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Mortgage Terms Defined

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  • 2/1 Buy Down Mortgage
    The 2/1 Buy Down Mortgage allows the borrower to qualify at below market rates so they can borrow more. The initial starting interest rate increases by 1% at the end of the first year and adjusts again by another 1% at the end of the second year. It then remains at a fixed interest rate for(...)
  • Abstract of Title
    A summary of recorded transactions concerning a particular property
  • Acceleration Clause
    Provision in a mortgage that allows the lender to demand payment of the entire principal balance if a monthly payment is missed or some other default occurs.
  • Accrued Interest
    Interest earned but not yet paid
  • Additional Principal Payment
    A way to reduce the remaining balance on the loan by paying more than the scheduled principal amount due.
  • Adjustable Rate
    An interest rate that adjusts periodically according to an index.
  • Adjustable Rate Mortgage (ARM)
    A mortgage with an interest rate that changes during the life of the loan according to movements in an index rate. Sometimes called AMLs (adjustable mortgage loans) or VRMs (variable-rate mortgages).
  • Adjusted Basis
    The cost of a property plus the value of any capital expenditures for improvements to the property minus any depreciation taken.
  • Adjustment Date
    The date that the interest rate changes on an adjustable-rate mortgage (ARM).
  • Adjustment Period
    The period elapsing between adjustment dates for an adjustable-rate mortgage (ARM).
  • Affordability Analysis
    An analysis of a buyers ability to afford the purchase of a home. Reviews income, liabilities, and available funds, and considers the type of mortgage you plan to use, the area where you want to purchase a home, and the closing costs that are likely.
  • Agent
    One that acts for or represents another
  • Agreement of Sale
    aka Sales Contract, a written document in which a purchaser agrees to buy property under certain given conditions, and the seller agrees to sell under certain given conditions.
  • Alternative Documentation
    A method of documenting a loan file that relies on information the borrower is likely to be able to provide, instead of waiting for verifications sent to third parties for confirmation of statements made on the loan application.
  • Amortization
    The gradual repayment of a mortgage loan, both principle and interest, by installments.
  • Amortization Re-Cast Limitation
    Amortization is most often “capped” at 100 or 125 percent of the original principal balance. Re-amortization typically occurs every 60 months and/or at such time as the balance reaches a pre-determined “cap”.
  • Amortization Re-Cast Period
    Pre-determined period of time (expressed either in number of months and/or percent of increase from original principal balance) after which any/all accumulated “Negative Amortization” (aka “Deferred Interest”)is accounted for in a re-amortization of the loan balance over the remaining term of(...)
  • Amortization Term
    The length of time required to amortize the mortgage loan expressed as a number of months. For example, 360 months is the amortization term for a 30-year fixed-rate mortgage.
  • Annual Percentage Rate (APR)
    The cost of credit, expressed as a yearly rate including interest, mortgage insurance, and loan origination fees. This allows the buyer to compare loans, however APR should not be confused with the actual note rate.
  • Application
    An initial statement of personal and financial information. Once six essential items are submitted to the lender the application process begins. These items are 1. Borrower’s name. 2. The borrower’s monthly income. 3. The borrowers Social Security number. 4. The property address. 5. The(...)
  • Application Fee
    A fee charged by a lender to cover initial costs of processing a loan application. It often includes charges for the appraisal and the credit report.
  • Appraisal
    A written analysis prepared by a qualified appraiser and estimating the value of a property.
  • Appraisal Fee
    A fee charged by a licensed, certified appraiser to render an opinion of market value as of a specific date.
  • Appraised Value
    An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property.
  • ARM
    (See Adjustable Rate Mortgage)
  • ARM Assumability
    e ARM loans include a “assumability” feature that allows a qualified applicant to assume the loan. The assumability of an ARM loan might make a property attractive to a borrower who envisions selling their home at a later date. By incorporating an assumable mortgage product, they may be able(...)
  • ARM Disclosure
    An additional disclosure specific to adjustable-rate mortgages that must be prepared and presented to the consumer within three business days of application whenever an adjustable –rate mortgage transaction is contemplated. (Home equity lines have their own unique disclosure.)
  • ARM Handbook
    The Consumer Handbook to Adjustable-Rate Mortgages aka the “CHARM Booklet” must be presented to the applicant within three days of application with the ARM disclosure.
  • Assessment
    A local tax levied against properties that have benefited from civil improvements such as road or sidewalk construction, a sewer, or streetlights.
  • Asset
    Anything owned of monetary value including real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, etc.).
