Mortgage Broker performs some or most of the loan processing functions such as taking loan applications, ordering credit reports, appraisals, and title reports. Typically the Mortgage Broker does not underwrite the loan and generally does not use its own funds for closing. The Mortgage is generally closed in the name of the lender who commissioned the broker's services. A Mortgage Broker will not service the Mortgage.
Mortgage Commitment: A written notice from the bank or other lending institution saying it will advance mortgage funds in a specified amount to enable a buyer to purchase a house.
Mortgage Insurance: Money paid to insure the mortgage when the down payment is less than 20 percent. Known as Private Mortgage Insurance (PMI)
Mortgage Insurance Premium: The payment made by a borrower to the lender for transmittal to HUD to help defray the cost of the FHA mortgage insurance program and to provide a reserve fund to protect lenders against loss in insured mortgage transactions. In FHA insured mortgages this represents an annual rate of one-half of one percent paid by the mortgagor on a monthly basis.
Mortgage Note: A written agreement to repay a loan. The agreement is secured by a mortgage, serves as proof of an indebtedness, and states the manner in which it shall be paid. The note states the actual amount of the debt that the mortgage secures and renders the mortgagor personally responsible for repayment.
Mortgagee: The lender.
Mortgagor: The borrower or homeowner.
Multiple Listing Service (MLS): A computer database that compiles information on houses listed for sale in a particular area by participating real estate agents. It is maintained and accessed by agents who use the listings to match their clients' needs with property descriptions on the database.
N
Negative Amortization: The increase in the balance of a loan caused by interest payments being larger than the re-payments made on the loan. On adjustable-rate mortgages, if the monthly payments are not enough to cover both the interest and principal payments on the loan, the shortage is added to the principal. This situation occurs when the mortgage payments reach the maximum (as defined by the loan agreement) while the interest rate on the loan is increasing.
Net Effective Income: The borrower's gross income minus federal income tax.
No-Doc Mortgage: A no-documentation or "no-doc" mortgage is a product that certain lenders offer to borrowers which generally requires a down payment of at least 5% to 30% or more of the home purchase price or who generally have at least 25% equity in their home. Loan programs featuring lower down payments (5-24%) are also available to borrowers with excellent credit. No-doc mortgages are generally a wise choice for self-employed people, those who do not wish to verify their income, and those with a brief or blemished credit history, or no credit. The benefits of a no-doc mortgage include a shorter application process since you are not required to provide income, employment or asset documentation, as well as a streamlined approval process through the lender because there is little subsequent verification. However, no doc mortgages generally will be at slightly higher interest rates and are offered by fewer lenders.
Non-Assumption Clause: A statement in a mortgage contract forbidding the assumption of the mortgage without the prior approval of the lender.
Non-Conforming Loan: A conventional home mortgage that does not meet the criteria of Fannie Mae or Freddie Mac for various reasons including loan amount, loan characteristics or underwriting guidelines. Non-Conforming loans usually incur a higher rate and/or points.
O
Open-End Credit: A line of credit that may be used over and over again, including credit cards, overdraft credit accounts, and home equity lines.
Origination Fee: A fee commonly charged by a lender for processing a loan application. The origination fee may be presented in the form of points or a dollar amount. Each point is equal to 1 percent of the loan amount.
Overdraft Checking: A line of credit that allows you to write checks or draw funds by means of an EFT card for more than your actual balance, with an interest charge on the overdraft.
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Personal Loan: An unsecured loan, which means a borrower does not put up any collateral or security to guarantee the repayment of the loan. For this reason, personal loans carry high interest rates. If a borrower owns a home, a lower-interest-rate alternative is a home-equity loan.
Piggyback Loan: An alternative to private mortgage insurance, also known as a second trust loan.
PITI: Principal, interest, taxes, and insurance.
Plat: A map or chart of a lot, subdivision or community drawn by a surveyor showing boundary lines, buildings, improvements on the land, and easements.
Points: Additional points you can pay a lender to lower the interest rate on your loan at closing. Each point is equal to 1 percent of the loan amount Also referred to as Discount Points. Points may include discount points and/or origination fee.
Power of Attorney: A legal document authorizing one person to act on behalf of another.
Pre-paid Items: Pre-paid items are amounts that are required by the Lender to be paid in advance of their due date at settlement. You may be required to prepay certain items at the time of settlement, such as accrued interest, mortgage insurance premiums and hazard insurance premiums. Pre-paid items contribute to the total amount of the loan's closing costs.
