A
"A" Loan or "A" Paper: a credit rating where the FICO score is 660 or above. There have been no late mortgage payments within a 12-month period. This is the best credit rating to have when entering into a new loan.
Abstract of Title: documents recording the ownership of property throughout time.
Acceleration Clause: This is written into mortgage contracts in the case that you miss a payment and go into default with your loan. If this happens, the lender can demand full payment of the balance due on your mortgage.
Acceptance: After you make an offer on a home and the seller accepts, a purchase agreement that states the purchase price and other terms of sale is drawn up and earnest money is put on the home.
ACE-Automated Certificate of Eligibility: This system is used by VA approved lenders in order to help Veterans get the Certificate of Eligibility they need to take part in the VA Home Loan Guarantee Program.
Acreage: The amount of land that is being purchased as an empty lot or with a home pre-existing on the property. One acre is equal to 43,560 square feet.
According to Value: Refers to the value of your home and property that your property taxes are based on. Also called "Ad Valorem."
Additional Principal Payment: money paid to the lender in addition to the established payment amount used directly against the loan principal to shorten the length of the loan.
ARM-Adjustable Rate Mortgage: A mortgage in which you have a specified amount of time (usually 2 or 3 years) at the beginning of the loan where the interest rate is fixed. After that time period is over the interest rate fluctuates with the current market rates. This type of mortgage is usually only a good idea if you plan to sell the home or refinance before the fixed interest rate period of time ends.
Adjustment Date: The dates at which your adjustable rate mortgage interest rate can change. After the initial fixed rate period is over the interest rate can usually be adjusted every 6 months.
Adjustment Index: the published market index used to calculate the interest rate of an ARM at the time of origination or adjustment.
Adjustment Interval: the time between the interest rate change and the monthly payment for an ARM. The interval is usually every one, three or five years depending on the index.
Affidavit: a signed, sworn statement made by the buyer or seller regarding the truth of information provided.
Amenity: a feature of the home or property that serves as a benefit to the buyer but that is not necessary to its use; may be natural (like location, woods, water) or man-made (like a swimming pool or garden).
American Society of Home Inspectors: the American Society of Home Inspectors is a professional association of independent home inspectors. Phone: (800) 743-2744
Amortization: The process of paying off your mortgage with payments due every month for a certain amount of years.
Amortization Schedule: The statement from your mortgage lender that shows you exactly what your monthly mortgage payment is, how much is going towards your principal loan amount, how much is going towards interest, how much is going into your escrow account and your escrow account balance if applicable, and the remaining balance of your loan.
Annual Mortgagor Statement: yearly statement to borrowers detailing the remaining principal and amounts paid for taxes and interest.
APR-Annual Percentage Rate: The percent you are paying for a full year that includes interest on your loan, mortgage insurance costs, and other fees that may be applied depending on your mortgage loan agreement.
Application: the first step in the official loan approval process; this form is used to record important information about the potential borrower necessary to the underwriting process.
Application Fee: a fee charged by lenders to process a loan application.
Appraisal: The fair market value of a property based on a professional evaluation of real estate trends in the area and amenities of the home.
Appraisal Fee: fee charged by an appraiser to estimate the market value of a property.
Appraised Value: an estimation of the current market value of a property.
Appraiser: a qualified individual who uses his or her experience and knowledge to prepare the appraisal estimate.
Appreciation: The amount of increase in value that takes place on a property due to real estate trends in the area, home improvements, and other influences that cause the market value of a home to increase.
Arbitration: a legal method of resolving a dispute without going to court.
As-is Condition: the purchase or sale of a property in its existing condition without repairs.
Asking Price: a seller's stated price for a property.
Assessed Value: The value a property is given by a tax assessor in order to determine the cost of property taxes for that parcel.
Assessments: the method of placing value on an asset for taxation purposes.
Assessor: a government official who is responsible for determining the value of a property for the purpose of taxation.
Assets: Anything you own that has value.
Asset-to-Debt Ratio: The value of the assets you own minus the amount of debt you have.
Assumable Mortgage: A mortgage loan that can be taken over by the buyer rather than a new mortgage contract being written to purchase the home. In most cases the seller of the home would still be liable to the mortgage company in the case that the buyer missed a payment. In some cases the seller can allow the buyer to assume the mortgage without continuing to be liable.
Assumption: When the seller officially transfers their mortgage to the buyer of their property.
Assumption Clause: a provision in the terms of a loan that allows the buyer to take legal responsibility for the mortgage from the seller.
Automated Underwriting: loan processing completed through a computer-based system that evaluates past credit history to determine if a loan should be approved. This system removes the possibility of personal bias against the buyer.
Average Price: determining the cost of a home by totaling the cost of all houses sold in one area and dividing by the number of homes sold.
B
"B" Loan or "B" Paper: FICO scores from 620 - 659. Factors include two 30 day late mortgage payments and two to three 30 day late installment loan payments in the last 12 months. No delinquencies over 60 days are allowed. Should be two to four years since a bankruptcy. Also referred to as Sub-Prime.
Back End Ratio (debt ratio): a ratio that compares the total of all monthly debt payments (mortgage, real estate taxes and insurance, car loans, and other consumer loans) to gross monthly income.
Back to Back Escrow: arrangements that an owner makes to oversee the sale of one property and the purchase of another at the same time.
Balance Sheet: a financial statement that shows the assets, liabilities and net worth of an individual or company.
Balloon Mortgage: When a buyer acquires this type of mortgage they are required to make payments for a certain amount of time and then after this specified period of time they have to pay the mortgage loan in full. The time period is usually for 5 to 10 years and this type of mortgage is good for buyers who do not plan to live in the home for the full term of the loan or plan to refinance the loan before the balloon payment is due.
Balloon Payment: At the end of a balloon mortgage this is the balance of the entire loan amount that is due in one final large payment.
Bankruptcy: The act of claiming you do not have the means or any way to acquire the means to pay off your current debt. This is a legal court proceeding in which you turn in all of your asset and debt information to the court and they rule to the effect of if they think you are capable of paying your creditors or not. In the case that you have no or very few assets Chapter 7 is bankruptcy is usually filed. In the case you have assets you want to keep, like a home, Chapter 13 bankruptcy is usually filed. In this case you are required to make payments to the court, which the court determines how much you can afford, and the court will then distribute the money to your creditors. These payments last over the span of a few years, and you usually end up repaying close to half of your debt before you are relieved from further payments.
Binder: Once earnest money is put down toward the purchase of a home this agreement holds the home while the proper inspections and appraisals are conducted.
Biweekly Payment Mortgage: a mortgage paid twice a month instead of once a month, reducing the amount of interest to be paid on the loan.
Borrower: a person who has been approved to receive a loan and is then obligated to repay it and any additional fees according to the loan terms.
Bridge Loan: In the case that you find the home you want to purchase before you have sold your current home you can take this type of loan where the equity in your current property is used as the downpayment on the new property you are purchasing. Once your current home is sold the lender on your bridge loan will take the downpayment money from the sale of your home along with any fees they charge for their service.
Broker: A person who is in the business of shopping for mortgage loans. A broker is the middle-man who takes the information from people looking to borrow money and shops around to different lenders in order to find a loan for their clients. Brokers get a paid a percentage of the loan as a commission for their services.
Budget: a detailed record of all income earned and spent during a specific period of time.
Building Code: based on agreed upon safety standards within a specific area, a building code is a regulation that determines the design, construction, and materials used in building.
Bundle Of Rights: Your rights as a property owner.
Buy Down: When someone makes a payment to a lender in order to obtain a lower interest rate.
C
"C" Loan or "C" Paper: FICO scores typically from 580 to 619. Factors include three to four 30 day late mortgage payments and four to six 30 day late installment loan payments or two to four 60 day late payments. Should be one to two years since bankruptcy. Also referred to as Sub - Prime.
Callable Debt: a debt security whose 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.
Cap: With an adjustable rate mortgage this is the limit for how much the interest rate can rise.
Capacity: The ability to make mortgage payments on time, dependant on assets and the amount of income each month after paying housing costs, debts and other obligations.
Capital Gain: the profit received based on the difference of the original purchase price and the total sale price.
Capital Improvements: property improvements that either will enhance the property value or will increase the useful life of the property.
Capital or Cash Reserves: an individual's savings, investments, or assets.
Cash-Out Refinance: when a borrower refinances a mortgage at a higher principal amount to get additional money. Usually this occurs when the property has appreciated in value. For example, if a home has a current value of $100,000 and an outstanding mortgage of $60,000, the owner could refinance $80,000 and have additional $20,000 in cash.
