Mortgage Glossary

 

 

Here are some helpful definitions to common terms.

Exit

 

1003

Loan application

 

4506

IRS form requesting copy of tax return

 

Abstract of title

A historical summary provided by a title insurance company of all records affecting the title to a property.

 

Acceleration clause

Allows a lender to declare the entire outstanding balance of a loan immediately due and payable should a borrower violate specific loan provisions or default on the loan.

 

Adjustable rate mortgage (ARM)

A variable or flexible rate mortgage with an interest rate that varies according to the financial index it is based upon. To limit the borrower's risk, the ARM may have a payment or rate cap. The rate may be fixed for a certain amount of years and become adjustable afterwards. See also: cap.

 

Agency Relationships: Buyers Agent, Sellers Agent, and Dual Agent.   

A Buyers Agent is a real estate agent who represents the buyer and owes fiduciary duties to the buyer.

A Sellers Agent is a real estate agent who represents the seller and owes fiduciary duties to the seller.

A Dual Agent is a real estate agent who represents both the buyer and seller. In almost every state, dual agency is illegal and unethical without the written  

consent of both the buyer and the seller.

 

Amortization

The liquidation of a debt by regular, usually monthly, installments of principal and interest. An amortization schedule is a table showing the payment amount, interest, principal and unpaid balance for the entire term of the loan.

 

Amount Financed

A required Truth in Lending Act disclosure for consumer loans.  Calculated by starting with the full amount borrowed (principal) and subtracting out the dollar amount of prepaid finance charges (finance charges the borrower is paying in advance).

 

Annual percentage rate (A.P.R.)

The actual interest rate, taking into account points and other finance charges, for the projected life of a mortgage. Disclosure of APR is required by the Truth-in-Lending Law and allows borrowers to compare the actual costs of different mortgage loans.

 

Application Fee

A fee charged by the lender or broker to process the loan application.

 

Appraisal

An estimate of a property's value as of a given date, determined by a qualified professional appraiser. The value may be based on replacement cost, the sales of comparable properties or the property's ability to produce income.

 

Appreciation

A property's increase in value due to inflation or economic factors.

 

A.P.R.

See: annual percentage rate.

 

ARM

See: adjustable rate mortgage.

 

Assessment

Charges levied against a property for tax purposes or to pay for municipality or association improvements such as curbs, sewers, or grounds maintenance.

 

Assignment deed

This document  transfers a mortgage from one corporation or person to another.  The current lender will use an assignment deed to transfer their rights to collect payments to a new lender.  The borrower normally would not sign this document therefore, it would not be notarized at the time the borrower signs their loan documents.

 

Assumption

An agreement between a buyer and a seller, requiring lender approval, where the buyer takes over the payments for a mortgage and accepts the liability. Assuming a loan can be advantageous for a buyer because there are no closing costs and the loan's interest rate may be lower than current market rates. Depending on what is in the mortgage or deed of trust, the lender may raise the interest rate, require the buyer to qualify for the mortgage, or not permit the buyer to assume the loan at all. If the loan was assumable it would be marked on the T.I.L.

 

Balloon mortgage

Mortgage with a final lump sum payment that is greater than preceding payments and pays the loan in full.

 

Balloon Payment
A scheduled payment due at the end of a loan term that is substantially greater than the regular monthly payments.  It is designed to occur when the regular payments do not pay off all principal and interest owing (not fully amortizing) on the loan over the term of the loan.

 

Biweekly mortgage

A loan requiring payments of principal and interest at two-week intervals. This type of loan amortizes much faster than monthly payment loans. The payment for a biweekly mortgage is half what a monthly payment would be.

 

Bridge loan

A loan to "bridge" the gap between the termination of one mortgage and the beginning of another, such as when a borrower purchases a new home before receiving cash proceeds from the sale of a prior home. Also, known as a swing loan.

 

Broker

An intermediary between the borrower and the lender. The broker may represent several lending sources and charges a fee or commission for services. Commonly referred to as a loan officer.

Broker Agreement (also Mortgage Broker Agreement)
A contract between a borrower and a mortgage broker.  It describes what the broker will do for the borrower, and the terms of the agreement, including compensation due the broker.

Broker Compensation or Fee
The amount of money the broker will receive for finding a loan for a borrower.  This amount may be paid by the borrower, by the lender, or by both.

Buy down

Where the buyer pays additional discount points or makes a substantial down payment in return for a below market interest rate; or the seller offers 3 2 1 interest payment plans or pays closing costs such as the origination fee. During times of high interest rates, buy-downs may induce buyers to purchase property they may not otherwise have purchased.

