- Acceleration Clause
-
Allows the lender to demand immediate
payment of the balance of the loan should you default on your
payments.
- Adjustable-Rate Mortgage (ARM)
-
A mortgage in which the interest rate is
adjusted periodically
based on a designated financial index. Also known as variable
rate mortgage.
- Adjustment Interval
-
On an adjustable rate mortgage, the time between
changes in the interest rate and/or monthly payment.
- Amortization
-
The method by which your loan is fully
paid off by the end of your loan life. (30 years is most
common.) You will pay mostly interest at first, and as
the principal balance of your mortgage goes down, more
and more of your payment will go to principal until it is
paid off.
Equal periodic payments calculated to pay off the loan at the
end of a fixed period, typically 15 or 30 years. - Annual Percentage Rate (APR)
-
The actual interest rate you would have
paid on your mortgage, including all up-front costs such
as points, title insurance, appraisal, etc., if you kept
your loan for the full term (say 30 years). This is only
accurate on fixed-rate loans, and only truly reflects
your costs if you keep the loan 30 years.
An interest rate reflecting the cost of a
loan as a yearly rate. This rate is likely to be higher than the
stated note rate on the mortgage, as it
takes into account points and other credit costs. The APR allows
borrowers to compare different types
of mortgages based on the annual cost for each loan. - Appraisal
-
An estimate of the value of your property done by a licensed appraiser to a strictly
defined set of guidelines and definitions.
- Assessment
-
As opposed to appraisal, the value
placed on your property by the county Assessor's office.
In California, due to Prop 13, this value is set by
formula, and may have little bearing on the actual value
of your property.
[top] - Balloon (Payment) Mortgage
-
Usually a short-term loan involving
small payments for a set period of time and one large payment for
the remaining principal balance at a
specified time.
- Broker
-
An individual in the business of assisting, arranging, funding or
negotiating loans for a client, but does not loan the money
himself. Brokers either charge the borrower
a fee or receive a commission from the lender for their services.
- Buy-Down
-
When the lender and/or the home builder subsidizes 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.
- Buydown Mortgage
-
A fixed-rate mortgage where you may
"buy down" (by paying a greater up-front cost)
the rate for one or two years in order to lower your
initial payments, qualify for a larger loan, and know
exactly what your payments will be when the loan adjusts.
- Caps (Interest)
-
Consumer safeguards that limit the amount that the interest
rate on an ARM loan may change per year and/or life of the loan.
There are periodic caps, which limit how
much your loan may be adjusted in one adjustment period,
and a lifetime cap, which limits how much your loan may
be adjusted in the life of the loan.
- Caps (Payment)
- Consumer safeguards which limit the amount monthly
payments on an adjustable rate mortgage may change.
- Cash Reserves
-
The amount of liquid money you will have
left after the purchase or refinance transaction is
completed. This is your safety net, and most lenders like
to see at least three month's earnings in the bank. (This
can be in the form of salable securities such as stocks
and bonds.)
- Closing Statement
-
The computation of costs payable at
closing and the net proceeds to all parties involved in
the transaction. Also known as a Settlement Sheet.
- Closing
-
Meeting between the buyer, seller and lender escrow officer where
the
property and funds legally change hands. Also called settlement.
- Closing Costs
-
Costs charged in escrow against the proceeds of your loan or on top of your loan amount.
sually include an origination fee, appraisal fee, title search
and insurance, taxes, deed recording fee, credit report charge
and other costs assessed at settlement.
- Combined Loan-to-Value Ratio (CLTV)
-
The ratio, expressed as a percentage, of
your total loan amounts to the value of your property.
- 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.
- Construction Loan
-
Short term interim loan for financing the cost of
construction. The lender advances funds to the builder at
periodic intervals as the work progresses.
- Conventional Loan
-
A loan not insured by FHA, VA or Farmers Home
Administration.
