Mortgage Glossary
Use this glossary to
understand the terms associated with
mortgages. For more information about
the different kinds of mortgage visit
our Mortgage
Types page.
A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z
Quick
Find - click on a letter A
| B | C
A
Acceleration clause -
The clause in a mortgage or trust deed
that stipulates the entire debt is due
immediately if the mortgagee defaults
under the terms of the contract.
top of page
Acquisition cost -
Under an FHA loan, the purchase price
or appraised value of the property plus
the estimated closing costs. top of
page
Adjustable Rate Mortgage (ARM)
-
A mortgage in which the interest rate
is adjusted periodically based on an
index. Also called a variable rate mortgage.
top of page
Adjustment_date -
The date the interest rate changes on
an ARM (adjustable rate mortgage).top
of page
Adjustment Interval -
For an adjustable rate mortgage, the
time between changes in the interest
rate charged. The most common adjustment
intervals are one, three or five years.
top of page
Adjusted book basis -
The purchase price of a property plus
any capital improvements less accrued
depreciation, if any, to the date of
the sale. top of page
Amortization -
Literally to "kill off" (root:
mort) the outstanding balance of a loan
by making equal payments on a regular
schedule (usually monthly). The payments
are structured so that the borrower
pays both interest and principal with
each equal payment.top
of page
Annual Percentage Rate (APR)
-
A figure that states the total yearly
cost of a mortgage as expressed by the
actual rate of interest paid. The APR
includes the base interest rate, points,
and any other add-on loan fees and costs.
As a result the APR is invariably higher
for the rate of interest that the lender
quotes for the mortgage but gives a
more accurate picture of the likely
cost of the loan. Keep in mind, however,
that most mortgages are not held for
their full 15 or 30 year terms, so the
effective annual percentage rate is
higher than the quoted APR because the
points and loan fees are spread out
over fewer years.
top of page
Annuity -
A series of income payments of receipts
over a period of years. top
of page
Application -
A mortgage application requires borrowers
to submit information regarding their
income, savings, assets, debts, and
more. top of page
Application Fee -
The fee charged by the lender to the
borrower for applying for a loan. Payment
of this fee does not guarantee that
a loan will be approved. Some lenders
may apply the cost of the application
fee to certain closing costs. top
of page
Appraisal -
The determination of property value
based on recent sales information of
similar properties.top
of page
Assessment -
Determining a property's value for the
purpose of taxation. top
of page
Assumable Loan -
These loans may be passed on from a
seller of a home to the buyer. The buyer
"assumes" all outstanding
payments.top of page
Assumption -
Buying property and assuming the responsibility
of the exiting mortgage. top
of page
Appreciation -
Increases in property value due to fluctuations
in the market, inflation, et al. top
of page
Asset -
Valuable items, encumbered or not, owned
by a person, corporation, or entity.
top of page
Assumable Mortgage -
A mortgage that provides for a buyer
to "assume" all outstanding
payments when a home is sold. The buyer
usually must meet qualification standards
to assume a loan. top
of page
B
Balloon Mortgage -
Behaves like a fixed-rate mortgage for
a set number of years (usually five
or seven) and then must be paid off
in full in a single "balloon"
payment. Balloon loans are popular with
those expecting to sell or refinance
their property within a definite period
of time. top of page
Balloon Payment -
The final lump sum that is paid at the
end of the balloon mortgage. top
of page
Bankruptcy -
A tactic that individuals use to relieve
themselves of debts and/or liabilities
when they are no longer able to repay.
The most common form of individual bankruptcy
is a Chapter 7, when an individual frees
himself from most of his/her debts.
Borrowers who have undergone bankruptcy
usually cannot qualify for "A"
paper loans until after two years after
declaration and a re-establishment of
credit.
top of page
Best Faith Estimate -
An estimate of the total costs for securing
a real estate loan, that is given to
borrowers prior to closing. top
of page
Bill of Sale -
A written document that transfers a
title to personal property. top
of page
Biweekly Mortgage -
Mortgage loan payments that requires
a payment twice monthly, yielding thirteen
payments per year instead of twelve.
This significantly reduces the time
a principal is paid off. top
of page
Blanket Mortgage -
A mortgage secured by the pledging of
more than one property or collateral.
top of page
Book Value -
Acquisition costs less any accrued depreciation.
top of page
Broker -
An individual in the business of assisting
in arranging funding or negotiating
contracts for a client but who does
not loan the money himself. Brokers
usually charge a fee or receive a commission
for their services. top
of page
Bridge Loan -
An equity loan secured to solve short-term
financing problem. top
of page
Budget Mortgage -
A mortgage that includes a portion for
taxes and insurance as well as principal
and interest. top of
page
Buydown -
Allows loans to be made at less-than-market
interest rates by paying front-end discounts.
