Mortgage and Lending Glossary
A
Acceleration Clause
The clause in a mortgage or trust deed that stipulates the entire debt is due immediately if the mortgagee defaults under the terms of the contract.
Acquisition Cost
Under an FHA loan, the purchase price or appraised value of the property plus the estimated closing costs.
Adjustable Rate
An interest rate that changes periodically in relation to an index. Payments may increase or decrease accordingly.
Adjustable Rate Mortgage (ARM)
A mortgage in which the interest rate is adjusted periodically based on an index. Also referred to as a variable rate mortgage.
Adjustment Date
The date the interest rate changes on an adjustable rate mortgage (ARM).
Adjustment Interval
For an adjustable rate mortgage, the time between changes in the interest rate charged. The most common adjustment intervals are one, three or five years.
Adjusted Book Basis
The purchase price of a property plus any capital improvements less accrued depreciation, if any, to the date of the sale.
Amortization
A repayment method in which the balance of a loan is paid off by making equal payments on a regular schedule (usually monthly). The payments are structured so that the borrower pays both interest and principal with each equal payment. During the first few years, most of each payment is applied toward the interest owed. During the final years of the loan, payment amounts are applied almost exclusively to the remaining principal.
Annual Percentage Rate (APR)
A figure that states the total yearly cost of a mortgage as expressed by the actual rate of interest paid. The APR includes the base interest rate, points, and any other add-on loan fees and costs. As a result the APR is invariably higher for the rate of interest that the lender quotes for the mortgage but gives a more accurate picture of the likely cost of the loan. Keep in mind, however, that most mortgages are not held for their full 15 or 30 year terms. In turn the effective annual percentage rate is higher than the quoted APR because the points and loan fees are spread out over fewer years.
Annuity
A series of income payments at stated intervals for a fixed period of time.
Application
An initial statement of personal and financial information which is required to apply for a loan, including information about income, savings assets, debts and more.
Application Fee
The fee charged by the lender to the borrower for applying for a loan. Payment of this fee does not guarantee that a loan will be approved. Some lenders may apply the cost of the application fee to certain closing costs. An application fee may frequently include charges for property appraisal ($200-$500) and a credit report ($30-$50).
Appraisal
The determination of property value based on recent sales information of similar properties. Real estate appraisal is used to determine the value of the property. The exact reason for the appraisal must be established prior to the start of the appraisal to ensure that the correct value is assessed. The appraiser evaluates market conditions to assist in the value determination. Not only is the property value assessed at this time, but the property's amenities and physical condition are also taken into consideration. The final value of the property is decided when a complete report including research and the accumulation of other relevant data are completed.
Assessment
Determining a property's value for the purpose of taxation.
Assumable Loan
A loan that may be passed on from a seller of a home to the buyer in which the buyer "assumes" all outstanding payments.
Assumption
Buying property and assuming the responsibility of the exiting mortgage.
Appreciation
An Increases in the value of a property due to changes in market conditions or fluctuations in the market, inflation, et al. The opposite of depreciation.
Asset
Anything of monetary value that is owned by a person. Assets include real property, personal property and enforceable claims against others (including bank accounts, stocks, mutual funds, and so on.
Assumable Mortgage
A mortgage that requires a buyer to "assume" all outstanding payments when a home is sold. The buyer usually must meet qualification standards in order to assume a loan.
Assumption Clause
A provision in an assumable mortgage that allows a buyer to assume responsibility for the mortgage from the seller. The loan does not need to be paid in full by the original borrower upon sale or transfer of the property.
Assumption of Mortgage
The agreement of a purchaser to become primarily liable for the payments on a mortgage loan. Unless otherwise specified by the lender, the seller may remain secondarily liable for payments.
B
Balloon Mortgage
A mortgage that behaves like a fixed-rate mortgage for a set number of years (usually five or seven) and then must be paid off in full in a single "balloon" payment. Balloon loans are popular with those expecting to sell or refinance their property within a definite period of time.
Balloon Payment
The final lump sum that is paid at the end of a balloon mortgage.
Bankruptcy
A tactic that individuals use to relieve themselves of debts and/or liabilities when they are no longer able to repay. The most common form of individual bankruptcy is a Chapter 7, when an individual frees himself from most of his/her debts. Borrowers who have undergone bankruptcy usually cannot qualify for "A" paper loans until after two years after declaration and a re-establishment of credit.
Basis Point
A basis point is 1/100th of a percentage point. For example, a fee is calculated as 50 basis points of a loan amount of $100,000 would be 0.5% or $500.
Beneficiary
The person designated to receive the income from a trust, estate, or a deed of trust.
Best Faith Estimate
An estimate of the total costs for securing a real estate loan, that is given to borrowers prior to closing.
Bill of Sale
A written document that transfers a title to personal property.
Binder
A preliminary agreement, secured by the payment of an earnest money deposit, under which a buyer offers to purchase real estate.
Biweekly Payment Mortgage
A mortgage loan that requires payment twice monthly, yielding twenty-four payments per year instead of twelve. This significantly reduces the time a principal is paid off and results in a substantial savings in interest for the borrower.
