| A B C D E F G H I K J L M N O P Q R S T U V W X Y Z |
| A |
| A-Credit | A
consumer with the best credit rating, deserving of the lowest prices that
lenders offer.Most lenders require a
FICO score above 720.There is seldom
any payoff for being above the A-Credit threshold, but you pay a penalty for
being below it. |
| Acceleration clause | The
clause in a mortgage or trust deed that gives the lender the right to demand
repayment of the entire loan balance immediately, in the event that the
borrower violates one or more clauses in the note. |
| Accrued Interest | Interest
that is earned but not paid, adding to the amount owed on the loan. |
| Acquisition cost | Under
an FHA loan, the purchase price or appraised value of the property plus the
estimated closing costs. |
| Adjustable Rate Mortgage (ARM) | A
mortgage in which the interest rate is adjusted periodically based on an
index. Also called a variable rate
mortgage. |
| Adjustment date | The
date the intereste rate changes on an ARM. |
| Adjusted interval | For
an adjustable rate mortgage, the time between changes in the interest rate
charged.The most common adjustment
intervals are one, three or five years. |
| Adjusted book basis | The
purchase price of a property plus any capital improvements less accrued
depreciation, if any, to the date of the sale. |
| Affordability | A
consumer's capacity to afford a house.Affordability is usually expressed in terms of the maximum price the
consumer could pay for a house and become approved for the mortgage required
to pay that amount. |
| Agreement of Sale | A
contract signed by buyer and seller stating the terms and conditions under
which a property will be sold. |
| Alternative Documentation | Expedited
and simpler documentation requirements designed to speed the loan approval
process.Instead of verifying
employment with the applicant's employer and bank deposits with the
applicant's bank, the lender will accept paycheck stubs, W-2's, and the borrower’s original bank statements. |
| Amenity | A
feature of the home or property that serves as a benefit to the buyer but
that is not necessary to its use; may be natural (like location, woods,
water) or man made (like a swimming pool or garden). |
| Amortization | Repayment
of a mortgage loan through monthly installments of principal and interest;
the monthly payment amount is based on a schedule that will allow you to own
your home at the end of a specific time period (for example 15 or 30 years).The payments are structured so that the borrower pays off both interest and principal with each equal payment. |
| Amount Financed | On
the Truth in Lending form, the loan amount less "prepaid finance charges", which are lender fees paid at closing. |
| Annuity | A
series of income payments of receipts over a period of years. |
| Application | A
mortgage application is a request for a loan that requires borrowers to
submit information regarding their income, savings, assets, debts, the
property and more. |
| Application fee | The
fee charged by the lender to the borrower for applying for a loan.Payments of their fee does not guarantee
that a loan will be approved.Some
lenders may apply the cost of the application fee to certain closing
costs.It may or may not cover other costs such as property appraisal or credit reports, and may or may not be refundable if the lender declines the loan. |
| Appraisal | A
document that gives an estimate of a property's fair market value; an
appraisal is generally required by a lender before loan approval to ensure
that the mortgage loan amount is not more than the value of the property. |
| Appraiser | A
qualified individual who uses his or her experience and knowledge to prepare
the appraisal estimate. |
| APR | The
Annual Percentage Rate, which must be reported by lenders under Truth in
Lending regulations, is a comprehensive measure of credit cost to the
borrower that takes account of the interest rate, points, and flat dollar
charges.It is also adjusted for the time value of money, so that dollars paid by the borrower up-front carry a heavier weight than the quoted APR because the pints and loan fees are spread out over fewer years. |
| Approval | Acceptance
of the borrower's loan application.Approval means that the borrower meets the lender's qualification
requirements and also its underwriting requirements.In some cases, especially where approval is
provided quickly as with automated underwriting requirements. In some cases, especially where approval is provided quickly as with automated underwriting systems, the approval will be conditional on further verification of information provided by the borrower. |
| Assessment | Determining
a property's value for the purpose of taxation. |
| Assumable loan | These
loans may be passed on from a seller of a home to a buyer.The buyer "assumes" all
outstanding payments. |
| Assumption | The
buyer of the property agrees to become responsible for the repayment of an
existing loan on the property.Unless
the lender also agrees, however, the seller remains liable for the mortgage. |
| Appreciation | Increases
in property value due to fluctuations in the market, inflation, etc. |
| Asset | Valuable
items, encumbered or not, owned by a person, corporation or entity. |
| Assumable Mortgage | A
mortgage that provides for a buyer to "assume" all outstanding
payments when a home is sold.The
buyer usually must meet qualification standards to assume a loan. |
| Automated Underwriting | A
computer-driven process for informing the loan applicant very quickly,
sometimes within a few minutes, and whether the applicant will be approved,
whether the applicant will be forwarded to an underwriter.The quick decision is based on information provided by the applicant, which is subject to later verification, and other information retrieved electronically, including information about the borrower’s credit history.