 

Cap

A limit in how much an adjustable rate mortgage's monthly payment or interest rate can increase. A cap is meant to protect the borrower from large increases and may be a payment cap, an interest cap, a life of loan cap or an annual cap. A payment cap is a limit on the monthly payment. An interest cap is a limit on the amount of the interest rate. A life of loan cap restricts the amount the interest rate can increase over the entire term of the loan. An annual cap limits the amount the interest rate can increase over a twelve month period.

 

Certificate of reasonable value (CRV)

A Veteran's Administration appraisal that establishes the maximum VA mortgage loan amount for a specified property.

 

Certificate of title

Document rendering an opinion on the status of a property's title based on public records.

 

Certified Signing Agent

A Certified Signing Agent has special expertise to conduct loan signings. The Signing Agent is hired as an independent contractor by a title, mortgage, or escrow office to ensure that the loan signing process is properly completed.

 

Closing

The meeting between the buyer, seller and lender or their agents where the property and funds legally change hands. Also called settlement

 

Closing costs

Costs payable by both seller and buyer at the time of settlement, when the purchase of a property is finalized. These costs can be up to ten percent of the mortgage amount and usually include but are not limited to the following:

 

Commitment fee

A fee charged when an agreement is reached between a lender and a borrower for a loan at a specific rate and points and the lender guarantees to lock in that rate.

 

Condominium

An individually owned unit within a multi-unit building where others or the Condominium Owners Association share ownership of common areas such as the grounds, the parking facilities and the tennis courts.

 

Conforming loan

A loan that conforms to Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC) guidelines. See also: non conforming loan.

 

Construction loan

A short-term loan financing improvements to real estate, such as the building of a new home. The lender advances funds to the borrower as needed while construction progresses. Upon completion of the construction, the borrower must obtain permanent financing or pay the construction loan in full.

 

Consumer handbook on adjustable rate mortgages (C.H.A.R.M.)

A disclosure required by the federal government to be given to any borrower applying for an adjustable rate mortgage (ARM).

 

conventional loan

A mortgage loan that is not insured, guaranteed or funded by the Veterans Administration (VA), the Federal Housing Administration (FHA) or Rural Economic Community Development (RECD) (formerly Farmers Home Administration).

 

Convertible mortgage

An adjustable rate mortgage (ARM) that allows a borrower to switch to a fixed-rate mortgage at a specified point in the loan term.

 

Co-signer

One who is obligated to repay a mortgage loan should the borrower default but who does not share ownership in the property. See also: co-mortgagor.

 

Covenants

Rules and restrictions governing the use of property.

 

Credit Report

A report documenting the credit history and current status of a borrower's credit standing.

 

CRV

See: certificate of reasonable value. 

 

Curtailments

The borrower's privilege to make payments on a loan's principal before they are due. Paying off a mortgage before it is due may incur a penalty if so specified in the mortgage's prepayment clause.

 

Debt

Money owed to repay someone.

 

Debt-To-Income Ratio

The ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on long-term debts is divided by his or her net effective income (FHA/VA loans) or gross monthly income (conventional loans). See housing expenses-to-income ratio.

 

Deed of trust

A document, used in many states in place of a mortgage, held by a trustee pending repayment of the loan. The advantage of a deed of trust is that the trustee does not have to go to court to proceed with foreclosure should the borrower default on the loan.

 

Debt-To-Income Ratio

The ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on long-term debts is divided by his or her net effective income (FHA/VA loans) or gross monthly income (conventional loans). See housing expenses-to-income ratio.

 

Default

Failure to meet legal obligations in a contract, specifically, failure to make the monthly payments on a mortgage.

 

Deferred Interest

See negative amortization.

 

Delinquency

Failure to make payments on time. This can lead to foreclosure.

Department of Veterans Affairs (VA) - an independent agency of the federal government which guarantees long-term, low-or no-down payment mortgages to eligible veterans.

 

Department of Housing and Urban Development (HUD)

The U.S. government agency that administers FHA, GNMA and other housing programs.

 

Discount points

Amounts paid to the lender based on the loan amount to buy the interest rate down. Each point is one percent of the loan amount; for example, two points on a $100,000 mortgage is $2,000.

 

Default

Failure to meet legal obligations in a contract, specifically, failure to make the monthly payments on a mortgage.

 

Deferred Interest

See negative amortization.

 

Delinquency

Failure to make payments on time. This can lead to foreclosure.

Department of Veterans Affairs (VA) - an independent agency of the federal government which guarantees long-term, low-or no-down payment mortgages to eligible veterans.

Default

Failure to meet legal obligations in a contract, specifically, failure to make the monthly payments on a mortgage.

 

Deferred Interest

See negative amortization.

 

Delinquency

Failure to make payments on time. This can lead to foreclosure.