Blanket Mortgage
A mortgage secured by the pledging of more than one property or collateral.
Book Value
Acquisition cost less any accrued depreciation.
Bond
An interest-bearing certificate of debt with a maturity date. An obligation of a government or business corporation. A real estate bond is a written obligation usually secured by a mortgage or a deed of trust.
Breach
A violation of any legal obligation.
Bridge Loan
An equity loan secured to solve short-term financing problem. In general terms, a bridge loan is a form of second trust that is collateralized by the borrower’s present home in a manner that allow the proceeds to be used for closing on a new house before the present home is sold. Also known as a “swing loan”.
Broker
An individual in the business of assisting in arranging funding or negotiating contracts for a client, but who does not loan the money personally. Brokers usually charge a fee or receive a commission for their services.
Budget Mortgage
A mortgage that includes a portion for taxes and insurance as well as for principal and interest.
Buydown
Allows loans to be made at less-than-market interest rates by paying front-end discounts. The interest rate is brought down for a temporary period, usually from one to three years. In order to acquire this discount, a lump sum is paid and held in an account used to supplement the borrower's monthly payment. After the discount period, the payment is calculated as the note rate.
Buydown Mortgage
A temporary buydown is a mortgage on which an initial lump sum payment is made by any party to reduce a borrower’s monthly payments during the first few years of a mortgage.
C
Callable Debt
A debt security in which the issuer has the right to redeem the security at a specified price on or after a specified date, but prior to its stated final maturity date.
Caps
A set percentage amount by which an adjustable rate mortgage may adjust each adjustment period. For adjustable loans, caps are usually quoted as two numbers as in 2/6. The first number indicates how much a loan may adjust at each adjustment period while the second number indicates how much a loan may adjust over its lifetime. Loans like the 3/1 and 5/1 adjustable that have an initial fixed period are quoted with 3 numbers as in 3/2/6 which would mean that the first adjustment may be as much as 3%. Subsequent adjustments are capped at 2% each, and the lifetime cap is 6%. Two-Step loans are quoted with a single cap, which is the amount by which the loan may adjust at its single adjustment date.
Carryback Loan
A loan in which a seller agrees to finance a buyer in order to complete a property sale.
Cash Out
A refinance transaction in which the amount of money received from the new loan exceeds the total of the money needed to repay the existing first mortgage, closing costs, points and the amount required to satisfy any outstanding subordinate mortgage liens. In other words, a refinance transaction in which the borrower receives additional cash that can be used for any purpose.
Ceiling
The maximum allowable interest rate over the life of the loan on 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 Reasonable Value (CRV)
An appraisal that has been performed on a property that is being paid for with a VA loan. After the property has been appraised, the Veterans Administration issues a CRV.
Certificate of Title
A statement provided by an abstract company, title company, or attorney stating that the title to real estate is legally held by the current owner.
Change Frequency
The frequency (in months) of payment and/or interest rates changes in an adjustable-rate mortgage (ARM).
Clear Title
A title that is free of liens or any legal question as to the ownership of the property.
Closing
Final arrangements to transfer the title of property as well as to allocate charges and credits.
Closing Costs
Closing costs are any fees paid by the borrowers or sellers during the closing of a mortgage loan, when a property is purchased or refinanced. Costs incurred include a loan origination fee, discount points, appraisal fee, title search, title insurance, survey, taxes, deed recording fee, and credit report charges. All closing costs are separated into "non-recurring," and "pre-paid." Non-recurring charges are any items that are paid only once because a loan was obtained or a property bought, such as a loan origination fee. Pre-paid charges are those that recur over time, like insurance and property taxes. These are summarized in the Good Faith Estimate.
Cloud
An outstanding claim or encumbrance, that, if valid, would affect or impair the owner's property title.
Collateral
An asset; property, real or personal, pledged as a security guaranteeing repayment of a loan. In a home loan, the property is considered collateral that can be revoked if a loan is not repaid according to the terms of the mortgage or deed of trust.
Collection
The efforts used to make a delinquent mortgage current and to file the necessary notices to proceed with foreclosure when necessary.
Combination Loan
With this type of loan, you receive a first mortgage for 80 percent of the loan amount, and a second mortgage at the same time for the remainder of the balance. If avoiding PMI (mortgage insurance) is important to you, consider combination loans.
Combined loan-to-value (CLTV)
The unpaid principal balance of all the mortgages on a property (first and second usually) divided by the property’s appraised value.
Commission
The fee charged by a broker or agent for negotiating a real estate or loan transaction. A commission is generally a percentage of the price of the property.
Commitment
A written letter of agreement detailing the terms and conditions by which the lender will lend and the borrower will borrow funds to finance a home.
Comparables
An abbreviation of “comparable properties” used for comparative purposes in the appraisal process. Comparables are properties similar to the property under consideration; they have reasonably the same size, location and amenities and have recently been sold. Comparables help the appraiser determine the approximate fair market value of the subject property.
Condominium
A real estate project in which each unit owner has a title to a unit in a building, an undivided interest in the common areas of the project, and sometimes the exclusive use of certain limited common areas.
