Glossary of Mortgage Terms
Abstract (of Title) – A summary of the public records relating to the title to a particular piece of land. If there are any title defects they must be cleared before a buyer can purchase clear, marketable, and insurable title.
Acceptance – The written approval of the buyer's offer by the seller.
Additional Principal Payment – Is money paid to the lender in addition to the established payment amount used directly against the loan principal to shorten the length of the loan.
Adjustable Rate Mortgage (ARM) – A mortgage loan in which the interest rate can go up or down based on market conditions. The changes in the interest rate are determined by the financial index that the loan is closed. ARM loans also have a rate cap or a limit on how much and when the interest rate can change tied to a specific index and margin. The margin is added to the index value on the specific adjustment dates and subject to any adjustment caps.
Affidavit – A statement that is signed and notarized made by person regarding the truth about information they provided in the statement.
Amenity – Is a feature of the home or property that serves as a benefit to the buyer but that is not necessary to its use; may be natural (like location, woods, water) or man-made (like a swimming pool or garden).
Amortization – Is the repayment of a mortgage loan that enables you to reduce your debt gradually with equal periodic payments of both principal and interest. The payments are calculated so that the mortgage debt is paid off at the end of the agreed fixed period of time. Initially, most of the payment goes to interest but over time more and more of the payment goes towards principal until it is all paid off.
Annual Mortgagor Statement – A yearly statement to borrowers detailing the remaining principal and amounts paid for principal, interest, taxes and insurance.
Annual Percentage Rate (APR) – Is the actual interest rate that includes the total cost of the mortgage as an annual interest rate. The APR is normally higher than the actual note interest rate, because it includes interest, points, mortgage insurance, and other various fees associated with the loan. Because all lenders, by federal law, follow the same rules to ensure the accuracy of the annual percentage rate, it provides consumers with a good basis for comparing the cost of loans, including mortgage plans. APR is a higher rate than the simple interest of the mortgage.
Appraisal – An appraisal is a value report that is created by a qualified licensed appraiser for a fee that is an estimate of the market value of the property based on the sales of comparable homes in the area and the features of a property and analysis of the property. An appraisal is required by mortgage lenders before loan approval to ensure that the mortgage loan amount is not more than the value of the property that is being purchased or a mortgage loan refinanced. It includes property information and homes that are similar are size and located within a certain distance from the home being appraised to determine the Appraised value.
Appraised Value – An appraised value is an estimate of the current fair market value.
Appraiser – Is a qualified individual who uses their experience and knowledge to prepare the appraisal estimate.
Application – This is the initial step in the official loan approval process. The loan application form (1003) is used to get important information about the potential borrower necessary to process the mortgage loan file to document to get it to the underwriting process.
Application Fee – Is a fee that some mortgage lenders charge at time of application. It usually goes towards initial processing expenses like the appraisal fee, processing fees and credit report.
Appreciation – Is an increase in a property value from changes in market conditions.
Arbitration – A legal method of resolving a dispute without going to court.
As is Condition – Is the purchase or sale of a property in its existing condition without repairs.
Asking Price – A seller's stated price for a property.
Assessment – Is the method used to assess the value given to property which is used for determining what the property taxes will be for the property. A local tax levied against a property for a specific purpose, such as a sewer or street lights.
Assessor – Is a town official who is responsible for determining the value of a property for the purpose of taxation. The value placed on a property by local officials for taxation purposes it may or may not equal appraised value.
Assets – Any item that has monetary value such as cash, stocks, bonds, collectables, real estate and numerous other items. You will be required to list the information about your assets when applying for a mortgage loan.
Automated Underwriting – A loan program completed through a computer-based system that evaluates past credit history to determine if a loan should be approved. This system removes the possibility of personal bias against the buyer.
Back End Ratio (debt ratio) – Is the ratio that compares the total of all monthly debt payments for example the mortgage payment, real estate taxes and insurance, auto loans and other consumer debt payments to the gross monthly income.
Back to Back Escrow – Is an arrangement that an owner makes to oversee the sale of one property and the purchase of another at the same time.
Balance Sheet – A financial statement that shows the assets, liabilities and net worth of an individual or company.
Balloon Mortgage – A mortgage loan that has a specific mortgage period that is usually a shorter mortgage term that has the same monthly payment amounts. Then a lump sum payment that is the amount in which the loan balance is due the final payment (balloon payment) that is due on the specified date. The final payment is equal to the remaining balance of the loan.
Bankruptcy – A federal law whereby a person's assets are turned over to a trustee and used to pay off outstanding debts. This usually occurs when someone owes more than they have the ability to repay.
Beneficiary – A person or company who is beneficially interested in a trust or estate.
Binder – Is a preliminary agreement secured by the payment of earnest money between a buyer and seller as an offer to purchase real estate. A binder secures the right to purchase real estate upon agreed terms for a limited period of time.
Bi-Weekly Mortgage – A mortgage loan in which equal payments that is due and payable every two weeks totaling twenty-six (26) payments each year.
Blanket Mortgage – Is a mortgage loan that covers two or more pieces of real estate as a security interest under the same mortgage loan.
Blue Sky Laws – Is a name given to certain laws enacted by the various states which regulate the sale and issuance of securities, in the attempt to prevent fraud in their sale and disposition.
Borrower (Mortgagor) – The person who applies for and receives a loan in the form of a mortgage loan with the intention of repaying the loan in full and any fees according to the loan terms. Or a legal entity who obtains funds from a mortgage lender by the extension of credit for a period of time for consideration.
Bridge loan – A short term loan secured by a trust deed or mortgage designed to help a borrower quickly obtains the necessary cash to purchase and/or develop a property while the borrower obtains permanent financing.
Broker – Is a licensed individual or firm that charges a fee to serve as the party between the homebuyer and home seller. A real estate broker is someone who helps consumer’s find a house and negotiates the purchase for a client.
Budget – Is a detailed record of all income earned and spent during a specific period of time.
Building Code – Is based on agreed upon safety standards within a specific area. Building codes are regulations that determine the design, construction, and materials to be used in a building.
Building Line (Setbacks) – Are the Distances from the ends and or sides of a lot beyond which construction may not extend. The building line may be set by a filed plat of subdivision, by restrictive covenants in deeds or leases, by building codes, or by zoning ordinances.
Buy Down – The homebuyer or the home seller pays an amount to the lender to subsidize the mortgage by lowering the interest rate during the first few years of the loan. The lender provides a lower rate and lower payments for a period of time. While the payments are initially low, they will increase when the subsidy expires.
Capacity – The ability to make mortgage payments on time dependent on assets and the amount of income each month after paying housing costs, debts and other obligations.
Capital Gain – The profit received based on the difference of the original purchase price and the total sale price.
Capital Improvements – Are property improvements that either will enhance the property value or will increase the useful life of the property.
Cash Reserves – A cash amount sometimes required of the home buyer to be held in reserve in addition to the down payment and closing costs. The amount is determined by the guidelines that are set by the mortgage lender usually the equivalent to two months’ mortgage payments.
Cash Flow – Is 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 including mortgage payment, property taxes, maintenance, utilities, etc.
Cash-Out Refinance – Is when a borrower refinances a mortgage at a higher principal amount to get additional money. Usually this occurs when the property has appreciated in value.
Casualty Protection – This is property insurance that covers any damage to the home and personal property either inside or outside the home.
Certificate of Eligibility – The document given to qualified veterans which entitles them to get a VA guaranteed loans for the purchase of a home. Certificates of eligibility may be obtained by sending form DADA (Separation Paper) to the local VA office with VA form 1880 (Request for Certificate of Eligibility).
Certificate of Reasonable Value (CRV) – Is an appraisal issued by the Veterans Administration showing the property's current market value.
Certificate of Title – A certificate issued by a title company or a written opinion by an attorney that the seller has good marketable and insurable title to the property which he is offering for sale. A certificate of title offers no protection against any hidden defects in the title which an examination of the records could not reveal. The issuer of a certificate of title is liable only for damages due to negligence. It should be free and clear of all liens or other claims before the title is transferred.
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 a mortgage loan with a low or no down payment.
Chapter 7 Bankruptcy – Is a bankruptcy filing that requires assets to be liquidated in exchange for the cancellation of debt.