  • Assignment
    The transfer of a mortgage from one person to another.
  • Assumability
    An assumable mortgage can be transferred from the seller to the new buyer. Generally requires a credit review of the new borrower and lenders may charge a fee for the assumption. If a mortgage contains a due-on-sale clause, it may not be assumed by a new buyer.
  • Assumption
    An agreement between the buyer and the seller for the buyer to take over the payments on an existing mortgage.
  • Assumption Fee
    The fee paid to a lender (usually by the purchaser of real property) when an assumption takes place.
  • Balance Sheet
    A financial statement that shows assets, liabilities, and net worth as of a specific date.
  • Balloon Mortgage
    A mortgage with level monthly payments that amortizes over a stated term but also requires that a lump sum payment be paid at the end of an earlier specified term.
  • Balloon Payment
    The final lump sum paid at the maturity date of a balloon mortgage.
  • Bank Check
    See Cashier's Check.
  • Bankruptcy
    Proclamation by a court of an individual’s (or organization’s) state of insolvency, or inability, to pay debts. Petition may be brought by an individual or his creditors, with the goal of orderly and equitable settlement of obligations.
  • Basis Points
    A unit of measure: 1/100th of one percent.
  • Bearer
    The legal owner of a property.
  • Before-tax Income
    Income before taxes are deducted.
  • Bequest
    A gift of personal property by will.
  • Bill of Sale
    A document that transfers ownership of goods from one person to another.
  • Biweekly Payment Mortgage
    A plan to reduce the debt every two weeks (instead of the standard monthly payment schedule). The 26 (or possibly 27) biweekly payments are each equal to one-half of the monthly payment required if the loan were a standard 30-year fixed-rate mortgage. The result for the borrower is a(...)
  • Bona Fide
    In good faith.
  • Bond
    A document representing a right to certain payments on underlying collateral.
  • Borrower (Mortgagor)
    An individual who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan in full.
  • Bridge Loan
    A second trust that is collateralized by the borrower's present home allowing the proceeds to be used to close on a new house before the present home is sold. Also known as "swing loan."
  • Broker
    An individual or company that brings borrowers and lenders together for the purpose of loan origination.
  • Buydown
    When the seller, builder or buyer pays an amount of money up front to the lender to reduce monthly payments during the first few years of a mortgage. Buydowns can occur in both fixed and adjustable rate mortgages.
  • Buyer's Market
    Market conditions that favor buyers. If there are more sellers than buyers in the market, buyers have ample choice of properties and can use that to negotiate lower purchase prices.
  • Call Option
    A provision in the mortgage that gives the mortgagee the right to call the mortgage due and payable at the end of a specified period for whatever reason.
  • Cap
    Limits how much the interest rate or the monthly payment can increase, either at each adjustment or during the life of the mortgage. Payment caps don't limit the amount of interest the lender is earning and may cause negative amortization.
  • Caps
    Limits on changes in ARM interest rates or monthly payments, either in an adjustment period or over the life of the loan.
  • Caps (Payment)
    Consumer safeguards may limit the amount that monthly payments on an adjustable-rate mortgage may change. Because they do not limit the amount of interest the lender is earning, they may cause negative amortization.
  • Cash-Out
    A refinance for more than the balance of the original mortgage. Extra funds are based on the borrowers equity in the property.
  • Cashier's Check (Bank Check)
    A check whose payment is guaranteed because it was paid for in advance and is drawn on the bank’s account rather than the customer’s.
  • CC&Rs
    See Covenants, Conditions and Restrictions
  • Ceiling
    The maximum allowable interest rate of an adjustable-rate mortgage.
  • Certificate of Eligibility
    A document issued by the federal government certifying a veteran’s eligibility for a Department of Veterans Affairs (VA) mortgage.
  • Certificate of Occupancy (COO)
    Document issued by local government agency stating that a property meets the requirements of health and building codes.
  • Certificate of Reasonable Value (CRV)
    A document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA mortgage.
  • Certificate of Title
    Written opinion of the status of the title to a property, given by an attorney or a title company. This certificate does not offer the protection given by title insurance.
  • Certificate of Veteran Status
    Document given to veterans and reservists who have served 90 days of continuous active duty (including training time) which enables them to obtain lower down payments on certain FHA-insured loans. Obtainable through local VA office.
  • Certified Check
    A check drawn on the issuer’s account for funds that have been segregated by the bank, guaranteeing payment.
  • CFPB
    See Consumer Finance Protection Bureau.
  • Chain of Title
    A chronological order of conveyance of a property from the original owner to the present owner.