Department of Veterans Affairs (VA) - an independent agency of the federal government which guarantees long-term, low-or no-down payment mortgages to eligible veterans.

 

Discount Points

See points

Document Preparation Fee
An amount of money that you may be charged for the preparation of mortgage loan documents.  This charge will be shown on the HUD-1 Settlement Statement.

Down payment

The difference between the purchase price and mortgage amount. The down payment becomes the property equity. Typically it should be cash savings, but it can also be a gift that is not to be repaid or a borrowed amount secured by assets.

 

Duplex

Dwelling divided into two units. 

 

Earnest money

Deposit in the form of cash or a note, given to a seller by a buyer as good faith assurance that the buyer intends to go through with the purchase of a property.

 

Equal Credit Opportunity Act

A federal law prohibiting lenders and other creditors from discrimination based on race, color, sex, religion, national origin, age, marital status, receipt of public assistance or because an applicant has exercised his or her rights under the Consumer Credit Protection Act.

 

Equity

The value of a property beyond any liens against it. Also referred to as owner's interest.

 

Escrow

Money placed with a third party for safekeeping either for final closing on a property or for payment of taxes and insurance throughout the year.

 

Fair market value

The price a property can realistically sell for, based upon comparable selling prices of other properties in the same area.

 

Fannie Mae

Nickname for Federal National Mortgage Association (FNMA).

 

Federal Home Loan Bank Board (FHLBB)

A regulatory and supervisory agency for federally chartered savings institutions.

 

Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac)

A quasi-governmental, federally sponsored organization that acts as a secondary market investor to buy and sell mortgage loans. FHLMC sets many of the guidelines for conventional mortgage loans, as does FNMA.

 

Federal Housing Administration(FHA)

An agency within the Department of Housing and Urban Development that sets standards for underwriting and insures residential mortgage loans made by private lenders. One of FHA's objectives is to ensure affordable mortgages to those with low or moderate income. FHA loans may be high loan-to-value, and they are limited by loan amount. FHA mortgage insurance requires a fee of 1.5 percent of the loan amount to be paid at closing, as well as an annual fee of 0.5 percent of the loan amount added to each monthly payment.

 

Federal National Mortgage Association (FNMA or Fannie Mae)

A private corporation that acts as a secondary market investor to buy and sell mortgage loans. FNMA sets many of the guidelines for conventional mortgage loans, as does FHLMC. The major purpose of this organization is to make mortgage money more affordable and more available.

 

 Fee simple

The maximum form of ownership, with the right to occupy a property and sell it to a buyer at any time. Upon the death of the owner, the property goes to the owner's designated heirs. Also known as fee absolute.

 

FHA

See: Federal Housing Administration.

fifteen-year mortgage

A loan with a term of 15 years. Although the monthly payment on a 15-year mortgage is higher than that of a 30-year mortgage, the amount of interest paid over the life of the loan is substantially less.

 

FHA Loan

A loan insured by the Federal Housing Administration open to all qualified home purchasers. While there are limits to the size of FHA loans, they are generous enough to handle moderate-priced homes almost anywhere in the country.

 

FHA Mortgage Insurance

Requires a small fee (up to 3.8 percent of the loan amount) paid at closing or a portion of this fee added to each monthly payment of an FHA loan to insure the loan with FHA. On a 9.5 percent $75,000 30-year fixed-rate FHA loan, this fee would amount to either $2,850 at closing or an extra $31 a month for the life of the loan. In addition, FHA mortgage insurance requires an annual fee of 0.5 percent of the current loan amount, paid in monthly installments. The lower the down payment, the more years the fee must be paid.

FICO
Credit scores calculated by Fair Isaac Company are often referred to as FICO.  Normally an average of credit scores taken by three national credit bureaus.

Finance Charge
The finance charge is a disclosure that appears on the Truth in Lending Act Disclosure Statement.  It is intended to show the cost of your loan as a dollar amount.  It includes (1) interest that will be charged over the life of the loan and (2) some up-front fees (prepaid finance charges).  Prepaid finance charges include such items as mortgage broker fees, lender fees, points, and some closing agent fees.  Any closing fees that are unreasonably high should also be included.  You may also be required to pay other fees that will not be included in the finance charge.

Fixed-rate mortgage

A mortgage whose rate remains constant throughout the life of the mortgage.

 

Flood Certification Fee
A fee charged to determine if the property lies in a flood zone and whether flood insurance is required.  

 

Flood insurance

The Federal Flood Disaster Protection Act of 1973 requires that federally-regulated lenders determine if real estate to be used to secure a loan is located in a Specially Flood Hazard Area (SFHA). If the property is located in a SFHA area, the borrower must obtain and maintain flood insurance on the property. Most insurance agents can assist in obtaining flood insurance.