Condominium Conversion
Changing the ownership of an existing building (usually a rental property) to the condominium form of ownership.
Conforming Loan
Generally, a mortgage loan under $203,150. Qualifying ratios and underwriting methods are standardized to a large degree.
Construction Loan
A short term loan for funding the cost of construction. The lender advances funds to the builder as the work progresses.
Contingency
A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector.
Contract
An oral or written agreement to do or not to do a certain thing.
Contract of Sale
The agreement between the buyer and seller on the purchase price, terms, and conditions necessary for both parties to convey the title to the buyer.
Conventional Mortgage
A mortgage that is not insured or guaranteed by the federal government. Conventional mortgage loans are obtained without any additional guarantees for repayment, such as FHA insurance, VA guarantees, or private insurance. This is usually given at an 80% loan-to-value ratio.
Conversion
The right of a borrower to convert an adjustable or balloon loan into a fixed loan.
Convertible ARM
An adjustable rate mortgage (ARM) that can be converted to a fixed rate mortgage under specified conditions.
Credit History
A record of an individual’s open and fully repaid debts. A credit history helps a lender to determine whether a potential borrower has a history of repaying debts in a timely manner.
Credit Limit
The maximum amount that you can borrow under a home equity plan.
Credit Loan
A credit loan is a mortgage that is issued on only the financial strength of a borrower, without great regard for collateral.
Credit-Loss Ratio
The ratio of credit-related losses to the dollar amount of MBS outstanding and total mortgages owned by the corporation.
Credit Rating
Borrowers are rated by lenders according to the borrower's credit-worthiness or risk profile. Credit ratings are expressed as letter grades such as A-, B, or C+. These ratings are based on various factors such as a borrower's payment history, foreclosures, bankruptcies and charge-offs. There is no exact science to rating a borrower's credit, and different lenders may assign different grades to the same borrower.
Credit-Related Expenses
The sum of foreclosed property expenses plus the provision for losses.
Credit-Related Losses
The sum of foreclosed property expenses plus charge-offs.
Credit Report
A report to a prospective lender on the credit standing of a prospective borrower. The individual’s credit history prepared by 1 of the 3 credit bureaus and used by a lender to help determine creditworthiness. Information regarding late payments, defaults, or bankruptcies will appear here.
D
Debt-to-Income Ratio (DTI) -
The ratio of aggregate monthly debt to aggregate monthly income.
Deed
A legal document which affects the transfer of ownership of real estate from the seller to the buyer.
Deed of Trust
Used in many western states, the agreement used to pledge your home or other real estate as security for a loan, when a deed of trust or mortgage is obtained. Similar to a mortgage.
Default
Failure to make mortgage payments when payments are due or to comply with other requirements of a mortgage.
Delinquency
Failure to make mortgage payments when mortgage payments are due. Late- or non-payments of principal, interest, taxes, or insurance.
Deposit
A sum of money given to bind the sale of real estate, or a sum of money given in advance to ensure payment as security. A deposit is always paid on a larger amount to be paid in the future. In mortgage and real estate terms, this is called the "earnest money deposit."
Depreciation
In real estate and mortgage terms, the decline in the property value.
Discount
Difference between the face amount of a note or mortgage and the price at which the instrument is sold in the secondary market.
Discount Points
A term used in government subsidized loans, such as FHA and VA loans. Refers to any "points" (one percent of the loan amount) paid in addition to the one percent loan origination fee. The amount paid either to maintain or lower the interest rate charged. Each point is equal to one percent (1%) of the loan amount (i.e. two points on a $100,000 mortgage would equal $2,000).
Down Payment
The difference between the purchase price and that portion of the purchase price being financed. Most lenders require the down payment to be paid from the buyer’s own funds. Gifts from related parties are sometimes acceptable, and must be disclosed to the lender.
Due on Sale
A clause in a mortgage agreement providing that, if the mortgagor (the borrower) sells, transfers, or, in some instances, encumbers the property, the mortgagee (the lender) has the right to demand the outstanding balance in full.
E
Earnest Money Deposit
A deposit made by a potential home buyer to show that they are serious about purchasing the property.
Easement
A right of way giving persons, other than the owner, access to a property.
Effective Age
An appraiser’s estimate of the physical condition of a building. The actual age of a building may be shorter or longer than its effective age.
Effective Interest Rate
The cost of credit on a yearly basis expressed as a percentage. Includes upfront costs paid to obtain the loan and is therefore, usually a higher amount than the interest rate stipulated in the mortgage note. Useful in comparing loan programs with different rates and points.
Eminent Domain
The government right to take private property for public use dependent on the payment of its fair market value.
Encumbrance
A claim against a property by another party which usually affects the ability to transfer ownership of the property. Any lien against a property or any restriction of its use, such as an easement; a right or interest in a property held by one who is not the legal owner.
Equal Credit Opportunity Act (ECOA)
The act declaring the elimination of discrimination on the basis of age, sex, and race in finance.
Equity
The difference between the current market value of a property and the principal balance of all outstanding loans.
Escalator Clause
A clause in a loan providing for increases in payments or interest based on pre-determined schedules or on a specific economic index, such as the consumer price index.