The interest rate is brought down for
a temporary period, usually from one
to three years. In oder to acquire this
discount, a lump sum is paid and held
in an account used to supplement the
borrower's monthly payment. After the
discount period, the payment is calculated
as the note rate. top
of page
C
Callable Debt -
A debt security in where the issuer
has the right to redeem the security
at a specified price on or after a specified
date, but prior to its stated final
maturity date. top of
page
Caps -
A set percentage amount by which an
adjustable rate mortgage may adjust
each adjustment period. For adjustable
loans, caps are usually quoted as two
numbers as in 2/6. The first number
indicates how much a loan may adjust
at each adjustment period while the
second number indicates how much a loan
may adjust over its lifetime.
Loans like the 3/1 and 5/1 adjustable
which have an initial fixed period are
quoted with 3 numbers as in 3/2/6 which
would mean that the first adjustment
may be as much as 3%, subsequent adjustments
are capped at 2% each, and the lifetime
cap is 6%.
Two-Step loans are quoted with a single
cap, which is the amount by which the
loan may adjust at its single adjustment
date.
top of page
Carryback Loan -
A loan in which a seller agrees to finance
a buyer in order to complete a property
sale. top of page
Certificate of Eligibility
-
A veteran's evidence of entitlement
for a VA-guaranteed loan. top
of page
Certificate of Reasonable Value
(CRV) -
An appraisal that has been performed
on a property that is being paid for
a VA loan. After the property has been
appraised, the Veterans Administration
issues a CRV. top of
page
Clear Title -
A title that is free of liens or any
legal question as to the ownership of
the property. top of
page
Closing -
Final arrangements to transfer title
of property as well as allocate charges
and credits. top of page
Closing Costs -
Closing costs are fees paid by the borrower
when a property is purchased or refinanced.
Costs incurred include a loan origination
fee, discount points, appraisal fee,
title search, title insurance, survey,
taxes, deed recording fee, and credit
report charges. All closing costs are
separated into "non-recurring,"
and "pre-paid." Non-recurring
charges are any items that are paid
only once because a loan was obtained
or a property bought, such as a loan
origination fee. Pre-paid charges are
those that recur over time, like insurance
and property taxes. These are summarized
in the Good Faith Estimate. top
of page
Cloud -
An outstanding claim or encumbrance,
that, if valid, would affect or impair
the owner's property title. top
of page
Collateral -
Property, real or personal, pledged
as a security to back up a promise.
In a home loan, the property is considered
collateral that can be revoked if loan
is not repaid according to the terms
of the mortgage or deed of trust. top
of page
Commitment -
A written letter of agreement detailing
the terms and conditions by which the
lender will lend and the borrower will
borrow funds to finance a home. top
of page
Conforming Loan -
A mortgage loan for up to $322,700 in
the continental United States (Alaska
and Hawaii limits are higher). top
of page
Construction Loan -
A short term loan for funding the cost
of construction. The lender advances
funds to the builder as the work progresses.
top of page
Conversion -
The right of a borrower to convert an
adjustable or balloon loan into a fixed
loan. The Conversion Option column on
Monstermoving.com balloon tables indicates
the right of a borrower to convert this
balloon loan. The possible options are
as follows...
Option Description
Not Available Borrower May Not Convert
This Loan.
Must Requalify Borrower May Convert
But Must Requalify.
Conversion Fee Applies
Auto-Qualify Borrower May Convert And
Is Automatically Qualified.
Conversion Fee Applies
top of page
Conventional Mortgage -
A mortgage loan that is obtained without
any additional guarantees for repayment,
such as FHA insurance, VA guarantees,
or private insurance. This is usually
given at an 80% loan-to-value ratio.
top of page
Credit Loan -
A credit loan is a mortgage that is
issued on only the financial strength
of a borrower, without great regard
for collateral. top of
page
Credit-Loss Ratio -
The ratio of credit-related losses to
the dollar amount of MBS outstanding
and total mortgages owned by the corporation.
top of page
Credit Rating -
Borrowers are rated by lenders according
to the borrower's credit-worthiness
or risk profile. Credit ratings are
expressed as letter grades such as A-,
B, or C+. These ratings are based on
various factors such as a borrower's
payment history, foreclosures, bankruptcies
and charge-offs. There is no exact science
to rating a borrower's credit, and different
lenders may assign different grades
to the same borrower. top
of page
Credit-Related Expenses -
The sum of foreclosed property expenses
plus the provision for losses.top
of page
Credit-Related Losses -
The sum of foreclosed property expenses
plus charge-offs. top
of page
Credit Report -
A report to a prospective lender on
the credit standing of a prospective
borrower. Used to help determine creditworthiness.
Information regarding late payments,
defaults, or bankruptcies will appear
here. top of page
D
Debt-to-Income
Ratio (DTI) -
The ratio of aggregate monthly debt
to aggregate monthly income. top
of page
Deed -
A legal document which affects the
transfer of ownership of real estate
from the seller to the buyer.
top
of page
Deed of Trust -
Synonymous to a mortgage. A deed of
trust or mortgage is obtained, depending
on the state in which the borrower
will reside. top
of page
Default -
The failure to make payments on a
loan. top
of page
Delinquency -
Late- or non-payments of principal,
interest, taxes, or insurance.