Chapter 13 Bankruptcy – Is a type of bankruptcy filing that sets a payment plan between the borrower and the creditor monitored by the court. The homeowner can keep the property, but must make payments according to the court's terms usually within a three year period.
Charge-Off – Is the portion of principal and interest due on a loan that is written off when deemed to be uncollectible.
Chattel Lien – Is a document indicating that personal property in addition to the real estate itself is serving as security for the loan.
Clear Title – Is when a title to a property has no title defects and is free and clear of liens and legal questions as to ownership. Properties with clear titles are marketable for sale.
Closing – Is the final step in the mortgage loan process. The closing is a scheduled date and time where a meeting between the homebuyer, the home seller, title company, real estate agents and mortgage lender come together where the mortgage documents are signed and title to the property transfers from the home seller to the homebuyer. At the loan closing the homebuyer transfers the down payment funds and receives the funds in the form of a mortgage loan needed to complete the purchase the property. The homebuyer also pledges the property as security for repayment of the mortgage loan. This is also called settlement.
Closing Costs – Are expenses and fees above the price of the property that are incurred when transferring ownership of a property. Closing costs are paid by both the homebuyers and home sellers and are paid at the loan closing. There are two categories of closing costs, non-recurring closing costs and pre-paid items. Non-recurring closing costs are any items which are paid just once such as origination fees, discount points, attorney’s fees, credit report, title insurance and survey. Pre-paid are costs which recur during your loan, like property taxes and homeowners insurance. The mortgage lender will give an estimate of the amount of closing costs and prepaid items on the good faith estimate which must be issued to borrowers within three days of completing a home loan application.
Closing Statement – A statement showing the various closing costs and recording fees and which party paid these costs. It is also called HUD – 1, Settlement Statement.
Cloud on the Title – Is any condition which affects the clear title to real property and affects the marketability of the property.
Collateral – Is the property pledged as security for repayment of the mortgage loan in case of loan default. A mortgage is filed with the county where the property is located and kept on record until the mortgage loan is paid in full.
Collection Account – Is an unpaid debt referred to a collection agency to try collect on the bad debt. This type of account is usually reported to the credit bureau and will show on a borrower's credit report as adverse credit.
Commission – Is an amount that is usually a percentage of the property sales price that is collected by a real estate professional as a fee for negotiating the transaction. Traditionally the home seller pays the commission. The amount of commission is determined by the real estate professional and the seller and can be as much as 6% of the sales price.
Commitment – Is an agreement, often in writing, between a lender and a borrower to loan money at a future date subject to the stated terms and conditions of the loan.
Comparative Market Analysis (COMPS) – Is a property evaluation that determines property value by comparing similar properties sold within the last year.
Compensating Factors – Are the factors that show the ability to repay a mortgage loan based on less traditional criteria. They take into consideration items such as employment, rent, and utility payment history.
Condemnation – Is a determination by a building department or governmental agency stating that a particular building is unsafe or unfit for use.
Condominium – Is a form of individual ownership of a unit within a building or development and an individual interest in the common areas and facilities which serve the project. The owner also shares financial responsibility for common areas. Condominium Fee (aka Home Owner's Association Dues) – Is the monthly maintenance fee for a condominium unit or planned unit development owners must pay to cover the common-area expenses.
Consideration – Is an item of value given in exchange for a promise or act.
Construction Loan – A short term interim loan to pay for the construction of buildings or homes. These are usually designed to provide periodic disbursements to the builder as they progress.
Contingency – Is a clause in a purchase contract outlining conditions that must be fulfilled before the contract is executed. Both the homebuyer or home seller may include contingencies in a contract, but both parties must accept each other’s contingencies. A condition that must be met before a contract becomes legally binding.
Contractor – Is a person who contracts to erect a building for another person or company. There are also contractors for each phase of construction such as heating, electrical, plumbing, air conditioning, road building and others.
Contract of Deed – Is a contract between future home purchaser and a home seller of real estate to convey title to the property after a certain time or certain conditions have been met. It is also known as an installment sale contract.
Contract of Sale – Is also known as purchase agreement or sales agreement according to location or jurisdiction. A contract in which a seller agrees to sell and a buyer agrees to buy, under specific terms spelled out in writing and signed by both parties.
Conventional Loan – Is a mortgage loan made by a mortgage lender to borrower’s that has shown that they have the ability to repay the loan. The mortgage loans are insured or guaranteed by a private mortgage insurance company if the loan amount is over eighty percent. The two main providers of these loans are Fannie Mae and Freddie Mac and they are usually placed in pools that are sold on the secondary market as investments called collateralized mortgage obligations (CMO), which investors purchase for interest yields.
Convertible ARM – Is an adjustable-rate mortgage (ARM) that provides the borrower the ability to convert an adjustable-rate mortgage to a fixed-rate within a specified time. This is a type of mortgage loan which has terms in the mortgage note or rider that provides the terms on how and when it can be converted into a fixed rate mortgage loan.
Conversion Clause – Is a provision in an adjustable-rate mortgage (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 and usually the new fixed rate is converted to the prevailing rate for fixed rate mortgage loans.
Cooperative Housing (Co-op) – An apartment building or a group of dwellings owned by a corporation where 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.
Counter Offer – Is a rejection to all or part of an original purchase offer that negotiates for different terms to reach an agreement between a homebuyer and a home seller. It creates acceptable sales contract if the counter offer is accepted by both the homebuyer and home seller.
Covenants – Are legally enforceable terms that govern the use of property and are known as a condition, restriction, deed restriction or restrictive covenant. These terms are transferred with the property deed from owner to owner. They are also a clause in a mortgage or deed of trust that obligates or restricts the borrower and which if violated can result in foreclosure. Discriminatory covenants are illegal and unenforceable.
Co-Borrower – Is an additional person that is responsible for a mortgage loans repayment and is listed on the title to the property. When there is more than one borrower it makes both people responsible for the amount borrowed from the mortgage lender.
Co-Signer – Is a person that signs a credit application with another person while agreeing to be equally responsible for the repayment of the loan.
Credit – Is an agreement that a person will borrow money and repay it to the lender over time. The right granted by a creditor to a consumer to pay an amount borrowed in the future in order to buy or borrow in the present.
Credit Card – Is a plastic card issued by a financial institution used from time to time to borrow money or buy goods and services on credit with the agreement to make time payments until the balance is paid in full.
Credit Counseling – Is the education on how to improve bad credit and how to avoid having more debt than can be repaid.
Credit Grantor – Is the lender that provides a loan or credit.
Credit History – Is a record of an individual that lists all debts and the payment history for each. The report that is generated from the history is called a credit report. Mortgage lenders use this information to gauge a potential borrower's ability to repay a loan.
Credit Life Insurance – Life insurance designed to pay the outstanding balance of debt.
Credit Repair Companies – Are for profit businesses that claim to offer consumers credit and debt repayment difficulties assistance with their credit problems. They offer consumers with a bad credit report the help needed to try to fix the credit issues.
Credit Report – A credit report documents the credit history and current status of a borrower's credit standing. A credit report of an individual's credit history generated and compiled by the credit bureaus and is used by mortgage lenders to determine a loan applicant's creditworthiness.
Credit Reporting Bureau – Is an organization that handles the preparation of credit reports used by mortgage lenders to determine a potential borrower's credit history. The bureau gets data for these credit reports from creditors and other sources. It provides financial information and payment history of consumers. There are three credit reporting bureau and they are Experian, Equifax and Trans Union.
Credit Risk – Is a term used to describe the possibility of default on a loan by a borrower.
Credit Risk Scoring System – A statistical system used to rate credit applicants according to various characteristics relevant to creditworthiness. It is an unbiased way of deciding who should receive credit. It weights information associated with an individual’s personal credit attributes, such as your income, debt and the time spent at their current address. These scores are added to give a total credit score. The total credit score is a prediction of how likely a person with that score is to default on their loan. Aka Credit Scoring System
Credit Score – A credit risk score is a statistical summary of the information contained in a consumer's credit report. A credit score is a mathematical summary calculated by using the information an individual’s credit report and assigns numerical values to various pieces of information in the credit report. This is used to determine the likelihood of the issuance of credit being repaid on time. The scoring model is used to issue new credit from past credit history as a lower credit score means a person is a higher risk, while a higher score means that a person is less risk.