Prepayment: A privilege in a mortgage permitting the borrower to make payments in advance of their due date.
Prepayment Premium: Money charged for an early repayment of debt. Prepayment premiums are allowed in some form (but not necessarily imposed) in 36 states and the District of Columbia . Also called Prepayment Penalty.
Prime Rate: The interest rate charged by lenders to their best, most creditworthy customers. A less credit worthy customer may be offered a loan at the prime rate plus anywhere from 2 to 10 percent. Borrowing at below-prime also occurs, but is less common and usually applies to businesses, not individual consumers. The Federal Reserve determines whether to lower or raise the prime rate based on a variety of economic factors. Many consumer loans, such as auto, home equity, mortgage and credit card loans are based upon the prime rate. Building and maintaining a good credit history are two of the most important qualifications for prime-rate borrowing.
Principal: The amount of debt, not counting interest, left on a loan.
Private Mortgage Insurance (PMI): In the event that you do not have a 20 percent down payments, lenders will allow a smaller down payment-as low as 5 percent in some cases. With the smaller down payments loans, however, borrowers are usually required to carry private mortgage insurance. Private mortgage insurance will require an initial premium payment of 1.0 percent to 5.0 percent of your mortgage amount and may require an additional monthly fee depending on your loan's structure.
Processing: Processing involves building your file of information for a loan application. This includes getting the credit report, appraisal, verification of employment, assets, etc.
Purchase option: Typically, the option to buy a leased property usually during the life of a lease (lease buy out) or when the lease ends.
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Qualification: Qualification is the initial process to see if you have enough cash and sufficient income to meet the requirements of the lender for a loan you want. Qualification is not an approval because it does not include your credit history. Qualified borrowers can be turned down if they have poor credit history.
Qualification Ratios: Qualification ratios are set by the lender that state your housing expense to income, and housing expense plus other debts to income, cannot exceed a specified number. Many lenders use a 28% housing expense to income and a 36% housing expense plus debts to income. Other ratios may be how much you put down on a home.
Quitclaim Deed: A deed which transfers whatever interest the maker of the deed may have in the particular parcel of land. A quitclaim deed is often given to clear the title when the grantor's interest in a property is questionable. By accepting such a deed the buyer assumes all the risks. Such a deed makes no warranties as to the title, but simply transfers to the buyer whatever interest the grantor has.
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Rate: In lending, the amount of interest on the loan expressed as an interest rate or annual percentage rate (APR) of the principal.
Rate Cap Insurance: Rate cap insurance limits how much the interest rate can increase during the float period (usually no more than .5%). This protects you from uncertainty in the market and rising rates. With this insurance you will be told that you can lock-in a rate, usually within 60 days of closing. You can also lock if the rate goes lower.
Rate/Point Options: These options are all combinations of interest rate and points that are offered on a particular loan. Usually you will find that paying more points lowers interest rates.
Real Estate Broker: A middle man or agent who buys and sells real estate for a company, firm, or individual on a commission basis. The broker does not have title to the property, but generally represents the owner.
Real Estate Settlement Procedures Act (RESPA): RESPA is a federal law that allows consumers to review information on known or estimated settlement costs once after application and once prior to or at settlement. The law requires lenders to furnish information after application only.
Realtor: A real estate broker or an associate holding active membership in a local real estate board affiliated with the National Association of Realtors.
Rescission: The cancellation of a contract. With respect to mortgage refinancing, the law that gives the homeowner three days to cancel a contract.
Recording Fees: Money paid to the lender for recording a home sale with the local county, thereby making it part of the public records.
Refinancing: To provide new financing by discharging a mortgage with the proceeds from a new mortgage obtained at a lower interest rate.
Renegotiable Rate Mortgage (RRM): A loan in which the interest rate is adjusted periodically. Sometimes referred to as Adjustable Rate Mortgage.
Required Cash: Required cash is the total cash required for you to close the loan. This cash goes towards down payment, points, and other charges paid to the lender. It also goes towards up-front charges for things like mortgage insurance and other settlement charges associated with the transaction such as title insurance, taxes, etc. Your good faith estimate will show how much cash you need for closing.
Reserves: Verified liquid assets remaining after the borrower pays down payment and closing costs.
Residential Mortgage Credit Report (RMCR): Detailed account of the credit, employment, and residence history, as well as public-record information, concerning an individual.