- Cost-of-Funds Index (COFI)
-
An index made of several sub-components,
which reflects the average cost of funds of member banks
in a certain region, or district. This is considered the
most stable of the commonly used indexes. This index is
published daily in financial journals, such as the Wall
Street Journal.
- Credit Report
-
Report listing borrowers' consumer credit use, including past
and current debts, payment ratings and terms.
[top] - Deed
-
The document used to convey title to a
property. Usually a grant deed, granting title to the
buyer.
- Deed of Trust
- In California and many other states, a
deed which transfers title and the right to sell your
property to a disinterested third party, subject to your
default on the loan. This is a substitute for judicial
foreclosure, and should not be mistaken for it.
- Default
-
Failure to make the required payments on a loan. Often results in
foreclosure.
- Deferred Interest See Negative Amortization.
- Delinquency
-
Failure to make loan payments on time. This could lead to
default or foreclosure.
- Department of Veterans Affairs
-
Independent agency of the federal
government which guarantees long-term, low or no-down payment
loans to eligible veterans.
- Discount Points See Points.
- Down Payment
-
Money paid to make up the difference between the purchase
price and loan amount. Down payments usually are 10 to 20 percent
of the sales price on conventional
loans.
[top] - Earnest Money
-
Money given by a buyer as part of the purchase price to
bind
a transaction or assure payment. Also called DEPOSIT.
- Equal Credit Opportunity Act ( ECOA )
-
Federal law requiring
lenders and other creditors to make credit equally available
without discrimination based on race,
color, religion, national origin, age, sex, marital status or
receipt of income from public assistance
programs.
- Equity
-
The difference between the value of your
home and what you owe on all your loans.
Also known as owner's interest.
- Escrow
-
The process by which a neutral third
party (the title company) holds documents and funds, and
carries out instructions agreed to by all parties.
Escrow may also refer to an account held by the lender into which
the borrower pays for tax or
insurance payments.
[top] - FANNIE MAE
-
See Federal National Mortgage Association
- Farmers Home Administration
-
Provides loans to farmers and other
qualified borrowers unable to obtain loans elsewhere.
- Federal National Mortgage Association (FNMA)
-
Also known
as "Fannie Mae." A corporation created by Congress that
purchases and sells
conventional, FHA and VA residential loans. Provides funds for 1
in 7 loans, making mortgage money
more available and affordable.
- Federal Home Loan Mortgage Corporation
-
Also called
"Freddie Mac," a quasi-governmental agency that
purchases conventional mortgages form
insured depository institutions and HUD-approved mortgage
bankers.
- Federal Housing Administration (FHA)
-
Division of Department of
Housing and Urban Development. Insures residential mortgage loans
made by private lenders. FHA
also sets standards for underwriting mortgages.
- FHA Loan
-
Loan insured by the Federal Housing Administration open to
qualified home purchasers. While limited in size ($124,875), they
are generous enough to handle
moderate-priced homes almost anywhere in the country.
- Fixed-rate Mortgage
-
A mortgage in which your interest rate
is fixed for the life of the loan; it never adjusts or
changes.
- Foreclosure
-
A legal procedure in which property securing debt is sold by
the lender to pay the defaulting borrower's debt .
- FREDDIE MAC
-
See Federal Home Loan Mortgage Corporation.
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
- Funder
-
The person, employed by the mortgage
banker, that reviews the file after all conditions have
been satisfied and all final papers signed to ensure
proper compliance with loan-program guidelines.
[top] - GNMA
-
Also known as "Ginnie Mae," provides sources of funds
for FHA and VA residential mortgages.
- Graduated Payment Mortgage (GPM)
-
Flexible-payment loan
payments increase for a specified period
of time and then level off. This type of loan has negative
amortizationbuilt into it.
- Gross Monthly Income
-
The total amount the borrower(s) earns each
month, before any expenses are deducted.
- Guarantee
-
Promise to pay a debt or perform an obligation contracted by
another if the original party fails to pay or perform to a
contract.