Escrow
A third party agent that receives, holds, and/or disburses certain funds or documents upon the performance of certain conditions. For example, an earnest money deposit is put into escrow until the transaction is closed. Only then can the seller receive the deposit.
Escrow Account (impound account)
An account that a borrower can hold with a lender once a purchase transaction is closed. This requires borrowers to pay more than the principal and interest each month. The overage is put into escrow, which the lender uses to pay items like property taxes and homeowner's insurance when they are due. This eliminates the actual number of payments that a homeowner has to worry about, but not the amount that has to actually be paid.
Escrow Analysis
An analysis performed by a lender each year to escrow accountholders to ensure that the correct amount of money is being collected to cover anticipated payments.
Escrow Collections
Funds collected by the servicer and set aside in an escrow account to pay the borrower’s property taxes, mortgage insurance, and hazard insurance.
Escrow Fee
These costs cover the preparation and transmission of all home purchase-related documents and funds. Escrow fees range from several hundred to over a thousand dollars, based on the purchase price of your home. Not all states require funds to be put into escrow accounts for closing.
Estate
The ownership interest an individual holds in real property. This is also the sum total of all the real property and personal property owned by an individual at time of death.
Eviction
The legal removal of real property occupants for unlawful actions carried out by those occupants.
F
Fair Credit Reporting Act
A consumer protection law that regulates the disclosure of consumer credit reports by consumer credit reporting agencies and establishes procedures for correcting errors on an individual’s record.
Fair Market Value
The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept.
Fannie Mae (FNMA)
The Federal National Mortgage Association is a congressionally chartered, shareholder-owned company. This organization is the nation's largest supplier of home mortgage funds.
Fannie Mae's Community Home Buyer's Program
An income based community lending model, under which mortgage insurers and Fannie Mae offer flexible underwriting guidelines to increase a low or moderate income family’s buying power and to decrease the total amount of cash needed to purchase a home. Borrowers who participate in this model are required to attend pre-purchase and home buyer education sessions. The program usually decreases the total amount of cash needed to purchase a home.
Federal Housing Administration (FHA)
An agency under the U.S. Department of Housing and Urban Development (HUD), that insures that loans are made by approved lenders to qualified borrowers, in accordance with its regulations.
Fees
Up-front costs associated with a loan. Clicking on the word VIEW shown under the "Fees Detail" column on the quotes results page will display detailed information about the financial institution's fees and requirements pertaining to that rate.
Fee Simple
The best title that one can obtain; unqualified and conveys the highest bundle of rights.
FHA Loan
A government-backed mortgage loan supported by the US FHA and the Department of Housing and Urban Development (HUD). The Federal Housing Administration insures the lender against losses the lender may incur due to your default.
Finance Charge
The total dollar amount your loan will cost you. It includes all interest payments for the life of the loan, any interest paid at closing, your origination fee and any other charges paid to the lender and/or broker. Appraisal, credit report and title search fees are not included in the finance charge calculation.
Firm Commitment
A lender's agreement to provide a loan to a specific borrower on a specific property.
First Mortgage
A mortgage which is in first lien position, taking priority over all other liens (which are financial encumbrances).
Fixed-Rate Mortgage
A mortgage where the interest rate does not change for the life of the loan.
Float
Between the time of application and closing, a borrower may choose to bet on interest rates decreasing by electing to float. Floating is essentially choosing not to lock the interest rate. Since it is the borrower's responsibility to lock his or her rate before (or at) closing, choosing to float is considered risky and may result in a higher interest rate. Request information from your lender regarding lock procedures.
Forbearance
The postponement for a limited time of a portion or all the payments on a loan when a borrower is delinquent.
Foreclosure
The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.
401(k)/403(b)
An investment plan sponsored by employers that allows individuals to set aside tax-deferred income for retirement or emergency purposes. A 401(k) applies to private corporations, while a 403(b) applies to non-profit organizations.
401(k)/403(b) Loan
A loan that can be taken against the amount accumulated in the 401(k)/403(b) plans, if so allowed by the plan administrator. Loans against these plans are an acceptable source of down payment for most types of other loans.
G
Good Faith Estimate
A written estimate of closing costs which a lender must provide to a borrower within 3 days of submitting an application.
Government Loan
A type of mortgage insured by the FHA (Federal Housing Authority), VA (Veteran's Administration), or RHS (Rural Housing Authority).
Government National Mortgage Association (Ginny Mae)
Provides funds for government loans and takes over special assistance and liquidation functions of Fannie Mae.
Grace Period
A period of time during which a loan payment may be paid after its due date without incurring a late penalty. Such late payments may be recorded on a borrowers credit report.
Grantee
The person to whom an interest in real property is conveyed.
Grantor
The person conveying an interest in real property.
Gross Monthly Income
The total amount the borrower earns per month, not counting any taxes or expenses. Often used in calculations to determine whether a borrower qualifies for a particular loan.
H
Hard-Money Mortgage
A cash loan to a borrower.
Hazard Insurance
A form of insurance in which the insurance company protects the insured from certain losses, such as fire, vandalism, storms and certain other natural causes.