Deposit -
A lump sum given in advance as security.
A deposit is always paid of a larger
amount to be paid in the future. In
mortgage and real estate terms, this
is called the "earnest money
deposit." top
of page
Depreciation -
In real estate and mortgage terms,
the decline in the property value.
top
of page
Discount -
Difference between the face amount
of a note or mortgage and the price
at which the instrument is sold in
the secondary market. top
of page
Discount Points -
A term used in government subsidized
loans, such as FHA and VA loans. Refers
to any "points" (one percent
of the loan amount) paid in addition
to the one percent loan origination
fee. top
of page
Down Payment -
Money paid by a buyer from his own
funds, as opposed to that portion
of the purchase price which is financed.
top
of page
E
Earnest Money Deposit -
A deposit made by a potential home
buyer to show that they are serious
about purchasing the property. top
of page
Easement -
Giving other persons, other than the
owner, access to a property. top
of page
Eminent Domain -
The government right to take private
property for public use depended on
the payment of its fair market value.
top
of page
Encumbrance -
Any lien against a property or any
restriction it its use, such as an
easement; a right or interest in a
property held by one who is not the
legal owner. top
of page
Equal Credit Opportunity Act (ECOA)
-
The act declaring the elimination
of discrimination on the basis of
age, sex, and race in finance. top
of page
Equity -
The difference between the current
market value of a property and the
principal balance of all outstanding
loans. top
of page
Escalator Clause -
A clause in a loan providing for increases
in payments or interest based on pre-determined
schedules or on a specific economic
index, such as the consumer price
index. top
of page
Escrow -
A third party agent that receives,
holds, and/or disburses certain funds
or documents upon the performance
of certain conditions. For example,
an earnest money deposit is put into
escrow until the transaction is closed.
Only then can the seller receive the
deposit. top
of page
Escrow Account (impound account) -
An account that a borrower can hold
with a lender once a purchase transaction
is closed. This requires borrowers
to pay more than the principal and
interest each month. The overage is
put into escrow, which the lender
uses to pay items like property taxes
and homeowner's insurance when they
are due. This eliminates the actual
number of payments that a homeowner
has to worry about, but not the amount
that has to actually be paid. top
of page
Escrow Analysis -
An analysis performed by a lender
each year to escrow accountholders
to ensure that the correct amount
of money is being collected to cover
anticipated payments. top
of page
Escrow Fee -
These costs cover the preparation
and transmission of all home purchased-related
documents and funds. Escrow fees range
from several hundred to over a thousand
dollars, based on the purchase price
of your home. Not all states require
funds to be put into escrow accounts
for closing. top
of page
Estate -
The ownership interest an individual
holds in real property. This is also
the sum total of all the real property
and personal property owned by an
individual at time of death. top
of page
Eviction -
The legal removal of real property
occupants for unlawful actions carried
out by those occupants. top
of page
F
Fair Credit Reporting Act -
A law that protects consumer that
regulates the reporting of consumer
credit by agencies and establishes
procedures for correcting errors on
an individual record. top
of page
Fannie Mae (FNMA) -
The Federal National Mortgage Association
is a congressionally chartered, shareholder-owned
company. This organization is the
nation's largest supplier of home
mortgage funds. top
of page
Fannie Mae's Community Home
Buyer's Program -
A program that offers flexible underwriting
guidelines to subsidize a low- to
moderate-income family's purchase
of a home. The program usually decreases
the total amount of cash needed to
purchase a home. top
of page
Federal Housing Administration
(FHA) -
An agency under the U.S. Department
of Housing and Urban Development (HUD),
it insures loans made by approved
lenders to qualified borrowers, in
accordance with its regulations. top
of page
Fees -
Up-front costs associated with a loan.
Clicking on the numeric value shown
under the "Fees Detail"
column on the quotes results page
will display detailed information
about the financial institution's
fees and requirements pertaining to
that rate. top
of page
Fee Simple -
The best title that one can obtain;
unqualified and conveys the highest
bundle of rights. top
of page
FHA Loan -
A government-backed mortgage loan
supported by the US FHA and the Department
of Housing and Urban Development (HUD).
top
of page
Finance Charge -
The total dollar amount your loan
will cost you. It includes all interest
payments for the life of the loan,
any interest paid at closing, your
origination fee and any other charges
paid to the lender and/or broker.