[top] - Hazard Insurance
-
Insurance which protects the borrower and home from
specified losses, such as fire, windstorm, etc.
- Housing Expenses-To-Income Ratio
-
The ratio, expressed as a
percentage, obtained by dividing borrower's housing expenses by
his/her gross monthly income. See
debt-to-income ratio.
[top] - Impound Account
-
The account set up by the lender into
which the monthly impound amounts you may pay toward
taxes and insurance are placed.
- Impound
-
Portion of the borrower's monthly payment collected by the lender
to
pay taxes, hazard insurance, mortgage insurance, and
other items as they become due. Also known as reserves.
- Index
-
A reference point to use to adjust your
mortgage to go up or down as general market rates move.
It is a published rate against which your adjustable rate
mortgage is adjusted. Common indexes are 1-Year T-Bills,
Cost-of-Funds Index (COFI, or coffee), and London
Interbank Offered Rate, or LIBOR.
The rate against which lenders measure the difference between the
current rate on adjustable rate loans and that earned by other
investments, (U.S. Treasury security yields, monthly average
interest rate on loans closed by savings
and loans, and monthly average
costs-of-funds incurred by savings and loans), which is then used
to adjust the interest rate up or down. - Investor
-
Money source for a lender. Ultimately your loan may be sold to an
investor; a company that invests in mortgages that other
companies have written. They buy your mortgage for a set
amount and then collect your payments.
- Jumbo Loan
-
Loan which is larger than the limits ($203,150) set by FNMA
and FHLMC. Because jumbo loans cannot be funded by these
agencies, they usually carry a higher
interest rate.
[top] - Lien
-
A claim upon a piece of property for the payment of satisfaction
of a debt or
obligation.
- Loan-to-Value Ratio (LTV)
-
The relationship, expressed as a
percentage, between your loan amount and the value of
your property. See Combined Loan-to-Value Ratio
- Lock, or Locking In
-
Rates and costs change daily (sometimes
more often). You may select a rate at a given cost at any
time during the loan process, from before your
application to when your transaction is submitted to the
title company for sign-off. This is called locking your
rate. Once locked, the lender cannot change the rate, and
neither can you.
- London Interbank Offered Rate (LIBOR)
-
This index reflects European financial
markets, obviously, and is generally considered the most
volatile of the commonly used indexes. It is published
daily in financial journals, such as the Wall Street
Journal.
[top] - Margin
-
The number added to your index to find
your new interest rate on an adjustable rate mortgage. A
margin of 2.75 and a COFI index, for instance, means your
new rate will be 2.75% over the current yield of the
Cost-of-Funds Index.
- Market Value
-
Price that a buyer would pay and 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 Banker
-
A mortgage company with their own money,
which funds under their own name with their own funds.
Most often after escrow, your loan will be sold to an
investor by the mortgage banker.
- Mortgage Broker
-
A mortgage company that does not fund
with their own money, but rather shops your loan and
finds a mortgage banker that will fund the loan.
- Mortgage Insurance
-
A fee (up to 3.8 percent of 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. Paid to insure the mortgage when the down
payment is less than 20 percent. See Private Mortgage Insurance.
- Mortgagee The lender.
- Mortgagor The borrower or homeowner.
[top] - 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.
- Net Effective Income
-
The borrower's gross income minus federal
income tax.
- Non-Recurring Closing Costs
-
Those closing costs associated with
acquiring the loan. They include loan fees (points),
appraisal and credit reports, title insurance,
underwriting, processing fees, and miscellaneous smaller
fees for various services. In the case of a purchase, you
may also pay transfer taxes, fees for various other
reports, and for some repairs through escrow. There will
also be recurring closing costs.
- Non-Assumption Clause
-
Statement in a loan contract forbidding the
assumption of the loan without the prior approval of the lender.
[top] - One-Year T-Bill
-
An index reflective of the average yield
on the sale of U.S. Treasury Securities due 12 months
from the date of issuance. As the market for these
securities changes constantly, so does the yield and thus
the index. This index is published in daily financial
journals, such as the Wall Street Journal.
