| Acceleration |
 | The right of the lender to require immediate repayment of the mortgage loan balance upon the default of borrower. |
| Adjustable rate mortgage (ARM) |
| A mortgage in which the interest rate is adjusted periodically based on a defined index and time frame. |
| Adjustment date |
| The date on which the interest rate changes for an adjustable-rate mortgage. |
| Adjustment interval |
| The time between changes in the interest rate and/or monthly payment on an adjustable rate mortgage. The interval is typically one, three or five years, depending on the index. |
| Amortization |
| The repayment of a mortgage loan by installments, with regular payments to cover the principal and interest. |
| Annual Percentage Rate (APR) |
| The interest rate reflecting the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account point and other credit cost. The APR allows home buyers to compare different types of mortgages based on the annual cost for each loan. |
| Application |
| A form, commonly referred to as a 1003 form, used to apply for a mortgage and to provide information regarding a prospective mortgagor and the proposed security. |
| Appraisal |
| An estimate of the value of property, made by a qualified professional called an "appraiser". |
| Appreciation |
| An increase in the value of a property. |
| Assessment |
| A local tax levied against a property for a specific purpose, such as a sewer or street lights. |
| Assignment |
| The transfer of a mortgage from one person to another. |
| 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 cost and new, probably higher, market-rate interest charges will apply. |
| Balloon mortgage |
| Usually a short-term fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a time specified in the contract. |
| Balloon payment |
| The final lump sum payment that is made at the maturity date of a balloon mortgage. |
| Basis point |
| A basis point is 1/100th of a percentage point. For example, a fee calculated as 50 basis points of a loan amount of $100,000 would be 0.50% or $500. |
| Binder |
| A preliminary agreement, secured by the payment of an earnest money deposit, under which a buyer offers to purchase real estate. |
| Biweekly payment mortgage |
| A mortgage that requires payments 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 that would be required if the loan were a standard 30-year fixed-rate mortgage, and they are usually drafted from the borrower's bank account. The result for the borrower is a substantial savings in interest. |
| Borrower (Mortgagor) |
| The 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 form of second trust that is collateralized by the borrower's present home (which is usually for sale) in a manner that allows the proceeds to be used for closing on a new house before the present home is sold. Also known as "swing loan." |
| Broker |
| An individual in the business of assisting in arranging funding or negotiating contracts for a client buy who does not loan the money himself. Brokers us ally charge a fee or receive a commission for their services. |
| Buy-down |
| When the lender and/or the home builder subsidized the mortgage by lowering the interest rate during the first few years of the loan. While the payments are initially low, they will increase when the subsidy expires. |
| Call option |
| A provision in the mortgage that gives the mortgagee the right to call the mortgage due and payable at the end of a specified period for whatever reason. |
| Cap |
| Consumer safeguards which limit the amount the interest rate on an adjustable rate mortgage may change per year and/or the life of the loan. |
| 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.) |
| Cash-out refinance |
| A refinance transaction in which the amount of money received from the new loan exceeds the total of the money needed to repay the existing first mortgage, closing costs, points, and the amount required to satisfy any outstanding subordinate mortgage liens. In other words, a refinance transaction in which the borrower receives additional cash that can be used for any purpose. |
| Certificate of Eligibility |
| A document issued by the federal government certifying a veteran's eligibility for a Department of Veterans Affairs (VA) mortgage. |
| Certificate of Reasonable Value (CRV) |
| A document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA mortgage. |
| Clear title |
| A title that is free of liens or legal questions as to ownership of the property. |
| Closing |
| The meeting between the buyer, seller and lender or their agents where the property and funds legally change hands. |
| Closing Costs |
| Fees that a home buyer must pay at closing. 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. commitment an agreement, often in writing, between a lender and a borrower to loan money at a future date subject to the completion of paperwork or compliance with stated conditions. |
| Closing statement |
| Also referred to as the HUD-1. The final statement of costs incurred to close on a loan or to purchase a home. |
| Combination loan |
| With this type of loan, you receive a first mortgage for 80 percent of the loan amount, and a second mortgage at the same time for the remainder of the balance. If avoiding PMI (mortgage insurance) is important to you, consider combination loans--known as 80/10/10 loans or 80/20's. |
