1003 Uniform Residential Loan Application.

A & D Loan Acquisition and development loan – a loan for the purchase of raw land for the purpose of development.

Abstract of Title A written history of the ownership of a parcel of land.

Acceleration Clause Allows the lender to speed up the rate at which your loan comes due or even to demand immediate payment of the entire outstanding balance of the loan should you default on your loan.

Adjustable-Rate Mortgage (ARM) A mortgage in which the interest rate is adjusted periodically based on a pre-selected index. Also sometimes known as a renegotiable rate mortgage or the variable rate mortgage.

Adjustment Interval On an adjustable-rate mortgage, the time between changes in the interest rate and/or monthly payment, often one year.

Affidavit A sworn statement in writing.

American Land Title Association (ALTA) An organization of title companies that provides standardized forms and agreements for title insurers to use.

Amortized/Amortization Amortization means the process of paying down the principal balance of a loan by paying off small amounts in regular payments over the term of the loan. A fully amortized loan will be completely paid off at the end of the loan term.

Annual Percentage Rate (APR) An interest rate reflecting the cost of a mortgage as an annualized rate. This rate is likely to be higher than the stated note rate on the mortgage, because it takes into account points and other credit costs. The APR allows homebuyers to compare different types of mortgages based on the total cost for each loan.

Appraisal An estimate of the value of real property, made by a qualified professional called an “appraiser.” An appraisal will be needed to determine the estimated value of your property.

Assumption Sometimes a buyer will finance part of a purchase by taking over an existing mortgage loan from the seller. The “assumption” is the agreement they use to transfer the loan. This must be approved by the lender.

 Back End This refers to the debt-to-income ratio calculated using principal, interest, taxes, insurance and consumer credit obligations divided by gross monthly income. It is expressed as a percentage.

Balloon A loan that involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a time specified in the contract. Often a balloon loan will have a relatively short term for a mortgage, such as 10 years.

BK/Bankruptcy A reorganization or discharge of debts. Could also be referred to as Chapter 7, 11 or 13.

Broker A company in the business of assisting in arranging funding or negotiating contracts for a client but that does not loan the money itself.

Buy Down When the lender and/or the home builder subsidizes the mortgage by lowering the interest rate during the first few years of the loan. While the payments are initially low, they will increase when the subsidy expires.

 Cap The highest rate that an adjustable rate mortgage may reach. It can be expressed as the actual rate or as the amount of change allowed above the start rate. For example, a 7.99% start rate with a 6% rate change cap would have a maximum interest rate cap of 13.99%.

Cash Out Any funds disbursed directly to the borrower.

Certificate of Occupancy A certificate issued by local city government to a builder, stating that the building is in proper condition to be occupied.

Certified Copy A true copy, attested to be true by the officer holding the original. It should have a stamp and signature stating that it is a true copy.

Clear-to-Close Loan is ready to be closed with no additional conditions.

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 Usually include an origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. The costs of closing usually are about 3% to 6% of the total mortgage amount.

Commitment An agreement, often in writing, between a lender and a borrower to loan money at a future date subject to the completion of paperwork or compliance with stated conditions.

Comp/Comparable A property with the same basic characteristics as the property you are attempting to find the value of (usually a real estate appraisal). It should have been sold recently and be as similar as possible.

Condominium A property owned as a group, with rights to occupy specific units of the structure. An overseeing board, often referred to as a Homeowners Association, governs the property.

Construction Loan A short term interim loan for financing the cost of construction. The lender advances funds to the builder at periodic intervals as the work progresses.

Conventional Loan A mortgage not insured by FHA or guaranteed by the VA, the U.S. Department of Agriculture, or other government agencies.

Conversion Clause A provision in some ARMs (adjustable-rate mortgages) that allows you to change the ARM to a fixed-rate loan at some point during the loan term.

Credit 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).

Credit Report History of buyer’s past credit performance.

Credit Score The score given to an individual, based on a credit report, to determine the credit worthiness. 

D.R./Debt Ratio The customer’s monthly obligations divided by their monthly gross income. See also Back End.