pro |
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| Balloon mortgage | Behaves
like a fixed-rate mortgage for a set number of years (usually five or seven)
and then must be paid off in full in a single "balloon"
payment.Balloon loans are popular with
those expecting to sell or refinance their property within a definite period of time.On a 7-year balloon, for example, the payment is usually calculated over a 30-year period, and the balance at the end of the 7th year must be repaid or refinanced at that time.Balloon mortgages are similar to ARM’s in that the borrower trades off a lower rate in the early years against the risk of a higher rate later.They are riskier than ARM’s because there are no limits on the extent of a rate increase at the end of the balloon payment. |
| Balloon payment | The
final lump sum that is paid at the end of the balloon mortgage. |
| Bankruptcy | A
tactic that individuals use to relieve themselves of debts and/or liabilities
when they are no longer able to repay.The most common form of individual bankruptcy is a Chapter 7, when an
individual frees himself from most of his/her debts.Borrowers who have undergone bankruptcy usually cannot qualify for "A" paper loans until two years after declaration and a re-establishment of credit. |
| Bill of sale | A
written document that transfers a title to personal property. |
| Bi-monthly Mortgage | A
mortgage on which the borrower pays half the monthly payment on the first day
of the month, and the other half on the 15th. |
| Bi-weekly mortgage | A
mortgage on which the borrower pays half the monthly payment every two weeks,
because this results in 26 (rather than 24) payments per year.The biweekly mortgage amortizes before
term. |
| Blanket mortgage | A
mortgage secured by the pledging of more than one property of collateral. |
| Book value | Acquisition
costs less any accrued depreciation. |
| Borrower | A
person who has been approved to receive a loan and is then obligated to repay
it and any additional fees according to the loan terms. |
| Broker | An
individual in the business of assisting in arranging funding or negotiating
contracts for a client but who does not loan the money himself.Brokers usually charge a fee or receive a
commission for their services. |
| Bridge loan | An
equity loan secured to solve short-term financing problem.Usually from a bank that "bridges" the period between the closing
date of a home purchase and the closing date of a home sale.To qualify for a bridge loan, the borrower
must have a contract to sell the existing house. |
| Building code | Based
on agreed upon safety standards within a specific area, a building code is a
regulation that determines the design, construction, and materials used in
building. |
| Budget mortgage | A
mortgage that includes a portion for taxes and insurance as well as principal
and interest. |
| Buy down | Allows
loans to be made at less-than-market interest rates by paying front-end
discounts.The interest rate is
brought down for a temporary period, usually from one to three years.In order to acquire this discount, a lump sum
is paid and held in an account used to supplement the borrower’s monthly payment. After the discount period, the payment is calculated as the note rate. |
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| Callable debt | A
debt security in where the issuer has the right to redeem the security at a
specified price on or after a specified date, but prior to its stated final
maturity date. |
| Cap | A
limit, such as that placed on an adjustable rate mortgage, on how much a
monthly payment of interest rate can increase of decrease.Caps are usually quoted as two numbers as
in 2/6.The first number indicates how
much a loan may adjust at each adjustment period, while the second number indicates how much a loan may adjust over its lifetime. |
| Carryback loan | A
loan in which a seller agrees to finance a buyer in order to complete a
property sale. |
| Cash - Out Refinance | Refinancing
for an amount in excess of the balance on the old loan plus settlement
costs.The borrower takes
"cash-out" of the transaction.This method of raising cash is usually an alternative to taking out a
home equity loan. |
| Cash reserves | A
cash amount sometimes required to be held in reserve in addition to the down
payment and closing costs; the amount is determined by the lender. |
| Certificate of Eligibility | A
veteran's evidence of entitlement for a VA-guaranteed loan. |
| Certificate of reasonable value (CRV) | An
appraisal that has been performed on a property that is being paid for a VA
loan.After the property has been
appraised, the Veterans Administration issues a CRV. |
| Certificate of title | A
document provided by a qualified source (such as a title company) that shows
the property legally belongs to the current owner; before the title is
transferred at closing, it should be clear and free of all liens or other
claims. |
| Closing | Also
known as settlement, this is the time at which the property is formally sold