Appraisal, credit report and title
search fees are not included in the
finance charge calculation. top
of page
Firm Commitment -
A lender's agreement to provide a
loan to a specific borrower on a specific
property. top
of page
First Mortgage -
A mortgage that has priority over
other mortgages. top
of page
Fixed-Rate Mortgage -
A mortgage where the interest rate
does not change for the life of the
loan. top
of page
Float -
Between the time of application and
closing, a borrower may choose to
bet on interest rates decreasing by
electing to float. Floating is essentially
choosing not to lock the interest
rate. Since it is the borrower's responsibility
to lock his or her rate before (or
at) closing, choosing to float is
considered risky and may result in
a higher interest rate. Request information
from your lender regarding lock procedures.
top
of page
Forbearance -
The postponement for a limited time
of a portion or all the payments on
a loan when a borrower is delinquent.
top
of page
Foreclosure -
A legal procedure in which real estate
is sold by the lender to pay a defaulting
borrower's debt . top
of page
401(k)/403(b) -
An investment plan sponsored by employers
that allows individuals to set aside
tax-deferred income for retirement
or emergency purposes. A 401(k) applies
to private corporations, while a 403(b)
applies to non-profit organizations.
top
of page
401(k)/403(b) loan -
A loan that can be taken against the
amount accumulated in the 401(k)/403(b)
plans, if so allowed by the plan administrator.
Loans against these plans are an acceptable
source of down payment for most types
of other loans. top
of page
G
Good
Faith Estimate -
An estimate of charges which a borrower
is likely to incur in connection with
a loan closing. top
of page
Government Loan -
A type of mortgage insured by the
FHA (Federal Housing Authority), VA
(Veteran's Administration), or RHS
(Rural Housing Authority). top
of page
Government National Mortgage
Association (Ginny Mae) -
Provides funds for government loans
and takes over special assistance
and liquidation functions of Fannie
Mae. top
of page
Grace Period -
A time allowed, usually 15 days, for
making late payments without a penalty.
top
of page
grantee -
The person to whom an interest in
real property is conveyed. top
of page
grantor -
The person conveying an interest in
real property. top
of page
Gross Monthly Income -
The total amount the borrower earns
per month, not counting any taxes
or expenses. Often used in calculations
to determine whether a borrower qualifies
for a particular loan.
top
of page
H
Hard-Money Mortgage -
Cash loan to a borrower. top
of page
Hazard Insurance -
A form of insurance in which the insurance
company protects the insured from
certain losses, such as fire, vandalism,
storms and certain other natural causes.
top
of page
Home Equity Conversion Mortgage
(HECM) -
Also known as the reverse annuity
mortgage. This mortgage provides that
instead of making payments to a lender,
the lender makes payments to the individual.
Older homeowners are able to convert
home equity into cash this way, in
the form of monthly payments. Borrowers
don't qualify on the basis of income,
but on the value of his or her home.
Such a loan does not have to be repaid
until the borrower no longer occupies
the property. top
of page
home equity line of credit
-
A mortgage loan in second position
that allows a borrower to obtain cash
drawn against home equity, up to a
certain amount. top
of page
Home Inspection -
A thorough assessment by a professional
regarding the structural and mechanical
condition of a property. top
of page
homeowner's insurance -
An insurance policy that combines
personal liability insurance and hazard
insurance for a home and its contents.
top
of page
homeowner's warranty -
An insurance policy that is purchased
by a buyer that covers certain repairs,
should they be necessary over a certain
period. top
of page
Housing Ratio -
The ratio of the monthly housing payment
to total gross monthly income. Also
called Payment-to-Income Ratio or
Front-End Ratio. top
of page
HUD -
Department of Housing and Urban Development;
regulates Fannie Mae and Ginny Mae.
top
of page
Hybrid Financing -
The joining together of two forms
of finance, such as combining a convertible
loan with a participation loan, under
which the lender has the right at
loan maturity to convert the debt
to a 50 percent ownership in the property.
top
of page
I
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. top
of page
Interest -
Consideration in the form of money
paid for the use of money, usually
expressed as an annual percentage.
Also, a right, share, or title in
property. top
of page
Interest Only -
A term loan arrangement calling
for payments of interest only, not
to include any amount for principal.
top
of page
Interest Rate -
The percentage of an amount of money
that's paid for its use over a specified
time period. top
of page
Interest Rate Swap -
A transaction between two parties,
in which each agrees to exchange
payments tied to different interest
rates or indices for a specified
period of time. top
of page
Intermediate-Term Mortgage
-
A mortgage loan with a stated maturity
at the time of purchase that it
is equal to or less than 20 years.
top
of page
J
Judicial Foreclosure -
A court procedure used by lenders
to secure clear title to a property
under a defaulted real estate loan.