  • Change Frequency
    The frequency (in months) of payment and/or interest rate changes in an adjustable-rate mortgage (ARM).
  • Closing
    A meeting held to finalize the sale of a property. The buyer signs the mortgage documents and pays closing costs. Also called "settlement."
  • Closing Costs
    These are expenses - over and above the price of the property- that are incurred by buyers and sellers when transferring ownership of a property. Closing costs normally include an origination fee, property taxes, charges for title insurance and escrow costs, appraisal fees, etc. Closing costs(...)
  • Closing Disclosure
    The form that itemizes the costs associated with purchasing a home. The computation of costs payable at closing that determines the seller’s net proceeds and the buyer’s net payment.
  • Closing Statement
    A financial disclosure statement that lists funds received and expected at closing.
  • CLTV
    See Combined Loan To Value.
  • COFI
    See Cost of Funds Index.
  • Collateral
    Assets that back a mortgage loan.
  • Combined Loan to Value Ratio
    CLTV- The ratio of the total mortgage liens against the subject property to the lesser of either the appraised value or the sales price.
  • Commission
    Money paid to a real-estate agent or broker by the seller (usually about 6 or 7 percent of the home’s sales price).
  • Commitment
    A formal offer by a lender to make a loan under certain terms or conditions to a borrower.
  • Compound Interest
    Interest paid on the original principal balance and on the accrued and unpaid interest.
  • Condominium
    A form of property ownership in which the homeowner holds title to an individual dwelling unit and an interest in common areas and facilities of a multi-unit project.
  • Conforming Loan
    A mortgage loan amount under the maximum amount of loans that FNMA and FHLMC are legally allowed to buy. Maximum loan amount varies by county.
  • Consumer Finance Protection Bureau (CFPB)
    A federal agency that enforces laws that protect consumers of financial products and services such as mortgages, credit cards and deposit accounts.
  • Consumer Reporting Agency (or Bureau)
    An organization that handles the preparation of reports used by lenders to determine a potential borrower's credit history. The agency gets data for these reports from a credit repository and from other sources.
  • Contingency
    A condition that must be satisfied before a contract is legally binding before a sale can close.
  • Contract of Sale
    The agreement between the buyer and the seller on the purchase price, terms and conditions of a sale.
  • Conventional Loan
    A mortgage not insured by the FHA or guaranteed by the VA.
  • Conversion Clause
    A provision in an ARM allowing the loan to be converted to a fixed-rate at some point during the term. Usually conversion is allowed at the end of the first adjustment period. The conversion feature may cost extra.
  • Convertible ARMs
    ARMs with the option of conversion to a fixed rate during a given time period.
  • Conveyance
    The transfer of a deed, lease or mortgage.
  • Cost of Funds Index (COFI)
    An index of the weighted-average interest rate paid by savings institutions for sources of funds, usually by members of the 11th Federal Home Loan Bank District.
  • Covenants, Conditions and Restrictions (CC&Rs)
    A document defining the use, requirements and restrictions of a property.
  • Credit Report
    A report detailing an individual's credit history that is prepared by a credit bureau and used by a lender to determine a loan applicant's creditworthiness.
  • Credit Risk
    The possibility that a borrower may default on financial obligations.
  • Credit Risk Score
    A credit score measures a consumer's credit risk relative to the rest of the U.S. population, based on the individual's credit usage history. The credit score most widely used by lenders is the FICO® score, developed by Fair, Issac and Company. This 3-digit number, ranging from 300 to 850, is(...)
  • Debt to Income Ratio (DTI)
    The ratio, expressed as a percentage, that results when the borrower’s monthly payment obligation on debts is divided by monthly gross income.
  • Deed
    A legal document that transfers a property from one owner to another. The Deed contains a legal description of the property and is signed, witnessed and delivered to the borrower at closing.
  • Deed of Trust
    The document used in some states instead of a mortgage. Title is conveyed to a trustee.
  • Default
    Failure to make mortgage payments on a timely basis or to comply with other requirements of a mortgage.
  • Deferred Interest
    Interest added to the balance of a loan when monthly payments are not enough to sufficient to cover it. See Negative Amortization.
  • Delinquency
    Failure to make mortgage payments on time.
  • Deposit
    This is a sum of money given to bind the sale of real estate, or a sum of money given to ensure payment or an advance of funds in the processing of a loan.
  • Depreciation
    When the value of a property declines.
  • Discount
    In an ARM with an initial rate discount, the lender gives up a number of percentage points in interest to reduce the rate and lower the payments for part of the mortgage term (usually for one year or less). After the discount period, the ARM rate usually increases according to its index rate.