 

Foreclosure
The legal procedure by which a lender holding a mortgage on your house forces a sale of the house to obtain repayment of your loan.  Foreclosure proceedings are typically started by a lender when you do not pay your loan on time.  Foreclosure might also be started if you fail to pay property taxes or insurance or fail to keep other promises.

 

Freddie Mac

Nickname for Federal Home Loan Mortgage Corporation (FHLMC). 

 

Fully Amortizing
This describes a loan in which the balance owed at the scheduled end of the loan is zero if all regular monthly payments are made as scheduled.

 

Gift

This includes amounts from a relative or a grant from the borrower's employer, a municipality, non-profit religious organization, or non-profit community organization that does not have to be repaid.

 

Ginny Mae

Nickname for Government National Mortgage Association (GNMA).

 

Good faith estimate

Estimate on closing costs and monthly mortgage payments provided by the lender to the homebuyer within 3 days of applying for a loan. This document lists the estimated fees you will have to pay to obtain the loan.  It also identifies who is expected to provide services and receive fees in connection with your loan, such as credit bureaus, appraisers, and closing agents.

 

Government National Mortgage Association(GNMA or Ginnie Mae)

A government organization that participates in the secondary market, securitizing pools of FHA, VA, and RHS loans.

 

Government Recording Fees and Taxes
Fees and taxes required to be paid to the local government where your mortgage documents are filed.

 

Gross Monthly Income

The total amount the borrower earns per month, before any expenses are deducted.

 Guaranty
A promise by one party to pay a debt or perform an obligation contracted by another if the original party fails to pay or perform according to a contract.
 
 

Graduated payment mortgage (GPM)

A fixed-interest loan with lower payments in the early years than the later years. The amount of the payment gradually increases over a period of time and then levels off at a payment sufficient to pay off the loan over the remaining amortization period.

 

Hazard insurance

A form of insurance that protects the insured property against physical damage such as fire and tornadoes. Mortgage lenders often require a borrower to maintain an amount of hazard insurance on the property that is equal at least to the amount of the mortgage loan.

 

Home equity loan

A mortgage on the borrower's principal residence, usually for the purpose of making home improvements or debt consolidation.

 

 

Home inspection

A thorough review of the physical aspects and condition of a home by a professional home inspector. This inspection should be completed prior to closing so that any repairs or changes can be completed before the home is sold.

 

Homeowners Association

This is the organization that governs regulations and expenditures within a community. The Homeowners Association is typically responsible for the development of an annual budget, the collection of assessments that homeowners pay to maintain and repair "common areas," and the creation of various rules and guidelines for living in the community. Each homeowner within the community is a member of the Association with voting privileges.


 Homeowner's / Hazard Insurance
Homeowner's or Hazard Insurance is required to protect the mortgage lender against possible damage to your home.  It can also protect the borrower.  A borrower must obtain this insurance and bring proof of its existence to the loan closing.

 

Housing and Urban Development (HUD)

The U.S. government agency that administers FHA, GNMA and other housing programs.

 

Housing affordability index

Indicates what proportion of homebuyers can afford to buy an average priced home in specified areas. The most well known housing affordability index is published by the National Association of Realtors.

 

Housing expenses-to-income ratio

See: debt-to-income ratio.

 

HUD

See: Housing and Urban Development.

 

HUD-1
Also called a "Settlement Statement" of all costs and fees in your closing.

 

Income-to-debt ratio

See: debt-to-income ratio.

 

Index

A published interest rate compiled from other indicators such as U.S. Treasury bills or the monthly average interest rate on loans closed by savings and loan organizations. Mortgage lenders use the index figure to establish rates on adjustable rate mortgages (ARMs).

 

Insurance

As a part of PITI, the amount of the monthly mortgage payment that does not include the principal, interest, and taxes. Also see: homeowners insurance.

 

Interest

The amount of the entire mortgage loan which does not include the principal.  Also, as a part of PITI, the amount of the monthly mortgage payment which does not include the principal, taxes, and insurance.

 

Interest rate

The simple interest rate, stated as a percentage, charged by a lender on the principal amount of borrowed money. See also: Annual Percentage Rate.

 

Introductory Rate
Some loans have a lower introductory interest rate, which remains in effect for a limited time.  At the end of the introductory period, the interest rate will increase.  Also known as a "teaser rate."

 

Investor

A money source for a lender.

 

Joint tenancy

equal ownership of property by two or more parties, each with the right of survivorship.

 

Jumbo loan

A nonconforming loan that is larger than the limits set by the Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC) guidelines.

 

Late Charge
A penalty you will have to pay if you do not make your loan payment on time.  This usually is calculated as a percentage of the payment amount or a minimum dollar amount, such as 5% of the late payment, or $25.

