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Mortgage Loan Glossary
Select the first letter of the word from the list below to jump to the appropriate section of the glossary.
A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
- A -
Acceleration: The right of the lender to demand the immediate repayment of the mortgage balance on the default of the borrower.
Adjustable Rate Mortgage (ARM): A mortgage that has an initial rate that has an Adjustment Interval (as determined by the lender) in accordance with a current interest rate index (a predetermined margin is added to the index to compute the interest rate). Payments can be low if interest rates are low and will increase as rates rise. Caps govern the limit the loan's rate can adjust to at one time and over the life of the loan. Generally, ARMs have lower rates than fixed-rate mortgages and are easier to qualify for - but because they're based on changing interest rates, your payment amounts can be unpredictable. ARM types include Two-Step, Convertible, the Variable Rate Mortgage or the Canadian rollover mortgage.
Adjustment Interval: On an adjustable rate mortgage (ARM), the time between changes in the interest rate and/or monthly payment depending on the index. The interval is typically one, three or five years.
Amortization: A fixed amount of monthly installments of principal and interest allowing you to own your home at the end of a specific time period (for example, 15 or 30 years).
Annual Percentage Rate (APR): A measure of the cost of credit on a yearly basis. It is calculated by using a standard formula, the APR shows the cost of a loan; expressed as a yearly interest rate, it includes the interest, points, mortgage insurance, and other fees associated with the loan. It allows the borrower to compare various kinds of mortgages based on the yearly cost of each loan.
Application: The first step in the loan approval process. This form is used by the lender to obtain important information about the potential borrower. The information is used to determine the eligibility of the borrower in the mortgage loan underwriting process.
Appraisal: A survey, made by a professional appraiser, of a property to determine the estimated value of the property.
Assumption: The agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller. Assuming a loan can usually save the buyer money since this is an existing mortgage debt, unlike a new mortgage where closing costs and new, probably higher, market-rate interest charges will apply. However, there may be a fee and/or a credit package involved in the transfer of an assumable mortgage.
- B -
Balloon (Payment) Mortgage: Usually a short-term fixed-rate loan which involves level payments for a certain period of time (usually 5, 7, or 10 years) and one lump-sum payment for the remaining amount of the principal at a time specified in the contract. The lump sum can either be paid in full or refinanced by the buyer.
Blanket Mortgage: One mortgage on at least two pieces of real estate as security for the same mortgage.
Borrower (Mortgagor): One who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan and any additional fees according to the loan terms.
Broker: A professional who assists in arranging funding or negotiating contracts for a client but who does not loan the money himself. Brokers usually charge a fee or receive a commission for their services.
Buy-Down: A party (the borrower or contractor) pays a lender an up-front fee to reduce ("buy down") the interest rate on a loan for a temporary time period, usually one to three years. Though the payments are initially low, they will increase at the end of the buy down period. This will also reduce the total interest paid over the life of the loan. The buy down is expressed as two numbers. For example, in a 2/1 buy down, the 2 represents a 2 percent interest rate buy down the first year and the 1 represents a 1 percent interest rate buy down the second year; in the third year of the loan the interest rate would revert to the straight note rate.
- C -
Cash Flow: For an income producing property, the amount of cash derived over a certain period of time. The cash flow should be large enough to pay the expenses of the property (mortgage payment, taxes, maintenance, utilities, etc).
Cap: Consumer safeguards which limit the amount the payment or interest rate on an adjustable rate mortgage may change per year and/or the life of the loan.
Certificate of Eligibility: The document given to qualified veterans which entitles them to VA guaranteed loans for homes, business, and mobile homes. Certificates of eligibility may be obtained by sending DD-214 (Separation Paper) to the local VA office with VA form 1880 (request for Certificate of Eligibility).
Certificate of Reasonable Value (CRV): An appraisal issued by the Veterans Administration showing the property's current market value
Certificate of Veteran Status: The document given to veterans or reservists who have served 90 days of continuous active duty (including training time) It may be obtained by sending DD 214 to the local VA office with form 26-8261a (request for certificate of veteran status). This document enables veterans to obtain lower down payments on certain FHA insured loans.
Closing: Also called settlement. This is the formal meeting between the buyer, seller and lender or their agents where the property and funds legally change hands. Closing costs are paid at this time and usually include an origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. The costs of closing are usually about 3 percent to 6 percent of the mortgage amount.
Commitment: An agreement, in writing, between a lender and a borrower to loan money by a specific date and at a specified interest rate subject to the completion of paper work or compliance with stated conditions. Also known as "locking in" the interest rate.
Construction Loan: A short term loan to pay for the construction of buildings or homes. These are usually designed to provide periodic disbursements to the builder as he progresses.
Contract Sale or Deed: A contract between a purchaser and a seller of real estate to convey the title after certain conditions have been met, generally full repayment of the debt.
Conventional Mortgage Loan: A private sector mortgage loan that is not insured or guaranteed by the federal government.
Credit Report: A report documenting the credit history and current status of the borrower's credit standing.
- D -
Debt-to-Income Ratio: The ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on long-term debts is divided by his or her gross monthly income. See Housing Expenses-To-Income Ratio.
Deed of Trust: In many states, this document is used in place of a mortgage to secure the payment of a note.
Default: Failure to make the monthly payments on a mortgage.
Deferred Interest: When a mortgage is written with a monthly payment that is less than required to satisfy the loan rate, the unpaid interest is deferred by adding it to the loan balance. See Negative Amortization.
Delinquency: Failure to make payments on time. This can lead to foreclosure.
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.
Discount Points: See points.
Down Payment: Money paid to make up the difference between the purchase price and the mortgage amount.
Due-on-Sale-Clause: A provision in a mortgage that allows the lender to demand immediate payment of the balance of the mortgage if the mortgage holder sells the property.
- E -
Earnest Money: Money given by a buyer to a seller as part of the purchase price to bind a transaction.
Entitlement: The VA home loan benefit is called entitlement or Entitlement for a VA guaranteed home loan. This is also known as eligibility.
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: The difference between the fair market value and current indebtedness, also referred to as the owner's interest. The value of the property over and above the obligation against the property.
Escrow: An account held by the lender into which the home buyer pays a portion of the monthly payment for tax or insurance payments. It also holds earnest money deposits pending loan closing.
- F -
Fannie Mae: see Federal National Mortgage Association.
Farmers Home Administration (FmHA): Provides financing to farmers and other qualified borrowers who are unable to obtain loans elsewhere.
Federal Home Loan Bank Board (FHLBB) : The former name for the regulatory and supervisory agency for federally chartered savings institutions. Agency is now called the Office of Thrift Supervision
Federal Home Loan Mortgage Corporation (FHLMC) also called "Freddie Mac": Is a quasi-governmental agency that purchases conventional mortgage from insured depository institutions and HUD-approved mortgage bankers.
Federal Housing Administration (FHA) : A division of the Department of Housing and Urban Development. Its main activity is the insuring of residential mortgage loans made by private lenders. FHA also sets standards for underwriting mortgages.