Home Equity Conversion Mortgage (HECM)
Also known as the reverse annuity mortgage. This mortgage provides that instead of making payments to a lender, the lender makes payments to the individual. Older homeowners are able to convert home equity into cash this way, in the form of monthly payments. Borrowers don't qualify on the basis of income, but on the value of his or her home. Such a loan does not have to be repaid until the borrower no longer occupies the property.
Home Equity Line of Credit
A mortgage loan providing the borrower with the ability to borrow funds at the time and in the amount they choose, up to a maximum credit limit for which they have qualified. A home equity line of credit acts as a credit card for the borrower, only with much better interest and the amount of time to borrow can extend over many years frequently 15 years before a borrower needs to pay back the money.
Home Inspection
A thorough assessment by a professional regarding the structural and mechanical condition of a property.
Homeowner's insurance
An insurance policy that combines personal liability insurance and hazard insurance for a home and its contents.
Homeowner's warranty
An insurance policy that is purchased by a buyer that covers certain repairs, should they be necessary over a certain period.
Housing Ratio
The ratio of the monthly housing payment to total gross monthly income. Also called Payment-to-Income Ratio or Front-End Ratio.
HUD
Department of Housing and Urban Development; regulates Fannie Mae and Ginny Mae.
Hybrid Financing
The joining together of two forms of finance, such as combining a convertible loan with a participation loan, under which the lender has the right at loan maturity to convert the debt to a 50 percent ownership in the property.
I
Index
A published interest rate against which lenders measure the difference between the current interest rate on an adjustable rate mortgage and that earned by other investments (such as one- three-, and five-year U.S. Treasury Security yields, the monthly average interest rate on loans closed by savings and loan institutions, and the monthly average Costs-of-Funds incurred by savings and loans), which is then used to adjust the interest rate on an adjustable mortgage up or down.
Interest
Consideration in the form of money paid for the use of money, usually expressed as an annual percentage. Also, a right, share, or title in property.
Interest Only
A term loan arrangement calling for payments of interest only, not to include any amount for principal.
Interest Rate
The percentage of an amount of money that is paid for its use over a specified time period.
Interest Rate Swap
A transaction between two parties, in which each agrees to exchange payments tied to different interest rates or indices for a specified period of time.
Intermediate-Term Mortgage
A mortgage loan with a stated maturity at the time of purchase that it is equal to or less than 20 years.
J
Judicial Foreclosure
A court procedure used by lenders to secure clear title to a property under a defaulted real estate loan.
Jumbo Loan
A mortgage loan over $322,700 in the continental United States (Alaska and Hawaii limits are higher). These limits are set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.
L
Last Updated
The Last Update column on a quotes results table tells you when the information was last provided by the lender to our site. We always place new listings at the top of each table so that you, the borrower, may have immediate access to the most timely information. Times provided are all Eastern Standard Time.
Lease
A written agreement between a property owner and a tenant that stipulates the payment and conditions under which the tenant may possess the real estate for a specified period of time.
Leasehold Estate
An estate for a fixed length of time, established when a landlord gives up possession of real estate to a tenant, giving the tenant an equitable interest in the property, as defined by lease terms.
Lease Option
A rental agreement indicating a tenant's option to purchase a property. Monthly payments consists not only of rent, but an overage that can be applied towards a down payment on an already established amount.
Lender
The bank, mortgage company, or mortgage broker offering the loan. Many institutions only "originate" loans and then resell the obligation to third parties.
Leverage
Using someone else's money for the purchase of property.
Liability Insurance
Insurance that protects property owners against claims that alleges negligence or inappropriate action that resulted in bodily injury or property damage to another party.
LIBOR -
The London Interbank Offered Rate Index (LIBOR) is an average of the interest rates that major international banks charge each other to borrow U.S. dollars in the London money market. Like the U.S. treasury, the CD indexes, LIBOR tends to move and adjust quite rapidly to changes in interest rates.
Lien
A legal claim by one party against the property of another as security for a debt. Must be paid off when property is sold. A mortgage or a first trust deed is a lien.
Life of Loan Cap
The maximum interest rate that can be charged during the life of the loan. Also called Lifetime Cap. This value is often expressed as an increment above the initial loan rate. For example, an adjustable rate loan with an initial rate of 7.25% and a 6% lifetime cap will never adjust above a rate of 13.25% (7.25+6.0).
Loan
The principal, or amount of total borrowed money, that is repaid with interest.
Loan Amount
The amount of money that you intend on borrowing from a financial institution for the purchase of your home. Subtracting the down payment from the purchase price of the home will provide you with the loan amount.
Loan Officer
An intermediary between lending institutions and borrowers, loan officers solicit loans, represent creditors to borrowers, and represent borrowers to creditors.
Loan Origination
The process of obtaining new loans.
Loan Servicing
A service performed by a lender to protect a mortgage investment, including collecting monthly payments from borrowers and dealing with delinquencies.
Loan-To-Value Ratio
The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage. A LTV ratio of 90 means that a borrower is borrowing 90% of the value of the property and paying 10% as a down payment. For purchases, the value of the property is assumed to be the purchase price, while for refinances the value is determined by an appraisal.