Cash Reserve: In order to get a mortgage loan some lenders require that the borrower have money in savings or in easily liquefiable assets.
Casualty Protection: property insurance that covers any damage to the home and personal property either inside or outside the home.
Certificate of Eligibility: You need this in order to prove your entitlement to participate in the VA Home Loan Guarantee Program. In order to get a Certificate of Eligibility you should contact a VA approved lender who in most cases can use the ACE system on the internet to prove eligibility in minutes.
Certificate of Reasonable Value: Once the home is appraised this certifies the fair market value of the property.
Certificate of Title: a document provided by a qualified source, such as a title company, that shows the property legally belongs to the current owner; before the title is transferred at closing, it should be clear and free of all liens or other claims.
Chapter 7 Bankruptcy: a bankruptcy that requires assets be liquidated in exchange for the cancellation of debt.
Chapter 13 Bankruptcy: this type of bankruptcy sets a payment plan between the borrower and the creditor monitored by the court. The homeowner can keep the property, but must make payments according to the court's terms within a 3 to 5 year period.
Charge-Off: the portion of principal and interest due on a loan that is written off when deemed to be uncollectible.
Clear Title: The title or deed to a particular property that is completely free of all debts, liens, and encumbrances. The owner holds the title free and clear.
Closing: When the buyer officially signs all the mortgage paperwork and pays for the property they are purchasing. At this time the property is transferred to the buyer and the sale is final.
Closing Costs: fees for final property transfer not included in the price of the property. Typical closing costs include charges for the mortgage loan such as origination fees, discount points, appraisal fee, survey, title insurance, legal fees, real estate professional fees, prepayment of taxes and insurance, and real estate transfer taxes. A common estimate of a Buyer's closing costs is 2 to 4 percent of the purchase price of the home. A common estimate for Seller's closing costs is 3 to 9 percent.
Cloud On The Title: any condition which affects the clear title to real property.
Co-Borrower: an additional person that is responsible for loan repayment and is listed on the title.
Co-Signed Account: an account signed by someone in addition to the primary borrower, making both people responsible for the amount borrowed.
Co-Signer: a person that signs a credit application with another person, agreeing to be equally responsible for the repayment of the loan.
Collateral: security in the form of money or property pledged for the payment of a loan. For example, on a home loan, the home is the collateral and can be taken away from the borrower if mortgage payments are not made.
Collection Account: an unpaid debt referred to a collection agency to collect on the bad debt. This type of account is reported to the credit bureau and will show on the borrower's credit report.
Commission: an amount, usually a percentage of the property sales price that is collected by a real estate professional as a fee for negotiating the transaction. Traditionally the home seller pays the commission. The amount of commission is determined by the real estate professional and the seller and can be as much as 6% of the sales price.
Commitment Letter: The letter given from a lender to a potential borrower that specifies the terms being offered for a mortgage loan.
Common Stock: a security that provides voting rights in a corporation and pays a dividend after preferred stock holders have been paid. This is the most common stock held within a company.
Comparative Market Analysis (COMPS): a property evaluation that determines property value by comparing similar properties sold within the last year.
Compensating Factors: factors that show the ability to repay a loan based on less traditional criteria, such as employment, rent, and utility payment history.
Condominium: A type of home where you own the specific unit you buy that may be attached to other units owned by many different people. There may be specific associations involved that include monthly or annual fees, owner rules, and common areas in the community.
Conforming loan: is a loan that does not exceed Fannie Mae's and Freddie Mac's loan limits. Freddie Mac and Fannie Mae loans are referred to as conforming loans.
Consideration: an item of value given in exchange for a promise or act.
Construction Loan: a short-term, to finance the cost of building a new home. The lender pays the builder based on milestones accomplished during the building process. For example, once a sub-contractor pours the foundation and it is approved by inspectors the lender will pay for their service.
Consumer Credit Counseling: Where a consumer can get help in the case that they have over-extended or developed derogatory credit.
Contingency Clause: When associated with a mortgage this is when the seller can back out of the purchase contract in the case that the buyer can not obtain financing within a specified amount of time.
Conventional Loan: a private sector loan, one that is not guaranteed or insured by the U.S. government.
Conversion Clause: a provision in some ARMs allowing it to change to a fixed-rate loan at some point during the term. Usually conversions are allowed at the end of the first adjustment period. At the time of the conversion, the new fixed rate is generally set at one of the rates then prevailing for fixed rate mortgages. There may be additional cost for this clause.
Convertible Adjustable Rate Mortgage: An ARM that can be converted into a fixed-rate mortgage under the terms of the loan agreement.
Co-operative: A type of housing arrangement where all of the owners in a housing complex own part of the unit and agree to occupancy arrangements, necessary improvements, maintenance, and more.
Cost of Funds Index (COFI): an index used to determine interest rate changes for some adjustable-rate mortgages.
Counter Offer: When a potential buyer makes an offer for the purchase price and terms to the seller of a property the seller then may make a counter offer of a different price and new terms.
Covenant: Restrictions that are placed on the borrower about what can be done with the property they purchase. Mortgage lenders may do this in order to sustain the value of the home.
Credit: an agreement that a person will borrow money and repay it to the lender over time.
Credit Bureau: An agency that keeps track of individual's credit history and updates their payment history when borrowing money. The three largest bureaus are Equifax, TransUnion, and Experian.
Credit Counseling: education on how to improve bad credit and how to avoid having more debt than can be repaid.
Credit Enhancement: a method used by a lender to reduce default of a loan by requiring collateral, mortgage insurance, or other agreements.
Credit Grantor: the lender that provides a loan or credit.
Credit History: a record of an individual that lists all debts and the payment history for each. The report that is generated from the history is called a credit report. Lenders use this information to gauge a potential borrower's ability to repay a loan.
Credit Loss Ratio: the ratio of credit-related losses to the dollar amount of MBS outstanding and total mortgages owned by the corporation.
Credit Related Expenses: foreclosed property expenses plus the provision for losses.
Credit Related Losses: foreclosed property expenses combined with charge-offs.
Credit Repair Companies: Private, for-profit businesses that claim to offer consumers credit and debt repayment difficulties assistance with their credit problems and a bad credit report.
Credit Report: a report generated by the credit bureau that contains the borrower's credit history for the past seven years. Lenders use this information to determine if a loan will be granted.
Credit Risk: a term used to describe the possibility of default on a loan by a borrower.
Credit Score: a score calculated by using a person's credit report to determine the likelihood of a loan being repaid on time. Scores range from about 360 - 840: a lower score meaning a person is a higher risk, while a higher score means that there is less risk.
Credit Union: a non-profit financial institution federally regulated and owned by the members or people who use their services. Credit unions serve groups that hold a common interest and you have to become a member to use the available services.
Creditor: the lending institution providing a loan or credit.
Creditworthiness: the way a lender measures the ability of a person to qualify and repay a loan.
D
Debtor: The person or entity that borrows money. The term debtor may be used interchangeably with the term borrower.
Debt to Income Ratio: The monthly or annual amount of income compared to your monthly or annual debt owed.
Debt Security: a security that represents a loan from an investor to an issuer. The issuer in turn agrees to pay interest in addition to the principal amount borrowed.
Deductible: the amount of cash payment that is made by the insured (the homeowner) to cover a portion of a damage or loss. Sometimes also called "out-of-pocket expenses." For example, out of a total damage claim of $1,000, the homeowner might pay a $250 deductible toward the loss, while the insurance company pays $750 toward the loss. Typically, the higher the deductible, the lower the cost of the policy.
Deed: a document that legally transfers ownership of property from one person to another. The deed is recorded on public record with the property description and the owner's signature. Also known as the title.
Deed-in-Lieu: to avoid foreclosure ("in lieu" of foreclosure), a deed is given to the lender to fulfill the obligation to repay the debt; this process does not allow the borrower to remain in the house but helps avoid the costs, time, and effort associated with foreclosure.
Deed of Trust: This is when the deed is overseen by a trustee who works as a liaison between the borrower and lender in some states.
Default: When you do not make a mortgage payment on time you are in default of your loan terms and agreement. At this time the lender can choose to make a payment plan available to you for repayment of the amount owed from your missed payment or they can request all of the balance due on the loan which you must pay or foreclosure may occur.
Delinquency: The period of time between when your mortgage payment is due and when you pay it, up to thirty days. If you are late with a mortgage payment you are considered delinquent until the payment is officially thirty days late at which time the loan goes into default.
HUD-Department of Housing and Urban Development: A Department within the federal government which aids people with the purchase of property through guaranteed loans, energy efficient home improvement loans, general home improvement loans, refinancing options, loans for the disabled and elderly to renovate their housing, and much more. HUD also has a program where they sell homes for under market value to people who are looking to become home owners.