top
of page
Jumbo Loan -
A loan for $322,700 or more in the
continental United States (Alaska
and Hawaii limits are higher). These
limits are set by the Federal National
Mortgage Association and the Federal
Home Loan Mortgage Corporation. Because
jumbo loans cannot be funded by these
two agencies, they usually carry a
higher interest rate. top
of page
L
Last
Updated -
The Last Update column on a quotes
results table tells you when the information
was last provided by the lender to
our site. We always place new listings
at the top of each table so that you,
the borrower, may have immediate access
to the most timely information. Times
provided are all Eastern Standard
Time. top
of page
lease -
A written agreement between a property
owner and a tenant that stipulates
the payment and conditions under which
the tenant may possess the real estate
for a specified period of time. top
of page
Leasehold Estate -
An estate for a fixed length of time,
established when a landlord gives
up possession of real estate to a
tenant, giving the tenant an equitable
interest in the property, as defined
by lease terms. top
of page
Lease Option -
A rental agreement indicating a tenant's
option to purchase a property. Monthly
payments consists not only of rent,
but an overage that can be applied
towards a down payment on an already
established amount. top
of page
Lender -
The bank, mortgage company, or mortgage
broker offering the loan. Many institutions
only "originate" loans and
then resell the obligation to third
parties. top
of page
Leverage -
Using someone else's money for the
purchase of property. top
of page
Liability Insurance -
Insurance that protects property owners
against claims that alleges negligence
or inappropriate action that resulted
in bodily injury or property damage
to another party. top
of page
LIBOR -
The London Interbank Offered Rate
Index (LIBOR) is an average of the
interest rates that major international
banks charge each other to borrow
U.S. dollars in the London money market.
Like the U.S. treasury the CD indexes,
LIBOR tends to move and adjust quite
rapidly to changes in interest rates.
top
of page
Lien -
A legal claim by one party against
the property of another as security
for a debt. Must be paid off when
property is sold. A mortgage or a
first trust deed is a lien. top
of page
Life of Loan Cap -
The maximum interest rate that can
be charged during the life of the
loan. Also called Lifetime Cap. This
value is often expressed as an increment
above the initial loan rate. For example,
an adjustable rate loan with an initial
rate of 7.25% and a 6% lifetime cap
will never adjust above a rate of
13.25% (7.25+6.0). top
of page
Loan -
The principal, or amount of total
borrowed money, that is repaid with
interest. top
of page
Loan Amount -
The amount of money that you intend
on borrowing from a financial institution
for the purchase of your home. Subtracting
the down payment from the purchase
price of the home will provide you
with the loan amount. top
of page
Loan Officer -
An intermediary between lending institutions
and borrowers, loan officers solicit
loans, represent creditors to borrowers,
and represent borrowers to creditors.
top
of page
Loan Origination -
What the process of obtaining new
loans is called. top
of page
Loan Servicing -
A service performed by a lender to
protect a mortgage investment, including
collecting monthly payments from borrowers
and dealing with delinquencies. top
of page
Loan-To-Value Ratio - -
The relationship between the amount
of the mortgage loan and the appraised
value of the property expressed as
a percentage. A LTV ratio of 90 means
that a borrower is borrowing 90% of
the value of the property and paying
10% as a down payment. For purchases,
the value of the property is assumed
to be the purchase price, for refinances
the value is determined by an appraisal.
top
of page
Lock noun -
The period, expressed in days, during
which a lender will guarantee a rate.
Some lenders will lock rates at the
time of application while others will
allow the borrower to lock the rate
after the application is taken. Request
information from your lender regarding
lock procedures. top
of page
Lock verb -
The act of committing to a mortgage
rate. This action, taken by a borrower
some time between the application
and the closing dates, is sometimes
accompanied by a payment by the borrower
to the lender. top
of page
Lock-in Clause -
Clause in a loan agreement that states
that the borrower cannot repay a loan
prior to a specified date. top
of page
M
Margin -
The amount a lender adds to the quoted
index rate for an adjustable rate
loan to determine the new interest
rate. top
of page
Maturity -
The "Due Date" of a loan.
top
of page
Merged Credit Report -
A credit report that reports data
from two or more major credit repositories.
top
of page
Minimum Credit -
This field on the table refers to
the minimum credit rating a borrower
must have in order to qualify for
the listed loan. top
of page
Modification -
Any change to the original terms of
a mortgage. top
of page
Monthly Housing Expense -
Total principal, interest, taxes,
and insurance paid by the borrower
on a monthly basis. Used with gross
income to determine affordability.
top
of page
Mortgage -
A legal document that pledges property
to a creditor for the repayment of
the loan, and is the term used to
describe the loan itself. Some states
use the term First Trust Deeds to
refer to mortgage loans. top
of page
Mortgagee -
The lender in a mortgage agreement.
top
of page
Mortgage Banker -
A financial intermediary that originates
or funds loans, collects payments,
inspects the property, and forecloses
if necessary. The main difference
between a mortgage banker and a loan
officer is a banker funds their own
loans and sell them on the secondary
market, usually to Fannie Mae, Freddie
Mac, or Ginny Mae. top
of page
Mortgage Broker -
A mortgage company that originates
loans, joining the borrower and lender
for a real estate loan, earning a
placement fee. top
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Mortgage Constant -
The factor used for rapid computation
of the annual payment needed to amortize
a loan. top
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Mortgage Insurance -
Insurance that covers the lender against
losses incurred as a result of a default
on a home loan. This is usually required
on all loans that have a loan-to-value
higher than eighty percent. Mortgages
that have an 80% LTV that do not require
mortgage insurance have higher interest
rates. The lenders then pay the mortgage
insurance themselves. In addition,
FHA loans and some first-time homebuyer
programs require mortgage insurance
regardless of the loan-to-value. top
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Mortgagor -
The borrower in a mortgage agreement.
