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GLOSSARY
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Abstract
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A summary of the public records relating to the title to a particular piece of land. |
| Adjustable Rate Mortgage (ARM) |
A mortgage in which the interest rate is adjusted periodically based on an index. |
| Amortization |
The gradual reduction of a debt by periodic payments of interest and principal that are large enough to pay off a loan at maturity. |
| Annual Percentage Rate (APR) |
The annual cost of a loan to a borrower. Like an interest rate, the APR is expressed as a percentage of the loan amount. Unlike an interest rate, however, it includes other charges or fees to reflect the total cost of the loan. The Federal Truth in Lending Act requires that every consumer loan agreement disclose the APR in large, bold print. Since all lenders must follow the same rules to ensure the accuracy of the APR, borrowers can use the APR as a good basis for comparing the cost of loans. |
| Appraisal |
A written analysis of the estimated value of a property, as prepared by a qualified appraiser. |
| Balloon (Payment) Mortgage |
Usually a short-term fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a specific time. |
| Borrower |
One who receives funds in the form of a loan with the obligation of repaying the loan in full with interest |
| Bridge Loan |
A bridge loan is a short-term loan that covers the time between your closing date of a home you are buying and the closing date of the home you are selling. |
| Certificate of Title |
A certificate issued by a title company or a written opinion by an attorney that the seller has good marketable and insurable title to the property which he is offering for sale. |
| Closing |
The meeting between the buyer, seller and lender where the property and funds legally change hands. Also called settlement. |
| Closing Costs |
Includes a loan origination fee, points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. The closing costs usually are about 2 percent to 6 percent of the mortgage amount. |
| Commitment |
An agreement, often in writing, between a lender and a borrower to loan money at a future date subject to the stated conditions. |
| Conforming Loan |
Any loan that meets the criteria and limits set forth by the largest buyers of loans, Fannie Mae or Freddie Mac. |
| Construction Loan |
A short term interim loan for financing the cost of construction. The lender advances funds to the builder as the work progresses. |
| Conventional Loan |
A mortgage not insured by FHA or guarantee by the VA or Farmers Home Administration (FmHA). |
| 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 income (FHA/VA loans) or gross monthly income (Conventional loans). |
| Credit Report |
Report of an individual's credit history that a credit reporting company (CRC) or credit repository prepares that you use to determine a borrower's creditworthiness. |
| Credit Reporting Company |
Company that collects information received from more than one credit repository, merges all the information, and reports it in one form; merged credit reports. |
| Deed |
A formal written instrument by which title to real property is transferred from one owner to another. The deed should contain an accurate description of the property being conveyed, should be signed and witnessed according to the laws of the State where the property is located, and should be delivered to the purchaser at closing day. |
| Discount Points |
Additional points you can pay a lender to lower the interest rate on your loan at closing. Each point is equal to 1 percent of the loan amount (e.g. two points on a $100,000 mortgage would cost $2,000). Also referred to as Points. |
| Documentation |
A list of documents you will be required to provide when submitting a loan application. The required documents range from W2's to a signed sales contract. |
| Disclosures |
Information that must be given to consumers about their financial dealings. |
| Down Payment and Fees |
Money paid to make up the difference between the purchase price and mortgage amount plus the closing cost fees to close the loan. |
| Equal Credit Opportunity Act (ECOA) |
A federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs. |
| Earnest Money |
Money given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment. |
| 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. |
| Fannie Mae |
A tax-paying corporation created by Congress that purchases and sells conventional residential mortgages as well as those insured by FHA or guaranteed by VA. This institution, which provides funds for one in seven mortgages, makes mortgage money more available and more affordable. Also Referred to as Federal National Mortgage Association. |
| Farmers Home Administration (FmHA) |
Provides financing to farmers and other qualified borrowers who are unable to obtain loans elsewhere. |
| FHA Loan |
A loan insured by the Federal Housing Administration open to all qualified home purchasers. |
| FHA Mortgage Insurance |
Requires a small fee (up to 3 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. |
| Fixed Rate Mortgage |
A mortgage on which the interest rate is set for the term of the loan. |
| Foreclosure |
A legal procedure in which property securing debt is sold by the lender to pay a defaulting borrower's debt. |
| Freddie Mac |