Credit Union – Is a non-profit financial institution federally regulated and owned by the members or people who use their services. Credit unions serve groups that hold a common interest and all have to become a member to use the available services.
Creditor – The lending institution providing a loan or credit to whom consumers borrow and to whom they owe money.
Creditworthiness – Is a consumers past and future ability to repay debts. The way a mortgage lender measures the ability of a person to qualify and to repay a loan.
Debtor – Is the person or entity that borrows money. The debtor is also known as the borrower.
Debt-to-Income Ratio – Is a comparison of the borrower’s gross income to the housing and the non-housing expenses. With the FHA, the-monthly mortgage payment should be no more than 31% of gross monthly income (before taxes) and the mortgage payment combined with non-housing debts should not exceed 43% of gross monthly income.
Deductible – Is the amount of cash payment that is paid by the insured (the homeowner) to cover a portion of a properties damage or loss. For example a total damage claim of $5,000.00, the homeowner might pay a $500.00 deductible toward the loss, while the insurance company pays $4,500.00 toward the loss. Usually the higher the deductible amount the lower the premium cost of the policy.
Deed – A document that legally transfers ownership of property from one person to another. The deed is recorded on public record with the property description and the owner's signature. Also known as the property title.
Deed-in-Lieu – To avoid foreclosure ("in lieu" of foreclosure), a deed is given from the borrower to the mortgage lender to fulfill the obligation to repay the debt. This process does not allow the borrower to remain in the house but helps avoid the costs, time and effort associated with the foreclosure.
Deed of Trust (Mortgage) – In many states this is the document is used in place of a mortgage to secure the payment of a note.
Default – Is the failure to meet legal obligations in a contract, specifically, the failure to make the monthly payments on a mortgage loan.
Deferred Interest – When a mortgage is given with a monthly payment that is less than required to satisfy the interest due on the note. The unpaid interest is deferred by adding it to the balance of the loan. It is also called negative amortization.
Delinquency – Is the failure to make payments on time under a loan agreement. This can lead to a foreclosure.
Department of Veterans Affairs (VA) – Is an independent agency of the federal government which guarantees long-term, low- or no-down payment mortgages to eligible veterans
Deposit (Earnest Money) – Is the money put down by a potential homebuyer to show that they are serious about purchasing the home. It later becomes part of the down payment if the offer is accepted or is returned if the offer is rejected or is forfeited if the buyer pulls out of the deal. The money may be returned to the homebuyer if the contingencies are not met to the buyer's satisfaction by the home seller during the contingency period.
Depreciation – Is a decrease in the value or price of a property due to wear and tear on the property or changes in market conditions in the neighborhood for other factors.
Disclosures – Are the release of relevant information about a property that may influence the purchase or sale of a home. Full disclosure usually refers to the responsibility of the seller to voluntarily provide all known information about the property especially if it represents defects or problems. Some disclosures are required by law and let the borrower know pertinent information on the mortgage loan. A home seller that is found to have knowingly lied about a material defect may face legal issues.
Discount Fee – A discount fee is also referred to a discount point which is a charge paid to the mortgage lender at closing to obtain a lower interest rate on the mortgage loan. A discount fee is usually one point or one percent of the mortgage loan.
Document Recording – After the closing of a mortgage loan there are certain documents that are filed and made public record. Usually discharges for the prior mortgage holder are filed first and then the deed is filed with the new homeowner's name and new mortgage loan.
Down Payment – Is the portion of a home's purchase price that is paid in cash and is not part of the mortgage loan. This amount varies based on the loan type, but is determined by taking the difference of the sale price and the actual mortgage loan amount.
Due-on-Sale-Clause – A provision in a mortgage or deed of trust that allows the mortgage lender to demand immediate payment of the balance of the mortgage if the mortgage holder sells the home.
Earnest Money (Deposit) – Is the money put down by a potential buyer to show that they are interested in purchasing a property. If the offer is accepted it becomes part of the down payment or if the offer declined it is returned or is forfeited if the homebuyer pulls out of the deal. During the contingency period the money may be returned to the homebuyer if the contingencies are not met to their satisfaction.
Easements – Are the legal rights that give someone other than the owner access to use property for a specific purpose. Easements may affect property values and are often a part of the deed. This is also known as “the right of way”.
Eminent Domain – Is when a government either a city, state or federal agency takes a private piece of property for public use. The owner will receive a payment that equals the property’s fair market value.
Encroachments – Is when a structure usually extends over the legal property line on to another person’s property. The property surveyor will note any encroachment on the property survey done before property’s transfer. The person who owns the structure might be asked to remove it to prevent future problems.
Encumbrance – Is anything that affects title to a property, such as mortgage loans, property lease and an easement or restriction.
Equal Credit Opportunity Act (ECOA) – Is a federal law requiring mortgage lenders to make credit available equally without discrimination based on race, color, religion, national origin, age, sex, sexual orientation, marital status or receipt of income from public assistance programs.
Equity – Is an owner's financial interest in a property as it is calculated by subtracting the amount still owed on a mortgage loan from the fair market value of the property. The differences between the fair market value of a piece property and the owner's outstanding mortgage balance measures the percentage of ownership or the amount of the home that a person actually owns.
Escrow Company – Is the holder of documents and money like an earnest money deposit by a neutral third party prior to the closing.
Escrow Disbursements – Are the use of a borrowers escrow funds to pay a property taxes, homeowners insurance, mortgage insurance and other property expenses.
Escrow /Impound Account – Are the funds which are set aside and held in trust by a mortgage servicer usually to pay property taxes and homeowners insurance on the real estate. This is also known as an impound account held by the mortgage lender into which a homeowner pays money for property taxes and insurance.
Escrow Payment – Is the part of a borrower’s monthly mortgage payment that is held by the loan Servicer to pay property taxes, homeowners insurance, mortgage insurance and other items.
Escape Clause – Is a provision in a purchase contract that allows either party to cancel part or the entire contract if the other does not respond to required changes within a set period. The most common use of the escape clause is if the homebuyer makes a purchase offer contingent on the sale of another house or on approval of a mortgage loan.
Estate – the ownership interest of a person in real property. Is the total sum of all real property and personal property owned by someone.
Exclusive Listing – Is a written contract giving a real estate agent the exclusive right to sell a property for a specific timeframe.
Fair Credit Reporting Act – Is a Federal law to ensure that the credit bureaus are fair and accurate protecting the individual's privacy rights. This law was originally enacted in 1971 and has been revised thereafter to improve the act.
Fair Housing Act – Is a Federal law that prohibits discrimination in all facets of the home buying process on the basis of race, color, national origin, religion, sex, familial status or disability.
Fair Market Value – Is the hypothetical price that a willing buyer and seller will agree upon when they are acting freely, carefully, and with complete knowledge of the situation.
Federal Housing Administration (FHA) – The FHA is a division of the Government’s program called the Department of Housing and Urban Development (HUD) established in 1934 to advance homeownership opportunities for all Americans and assists homebuyers by providing mortgage insurance to mortgage lenders to cover most losses that may occur when a borrower defaults. This encourages mortgage lenders to make loans to borrowers who might not qualify for conventional mortgages. A mortgage insured by the Federal Housing Administration that provides Federal guaranty’s or mortgage insurance on the residential mortgages that are originated under the guidelines and standards developed for use of the program.
Fee Simple – Is the title to a house or land which is without limitation or restriction.
FHA Mortgage Insurance Premium (MIP) – The MIP fee is payable to HUD to insure/guarantee the mortgage lender in case the borrower defaults on their mortgage payment.
FICO Score – A Fico is an abbreviation for Fair Isaac Corporation and refers to a person's credit score based on credit history. Mortgage lenders and credit card companies use the number to decide if the person is likely to pay his or her bills. A credit score is evaluated using information from the three major credit bureaus and is usually between 300 and 850. The higher the number the better credit risk.
Finance Charge – Is the total dollar amount the mortgage loan will cost the borrower over the life of the mortgage loan. It is shown on the truth in lending disclosure.
First Mortgage Loan – Is the mortgage with first priority lien position if the mortgage loan is not paid. The first mortgage is the first one to get paid should there be a foreclosure sale.