top
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Multidwelling Units -
Properties that provide separate housing
units for more than one family, although
only a single mortgage is secured.
top
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N
Negative Amortization -
Essentially occurs when a borrower
makes a minimum payment that may not
cover the interest that is due. Loan
balance then increases as a result.
top
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Net Effective Income -
Gross income less federal income tax.
top
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No Cash-out Refinance -
A refinance transaction that is not
intended to put cash in the hand of
the borrower, but instead calculates
a new balance to cover the balance
due on a current loan and any costs
with obtaining a new mortgage. top
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No-Cost Loan -
A no-cost loan can either be: 1) a
loan that has no "lender costs"
associated with it or, 2) a loan that
also covers purchases or refinancing
costs, which may be incurred in buying
a home, obtaining and/or refinancing
a loan, but are not directly charged
by the lender. The interest rate on
this type of loan is higher. top
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Note -
A legal document that obligates a
borrower to repay a mortgage loan
at a stated interest rate during a
specified period of time. top
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Note Rate -
The stated interest rate on a mortgage
note. top
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O
Origination Fee -
The fee imposed by a lender to cover
certain processing expenses in connection
with making a loan. Usually a percentage
of the amount loaned. top
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Owner Financing -
A property purchase that is partly
or wholly financed by the seller.
top
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Owner's Title Policy -
A policy protecting the buyer for
the amount of the purchase price in
the event of a future title dispute.
top
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P
Package Mortgage -
A mortgage that /includes equipment
and appliances located on the premises
in addition to the real property itself.
top
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Partial Entitlement -
Under VA loans, the amount of guarantee
still available to an eligible veteran
who has used his previous entitlement.
top
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partial payment -
A payment that is not sufficient enough
to cover the month payment. During
times of economic hardship, a borrower
can make this request of the loan
servicing collection department. top
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Participation Financing -
A loan in which more than one mortgagee
or more than one mortgagor harbors
an interest. It can also be a loan
in which the mortgagee receives partial
ownership of the property being financed.
top
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Payment Change Date -
The date when a new monthly payment
amount takes effect on an adjustable
rate mortgage (ARM) or a graduated
payment mortgage (GPM). The payment
change date occurs the month immediately
after the interest rate adjustment
date. top
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Periodic Payment Cap -
The limit on the amount that payments
can increase or decrease during any
one adjustment period for an adjustable-rate
mortgage (ARM) where the interest
rate and principal fluctuate independently
of one another. top
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Periodic Rate Cap -
The limit on the amount that payments
can increase or decrease during any
one adjustment period in an ARM (adjustable
rate mortgage), regardless of how
high or low the index fluctuates.
top
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Personal Property -
Movable property that does not fit
the definition of realty. top
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PITI -
PITI stands for principal, interest,
taxes, and insurance. An "impounded"
loan means that the monthly payment
covers all of these, and perhaps mortgage
insurance, if your loan so calls for
it. If one does not have an "impounded"
account, then the lender still calculates
these amounts separately and uses
it as part of determining one's debt-to-income
ratio. top
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PITI Reserves -
A cash amount that a borrower must
have on hand after making a down payment
and paying all closing costs for the
purchase of a home. The PITI (principal,
interest, taxes, and insurance) must
equal the amount that the borrower
would have to pay for PITI for a determined
number of months. top
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Planned Unit Development (PUD)
-
A type of ownership where individuals
actually own the building or unit
they reside in, but shared areas are
owned jointly with the other members
of the development or established
association. top
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Pledge Account Mortgage (PAM)
-
Combines GPM (graduated payment mortgage)
with a subsidizing savings account
to provide the borrower with a low
payment plan, the lender with amortizing
payments and the seller with cash.
top
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Points -
The site allows lenders to post rates
via point ranges. Points are broken
out on the site for Discount and Origination.