Lender Paid Compensation to Broker
Also called the Yield Spread Premium.  A fee the lender pays to the mortgage broker for obtaining the loan for his client.

Lien

A claim against a property for the payment of a debt. A mortgage is a lien; other types of liens a property might have include a tax lien for overdue taxes or a mechanics lien for unpaid debt to a subcontractor.

 

Life-of-loan cap

See: cap.

 

Line of Credit
Also called an "open line of credit" secured on your home.  Often there are no closing costs involved, or the lender offers to pay all closing costs.  Used like a checking account for borrowing up to your credit limit.

 

Liquidity

The capability of an asset to be readily converted into cash.

 

Loan discount

See: points.

 

Loan origination fee

See: origination fee.

 

Loan-to-value ratio (LTV)

The relationship, expressed as a percentage, between the amount of the proposed loan and a property's appraised value. For example, a $75,000 loan on a property appraised at $100,000 is a 75% loan-to-value.

 

Lock-in

The guarantee of a specific interest rate and/or points for a specific period of time. Some lenders will charge a fee for locking in an interest rate. 

 

Margin

The amount a lender adds to the index of an adjustable rate mortgage to establish an adjusted interest rate. For example, a margin of 1.50 added to a 7 percent index establishes an adjusted interest rate of 8.50 percent.

 

Market value

The price a property can realistically sell for, based upon comparable selling prices of other properties in the same area.

 

Mello-Roos  (or Special Taxing District)

Special tax districts, created by the California State Legislature in 1982. These districts collect funds to pay for the vital facilities a new home community needs ó such as streets, schools, water, drainage, parks, sidewalks, median landscaping, and sewer systems ó which otherwise might not be available to initial homeowners in the community. An Assessment District or Mello-Roos District is formed by the local government. They issue bonds (which are essentially loans) to fund the community's facilities. To repay the bonds, homeowners will pay assessments, which will be added to their annual property tax bill.

 

Mobile Notary

The "mobile" designation mean the notary does the traveling. The notary come to your home, office, or other location at your convenience, giving you the advantage of flexible scheduling. 

 

Modification

A change in the terms of the mortgage note, such as a reduction in the interest rate or change in maturity date.

 

Mortgage

A legal instrument in which property serves as security for the repayment of a loan. In some states, a deed of trust is used rather than a mortgage.

 

Mortgage broker

An intermediary between a borrower and a lender. A broker's expertise is to help borrowers find financing that they might not otherwise find themselves.

 

Mortgage insurance

Money paid to insure the lender against loss due to foreclosure or loan default. Mortgage insurance is required on conventional loans with less than a 20 percent down payment. FHA mortgage insurance requires a payment of 1.5 percent of the loan amount to be paid at closing, as well as an annual fee of 0.5 percent of the loan amount added to each monthly payment.

 

Mortgage interest

Interest rate charge for borrowing the money for the mortgage. It is a used to calculate the interest payment on the mortgage each month.

 

Mortgage term

The length of time that a mortgage is scheduled to exist. Example: a 30-year mortgage term is for 30 years.

 

Mortgagee

The lender.

 

Mortgagor

The borrower.

 

Negative amortization

A situation in which a borrower is paying less interest than what is actually being charged for a mortgage loan. The unpaid interest is added to the loan's principal. The borrower may end up owing more than the original amount of the mortgage.

 

Net Effective Income

The borrower's gross income minus federal income tax.

 

Non-assumption clause

In a mortgage contract, a statement that prohibits a new buyer from assuming a mortgage loan without the approval of the lender.

 

Non-conforming loan

A loan that does not conform to Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC) guidelines. Jumbo loans are nonconforming. See also: conforming loan.

 

Note

A signed document that acknowledges a debt and shows the borrower is obligated to pay it.

 

Notice of Right to Cancel
Under federal law, you may be permitted to cancel or "rescind" a mortgage loan within a specified time, generally three days, after you have signed loan documents in a refinance, second mortgage, or other mortgage loans which do not involve the purchase of a home.  The lender is required to give the borrower (1) notice in writing of this right to cancel or rescind and (2) the deadline to cancel.

 

Open-end mortgage

A mortgage allowing the borrower to receive advances of principal from the lender during the life of the loan. See also: closed-end mortgage.

 

Origination fee

The amount charged by a lender to originate and close a mortgage loan. Origination fees are usually expressed in points.

 

Payment cap

See: cap.

 

Payment Schedule
This information on the Truth in Lending Disclosure Statement shows the amount of the first loan payment, the amount and number of the regularly scheduled payments, the amount of the final payment, and when all those payments are due.  The actual payment due may be greater for a number of reasons, including taxes and insurance.  If the loan has an "adjustable rate," the actual payments will differ from the payment schedule.