Deposit (Earnest Money): money put down by a potential buyer to show that they are serious about purchasing the home; it becomes part of the down payment if the offer is accepted, is returned if the offer is rejected, or is forfeited if the buyer pulls out of the deal. During the contingency period the money may be returned to the buyer if the contingencies are not met to the buyer's satisfaction.
Depreciation: When the value of a property gets lower due to the real estate market in the area or the property owner not keeping up with home repairs and allowing the property to fall into disrepair.
Derivative: a contract between two or more parties where the security is dependent on the price of another investment.
Disclosures: the release of relevant information about a property that may influence the final sale, especially if it represents defects or problems. "Full disclosure" usually refers to the responsibility of the seller to voluntarily provide all known information about the property. Some disclosures may be required by law, such as the federal requirement to warn of potential lead-based paint hazards in pre-1978 housing. A seller found to have knowingly lied about a defect may face legal penalties.
Discount Points: When you get a mortgage loan you may pay these discount points in order to get better terms on your long-term mortgage loan. A point is usually equal to 1% of the loan value, so if you were taking a loan for $200,000 one point would be $2,000. Points are paid out-of-pocket by the borrower in order for the lender to have an incentive to offer a lower overall interest rate.
Down Payment: The amount of money you put down on the purchase of a home. The amount of a down payment is usually a certain percentage of the price of a home which varies from lender to lender, but generally anywhere from 3-10% is required. Some lenders accept gift funds for down payment assistance from third party organizations. For VA Home Loan Guaranteed mortgages no down payment is required because of the guarantee to the lender from the VA.
Document Recording: after closing on a loan, certain documents are filed and made public record. Discharges for the prior mortgage holder are filed first. Then the deed is filed with the new owner's and mortgage company's names.
Due on Sale: When you sell a property which has a mortgage lien the remaining balance of the loan is paid to the lender at the time of the sale.
Duration: the number of years it will take to receive the present value of all future payments on a security to include both principal and interest.
E
Earnest Money (Deposit): money put down by a potential buyer to show that they are serious about purchasing the home; it becomes part of the down payment if the offer is accepted, is returned if the offer is rejected, or is forfeited if the buyer pulls out of the deal. During the contingency period the money may be returned to the buyer if the contingencies are not met to the buyer's satisfaction.
Earnings Per Share (EPS): a corporation's profit that is divided among each share of common stock. It is determined by taking the net earnings divided by the number of outstanding common stocks held. This is a way that a company reports profitability.
Easement: Part of the property that is not the sole property of the owner but also must be made available to the local town, city, township, or community. Usually this is for the local government to have access to portions of the property they need for utility lines, road extensions, sewer and water pipeline installations, hazardous tree removals, and more.
Employment Verification: A lender requires employment verification of potential borrowers to verify their income and job security.
EEM: Energy Efficient Mortgage; an FHA program that helps homebuyers save money on utility bills by enabling them to finance the cost of adding energy efficiency features to a new or existing home as part of the home purchase.
Eminent Domain: when a government takes private property for public use. The owner receives payment for its fair market value. The property can then proceed to condemnation proceedings.
Encroachments: a structure that extends over the legal property line on to another individual's property. The property surveyor will note any encroachment on the lot survey done before property transfer. The person who owns the structure will be asked to remove it to prevent future problems.
Encumbrance: anything that affects title to a property, such as loans, leases, easements, or restrictions.
Entitlement: The amount in which you are allowed to use in a program depending on your status. In the case of the VA Home Loan Guarantee Program once you receive a Certificate of Eligibility you are entitled to a flat guarantee amount of $36,000 for homes under $144,000 and for homes over this amount you can get up to 25% of the loan guaranteed on the purchase of a home with a maximum loan amount of $417,000. The VA does raise and change these limits and terms over time, so go to www.va.gov for the most current information.
Equal Credit Opportunity Act (ECOA): a federal law requiring lenders to make credit available equally without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.
Equity: an owner's financial interest in a property; calculated by subtracting the amount still owed on the mortgage loon(s)from the fair market value of the property.
Escape Clause: a provision in a purchase contract that allows either party to cancel part or the entire contract if the other does not respond to changes to the sale within a set period. The most common use of the escape clause is if the buyer makes the purchase offer contingent on the sale of another house.
Escrow: A middleman account, usually with a title agency, that holds money and distributes the funds in a manner that both parties agree upon. Earnest money is often held in an escrow account and some mortgage companies require borrowers to pay their property taxes and homeowners insurance as part of their mortgage payment which is also put into an escrow account for distribution when due.
Escrow Account: a separate account into which the lender puts a portion of each monthly mortgage payment; an escrow account provides the funds needed for such expenses as property taxes, homeowners insurance, mortgage insurance, etc.
Escrow Company: Also called a Title Company or Title Agency. They hold the money in an escrow account until funds need to be distributed correctly. They also help with the closing of a home purchase, the mortgage paperwork, the transfer of money from the lender to the seller, and the title changes.
Estate: the ownership interest of a person in real property. The sum total of all property, real and personal, owned by a person.
Exclusive Listing: a written contract giving a real estate agent the exclusive right to sell a property for a specific timeframe.
F
FICO Score: FICO is an abbreviation for Fair Isaac Corporation and refers to a person's credit score based on credit history. Lenders and credit card companies use the number to decide if the person is likely to pay his or her bills. A credit score is evaluated using information from the three major credit bureaus and is usually between 300 and 850.
Fair Credit Reporting Act: federal act to ensure that credit bureaus are fair and accurate protecting the individual's privacy rights enacted in 1971 and revised in October 1997.
Fair Housing Act: An act created by the federal government that makes it illegal for lenders, sellers, agents, brokers, and anyone involved in the sale or purchase of a home to discriminate against a buyer for any reason.
Fair Market Value: : the hypothetical price that a willing buyer and seller will agree upon when they are acting freely, carefully, and with complete knowledge of the situation.
Familial Status: HUD uses this term to describe a single person, a pregnant woman or a household with children under 18 living with parents or legal custodians who might experience housing discrimination.
Fannie Mae: Federal National Mortgage Association (FNMA); a federally-chartered enterprise owned by private stockholders that purchases residential mortgages and converts them into securities for sale to investors; by purchasing mortgages, Fannie Mae supplies funds that lenders may loan to potential homebuyers. Also known as a Government Sponsored Enterprise (GSE).
FHA-Federal Housing Authority: In connection with the Department of Housing and Urban Development, the FHA is a department of the federal government that encourages homeownership by offering loan guarantees, home improvement loans, consumer counseling, information for purchasing and selling homes, and much more. FHA Home Loans are perfect for first time homebuyers with less than perfect credit.
Fees: The costs that are associated with getting a mortgage loan that include servicing fees, loan origination fees, title fees, appraisal fees, home inspection fees, and more. The VA also charges a fee for using their Home Loan Guarantee Program.
First Mortgage: the mortgage with first priority if the loan is not paid.
Fixed Expenses: payments that do not vary from month to month.
Fixed-Rate Mortgage: a mortgage with payments that remain the same throughout the life of the loan because the interest rate and other terms are fixed and do not change.
Fixture: personal property permanently attached to real estate or real property that becomes a part of the real estate.
Float: the act of allowing an interest rate and discount points to fluctuate with changes in the market.
Flood Insurance: insurance that protects homeowners against losses from a flood; if a home is located in a flood plain, the lender will require flood insurance before approving a loan.
Forbearance: a lender may decide not to take legal action when a borrower is late in making a payment. Usually this occurs when a borrower sets up a plan that both sides agree will bring overdue mortgage payments up to date.
FSBO (For Sale by Owner): a home that is offered for sale by the owner without the benefit of a real estate professional.
Foreclosure: When a borrower fails to meet the obligations agreed upon in the mortgage loan agreement and the lender repossesses the property in order to get the money back they loaned to the borrower.
Freddie Mac: Federal Home Loan Mortgage Corporation (FHLM); a federally chartered corporation that purchases residential mortgages, securitizes them, and sells them to investors; this provides lenders with funds for new homebuyers. Also known as a Government Sponsored Enterprise (GSE).
Front End Ratio: a percentage comparing a borrower's total monthly cost to buy a house (mortgage principal and interest, insurance, and real estate taxes) to monthly income before deductions.
Funding Fee: The name of the fee that the VA charges when a veteran uses their Home Loan Guarantee Program. This fee is generally around 2% to 3% depending on if it is your first VA loan or not. Disabled veterans may be exempt from this fee.