| Commission |
| The fee charged by a broker or agent for negotiating a real estate or loan transaction. A commission is generally a percentage of the price of the property or loan. |
| Commitment |
| A promise by a lender to make a loan on specific terms or conditions to a borrower or builder. A promise by an investor to purchase mortgages from a lender with specific terms or conditions. construction loan (interim loan): A loan to provide the funds necessary 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 purchaser and a seller of real estate to convey title after certain conditions have been met. It is a form of installment sale. |
| Comparables |
| An abbreviation for "comparable properties"; used for comparative purposes in the appraisal process. Comparables are properties like the property under consideration; they have reasonably the same size, location , and amenities and have recently been sold. Comparables help the appraiser determine the approximate fair market value of the subject property. |
| Conforming loan |
| The current conforming loan limit is $322,700 and below. Conforming loan limits change annually. Non-conforming loans carry an interest rate premium. |
| Construction loan |
| A short term interim loan for financing the cost of construction. The lender advance funds to the builder at periodic intervals as the work progresses. |
| Contingency |
| A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector. |
| Conventional loan |
| A mortgage not insured by FHA or guaranteed by the VA or 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. |
| Convertibility clause |
| A provision in some adjustable-rate mortgages (ARMs) that allows the borrower to change the ARM to a fixed-rate mortgage at specified timeframes after loan origination. |
| Convertible adjustable rate mortgage |
| An adjustable-rate mortgage (ARM) that can be converted to a fixed-rate mortgage under specified conditions. |
| Cost of funds index (COFI) |
| An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It represents the weighted-average cost of savings, borrowings, and advances of the 11th District members of the Federal Home Loan Bank of San Francisco. |
| Credit history |
| A record of an individual's open and fully repaid debts. A credit history helps a lender to determine whether a potential borrower has a history of repaying debts in a timely manner. |
| Credit report |
| A report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan |
| 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 net effective income (FHA/VA loans) or gross monthly income (conventional loans). |
| Deed |
| The legal document conveying title to a property. |
| 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 mortgage payments on a timely basis or to comply with other requirements of a mortgage. |
| Delinquency |
| Failure to make payments on time. this can lead to foreclosure. |
| Department of Veterans Affairs (VA) |
| An independent agency of the federal government which guarantees long-term, low-or no-down payment mortgages to eligible veterans. |
| Depreciation |
| A decline in the value of property |
| Discount Point |
| see point |
| Down Payment |
| Money paid to make up the difference between the purchase price and the mortgage amount. Down payments usually are 10 percent to 20 percent of the sales price on conventional. |
| Due-On-Interest: |
| A clause inserted in a mortgage that allows the lender to call the loan due and payable at its option upon the transfer of the property also known as paragraph "17" in FNMA/ FHLMC Mortgage. |
| Due-on-Sale-Clause |
| A provision in a mortgage or deed of trust that allows the lender to demand immediate payment of the balance of the mortgage if the mortgage holder sells the home. |
| Earnest Money |
| Money given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment. |
| Earnest money deposit |
| A deposit made by the potential home buyer to show that he or she is serious about buying the house. |
| Easement |
| A right of way giving persons other than the owner access to or over a property. |
| Encumbrance |
| Anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements, or restrictions. |
| Entitlement |
| The VA home loan benefit is called entitlement. 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 value an owner has in real estate over and above the obligation against the property. |
| Escrow |
| Funds that are set aside and held in trust, usually for payment of taxes and insurance on real property. Also earnest deposits held pending loan closing. |
| Estate |
| The ownership interest of an individual in real property. The sum total of all the real property and personal property owned by an individual at time of death. |
| Fair Credit Reporting Act |
| A consumer protection law that regulates the disclosure of consumer credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one's credit record. |
| Fair market value |
| The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept. |
| Federal Housing Administration (FHA) |
| An agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity is the insuring of residential mortgage loans made by private lenders. The FHA sets standards for construction and underwriting but does not lend money or plan or construct h Federal National Mortgage Association |