  • Discount Points (aka Points)
    Money paid to the lender at closing in exchange for lower interest rates. Each point is equal to 1% of the loan amount.
  • Down Payment
    Part of the purchase price of a property that is paid in cash and not financed with a mortgage.
  • Due-On-Sale Clause
    Provision in a mortgage or deed of trust allowing the lender to demand immediate payment of the loan balance upon sale of the property.
  • Earnest Money
    Deposit made by the borrower in evidence of good faith when the purchase agreement is signed.
  • ECOA
    See Equal Credit Opportunity Act.
  • Effective Gross Income
    A borrowers normal annual income, including overtime that is regular or guaranteed. Salary is usually the principal source, but other income may qualify if it is significant and stable.
  • Effective Interest Rate
    The cost of a mortgage expressed as a yearly rate, usually higher than the interest rate on the mortgage since this figure includes up-front costs.
  • Encumbrance
    A legal right or interest in a property that affects title and lessens the property value. Encumbrances can take the form of claims, liens, un-paid taxes and so on. These will usually have to be taken care of before a buyer may purchase a property.
  • Equal Credit Opportunity Act (ECOA)
    Federal law requiring creditors to make credit equally available without discrimination based on race, color, religion, national origin, sex, martial status, or receipt of income from public assistance programs.
  • Equity
    The percentage of property value held by the owner; The difference between the current market value of the property and the outstanding mortgage balance.
  • Equity Loan
    A loan based on the borrowers equity in the home.
  • Escrow
    An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the deposit of funds or documents into an escrow account to be disbursed upon the closing of a sale of real estate.
  • Escrow Account
    Account held by a lender containing funds collected as part of mortgage payments for annual expenses such as taxes and insurance, so that the homeowner will not have to pay a large sum when the bills come due.
  • Escrow Disbursements
    The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.
  • Escrow Payment
    The part of a mortgagor’s monthly payment that is held by the servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due.
  • Escrow Waiver
    An escrow waiver is waiver of the requirement to fund an escrow account with the lender and instead pay insurance and taxes separately. The waiver may require a fee and is not available on all loan programs.
  • Fannie Mae
    A congressionally chartered, shareholder-owned company that is the nation's largest supplier of home mortgage funds.
  • Federal Home Loan Mortgage Corporation (FHLMC - Freddie Mac)
    Quasi-governmental agency that purchases conventional mortgages from insured depository institutions and HUD-approved mortgage bankers.
  • Federal Housing Administration
    A government agency, division of the Department of Housing and Urban Development (HUD), that insures residential mortgage loans made by private lenders and sets standards for underwriting mortgage loans.
  • Federal Reserve
    The central bank of the United States and major regulatory agency for many commercial banks.
  • Fee Simple
    Absolute ownership of a property.
  • FHA Mortgage
    A mortgage that is insured by the Federal Housing Administration (FHA). Also known as a government mortgage.
  • FICO Score
    FICO® scores are the most widely used credit score in U.S. mortgage loan underwriting. This 3-digit number, ranging from 300 to 850, is calculated by a mathematical equation that evaluates many types of information that are on your credit report. Higher FICO® scores represent lower credit(...)
  • First Mortgage
    The primary lien against a property.
  • Fixed Installment
    The monthly payment due on a mortgage loan including payment of both principal and interest.
  • Fixed Rate Mortgage (FRM)
    A mortgage interest that are fixed throughout the entire term of the loan.
  • Flood Insurance
    A form of hazard insurance required by lenders to cover properties in a flood zone.
  • Floor
    The minimum rate of interest payable on an adjustable-rate mortgage.
  • Forbearance
    Grace period given when a lender postpones foreclosure to give a borrower time to catch up on overdue payments.
  • Foreclosure-Reposession
    Legal process by which the lender forces the sale of a property because the borrower has not met the mortgage terms.
  • Freddie Mac
    See Federal Home Loan Corporation.
  • Full Amortized ARM
    An adjustable-rate mortgage (ARM) with a monthly payment that is sufficient to amortize the remaining balance, at the interest accrual rate, over the amortization term.
  • GNMA
    A government-owned corporation that assumed responsibility for the special assistance loan program formerly administered by Fannie Mae. Popularly known as Ginnie Mae.
  • Grace Period
    A period of time during which a loan payment may be made after its due date without incurring a late penalty.
  • Gross
    Before taxes.
  • Gross Income
    Total income before taxes and expenses are deducted.