Deed Legal document that conveys the title to a property.

Deed of Trust A document used that pledges real property to secure a debt. In some states, a deed of trust is used instead of a mortgage.

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 agency of the federal government that guarantees long-term, low- or no-down payment mortgages to eligible veterans.

Derog This is short for derogatory and refers to negative credit items.

Derog Letter A letter written by the borrower giving an explanation for any derogatory credit.

Discharge Following a completed bankruptcy proceeding, discharged debts are no longer owed or collectible. Lenders will require copies of the discharge papers on any prior bankruptcy filings.

Discount Points Prepaid interest assessed at closing by the lender. Each point is equal to 1% of the loan amount (e.g., 2 points on a $100,000 mortgage would cost $2,000).

Dismissal If a bankruptcy is dropped without being completed, a bankruptcy dismissal document will be needed to proceed with the loan. Either the court or the debtor can prompt the dismissal.

Down Payment Money paid to make up the difference between the purchase price and mortgage amount.

Due-On-Sale Clause A provision in a mortgage or deed of trust that allows the lender to demand immediate payment of the balance of the mortgage if the mortgage holder sells the home. 

Earnest Money Deposit given by a buyer to a seller as part of the purchase price to commit the buyer to the transaction.

Easements An interest in property, owned by another, that entitles the holder to a specific limited use or privilege such as the right to cross or to build adjoining structures on the property.

Encroachment A fixture of a piece of property that intrudes on another’s property.

Equal Credit Opportunity Act (ECOA) A federal law requiring lenders and other creditors to make credit equally available without discrimination based on certain protected characteristics such as race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs.

Equity The difference between the fair market value and current indebtedness, also referred to as the owner’s interest.

Escrow Refers to a neutral third party who carries out the instructions of both the buyer and seller to handle all the paperwork of settlement or “closing.” Escrow may also refer to an account held by the lender into which the homebuyer pays money for tax or insurance payments.

Escrow Instructions Instructions to the escrow agent giving the parameters and contingencies involved in the transaction and agreed upon by both parties.

Escrow Waiver Request for a borrower to pay their own taxes and insurance. 

Federal Home Loan Mortgage Corporation (FHLMC) Also called Freddie Mac; a government-owned corporation that purchases conventional mortgages from lenders. FHLMC and FNMA finance the majority of mortgage lending.

Federal Housing Administration (FHA) A division of the Department of Housing and Urban Development. Its main activity is the insuring of residential mortgage loans made by private lenders.

Federal National Mortgage Association (FNMA) Also known as Fannie Mae; a government-owned corporation that purchases conventional mortgages from lenders. FNMA and FHLMC finance the majority of mortgage lending.

FHA Loan A loan insured by the Federal Housing Administration.

FHA Mortgage Insurance Requires a fee (up to 3% 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.

Fixed-Rate Mortgage A mortgage on which the interest rate is set for the term of the loan.

Flood Insurance A mandatory insurance for some homeowners whose property is built in a designated flood zone.

Foreclosure A legal procedure in which property securing debt is sold by the lender to pay a defaulting borrower’s debt.

Free and Clear This means the property is completely paid for and has no liens attached.

Government National Mortgage Association (GNMA) Also known as Ginnie Mae, provides financial support for residential mortgages insured or guaranteed by FHA or VA.

Graduated Payment Mortgage (GPM) A type of flexible-payment mortgage where the payments increase for a specified period of time and then level off. This type of mortgage has negative amortization built into it.

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

Guarantee 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.

Hazard Insurance A form of insurance in which the insurance company protects the insured from specified losses such as fire and windstorm.

Homestead Sometimes states grant statutory exemptions, giving property certain protections (usually to a set maximum amount) against the rights of the creditors. Property tax exemptions are also available in some states.

Housing Expenses-to-Income Ratio The ratio, expressed as a percentage, that results when a borrower’s housing expenses are divided by his/her net effective income (FHA/VA loans) or gross monthly income (conventional loans).

Impound The portion of a borrower’s monthly payments held by the lender or servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Also known as reserves.