Federal National Mortgage Association (FNMA) also know as "Fannie Mae" : A tax-paying corporation created by Congress that purchases and sells conventional residential mortgages as well as those insured by FHA or guaranteed by VA. This institution, which provides funds for one in seven mortgages, makes mortgage money more available and more affordable.
FHA loan: A loan insured by the Federal Housing Administration open to all qualified home purchasers. While there are limits to the size of FHA loans ($155,250 as of 1/1/96), they are generous enough to handle moderately-priced homes almost anywhere in the country.
FHA Mortgage Insurance: Requires a fee (up to 2.25 percent of the loan amount) paid at closing to insure the loan with FHA. In addition, FHA mortgage insurance requires an annual fee of up to 0.5 percent of the current loan amount, paid in monthly installments. The lower the down payment, the more years the fee must be paid.
FHLMC: The Federal Home Loan Mortgage Corporation provides a secondary market for savings and loans by purchasing their conventional loans. Also known as "Freddie Mac."
Firm Commitment: A promise by FHA to insure a mortgage loan for a specified property and borrower. A promise from a lender to make a mortgage loan. See Commitment.
Fixed Rate Mortgage : The mortgage interest rate will remain the same throughout the term of the mortgage for the original borrower.
FNMA : The Federal National Mortgage Association is a secondary mortgage institution which is the largest single holder of home mortgages in the United States. FNMA buys VA, FHA, and conventional mortgages from primary lenders. Also known as "Fannie Mae."
Foreclosure : A legal process by which the lender or the seller forces the sale of a mortgaged property because the borrower has not met the terms of the mortgage.
Freddie Mac : See Federal Home Loan Mortgage Corporation.
- G -
Ginnie Mae : See 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.
Guaranty: A promise by one party (the guarantor) to pay a debt contracted by the original party if the original party fails to pay 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 Loan: A loan in which you borrow against the equity of your home. The loan is secured by your home.
Housing Expenses-to-Income Ratio: The ratio, expressed as a percentage, which results when a borrower's housing expenses are divided by his/her gross monthly income. See debt-to-income ratio.
- I -
Impound: That portion of a borrower's monthly payments held by the lender to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Also known as reserves or escrow.
Index: A published interest rate against which lenders measure the difference between the current interest rate on an adjustable rate mortgage and that earned by other investments (such as one- three-, and five-year U.S. Treasury security yields, the monthly average interest rate on loans closed by savings and loan institutions, and the monthly average cost-of-funds incurred by savings and loans), which is then used to adjust the interest rate on an adjustable mortgage up or down.
Interim Financing: A construction loan made during completion of a building or a project. A permanent loan usually replaces this loan after completion.
Investor: A money source for a lender.
- J -
Jumbo Loan: A loan that is larger (more than $359,650 as of 1/1/2005) than the limits set yearly by Fannie Mae and Freddie Mac. Because jumbo loans cannot be funded by these two agencies, jumbo loans usually carry a higher interest rate. Also called a non-conforming loan.
- K -
Key Lot - Real estate deemed highly valuable because of its location.
- L -
Lien: A claim upon a piece of property for the payment or satisfaction of a debt or obligation.
Loan-to-Value Ratio: The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.
- M -
Margin: The amount a lender adds to the index on an adjustable rate mortgage to establish the adjusted interest rate. This is usually a fixed amount.
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.
MIP (Mortgage Insurance Premium): Is insurance from FHA to the lender against incurring a loss on account of the borrower's default.
Mortgage Insurance: Money paid to insure the mortgage when the down payment is less than 20 percent. See private mortgage insurance, FHA mortgage insurance.
Mortgagee: The lender.
Mortgagor: The borrower or homeowner.
- N -
Negative Amortization: Occurs when your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan. The danger of negative amortization is that the home buyer ends up owing more than the original amount of the loan.
Net Effective Income: The borrower's gross income minus federal income tax.
Non Assumption Clause: A statement in a mortgage contract forbidding the assumption of the mortgage without the prior approval of the lender.
- O -
Office of Thrift Supervision (OTS): The regulatory and supervisory agency for federally chartered savings institutions. Formally known as Federal Home Loan Bank Board.
Origination Fee: The fee charged by a lender to prepare loan documents, make credit checks, inspect and sometimes appraise a property; usually computed as a percentage of the face value of the loan.
- P -
Permanent Loan: A long term mortgage, usually ten years or more.
PITI: Principal, Interest, Taxes and Insurance. Also called monthly housing expense.
Pledged Account Mortgage (PAM): Money is placed in a pledged savings account and this fund plus earned interest is gradually used to reduce mortgage payments.
Points (loan discount points): Prepaid interest assessed at closing by the lender. Each point is equal to 1 percent of the loan amount (e.g., two points on a $100,000 mortgage would cost $2,000).
Power of Attorney: A legal document authorizing one person to act on behalf of another.
Prepaid Expenses: Necessary funds to create an escrow account or to adjust the seller's existing escrow account. Can include taxes, hazard insurance, private mortgage insurance and special assessments.
Prepayment: A privilege in a mortgage permitting the borrower to make payments in advance of their due date.
Prepayment Penalty: Money charged for an early repayment of debt. Prepayment penalties are allowed in some form (but not necessarily imposed) in many states.
Primary Mortgage Market: Lenders making mortgage loans directly to borrower's such as savings and loan associations, commercial banks, and mortgage companies. Also known as the Private Mortgage Sector. These lenders sometimes sell their mortgages into the secondary mortgage markets such as to FNMA or GNMA, etc.
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 payment, lenders will allow a smaller down payment - as low as 5 percent in some cases. With the smaller down payment loans, however, borrowers are usually required to carry private mortgage insurance. Private mortgage insurance will usually require an initial premium payment and may require an additional escrowed monthly fee depending on the loan's structure.
- Q -
Qualification - As determined by a lender, the ability of the borrower to repay a mortgage loan based on the borrower's credit history, employment history, assets, debts and income.
- R -
Realtor: A real estate broker or an associate holding active membership in a local real estate board affiliated with the National Association of Realtors.
Recision: The cancellation of a contract. With respect to mortgage refinancing, the law that gives the homeowner three days to cancel a contract in some cases once it is signed if the transaction uses equity in the home as security.
Recording Fees: Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records.
Refinance: Obtaining a new mortgage loan on a property already owned. Often to replace existing loans on the property in order to obtain a lower interest rate or to take money out of the equity.
Renegotiable Rate Mortgage: A loan in which the interest rate is adjusted periodically. See adjustable rate mortgage.
RESPA: Short for the Real Estate Settlement Procedures Act. RESPA is a federal law that allows consumers to review information on known or estimated settlement cost once after application and once prior to or at a settlement. The law requires lenders to furnish the information after application only.