  • Growing Equity Mortgage (GEM)
    A fixed-rate mortgage that provides scheduled payment increases over an established period of time. The increased amount of the monthly payment is applied directly toward reducing the remaining balance of the mortgage.
  • Guarantee
    To assume liability for another’s debts in the event of a default.
  • Guarantee Mortgage
    A mortgage that is guaranteed by a third party.
  • Hazard Insurance
    Protects the insured against loss due to fire or other natural disaster in exchange for a premium paid to the insurer.
  • Home Equity Loan
    A loan secured by the equity in a property. These are sought for a number of reasons, including home improvements, major purchases or expenses and debt consolidation.
  • Homeowners Warranty
    A type of insurance that covers repairs to specified parts of a house for a specific period of time.
  • Housing and Urban Development (HUD)
    A government agency established to implement federal housing and community development programs; Oversees the Federal Housing Administration (FHA).
  • Housing Expense Ratio
    The percentage of gross monthly income budgeted to pay housing expenses.
  • HUD-1 Statement
    A document that provides an itemized listing of the funds that are payable at closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow amounts. Each item on the statement is represented by a separate number within a standardized(...)
  • Hybrid ARM (3/1 ARM, 5/1 ARM, 7/1 ARM)
    A combination fixed rate and adjustable rate loan - also called 3/1,5/1,7/1 - can offer the best of both worlds: lower interest rates (like ARMs) and a fixed payment for a longer period of time than most adjustable rate loans. For example, a "5/1 loan" has a fixed monthly payment and interest(...)
  • Impound (Reserves)
    See Escrow.
  • Index
    The index is the measure of interest rate changes a lender uses to decide the amount an interest rate on an ARM will change over time.The index is generally a published number or percentage, such as the average interest rate or yield on Treasury bills. Some index rates tend to be higher than(...)
  • Initial Interest Rate
    This refers to the original interest rate of the mortgage at the time of closing. This rate changes for an adjustable-rate mortgage (ARM). It's also known as "start rate" or "teaser."
  • Installment
    The regular periodic payment that a borrower agrees to make to a lender.
  • Insured Mortgage
    A mortgage that is protected by the Federal Housing Administration (FHA) or by private mortgage insurance (MI).
  • Interest
    The fee charged for borrowing money.
  • Interest Accrual Rate
    The percentage rate at which interest accrues on the mortgage. In most cases, it is also the rate used to calculate the monthly payments.
  • Interest Rate
    A periodic charge, expressed as a percentage, for use of credit.
  • Interest Rate Buydown Program
    An arrangement that allows the property seller to deposit money to an account. That money is then released each month to reduce the mortgagor's monthly payments during the early years of a mortgage.
  • Interest Rate Ceiling
    For an adjustable-rate mortgage (ARM), the maximum interest rate, as specified in the mortgage note.
  • Interest Rate Floor
    For an adjustable-rate mortgage (ARM), the minimum interest rate, as specified in the mortgage note.
  • Joint Liability
    Liability shared among two or more people, each of whom is liable for the full debt.
  • Joint Tenancy
    The ownership of a property by two or more personas with the survivor taking the share of the deceased.
  • Jumbo Loan
    A mortgage larger than the limits set by the Federal National Mortgage Association Fannie Mae, FNMA) and the Federal Home Loan Mortgage Corporation (Freddie Mac FHLMC).
  • Late Charge
    The penalty a borrower must pay when a payment is made a stated number of days (usually 15) after the due date.
  • Lease-Purchase Mortgage Loan
    An alternative financing option that allows low- and moderate-income home buyers to lease a home with an option to buy. Each month's rent payment consists of principal, interest, taxes and insurance (PITI) payments on the first mortgage plus an extra amount that accumulates in a savings(...)
  • Lender
    The bank, mortgage company or mortgage broker offering a loan.
  • Liabilities
    A person's financial obligations. Liabilities include long-term and short-term debt.
  • LIBOR (London Interbank Offered Rate)
    The interest rate charged among banks for short-term Eurodollar loans, and a common index for ARMs.
  • Lien
    A claim by one person on the property of another for payment of debt.
  • Lifetime Payment Cap
    For an adjustable-rate mortgage (ARM), a limit on the amount that payments can increase or decrease over the life of the mortgage.
  • Lifetime Rate Cap
    For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can increase or decrease over the life of the loan. See cap.
  • Line of Credit
    An agreement by a commercial bank or other financial institution to extend credit up to a certain amount for a certain time
  • Liquid Asset
    A cash asset or an asset that is easily converted into cash.
  • Loan
    A sum of borrowed money (principal) that is generally repaid with interest.