Index A published interest rate, which is used as the basis for adjusting the interest rate on an adjustable-rate mortgage (ARM). Typically, the mortgage rate will be the index plus an offset, called the “margin,” that is specified when you take the loan. For example, a loan agreement might say the loan’s interest rate is the “LIBOR” rate (the London Interbank Offered Rate, the index for this example loan) plus 2% (the margin for the example loan). 

Interest Bearing A form of interest calculation where the loan is charged at a daily or monthly rate (1/365 or 1/12 of the annual interest rate) on the current outstanding balance.

Investor Money source for a lender.

Joint Tenants A form of holding title where the owners have rights of survivorship unless redirected by a will.

Jumbo Loan A loan that is larger than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be funded by these two companies, they usually carry a higher interest rate. As of 2017, the loan limit is $424,100 in most geographic areas, but the limit is higher in some higher-cost areas. The limit may also increase in the future.

LIBOR London Interbank Offered Rate. LIBOR is supposed to represent the base interest rate that European banks pay each other for short-term loans. There are different LIBOR rates for different lengths of short-term loan (for example one-month or three-month). A loan using LIBOR as an index will specify which LIBOR rate is being used.

Lien A claim upon a piece of property for the payment or satisfaction of a debt or obligation.

Loan Committee Generally the underwriting process.

Loan Risk The rate category assigned to the loan, which estimates the probable risk of delinquency and loss in the future.

Loan-To-Value Ratio (LTV) The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.

Margin The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.

Mortgage Escrow Accounts The account set by the lender to pay taxes and insurance on behalf of the borrower.

Mortgage Insurance Money paid to insure the mortgage when the down payment is less than 20%. See Private Mortgage Insurance or FHA Mortgage Insurance.

Mortgagee The lender.

Mortgagor The borrower or homeowner.

Negative Amortization Amortization means that monthly payments are large enough to pay the interest and reduce the principal on a mortgage. Negative amortization occurs when the monthly payments do not cover all of the interest cost. The interest cost that isn’t covered is added to the unpaid principal balance. This means that even after making many payments, a borrower may owe more than was owed at the beginning of the loan.

Net Effective Income The borrower’s gross income minus federal income tax.

Non-Assumption Clause Statements in the mortgage contract forbidding the assumption of the mortgage without the prior approval of the lender.

Non-Owner Occupied A property not used as a residence by the owner of the property.

Notary Public A person, designated by the state, who can certify the identity of a person who is signing various documents.

Note Short for promissory note. This document gives the parameters of the loan and legally obligates the borrower to pay back the debt.

Obligations Any debt or recurring payment the borrower is obligated to pay, including mortgage payments.

Origination Fee The fee charged by a lender or broker to prepare loan documents, make credit checks, inspect, and sometimes appraise a property.

Owner Occupied Designation given to property used as the owner’s residence.

Owner’s Policy A title insurance policy that protects the buyer against problems with the title.

P&I/Principal and Interest Refers to the principal and interest portions of the monthly mortgage payment.

P&L/Profit and Loss A statement of a business’s gross income, cost of goods, operating costs, and net profit or loss.

P.I.T.I. Principal, interest, taxes, and insurance. The complete monthly cost associated with financing a property.

Piggyback Loan Financing obtained, subordinate to the first mortgage, to facilitate closing the first mortgage. Also known as secondary financing.

Points A point is equal to one percent of the principal amount of a mortgage, see also Discount Points.

Power of Attorney An authority by which one person enables another to act on his or her behalf. Power of attorney can be limited to specific areas or be general in some cases.

Prelim/Preliminary Title Report The title report generated at the beginning of the application process. It tells the mortgage company what liens are on the property and gives advice as to what will need to be done to gain clear title prior to recording the trust deed.

Prepaid Interest The portion of interest, collected at loan closing, which covers the time period between funding and the beginning of the first 30-day period covered by the first payment. For example, if the loan closed on 2/15, the first payment due on 4/1 would pay interest from 3/1 to 4/1. The prepaid interest would cover the period from 2/15 to 2/28.