 

P&I

Abbreviation for principal and interest.

 

PITI

Abbreviation for principal, interest, taxes and insurance.

 

Points

Charges levied by the lender based on the loan amount. Each point equals one percent of the loan amount; for example, two points on a $100,000 mortgage is $2,000. Discount points are used to buy down the interest rate. Points can also include a loan origination fee, which is usually one point.

 

Power of Attorney

The authority to act in another personís behalf, at this request. If your are granted such authority you are called the attorney-in-fact. If you are the grantor (see Grantor), you may revoke a power of attorney at any time. If you, as grantor die, relocate or are judged legally incompetent, the power of attorney will automatically terminate. 2. A document granting the power of attorney.

 

Prepaids

Expenses necessary to create an escrow account or to adjust the seller's existing escrow account. Can include taxes, hazard insurance, private mortgage insurance and special assessments.

 

Prepayment

A privilege in a mortgage permitting the borrower to make payments in advance of their due date.

Prepayment Penalty
The charge that can be imposed if you pay off your loan before maturity.  The Truth in Lending Disclosure Statement will show whether a loan has a prepayment penalty.

Prime Loan
A loan offered to borrowers with better credit history (sometimes called "A" loans).  Prime loans generally are priced lower and cost the borrower less.

Principal

The amount of debt, not counting interest, left on a loan.

 

Prime rate

The interest rate commercial banks charge their most creditworthy customers.

 

Principal

The amount of the entire mortgage loan, not counting interest.  Also, as a part of PITI, the amount of the monthly mortgage payment which does not include the interest, insurance, and taxes.

 

Private Mortgage Insurance (PMI)

In the event that you do not have a 20 percent down payment, lenders will allow a smaller down payment - as low as 5 percent in some cases. With the smaller down payment loans, however, borrowers are usually required to carry private mortgage insurance. Private mortgage insurance will require an initial premium payment of 1.0 percent to 5.0 percent of your mortgage amount and may require an additional monthly fee depending on your loan's structure. On a $75,000 house with a 10 percent down payment, this would mean either an initial premium payment of $2,025 to $3,375, or an initial premium of $675 to $1,130 combined with a monthly payment of $25 to $30.

 

Promissory Note
A legal contract in which the borrower promises to pay back the loan.  The "promissory note" sets forth the terms and conditions that apply to the loan repayment, such as interest rate, when payments are due, where payments are made, what happens if payments are not made, etc. property appraisal

See: appraisal.

 

Property tax

The amount which the state and/or locality assesses as a tax on a piece of property.

 

Prorate

To proportionally divide amounts owed by the buyer and the seller at closing.

 

PUD

Planned Unit Development. 1. It is the comprehensive development plan for a large area. Usually indicating where roads, schools, recreational, office, commercial or industrial and residential areas will be. 2. It also refers to a subdivision that has common areas reserved for the use of and commonly owned by the separate lot owners.

 

Purchase Money Loan/Mortgage
A loan for the purpose of purchasing a home.

 

Qualification

As determined by a lender, the ability of the borrower to repay a mortgage loan based on the borrower's credit history, employment history, assets, debts and income.

 

Qualifying Income Ratio

Used by lenders in deciding whether to offer you a loan. One type compares only the amount of your proposed monthly mortgage payment to your monthly income (see PITI Ratio) Another compares the amount of your total monthly payments (e.g. you car, credit card and proposed mortgage payments) to your monthly income.

 

Quitclaim Deed

A legal document which transfers to the buyer or owner, whatever interests in the property are held by the maker of the deed. It does not guarantee that those interest are valid. By accepting such a deed, you accept the risk that someone may later appear with a valid claim to your property.

Rate Lock (also Lock in the Rate)
A written agreement between the borrower and the lender or broker that as long as the loan is closed within a certain period of time (e.g., 30 or 60 days), the interest rate on the loan will be set (locked) at an agreed-upon rate.

Rate cap

See: cap.

 

Realtor

A real estate broker or an associate holding active membership in a local real estate board affiliated with the National Association of Realtors.

 

Recision

The cancellation of a contract. With respect to mortgage refinancing, the law that gives the homeowner three days to cancel a contract in some cases once it is signed if the transaction uses equity in the home as security.

 

Recording Fees
Fees charged by the local government to record loan documents (for example, the mortgage).  These fees will be charged to the borrower and shown on the Settlement Statement (HUD-1).

Refinance
To repay one or more existing mortgage loans by getting a new mortgage loan.

Renegotiable Rate Mortgage (RRM)

A loan in which the interest rate is adjusted periodically. See adjustable rate mortgage.