Reverse Annuity Mortgage (RAM): A form of mortgage in which the lender makes periodic payments to the borrower using the borrower's equity in the home. The mortgage generally needs to be paid in full before this type of payment can be made. Also called a "release of mortgage" or a "reverse mortgage".
- S -
Second Mortgage: A mortgage made subsequent to another mortgage on the original property and subordinate to the first one.
Secondary Mortgage Market: The place where primary mortgage lenders sell the mortgages they make to obtain more funds to originate more new loans. It provides liquidity for the lenders.
Servicing: All the steps and operations a lender performs to keep a loan in good standing, such as collection of payments, payment of taxes, insurance payments, property inspections and the like.
Settlement/Settlement Costs: See closing/closing costs.
Shared Appreciation Mortgage (SAM): A mortgage in which a borrower receives a below-market interest rate in return for which the lender (or another investor such as a family member or other partner) receives a portion of the future appreciation in the value of the property. May also apply to mortgage where the borrower shares the monthly principal and interest payments with another party in exchange for part of the appreciation.
Simple Interest: Interest which is computed only on the principal balance.
Survey: A measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to know points, its dimensions, and the location and dimensions of any buildings.
Sweat Equity: Equity created by a purchaser performing work on a property being purchased.
- T -
Title: A document that gives evidence of an individual's ownership of property.
Title Insurance: A policy, usually issued by a title insurance company, which insures a home buyer against errors in the title search. The cost of the policy is usually a function of the value of the property, and is often borne by the purchaser and/or seller. Policies are also available to protect the lender's interests.
Title Search: An examination of municipal records to determine the legal ownership of property. It is performed by a title company or an attorney.
Truth-In-Lending: A federal law requiring disclosure of the Annual Percentage Rate to home buyers shortly after they apply for the loan. Also known as Regulation Z.
Two-Step Mortgage: A mortgage in which the borrower receives a below-market interest rate for a specified number of years (most often seven or 10), and then receives a new interest rate adjusted (within certain limits) to market conditions at that time. The lender sometimes has the option to call the loan due with 30 days notice at the end of seven or 10 years. Also called "Super Seven" or "Premier" mortgage.
- U -
Underwriting: The process of analyzing a loan application to determine the amount of risk involved in making the loan; it includes a review of the potential borrower's credit history and a judgment of the property value.
Usury: Interest charged in excess of the legal rate established by law.
- V -
VA: Department of Veterans Affairs: A federal agency which guarantees loans made to veterans; similar to mortgage insurance, a loan guarantee protects lenders against loss that may result from a borrower default.
VA Loan: A long-term, low-or no-down payment loan guaranteed by the Department of Veterans Affairs. Restricted to individuals qualified by military service or other entitlements.
VA Mortgage Funding Fee: A premium of up to 1-7/8 percent (depending on the size of the down payment) paid on a VA-backed loan. On a $75,000 fixed-rate mortgage with no down payment, this would amount to $1,406 either paid at closing or added to the amount 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): A document signed by the borrower's employer verifying his/her position and salary.
- W -
Warehouse Fee: Many mortgage firms must borrow funds on a short term basis in order to originate loans which are to be sold later in the secondary mortgage market (or to investors). When the prime rate of interest is higher on short term loans than on mortgage loans, the mortgage firm has an economic loss which is offset by charging a warehouse fee.
Wraparound Mortgage: Results when an existing assumable loan is combined with a new loan, resulting in an interest rate somewhere between the old rate and the current market rate. The payments are made to a second lender or the previous homeowner, who then forwards the payments to the first lender after taking the additional amount off the top.
- X -
No entries for "X".
- Y -
Yield - The rate of earnings from an investment.
- Z -
Zoning - The ability of local governments to specify the use of private property in order to control development within designated areas of land. For example, some areas of a neighborhood may be designated only for residential use and others for commercial use such as stores, gas stations, etc.
Mortgage Glossary
Select the first letter of the word from the list below to jump to the appropriate section of the glossary.
A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
- A -
7/23 and 5/25 Mortgages - Mortgages with a one time rate adjustment after seven years and five years respectively.
3/1, 5/1, 7/1 and 10/1 ARMs - Adjustable-rate mortgages in which rate is fixed for three-year, five-year, seven-year and 10-year periods, respectively, but may adjust annually after that.
Abstract of Title - A historical summary provided by a title insurance company of all records affecting the title to a property.
Acceleration - The right of the mortgagee (lender) to demand the immediate repayment of the mortgage loan balance upon the default of the mortgagor (borrower), or by using the right vested in the Due-on-Sale Clause
Acceleration Clause -
Allows a lender to declare the entire outstanding balance of a loan immediately due and payable should a borrower violate specific loan provisions or default on the loan.
Adjustable Rate Mortgage (ARM) -
A variable or flexible rate mortgage with an interest rate that varies according to the financial index it is based upon. To limit the borrower's risk, the ARM may have a payment or rate cap. See also: cap.
Adjusted Basis - The cost of a property plus the value of any capital expenditures for improvements to the property minus any depreciation taken.
Adjustment Date - The date that the interest rate changes on an adjustable-rate mortgage (ARM).
Adjustment interval - On an adjustable rate mortgage, the time between changes in the interest rate and/or monthly payment, typically one, three or five years depending on the index.
Adjustment Period - The period elapsing between adjustment dates for an adjustable-rate mortgage (ARM).\
Affordability Analysis - An analysis of a buyers ability to afford the purchase of a home. Reviews income, liabilities, and available funds, and considers the type of mortgage you plan to use, the area where you want to purchase a home, and the closing costs that are likely.
Amenities -
Features of your home that fit your preferences and can increase the value of your property. Some examples include the number of bedrooms, bathrooms, or vicinity to public transportation.
Amortization -
The liquidation of a debt by regular, usually monthly, installments of principal and interest. An amortization schedule is a table showing the payment amount, interest, principal and unpaid balance for the entire term of the loan.
Amortization Term - The length of time required to amortize the mortgage loan expressed as a number of months. For example, 360 months is the amortization term for a 30-year fixed-rate mortgage.
Annual Cap -
See: cap.
Annual Percentage Rate (A.P.R.) -
The actual interest rate, taking into account points and other finance charges, for the projected life of a mortgage. Disclosure of APR is required by the Truth-in-Lending Law and allows borrowers to compare the actual costs of different mortgage loans.
Appraisal -
An estimate of a property's value as of a given date, determined by a qualified professional appraiser. The value may be based on replacement cost, the sales of comparable properties or the property's ability to produce income.
Appraised Value - An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property.
Appreciation -
A property's increase in value due to inflation or economic factors.
A.P.R. -
See: annual percentage rate.
ARM -
See: adjustable rate mortgage.
Assessment -
Charges levied against a property for tax purposes or to pay for municipality or association improvements such as curbs, sewers, or grounds maintenance.
Assignment -
The transfer of a contract or a right to buy property at given rates and terms from a mortgagee to another person.