Lock noun
The period, expressed in days, during which a lender will guarantee a rate. Some lenders will lock rates at the time of application while others will allow the borrower to lock the rate after the application is taken. Request information from your lender regarding lock procedures.
Lock verb
The act of committing to a mortgage rate. This action, taken by a borrower some time between the application and the closing dates, is sometimes accompanied by a payment by the borrower to the lender.
Lock-in Clause
Clause in a loan agreement that states that the borrower cannot repay a loan prior to a specified date.
M
Margin
The amount a lender adds to the quoted index rate for an adjustable rate loan to determine the new interest rate. Usually in the form of a percentage.
Maturity
The "Due Date" of a loan.
Merged Credit Report
A credit report that reports data from two or more major credit repositories.
Minimum Credit
This field on the table refers to the minimum credit rating a borrower must have in order to qualify for the listed loan.
Modification
Any change to the original terms of a mortgage.
Monthly Housing Expense
Total principal, interest, taxes, and insurance paid by the borrower on a monthly basis. Used with gross income to determine affordability.
Mortgage
A legal document that pledges property to a creditor for the repayment of the loan, and is the term used to describe the loan itself. Some states use the term First Trust Deeds to refer to mortgage loans.
Mortgagee
The lender in a mortgage agreement.
Mortgage Banker
A financial intermediary that originates or funds loans, collects payments, inspects the property, and forecloses if necessary. The main difference between a mortgage banker and a loan officer is that a banker funds their own loans and sells them on the secondary market, usually to Fannie Mae, Freddie Mac, or Ginny Mae.
Mortgage Broker
A mortgage company that originates loans, joining the borrower and lender for a real estate loan, earning a placement fee.
Mortgage Constant
The factor used for rapid computation of the annual payment needed to amortize a loan.
Mortgage Insurance (MIP or PMI)
Insurance purchased by the borrower to insure the lender or the government against loss should you default. MIP, or Mortgage Insurance Premium, is paid on government insured loans (FHA or VA loans) regardless of your LTV (loan-to-value). Should you pay off a government-insured loan in advance of maturity, you may be entitled to a small refund of MIP. PMI or Private Mortgage Insurance, is paid on those loans which are not government-insured and whose LTV is greater than 80%. When you have accumulated 20% of your home’s value as equity, your lender may waive PMI at your request. Please note that such insurance does not constitute a form of life insurance which pays off the loan in case of death.
Mortgage Loan
A loan which utilizes real estate as security or collateral to provide for repayment should you default on the terms of your loan. The mortgage or Deed of Trust is your agreement to pledge your home or other real estate as security.
Mortgagee
The lender in a mortgage loan transaction.
Mortgagor
The borrower in a mortgage loan transaction.
Multi-dwelling Units
Properties that provide separate housing units for more than one family, although only a single mortgage is secured.
N
Negative Amortization
Amortization in which the payment made is insufficient to fund complete repayment of the loan at its termination. Usually occurs when the increase in the monthly payment is limited by a ceiling. Essentially occurs when a borrower makes a minimum payment that may not cover the interest that is due. Loan balance then increases as a result.
Net Effective Income
Gross income less federal income tax.
No Cash-out Refinance
A refinance transaction that is not intended to put cash in the hand of the borrower, but instead calculates a new balance to cover the balance due on a current loan and any costs with obtaining a new mortgage.
No-Cost Loan
A no-cost loan can either be: 1) a loan that has no "lender costs" associated with it or, 2) a loan that also covers purchases or refinancing costs, which may be incurred in buying a home, obtaining and/or refinancing a loan, but are not directly charged by the lender. The interest rate on this type of loan is often higher.
Note
A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.
Note Rate
The stated interest rate on a mortgage note.
O
Origination Fee
The fee imposed by a lender to cover certain processing expenses in connection with making a loan. Usually a percentage of the amount loaned.
Owner Financing
A property purchase that is partly or wholly financed by the seller.
Owner's Title Policy
A policy protecting the buyer for the amount of the purchase price in the event of a future title dispute.
P
Package Mortgage
A mortgage that includes equipment and appliances located on the premises in addition to the real property itself.
Partial Entitlement
Under VA loans, the amount of guarantee still available to an eligible veteran who has used his previous entitlement.
Partial Payment
A payment that is not sufficient enough to cover the month payment. During times of economic hardship, a borrower can make this request of the loan servicing collection department.
Participation Financing
A loan in which more than one mortgagee or more than one mortgagor harbors an interest. It can also be a loan in which the mortgagee receives partial ownership of the property being financed.
Payment Change Date
The date when a new monthly payment amount takes effect on an adjustable rate mortgage (ARM) or a graduated payment mortgage (GPM). The payment change date occurs the month immediately after the interest rate adjustment date.
Periodic Payment Cap
The limit on the amount that payments can increase or decrease during any one adjustment period for an adjustable-rate mortgage (ARM) where the interest rate and principal fluctuate independently of one another.