and transferred from the seller to the buyer.It is at this time that the borrower takes on the loan obligation,
pays all closing costs, and receives title from the seller. |
| Closing costs | Closing
costs are fees paid by the borrower when a property is purchased or
refinanced.Costs incurred include a
loan origination fee, discount points, appraisal fee, title search, title
insurance, survey , taxes, deed recording fee, and credit report charges. All closing costs are separated into "non-recurring," and "pre-paid."Non-recurring changes are any items that are paid only once, such as a loan origination fee. Pre-paid charges are those that recur over time, like insurance and property taxes. These are summarized in the Good Faith Estimate. |
| Cloud | An
outstanding claim or encumbrance, that, if valid, would affect or impair the
owner's property title. |
| Co-Borrowers | One
or more persons who have signed the note, and are equally responsible for
repaying the loan.Unmarried
co-borrowers who live together are advised to agree beforehand on what
happens if they split. |
| COFI | Cost
of funds index.One of many interest
rate indexes used to determine the interest rate adjustments on an
adjustable rate mortgage. |
| Collateral | Property
pledged as a security to back up a promise.In a home loan, the property is considered collateral that can be
revoked if loan is not repaid according to the terms of the mortgage or deed
of trust. |
| Commission | An
amount, usually a percentage of the property sales price, that is collected
by a real estate professional as a fee for negotiation the transaction. |
| Commitment | A
written letter of agreement detailing the terms and conditions by which the
lender will lend and the borrower will borrow funds to finance a home. |
| Condominium | A
form of ownership in which individuals purchase and own a unit of housing in a
mult-unit complex; the owner also shares financial responsibility for common
areas. |
| Conforming loan | A
mortgage loan for up to $333,700 in the U.S. |
| Conforming Mortgage | A
loan eligible for purchase by the two major Federal agencies that buy
mortgages, Fannie Mae, and Freddie Mac. |
| Construction loan | A
short term loan for funding the cost of construction.The method of financing used when a
borrower contracts to have a house built, as opposed to purchasing a
completed house.The lender advances
funds to the builder as the work progresses. |
| Conventional loan | A
private sector loan, one that is not guaranteed or insured by the U.S.
government.A mortgage loan that is
obtained with out any additional guarantees for repayment, such as FHA
insurance, VA guarantees, or private insurance.This is usually given at an 80% loan to value ratio. |
| Conversion | The
right of a borrower to convert an adjustable (ARM), or balloon loan into a
fixed (FRM) loan.The loans are likely
to carry a higher rate or points than ARM's that do not have the option. |
| Cooperative (Co-op) | Residents
purchase stock in a cooperative corporation that owns a structure; each
stockholder is then entitled to live in a specific unit of the structure and
is responsible for paying a portion of the loan. |
| COSI | Cost
of savings index.One of many interest
rate indexes used to determine interest rate adjustments on an adjustable
rate mortgage. |
| Co-signing a note | Assuming
responsibility for someone else's loan in the event that the borrower
defaults.A risk not to be taken
lightly. |
| Credit history | History
of an individual's debt payment; lenders use this information to gauge a
potential borrower's ability to repay a loan. |
| Credit loan | A
credit loan is a mortgage that is issued on only the financial strength of a
borrower, without great regard for collateral. |
| Credit report | A
record that lists all past and present debts and the timeliness of their
repayment;it documents an
individual's credit history. |
| Credit-loss ratio | The
ratio of credit-related losses to the dollar amount of MBS outstanding and
total mortgages owned by the corporation. |
| Credit rating | Credit
ratings are expressed as letter grades such as A-, B, or C+.These ratings are based on various factors
such as borrower's payment history, foreclosures, bankruptcies and
charge-offs.There is no exact science
to rating a borrower's credit, and different lenders ma assign different grades to the same borrower. |
| Credit-related expenses | The
sum of foreclosed property expenses plus the provision for losses. |
| Credit-related losses | The
sum of foreclosed property expenses plus charge-offs. |
| Credit Score | A
single numerical score, based on an individual's credit history, that
measures that individual’s credit worthiness.The most widely used credit score is called the FICO, for Fair Isaac
Co., which developed it. |
| Cumulative interest | The
sum of all interest payments to date or over the life of the loan.This is an incomplete measure of the cost
of credit to the borrower because it does not include up-front cash payments,
and it is not adjusted for the time value of money. |
| Current Index Value | The
most recently published value of the index used to adjust the interest rate