Assumability - An assumable mortgage can be transferred from the seller to the new buyer. Generally requires a credit review of the new borrower and lenders may charge a fee for the assumption. If a mortgage contains a due-on-sale clause, it may not be assumed by a new buyer.
Assumption -
An agreement between a buyer and a seller, requiring lender approval, where the buyer takes over the payments for a mortgage and accepts the liability. Assuming a loan can be advantageous for a buyer because there are no closing costs and the loan's interest rate may be lower than current market rates. Depending on what is in the mortgage or deed of trust, the lender may raise the interest rate, require the buyer to qualify for the mortgage, or not permit the buyer to assume the loan at all.
Assumption Fee - The fee paid to a lender (usually by the purchaser of real property) when an assumption takes place.
- B -
Balloon Mortgage - Mortgage with a final lump sum payment that is greater than preceding payments and pays the loan in full.
Balloon Payment - The final lump sum paid at the maturity date of a balloon mortgage.
Biweekly Mortgage -
A loan requiring payments of principal and interest at two-week intervals. This type of loan amortizes much faster than monthly payment loans. The payment for a biweekly mortgage is half what a monthly payment would be.
Biweekly Payment Mortgage - A plan to reduce the debt every two weeks (instead of the standard monthly payment schedule). The 26 (or possibly 27) biweekly payments are each equal to one-half of the monthly payment required if the loan were a standard 30-year fixed-rate mortgage. The result for the borrower is a substantial savings in interest.
Blanket Mortgage - A mortgage covering at least two pieces of real estate as security for the same mortgage.
Bond -
A certificate serving as security for payment of a debt. Bonds backed by mortgage loans are pooled together and sold in the secondary market.
Borrower (Mortgagor) - One who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan in full.
Bridge Loan -
A loan to "bridge" the gap between the termination of one mortgage and the beginning of another, such as when a borrower purchases a new home before receiving cash proceeds from the sale of a prior home. Also known as a swing loan.
Broker -
An intermediary between the borrower and the lender. The broker represents the borrower to get the best deal.
Buy-Down -
Where the buyer pays additional discount points or makes a substantial down payment in return for a below market interest rate; or the seller offers 3-2-1 interest payment plans or pays closing costs such as the origination fee. During times of high interest rates, buy-downs may induce buyers to purchase property they may not otherwise have purchased.
- C -
Cash Flow - The amount of cash derived over a certain period of time from an income-producing property. The cash flow should be large enough to pay the expenses of the income producing property (mortgage payment, maintenance, utilities, etc.).
Cap - A limit in how much an adjustable rate mortgage's monthly payment or interest rate can increase. A cap is meant to protect the borrower from large increases and may be a payment cap, an interest cap, a life-of-loan cap or an annual cap. A payment cap is a limit on the monthly payment. An interest cap is a limit on the amount of the interest rate. A life-of-loan cap restricts the amount the interest rate can increase over the entire term of the loan. An annual cap limits the amount the interest rate can increase over a twelve-month period.
Certificate of Eligibility - The document given to qualified veterans which entitles them to VA guaranteed loans for homes, business and mobile homes. Certificates of eligibility may be obtained by sending form DD-214 (Separation Paper) to the local VA office with VA form 1880 (request for Certificate of Eligibility)
Certificate of Reasonable Value (CRV) -
A Veteran's Administration appraisal that establishes the maximum VA mortgage loan amount for a specified property.
Certificate of Title -
Document rendering an opinion on the status of a property's title based on public records.
Certificate of veteran status - The document given to veterans or reservists who have served 90 days of continuous active duty (including training time) It may be obtained by sending DD 214 to the local VA office with form 26-8261a (request for certificate of veteran status. This document enables veterans to obtain lower down payments on certain FHA insured loans).
Change Frequency - The frequency (in months) of payment and/or interest rate changes in an adjustable-rate mortgage (ARM).
Closing - The meeting between the buyer, seller and lender or their agents where the property and funds legally change hands, also called settlement. Closing costs usually include an origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. The cost of closing usually are about 3 percent to 6 percent of the mortgage amount.
Closed-End Mortgage -
A mortgage principal amount that is fixed and cannot be increased during the life of the loan. See also: open-end mortgage.
Closing Costs -
Costs payable by both seller and buyer at the time of settlement, when the purchase of a property is finalized. These costs can be up to ten percent of the mortgage amount and usually include but are not limited to the following:
Fees Paid to the Lender Fees Paid in Advance Other Charges
Origination fee
Discount points
Credit report fee
Appraisal fee
Assumption fee if loan is assumed
Interest from the closing date to the beginning of the 1st payment
Hazard insurance premium
Mortgage insurance premium
Title search and title insurance
Sales commissions
Legal and recording fees
Inspection and survey fees
Property taxes and other adjustments
Processing and document preparation fees
Cloud - A claim to the title of a property that, if valid, would prevent a purchaser from obtaining a clear title.
COFI - Adjustable-rate mortgage with rate that adjusts based on a cost-of-funds index, often the 11th District Cost of Funds.
Collateral -
Something of value pledged as security for a loan. In mortgage lending, the property itself serves as collateral for a mortgage loan.
Commitment Fee - A fee charged when an agreement is reached between a lender and a borrower for a loan at a specific rate and points and the lender guarantees to lock in that rate.
Co-Mortgagor -
One who is individually and jointly obligated to repay a mortgage loan and shares ownership of the property with one or more borrowers. See also: co-signer.
Condominium -
An individually owned unit within a multi-unit building where others or the Condominium Owners Association share ownership of common areas such as the grounds, the parking facilities and the tennis courts.
Conforming Loan - A loan that conforms to Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC) guidelines. See also: non-conforming loan.
Construction Loan -
A short-term loan financing improvements to real estate, such as the building of a new home. The lender advances funds to the borrower as needed while construction progresses. Upon completion of the construction, the borrower must obtain permanent financing or pay the construction loan in full.
Consumer Handbook on Adjustable Rate Mortgages (C.H.A.R.M.) -
A disclosure required by the federal government to be given to any borrower applying for an adjustable rate mortgage (ARM).
Consumer Reporting Agency (or Bureau) - An organization that handles the preparation of reports used by lenders to determine a potential borrower's credit history. The agency gets data for these reports from a credit repository and from other sources.
Contract sale or deed: - A contract between purchaser and a seller of real estate to convey title after certain conditions have been met. It is a form of installment sale.
Conventional Loan -
A mortgage loan that is not insured, guaranteed or funded by the Veterans Administration (VA), the Federal Housing Administration (FHA) or Rural Economic Community Development (RECD) (formerly Farmers Home Administration).
Conversion Clause - A provision in an ARM allowing the loan to be converted to a fixed-rate at some point during the term. Usually conversion is allowed at the end of the first adjustment period. The conversion feature may cost extra.
Convertible Mortgage -
An adjustable rate mortgage (ARM) that allows a borrower to switch to a fixed-rate mortgage at a specified point in the loan term.
