Glossary

 

A B C D E F H I L M P Q R T V

 

A

 

Acceleration

 

The right of the mortgagee (lender) to demand the immediate repayment of the mortgage loan balance upon the default of the mortgagor (borrower), or by using the right vested in the Due-on-Sale Clause.

 

 

Adjustable rate mortgage (ARM)

 

Is a mortgage in which the interest rate is adjusted periodically based on a pre-selected index

 

 

Amortization

 

Means loan payment by equal periodic payment calculated to pay off the debt at the end of a fixed period, including accrued interest on the outstanding balance.

 

 

Amortization Term

 

The length of time required to amortize the mortgage loan expressed as a number of months. For example, 360 months is the amortization term for a 30-year fixed-rate mortgage.

 

 

Annual percentage rate (A.P.R.)

 

APR is a measurement of the full cost of a loan including interest and loan fees expressed as a yearly percentage rate. Because all lenders apply the same rules in calculating the annual percentage rate, it provides consumers with a good basis for comparing the cost of loans

 

 

Appraisal

 

An estimate of the value of property, made by a qualified professional called an "appraiser".

 

 

Appraised Value

 

An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property.

 

 

Assessment

 

A local tax levied against a property for a specific purpose, such as a sewer or street lights.

 

 

 

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B

 

Balloon Mortgage

 

A loan which is amortized for a longer period than the term of the loan. Usually this refers to a thirty-year amortization and a five year term. At the end of the term of the loan, the remaining outstanding principal on the loan is due. This final payment is known as a balloon payment

 

 

 

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C

 

Certificate of Eligibility

 

The document given to qualified veterans which entitles them to VA guaranteed loans for homes, business and mobile homes. Certificates of eligibility may be obtained by sending form DD-214 (Separation Paper) to the local VA office with VA form 1880 (request for Certificate of Eligibility)

 

 

Certificate of Reasonable Value (CRV)

 

An appraisal issued by the Veterans Administration showing the property's current market value

 

 

Certificate of veteran status

 

The document given to veterans or reservists who have served 90 days of continuous active duty (including training time) It may be obtained by sending DD 214 to the local VA office with form 26-8261a (request for certificate of veteran status. This document enables veterans to obtain lower down payments on certain FHA insured loans).

 

 

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 cost of closing usually are about 3 percent to 6 percent of the mortgage amount.

 

 

Closing Costs

 

These are expenses - over and above the price of the property- that are incurred by buyers and sellers when transferring ownership of a property. Closing costs normally include an origination fee, property taxes, charges for title insurance and escrow costs, appraisal fees, etc. Closing costs will vary according to the area country and the lenders used

 

 

Consumer Reporting Agency (or Bureau)

 

An organization that handles the preparation of reports used by lenders to determine a potential borrower's credit history. The agency gets data for these reports from a credit repository and from other sources.

 

 

Contract sale or deed

 

A contract between purchaser and a seller of real estate to convey title after certain conditions have been met. It is a form of installment sale.

 

 

Conventional loan

 

A mortgage not insured by FHA or guaranteed by the VA.

 

 

Credit Report

 

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

 

 

Credit Risk Score

 

A credit risk score is a statistical summary of the information contained in a consumer's credit report. The most well known type of credit risk score is the Fair Isaac or FICO score. This form of credit scoring is a mathematical summary calculation that assigns numerical values to various pieces of information in the credit report. The overall credit risk score is highly relative in the credit underwriting process for a mortgage loan.

 

 

 

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D

 

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 gross monthly income. See housing expenses-to-income ratio.

 

 

 

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E

 

Earnest Money

 

Money given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment.

 

 

Entitlement

 

The VA home loan benefit is called an entitlement (i.e. entitlement for a VA guaranteed home loan). This is also known as eligibility.

 

 

Equity

 

The difference between the fair market value and current indebtedness, also referred to as the owner's interest. The value an owner has in real estate over and above the obligation against the property.

 

 

Escrow

 

An account held by the lender into which the home buyer pays money for tax or insurance payments. Also earnest deposits held pending loan closing.

 

 

 

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F

 

FHA mortgage insurance

 

Requires a fee (up to 2.25 percent of the loan amount) paid at closing to insure the loan with FHA. In addition, FHA mortgage insurance requires an annual fee of up to 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

 

 

First Mortgage

 

The primary lien against a property.