Restrictive Covenants: Private restrictions limiting the use of real property. Restrictive covenants are created by deed and may "run with the land," binding all subsequent purchasers of the land, or may be "personal" and binding only between the original seller and buyer. The determination whether a covenant runs with the land or is personal is governed by the language of the covenant, the intent of the parties, and the law in the State where the land is situated. Restrictive covenants that run with the land are encumbrances and may affect the value and marketability of title. Restrictive covenants may limit the density of buildings per acre, regulate size, style or price range of buildings to be erected, or prevent particular businesses from operating in a given area.
Reverse Annuity Mortgage (RAM): A form of mortgage in which the lender makes periodic payments to the borrower using the borrower's equity in the home as security.
Revolving Debt: Debt that typically has a variable interest rate, an open-ended term, and payments that are based on a percentage of the balance. The debt has a set limit agreed upon by the lender and borrower.
Risk Analysis: A lenders’ examination of the various factors that might affect the
repayment of a loan.
Risk Rating: A process used by the lender to decide the soundness of making a loan to reduce various factors affecting the repayment of the loan to a qualified rating of some kind.
S
Sales Concession: Incentive to purchase a property, such as vacations, furniture, automobiles, and securities, and/or excess finance concessions. Also, other giveaways granted by any interested party, including financing inducements that may be over limitations set forth in the definition of financing concessions (to-be sales).
Second Home: An additional o ne-unit residence owned by an individual, occupied by the borrower and used primarily as a weekend or vacation retreat. The property must be in a location where it can function reasonably as a second home.
Second Trust Loan: An alternative to private mortgage insurance, also known as a “piggyback loan.” A loan secured by a second mortgage or trust deed on real property. These can be third, fourth, fifth, sixth—on and on. In some cases, you may even qualify for a second trust loan with as little as a 5% down payment.
Secured Debt: The purpose of securing debt is to allow the creditor to take the property in the event that the debt is not properly repaid, with the underlying belief that permitting this course of action allows debtors to get loans on more favorable terms than that available for unsecured debt, or to be extended credit under circumstances when credit under terms of unsecured debt would not be extended at all. The property attached to the debt may be either of the two categories of property, real estate or personal property.
Security: Property pledged to the creditor in case of a default on a loan; also referred to as collateral.
Security Interest: The creditor's right to take property or a portion of property offered as security.
A term designating the interest of the creditor in the personal property of the debtor in all types of credit transactions. It thus replaces such terms as the following: chattel mortgage; pledge; trust receipt; chattel trust; equipment trust; conditional sale; inventory lien; etc.
Self-Employed Borrower: Applicant who owns 25 percent or more interest in a business.
Service Charge: A component of some finance charges, such as the fee for triggering an overdraft checking account into use.
Servicing: Supervising and administering a loan after it has been made. This involves such things as: collection of payments, keeping accounting records, computing the interest and principal, foreclosure of defaulted loans, property inspection and so on.
Settlement: See Closing.
Settlement Costs: See Closing Costs.
Shared Appreciation Mortgage (SAM): A loan where a lender and borrower shares in the value appreciation. It usually requires a sale or appraisal at a future date. May also apply to mortgages where the borrower shares the monthly principal and interest payments with another party in exchange for a part of the appreciation.
Simple interest: Interest that accrues that grows by a certain fraction of the principal per time period. Calculation of accrued interest of most debt uses simple interest. Once an interest payment is made, the lender can reinvest it elsewhere. In case he reinvests it in the original investment, interest will start accruing on this interest. In this case, he can calculate the growth of his investment using the compound interest method.
Special Assessments: Legal charge on property by a public authority to pay cost of public improvements such as: street lights, sidewalks, street improvements, road construction etc.
Special Lien: A lien that binds a specified piece of property, unlike a general lien, which is levied against all one's assets. In some localities it is called "particular" lien or "specific" lien. Also see lien.
Special Warranty Deed: A deed in which the grantor warrants or guarantees the title only against defects arising during his ownership of the property and not against defects existing before the time of his ownership.
Survey: A measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to known points, its dimensions, and the location and dimensions of any building.
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Tax: As applied to real estate, an enforced charge imposed on persons, property or income, to be used to support the State . The purpose of taxation is to finance government expenditure. One of the most important uses of taxes is to finance public goods and services, such as street lighting and street cleaning.