Fixed Expenses – Are payments that do not vary from month to month.
Fixed Installment – Is a monthly payment that stays the same and is payable on a mortgage loan that includes both the mortgage principal and mortgage interest.
Fixed-Rate Mortgage (FRM) – Is a mortgage loan on where the payments remain the same throughout the life of the loan because the interest rate is fixed for the term of the loan and will not change. The only change to your monthly payment would be due to a change in real estate taxes or homeowner's insurance.
Fixture – Is personal property that is permanently attached to real estate or real property that becomes a part of the real estate.
FHA Mortgage Loan – An FHA mortgage loan is a mortgage loan made by an approved mortgage lender where the Federal Housing Administration (FHA) insures the mortgage loan to the mortgage lender due to the borrower's ability to repay the debt. To receive an FHA insured mortgage loan the borrower had to comply with the guidelines of the program to be approved.
Float – Is when an interest rate is not locked in thus allowing an interest rate and discount points if charged to fluctuate with changes in the market.
Flood Insurance – Is insurance that protects the homeowners against losses from a flood if a home is located in a federally designated flood zone. The mortgage lender will require flood insurance before approving a mortgage loan. All properties situated in a flood zone beginning with “A” or “V” must obtain flood insurance.
Forbearance – A mortgage lender may postpone taking legal action when a borrower is late on making mortgage payments. Usually this occurs when a mortgage lender agrees to set up a plan that both parties agree will permit a borrower to bring overdue mortgage payments up to date or have the amount due put to the back of the mortgage loan and paid at a later date.
Foreclosure – Is a legal process in which mortgaged property is sold via public sale to pay the mortgage loan of the borrower in default. The foreclosure laws are based on the statutes that every state has set as its foreclosure procedures and laws.
Front End Ratio – Is a percentage by comparing a borrower's total monthly cost to buy a house. It is the mortgage principal, mortgage interest, homeowners insurance and property taxes compared to monthly income before deductions.
FSBO (For Sale by Owner) – A home that is offered for sale by the owner without the benefit of a real estate professional.
General Warranty Deed – Is 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. Also Title Insurance usually insures against these defects.
Good Faith Estimate – A good faith estimate is an estimate of the loan fees you will be required to pay associated with the closing or your mortgage loan. It is required by law that the mortgage lender provides the potential borrower with a good faith estimate of costs within three days of your initial loan application.
Grantee – The individual to whom an interest in real property is conveyed and is also known as the homebuyer.
Grantor – The individual conveying an interest in real property and is also known as the home seller.
Gross Monthly Income – The money earned before taking out taxes and other deductions. Sometimes it may include income from self-employment, rental property, alimony, child support, public assistance payments and retirement benefits.
Guaranty – Is a promise by one party to pay a debt or perform an obligation contracted by another party if the original party fails to pay or perform according to a contract.
Hazard Insurance – Is a form of insurance also known as Homeowner's Insurance in which the insurance company protects the insured against a specific loss, such as physical damage, fire, vandalism, wind damage and its contents. It also includes liability coverage with protection against claims of negligence or inappropriate action that result in someone's injury or property damage. Most lenders require homeowners insurance and may escrow the cost. The amount of coverage is at least equal to the mortgage amount or 80% of the cost new. In some states a borrower can obtain 100% replacement insurance.
HECM (Reverse Mortgage) – It is the reverse mortgage that is used by senior homeowners age 62 and older to convert the equity in their home into monthly streams of income and/or a line of credit to be repaid when they no longer occupy the home. A lending institution such as a mortgage lender, bank, credit union or savings and loan association originates and funds the FHA insured loan, which is commonly known as HECM. (Home Equity Conversion Mortgage).
Home Equity Line of Credit – Is a mortgage loan that usually in second mortgage allowing a borrower to obtain cash against the equity of a home up to a predetermined amount.
Home Inspection – A physical examination of the structure and mechanical systems to determine a home's quality, soundness and safety and makes the potential homebuyer aware of any repairs that may be needed. The homebuyer generally pays for the inspection fees.
Home Warranty – This offers protection for mechanical systems and attached appliances against unexpected repairs not covered by homeowner's insurance. The coverage extends over a specific time period and does not cover the home's structure.
Homeownership Education Classes – The classes that stress the need to develop a strong credit history and offer information about how to get a mortgage approved qualify for a loan and choose an affordable home. They go through financing and closing processes and provide the education needed to avoid mortgage problems that cause people to lose their homes.
Homestead Credit – The property tax credit program that is offered by some state governments that provides reductions in property taxes to eligible households.
Housing Counseling Agency – An agency that provides counseling and assistance to individuals on a variety of issues, including loan default, fair housing, and home buying.
Housing-to-Income Ratio – This is the ratio that compares all borrowers’ monthly income to their monthly housing expenses. Borrower’s monthly housing expenses include principal, Interest, Property Taxes and homeowners Insurance payments. This is a very important ratio that is used as one factors by the mortgage lender to see if the borrower qualifies for the mortgage loan that they have applied for with the mortgage lender.
HUD – The U.S. Department of Housing and Urban Development was established to promote homeownership and works to create a decent home and suitable living environment for all Americans. It does all this by addressing housing needs, improving communities, developing communities and enforcing fair housing laws.
HUD-1 Settlement Statement – This is also known as the "settlement statement," or "closing statement" as it itemizes all closing costs. It must be given to the borrower at or before closing. The items that appear on the statement include real estate commissions, loan fees, points, and escrow fees and amounts. Each item on the statement is represented by a separate number within a standardized numbering system. The totals at the bottom of the HUD-1 settlement statement define the seller's net proceeds and the buyer's net payment at closing.
HVAC – A home's heating and cooling system. (Heating, Ventilation and Air Conditioning)
Impounds – Are the portion of the borrower's monthly payment held by mortgage lenders to pay for property taxes, homeowners insurance and mortgage insurance.
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 U.S. Treasury securities. The monthly average interest rate on loans closed by savings and loan institutions and the monthly average costs-of-funds incurred by savings and loans, which is then used to adjust the interest rate on an adjustable rate mortgage up or down.
Installment – Is the regular periodic payment that a borrower agrees to make to a mortgage lender. Insured
Mortgage – Is a mortgage that is insured by either the Federal Housing Administration (FHA) or by a private mortgage insurance company.
Interim Financing – A construction loan made during completion of a building or a project. A permanent loan usually replaces this loan after completion.
Indemnification – To secure someone against any loss or damage, compensate or give security for reimbursement for loss or damage incurred. A homeowner should negotiate for inclusion of an indemnification provision in a contract with a general contractor or for a separate indemnity agreement protecting the homeowner from harm, loss or damage caused by actions or omissions of the general and all sub-contractors.
Inflation – Is the number of dollars in circulation exceeds the amount of goods and services that are available for purchase. Inflation results in a decrease in the dollar's value.
Inquiry – Is a credit report request as each time a credit application is completed or more credit is requested counts as an inquiry. A large number of inquiries on a credit report can sometimes lower a credit score.
Interest – A rate or fee charged for the use of borrowing money it is the cost of borrowing money.
Individual Retirement Account (IRA) – A tax-deferred retirement account for an individual who does not participate in a pension plan at work or who does participate and meet certain income.
Interest Rate – Is the amount of interest charged on a monthly loan payment that is expressed as a percentage.
Interest Rate Cap – Is a provision of an adjustable rate mortgage limiting how much the interest rate may increase per adjustment period or over the life of a mortgage.
Joint Tenancy – Is a form of co-ownership giving each tenant equal interest and equal rights in the property, including the right of survivorship.
Joint Tenancy (with Rights of Survivorship) – Is a form of co-ownership two or more owners share equal ownership and rights to the property. If a joint owner dies, his or her share of the property passes to the other owners, without probate. In joint tenancy, ownership of the property cannot be willed to someone who is not a joint owner.
Jumbo Loan – A loan which exceeds the conforming loan limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation.
Late Payment Fee – Is the penalty a homeowner must pay when a mortgage payment is made after the due date.
Lease – Is a written agreement between a property owner (lessor) and a tenant (lessee) that stipulates the payment and conditions under which the tenant may occupy to property the rights of use, tenancy and a specified period of time of property owned by the lessor.