The definitions for each are as follows:
Discount Points = Interest Charges
paid up-front when a borrower closes
a loan. A point is equal to 1 percent
of the loan amount (e.g. 1.5 points
on a $100,000 mortgage would cost
the borrower $1,500). Generally, by
paying more points at closing, the
borrower reduces the interest rate
of his loan and thus future monthly
payments.top
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Origination
Points = A fee imposed by a lender
to cover certain processing expenses
in connection with making a real estate
loan. Usually a percentage of the
amount loaned, such as one percent.
top
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Pre-Approval -
A term used to mean that a borrower
has completed a loan application and
provided debt, income, and savings
information that has been reviewed
and pre-approved by an underwriter.
top
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Pre-Foreclosure Sale -
A procedure in which the borrower
is allowed to sell his or her property
for an amount less that what is owed
on it to avoid foreclosure, fully
satisfying the borrower's debt. top
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Pre-Paids -
Expenses such as taxes, insurance,
and assessments, which are paid in
advance of their due date, and on
a prorated basis at closing. top
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Pre-Payment -
Any amount paid so as to reduce the
principal before the due date. top
of page
Prepayment Penalty -
Lenders who impose prepayment penalties
will charge borrowers a fee if they
wish to repay part or all of their
loan in advance of the regular schedule.
top
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Pre-Qualification -
After a loan officer has made inquiries
about a borrower's debt, income, and
savings, he or she can write a written
statement (pre-qualification) about
the borrower's chances for qualifying
for a home loan. top
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Prime Rate -
Interest charged by financial institutions
to top-rate borrowers. top
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Principal -
The amount of debt, not counting interest,
left on a loan. top
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Private Mortgage Insurance (PMI) -
Paid by a borrower to protect the
lender in case of default. PMI is
typically charged to the borrower
when the Loan-to-Value Ratio is greater
than 80%. top
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Prorations -
The allocation of charges and credits
to the appropriate parties at a real
estate sale and/or loan closing at
a real-estate sale and/or loan closing.
top
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Promissory Note -
A written promise to repay a specified
amount over a specified period of
time. top
of page
Purchase Agreement -
A written contract signed by the buyer
and seller stating the terms and conditions
under which a property will be sold.
top
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Purchase-Money Mortgage -
Mortgage given by a borrower to the
seller as part of the purchase price
of the property. top
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Purchase-Money Transaction
-
The acquisition of property through
the payment of money or its equivalent.
top
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Q
Qualifying Ratio -
The ratio of the borrower's fixed
monthly expenses to his gross monthly
income. Ratios are expressed as two
numbers like 28/36 where 28 would
be the Front-End Ratio and 36 would
be the Back-End Ratio.
The Front-End Ratio is the percentage
of a borrower's gross monthly income
(before income taxes) that would cover
the cost of PITI (Mortgage Principal
Payment + Mortgage Interest Payment
+ Property Taxes + Homeowners Insurance).
In the case of a 28% Front-End Ratio
a borrower could qualify if the proposed
monthly PITI payments were 28% or
less than the borrower's gross monthly
income.
The Back-End
Ratio is the percentage of a borrower's
gross monthly income that would cover
the cost of PITI plus any other monthly
debt payments like car or personal
loans and credit card debt.
Please
note that qualifying ratios are only
a rough guideline in determining a
potential borrower's credit-worthiness.
Many factors such as excellent or
poor credit history, amount of down
payment, and size of loan will influence
the decision to approve or disapprove
a particular loan. The concord board
of Realtors urges all borrowers to
discuss their particular situation
with a qualified lender regardless
of the outcome of any self-qualification
exercise. top
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R
Rate
Lock -
A commitment issued by a lender to
a borrower or other mortgage originator
guaranteeing a specified interest
rate for a specified period of time
at a specific cost. top
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Real Estate -
A portion of the earth's surface extending
downward to the center to the earth
and upward into space, including all
things permanently attached thereto
by nature or man and all legal rights
therein.
top
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Real Estate Agent -
A person licensed to negotiate and
transact the sale of real estate.
top
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Real Estate Settlement Procedures
Act (RESPA) -
An act requiring the revelation of
all costs involved in a real estate
closing to all participants. top
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Real property -
See real estate. top
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Realtor® -
A real estate agent, broker, or associate
that holds an active membership in
a local real estate board that is
affiliated with the National Association
of Realtors. top
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Recast -
To redesign an existing loan balance
into a new loan for the same period
or longer, to reduce payments and
help a distressed borrower. top
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Reconciliation -
Determining the final estimate of
value by weighing the results of the
various approaches in an appraisal.
top
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Reconveyance Clause -
The clause in a trust deed that gives
the title back to the borrower when
the loan is paid in full. top
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Recording -
The formal filing of documents affecting
a property's title. top
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Regulation Z -
A truth-in-lending provision that
requires lenders to reveal the actual
costs of borrowing. top
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Refinancing -
The process of paying off one loan
with the proceeds from a new loan,
using the same property as security.
top
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Rent-Loss Insurance -
Insurance that protects a landlord
against loss of rent or rental value
due to fire or other casualty, resulting
in the tenant being excused from paying
rent. top
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Repayment Plan -
An agreement between a lender and
a delinquent borrower regarding mortgage
payments, in which the borrower agrees
to make additional payments to pay
down past due amounts while still
making scheduled payments. top
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Residual Qualifying -
Under a VA loan, using specified housing
expenses to qualify for a loan payment.
top
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Restrictions -
Rules imposed on the use of real estate
in an effort to preserve property
values. top
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Reverse Annuity Mortgage (RAM)
-
A system developed for an elderly
property owner in which regular monthly
payments can be received from a lender.