  • Loan Application
    An initial statement of personal and financial information. Once six essential items are submitted to the lender the application process begins. These items are 1. Borrower’s name. 2. The borrower’s monthly income. 3. The borrowers Social Security number. 4. The property address. 5. The(...)
  • Loan Estimate
    This documents sets out the costs associated with a mortgage, including interest rate, lenders fees, title charges, pre-paid interest and insurance. The government requires that your lender give you a Loan Estimate within three days of receiving your loan application. The Loan Estimate is(...)
  • Loan Origination Fee
    A fee the lender charges to process a mortgage, usually expressed as a percentage of a loan (or Points), which pays for the work involved in evaluating and processing the loan.
  • Loan Servicing (Loan Administration)
    The collection of mortgage payments from borrowers and related responsibilities (such as handling escrows or impounds for property tax and insurance, foreclosing on defaulted loans and remitting payments to investors.)
  • Loan to Value (LTV) Percentage
    The relationship between the principal balance of the mortgage and the appraised value (or sales price if it is lower) of the property. For example, a $100,000 home with an $80,000 mortgage has an LTV of 80 percent.
  • Lock-in Period
    The guarantee of an interest rate for a specified period of time by a lender, including loan term and points, if any, to be paid at closing. Short term locks (under 21 days), are usually available after lender loan approval only. However, many lenders may permit a borrower to lock a loan for(...)
  • Lock (Lock-in)
    A lenders guarantee of an interest rate for a set period of time, usually between loan application and loan closing. This protects borrowers against rate increases during that time.
  • Margin
    The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.
  • Market Rate
    The average rate charged by a lender for a loan.
  • Market Value
    The highest price that a buyer would pay for a property and the lowest price that a seller would accept.
  • Maturity
    The date on which the principal balance of a loan becomes due and payable.
  • Monthly Fixed Installment
    That portion of the total monthly payment that is applied toward principal and interest. When a mortgage negatively amortizes, the monthly fixed installment does not include any amount for principal reduction and doesn't cover all of the interest. The loan balance therefore increases instead(...)
  • Monthly Housing Expense
    Total monthly expense of principal, interest, taxes and insurance.
  • Mortgage
    A legal document that pledges a property to the lender as security for payment of a debt.
  • Mortgage Broker
    A company that originates mortgages exclusively for resale in the secondary mortgage market.
  • Mortgage Banker
    An individual or company that brings borrowers and lenders together for the purpose of loan origination.
  • Mortgage Insurance
    A contract that insures the lender against loss caused by a mortgagor's default on a government mortgage or conventional mortgage. Mortgage insurance can be issued by a private company or by a government agency.
  • Mortgage Insurance Premium (MIP)
    The amount paid by a mortgagor for mortgage insurance.
  • Mortgage Life Insurance
    A type of term life insurance In the event that the borrower dies while the policy is in force, the debt is automatically paid by insurance proceeds.
  • Mortgage Loan
    A loan for which real estate serves as collateral to provide for repayment in case of default.
  • Mortgage Note
    See Note.
  • Mortgagee
    The lender in a mortgage loan transaction.
  • Mortgagor
    The borrower in a mortgage agreement.
  • Negative Amortization
    Amortization means that monthly payments are large enough to pay the interest and reduce the principal on your mortgage. Negative amortization occurs when the monthly payments do not cover all of the interest cost. The interest cost that isn't covered is added to the unpaid principal balance.(...)
  • Net
    After taxes.
  • Net Effective Income
    Gross income minus estimated federal income tax.
  • Net Worth
    The value of all of a person's assets, including cash.
  • Non-Assumption Clause
    A statement in a mortgage contract forbidding the assumption of the mortgage by another borrower without the prior approval of the lender.
  • Non-Conforming Loan
    A conventional loan that cannot be sold to Fannie Mae or Freddie Mac. Often these loans are larger than conforming loan amounts.
  • Non-Dischargeable Debt
    Debts, such as taxes and student loans that cannot be discharged during a bankruptcy liquidation.
  • Non Liquid Asset
    An asset that cannot easily be converted into cash.
  • Note
    A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.
  • Notice of Default
    Written notice to a borrower that a default has occurred and that legal action may be taken.
  • Origination Fee
    A fee paid to a lender for processing a loan application. The origination fee is stated in the form of points. One point is 1 percent of the mortgage amount.
  • Owner Financing
    A property purchase transaction in which the party selling the property provides all or part of the financing.