Lease Purchase (Lease Option) – A financing alternative that gives an opportunity to a potential homebuyer (lessee) to purchase a home by allowing them to lease a home with an option to purchase the home. The monthly payment is made up of the monthly rental payment plus usually an additional amount that is credited to an account for use as a down payment.
Lender – Is a term referring to usually company or a person that makes mortgage loans on real estate for either purchases or refinances.
Lessee – A person who signs a lease to get occupancy for use of property for a specified amount and a period of time.
Lessor – A person that provides temporary use of property usually for a specified amount and a period of time in return for periodic payment.
Liability – A liability is person's financial obligations such as any outstanding debt like an auto loan, installment loan, credit card balance or any other debt in which a person owes to a creditor or a private party. It is very important that you have all the information about your liabilities as it is required when you are applying for a mortgage loan.
Liability Insurance – Is insurance coverage that protects against claims alleging a property owner's negligence or action resulted in bodily injury or damage to another person. It is normally included as part of the homeowner's insurance policies.
Lien – A claim of money in the form of a document against a property where the equity of the property is used as security for repayment of a debt. Examples include a mechanic's lien which might be for the unpaid cost of building labor and or supplies or a tax lien for unpaid property taxes. A lien is a defect on the title and needs to be settled and satisfied before transfer of ownership.
Lien Release – Is a lien release is a written document stating the satisfaction and settlement of a lien and is recorded in the public record as evidence of payment.
Lien Waiver – Is a document that releases a homeowner from any further obligation for payment of a debt once it has been paid in full. Lien waivers typically are used by a homeowner who hired a contractor to provide work and materials to prevent any subcontractors or suppliers of materials from filing a lien against the homeowner for nonpayment.
Lifetime Cap – Is a provision of an ARM that limits the total increase in interest rates over the life of the loan. A limit of the range interest rates can increase or decrease over the life of an adjustable-rate mortgage (ARM).
Line of Credit – An agreement where a financial institution such as a bank agrees to extend credit up to a certain amount for a certain rate and time to a borrower.
Liquid Asset – A cash asset or any other asset that is easily converted into cash.
Listing Agreement – Is a contract to market and sell a home between a home seller and a real estate professional. A listing agreement obligates the real estate professional (real estate agent) to market a property to consumers or other real estate professionals to find qualified purchasers and to present all purchase offers to a property seller. To also help negotiate the highest possible price and most favorable terms for the property seller.
Loan – A sum of borrowed money (principal) that is generally repaid with interest.
Loan Acceleration – A clause and statement in a mortgage loan document that gives the mortgage lender the right to demand payment of the entire outstanding mortgage balance if a monthly payment is missed or the mortgage loan is in default.
Loan Officer – A representative of a mortgage broker or mortgage lender who is the person responsible for taking the mortgage loan application from potential homebuyers. They are also responsible for qualifying potential homebuyers to see if they will qualify for the mortgage loan. They may also be called an account executive or mortgage loan representative.
Loan Origination Fee – A charged by the mortgage broker or mortgage lender to cover the administrative costs of originating the mortgage loan. This charge is paid at the mortgage loan closing and is usually one percent of the mortgage loan amount.
Loan Servicer – The Company that collects borrower’s monthly mortgage payments and disperses funds to the mortgage investors, the mortgage insurer, they pay property taxes and make homeowners insurance payments. The loan servicer also monitors the mortgage loans and contacts borrowers if they are delinquent. They also notify mortgage insurers and mortgage investors who own the loan of potential problems.
Loan to Value (LTV) Ratio – A percentage that’s calculated by dividing the amount borrowed by the appraised value of the home to being purchased. Generally, the lower the LTV the more favorable the terms of the programs offered by lenders.
Loan Type FHA 203(b) – This is the FHA's single family program which provides mortgage insurance to lenders to protect against the borrower defaulting on the mortgage loan. The 203(b) is used to finance the purchase or refinance of new or existing one to four family housing. The FHA 203(b) insured loans are known for requiring a low down payment, flexible qualifying guidelines, limited fees, and a limit on maximum loan amount.
Loan Type FHA 203(k) – This is the FHA's mortgage insurance program which provides mortgage insurance to lenders to protect against the borrower defaulting. The 203(k) loan enables homebuyers to finance both the purchase of a house and the cost of its rehabilitation through a single mortgage loan with one loan closing.
Lock or Lock In – A designated period of time during which a borrower and a lender have agreed to a specific interest rate. Most rate locks are from thirty days to sixty days. This usually involves paying a fee to the mortgage lender to guaranty the interest rate. Since interest rates can change frequently mortgage lenders offer interest rate lock in that will guarantees a specific interest rate if the loan is closed by a specific date. Mortgage interest rates not locked in are subject to changing market conditions.
Lock-in Period – Is the length of time that the mortgage lender has guaranteed a specified interest rate to a borrower.
Margin – Is the number of percentage points the mortgage lender adds to the index rate to calculate and determine the ARM (Adjustable Rate Mortgage) interest rate at each adjustment period.
Market Value – The market value is the current value of a property determined by using the most recent comparable sales and there actual sales prices. The market value may be different from the price a property could actually be sold for at a given time. There are many market conditions that can change a market value of a property.
Marketable Title – A title that is free and clear of any questionable liens, clouds or any other title defects. A marketable title enables a homeowner to sell their property freely to others and which others will accept free and clear of any questionable liens.
Maturity – The date when the principal balance of a mortgage loan becomes due and payable.
Mechanic’s Lien – Is a lien that is placed on a property as security for payment for labor (work performed) and materials supplied in the construction of the property.
Median Price – Is the price of the house that falls in the middle of the total number of homes for sale in that area. It is an average of all the all similar homes sold in an area.
Merged Credit Report – Is the credit information on a consumer compiled by the data pulled from all three of the major credit-reporting bureaus.
Mitigation – Is the term usually used to refer to various changes or improvements made in a property. An example would be use of a pest inspection company to control pest.
Mortgage Acceleration Clause – Is a clause allowing a mortgage lender under certain circumstances to demand the entire balance of a loan is repaid in a lump sum. The clause is usually triggered if the home is sold or the title to the property is changed.
Mortgage or Deed of Trust – A mortgage or deed of trust is a legal document that pledges your property as collateral or security for repayment of a mortgage loan. It is recorded at the county clerk’s office in the county where the home that a mortgage loan is taken out on and is on file until the note associated with the mortgage loan is paid in full. The payments include principal and interest along with escrow amounts covering property taxes, hazard insurance, water charges, and special assessments. Mortgages generally are from fifteen to thirty years during which the loan is to be paid in full.
Mortgage Banker – Is a company that originates mortgages and sells them to other mortgage lenders or investors on the secondary mortgage market.
Mortgage Broker – A mortgage broker is a licensed real estate financing professional who assist potential borrowers and homeowners by taking a loan application. The mortgage broker then qualifies the potential borrower by documenting and compiling a mortgage loan application and mortgage loan file. Then the mortgage broker arranges for the potential borrower to be introduced to a licensed mortgage lender by placing them with a licensed mortgage lender to arrange for the potential borrower to obtain a mortgage loan. They originate mortgage loans to place with numerous mortgage lenders for the purpose of obtaining a mortgage loan.
Mortgage Commitment – A written notice from the mortgage lender or bank saying it has approved a consumer for a mortgage loan and will advance mortgage funds in a specified amount to enable a potential homebuyer to purchase a house.
Mortgage Disability Insurance – Insurance bought by borrowers to make mortgage payments in the case of disability. The amount of coverage decreases as the principal balance declines. There are many different terms of coverage determining amounts of payments and when payments begin and end.
Mortgage Insurance – This is Insurance that protects the mortgage lender in case of loses should a borrower not make house payments and the mortgage loan go into default. Typically borrowers are required to have mortgage insurance if they have less then or put less than twenty percent down on a mortgage loan. Borrowers are required to pay a fee to a mortgage insurance company for mortgage insurance if their down payments are less than twenty percent or the mortgage loan amount is over eighty percent of the appraised value of the property. Mortgage insurance is available through private mortgage insurance companies.