- Origination Fee
-
The fee charged by the mortgage broker
or mortgage banker to originate your loan, to prepare loan documents, credit
checks, etc.; usually computed as a percentage of face value of
the loan. This may also
be called the loan fee or points, and is considered a
prepaid finance charge.
[top] - PITI
-
Principal, Interest, Taxes and
Insurance. Your total monthly housing expense under a
conventional mortgage.
- PMI
-
Private Mortgage Insurance. If your loan
exceeds 80% of the value or purchase price of your
property, the lender may elect to insure the loan against
default. They do this with Private Mortgage Insurance,
which you pay as part of your monthly housing expense.
The insurance comes out of your pocket and is not
tax-deductible, but it allows the lender to make more
aggressive loans than it otherwise could.
- Points (Loan Discount Points)
-
The prepaid finance charge. This is considered prepaid interest, and is the money paid as
compensation to the agents and companies responsible for putting together your loan.
Assessed at closing by the lender. Each point is equal to 1 percent of the loan amount.
- Power of Attorney
-
A legal document authorizing one person to act on
behalf of another.
- Preapproval
-
The process by which a broker submits
your package to a lender prior to your finding a home to
purchase, and gets an approval to make the loan subject
to finding an appropriate property. This is much more
convincing to a seller than a prequalification.
- Prepaids
-
Expenses necessary to create an escrow account or to adjust an
existing account. Can include taxes, hazard insurance, private
mortgage insurance and special
assessments.
- Prepayment Penalty
-
A fee levied by a lender if you pay your
loan off early, generally to make up for interest the
lender anticipated earning but will not as a result of
the payoff. Usually 6 months interest on 80% of current balance. Not all loans have a prepayment
penalty. Ask your loan officer about your loan.
- Prequalification
-
The process whereby a broker looks at
the information you have presented and renders an opinion
as to whether or not he can successfully broker your
loan. Contrast with Preapproval.
- Principal
-
The balance, not including interest, left on a loan.
- Private Mortgage Insurance (Pmi)
-
For loans over 80%
loan-to-value. Lenders will loan up to 95% in some cases. With
the higher LTV loans, borrowers are
required to carry private mortgage insurance, which requires an
initial premium and may require an
additional monthly fee depending on your loan's structure.
- Processor
-
The person, employed by the broker, who,
after your loan application is taken, gathers all the
documentation to meet the guidelines of the specific loan
program you have selected.
[top] - Reverse Annuity Mortgage (RAM)
-
A Mortgage in which the lender
makes periodic payments to the borrower using the borrower's
equity in the home as security.
- Ratios, or Qualifying Ratios
-
The ratio of your total gross income to
your total housing expense, including principal,
interest, taxes and insurance, and also the ratio of your
total gross income to your total housing expense plus all
other debt.
- Realtor
-
Real estate broker or agent belonging to the National Association
of
Realtors.
- Recision
-
that gives the borrower 3 days after signing to cancel a contract
in some cases, if the transaction uses home equity as security.
- Reconveyance
-
When an old loan is paid off, or any
other lien satisfied, the lien then must be reconveyed,
or taken off title. It is no longer considered a lien
against your property.
- Recording Fees
-
Paid to the county for recording a home sale, thereby
making it part of the public records.
- Recurring Closing Costs
-
Those costs associated with having the
loan, rather than getting the loan. For instance,
pre-paid interest, property taxes, insurance, and any
impounds. In the case of a refinance, you would pay these
charges whether you refinance or not, but you may be
required to pay them earlier than you otherwise would.
These costs are distinguished from non-recurring closing
costs.
- Renegotiable Rate Mortgage (RRM)
-
A loan in which the interest rate
is adjusted periodically. See adjustable rate mortgage.
- Reserves
-
Money you will have left over after the
deal (purchase or refinance) is consummated. Lenders are
not keen on lending to someone with absolutely no cash in
the event of an emergency.