  • Payment Cap
    Limit on the amount by which a borrower’s ARM payments may increase, regardless of rise in interest rates. This may result in negative amortization.
  • Payment Change Date
    Dates upon which the payment is subject to change. Products featuring negative amortization typically will include a payment change date which differs from the interest rate change date in frequency.
  • Per Diem Interest
    Interest calculated per day. Depending on the day of the month that the loan closes, you will have to pay interest from the closing date through the end of the month.
  • Periodic Payment Cap
    A limit on the amount that payments can increase or decrease during any one adjustment period.
  • Periodic Rate Cap
    A limit on the amount that the interest rate can increase or decrease during any one adjustment period, regardless of how high or low the index might be.
  • Permanent Loan
    A long-term mortgage of 10 or more years.
  • PITI
    Principal balance plus interest, taxes and insurance.
  • 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(...)
  • Points
    A point is equal to one percent of the principal amount of your mortgage. For example, if you get a mortgage for $165,000 one point means $1,650 to the lender. Points usually are collected at closing and may be paid by the borrower or the home seller, or may be split between them.
  • Power of Attorney
    Legal document authorizing one person to act on behalf of another.
  • Pre-Approval
    The process of determining how much money you will be eligible to borrow before you apply for a loan.
  • Prepaid Interest
    Charged to a borrower at closing to cover interest on the loan between the closing date and the end of the month.
  • Prepayment Penalty
    A fee that may be charged to a borrower who pays off a loan before it is due.
  • Prequalification
    The preliminary process of determining how much money a prospective homeowner may borrow, prior to application for a loan.
  • Prime Rate
    The interest rate that banks charge to their preferred customers. Changes in the prime rate influence changes in other rates, including mortgage interest rates.
  • Principal
    The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.
  • Principal, Interest, Taxes and Insurance (PITI)
    The four components of a monthly mortgage payment. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the monthly cost of property taxes and homeowners insurance,(...)
  • Private Mortgage Insurance
    Mortgage insurance provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require MI for a loan with a loan-to-value (LTV) percentage in excess of 80 percent.
  • Profit and Loss Statement (P and L)
    A financial statement showing revenue, expenses and profits over a period of time.
  • Property Tax
    A government tax based on the value of a property.
  • Purchase Agreement
    A contract signed by the buyer and seller stating the terms and conditions of a home sale.
  • Qualifying Rate
    Adjustable rate mortgages (ARMs) often employ a “qualifying rate” that differs from the “start rate.” The qualifying rate may be a pre-determined percentage of interest, expressed as the “highest possible rate of interest at the beginning of the second year”, based on start rate, expressed as(...)
  • Qualifying Ratios
    Calculations used to determine if a borrower can qualify for a mortgage. They consist of two separate calculations: a housing expense as a percent of income ratio and total debt obligations as a percent of income ratio.
  • Rate Lock
    A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate and lender costs for a specified period of time.
  • Real Estate Agent
    A person licensed to negotiate and transact the sale of real estate on behalf of the property owner.
  • Real Estate Agent®
    A real estate broker or an associate who is an active member in a local real estate board that is affiliated with the National Association of Real Estate Agents.
  • Real Estate Settlement Procedures Act (RESPA)
    A consumer protection law that requires lenders to give borrowers advance notice of closing costs.
  • Real Property
    Land and everything that is permanently affixed to it.
  • Recast
    A recast is a feature in some types of mortgages where the remaining payments are recalculated based on a new amortization schedule. During a mortgage recasting, an individual pays a large sum toward their principal, and their mortgage is then recalculated based on the new balance.
  • Reconveyance
    The transfer of a property back to the owner when the mortgage is fully repaid.
  • Recording
    The noting in the registrar’s office of the details of a properly executed legal document, such as a deed, a mortgage note, a satisfaction of mortgage, or an extension of mortgage, thereby making it a part of the public record.
  • Recording Fee
    Money paid to an agent for entering the sale of a property into the public records.
  • Refianance
    Paying off one loan with the proceeds from a new loan using the same property as security.
  • Repossession (Foreclosure)
    Legal process by which the lender forces the sale of the property because the borrower has not met the mortgage terms.
  • Rescission
    The cancellation of a contract, permitted by law within three days of signing a mortgage not used to purchase a home.
  • Reserves
    See Escrow, Impound.
  • Revolving Liability
    A credit arrangement, such as a credit card, that allows a customer to borrow against a pre-approved line of credit when purchasing goods and services.
  • Sales Agreement
    A contract signed by buyer and seller stating the terms and conditions under which the property will be sold.
  • Satisfaction
    The payment of a debt which satisfies an obligation.