Co-Signer -
One who is obligated to repay a mortgage loan should the borrower default but who does not share ownership in the property. See also: co-mortgagor.
Covenants -
Rules and restrictions governing the use of property.
Credit Report - A report documenting the credit history and current status of a borrower's credit standing.
Credit Risk Score - A credit risk score is a statistical summary of the information contained in a consumer's credit report. The most well known type of credit risk score is the Fair Isaac or FICO score. This form of credit scoring is a mathematical summary calculation that assigns numerical values to various pieces of information in the credit report. The overall credit risk score is highly relative in the credit underwriting process for a mortgage loan.
CRV -
See: certificate of reasonable value.
Curtailments -
The borrower's privilege to make payments on a loan's principal before they are due. Paying off a mortgage before it is due may incur a penalty if so specified in the mortgage's prepayment clause.
- D -
Debt -
Money owed to repay someone.
Debt-to-Income Ratio -
The ratio between a borrower's monthly payment obligations divided by his or her net effective income (FHA or VA loans) or gross monthly income (conventional loans).
Deed of Trust -
A document, used in many states in place of a mortgage, held by a trustee pending repayment of the loan. The advantage of a deed of trust is that the trustee does not have to go to court to proceed with foreclosure should the borrower default on the loan.
Default - Failure to meet legal obligations in a contract, specifically, failure to make the monthly payments on a mortgage.
Deferred interest - When a mortgage is written with a monthly payment that is less than required to satisfy the note rate, the unpaid interest is deferred by adding it to the loan balance. See negative amortization.
Delinquency - Failure to make payments on time. This can lead to foreclosure.
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.
Department of Housing and Urban Development (HUD) -
The U.S. government agency that administers FHA, GNMA and other housing programs.
Discount Points -
Amounts paid to the lender based on the loan amount to buy the interest rate down. Each point is one percent of the loan amount; for example, two points on a $100,000 mortgage is $2,000.
Down Payment -
The difference between the purchase price and mortgage amount. The down payment becomes the property equity. Typically it should be cash savings, but it can also be a gift that is not to be repaid or a borrowed amount secured by assets.
Due-on-Sale - A clause in a mortgage or deed of trust allowing a lender to require immediate payment of the balance of the loan if the property is sold (subject to the terms of the security instrument).
Duplex - Dwelling divided into two units.
- E -
Earnest Money -
Deposit in the form of cash or a note, given to a seller by a buyer as good faith assurance that the buyer intends to go through with the purchase of a property.
Easement -
The right one party has in regard to the property of another, such as the right of a public utility company to lay lines.
Entitlement - The VA home loan benefit is called an entitlement (i.e. entitlement for a VA guaranteed home loan). This is also known as eligibility.
Equal Credit Opportunity Act -
A federal law prohibiting lenders and other creditors from discrimination based on race, color, sex, religion, national origin, age, marital status, receipt of public assistance or because an applicant has exercised his or her rights under the Consumer Credit Protection Act.
Equity -
The value of a property beyond any liens against it. Also referred to as owner's interest.
Escape Clause -
A provision allowing one party or more to cancel all or part of the contract if certain events fail to happen, such as the ability of the buyer to obtain financing within a specified period.
Escrow -
Money placed with a third party for safekeeping either for final closing on a property or for payment of taxes and insurance throughout the year.
Escrow Disbursements - The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.
Escrow Payment - The part of a mortgagor's monthly payment that is held by the servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due.
- F -
Fair Market Value -
The price a property can realistically sell for, based upon comparable selling prices of other properties in the same area.
Fannie Mae -
Nickname for Federal National Mortgage Association (FNMA).
Farmers Home Administration (FmHA) - Provides financing to farmers and other qualified borrowers who are unable to obtain loans elsewhere.
Federal Home Loan Bank Board (FHLBB) - The former name for the regulatory and supervisory agency for federally chartered savings institutions. Agency is now called the Office of Thrift Supervision
Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac) -
A quasi-governmental, federally-sponsored organization that acts as a secondary market investor to buy and sell mortgage loans. FHLMC sets many of the guidelines for conventional mortgage loans, as does FNMA.
Federal Housing Administration (FHA) -
An agency within the Department of Housing and Urban Development that sets standards for underwriting and insures residential mortgage loans made by private lenders. One of FHA's objectives is to ensure affordable mortgages to those with low or moderate income. FHA loans may be high loan-to-value, and they are limited by loan amount. FHA mortgage insurance requires a fee of 1.5 percent of the loan amount to be paid at closing, as well as an annual fee of 0.5 percent of the loan amount added to each monthly payment.
Federal National Mortgage Association (FNMA or Fannie Mae) -
A private corporation that acts as a secondary market investor to buy and sell mortgage loans. FNMA sets many of the guidelines for conventional mortgage loans, as does FHLMC. The major purpose of this organization is to make mortgage money more affordable and more available.
Fee Simple -
The maximum form of ownership, with the right to occupy a property and sell it to a buyer at any time. Upon the death of the owner, the property goes to the owner's designated heirs. Also known as fee absolute.
FHA -
See: Federal Housing Administration.
FHA loan - A loan insured by the Federal Housing Administration open to all qualified home purchasers. While there are limits to the size of FHA loans, they are generous enough to handle moderately-priced homes almost anywhere in the country.
FHA mortgage insurance - Requires a fee (up to 2.25 percent of the loan amount) paid at closing to insure the loan with FHA. In addition, FHA mortgage insurance requires an annual fee of up to 0.5 percent of the current loan amount, paid in monthly installments. The lower the down payment, the more years the fee must be paid.
FHLMC - The Federal Home Loan Mortgage Corporation provides a secondary market for savings and loans by purchasing their conventional loans. Also known as "Freddie Mac."
Fifteen-Year Mortgage -
A loan with a term of 15 years. Although the monthly payment on a 15-year mortgage is higher than that of a 30-year mortgage, the amount of interest paid over the life of the loan is substantially less.
Firm Commitment - A promise by FHA to insure a mortgage loan for a specified property and borrower. A promise from a lender to make a mortgage loan.
First Mortgage - The primary lien against a property.">
Fixed Installment - The monthly payment due on a mortgage loan including payment of both principal and interest.
Fixed-Rate Mortgage -
A mortgage whose rate remains constant throughout the life of the mortgage.
Flood Insurance -
The Federal Flood Disaster Protection Act of 1973 requires that federally-regulated lenders determine if real estate to be used to secure a loan is located in a Specially Flood Hazard Area (SFHA). If the property is located in a SFHA area, the borrower must obtain and maintain flood insurance on the property. Most insurance agents can assist in obtaining flood insurance.
Foreclosure - A legal process by which the lender or the seller forces a sale of a mortgaged property because the borrower has not met the terms of the mortgage. Also known as a repossession of property.
Fully Amortized ARM - An adjustable-rate mortgage (ARM) with a monthly payment that is sufficient to amortize the remaining balance, at the interest accrual rate, over the amortization term.
FNMA -
See: Federal National Mortgage Association.