| Fee simple |
| The greatest possible interest a person can have in real estate. |
| 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 ($124,875 and higher), they are generous enough to handle moderately-priced homes almost anywhere in the country. |
| FHA mortgage insurance |
| Requires a small fee (up to 3.8 percent of the loan amount) paid at closing or a portion of this fee added to each monthly payment of an FHA loan to insure the loan with FHA. On a 9.5 percent $75,000 30-year fixed rate FHA loan, this fee would amount to either $2,850 at closing or an extra $31 a month for the life of the loan. In addition, FHA mortgage insurance requires an annual fee of 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 saving and loans by purchasing their conventional loans. Also known as "Freddie Mac." |
| Firm Commitment |
| A promise by FHA to insure a mortgage loam for a specified property and borrower. A promise from a lender to make a mortgage loan. |
| Fixed-Rated Mortgage |
| A mortgage on which the interest rate is set for the term of the loan. |
| 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 a sale of a mortgaged property because the borrower has not met the terms of the mortgage. Also known as a repossession of property. |
| Good Faith Estimate |
| An estimate of charges which a borrower is likely to incur in connection with a settlement. |
| Government National Mortgage Association (GNMA) |
| Aso known as "Ginnie Mae, provides sources of funds for residential mortgage, insured or guaranteed by FHA or VA |
| 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 to pay a debt or perform an obligation contracted by another if the original party fails to pay or perform according to a contract. |
| Hazard Insurance |
| A form of insurance in which the insurance company protects the insured from specified losses, such as fire, windstorm and the like. |
| Home Equity Line of Credit |
| a credit line that is secured by a second deed of trust on a house. Equity lines of credit are revolving accounts that work like a credit card, which can be paid down or charged up for the term of the loan. The minimum payment due each month is interest only. |
| Home Equity Loan |
| a loan secured by a second deed of trust on a house, typically used as a home improvement loan. |
| Housing Expenses-to-Income Ratio |
| The ratio, expressed as a percentage, which results when a borrower's housing expenses are divided by his/her net effective income (FHA/VA loans) or gross monthly income (conventional loans). See debt-to-income ratio. |
| HUD |
| The U.S. Department of Housing and Urban Development. |
| Impound |
| That portion of a borrower's monthly payments held by the lender or servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Also known as reserves. |
| Index |
| A published interest rate against which lenders measure the difference between the current interest rate on an adjustable rate mortgage and that earned by other investments (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 costs-of-funds incurred by savings and loans), which is then used to adjust the interest rate on an adjustable mortgage up or down. |
| Investor |
| A money source for a lender. |
| Interim Financing |
| A construction loam made during completion of a building or a project. A permanent loan usually replaces this loan after completion. |
| Jumbo Mortgage |
| The current loan limit for a conforming loan is $322,700. Loan amounts of $322,701 and above are considered non-conforming or jumbo mortgages and are usually subject to higher pricing. |
| Lender |
| The bank, mortgage company, or mortgage broker offering the loan. |
| Lien |
| A claim upon a piece of property for the payment or satisfaction of a debt or obligation. |
| Lifetime Cap |
| A provision of an ARM that limits the highest rate that can occur over the life of the loan. |
| Loan-to-Value Ratio |
| The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage. |
| Lock Period |
| The amount of time that a lender will guarantee a loan's interest rate. Once you've locked in the interest rate on a loan, the lender will guarantee that rate for a certain period of time, usually for 30, 45 or 60 days. |
| Lock-In |
| A written agreement guaranteeing the home buyer a specified interest rate provided the loan is closed within a set period of time. The lock-in also usually specifies the number of points to be paid at closing. |
| Margin |
| The amount a lender adds to the index on an adjustable rate mortgage to establish the adjusted interest rate. |
| Market Value |
| The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time. |
| Mortgage |
| A legal document that pledges a property to the lender as security for payment of a debt. |
| Mortgage Insurance |
| Money paid to insure the mortgage when the down payment is less than 20 percent. See private mortgage insurance, FHA mortgage insurance. |
| Mortgage Insurance Premium (MIP) |
| is the one-half percent borrowers pay each month on FHA insured mortgage loans. It is insurance from FHA to the lender against incurring a loss on account of the borrower's default. The MIP was changed to a one-time charge to the borrowers. |