Mortgage Insurance Premium (MIP) – Is a monthly payment that is usually part of the monthly mortgage payment that paid by a borrower for mortgage insurance. Mortgage Insurance Premiums are paid to a government agency such as the Federal Housing Administration (FHA).
Mortgage Interest Deduction – The amount of interest paid on a mortgage loan which is a tax deductible expense. The mortgage interest deduction helps reduces the taxable income of taxpayers.
Mortgage Life Insurance – A type of term life insurance. In the event that a borrower dies and has a mortgage loan on a property while having a life insurance policy is in force. It is used to pay off the mortgage debt from the amount paid by insurance proceeds.
Mortgage Loan Fraud – Is the act of purposely giving false or incorrect information on a mortgage loan application in order to qualify for a loan. The act may result in civil liability or criminal penalties.
Mortgage Modification – Is when a mortgage lender agrees to modify the terms of a mortgage loan. It is also a loss mitigation option that allows a borrower to refinance and/or extend the term of the mortgage loan and thus reduce their monthly mortgage payments.
Mortgage Note – The mortgage note is a document that borrowers sign at the loan closing which states the promise to pay a sum of money at a specified interest rate for a fixed period of time. It has the amount they owe, the interest rate they agree to pay and the period of time that they agree to repay the mortgage. It also includes other information like their personal information which includes their name and address and the name and address of the mortgage lender.
Mortgage Qualifying Ratio – The number used to calculate the maximum amount of funds that a borrower traditionally may be able to afford. A typical mortgage qualifying ratio is twenty nine percent over thirty eight percent.
Mortgage Score – A mortgage score based on a combination of information about the borrower that is obtained from the loan application, the credit report, and property value information. The mortgage score is an analysis of the borrower's ability to repay a mortgage loan and manage credit.
Mortgagee – Mortgagee is the mortgage lender
Mortgagor – Mortgagor also known as the homebuyer or borrower. The mortgagor can also be the owner of real property pledging the property as collateral (security) for a mortgage loan by a mortgagee (mortgage lender) or in the purchase of the real property.
Multifamily Housing – A building with more than four residential rental units.
Multiple Listing Service (MLS) – Real Estate Brokers submit listings and agree to attempt to sell all properties in the MLS. The MLS is a service of the National Association of Realtors®. The MLS offers the advantage of more timely information, availability, and access to houses and other types of property on the market.
National Credit Repositories – There are three companies that maintain national credit reporting databases on consumer credit good or bad. They are Equifax, Experian and Trans Union and are also referred to as Credit Bureaus.
Negative amortization – It occurs when the monthly mortgage payments do not cover all of the interest cost. The interest cost that is not covered is added to the unpaid principal balance. This means that even after making many mortgage payments the borrower could owe more than they did at the beginning of the mortgage loan as all the interest due is not getting paid.
Net Worth – Is the total assets minus the total liabilities of an individual or company.
Notice of Default – Is a formal written notice to a borrower that they are in default on a mortgage loan and that legal action is possible.
Non-Conforming loan – Is a mortgage loan that exceeds both Fannie Mae's and Freddie Mac's maximum loan limits. The mortgage loans are also called jumbo loans. Freddie Mac and Fannie Mae mortgage loans are referred to as conforming loans.
Notary Public – Is a person who serves as a sworn in public official and certifies the authenticity of required signatures on a document by signing and stamping the document.
Nonperforming Asset – Is an asset such as a mortgage loan that is behind on mortgage payments and currently accruing interest of which the interest might not be paid.
No Cash Out Refinance – Is a refinance of an existing loan only for the amount remaining on the mortgage loan. The borrower does not get any cash against the equity in the home. This type of mortgage loan is also called a rate and term refinance.
No Cost Loan – There are many variations of no cost mortgage loans, but usually it is a mortgage loan that does not charge for upfront items such as origination fee, discount points, escrow fees, title insurance, settlement fees, appraisal fees or recording fees. This lessens the need for upfront cash during the home buying process however no cost loans carry a higher interest rate.
Non Assumption Clause – A statement in a mortgage loan contract forbidding the assumption of the mortgage loan without the prior approval of the mortgage lender.
Note (aka Promissory Note) – Is the signed promise to pay or obligation to repay a debt on such as a mortgage loan note. It is a legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.
Note Rate – Is the interest rate given on a mortgage note.
Offer and Acceptance – The written document where a potential homebuyer makes a written offer to purchase a house from a person wanting to sell a home known as the home seller. Therefore a person offers to purchase a home from a person wanting to sell a home and should the home seller accept the purchase offer made by the potential homebuyer an offer and acceptance has been created.
Origination – This is the next step in the mortgage loan process. During the origination phase of the loan process a loan application is filled out with details of the borrower’s financial position. They will be asked to also provide supporting documentation such as Tax Returns, W-2s and Paystubs. The loan officer will then prequalify the borrowers for a maximum loan amount. The borrower will be provided with a Good Faith Estimate and a Truth in Lending disclosure within seventy-two hours after the initial loan application.
Origination Fee – An origination fee is a fee that the lender may charge the potential homebuyer for their service of originating and placing the mortgage loan. The fee is usually a percentage of the loan amount for example a standard is one percent.
Ownership – Ownership is documented by the deed to a property. The type or form of home ownership is important if there is a change in the status of the home owners or if the property changes ownership.
Owner Financing – A property purchase transaction in which the party selling the property provides all or part of the financing.
Original Principal Balance – Is the total principal owed on a mortgage prior to any mortgage payments being made.
Owner's Policy – Is the title insurance policy that protects the homebuyer from any title defects. It is also known as the fee policy.
Partial Claim – Is a loss mitigation option offered by the FHA that allows a borrower, with help from a mortgage lender, to get an interest-free loan from HUD to bring their mortgage payments up to date.
Partial Payment – Is a payment that is less than the total amount owed on a monthly mortgage payment. Normally mortgage lenders do not accept partial payments, but the mortgage lender may make exceptions during times of difficulty. Contact your mortgage lender prior to the due date if a partial payment is needed.
Payment Cap – A provision of some adjustable-rate mortgage (ARM) loans limits how much the borrower's mortgage payments may increase regardless of how much the interest rate increases.
Payment Change Date – Is the date when a new monthly mortgage payment amount takes effect on an adjustable-rate mortgage (ARM) loan. Generally the payment change date occurs in the month immediately after the interest rate adjustment date.
Payment Due Date – Is the language in a mortgage specifying when payments are due on the mortgage loan. The due date is always indicated and it means that monthly mortgage payment must be received on or before the specified date. It has the grace period prior to assessing a late fee or additional interest as it does not eliminate the responsibility of making payments on time.
Perk. Test – Is a test to determine if a property is suitable for a septic tank.
Perils – Is a term used in the homeowner's insurance policy referencing an event that can damage the property. Homeowner's insurance policy may cover the property for a wide variety of perils caused by accidents, nature, or people.
Personal Property – Is any property that is not considered real property or is permanently attached to real property. An example would be furniture as is not attached however a light fixture would be considered attached and part of the real property.
Permanent Loan – Is a long term mortgage that is usually fifteen years or more.
Planned Unit Development (PUD) – Is a development that is planned and constructed as one entity. Usually there are common features in the homes governed by covenants attached to the deed. Most planned unit developments have common land and facilities owned and managed by the owner's association. Homeowners are required to participate in the association via making a monthly payment for the dues to maintain the property and association.
Plat – Is a map or chart of a lot, subdivision or community drawn by a surveyor showing boundary lines, buildings, improvements on the land including some of the easements.
PMI (Private Mortgage Insurance) – Is offered by privately-owned companies that offer standard and special affordable mortgage insurance programs for qualified borrowers with down payments of less than twenty percent of the purchase price. The private mortgage insurance company’s insures the mortgage lenders in the event the borrower defaults on the mortgage.
Points – A point is usually equal to one percent of the principal amount of your mortgage loan. Mortgage lenders usually charge points in both fixed-rate and adjustable-rate mortgages in order to cover loan costs. These points usually are collected at closing and may be paid by the borrower or the home seller or between both of them
Portfolio – Is the investments collectively owned by an individual.
Power of Attorney – Is a legal document that authorizes another person to act on your behalf. A power of attorney can grant complete authority it can be limited to certain acts or certain periods.