G
Gift Funds: Free down payment assistance that is given to a buyer in order to help them purchase a home. VA loans allow the use of gift funds to make the down payment on a home, and there are third party organizations that offer this service, although they have come under scrutiny recently.
Gift Letter: In the case you are given money for a down payment from a friend, relative, or employer you must have a letter stating that the person giving you the money does not expect to be paid back. This is because if you borrow money that is expected to be repaid then the mortgage lender will need to calculate this into your income to debt ratio.
GSE: abbreviation for government sponsored enterprises: a collection of financial services corporations formed by the United States Congress to reduce interest rates for farmers and homeowners. Examples include Fannie Mae and Freddie Mac.
Ginnie Mae: Government National Mortgage Association (GNMA); a government-owned corporation overseen by the U.S. Department of Housing and Urban Development, Ginnie Mae pools FHA-insured and VA-guaranteed loans to back securities for private investment; as With Fannie Mae and Freddie Mac, the investment income provides funding that may then be lent to eligible borrowers by lenders.
Global Debt Facility: designed to allow investors all over the world to purchase debt (loans) of U.S. dollar and foreign currency through a variety of clearing systems.
Good Faith Estimate: an estimate of all closing fees including pre-paid and escrow items as well as lender charges; must be given to the borrower within three days after submission of a loan application.
GPM-Graduated Payment Mortgage: A type of mortgage loan where payments start out low and increase with time. This type of loan is good for people who expect their income to increase over time.
Grantee: The legal term for a buyer in mortgage loan paperwork.
Grantor: an individual conveying an interest in real property.
Gross Income: money earned before taxes and other deductions. Sometimes it may include income from self-employment, rental property, alimony, child support, public assistance payments, and retirement benefits.
GEM-Growing Equity Mortgage: A type of mortgage where the payments increase overtime, but the extra money is applied to the principle of the loan in order to pay off the loan faster.
Guaranty Fee: payment to FannieMae from a lender for the assurance of timely principal and interest payments to MBS (Mortgage Backed Security) security holders.
H
Hazard Insurance: Insurance that pays to repair a property in the case of damage from fire, ice, floods, storms, acts of vandalism, and more. This type of insurance is usually required by your mortgage lender and can be included in your homeowners insurance policy.
HECM (Reverse Mortgage): the reverse mortgage is used by senior homeowners age 62 and older to convert the equity in their home into monthly streams of income and/or a line of credit to be repaid when they no longer occupy the home. A lending institution such as a mortgage lender, bank, credit union or savings and loan association funds the FHA insured loan, commonly known as HECM.
HELP: Homebuyer Education Learning Program; an educational program from the FHA that counsels people about the home buying process; HELP covers topics like budgeting, finding a home, getting a loan, and home maintenance; in most cases, completion of the program may entitle the homebuyer to a reduced initial FHA mortgage insurance premium-from 2.25% to 1.75% of the home purchase price.
Home Equity Line of Credit: a mortgage loan, usually in second mortgage, allowing a borrower to obtain cash against the equity of a home, up to a predetermined amount.
Home Equity Loan: a loan backed by the value of a home (real estate). If the borrower defaults or does not pay the loan, the lender has some rights to the property. The borrower can usually claim a home equity loan as a tax deduction. Home Inspection: an examination of the structure and mechanical systems to determine a home's quality, soundness and safety; makes the potential homebuyer aware of any repairs that may be needed. The homebuyer generally pays inspection fees.
Home Loan Guarantee Program: A program within the Department of Veterans Affairs that guarantees a loan for veterans to purchase homes. Because the loans are partially guaranteed by the VA veterans are able to get home loans easier and under better terms. This is one of many benefit programs offered to veterans.
Home Warranty: A warranty that covers and problems that occur with your home within a specific amount of time. Some real estate companies offer a one year home warranty when you purchase your home that covers main systems like the heating, ventilation, air conditioning, appliances, and more. If you build a new home the builder offers a limited warranty on the home.
Homeowners Insurance: Insurance that covers damage to your property or home. This type of insurance also covers your personal belongings and contents of your home. Homeowners Insurance is required by your mortgage lender.
Homestead Credit: property tax credit program, offered by some state governments, that provides reductions in property taxes to eligible households.
Housing Counseling Agency: provides counseling and assistance to individuals on a variety of issues, including loan default, fair housing, and home buying.
HUD- The Department of Housing and Urban Development: A government agency that aids people with purchasing homes, getting financing for a home mortgage, counseling and education for the home buying process, and much more.
HUD-1 Form: A list of the purchases and transactions involved when you buy a home through The Department of Housing and Urban Development and The Federal Housing Authority.
HVAC: Heating, Ventilation and Air Conditioning; a home's heating and cooling system.
Hybrid Mortgage Loan: A loan to purchase a home that combines an adjustable rate mortgage with a fixed rate mortgage. Most hybrid mortgages have a fixed interest rate for the first ten years and then the interest rate becomes adjustable. This type of mortgage is good for people who are not planning to live in the home during the adjustable interest rate period or who plan to refinance the mortgage before the interest rate begins to rise.
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Income: Any money that you receive in a given period of time. For the purposes of obtaining a mortgage you should consider your steady monthly income when determining your affordable mortgage payment amounts. You may not want to include income such as child support, interest on investments, or other variable amount types of income.
Indemnification: to secure against any loss or damage, compensate or give security for reimbursement for loss or damage incurred. A homeowner should negotiate for inclusion of an indemnification provision in a contract with a general contractor or for a separate indemnity agreement protecting the homeowner from harm, loss or damage caused by actions or omissions of the general (and all sub) contractor.
Index: the measure of interest rate changes that the lender uses to decide how much the interest rate of an ARM will change over time. No one can be sure when an index rate will go up or down. If a lender bases interest rate adjustments on the average value of an index over time, your interest rate would not be as volatile. You should ask your lender how the index for any ARM you are considering has changed in recent years, and where it is reported.
Inflation: the number of dollars in circulation exceeds the amount of goods and services available for purchase; inflation results in a decrease in the dollar's value.
Inflation Coverage: endorsement to a homeowner's policy that automatically adjusts the amount of insurance to compensate for inflationary rises in the home's value. This type of coverage does not adjust for increases in the home's value due to improvements.
Inquiry: a credit report request. Each time a credit application is completed or more credit is requested counts as an inquiry. A large number of inquiries on a credit report can sometimes make a credit score lower.
Interest: The money that is paid to a lender for the use of their money. In the case of a mortgage the interest is a percentage rate over a certain period of time paid to the mortgage company.
Interest Only Loan: A mortgage loan that allows the borrower to pay only the interest on the mortgage for a set amount of time before they start paying towards the principal. People use this type of mortgage when they expect an increase in income in the future, do not plan to live in the home for a long period of time, or plan to refinance the mortgage on the home once their current mortgage begins requiring them to make larger payments. Often times once the interest only period is over the mortgage converts to an adjustable interest rate which is also undesirable if you plan to stay in the home for a long period of time.
Interest Rate: the amount of interest charged on a monthly loan payment, expressed as a percentage.
Interest Rate Cap or Interest Rate Ceiling: The highest amount of interest that can be charged according to a legal agreement. With adjustable rate mortgages there is an interest rate cap that allows the mortgage lender to raise the interest rate to a certain point, and then they are not allowed to raise the rate any further.
IRRRL- Interest Rate Reduction Refinancing Loan: This is a VA mortgage loan that takes mortgages in the VA Home Loan Guarantee Program and allows the owner to refinance the loan for a lower interest rate. The loan can be an adjustable rate mortgage refinanced to a fixed rate mortgage or a fixed rate mortgage refinanced to a fixed rate mortgage as long as the interest rate is lower and your monthly mortgage payment decreases. The VA does not allow you to take cash out of an IRRRL, but you may finance to pay for energy efficient home improvements or to take advantage of lower interest rate trends in the market.
Interest Rate Swap: a transaction between two parties where each agrees to exchange payments tied to different interest rates for a specified period of time, generally based on a notional principal amount.
Intermediate Term Mortgage: a mortgage loan with a contractual maturity from the time of purchase equal to or less than 20 years.
Insurance: protection against a specific loss, such as fire, wind etc., over a period of time that is secured by the payment of a regularly scheduled premium.
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Joint Tenancy: When more than one person lives in a home and they both have equal rights to ownership of the property. Usually this is in the case of marriage or co-ownership and each of the entitled property owners has the right of survivorship.
Judgment: a legal decision; when requiring debt repayment, a judgment may include a property lien that secures the creditor's claim by providing a collateral source.
Jumbo Loan: or non-conforming loan, is a loan that exceeds Fannie Mae's and Freddie Mac's loan limits. Freddie Mac and Fannie Mae loans are referred to as conforming loans.