 

 

Fixed Rate Mortgage

 

The mortgage interest rate will remain the same on these mortgages throughout the term of the mortgage for the original borrower.

 

 

FNMA

 

The Federal National Mortgage Association is a secondary mortgage institution which is the largest single holder of home mortgages in the United States. FNMA buys VA, FHA, and conventional mortgages from primary lenders. Also known as "Fannie Mae."

 

 

Foreclosure

 

A legal process by which the lender or the seller forces a sale of a mortgaged property because the borrower has not met the terms of the mortgage. Also known as a repossession of property.

 

 

 

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H

 

Hazard Insurance

 

A form of insurance in which the insurance company protects the insured from specified losses, such as fire, windstorm and the like

 

 

Housing Expenses-to-Income Ratio

 

The ratio, expressed as a percentage, which results when a borrower's housing expenses are divided by his/her gross monthly income. See debt-to-income ratio.

 

 

HUD-1 statement

 

A document that provides an itemized listing of the funds that are payable at closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow amounts. Each item on the statement is represented by a separate number within a standardized numbering system. The totals at the bottom of the HUD-1 statement define the seller's net proceeds and the buyer's net payment at closing.

 

 

 

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I

 

Impound

 

That 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.

 

 

Interest

 

The fee charged for borrowing money.

 

 

 

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L

 

Liabilities

 

A person's financial obligations. Liabilities include long-term and short-term debt.

 

 

Loan

 

A sum of borrowed money (principal) that is generally repaid with interest.

 

 

Loan-to-Value Ratio

 

The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.

 

 

Lock

 

Lender's guarantee that the mortgage rate quoted will be good for a specific number of days from day of application

 

 

 

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M

 

Market Value

 

The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.

 

 

MIP (Mortgage Insurance Premium)

 

It is insurance from FHA to the lender against incurring a loss on account of the borrower's default.

 

 

Mortgage

 

A legal document that pledges a property to the lender as security for payment of a debt.

 

 

Mortgage Banker

 

A company that originates mortgages exclusively for resale in the secondary mortgage market.

 

 

Mortgage Broker

 

An individual or company that charges a service fee to bring borrowers and lenders together for the purpose of loan origination.

 

 

Mortgagee

 

The lender.

 

 

Mortgage Insurance

 

Money paid to insure the mortgage when the down payment is less than 20 percent. See private mortgage insurance, FHA mortgage insurance.

 

 

 

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P

 

PITI

 

Principal, Interest, Taxes and Insurance. Also called monthly housing expense.

 

 

Points (loan discount points)

 

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

 

 

Pre-Approval

 

The process of determining how much money you will be eligible to borrow before you apply for a loan

 

 

Pre-Approval

 

The process of determining how much money you will be eligible to borrow before you apply for a loan.

 

 

Prepaid 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 many states.

 

 

Principal

 

The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.

 

 

Principal Balance

 

The outstanding balance of principal on a mortgage not including interest or any other charges.

 

 

Principal, Interest, Taxes, and Insurance (PITI)

 

The four components of a monthly mortgage payment. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the monthly cost of property taxes and homeowners insurance, whether these amounts that are paid into an escrow account each month or not.

 

 

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 3 percent in some cases. With the smaller down payment loans, however, borrowers are usually required to carry private mortgage insurance. Private mortgage insurance will usually require an initial premium payment and may require an additional monthly fee depending on your loan's structure.

 

 

 

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Q

 

Qualifying Ratios

 

Calculations used to determine if a borrower can qualify for a mortgage. They consist of two separate calculations: a housing expense as a percent of income ratio and total debt obligations as a percent of income ratio.

 

 

 

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R

 

Rate Lock

 

A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a Realtor® A real estate broker or an associate holding active membership in a local real estate board affiliated with the National Association of Realtors

 

 

 

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T

 

Title

 

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

 

 

Title Insurance

 

A policy, usually issued by a title insurance company, which insures a home buyer against errors in the title search. The cost of the policy is usually a function of the value of the property, and is often borne by the purchaser and/or seller. Policies are also available to protect the lender's interests.

 

 

Title Search

 

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

 

 

Total Expense Ratio

 

Total obligations as a percentage of gross monthly income including monthly housing expenses plus other monthly debts.

 

 

Truth-In-Lending

 

A federal law requiring disclosure of the Annual Percentage Rate to home buyers shortly after they apply for the loan. Also known as Regulation Z.

 

 

 

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V

 

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