  • Second Mortgage
    A subordinate mortgage made in addition to the first.
  • Secondary Mortgage Market
    Where existing mortgages are bought and sold.
  • Security
    The property that will be pledged as collateral for a loan.
  • Seller Carry-Back
    An agreement in which the owner of a property provides financing, often in combination with an assumable mortgage. See Owner Financing.
  • Seller's Market
    Market conditions that favor sellers. With more buyers than sellers in a market, sellers have greater negotiating power as demand exceeds supply.
  • Servicer
    An organization that collects principle 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.
  • Servicer
    Closing - A meeting between buyer, seller and lender (and their agents) where property and funds legally change hands.
  • Simple Interest
    Interest that is computed only on the principal balance.
  • Standard Payment Calculation
    The method used to determine the monthly payment required to repay the remaining balance of a mortgage in substantially equal installments over the remaining term of the mortgage at the current interest rate.
  • Start Rate
    A pre-determined rate of interest that will be applied to the loan until the date of the first interest rate change.
  • Start-Rate Mortgage
    A mortgage that allows for the interest rate to increase according to a specified schedule (i.e., seven years), resulting in increased payments as well. At the end of the specified period, the rate and payments will remain constant for the remainder of the loan
  • Subsidized Second Mortgage
    Alternative financing option for low and moderate income borrowers that also includes a down payment and a first mortgage, with funds for the second mortgage provided by city, county or state housing agencies, foundations or non-profit corporations. Payment on the second mortgage is often(...)
  • Survey
    A measurement of land. Prepared by a licensed surveyor, showing a property’s boundaries, elevations, improvements and relationship to surrounding tracts.
  • Sweat Equity
    Value added to the property as a result of improvements made by an owner.
  • Tax Impound
    Money paid to and held by a lender for annual tax payments- See Impound and Escrow.
  • Tax Lien
    Claim against a property for unpaid taxes.
  • Tax Sale
    The number of years until a loan is due to be paid in full.
  • Third-Party Origination
    When 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
    A document that gives evidence of ownership of a property, as well as rights of ownership and possession.
  • Title Company
    A company that insures the title to the property.
  • Title Insurance
    Insurance that protects the lender (lender’s policy) or buyer ( owner’s policy) against loss due to disputes over property ownership.
  • Title Search
    Examination of municipal records to insure that the seller is the legal owner of the property and that there are no tax-liens or other claims against the property.
  • Total Expense Ratio
    Total obligations as a percentage of gross monthly income including monthly housing expenses plus other monthly debts.
  • Transfer Tax
    Tax paid when a title passes from one owner to another.
  • Treasury Tax
    An index used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. Based on the results of auctions that the U.S. Treasury holds for its Treasury bills and securities or derived from the U.S. Treasury's daily yield curve, which is based on the closing market(...)
  • Trust Account
    An account maintained by a broker or escrow company to handle all money collected for clients.
  • Trustee
    Someone given legal responsibility to hold property in the best interest of another.
  • Truth-In-Lending
    A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the annual percentage rate (APR) and other charges.
  • Two-Step-Mortgage
    An adjustable-rate mortgage (ARM) with one interest rate for the first five or seven years of its mortgage term and a different interest rate for the remainder of the amortization term.
  • Underwriting
    The process of evaluating a loan application to determine the risk involved for the lender. Underwriting involves an analysis of the borrower's creditworthiness and the quality of the property itself.
  • VA Mortgage
    A mortgage that is guaranteed by the Department of Veterans Affairs (VA). Also known as a government mortgage.
  • Verification of Deposit (VOD)
    A document signed by the borrower’s bank or other financial institution that verifies the borrower’s account balance and history.
  • Verification of Employment (VOE)
    A document signed by a borrower’s employer that verifies the borrower’s position and salary.
  • Verification of Rent (VOR)
    A document signed by a borrower’s landlord that verifies the borrower’s rental payments and history.
  • Waiver
    Voluntary relinquishment or surrender of some right or privilege
  • Walk-Through
    A final inspection of a home to check for problems that may need to be corrected before closing.
  • Wrap Around Mortgage
    A mortgage that includes the remaining balance on an existing first mortgage plus an additional amount requested by the mortgagor. Full payments on both mortgages are made to the "Wrap Around" mortgagee, who then forwards the payments on the first mortgage to the first mortgagee. These(...)
  • Zoning Ordinances
    Local laws that establish building codes and usage regulations for properties in a specific area. This creation of districts specifies different types of property uses, such as commercial, residential or mixed-use.
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