Periodic Rate Cap
The limit on the amount that payments can increase or decrease during any one adjustment period in an ARM (adjustable rate mortgage), regardless of how high or low the index fluctuates.
Personal Property
Movable property that does not fit the definition of realty.
PITI
PITI stands for principal, interest, taxes, and insurance, which comprise your monthly mortgage payment. An "impounded" loan means that the monthly payment covers all of these, and perhaps mortgage insurance, if your loan so calls for it. If one does not have an "impounded" account, then the lender still calculates these amounts separately.
PITI Reserves
A cash amount that a borrower must have on hand after making a down payment and paying all closing costs for the purchase of a home. The PITI (principal, interest, taxes, and insurance) must equal the amount that the borrower would have to pay for PITI for a determined number of months.
Planned Unit Development (PUD)
A type of ownership where individuals actually own the building or unit they reside in, but shared areas are owned jointly with the other members of the development or established association.
Pledge Account Mortgage (PAM)
Combines GPM (graduated payment mortgage) with a subsidizing savings account to provide the borrower with a low payment plan, the lender with amortizing payments and the seller with cash.
Points
The amount paid either to maintain or lower the interest rate charged. Each point is equal to one percent (1%) of the loan amount (i.e. two points on a $100,000 mortgage would equal $2,000)
Points are broken out for Discount and Origination.
Pre-Approval
A term used to mean that a borrower has completed a loan application and provided debt, income, and savings information that has been reviewed and pre-approved for a mortgage loan by an underwriter.
Pre-Foreclosure Sale
A procedure in which the borrower is allowed to sell his or her property for an amount less that what is owed on it to avoid foreclosure, fully satisfying the borrower's debt.
Pre-Paids
Expenses such as taxes, insurance, and assessments, which are paid in advance of their due date, and on a prorated basis at closing.
Pre-Payment
Any amount paid so as to reduce the principal before the due date.
Prepayment Penalty
A charge imposed by a mortgage lender on a borrower if they wish to repay part or all of their loan in advance of the regular schedule.
Pre-Qualification
After a loan officer has made inquiries about a borrower's debt, income, and savings, he or she can write a written statement (pre-qualification) about the borrower's chances for qualifying for a home loan.
Prime Rate
Interest charged by financial institutions to top-rate borrowers.
Principal
The amount of debt, not counting interest, left on a loan. The face value of a note or mortgage.
Private Mortgage Insurance (PMI)
Insurance paid by a borrower to protect the lender in case the borrower defaults. PMI is typically charged to the borrower when the Loan-to-Value Ratio is greater than 80%.
Prorations
The allocation of charges and credits to the appropriate parties at a real estate sale and/or loan closing at a real-estate sale and/or loan closing.
Promissory Note
A written promise to repay a specified amount over a specified period of time.
Purchase Agreement
A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.
Purchase-Money Mortgage
Mortgage given by a borrower to the seller as part of the purchase price of the property.
Purchase-Money Transaction
The acquisition of property through the payment of money or its equivalent.
Q
Qualifying Ratio
The ratio of the borrower's fixed monthly expenses to his gross monthly income. Ratios are expressed as two numbers like 28/36 where 28 would be the Front-End Ratio and 36 would be the Back-End Ratio. The Front-End Ratio is the percentage of a borrower's gross monthly income (before income taxes) that would cover the cost of PITI (Mortgage Principal Payment + Mortgage Interest Payment + Property Taxes + Homeowners Insurance). In the case of a 28% Front-End Ratio a borrower could qualify if the proposed monthly PITI payments were 28% or less than the borrower's gross monthly income. The Back-End Ratio is the percentage of a borrower's gross monthly income that would cover the cost of PITI plus any other monthly debt payments like car or personal loans and credit card debt. Please note that qualifying ratios are only a rough guideline in determining a potential borrower's credit-worthiness. Many factors such as excellent or poor credit history, amount of down payment, and size of loan will influence the decision to approve or disapprove a particular loan.
Quitclaim Deed
A deed that transfers, without warranty, whatever interest or title a grantor may have at the time the conveyance is made.
R
Rate Lock
A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate for a specified period of time at a specific cost.
Real Estate
A portion of the earth's surface extending downward to the center to the earth and upward into space, including all things permanently attached thereto by nature or man and all legal rights therein.
Real Estate Agent
A person licensed to negotiate and transact the sale of real estate.
Real Estate Settlement Procedures Act (RESPA)
An act requiring the revelation of all costs involved in a real estate closing to all participants.
Realtor
A real estate agent, broker, or associate that holds an active membership in a local real estate board that is affiliated with the National Association of Realtors.
Recast
To redesign an existing loan balance into a new loan for the same period or longer, to reduce payments and help a distressed borrower.
Reconciliation
Determining the final estimate of value by weighing the results of the various approaches in an appraisal
Re-conveyance Clause
The clause in a trust deed that gives the title back to the borrower when the loan is paid in full.
Recording
The formal filing of documents affecting a property's title.
Regulation Z
A truth-in-lending provision that requires lenders to reveal the actual costs of borrowing.
Refinancing
The process of paying off one loan with the proceeds from a new loan, using the same property as security.