Freddie Mac -
Nickname for Federal Home Loan Mortgage Corporation (FHLMC).
- G -
Gift -
This includes amounts from a relative or a grant from the borrower's employer, a municipality, non-profit religious organization, or non-profit community organization that does not have to be repaid.
Ginnie Mae -
Nickname for Government National Mortgage Association (GNMA).
Good Faith Estimate -
Estimate on closing costs and monthly mortgage payments provided by the lender to the homebuyer within 3 days of applying for a loan.
Government National Mortgage Association (GNMA or Ginnie Mae) -
A government organization that participates in the secondary market, securitizing pools of FHA, VA, and RHS loans.
Graduated Payment Mortgage (GPM) -
A fixed-interest loan with lower payments in the early years than the later years. The amount of the payment gradually increases over a period of time and then levels off at a payment sufficient to pay off the loan over the remaining amortization period.
Growing-Equity Mortgage (GEM) - A fixed-rate mortgage that provides scheduled payment increases over an established period of time. The increased amount of the monthly payment is applied directly toward reducing the remaining balance of the mortgage.
Guaranty - A promise by one party to pay a debt or perform an obligation contracted by another if the original party fails to pay or perform according to a contract.
Guarantee Mortgage - A mortgage that is guaranteed by a third party.
- H -
Hazard Insurance -
A form of insurance that protects the insured property against physical damage such as fire and tornadoes. Mortgage lenders often require a borrower to maintain an amount of hazard insurance on the property that is equal at least to the amount of the mortgage loan.
Home Equity Loan -
A mortgage on the borrower's principal residence, usually for the purpose of making home improvements or debt consolidation.
Home Inspection -
A thorough review of the physical aspects and condition of a home by a professional home inspector. This inspection should be completed prior to closing so that any repairs or changes can be completed before the home is sold.
Homeowners Insurance -
A form of insurance that protects the insured property against loss from theft, liability and most common disasters.
Housing and Urban Development (HUD) -
The U.S. government agency that administers FHA, GNMA and other housing programs.
Housing Affordability Index -
Indicates what proportion of homebuyers can afford to buy an average-priced home in specified areas. The most well known housing affordability index is published by the National Association of Realtors.
Housing Expenses-to-Income Ratio -
See: debt-to-income ratio.
HUD -
See: Housing and Urban Development.
- 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.
Income Approach to Value -
A method used by real estate appraisers to predict a property's anticipated future income. Income property includes shopping centers, hotels, motels, restaurants, apartment buildings, office space and so forth.
Income-to-Debt Ratio -
See: debt-to-income ratio.
Index -
A published interest rate compiled from other indicators such as U.S. Treasury bills or the monthly average interest rate on loans closed by savings and loan organizations. Mortgage lenders use the index figure to establish rates on adjustable rate mortgages (ARMs).
Indexed rate - The sum of the published index plus the margin. For example if the index were 9% and the margin 2.75%, the indexed rate would be 11.75%. Often, lenders charge less than the indexed rate the first year of an adjustable-rate mortgage.
Initial Interest Rate - This refers to the original interest rate of the mortgage at the time of closing. This rate changes for an adjustable-rate mortgage (ARM). It's also known as "start rate" or "teaser."
Installment - The regular periodic payment that a borrower agrees to make to a lender.
Insurance -
As a part of PITI, the amount of the monthly mortgage payment that does not include the principal, interest, and taxes.
Also see: homeowners insurance.
Insured Mortgage - A mortgage that is protected by the Federal Housing Administration (FHA) or by private mortgage insurance (MI).
Interest -
The amount of the entire mortgage loan which does not include the principal. Also, as a part of PITI, the amount of the monthly mortgage payment which does not include the principal, taxes, and insurance.
Interest Accrual Rate - The percentage rate at which interest accrues on the mortgage. In most cases, it is also the rate used to calculate the monthly payments.
Interest Cap - See: cap
Interest Rate -
The simple interest rate, stated as a percentage, charged by a lender on the principal amount of borrowed money. See also: Annual Percentage Rate.
Interest Rate Buydown Plan - An arrangement that allows the property seller to deposit money to an account. That money is then released each month to reduce the mortgagor's monthly payments during the early years of a mortgage.
Interest Rate Ceiling - For an adjustable-rate mortgage (ARM), the maximum interest rate, as specified in the mortgage note.
Interest Rate Floor - For an adjustable-rate mortgage (ARM), the minimum interest rate, as specified in the mortgage note.
Interim Financing - A construction loan made during completion of a building or a project. A permanent loan usually replaces this loan after completion.
Investor - A money source for a lender.
- J -
Joint Tenancy -
See: tenancy.
Jumbo Loan -
A nonconforming loan that is larger than the limits set by the Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC) guidelines.
- K -
Key Lot - Real estate deemed highly valuable because of its location.
- L -
Late Charge - The penalty a borrower must pay when a payment is made a stated number of days (usually 15) after the due date.
Lease - Purchase Mortgage Loan - An alternative financing option that allows low- and moderate-income home buyers to lease a home with an option to buy. Each month's rent payment consists of principal, interest, taxes and insurance (PITI) payments on the first mortgage plus an extra amount that accumulates in a savings account for a down payment.
Liabilities - A person's financial obligations. Liabilities include long-term and short-term debt.
Lien -
A claim against a property for the payment of a debt. A mortgage is a lien; other types of liens a property might have include a tax lien for overdue taxes or a mechanics lien for unpaid debt to a subcontractor.
Life-of-Loan Cap -
See: cap.
Lifetime Payment Cap - For an adjustable-rate mortgage (ARM), a limit on the amount that payments can increase or decrease over the life of the mortgage.
Lifetime Rate Cap - For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can increase or decrease over the life of the loan. See cap.
Liquidity -
The capability of an asset to be readily converted into cash.
Loan - A sum of borrowed money (principal) that is generally repaid with interest.
Loan Discount -
See: points.
Loan Origination Fee -
See: origination fee.
Loan-to-Value Ratio (LTV) -
The relationship, expressed as a percentage, between the amount of the proposed loan and a property's appraised value. For example, a $75,000 loan on a property appraised at $100,000 is a 75% loan-to-value.
Lock - Lender's guarantee that the mortgage rate quoted will be good for a specific number of days from day of application.
Lock-In -
The guarantee of a specific interest rate and/or points for a specific period of time. Some lenders will charge a fee for locking in an interest rate.
- M -
Maintenance Costs -
The cost of the upkeep of the house. These costs may be minor in cost and nature (replacing washers in the faucets) or major in cost and nature (new heating system or a new roof) and can apply to either the interior or exterior of the house.
Margin -
The amount a lender adds to the index of an adjustable rate mortgage to establish an adjusted interest rate. For example, a margin of 1.50 added to a 7 percent index establishes an adjusted interest rate of 8.50 percent.
Market Value -
The price a property can realistically sell for, based upon comparable selling prices of other properties in the same area.