Pre-Approval – The process of determining how much money a person will be eligible to borrow before they apply for a mortgage loan. A mortgage lender commits to lend to a potential borrower a fixed loan amount based on a loan application, credit reports, debt, and funds available reviewed by an underwriter. The pre-approval remains as long as the borrower still meets the qualification requirements at the time of a home purchase.
Pre-Qualification – This is the initial step in the loan process in which the loan originator calculates the housing-to-income ratio and the total debt-to income ratio to see how much of a mortgage amount a potential borrower qualifies for a mortgage loan. A mortgage lender informally determines the maximum amount an individual is eligible to borrow.
Predatory Lending – Is the abusive lending practices that includes mortgage lenders giving mortgage loans to consumers who does not have the ability to repay. It also pertains to repeated refinancing of a loan charging fees each time a refinance is done.
Premium – Is an amount paid on a regular schedule by a homeowner aka policyholder that provides insurance coverage on a home.
Prepaid Expenses – Are items paid up front at the loan closing necessary to create an escrow account so they get paid by the mortgage lender. They include property taxes, homeowners insurance, mortgage insurance and other assessments
Prepayment – Is any amount paid to reduce the principal balance of a loan before the due date or payment in full of a mortgage. This can occur with the sale of the property the pay off the loan in full or a foreclosure. In each case a full payment occurs before the loan has been fully amortized.
Prepayment Penalty – Is a provision in some loans that charge a fee to a borrower who pays off a loan before it is due.
Prime Rate – Is the interest rate that banks charge to preferred customers and is publicized in the business media. The prime rate can be used as the basis for adjustable rate mortgages (ARMs) or home equity lines of credit. The prime rate also affects the current interest rates being offered at ant any given time as the mortgage market is tied to the prime rate.
Principal, Interest, Taxes, and Insurance (PITI) – Are 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 that is charged for borrowing money goes directly to the mortgage lender. Taxes and insurance refer to the monthly cost of the property taxes and homeowners insurance. These amounts are paid into an escrow account each month and the disbursements are made as they are due.
Principal Balance – Is the amount of money borrowed to buy a house or the amount of the loan that has not been paid back to the mortgage lender. This does not include the interest due to the mortgage lender to borrow the money. The principal balance is the amount owed on a loan at any given time as it is the original loan amount minus the total payments of principal made.
Principal Payment – Is the money paid directly to the mortgage lender in addition to the regular mortgage payment amount and applied directly to the remaining loan balance to lower the loan balance remaining and to decrease the length of the loan.
Processing – Is the step in the mortgage loan process which follows the mortgage loan origination. During the loan processing step the required loan documents are collected and the loan file is reviewed to ensure that all the information is complete and the information is accurate. During this step in the process verifications, appraisals, credit reports and other necessary documents are compiled at this time.
Promissory Note – Is a written promise to repay a specified amount borrowed over a specified period of time.
Property – The property is the land within the legally described boundaries and all permanent structures and fixtures on it. The ownership of the property confers the legal right to use the property as allowed within the law and within the restrictions of zoning or easements. It includes all fixtures that are permanently attached to the structure.
Property Tax – Is a tax charged by local government and used to fund municipal services such as schools, police departments and street maintenance. The amount of property tax is determined locally by a formula and is usually based on a percent of assessed value of the property.
Public Records – Is a record that is recorded in the clerk’s office of county giving information and events that are a matter of public interest such as credit, bankruptcy, tax liens and foreclosures. If public record information appears on a credit report it is usually regarded negatively by creditors as it is usually negative information.
Punch List – Is a list of items that have not been completed at the time of the final walk through of a newly constructed home or a home that was in need of repairs.
Purchase and Sale Agreement – Is a legal document requiring the homebuyer to buy and the home seller to sell a home that is agreed upon and under specified terms and conditions.
Purchase Offer – Is a preliminary agreement secured by the payment of earnest money between a buyer and seller as an offer to purchase real estate. 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 usually the earnest money is forfeited unless the binder expressly provides that it is to be refunded.
Qualifying Ratios – Are the guidelines determined by mortgage lenders to determine how much of a mortgage a homebuyer is qualified to borrow. The lending guidelines typically include a maximum housing expense to income ratio and the maximum monthly income to expense ratio.
Quit Claim Deed – A deed which transfers whatever interest the maker of the deed may have in the particular parcel of land to another. 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 with no warranties as to the title, but simply transfers to the buyer whatever interests the grantor, but does not make any guarantee of clear title.
Radon – Is a radioactive gas found in some homes that if present and has high enough strong concentrations can cause health problems.
Rate Lock – Is a commitment by a mortgage lender to a loan applicant guaranteeing the applicant will receive a specific interest rate over if the loan is closed in a period of time for a set fee.
Real Estate Agent – A person licensed to negotiate and transact the sale of real estate and works on behalf of the homebuyer or home seller unless designated only as a home buyer's broker. A real estate agent works for and under the supervision of a real estate broker.
Real Estate Broker – A licensed real estate agent who has met all the criteria and has also passed the test to become a licensed real estate broker. A real estate broker also has the authority to hire and supervise real estate agents or salespersons. A real estate broker also has the ability to buy and sell real estate for an individual or firm on a commission basis. The real estate broker owns the company and is licensed to supervise real estate agents for an agreed upon monthly fee and fee per transaction.
Real Estate Settlement Procedures Act (RESPA) – Is a federal law protecting consumers from abuses that allows consumers to review information on known or estimated settlement costs once after application and once prior to or at closing during the residential real estate purchase and loan process by requiring lenders to disclose all settlement costs, practices, and relationships.
Real Property – Real Property consists of land, permanent buildings and all the natural resources located on the parcel of land. It includes all property of a fixed, permanent, immovable nature that is affixed to such land.
Realtor – A real estate agent or real estate broker holding active membership in a local real estate board that is affiliated and upholds the standards set by the National Association of Realtors. Thus a Realtor is someone agrees and upholds the standards and ethics imposed by the National Association of Realtors.
Recorder – Is the public official who keeps records of transactions concerning all real property. The recorder is also known as the Registrar of Deeds or County Clerk.
Recording – The act of recording in a county clerks or registrar's office of an executed legal document. These documents include deeds, mortgages, satisfaction of a mortgage, or an extension of a mortgage making it a part of the public record.
Recording Fees – These are the loan fees that are paid to the mortgage lender for local county charges to officially record the signed deed and mortgage documents to make them a public record.
Refinancing – Is the process of paying off one mortgage loan with the proceeds from another mortgage loan. Refinancing is generally done to secure better loan terms (like getting a lower interest rate).
Rehabilitation Mortgage – Is a mortgage loan that covers the costs of rehabilitating and repairing or improving a property. Some rehabilitation mortgages like the FHA's 203(k) allow a borrower to roll the costs of rehabilitation and home purchase into one mortgage loan.
Reinstatement Period – A part of the foreclosure process where the homeowner has the opportunity to stop the foreclosure by paying money in arrears that is owed to the mortgage lender to bring the mortgage loan current.
Remaining Balance – Is the amount of principal balance of a mortgage loan that has not yet been repaid. It is the original amortization mortgage term minus the principal from the number of payments that have been applied.
Repayment Plan – Is an agreement between a mortgage lender and a delinquent borrower where the borrower agrees to make additional payments to pay down past due amounts while making the regularly scheduled payments.
Rescission – The cancellation of a mortgage loan with respect to mortgage refinancing and the law that gives the homeowner three days to cancel a mortgage loan.
Restrictive Covenants – Private restrictions limiting the use of real property. Restrictive covenants are created by deed and may run with the land while binding all subsequent purchasers of the land or may be personal and binding only between the original home seller and homebuyer. 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 or regulate size, style or price range of buildings to be erected.
Reverse Mortgage (HECM) – The reverse mortgage loan is used by senior homeowners age 62 and older to convert the equity in their home into monthly streams of income and or a line of credit to be repaid when they no longer occupy the home. A lending institution such as a mortgage banker, bank, credit union or savings and loan association funds the FHA insured loan commonly known as HECM. It is a loan that enables elderly homeowners to use their home’s equity without selling their home or moving from it. A lending institution makes a check out to the homeowners each month. This payment is really a loan against the value, because the monthly payment is a loan and it’s tax-free when the homeowners receive it.