Rescind (also Right of Rescission)
Literally means "to take back" or "cancel."  If a borrower rescinds a mortgage loan, it is as if the mortgage loan never existed.  Some borrowers have by law a right to "rescind" certain mortgage loans.  Note: A borrower is entitled to a refund of all fees paid in connection with the loan if the borrower exercises his right of rescission.

RESPA

Abbreviation for the Real Estate Settlement Procedures Act, which allows consumers to review settlement costs at application and once again prior to closing.

reverse annuity mortgage

A type of mortgage loan in which the lender makes periodic payments to the borrower. The borrower's equity in the home is used as security for the loan.

 

 

Reverse Annuity Mortgage (RAM)

A form of mortgage in which the lender makes periodic payments to the borrower using the borrower's equity in the home as security.

 

Reverse Mortgage

A reverse mortgage is so aptly named due to "reverse" flow of payments compared to a traditional mortgage. This special type of mortgage affords homeowners over the age of 62 the opportunity to stay in their home and have access to the equity they have built in their property. Seniors can pull some of that equity out of their primary residence as tax free cash, which they can use however they choose.
Borrowers can choose from a line of credit, lump sum, monthly payments, or a combination of the three. This differs from a traditional mortgage used to purchase or refinance a home because a homeowner does not make monthly mortgage payments to the lender/bank. There is also mortgage insurance, which protects borrowers against a lender going bankrupt, for example, or protects the lender in case the borrower moves, sells the home, or passes away.
Single-family homes and qualified condominiums, townhouses, manufactured homes, and one- to four-family owner-occupied residences are eligible. Seniors interested in the program should expect to be staying in their current home for several more years and not be concerned with giving their home debt-free to their children or heirs upon passing.
 

RHCDS

Rural Housing and Community Service

 

Right of first refusal

Purchasing a property under conditions and terms made by another buyer and accepted by the seller.

 

Right of rescission

When a borrower's principal dwelling is going to secure a loan, the borrower has three business days following signing of the loan documents to rescind or cancel the transaction. Any and all money paid by the borrower must be refunded upon rescission. The right to rescind does not apply to loans to purchase real estate or to refinance a loan under the same terms and conditions where no additional funds will be added to the existing loan.

 

Rollover

At the end of the construction loan period, the borrower's file is delivered to Bank One Mortgage Loan Servicing Dept. Prior to delivery, CLD contacts the borrower and obtains funds for the tax and insurance escrows, a final title policy and homeowner's policy. This process is called a rollover.

 

Rural Housing and Community Development Service

A federal agency that administers mortgage loans for buyers in rural areas.

 

Second mortgage

A loan that is junior to a primary or first mortgage and often has a higher interest rate and a shorter term.

 

Servicing

The responsibility of collecting monthly mortgage payments and properly crediting them to the principal, taxes and insurance, as well as keeping the borrower informed of any changes in the status of the loan.

 

Settlement
The time when loan and mortgage documents are formally signed and the loan transaction is completed.  Also called "Closing."

Settlement Agent (also Closing Agent or Settlement Attorney)
The person who organizes and is in charge of the loan closing.  The settlement agent can explain any document the borrower must sign.

Settlement costs

See: closing costs.

 

Shared Appreciation Mortgage (SAM)

A mortgage in which a borrower receives a below-market interest rate in return for which the lender (or another investor such as a family member or other partner) receives a portion of the future appreciation in the value of the properly. May also apply to mortgages where the borrower shares the monthly principal and interest payments with another party in exchange for a part of the appreciation.

Sub prime Loans
These loans are priced higher than prime loans, often much higher.  Loans to borrowers whose credit is less than perfect will almost always be sub prime loans.  There are also other circumstances that lead to sub prime loans, including high outstanding debt, unproven income, etc.  Even borrowers with good credit may receive sub prime loans for a variety of reasons, including fraud, discrimination, failure to shop around, etc.

Survey

A physical measurement of property done by a registered professional showing the dimensions and location of any buildings as well as easements, rights of way, roads, etc.

 

Tax deed

A written document conveying title to property repossessed by the government due to default on tax payments.

 

Tax savings

The amount of money that the homeowner is not required to pay the government in taxes because he or she owns a home.

 

Taxes

As a part of PITI, the amount of the monthly mortgage payment which does not include the principal, interest, and insurance.

 

Tenancy

 

Tenancy by the entireties

ownership of property only between husband and wife in which neither can sell without the consent of the other and the property is owned by the survivor in the event of death of either party.

 

Tenancy in common

equal ownership of property by two or more parties without the right of survivorship.

 

Tenancy in severalty

ownership of property by one legal entity or a sole party.

 

Tenancy at will

a license to use or occupy a property at the will of the owner.