on an indexed adjustable rate mortgage (ARM). |
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| Debt Consolidation | Rolling
short-term debt into a home mortgage loan, either at the time of purchase or
later. |
| Debt-to-income ratio (DTI) | The
ration of aggregate monthly debt to aggregate monthly income. |
| Deed | The
document that transfers ownership of a property. |
| Deed-in-lieu | To
avoid foreclosure ("in lieu" of foreclosure), a deed is given over
to the lender as an alternative to foreclosure on the property, and to fulfill
the obligation to repay the debt; this process doesn't allow the borrower to
remain in the house but helps avoid the costs, time and effort associated with foreclosure. |
| Default | The
failure to make payments on a loan.Usually borrowers delinquent 90 days or more are considered to be in
default. |
| Delinquency | A
mortgage payment that is more than 30 days late. |
| Demand Clause | A
clause in the note that allows the lender to demand repayment at any time for
any reason. |
| Deposit | A
lump sum given in advance as security.A deposit always pays off a larger amount needing to be paid off in
the future.In mortgage and real
estate terms, this is called the "earnest money deposit." |
| Depreciation | In
real estate and mortgage terms, the decline in the property value. |
| Discount | Difference
between the face amount of a note or mortgage and the price at which the
instrument is sold in the secondary market. |
| Discount points | Used
in government subsidized loans, such as FHA and VA loans.Normally paid at closing and generally
calculated to be equivalent to 1% of the total amount, discount points are
paid to reduce the interest rate on a loan. |
| Documentation Requirements | The
set of lender requirements that specify how information about a loan
applicant's income and assets must be provided, and how it will be used by
the lender. |
| Down payment | The
difference between the value of the property and the loan amount, expressed
in dollars, or as a percentage of the price.For example, if the house sells for $100,000 and the loan is for
$80,000, the down payment is $20,000 at 20%. |
| Dual Paper | A
borrower who submits applications through two loan providers, usually
mortgage brokers. |
| Dual Index Mortgage | A
mortgage on which the interest rate is adjustable based on an interest rate
index, and the monthly payment adjusts based on a wage and salary index. |
| Due-on-sale clause | A
provision of a loan contract that stipulates that if the property is sold,
the loan balance must be repaid.This
bars the seller from transferring responsibility for an existing loan to the
buyer when the interest rate on the old loan is below the current market. A mortgage containing a due-on-sale clause is not an assumable mortgage. |
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| Earnest money | Money
put down by a potential buyer to show that he or she is serious about
purchasing the home; it becomes part of the down payment if the offer is
accepted, is returned if the offer is rejected, or is forfeited if the buyer
pulls out of the deal. |
| Effective rate | A
term used in two ways.In one context
it refers to a measure of interest to the borrower that is identical to the
APR except that it is calculated over the time horizon specified by the
borrower.The APR is calculated on the
assumption that the loan runs to term, which most loans do not.In most texts on the mathmatics of finance, however, the "effective rate" is the quoted rate adjusted for intra-year compounding. |
| Eminent domain | The
government right to take private property for public use depended on the
payment of its fair market value. |
| Encumbrance | Any
lien against a property or any restriction in its use, such as an easement; a
right or interest in a property held by one who is not the legal owner. |
| EEM | (Energy
Efficient Mortgage) and FHA program that helps homebuyers save money on
utility bills by enabling them to finance the cost of adding energy
efficiency features to a new or existing home as part of the home purchase. |
| Equal Credit Opportunity Act (ECOA) | The
act declaring the elimination of discrimination on the basis of age, sex, and
race in finance. |
| Equity | An
owner's financial interest in a property; calculated by subtracting the
amount still owed on the mortgage from the fair market value of the property. |
| Equity Grabbing | A
type of predatory lending where the lender intends for the borrower to
default so the lender can grab the borrower's equity. |
| Escalator clause | A
clause in a loan providing for increases in payments of interest based on
pre-determined schedules or on a specific economic index, such as the
consumer price index. |
| Escrow | An
agreement that money or other objects of value be placed with a third party
for safe keeping.The third party
agent receives, holds, and disburses certain funds or documents upon the
performance of certain conditions.For
example, an earnest money deposit is put into escrow until the transaction is closed.Only then can the seller receive the deposit. |