Is a government overseen agency that purchases conventional mortgages from insured depository institutions and HUD-approved mortgage bankers. Also Referred to as Federal Home Loan Mortgage Corporation. |
| Ginnie Mae |
Provides sources of funds for residential mortgages, insured or guaranteed by FHA or VA. Also referred to as Government National Mortgage Association. |
| 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. |
| Gross Salary |
The total amount of salary earned before taxes and other deductions are made. Different than net pay or take home pay, which is the amount of salary after taxes and other deductions are taken. |
| 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. |
| Home Equity Loan |
A loan in real estate property that is used to secure or guarantee the amount borrowed. Sometimes referred to as a second mortgage or borrowing against your home. The loan allows you to tap into your home's built-up equity, which is the difference between the amount your home could be sold for, and any claims held against it. |
| Housing Expenses-to-Income Ratio |
The ratio, expressed as a percentage, which results when a borrower's housing expenses are divided by his/her net effective income (FHA/VA loans) or gross monthly income (Conventional loans). |
| Initial Interest Rate |
The initial interest rate is the rate you pay when you first get your loan. On an ARM, this rate may be for 5 years (5/1 ARM) or only a month. |
| Interest |
A charge paid for borrowing money. Interest is usually expressed as a percentage of the amount borrowed or interest rate. |
| Interest Rate |
The annual rate of interest on the loan, expressed as a percentage of 100. |
| Interest Rate Adjustment Period |
The interest rate adjustment period is how often your rate is adjusted on an ARM after the initial rate period is over. For example, a 5/1 ARM means you have an initial rate period of 5 years that is fixed and then after 5 years, your rate changes every year. |
| Lender Fees |
These are items payable in connection with the loan and contribute to the total amount of the loan's closing costs. These are the fees that lenders charge to process, approve and make the mortgage loan. |
| Lien |
A claim upon a piece of property for the payment or satisfaction of a debt or obligation. |
| 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. |
| Lock Period |
A lock period refers to the amount of time prior to closing that you can secure an interest rate for your loan. Generally, lock periods range from 30 days to over 90 days. Generally, the longer the lock period, the more you pay in points or interest. |
| 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. |
| Marketable Title |
A title that is free and clear of objectionable liens, clouds, or other title defects. A title which enables an owner to sell his property freely to others and which others will accept without objection. |
| Mortgage Insurance (PMI) |
Money paid to insure the mortgage when the down payment is less than 20 percent. |
| Non-Conforming Loan |
A conventional home mortgage that does not meet the criteria of Fannie Mae or Freddie Mac for various reasons including loan amount, loan characteristics or underwriting guidelines. Non-Conforming loans usually incur a higher rate and/or points. |
| Origination Fee |
A fee commonly charged for processing a loan application. The origination fee may be presented in the form of points or a dollar amount. Each point is equal to 1 percent of the loan amount (e.g. two points on a $100,000 mortgage would cost $2,000). |
| Piggyback Loan |
An alternative to private mortgage insurance, also known as a second trust loan. The most common type is an 80/10/10 where a first mortgage is taken out for 80% of the home's value, a down payment of 10% is made and another 10% is financed in a second trust at a higher interest rate. In some cases, you may even qualify for a piggyback loan with as little as a 5% down payment |
| PITI |
Principal, interest, taxes, and insurance. |
| Points |
Additional points you can pay a lender to lower the interest rate on your loan at closing. Each point is equal to 1 percent of the loan amount |
| 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. |
| Principal |
The amount of debt, not counting interest, left on a loan. |
| Private Mortgage Insurance (PMI) |
With the down payments lower than 20% of the total loan value loans, 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. See Piggyback loan for information on avoiding PMI |
| Rate |
In lending, the amount of interest on the loan expressed as an interest rate or annual percentage rate (APR) of the principal. |
| Recording Fees |
Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records. |
| Title |
A document that gives evidence of an individual's ownership of property. |
| Title Insurance |
A policy, which insures a homebuyer against errors in the title search. |
| Underwriting |
The analysis of the risk involved in making a mortgage loan to determine whether the risk is acceptable to the lender. Underwriting involves the evaluation of the property as outlined in the appraisal report, and of the borrower's ability and willingness to repay the loan. |
| VA Loan |
Mortgage loan made by an approved lender and guaranteed by the Department of Veterans Affairs. VA loans are made eligible to veterans and those currently serving in the military, and can have lower down payment than other types of loans. |