Maturity - The date on which the principal balance of a loan becomes due and payable.
MIP (Mortgage Insurance Premium) - It is insurance from FHA to the lender against incurring a loss on account of the borrower's default.
Modification -
A change in the terms of the mortgage note, such as a reduction in the interest rate or change in maturity date.
Monthly Fixed Installment - That portion of the total monthly payment that is applied toward principal and interest. When a mortgage negatively amortizes, the monthly fixed installment does not include any amount for principal reduction and doesn't cover all of the interest. The loan balance therefore increases instead of decreasing.
Mortgage -
A legal instrument in which property serves as security for the repayment of a loan. In some states, a deed of trust is used rather than a mortgage.
Mortgage Banker -
A lender that originates, closes, services and sells mortgage loans to the secondary market.
Mortgage Broker -
An intermediary between a borrower and a lender. A broker's expertise is to help borrowers find financing that they might not otherwise find themselves.
Mortgage Insurance -
Money paid to insure the lender against loss due to foreclosure or loan default. Mortgage insurance is required on conventional loans with less than a 20 percent down payment. FHA mortgage insurance requires a payment of 1.5 percent of the loan amount to be paid at closing, as well as an annual fee of 0.5 percent of the loan amount added to each monthly payment.
Mortgage Interest -
Interest rate charge for borrowing the money for the mortgage. It is a used to calculate the interest payment on the mortgage each month.
Mortgage Term -
The length of time that a mortgage is scheduled to exist. Example: a 30-year mortgage term is for 30 years.
Mortgagee -
The lender.
Mortgagor -
The borrower.
- N -
Negative Amortization - A situation in which a borrower is paying less interest than what is actually being charged for a mortgage loan. The unpaid interest is added to the loan's principal. The borrower may end up owing more than the original amount of the mortgage.
Net Effective Income - The borrower's gross income minus federal income tax.
Non-Assumption Clause -
In a mortgage contract, a statement that prohibits a new buyer from assuming a mortgage loan without the approval of the lender.
Non-Conforming Loan -
A loan that does not conform to Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC) guidelines. Jumbo loans are nonconforming.
See also: conforming loan.
Note -
A signed document that acknowledges a debt and shows the borrower is obligated to pay it.
- O -
Office of Thrift Supervision (OTS) - The regulatory and supervisory agency for federally chartered savings institutions. Formally known as Federal Home Loan Bank Board
One-year adjustable - Mortgage whose annual rate changes yearly. The rate is usually based on movements of a published index plus a specified margin, chosen by the lender.
Open-End Mortgage -
A mortgage allowing the borrower to receive advances of principal from the lender during the life of the loan. See also: closed-end mortgage.
Origination Fee -
The amount charged by a lender to originate and close a mortgage loan. Origination fees are usually expressed in points.
Owner Financing - A property purchase transaction in which the party selling the property provides all or part of the financing.
- P -
Payment Cap - See: cap.
Payment Change Date - The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM) or a graduated-payment mortgage (GPM). Generally, the payment change date occurs in the month immediately after the adjustment date.
Periodic Payment Cap - A limit on the amount that payments can increase or decrease during any one adjustment period.
Periodic Rate Cap - A limit on the amount that the interest rate can increase or decrease during any one adjustment period, regardless of how high or low the index might be.
Permanent Loan - A long term mortgage, usually ten years or more. Also called an "end loan."
P&I -
Abbreviation for principal and interest.
PITI -
Abbreviation for principal, interest, taxes and insurance.
Pledged account Mortgage (PAM): - Money is placed in a pledged savings account and this fund plus earned interest is gradually used to reduce mortgage payments.
Points -
Charges levied by the lender based on the loan amount. Each point equals one percent of the loan amount; for example, two points on a $100,000 mortgage is $2,000. Discount points are used to buy down the interest rate. Points can also include a loan origination fee, which is usually one point.
Power of Attorney - A legal document authorizing one person to act on behalf of another.
Pre-Approval - The process of determining how much money you will be eligible to borrow before you apply for a loan.
Prepaid Expenses - Necessary to create an escrow account or to adjust the seller's existing escrow account. Can include taxes, hazard insurance, private mortgage insurance and special assessments.
Prepayment - A privilege in a mortgage permitting the borrower to make payments in advance of their due date.
Prepayment Penalty - Money charged for an early repayment of debt. Prepayment penalties are allowed in some form (but not necessarily imposed) in many states.
Pre-Qualification - Tentative establishment of a borrower's qualification for a mortgage loan amount of a specific range, based on the borrower's assets, debts, and income.
Primary Mortgage Market - Lenders, such as savings and loan associations, commercial banks, and mortgage companies, who make mortgage loans directly to borrowers. These lenders sometimes sell their mortgages to the secondary mortgage markets such as to FNMA or GNMA, etc.
Prime Rate -
The interest rate commercial banks charge their most creditworthy customers.
Principal -
The amount of the entire mortgage loan, not counting interest. Also, as a part of PITI, the amount of the monthly mortgage payment which does not include the interest, insurance, and taxes.
Principal Balance - The outstanding balance of principal on a mortgage not including interest or any other charges.
Principal, Interest, Taxes, and Insurance (PITI) - The four components of a monthly mortgage payment. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the monthly cost of property taxes and homeowners insurance, whether these amounts that are paid into an escrow account each month or not.
Private Mortgage Insurance (PMI) -
See: mortgage insurance.
Property Appraisal - See: appraisal.
Property Tax -
The amount which the state and/or locality assesses as a tax on a piece of property.
Prorate -
To proportionally divide amounts owed by the buyer and the seller at closing.
- Q -
Qualification - As determined by a lender, the ability of the borrower to repay a mortgage loan based on the borrower's credit history, employment history, assets, debts and income.
Qualifying Ratios - Calculations used to determine if a borrower can qualify for a mortgage. They consist of two separate calculations: a housing expense as a percent of income ratio and total debt obligations as a percent of income ratio.
- R -
Rate Cap - See: cap.
Rate Lock - A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate and lender costs for a specified period of time.
Realtor? - A real estate broker or an associate holding active membership in a local real estate board affiliated with the National Association of Realtors.
Real Estate Agent - A person licensed to negotiate and transact the sale of real estate on behalf of the property owner.
Recission - The cancellation of a contract. With respect to mortgage refinancing, the law that gives the homeowner three days to cancel a contract in some cases once it is signed if the transaction uses equity in the home as security.
Recording Fees - Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records.
Refinance - Obtaining a new mortgage loan on a property already owned. Often to replace existing loans on the property.
Renegotiable Rate Mortgage - A loan in which the interest rate is adjusted periodically. See adjustable rate mortgage.
RESPA -
Abbreviation for the Real Estate Settlement Procedures Act, which allows consumers to review settlement costs at application and once again prior to closing.
Reverse Annuity Mortgage -
A type of mortgage loan in which the lender makes periodic payments to the borrower. The borrower's equity in the home is used as security for the loan.