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 Money charged for an early repayment of debt. Prepayment penalties are allowed in some form (but not necessarily imposed) in 36 states and the District of Columbia.

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

Private Mortgage Insurance (PMI) In the event that you do not have a 20% down payment, lenders may be willing to allow a smaller down payment if you pay for mortgage insurance. FHA insurance is a form of mortgage insurance, but private companies are also available to provide mortgage insurance if you don’t qualify for an FHA program. 

Purchase Agreement The agreement made between the buyer and seller of a property, containing the purchase price and contingencies of the sale.

Quit Claim A deed operating as a release; intended to pass any title, interest or claim, which the grantor may have in the property, but not containing any warranty of a valid interest or title in the grantor.

Rate Float/Rate Lock Market interest rates change constantly, so the rates available when you close may be different from the rates when you apply for a loan. You can let the rate on your loan “float,” in which case the lender will make the loan at the rate that applies when you close the loan. Or you can make an agreement with the lender to “lock” the rate. A lock is good for a specific length of time, such as 30, 60 or 90 days; and a lender typically charges a certain amount for the lock, either as a direct charge or as a small markup in the interest rate. 

Ratios How a buyer’s housing expense and debt picture relates to their income.

Real Estate Settlement Procedures Act (RESPA) RESPA is a federal law that provides a range of protections for consumers in mortgage transactions.

Rescission The cancellation of a contract. For many loans, federal law gives a borrower certain rights to rescind a mortgage transaction. Of course, rescinding would mean returning the money that was borrowed. 

Recon/Reconveyance A release of lien filed with the county recorder by the trustee.

Recording Fees Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records.

Refi Slang for refinance, or a new mortgage on a property that does not change ownership.

Request for Reconveyance Verification given by the beneficiary to the trustee that the conditions of the lien have been fulfilled and request that the lien be canceled.

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

Second Mortgage A mortgage that is entered after the primary loan. Called a second due to it being in second lien position to the first mortgage. See also Secondary Financing.

Secondary Financing Financing obtained, subordinate to the first mortgage, to facilitate closing the first mortgage. Also known as a piggyback loan.

Servicing After a loan closes, there are various tasks for managing the borrower’s account, such as sending statements, collecting payments, applying payments to pay down the mortgage, maintaining and using escrow accounts to pay property tax and insurance, and more. Some lenders perform these tasks themselves, but others hire outside companies called servicers.

Settlement See Closing.

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 a lender (or another investor such as a family member or other partner) receives a portion of the future appreciation in the value of the property. 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.

Submission This refers to a complete loan application package submitted for approval to the underwriting department.

Substitution of Trustee A document, filed by the beneficiary, that changes the trustee on a particular trust deed.

Survey A measurement of land prepared by a registered land surveyor showing the location of the land with reference to known points, its dimensions, and the location and dimensions of any building.

Suspended The underwriter cannot yet approve or deny the loan. More information is required.

Tenants in Common A percentage interest in a property by two or more individuals without rights of survivorship.

Term Mortgage See Balloon Payment Mortgage.

Title A document that gives evidence of an individual’s ownership of property.

Title Insurance The insurance policy insuring the lender and/or the buyer that the liens are as stated in the title report. Claims arising from a lien other than that disclosed are usually payable by the title insurance company.

Title Search An examination of municipal records to determine the legal ownership of property. Usually is performed by a title company.

Trust Deed Attaches the note as a lien on the property. This is the document that conveys the ability to collect from the proceeds of the property.

Truth in Lending Act. A federal law providing a range of protections for consumers in credit transactions, including mortgage loans.  

Underwriting The decision whether to make a loan to a potential homebuyer based on credit, employment, assets, and other factors and the matching of this risk to an appropriate rate and term or loan amount.

 VA U.S. Department of Veterans Affairs

VA Loan A long-term, low- or no-down payment loan guaranteed by the Department of Veterans Affairs. Restricted to individuals qualified by military service or other entitlements.

VA Mortgage Funding Fee A premium of up to 2% (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.

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.

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.

 Zoning The division of a city or county into areas (zones) specifying the uses allowable for the real property in these areas.

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