Tax Assessed Value: The Tax Assessed Value (TAV) is the dollar amount assigned to your property for the purposes of taxation. The TAV is not necessarily the market value of your home, but the TAV will take into consideration your home's market value, as well other factors, including your property's tax class, maintenance costs, home improvements, etc. The TAV is established by the county's tax assessor who utilizes features such as sales prices from surrounding properties, location, condition and age of the property to determine the TAV.
Term: The period of time between the beginning loan date on the legal documents and the date the entire balance of the loan is due.
Term Mortgage: Usually a short-term fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a specific time. Also known as Balloon Payment Mortgage.
Third Party Fees: These are fees charged by a party that prepares loan packages for borrowers for submission to lenders. Third party fees contribute to the total amount of the loan's closing costs.
Title: Evidence that an owner of land is in lawful possession of property with a document evidencing such ownership.
Title Insurance: An insurance policy issued by a title company, which protects a homebuyer against errors in the title search. The cost of the policy is usually relative to the value of the property, and is often covered by the purchaser and/or seller.
Title Search: An action taken prior to the sale of real property to determine whether there are any liens or other encumbrances on the property which might prevent or delay the sale of the property. Usually, the buyer of a property will purchase title insurance, which protects the buyer from any title problems that may arise after sale (such as liens that were missed during the search).
Title Report: A report which discloses condition of the title, made by a title company preliminary to issuance of title insurance.
Treasury Index: An index that is used to determine interest rate changes for certain adjustable rate mortgages. Depending on the ARM, the rate will adjust every 6 months, every year, or every 3 years.
Trustee: A party who is given legal responsibility enforceable in a court of law to hold property in the best interest of or "for the benefit of" another.
Trustor: One who deeds his property to a trustee to be held as security until he has performed
his obligation to a lender under terms of a deed of trust.
Truth-in-Lending: A federal law requiring lenders to fully disclose in writing the terms and conditions of a mortgage, including the annual percentage rate and other charges shortly after they apply for the loan. Also called Regulation Z.
Two-Step Mortgage: An adjustable rate mortgage in which the borrower receives a below-market interest rate for a specified number of years (most often seven or 10 years), and then receives a new interest rate adjusted (within certain limits) to market conditions at that time. The lender sometimes has the option to call the loan, due within 30 days notice at the end of seven or 10 years. Also called "Super Seven" or "Premier" mortgage.
U
Underwriting: The technical analysis by a lender to determine the risk involved in making a mortgage loan. Underwriting involves the evaluation of the property as outlined in the appraisal report, and of the borrower's ability and willingness to repay the loan.
V
VA Loan: A mortgage loan guaranteed by the Veterans Administration that may be issued by qualified lenders. The VA loan was designed to offer long-term financing to American veterans or their surviving spouses (provided they do not remarry). The VA loan allows veterans 100% financing without private mortgage insurance or 20% second mortgage. In a purchase, veterans may borrow up to 100% of the sales price or reasonable value of the home, whichever is less. In a refinance, veterans may borrow up to 90% of reasonable value, where allowed by state laws.
VA Mortgage Funding Fee: A VA funding fee of 0 to 3.3% (depending on the size of the down payment) of the loan amount is paid to the VA and is allowed to be financed.
Variable Rate Mortgage (VRM): See Adjustable Rate Mortgage.
Verification of Deposit (VOD): A document signed by the borrower's financial institution verifying the status and balance of his/her financial accounts.
Verification of Employment (VOE): is the process by which mortgage lenders review both previous and current employment history of a borrower to determine both the job stability of a borrower and to cross-reference income history with what is stated on the Uniform Residential Loan Application (Form 1003). Lenders require a VOE for all positions held for the last two years of employment history. Most mortgages are underwritten with both Written and Verbal VOE's.
W
Waiver : Relaxing a right to enforce or require anything pertaining to the eligibility of a loan. Waivers may include permitting less documentation than would otherwise be required.
Wholesaler: A wholesaler is a lender that provides loans to borrowers through mortgage brokers or correspondents. The mortgage broker or correspondent works with you and gets your application.
Wraparound: Results when an existing assumable loan is combined with a new loan, resulting in an interest rate somewhere between the old rate and the current market rate. The payments are made to a second lender or the previous homeowner, who then forwards the payments to the first lender after taking the additional amount off the top. A wrap-around can take the form of a land contract or a deed of trust.
Z
Zoning Ordinances: The acts of city and county authorities establishing building codes, and setting forth regulations for property land usage.