| Escrow account | (Impound
account)A separate account into which
the lender puts a portion of each monthly mortgage payment (the overage of
principal and interest); an escrow account provides the funds needed for such
expenses as property taxes, homeowners insurance, mortgage insurance, etc. |
| Escrow analysis | An
analysis performed by a lender each year to escrow account holders to ensure
that the correct amount of money is being collected to cover anticipated
payments. |
| Escrow fee | These
costs cover the preparation and transmission of all home purchased-related
documents and funds.Escrow fees are
based on the purchase price of your home.Not all states require funds to be put into escrow accounts for
closing. |
| Estate | The
ownership interest an individual holds in real property.This is also the sum total of all the real
property and personal property owned by an individual at time of death. |
| Eviction | The
legal removal of real property occupants for unlawful actions carried out by
those occupants. |
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| Fair credit reporting act | A
law that protects consumers, it regulates the reporting of consumer credit
by agencies and establishes procedures for correcting errors on an
individuals record. |
| Fallout | Loan
publications that are withdrawn by borrowers, sometimes because they have
found better deals. |
| Fannie Mae (FNMA) | Federal
National Mortgage Association is a congressionally chartered,
shareholder-owned company that purchases residential mortgages and converts
them into securities for sale to investors; by purchasing mortgages, Fannie
Mae supplies funds that lenders may loan to potential homebuyers. |
| Fannie Mae's Community Home Buyer's Program | A
program that offers flexible underwriting guidelines to subsidized a low-to
moderate income family's purchase a home.The program usually decreases the total amount of cash needed to
purchase a home. |
| Fair market value | The
hypothetical price that a willing buyer and seller will agree upon when
they are acting freely, carefully, and with complete knowledge of the
situation. |
| Fees | Up
front costs associated with a loan. |
| Fee simple | The
best title that one can obtain; unqualified and conveys the highest bundle of
rights. |
| FHA mortgage | A
mortgage on which the lender is insured against loss by the Federal Housing
Administration, with the borrower paying the mortgage insurance premium.The major advantage of an FHA mortgage is
that the required down payment is very low, but the maximum loan amount is also low. |
| Finance charge | The
total dollar amount your loan will cost you.It includes all interest payments for the life of the loan, any
interest paid at closing, your origination fee and any other charges paid to
the lender and/or broker.Appraisal,
credit report and title search fees are not included in the finance charge calculation. |
| First Mortgage | A
mortgage that has a first-priority claim against the property in the event
the borrower defaults on the loan. |
| | |
| Fixed-rate mortgage | A
mortgage with payments that remain the same throughout the life of the loan
because the interest rate and other terms are fixed and do not change. |
| Float | Allowing
the rate and points to vary with changes in market conditions.The borrower may elect to lock the rate and
points at any time but must do so before the last few days of closing.Allowing the rate to float exposes the
borrower to market risk, and also to the risk of being taken advantage of by the loan provider. |
| Float-down | A
rate lock, plus an option to reduce the rate if market interest rates decline
during the lock period.Also called a
cap.A float-down costs the borrower
more than a lock because it is more costly to the lender.Float-downs very widely in terms of how often the borrower can exercise (usually only once), and exactly when the borrower can exercise. |
| Foreclosure | The
legal process by which a lender acquires possession of the property securing
a mortgage loan when the borrower defaults. |
| Forbearance agreement | An
agreement by the lender not to exercise the legal right to foreclose in
exchange for an agreement by the borrower to a payment plan that will cure the
borrower's delinquency. |
| Freddie Mac (FHLM) | (Federal
Home Loan Mortgage Corporation)A
federally chartered corporation that purchases residential mortgages,
securitizes them, and sells them to investors; this provides lenders with
funds for new homebuyers. |
| Fully amortizing payment | The
monthly mortgage payment which, if maintained unchanged throughout the
remaining life of the loan at the then-existing interest rate, will pay off
the loan over the remaining life. |
| Fully indexed interest rate | The
current index value plus the margin on an ARM.Usually, initial interest rates on ARM's
are below the fully indexed rate.If
the index does not change from its initial level, after the initial rate
period ends the interest rate will rise to the fully indexed rate after a period determined by the interest rate increase cap. |