Rent-Loss Insurance
Insurance that protects a landlord against loss of rent or rental value due to fire or other casualty, resulting in the tenant being excused from paying rent.
Repayment Plan
An agreement between a lender and a delinquent borrower regarding mortgage payments, in which the borrower agrees to make additional payments to pay down past due amounts while still making scheduled payments.
Residual Qualifying
Under a VA loan, using specified housing expenses to qualify for a loan payment.
Restrictions
Rules imposed on the use of real estate in an effort to preserve property values.
Reverse Annuity Mortgage (RAM)
A system developed for an elderly property owner in which regular monthly payments can be received from a lender. When the total reaches a pre-determined amount, the owner begins repaying the loan or sells the property.
Revolving Debt
A credit arrangement that allows a customer to borrow against a pre-approved line of credit used to purchase goods and services. The borrower is responsible for the actual amount borrowed plus any interest due. Most often credit cards.
Right-of-First Refusal
A provision that states that a property be first offered to a specific person before it can be offered for sale or lease to other parties.
Right to Rescission
The legal right to void or cancel your mortgage contract in such a way as to treat the contract as if it never existed. Right of rescission is not applicable to mortgages made to purchase a home, but may be applicable to other mortgages, such as home equity loans.
Rollover Loan
A loan that /includes a call date earlier than its normal amortization period.
Rule of 78 -
Calculates the proportionate amount of interest due on a loan being paid in full before its maturity.
S
Sale-Buyback
A financing arrangement in which an investor buys property from a developer and immediately sells it back under a long-term sales agreement, wherein the investor retains legal title.
Sale-Leaseback
A financing arrangement whereby an investor purchases real estate owned and used by a business corporation, then leases the property back to the business.
Secondary Mortgage Market
A market where mortgage originators may sell them, freeing up funds for continued lending and distributes mortgage funds nationally from money-rich to money-poor areas.
Second Mortgage
A mortgage that has a lien position subordinate to the first mortgage.
Secured Loan
A loan that is backed by collateral.
Security
Something given, deposited, or pledged to make the fulfillment of an obligation secure, usually the repayment of a debt.
Seller Carry-Back
An agreement in which the owner of a property provides financing, often in combination with an assumed mortgage.
Senior Loan
A real estate loan in first priority position.
Servicer
An organization that collects principal and interest payments from borrowers and manages borrowers' escrow accounts. The servicer often services mortgages that have been purchased by an investor in the secondary mortgage market.
Servicing
The collection of mortgage payments from borrowers and related responsibilities of a loan servicer.
Stated / Documented Income
Some loan products require only that applicants “state” the source of their income without providing supporting documentation such as tax returns.
Stop Date
Date on a term loan when the balloon payment is due.
Subordinate Financing
Any mortgage or other lien that has a priority lower than that of the first mortgage, or senior loan. See second mortgage.
Survey
A drawing or map that shows the precise legal boundaries of a property, the location of improvements, easements, rights of way, encroachments, and other physical features.
Sweat Equity
Increase in property value due to improvement by owners.
T
Takeout Mortgage -
A permanent mortgage, obtained by a pre-arrangement between a builder and a financial institution, to repay the interim mortgagee at the completion of construction.
Tax Lien
A claim against real estate for the amount of its unpaid taxes.
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
A legal document showing a person's right to or ownership of a property.
Title Company
A company that specializes in examining and insuring titles to real estate.
Title Insurance
Title Insurance policies typically insure a homebuyer against any title-search errors or mistakes, and against loss due to disputes over property ownership. Title Insurance can additionally offer protection to the lender under similar circumstances. The cost of title insurance is usually a set value per thousand of dollars of the total loan amount.
Title Search
A check of the title records to make sure that the seller is the actual legal owner of the property, and that there are no liens or other claims outstanding.
Total Debt Ratio
Monthly debt and housing payments divided by gross monthly income. Also known as Obligations-to-Income Ratio or Back-End Ratio.
Transfer of Ownership
The means by which the ownership of a property changes hands. Examples of such include the purchase of a property "subject to" the mortgage, the assumption of the mortgage debt by the property purchases, and any exchange of possession of the property under a land sales contract or any other land trust device.
Transfer Tax
State or local tax payable when the title passes from one owner to another.
Truth-in-Lending Law
A federal law requiring a disclosure of the actual costs of a loan using a standard format. This is intended to facilitate comparisons between the lending terms of different financial institutions.
Two-Step Mortgage -
A loan where the interest rate is fixed for the first seven years and is then adjusted one time for the balance of the loan period.
U
Underwriting
The process of verifying data and approving a loan.
V
VA Loan
A government-backed mortgage loan supported by the US Veterans Administration.
Variable Rate Mortgage
A mortgage loan with an interest rate that changes periodically in relation to an index. Payments may increase or decrease accordingly.
Vested
Means that one has a right to use a portion of a fund, such as an individual's retirement fund.
Z
Zero Percent Financing
A loan with no interest in the contract. The IRS imputes 10 percent for both borrower and lender.
Zoning
The right of a community, under its police power, to dictate the use of property within its boundaries.