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Late Charge or Late Fee: An extra amount of money you have to pay when you are late making your mortgage payment. This also may be called a penalty fee or penalty payment.
Lease: a written agreement between a property owner and a tenant (resident) that stipulates the payment and conditions under which the tenant may occupy a home or apartment and states a specified period of time.
Lease-Purchase Agreement: A way to purchase a home by first renting the home for a set amount of time and then purchasing the home. This is also called rent-to-own and is extremely useful to people who need time to repair their credit or want to wait for lower interest rates before obtaining a mortgage loan.
Lease-Purchase Mortgage Loan: A way that is available to purchase homes by first leasing the home and then purchasing the home for low income families. This option is offered by Fannie Mae and the families lease the property from the not for profit organization with the opportunity to purchase the home later. Part of the monthly rental payments are saved in order for the renters to have down payment money at the end of their lease in the case they want to purchase the home.
Lender: The company that loans you the money to purchase a home.
Lender Appraisal Processing Program: A program through which the Department of Veterans Affairs allows VA approved lenders to conduct their own appraisals of value on a property. The VA may also require one of their own appraisers to also appraise the property in order to determine value for the VA Home Loan Guarantee Program.
Lender Option Commitments: an agreement giving a lender the option to deliver loans or securities by a certain date at agreed upon terms.
Liabilities: a person's financial obligations such as long-term / short-term debt, and other financial obligations to be paid.
Liability Insurance: insurance coverage that protects against claims alleging a property owner's negligence or action resulted in bodily injury or damage to another person. It is normally included in homeowner's insurance policies.
Lien: The legal right to ownership of a property or part ownership of a property. In the case of a mortgage loan on your home the lender has the legal right to the amount of money your home is worth up to what you still owe as your principal balance. Any lien on a home is paid when the home is sold.
Lien Waiver: A document that releases a consumer (homeowner) from any further obligation for payment of a debt once it has been paid in full. Lien waivers typically are used by homeowners who hire a contractor to provide work and materials to prevent any subcontractors or suppliers of materials from filing a lien against the homeowner for nonpayment.
Lifetime Cap: With an adjustable rate mortgage this is the highest interest rate than can be charged over the life of the loan.
Line of Credit: an agreement by a financial institution such as a bank to extend credit up to a certain amount for a certain time to a specified borrower.
Liquid Asset: a cash asset or an asset that is easily converted into cash.
Listing Agreement: a contract between a seller and a real estate professional to market and sell a home. A listing agreement obligates the real estate professional (or his or her agent) to seek qualified buyers, report all purchase offers and help negotiate the highest possible price and most favorable terms for the property seller.
Loan: When money is given to a second party with the legal stipulation that the second party pay back that money in accordance with the terms of the agreement.
Loan Acceleration: an acceleration clause in a loan document is a statement in a mortgage that gives the lender the right to demand payment of the entire outstanding balance if a monthly payment is missed.
Loan Approval: When the lender agrees to loan money to a borrower based on information like income, debt, assets, employment, credit worthiness, and more.
Loan Fraud: purposely giving incorrect information on a loan application in order to better qualify for a loan; may result in civil liability or criminal penalties.
Loan Officer: a representative of a lending or mortgage company who is responsible for soliciting homebuyers, qualifying and processing of loans. They may also be called lender, loan representative, account executive or loan rep.
Loan Origination Fee: a charge by the lender to cover the administrative costs of making the mortgage. This charge is paid at the closing and varies with the lender and type of loan. A loan origination fee of 1 to 2 percent of the mortgage amount is common.
Loan Servicer: the company that collects monthly mortgage payments and disperses property taxes and insurance payments. Loan servicers also monitor nonperforming loans, contact delinquent borrowers, and notify insurers and investors of potential problems. Loan servicers may be the lender or a specialized company that just handles loan servicing under contract with the lender or the investor who owns the loan.
Loan Servicing: The maintenance required for any given loan. In the case of a mortgage loan with an escrow account the servicing is needed to take the monthly mortgage payment and split the money between the principal, interest, and the escrow account. Then when the time comes for the homeowners insurance and property taxes to be paid the loan servicer is responsible for making those payments on time. This fee is usually added to your monthly mortgage payment.
Loan Guarantee Entitlement: The amount of money that you can get from the VA for guaranteeing your home mortgage loan.
LTV- Loan to Value Percentage (or ratio): The amount of a home you own as compared to the amount of a home you still owe to a mortgage lender expressed as a percentage. For instance, if you put 25% down on a home then your Loan to Value Percentage is 75% because that is what you still owe to the mortgage lender.
Lock-In: An agreement with a mortgage lender that a specific interest rate will be guaranteed or locked in as long as the borrower closes within a certain period of time.
Lock-in Period: the length of time that the lender has guaranteed a specific interest rate to a borrower.
Loss Mitigation: a process to avoid foreclosure; the lender tries to help a borrower who has been unable to make loan payments and is in danger of defaulting on his or her loan
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Mandatory Delivery Commitment: an agreement that a lender will deliver loans or securities by a certain date at agreed-upon terms.
Margin: the number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.
Market Value: The value you home will sell for depending on the current real estate market trends in your area.
Maturity: the date when the principal balance of a loan becomes due and payable.
Median Price: the price of the house that falls in the middle of the total number of homes for sale in that area.
Medium Term Notes: unsecured general obligations of Fannie Mae with maturities of one day or more and with principal and interest payable in U.S. dollars.
Merged Credit Report: raw data pulled from two or more of the major credit-reporting firms.
Mitigation: term usually used to refer to various changes or improvements made in a home; for instance, to reduce the average level of radon.
Modification: when a lender agrees to modify the terms of a mortgage without refinancing the loan.
Mortgage: A loan that allows you to purchase a home in return for monthly payments over a set period of time that pays back the loan with interest.
Mortgage Acceleration Clause: a clause allowing a lender, under certain circumstances, demand the entire balance of a loan is repaid in a lump sum. The acceleration clause is usually triggered if the home is sold, title to the property is changed, the loan is refinanced or the borrower defaults on a scheduled payment.
Mortgage-Backed Security (MBS): a Fannie Mae security that represents an undivided interest in a group of mortgages. Principal and interest payments from the individual mortgage loans are grouped and paid out to the MBS holders.
Mortgage Banker: A company that makes mortgage loans to people in order to sell the mortgages for a profit. Once the mortgage is closed then they will sell it on the secondary loan market to another company who wants to invest in the mortgage in order to get the interest money.
Mortgage Broker: A person who takes the financial and credit information of people who are looking for a mortgage lender and facilitates the process by shopping for a mortgage loan for the borrower. You will usually pay a commission fee for the services of a mortgage broker, who in essence is the 'middle man' of a mortgage loan transaction.
Mortgage Insurance: a policy that protects lenders against some or most of the losses that can occur when a borrower defaults on a mortgage loan; mortgage insurance is required primarily for borrowers with a down payment of less than 20% of the home's purchase price. Insurance purchased by the buyer to protect the lender in the event of default. Typically purchased for loans with less than 20 percent down payment. The cost of mortgage insurance is usually added to the monthly payment. Mortgage insurance is maintained on conventional loans until the outstanding amount of the loan is less than 80 percent of the value of the house or for a set period of time (7 years is common). Mortgage insurance also is available through a government agency, such as the Federal Housing Administration (FHA) or through companies (Private Mortgage Insurance or PMI).
Mortgage Insurance Premium: The amount of money you pay either monthly included as part of your mortgage payment, or annually out of an escrow account that insures your mortgage from default. The FHA requires mortgage insurance for any borrower that is financing a loan through them and puts down less than 20% of a down payment of the home.
Mortgage Interest Deduction: the interest cost of a mortgage, which is a tax - deductible expense. The interest reduces the taxable income of taxpayers.
Mortgage Interest Rate: The percentage of interest you agreed to pay in your mortgage loan terms.
Mortgage Life and Disability Insurance: term life insurance bought by borrowers to pay off a mortgage in the event of death or make monthly payments in the case of disability. The amount of coverage decreases as the principal balance declines. There are many different terms of coverage determining amounts of payments and when payments begin and end.
Mortgage Modification: a loss mitigation option that allows a borrower to refinance and/or extend the term of the mortgage loan and thus reduce the monthly payments.
Mortgage Margin: For adjustable rate mortgages this is the set amount of how much your interest rate can increase at each adjustable period of time. For instance, if your loan agreement states that your interest rate can not increase more than 1/2% in any 6 month period of time then that is your mortgage margin.