When the total reaches a pre-determined
amount, the owner begins repaying
the loan or sells the property. top
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Revolving Debt -
A credit arrangement that allows a
customer to borrow against a pre-approved
line of credit used to purchase goods
and services. The borrower is responsible
for the actual amount borrowed plus
any interest due. top
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Right-of-First Refusal -
A provision that states that a property
to be first offered to a specific
person before it can be offered for
sale or lease to other parties. top
of page
Rollover Loan -
A loan that /includes a call date
earlier than its normal amortization
period. top
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Rule of 78 -
Calculates proportionate amount of
interest due on a loan being paid
in full before its maturity. top
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S
Sale-Buyback -
A financing arrangement in which an
investor buys property from a developer
and immediately sells it back under
a long-term sales agreement, wherein
the investor retains legal title.
top
of page
Sale-Leaseback -
A financing arrangement whereby an
investor purchases real estate owned
and used by a business corporation,
then leases the property back to the
business. top
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Secondary Mortgage Market
-
A market where mortgage originators
may sell them, freeing up funds for
continued lending and distributes
mortgage funds nationally from money-rich
to money poor areas. top
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Second Mortgage -
A mortgage that has a lien position
subordinate to the first mortgage.
top
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Secured Loan -
A loan that is backed by collateral.
top
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Security -
Something given, deposited, or pledged
to make secure the fulfillment of
an obligation, usually the repayment
of a debt. top
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Seller Carry-Back -
An agreement in which the owner of
a property provides financing, often
in combination with an assumable mortgage.
top
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Senior Loan -
A real estate loan in first priority
position. top
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Servicer -
An organization that collects principal
and interest payments from borrowers
and manages borrowers' escrow accounts.
The servicer often services mortgages
that have been purchased by an investor
in the secondary mortgage market.
top
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Servicing -
The collection of mortgage payments
from borrowers and related responsibilities
of a loan servicer.
top
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Settlement Costs -
See Closing Costs. v Sinking Fund
-
Monies deposited in advance in anticipation
of satisfying a debt in the future.
top
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Stop Date -
Date on a term loan when the balloon
payment is due. top
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Subordinate Financing -
Any mortgage or other lien that has
a priority lower than that of the
first mortgage, or senior loan. See
second mortgage. top
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Survey -
A drawing or map the shows the precise
legal boundaries of a property, the
location of improvements, easements,
rights of way, encroachments, and
other physical features. top
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Sweat Equity -
Increase in property value due to
improvement by owners. top
of page
T
Takeout
Mortgage -
A permanent mortgage, obtained by
pre-arrangement between a builder
and a financial institution, to repay
the interim mortgagee at the completion
of construction. top
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Tax Lien -
A claim against real estate for the
amount of its unpaid taxes. top
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Third-Party Origination -
A process by which a lender uses another
party to completely or partially originate,
process, underwrite, close, fund,
or package the mortgages it plans
to deliver to the secondary mortgage
market. top
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Title -
A legal document showing a person's
right to or ownership of a property.
top
of page
Title Company -
A company that specializes in examining
and insuring titles to real estate.
top
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Title Insurance -
Title Insurance policies typically
insure a homebuyer against any title-search
errors or mistakes, and against loss
due to disputes over property ownership.
Title Insurance can additionally offer
protection to the lender under similar
circumstances. The cost of title insurance
is usually a set value per thousand
of dollars of the total loan amount.
top
of page
Title Search -
A check of the title records to make
sure that the seller is the actual
legal owner of the property, and that
there are no liens or other claims
outstanding. top
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Total Debt Ratio -
Monthly debt and housing payments
divided by gross monthly income. Also
known as Back-End Ratio. top
of page
Transfer of Ownership -
The means by which the ownership of
a property changes hands. Examples
of such include the purchase of a
property "subject to" the
mortgage, the assumption of the mortgage
debt by the property purchases, and
any exchange of possession of the
property under a land sales contract
or any other land trust device. top
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Transfer Tax -
State or local tax payable when the
title passes from one owner to another.
top
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Truth-in-Lending Law -
Provision that requires lenders to
reveal the actual costs of borrowing.
top
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Two-Step Mortgage -
A loan where the interest rate is
fixed for the first seven years and
then is adjusted one time for the
balance of the loan period. top
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V
VA Loan -
A government-backed mortgage loan
supported by the US Veterans Administration.
top
of page
Variable Rate Mortgage -
See Adjustable Rate Mortgage. top
of page
Vested -
Means that one has a right to use
a portion of a fund, such as an individual's
retirement fund. top
of page
Z
Zero Percent Financing -
A loan with no interest in the contract.
The IRS imputes 10 percent for both
borrower and lender. top
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Zoning -
The right of a community, under its
police power, to dictate the use of
property within its boundaries. top
of page
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