Revolving Liability - 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.
RHCDS -
Rural Housing and Community Service
Right of First Refusal -
Purchasing a property under conditions and terms made by another buyer and accepted by the seller.
Right of Rescission -
When a borrower's principal dwelling is going to secure a loan, the borrower has three business days following signing of the loan documents to rescind or cancel the transaction. Any and all money paid by the borrower must be refunded upon rescission. The right to rescind does not apply to loans to purchase real estate or to refinance a loan under the same terms and conditions where no additional funds will be added to the existing loan.
Rollover -
At the end of the construction loan period, the borrower's file is delivered to Bank One Mortgage Loan Servicing Dept. Prior to delivery, CLD contacts the borrower and obtains funds for the tax and insurance escrows, a final title policy and homeowner's policy. This process is called a rollover.
Rural Housing and Community Development Service -
A federal agency that administers mortgage loans for buyers in rural areas.
- S -
Satisfaction of Mortgage - The document issued by the mortgagee when the mortgage loan is paid in full. Also called a "release of mortgage."
Second Mortgage -
A loan that is junior to a primary or first mortgage and often has a higher interest rate and a shorter term.
Secondary Market -
A market comprising investors like GNMA, FHLMC and FNMA, which buy large numbers of mortgages from the primary lenders and sell them to other investors.
Security - The property that will be pledged as collateral for a loan.
Seller Carry-back - An agreement in which the owner of a property provides financing, often in combination with an assumable mortgage. See owner financing.
Servicer - An organization that collects principal and interest payments from borrowers and manages borrowers? escrow accounts. The servicer often services mortgages that have been purchased by an investor in the secondary mortgage market.
Servicing -
The responsibility of collecting monthly mortgage payments and properly crediting them to the principal, taxes and insurance, as well as keeping the borrower informed of any changes in the status of the loan.
Settlement Costs -
See: closing costs.
Shared Appreciation Mortgage (SAM) - A mortgage in which a borrower receives a below-market interest rate in return for which the lender (or another investor such as a family member or other partner) receives a portion of the future appreciation in the value of the property. May also apply to mortgage where the borrowers shares the monthly principal and interest payments with another party in exchange for part of the appreciation.
Simple Interest - Interest which is computed only on the principle balance.
Standard Payment Calculation - The method used to determine the monthly payment required to repay the remaining balance of a mortgage in substantially equal installments over the remaining term of the mortgage at the current interest rate.
Step-Rate Mortgage - A mortgage that allows for the interest rate to increase according to a specified schedule (i.e., seven years), resulting in increased payments as well. At the end of the specified period, the rate and payments will remain constant for the remainder of the loan.
Survey -
A physical measurement of property done by a registered professional showing the dimensions and location of any buildings as well as easements, rights of way, roads, etc.
Sweat Equity - Equity created by a purchaser performing work on a property being purchased.
- T -
Tax Deed -
A written document conveying title to property repossessed by the government due to default on tax payments.
Tax Savings -
The amount of money that the homeowner is not required to pay the government in taxes because he or she owns a home.
Taxes -
As a part of PITI, the amount of the monthly mortgage payment which does not include the principal, interest, and insurance.
Joint Tenancy - Equal ownership of property by two or more parties, each with the right of survivorship.
Tenancy by the Entireties - Ownership of property only between husband and wife in which neither can sell without the consent of the other and the property is owned by the survivor in the event of death of either party.
Tenancy in Common - Equal ownership of property by two or more parties without the right of survivorship.
Tenancy in Severalty - Ownership of property by one legal entity or a sole party.
Tenancy at Will - A license to use or occupy a property at the will of the owner.
Third-party Origination - When a lender uses another party to completely or partially originate, process, underwrite, close, fund, or package the mortgages it plans to deliver to the secondary mortgage market.
Title -
A formal document establishing ownership of property.
Title Insurance - A policy issued by a title insurance company insuring the purchaser against any errors in the title search. The cost of title insurance may be paid for by the buyer, the seller or both.
Title Search - An examination of municipal records to determine the legal ownership of property. Usually is performed by a title company.
Total Expense Ratio - Total obligations as a percentage of gross monthly income including monthly housing expenses plus other monthly debts.
Trust Deed -
See: deed of trust.
Truth In Lending Act -
The Truth In Lending Act requires lenders to disclose the Annual Percentage Rate and other associated costs to homebuyers within three working days of the loan application.
Two-Step Mortgage - A mortgage in which the borrower receives a below-market interest rate for a specified number of years (most often seven or 10), and then receives a new interest rate adjusted (within certain limits) to market conditions at that time. the lender sometimes has the option to call the loan due with 30 days notice at the end of seven or 10 years. also called "Super Seven" or "Premier" mortgage.
- U -
Underwriting - The decision whether to make a loan to a potential home buyer based on credit, employment, assets, and other factors and the matching of this risk to an appropriate rate and term or loan amount.
Underwriter -
A professional who approves or denies a loan to a potential homebuyer based on the homebuyer's credit history, employment history, assets, debts and other factors such as loan guidelines.
Uniform Settlement Statement -
A standard document prescribed by the Real Estate Settlement Procedures Act containing information for closing which must be supplied to both buyer and seller.
Usury - Interest charged in excess of the legal rate established by law.
Utility Costs -
Periodic housing costs for water, electricity, natural gas, heating oil, etc.
- V -
VA loan -
See: Veterans Administration.
Vacation Home -
See: secondary residence.
VA Mortgage Funding Fee - A premium of up to 1-7/8 percent (depending on the size of the down payment) paid on a VA-backed loan. On a $75,000 fixed-rate mortgage with no down payment, this would amount to $1,406 either paid at closing or added to the amount 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) - A document signed by the borrower's employer verifying his/her position and salary.
Veterans Administration (VA) -
The federal agency responsible for the VA loan guarantee program as well as other services for eligible veterans. In general, qualified veterans can apply for home loans with no down payment and a funding fee of 1 percent of the loan amount.
- W -
Walk-Through - An inspection of a property by the prospective buyer prior to closing on a mortgage.
Warehouse Fee - Many mortgage firms must borrow funds on a short term basis in order to originate loans which are to be sold later in the secondary mortgage market (or to investors). When the prime rate of interest is higher on short term loans than on mortgage loans, the mortgage firm has an economic loss which is offset by charging a warehouse fee.
Wraparound mortgage -Results when an existing assumable loan is combined with a new loan, resulting in an interest rate somewhere between the old rate and the current market rate. The payments are made to a second lender or the previous homeowner, who then forwards the payments to the first lender after taking the additional amount off the .
Warranty Deed -
A document protecting a homebuyer against any and all claims to the property.
- X -
No entries for "X".
- Y -
Yield - The rate of earnings from an investment.
- Z -
Zoning - The ability of local governments to specify the use of private property in order to control development within designated areas of land. For example, some areas of a neighborhood may be designated only for residential use and others for commercial use such as stores, gas stations, etc.
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