Mortgage Note: The legal paperwork of a mortgage loan that specifies the terms of the loan which include the monthly mortgage payment amount, the interest rate, the amount of the loan, and the length of time the term of the loan is for.
Mortgage Qualifying Ratio: Used to calculate the maximum amount of funds that an individual traditionally may be able to afford. A typical mortgage qualifying ratio is 28: 36.
Mortgage Score: a score based on a combination of information about the borrower that is obtained from the loan application, the credit report, and property value information. The score is a comprehensive analysis of the borrower's ability to repay a mortgage loan and manage credit.
Mortgagee: A term used in mortgage loan paperwork that refers to the lender.
Mortgagor: In the legal paperwork of the mortgage loan this refers to the borrower.
Multifamily Housing: a building with more than four residential rental units.
Multiple Listing Service (MLS): within the Metro Columbus area, Realtors submit listings and agree to attempt to sell all properties in the MLS. The MLS is a service of the local Columbus Board of Realtors�. The local MLS has a protocol for updating listings and sharing commissions. The MLS offers the advantage of more timely information, availability, and access to houses and other types of property on the market.
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National Credit Repositories: currently, there are three companies that maintain national credit - reporting databases. These are Equifax, Experian, and Trans Union, referred to as Credit Bureaus.
Negative Amortization: In the case that the monthly mortgage payment is not enough to cove r the interest and principal amount due on the loan then whatever the negative difference is will be added to the loan. This means that the amount you owe will increase instead of decrease. A good example is a graduated Payment Mortgage in which the monthly payments start out low and grow overtime, so in the beginning the payments may not be high enough to cover the principal and mortgage payments, but the difference is added to the total principal of the loan which you will pay off in time as the monthly mortgage payments gradually increase.
Net Income: Your take-home pay, the amount of money that you receive in your paycheck after taxes and deductions.
No Cash Out Refinance: a refinance of an existing loan only for the amount remaining on the mortgage. The borrower does not get any cash against the equity of the home. Also called a "rate and term refinance."
No Cost Loan: there are many variations of a no cost loan. Generally, it is a loan that does not charge for items such as title insurance, escrow fees, settlement fees, appraisal, recording fees or notary fees. It may also offer no points. This lessens the need for upfront cash during the buying process however no cost loans have a higher interest rate.
Nonperforming Asset: an asset such as a mortgage that is not currently accruing interest or which interest is not being paid.
Note: a legal document obligating a borrower to repay a mortgage loan at a stated interest rate over a specified period of time.
Note Rate: the interest rate stated on a mortgage note.
Notice of Default: In the case a borrower goes into default the mortgage lender will send them this notice to inform them that they have broken the mortgage contract agreement. At this time the borrower should contact the mortgage lender to work out a forbearance or terms of repayment for the missed mortgage amount.
Notional Principal Amount: the proposed amount which interest rate swap payments are based but generally not paid or received by either party.
Non-Conforming loan: is a loan that exceeds Fannie Mae's and Freddie Mac's loan limits. Freddie Mac and Fannie Mae loans are referred to as conforming loans.
Notary Public: a person who serves as a public official and certifies the authenticity of required signatures on a document by signing and stamping the document.
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Offer: indication by a potential buyer of a willingness to purchase a home at a specific price; generally put forth in writing.
Original Principal Balance: the total principal owed on a mortgage prior to any payments being made.
Origination: the process of preparing, submitting, and evaluating a loan application; generally includes a credit check, verification of employment, and a property appraisal.
Origination Fee: The fee that the lender charges the borrower for the services that are required in order to create a mortgage loan agreement. This usually includes underwriter costs, legal fees, and other fees associated with originating the mortgage loan.
Owner Financing: In cases where the buyer can not get a mortgage loan due to lack of down payment or derogatory credit the seller may make arrangements to finance the loan for the buyer in which case the buyer would sign an agreement with the seller as to the loan terms.
Ownership: ownership is documented by the deed to a property. The type or form of ownership is important if there is a change in the status of the owners or if the property changes ownership.
Owner's Policy: the insurance policy that protects the buyer from title defects.
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Partial Claim: a loss mitigation option offered by the FHA that allows a borrower, with help from a lender, to get an interest-free loan from HUD to bring their mortgage payments up to date.
Partial Payment: a payment that is less than the total amount owed on a monthly mortgage payment. Normally, lenders do not accept partial payments. The lender may make exceptions during times of difficulty. Contact your lender prior to the due date if a partial payment is needed.
Payment Cap: In some adjustable rate mortgages there is a limit as to how high a monthly mortgage payment can increase even when the interest rate is increased. For instance, there may be a payment cap that does not allow the monthly payment to go over $800, but the mortgage company has increased the interest rate to where the payments should be $855 per month. In cases such as these the additional money owed would be added to the principal of the loan which creates negative amortization.
Payment Change Date: the date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM) or a graduated-payment mortgage (GPM). Generally, the payment change date occurs in the month immediately after the interest rate adjustment date.
Payment Due Date: Contract language specifying when payments are due on money borrowed. The due date is always indicated and means that the payment must be received on or before the specified date. Grace periods prior to assessing a late fee or additional interest do not eliminate the responsibility of making payments on time.
Perils: for homeowner's insurance, an event that can damage the property. Homeowner's insurance may cover the property for a wide variety of perils caused by accidents, nature, or people.
Personal Property: any property that is not real property or attached to real property. For example furniture is not attached however a new light fixture would be considered attached and part of the real property.
PUD- Planned Unit Development: An association in a neighborhood of homes that shares some common property in exchange for monthly or annual fees for the association to maintain the common property. An example of a PUD is a condominium development where each homeowner pays a monthly maintenance fee that is used for the upkeep of the property like grass mowing and snow removal, and the upkeep of any shared facilities like playgrounds, tennis courts, or pools.
Points: Usually a point is 1% of the mortgage loan amount that is paid as an upfront finance charge. Points are paid in order to negotiate lower interest rates on a loan. Sometimes if you pay more points at the beginning of your mortgage when you originate the agreement you can save a lot of money overtime in unpaid interest.
Power of Attorney: A legal document that gives one person the full legal right and authority to act for another person.
Pre-Approval: a lender commits to lend to a potential borrower a fixed loan amount based on a completed loan application, credit reports, debt, savings and has been reviewed by an underwriter. The commitment remains as long as the borrower still meets the qualification requirements at the time of purchase. This does not guaranty a loan until the property has passed inspections underwriting guidelines.
Predatory Lending: abusive lending practices that include a mortgage loan to someone who does not have the ability to repay. It also pertains to repeated refinancing of a loan charging high interest and fees each time.
Predictive Variables: The variables that are part of the formula comprising elements of a credit-scoring model. These variables are used to predict a borrower's future credit performance.
Preferred Stock: stock that takes priority over common stock with regard to dividends and liquidation rights. Preferred stockholders typically have no voting rights.
Pre-foreclosure Sale: a procedure in which the borrower is allowed to sell a property for an amount less than what is owed on it to avoid a foreclosure. This sale fully satisfies the borrower's debt.
Prepayment: any amount paid to reduce the principal balance of a loan before the due date or payment in full of a mortgage. This can occur with the sale of the property, the pay off the loan in full, or a foreclosure. In each case, full payment occurs before the loan has been fully amortized.
Prepayment Penalty: The fee that is paid to a lender in the case you pay off your mortgage loan before a certain amount of time has gone by. This penalty may or may not be written into a mortgage loan agreement. It is designed to deter the borrower from refinancing the loan so that the lender is guaranteed a certain return on their investment. If you are financing through the VA Home Loan Guarantee Program you can not have a prepayment penalty written into your mortgage contract.
Pre-Foreclosure sale: allows a defaulting borrower to sell the mortgaged property to satisfy the loan and avoid foreclosure.
Pre-purchase counseling: First time buyers should obtain counseling on the process of purchasing a home and obtaining a mortgage prior to beginning the process. This is done in an attempt to allow the borrower the knowledge to make informed decisions through the purchasing process. In the case of FHA loans you are required to obtain pre-purchasing counseling before you can get a loan.
Prequalification: A borrower can give all of their financial and credit information to a lender who will use this information to inform the borrower what type of loans they qualify for and how much of a monthly payment they can afford based on their personal situation. This way the borrower knows exactly what price range they can shop for a home in and is assured they can get a mortgage loan.
Price Range: the high and low amount a buyer is willing to pay for a home.
Prime Rate: the interest rate that banks charge to preferred customers. Changes in the prime rate are publicized in the business media. Prime rate can be used as the basis for adjustable rate mortgages (ARMs) or home equity lines of credit. The prime rate also affects the current interest rates being offered at a particular point in time on fixed mortgages. Changes in the prime rate do not affect the interest on a fixed mortgage.