| Mortgagee |
| The lender |
| Mortgagor |
| The borrower or homeowner |
| 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. Note: The signed obligation to pay a debt, as a mortgage note. |
| Non-Conforming Loan |
| Also called a jumbo loan. Conventional home mortgages not eligible for sale and delivery to either Fannie Mae (FNMA) or Freddie Mac (FHLMC) because of various reasons, including loan amount, loan characteristics or underwriting guidelines. Non-conforming loans usually incur a rate and origination fee premium. The current non-conforming loan limit is $322,701 and above. |
| Note |
| A written agreement containing a promise of the signer to pay to a named person, or order, or bearer, a definite sum of money at a specified date or on demand. |
| 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. (points) |
| Owner Financing |
| A property purchase transaction in which the property seller provides all or part of the financing. |
| Permanent Loan |
| A long term mortgage, usually ten years or more. Also called an "end loan." |
| PITI |
| Principal, Interest, Taxes and Insurance. Also called monthly housing expense. |
| 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). |
| 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 36 states and the District of Columbia. |
| Primary Mortgage Market |
| Lenders making mortgage loans directly to borrower's such as savings and loan association, commercial banks, and mortgage companies. 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 require an initial premium payment of 1.0 percent to 5.0 percent of your mortgage amount and may require an additional monthly fee depending on you loan's structure. On a $75,000 house with a 10 percent down payment, this would mean either an initial premium payment of $2,025 to $3,375, or an initial premium of $675 to $1,130 combined with a monthly payment of $25 to $30. |
| Qualifying Ratios |
| The ratio of your fixed monthly expenses to your gross monthly income, used to determine how much you can afford to borrow. The fixed monthly expenses would include PITI along with other obligations such as student loans, car loans, or credit card payments. |
| Rate |
| The annual rate of interest on a loan, expressed as a percentage of 100. |
| Rate Cap |
| A limit on how much the interest rate can change, either at each adjustment period or over the life of the loan. |
| Rate Lock-In |
| A written agreement in which the lender guarantees the borrower a specified interest rate, provided the loan closes within a set period of time. |
| RealtorŪ |
| 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. |
| Refinancing |
| The process of paying off one loan with the proceeds from a new loan using the same property as security. |
| Residential Mortgage Credit Report (RMCR) |
| A report requested by your lender that utilizes information from at least two of the three national credit bureaus and information provided on your loan application. |
| 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 as Satisfaction of Mortgage: The document issued by the mortgagee when the mortgage loam is paid in full. Also called a "release of mortgage." |
| Second Mortgage |
| A mortgage made subsequent to another mortgage 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. security. |
| Seller Carry Back |
| An agreement in which the owner of a property provides financing, often in combination with an assumed mortgage. |
| 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, property inspections and the like. |
| Settlement/Settlement Costs |
| see closing/closing costs |
| Simple Interest |
| Interest which is computed only on the principle balance. |
| Sweat Equity |
| Equity created by a purchaser performing work on a property being purchased. term mortgage see balloon payment mortgage. |
| Survey |
| A print showing the measurements of the boundaries of a parcel of land, together with the location of all improvements on the land and sometimes its area and topography. |
| Tenants-in-Common |
| An undivided interest in property taken by two or more persons. The interest need not be equal. Upon death of one or more persons, there is no right of survivorship. |
| Term |
| The period of time which covers the life of the loan. For example, a 30 year fixed loan has a term of 30 years. |
| 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 us ally a function of the value of the property, and is often borne by the purchaser and/or seller. |
| Title Search |
| an examination of municipal records to determine the legal ownership of property. Usually is performed by a title company. |
| Total Debt Ratio |
| Monthly debt and housing payments divided by gross monthly income. Also known as Obligations-to-Income Ratio or Back-End Ratio. |
| Truth-In-Lending |
| a federal law requiring disclosure of the Annual Percentage Rate to home buyers shortly after they apply for the loan. |
| 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. |
| 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. |
| Ususry |
| Interest charged in excess of the legal rate established by law. |
| 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. |
| Variable Rate Mortgage (VRM) |
| see adjustable rate mortgage |