- RESPA Real Estate Settlement Procedures Act
-
Federal law allowing consumers
to receive and review information on known or estimated
settlement costs after application and again
at settlement. Requires lenders to furnish information after
application only.
[top] - Self Employed
-
Self-employed people are those who
report their main source of income on Schedule C in their
tax returns, or in some cases those who own more than 25%
of the equity interest in the company they work for.
- Servicing
-
All steps and operations a lender performs to keep a loan in good
standing, such as collection of payments, payment of taxes,
insurance, and property inspections.
- Settlement Sheet
-
The computation of costs payable at
closing, and the net proceeds to all parties involved in
the transaction. Also known as a Closing Statement.
- Settlement/Settlement Costs
-
See closing/closing costs.
- Shared Appreciation Mortgage (Sam)
-
Borrower receives a
below-market interest rate and the lender (or another investor)
receives a portion of the future
appreciation of the property.
- Survey
-
Measurement of land, prepared by a registered land surveyor,
showing
location of the land with reference to known points, dimensions,
and the location and dimensions of any building.
- Suspension
-
Your loan is neither approved, nor
denied, but the lender has asked for additional
documentation or information. If we are able to provide
it, you are approved.
[top] - Term Mortgage
-
See balloon payment mortgage.
- Three-Day Right of Recision
-
If this is a refinance transaction on a
residential property that you occupy, you have three days
after signing loan papers in escrow to change your mind
and legally cancel the transaction.
- Title Company
-
The company that insures that title to
property is held without defect, and which in many
locations handles the escrow.
- Title Insurance
-
Insurance that protects the buyer from
loss that might result from disputes over legal ownership
of a property (owner's policy), and that protects the
lender from loss that might result from disputes over
liens and encumbrances against a property. A policy, usually issued by a title insurance company,
which insures a homebuyer against errors in the title search.
- Title Search
-
An examination of public records to determine the legal
ownership of property. Usually is performed by a title company.
- Title
-
The document that establishes your
rights of ownership in the property.
- Truth-In-Lending
-
A federal law requiring disclosure of the Annual
Percentage Rate to homebuyers shortly after they apply for the
loan.
- Two-Step Mortgage
-
Mortgage in which the borrower receives a
below-market interest rate for a specified number of years
(usually 5 or 7 years), and then a new
interest rate adjusted (within limits) to market conditions at
that time.
[top] - Underwriter
-
The person, employed by the lender, who
reviews your file to determine if you qualify for the
loan you have requested. The underwriter's job is
essentially twofold: (1) to ensure you fit within the
guidelines as determined by the lender or, if not,
whether the exception is important; and (2) to assess
whether or not you are a good credit risk
- Underwriting
-
The decision whether to make a loan based on credit,
employment, assets, and other factors and matching this risk to
an appropriate rate, term and loan
amount.
[top] - VA Loan
-
Long-term, low-or no-down payment loan guaranteed by the
Department of Veterans Affairs. Borrowers qualified by military
service or other entitlements.
- VA Mortgage Funding Fee
-
Premium of up to 17/9 percent (depending
on the size of the down payment) paid on a VA loan.
- Variable Rate Mortgage (VRM)
-
See adjustable rate mortgage.
- Verification of Deposit (VOD)
-
Form signed by the borrower's bank or
lender verifying the status and balance of financial accounts.
- Verification of Employment
-
Form signed by the borrower's
employer(s) verifying his/her position and salary.
[top] - Wraparound
-
When an existing assumable loan is combined with a new
loan, resulting in an interest rate somewhere between the old
rate and the current market rate. The
payments are made to a second lender or the previous homeowner,
who then forwards the payments to
the first lender after taking the additional amount off the top.
[top]
- NOTE: If you are referring to this page to settle a legal
matter, consult your attorney for professional advice. These are
our personal interpretation of common terms, not warranted or to
be considered legal definitions
|