Principal: the amount of money borrowed to buy a house or the amount of the loan that has not been paid back to the lender. This does not include the interest paid to borrow that money. The principal balance is the amount owed on a loan at any given time. It is the original loan amount minus the total repayments of principal made.
PITI- Principal, Interest, Taxes, and Insurance: These are the four monthly costs that are combined into a mortgage payment. Some mortgage loan agreements do not include these additional housing costs, so make sure you know what your monthly mortgage payments include before you choose a loan.
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 principal, interest, taxes, and insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a predefined number of months.
Private Mortgage Insurance (PMI): insurance purchased by a buyer to protect the lender in the event of default. The cost of mortgage insurance is usually added to the monthly payment. Mortgage insurance is generally maintained until over 20 Percent of the outstanding amount of the loan is paid or for a set period of time, seven years is normal. Mortgage insurance may be available through a government agency, such as the Federal Housing Administration (FHA) or the Veterans Administration (VA), or through private mortgage insurance companies (PMI).
Promissory Note: The legal document that a borrower and his or her spouse must sign that agrees to pay the mortgage loan back to the lender.
Property (Fixture and Non-Fixture): in a real estate contract, the property is the land within the legally described boundaries and all permanent structures and fixtures. Ownership of the property confers the legal right to use the property as allowed within the law and within the restrictions of zoning or easements. Fixture property refers to those items permanently attached to the structure, such as carpeting or a ceiling fan, which transfers with the property.
Property Taxes: The amount of money you pay to the local government depending on the assed value of your home and the local cost of levies and tax rates. This payment may be part of your mortgage payments.
Property Tax Deduction: the U.S. tax code allows homeowners to deduct the amount they have paid in property taxes from there total income.
Public Record Information: Court records of events that are a matter of public interest such as credit, bankruptcy, foreclosure and tax liens. The presence of public record information on a credit report is regarded negatively by creditors.
Punch List: a list of items that have not been completed at the time of the final walk through of a newly constructed home.
Purchase Offer: A detailed, written document that makes an offer to purchase a property, and that may be amended several times in the process of negotiations. When signed by all parties involved in the sale, the purchase offer becomes a legally binding contract, sometimes called the Sales Contract.
Purchase and Sale Agreement: An agreement between the seller and buyer of a property that states the terms of the sale of the home.
Purchase Contract: The contract that is signed once the buyer and seller finish negotiating the terms of the sale of the home.
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Qualifying Ratios: Lenders look at asset-to-debt and other ratios in order to determine exactly how much the borrower can financially afford as a maximum mortgage amount. The more you owe in debt the less you will be able to borrow because the lender considers your total monthly expenses when determining how high of a mortgage payment you can afford. This is why it is important to rid yourself of as much unnecessary debt, like unsecured credit card debt, as possible before you apply for a mortgage loan to purchase a home.
Quitclaim Deed: a deed transferring ownership of a property but does not make any guarantee of clear title.
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Radon: a radioactive gas found in some homes that, if occurring in strong enough concentrations, can cause health problems.
Rate Cap: a limit on an ARM on how much the interest rate or mortgage payment may change. Rate caps limit how much the interest rates can rise or fall on the adjustment dates and over the life of the loan.
Rate Lock: A specific fixed interest rate for a specified amount of time that is guaranteed by the mortgage lender.
Real Estate Agent: A licensed professional who can help with the procedures involved with the purchase or sale of real property. Real estate agents accept a percentage of the sale price of a home as their commission payment for their services.
Real Estate Mortgage Investment Conduit (REMIC): a security representing an interest in a trust having multiple classes of securities. The securities of each class entitle investors to cash payments structured differently from the payments on the underlying mortgages.
Real Estate Property Tax Deduction: a tax deductible expense reducing a taxpayer's taxable income.
RESPA- Real Estate Settlement Procedures Act: This states that borrowers must be informed in advance of all of the charges for closing costs of the loan. There is usually a meeting where the borrower sits down with the lending agent while the agent reviews all of the associated costs and fees of the mortgage loan.
Real Property: Any land, improvements to land or structures, and physical structures or buildings that is entitled to by ownership of a title or deed.
REALTOR�: a real estate agent or broker who is a member of the NATIONAL ASSOCIATION OF REALTORS, and its local and state associations. Recorder: the public official who keeps records of transactions concerning real property. Sometimes known as a "Registrar of Deeds" or "County Clerk."
Recording: the recording in a registrar's office of an executed legal document. These include deeds, mortgages, satisfaction of a mortgage, or an extension of a mortgage making it a part of the public record.
Recording Fees: charges for recording a deed with the appropriate government agency.
Refinancing: Getting a new mortgage loan that replaces and pays your existing mortgage loan in full. This is like getting an entirely new mortgage loan which is usually done in order to lower interest rates on a current mortgage loan or take cash out of the equity in a home. If you have a VA home loan you can refinance with the VA through their Cash-Out Refinance option or their Interest Rate Reduction Refinancing Loans, IRRRLs, which allow veterans to refinance their current VA mortgage to a lower interest rate in order to save them money and lower their monthly payments.
Rehabilitation Mortgage: a mortgage that covers the costs of rehabilitating (repairing or Improving) a property; some rehabilitation mortgages - like the FHA's 203(k) - allow a borrower to roll the costs of rehabilitation and home purchase into one mortgage loan.
Reinstatement Period: a phase of the foreclosure process where the homeowner has an opportunity to stop the foreclosure by paying money that is owed to the lender.
Remaining Balance: the amount of principal that has not yet been repaid.
Remaining Term: the original amortization term minus the number of payments that have been applied.
Repayment plan: an agreement between a lender and a delinquent borrower where the borrower agrees to make additional payments to pay down past due amounts while making regularly scheduled payments.
Rent and Mortgage Payment History: A lender will look into the history of other dwellings you have inhabited in order to see if you make your payments on time and are credible in the area of housing payments. They will contact past landlords or look at your credit history from any previous mortgages to make sure you were never delinquent.
Rescission Agreement: The legal document that both parties sign in order to cancel a previously signed legal contract. In the case of real estate transactions there may have been a purchase agreement signed and then the buyer or seller changed their minds about the home then a rescission agreement would have to be signed.
Residual Income: What is left of your earnings after you have paid you fixed expenses, variable expenses, and a future mortgage payment. Lenders look at this in order to determine how much of a monthly mortgage payment you can afford.
Return On Average Common Equity: net income available to common stockholders, as a percentage of average common stockholder equity.
Reverse Mortgage (HECM): the reverse mortgage is used by senior homeowners age 62 and older to convert the equity in their home into monthly streams of income and/or a line of credit to be repaid when they no longer occupy the home. A lending institution such as a mortgage lender, bank, credit union or savings and loan association funds the FHA insured loan, commonly known as HECM.
Right of First Refusal: a provision in an agreement that requires the owner of a property to give one party an opportunity to purchase or lease a property before it is offered for sale or lease to others.
Risk Based Capital: an amount of capital needed to offset losses during a ten-year period with adverse circumstances.
Risk Based Pricing: Fee structure used by creditors based on risks of granting credit to a borrower with a poor credit history.
Risk Scoring: an automated way to analyze a credit report verses a manual review. It takes into account late payments, outstanding debt, credit experience, and number of inquiries in an unbiased manner.
S
Sale Leaseback: when a seller deeds property to a buyer for a payment, and the buyer simultaneously leases the property back to the seller.
Second Mortgage: Another loan on the equity of a home. The second mortgage takes secondary authority to the first mortgage on the lien to the home. When the home is sold or in the case of a default or foreclosure the first mortgage lien holder is paid first and the second mortgage lien holder is paid later. Second mortgages usually have higher interest rates because they are higher risks because in the case of a foreclosure the lender may not fully be able to redeem their investment.
Secondary Mortgage Market: Where mortgages are purchased and sold by companies.
Secured Loan: a loan backed by collateral such as property.
Security: the property that will be pledged as collateral for a loan.
Seller Concessions: The seller may put a valuable asset into the purchase agreement for the buyer. An example of a seller concession is leaving all of the appliances in the home as an additional benefit to the buyer.
Seller Take Back: When the seller agrees to finance the property for the buyer which could also include assuming a mortgage contract.
Serious Delinquency: a mortgage that is 90 days or more past due.
Servicer: a business that collects mortgage payments from borrowers and manages the borrower's escrow accounts.
Servicing: the collection of mortgage payments from borrowers and related responsibilities of a loan servicer.
Setback: the distance between a property line and the area where building can take place. Setbacks are used to assure space between buildings and from roads for a many of purposes including drainage and utilities.