Term
The period of time during which loan payments are made.  At the end of the loan term, the loan must be paid in full.

Term Mortgage

 See balloon payment mortgage.

 

Title

A formal document establishing ownership of property.

 

Title insurance

A policy issued by a title insurance company insuring the purchaser against any errors in the title search. The cost of title insurance may be paid for by the buyer, the seller or both. Title insurance is a unique type of insurance that ensures that the land being purchased or refinanced is clear of any previous liens or encumbrances. This secures title in the new borrower's name, and protects the new lender(s) from unknown liens on the property as well. A Lender's policy and an owner's policy of title insurance can be issued concurrently, but it is important to know that they are separate policies.
Title insurance can protect a borrower from the following:

Title Search

 An examination of municipal records to determine the legal ownership of property which is usually performed by a title company.

 

Transfer Tax or Charge
A government tax or charge that is usually based on a percentage of the property value or loan amount and imposed by state or local law.  Many states do not require this charge for a refinance loan, but almost all require it for a home purchase.  A transfer tax will be shown on the Settlement Statement (HUD-1).

 

Truth In Lending Act

The Truth In Lending Act requires lenders to disclose the Annual Percentage Rate and other associated costs to homebuyers within three working days of the loan application.

 

Two-Step Mortgage

A mortgage in which the borrower receives a below-market interest rate for a specified number of years (most often seven or 10), and then receives a new interest rate adjusted (within certain limits) to market conditions at that time. The lender sometimes has the option to call the loan due with 30 days notice at the end of seven or 10 years. Also called "Super Seven" or "Premier mortgage. "

 

Underwriter

A professional who approves or denies a loan to a potential homebuyer based on the homebuyer's credit history, employment history, assets, debts and other factors such as loan guidelines.

 

Underwriting Fee
A fee charged by the lender to evaluate whether the borrower qualifies for a mortgage loan.  An underwriting fee may be charged to the borrower and shown on the Settlement Statement (HUD-1).

Upfront Costs
Costs or fees charged to the borrower at or before closing of the mortgage loan, such as loan application fees, appraisal fees, points, broker fees, credit report fees, real estate taxes, etc.  Upfront costs can be paid in several ways: (1) they can be paid by the borrower in cash; or (2) they can be added to the loan amount and financed over the life of the mortgage.

 

Uniform Settlement Statement

A standard document prescribed by the Real Estate Settlement Procedures Act containing information for closing which must be supplied to both buyer and seller.

 

Utility costs

Periodic housing costs for water, electricity, natural gas, heating oil, etc.

 

VA loan

See: Veterans Administration.

 

VA Mortgage Finding Fee

 - a premium of up to 1 7/8 percent (depending on the size of the down payment) paid on a VA-backed loan. On a $75,000 30-year fixed-rate mortgage with no down payment, this would amount to $1,406 either paid at closing or added to the amount financed.

 

 

Vacation home

See: secondary residence.

 

Variable rate mortgage (VRM)

See: adjustable rate mortgage.

 

Verification of Deposit (VOD)

A document signed by the borrower's financial institution verifying the status and balance of his/her financial accounts.

 

Verification of Employment (VOE)

A document signed by the borrower's employer verifying his/her position and salary.

 

Veterans Administration (VA)

The federal agency responsible for the VA loan guarantee program as well as other services for eligible veterans. In general, qualified veterans can apply for home loans with no down payment and a funding fee of 1 percent of the loan amount.

 

Warranty deed

A document protecting a homebuyer against any and all claims to the property.

 

W-9

Tax Form that borrowers sign to report interest on yield 

The rate of earnings from an investment.

 

Wraparound

Results when an existing assumable loan is combined with a new loan, resulting in an interest rate somewhere between the old rate and the current market rate. The payments are made to a second lender or the previous homeowner, who then forwards the payments to the first lender after taking the additional amount off the top.

 

Yield Spread Premium (also YSP)
A payment made by a lender to a mortgage broker in connection with a borrower's mortgage transaction.  It is shown on the Settlement Statement (HUD-1), but often in a way that is difficult to understand.  For example, a $1,000 yield spread premium may be shown as "YSP POC 1000."  Borrowers are often unaware that the YSP payment is being made.  The payment of a YSP by a lender affects the interest rate charged to the borrower.

 

Zero Lot Line

The positioning of a structure so that one side of it sits directly on the lotís boundary line. Although usually prohibited by setback ordinances see Setback Lines), such positioning can be part of special planned unit developments. (see PUD)  

 

 

Zoning

The ability of local governments to specify the use of private property in order to control development within designated areas of land. For example, some areas of a neighborhood may be designated only for residential use and others for commercial use such as stores, gas stations, etc.