Right of First Refusal – Is an owner's promise to let someone make the first offer on a property or to match the amount offered by another party. It is also a provision in an agreement that requires the owner of a property to give another party an opportunity to purchase or lease a property before it is offered for sale or lease to others.
Sale Leaseback – Is when a home seller deeds property to a homebuyer and the homebuyer simultaneously leases the property back to the seller for an agreed upon payment and term.
Satisfaction of Mortgage – Is a document issued by a mortgage lender when a mortgage loan is paid in full. It is also called a release of mortgage.
Second Mortgage – A mortgage loan that has a lien position that is behind the first mortgage loan or subordinate to the first mortgage loan. In case of a default the first mortgage must be paid before the second mortgage. Second loans are more risky for the lender and usually carry a higher interest rate.
Secondary Mortgage Market – Is the buying and selling of mortgage loans by Investors who purchase residential mortgages originated by mortgage lenders which in turn provide the Investors with interest income and allows mortgage lenders to free up capital for lending.
Security – The property that will be pledged as collateral for a loan.
Servicer – Is a company that collects monthly mortgage payments from borrowers and manages the borrower's escrow accounts.
Servicing – This is the activity that a mortgage lender or mortgage loan servicer performs by collecting the monthly mortgage payments including the escrow payments and used to pay the mortgage holders the payment portion while paying property taxes, mortgage insurance and homeowners insurance.
Setback – Is the distance between a property line and the area where building can take place. Setbacks are used to assure space between buildings and from roads for a many of purposes including drainage and utilities.
Settlement – Is another name for the loan closing.
Settlement Statement – A document required by the Real Estate Settlement Procedures Act aka (RESPA). It is an itemized statement of charges and services relating to the closing of a property. The homebuyer has the right to examine the settlement statement prior to the closing. This is also called a HUD 1 Settlement Statement.
Seller Take-Back – Is an agreement in which a property seller provides financing to a homebuyer. It is also known as Seller Financing.
Simple Interest – A method which Interest is computed based only on the principle balance.
Survey – A property diagram that indicates the legal boundaries, easements, encroachments, rights of way and improvement locations. Surveys are performed by licensed land surveyors and are normally required by mortgage lenders in order to confirm that the property legal boundaries, easements, encroachments, rights of way and improvement locations are correctly described in the legal description of the property.
Subordinate – A place in a rank of lesser importance or to make one mortgage loan secondary to another mortgage loan.
Sub-Prime Loan – Are loans with fico scores typically lower than the required scores of standard conforming mortgage loans. It is an industry term used to describe loans with less stringent lending terms and conditions. Due to the higher risk sub-prime loans charge higher interest rates and fees.
Sustainability – Is an approach to community development that ties the quality and location of housing to broader opportunities such as access to good jobs, affordable transportation, quality schools, and safe streets.
Sweat Equity – Is the using labor to build or improve a property as part of the down payment or funds invested in the property.
Temporary Buy-down Mortgage loan – Is a non-fixed, fixed rate loan with the first few years of the loan at a lower rate than the actual note rate. The difference in dollars for the reduced rate is usually placed in an escrow account to pay the difference in the mortgage payment amount.
Termite Certificate – A document certifying a property has no termites or termite damage.
Terms – The period of time and interest rate agreed upon by the mortgage lender and the borrower to repay a mortgage loan.
Third Party Origination – A term by which a mortgage broker or mortgage lender originates, processes, underwrites, closes, funds and packages the mortgage loan that it sells to another mortgage lender or to the secondary mortgage market.
Title – A legal document establishing the right of ownership and is recorded to make it part of the public record it is also known as a Deed.
Title Company – Is a company that specializes in documenting, examining and insuring titles in real estate transactions.
Title Defect – An outstanding claim or issue on a property that limits the ability to sell the property. It is also referred to as a cloud in the title.
Title Insurance – This is the insurance policy protects the lender against any claims that arise from arguments about ownership of the property; also available for homebuyers. An insurance policy guaranteeing the accuracy of a title search protecting against errors. Most lenders require the buyer to purchase title insurance protecting the lender against loss in the event of a title defect. This charge is included in the closing costs. A policy that protects the buyer from title defects is known as an owner's policy and requires an additional charge.
Title Search – A title search is an examination of officially recorded documents to search the history of a property including ownership, liens and other items that may encumber the property. It is also used to determine the legal ownership of property.
Total Debt-to-Income Ratio – This is the ratio that compares all your monthly income to your monthly debts and expenses. It compares all of your monthly payments like credit cards, car payments, Etc. This is a very important ratio used by the mortgage lender to see if you qualify for the mortgage loan that you have applied for with a mortgage lender.
Transfer of Ownership – The means by which ownership of a property changes hands. These include purchase of a property, assumption of mortgage debt and exchange of possession of a property via a land contract or any other land transfer.
Transfer Taxes – The State and local taxes charged for the transfer of real estate from one owner to another. Usually equal to a percentage of the sales price.
Trustee – A party who is given legal responsibility to hold property in the best interest of or for the benefit of another party. The trustee is someone placed in a position of responsibility and control for the benefit of another party and is an enforceable position in a court of law.
Truth in Lending Disclosure (TIL) – A Federal law obligating the mortgage lender to give full written disclosure to the borrower. The borrower will be provided with a Truth in Lending disclosure with all fees, terms, and conditions associated with the loan within seventy-two hours after the initial loan application. This disclosure gives details of the house payments along with the corresponding APR.
Treasury Index – Is one of the indexes used as the basis for adjustable rate mortgages (ARMs). It is based on the results of auctions that the U.S. Treasury holds for its Treasury bills and securities.
Underwriting – This is one of the most important steps in the mortgage loan process it usually follows the loan processing step. During underwriting the mortgage loan file and documents in the loan file are evaluated to determine if the loan should be approved, denied or approved with conditions. The process of analyzing a loan application to determine the amount of risk involved in making the loan as it includes a review of the borrower's credit history and an opinion of the property’s value.
Up-Front Charges – Are the fees charged to homeowners by the mortgage lender at the time of closing a mortgage loan. These fees include origination fees, discount points, broker's fees, insurance, title fees and other charges.
Usury Laws – The maximum interest rate that can be charged to a borrower as the maximum legal rate allowed and established by State law.
VA Mortgage Loan – Is a long-term, low-or no-down payment mortgage loan restricted to individuals qualified by current or previous military service or other entitlement. VA loans allow active military personal or veterans to purchase homes and obtain mortgage loans with low or no down payment required. The Veterans Administration guarantees the mortgage loans issued to the military veteran homebuyer should the veteran fail to repay the debt. Only veterans are eligible for this type of loan. There is a funding fee added to the loan. The funding fee can be financed (added to the loan) or paid in cash.
VA Mortgage Funding Fee – Is a premium either paid at closing or added to the amount financed up to 2 percent depending on the size of the down payment paid to the VA either paid in cash at closing or added to the amount financed.
Valuation – The assessed value or price of an asset.
Variable Expenses – Are costs or payments that may change or vary from month to month.
Variance – A special exemption of a zoning law to allow the property to be used in a manner different from an existing law.
Verification of Deposit (VOD) – Is a document signed by the borrower and the borrower’s financial institution to verify the status and balance of their bank or financial accounts.
Verification of Employment (VOE) - Is a document signed by the borrower and the borrower’s employer to verify their position and salary.
Veterans Administration (VA) – The VA is known as the Department of Veterans Affairs a federal government agency which guarantee’s mortgage loans to mortgage lenders for mortgage loans given to veterans. It is a form of mortgage insurance for military veterans to protect mortgage lenders against loss from a borrower default.
Walk Through – The final inspection of a property being sold by the homebuyer to see and approve that any conditions specified in the purchase agreement have all been completed. The items are usually required repairs, electrical items, plumbing items and needed repair to any mechanical systems are all in working order.
Warranty Deed – Is a legal document that includes the guarantee the home seller is are the true owner of the property and has the right to sell the property and there are no claims against the property.
Zoning – The local laws established to control the uses of land within particular areas. The zoning laws are used to separate residential land from areas of non-residential use such as commercial areas for business and industry. The zoning laws include many provisions for things like the type of structure, setbacks, lot size, and uses of a building in a certain area.