Settlement: Also known as the closing of the loan, where the title of the home is transferred to the new owner and the sale of the property is finalized.
Settlement Statement: a document required by the Real Estate Settlement Procedures Act (RESPA). It is an itemized statement of services and charges relating to the closing of a property transfer. The buyer has the right to examine the settlement statement 1 day before the closing. This is called the HUD 1 Settlement Statement.
Special Forbearance: a loss mitigation option where the lender arranges a revised repayment plan for the borrower that may include a temporary reduction or suspension of monthly loan payments.
Stockholders' Equity: the sum of proceeds from the issuance of stock and retained earnings less amounts paid to repurchase common shares.
Stripped MBS (SMBS): securities created by "stripping" or separating the principal and interest payments from the underlying pool of mortgages into two classes of securities, with each receiving a different proportion of the principal and interest payments.
Sub-Prime Loan: "B" Loan or "B" paper with FICO scores from 620 - 659. "C" Loan or "C" Paper with FICO scores typically from 580 to 619. An industry term to used to describe loans with less stringent lending and underwriting terms and conditions. Due to the higher risk, sub-prime loans charge higher interest rates and fees.
Subordinate: to place in a rank of lesser importance or to make one claim secondary to another.
Survey: The land layout of a property that shows the exact legal boundaries of the property. This is done in order for the buyer to know their legal property boundaries and to make sure there are no legal property boundary disputes with adjacent property owners.
Statement of Service: This document shows your service record including when you entered the service, how long you served, and with what branch you served, and is usually provided by the military unit you served with.
Sweat Equity: using labor to build or improve a property as part of the down payment
T
Tenancy by Entirety: This is a legal entitlement to a property to a spouse in the case the other spouse dies.
Tenancy in Common: This is a legal entitlement to only your portion of a property in the case the other property owner dies.
Terms: The period of time and the interest rate agreed upon by the lender and the borrower to repay a loan.
Third Party Closing Costs: (Example)
Attorney closing/settlement $550
Title search $130
Title insurance $3 per thousand dollar of loan amount
Recording $96
Appraisal $400
Escrow tax 6 months
Escrow homeowner's association fee
6 months if refinance 14 months if purchase
Interim interest Interest amount for the number of days remaining in the month.
Example: loan amount of $100,000 x interest rate 5.125%/360 days x 16 days remaining in the month = $227.78
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.
Title: Also called a deed. This is the legal document that specifies who owns a particular property.
Title 1: an FHA-insured loan that allows a borrower to make non-luxury improvements (like renovations or repairs) to their home; Title I loans less than $7,500 don't require a property lien.
Title Company: A company that researches titles, the history of titles, liens, and encumbrances in order to make sure all entitlement to a property are fulfilled before the tile can be transferred to a new owner.
Title Defect: an outstanding claim on a property that limits the ability to sell the property. Also referred to as a cloud on the title.
Title Insurance: insurance that protects the lender against any claims that arise from arguments about ownership of the property; also available for homebuyers. An insurance policy guaranteeing the accuracy of a title search protecting against errors. Most lenders require the buyer to purchase title insurance protecting the lender against loss in the event of a title defect. This charge is included in the closing costs. A policy that protects the buyer from title defects is known as an owner's policy and requires an additional charge.
Title Search: A title company will perform this service to make sure there are no legal rights to a property that have not been settled before a title can be transferred to a new owner.
Transfer Agent: a bank or trust company charged with keeping a record of a company's stockholders and canceling and issuing certificates as shares are bought and sold.
Transfer of Ownership: any means by which ownership of a property changes hands. These include purchase of a property, assumption of mortgage debt, exchange of possession of a property via a land sales contract or any other land trust device.
Transfer Tax: When a title is transferred to a new owner there are state and local taxes that need to be paid.
Treasury Index: can be used as the basis for adjustable rate mortgages (ARMs) It is based on the results of auctions that the U.S. Treasury holds for its Treasury bills and securities.
Tri-Merge Credit Report: raw data pulled from all three major credit-reporting firms and combined in a single report.
Trustee: a person who holds or controls property for the benefit of another.
Truth in Lending Act: A government act that insures all lenders fully disclose the costs associated with the money being borrowed.
Two Step Mortgage: an adjustable-rate mortgage (ARM) that has one interest rate for the first five to seven years of its term and a different interest rate for the remainder of the term.
U
Underwriter: A person employed by a lending company who evaluates a borrower's loan application and all of the paperwork involved to determine if the borrower can receive the loan or not.
Underwriting: the process of analyzing a loan application to determine the amount of risk involved in making the loan; it includes a review of the potential borrower's credit history and a judgment of the property value.
Up Front Charges: the fees charged to homeowners by the lender at the time of closing a mortgage loan. This includes points, broker's fees, insurance, and other charges.
V
VA (Department of Veterans Affairs): a federal agency, which guarantees loans made to veterans; similar to mortgage insurance, a loan guarantee protects lenders against loss that may result from a borrower default.
VA Eligibility Center: Where veterans submit their requests for a Certificate of Eligibility. Once a VA form 26-1880 and a form DD 214 have been completed a veteran can either contact a VA approved lender and submit this information electronically through the ACE system or send the completed forms to the VA Eligibility Center.
VA Form 26-1880: The request for Certificate of Eligibility form. Veterans must complete this form in order to be eligible for many VA benefits including the VA Home Loan Guarantee Program.
VA Home Loan Program: This program is a benefit to veterans that allows them to take a home loan mortgage with a guarantee from the VA. The VA guarantees that a certain percentage of the loan will be paid back to the lender even in the case of borrower default.
VA Mortgage: a mortgage guaranteed by the Department of Veterans Affairs (VA).
Variable (v): The word variable is the same as a variable interest rate on your loan. The APR on your loan is your annual percentage rate, and if it has the letter V next to it then that means that your interest rate is subject to change in the future.
Variable Expenses: Costs or payments that may vary from month to month, for example, gasoline or food.
Variable Interest Rate: This is the type of interest rate on a mortgage loan that usually starts out fixed, but after a set period of time, usually 3-5 years, can begin to increase and fluctuate with market trends.
Variable Rate: Also known as an adjustable rate, it is an interest rate that can change over time. Usually variable or adjustable interest rates can only change a specified amount within a certain amount of time. Variable rates also usually have a cap to prevent the interest rate from going to high and a floor to prevent the interest rate from going to low. The terms of a variable or adjustable interest rate are found in the mortgage loan contract.
Variable Rate Mortgage: This is like a variable interest rate mortgage because the interest rate changes based on the current market standards in real estate.
Variance: a special exemption of a zoning law to allow the property to be used in a manner different from an existing law.
Verification of Deposit: This is a financial document that the borrower gives to the lender which verifies the amount of money they have in reserve in the bank. Sometimes lenders want to see a certain amount of money in reserves in order to approve a mortgage loan.
Verification of Employment: This is when a mortgage lender contacts the potential borrower's place of employment in order to verify the information on the loan application.
Vested: a point in time when you may withdraw funds from an investment account, such as a retirement account, without penalty.
Veterans Administration: The government agency that offers benefits to military veterans, and in the case of home loans, offers a guarantee that a portion of the loan will be repaid if the borrower defaults.
Voluntary Claim: When the owner of a property contents that a legal claim for payment can be placed against the property.
W
Waiver: This is when a person signs a contract to give up their rights or claims to an asset or liability.
Walk Away Lease: In the case of a home, a person may have a lease to own agreement, and this allows them to decide at the end of the lease if they want to walk away without purchasing.
Walk Through: This is the final step before moving into a home. After the sellers have moved out of the home the buyers get to walk through the home with the selling agent and make sure it is in the condition is was when they agreed to purchase the property.
Wall Street Journal Prime Rate: This is the rate that banks set on interest for mortgage loans that is posted in the Wall Street Journal based on various banks in order to get an average current market interest rate.
Warranty Deed: a legal document that includes the guarantee the seller is the true owner of the property, has the right to sell the property and there are no claims against the property.
Wrap Around Mortgage: This is when you take all of the mortgage loans you own, in the case you are buying before you sell, and consolidate all of the outstanding balances into one loan.
X
Y
Yield Curve: This is a graph that helps people see interest rates and when they occurred at different periods in time.
Z
Zero Balance: This is when there is nothing left to repay on your mortgage loan.
Zero-Lot Line: This is when a house is constructed on the boundary line of the property.
Zoning: There are certain zones in the community that allow for residential construction, commercial construction, and industrial construction. These zones are determined by the local government.
Zoning Ordinances: These are the laws regarding zoning and what is allowed to be built where as well as the codes that must be followed for safe construction practices.