| 401(k)/403(b) | An
investment plan sponsored by employers that allows individuals to set aside
tax-differed income for retirement or emergency purposes.A 401(k) applies to private corporations,
while a 403(b) applies to non-profit organizations. |
| 401(k)/403(b) loan | A
loan that can be taken against the amount accumulated in the 401(k)/403(b)
plans, if so allowed by the plan administrator.Loans against these plans are an acceptable
source or down payment for most types of other loans. |
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| Generic prices | Prices
that assume a more or less standardized set of transaction characteristics
that generally command the lowest prices.Generic prices distinguished from transaction specific prices, which
pertain to the characteristics of a specific transaction. |
| Gift of Equity | A
sale price below market value, where the difference is a gift from the seller
to the buyers.Such gifts are usually
between family members.Lenders will
usually allow the gift to count as a down payment. |
| Ginnie Mae (GNMA) | (Government
National Mortgage Association) A government owned corporation overseen by the
U.S. Department of Housing and Urban Development, Ginnie Mae pools
FHA-insured and VA-guaranteed loans to back securities for private
investment; as with Fannie Mae and Freddie Mac, the investment income provides funding that may then be lent to eligible borrowers by lenders. |
| Good Faith Estimate | The
form that lists the settlement charges the borrower must pay at closing,
which the lender is obliged to provide the borrower within three business days
of receiving the loan application. |
| Grace Period | The
period after the payment due date during which the borrower can pay without
being hit for late fees.Grace periods
apply only to mortgages which interest is calculated montly.Simple interest mortgages do not have a
grace period because interest accrues daily. |
| Graduated Payment Mortgage | A
mortgage on which the payment rises by a constant percent for a specific
number of periods, after which it levels out over the remaining term and
amortizes fully. |
| Graduation Period | The
interval at which the payment rises on a GPM |
| Graduation Rate | The
percentage increase in the payment rises on a GPM |
| Gross income | Total
income before taxes or expenses are deducted.Often used in calculations to determine whether a borrower qualifies
for a particular loan. |
| Guaranteed Mortgage Price Agreement | A
proposal by HUD in 2002 to allow lenders and other to offer packages loans
and settlement services at a single price. |
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| Hard-money mortgage | Cash
loan to a borrower. |
| Hazard insurance | Insurance
purchased by the borrower, and required by the lender, to protect the
property against loss from fire and other hazards.Also known as "homeowner
insurance." |
| HELP | (Homebuyer
Education Learning Program) An educational program from the FHA that counsels
people about the home buying process; HELP covers topics like budgeting,
finding a home, getting a loan, and home maintenance; in most cases,
completion of the program may entitle the homebuyer to a reduced initial FHA mortgage insurance. |
| Homebuyer protection plan | A
plan purporting to protect FHA homebuyers against property defects, such as a
leaky roof, etc. |
| | |
| Home Equity Conversion Mortgage (HECM) | Also
known as the reverse annuity mortgage.This mortgage provides that instead or making payments to a lender,
the lender makes payments to the individual.Older homeowners are able to convert home equity into cash this way,
in the form of monthly payments.Borrowers don’t qualify on the basis of income, but on the value of his or her home.Such a loan does not have to be repaid until the borrower no longer occupies the residence. |
| Home Equity Line of Credit (HELOC) | A
mortgage loan in second position that allows a borrower to obtain cash drawn
against home equity, up to a certain amount. |
| Homeowners insurance | A
insurance policy that combines personal liability insurance and hazard
insurance for a home and its contents. |
| Housing Bank | A
government-owned or affiliated housing lender.With minor exceptions, the government in
the US has never loaned directly to consumers, but housing banks are
widespread in many developing countries. |
| Housing counseling agency | Provides
counseling and assistance to individuals on a variety of issues, including
loan default, fair housing, and home buying. |
| Housing Expense | The
sum of mortgage payment, hazard insurance, property taxes, and homeowner
association fees. |
| Housing Expense Ratio | The
ratio of housing expense to borrower income, which is used (along with the
total expense ratio and other factors) in qualifying borrowers.Also called Payment to Income Ratio or
Front End Ratio. |
| Housing Investment | The
amount invested in a house, equal to the sale price less the loan amount. |
| HUD | (U.S.
Department of Housing and Urban Development) Established in 1965, HUD works
to create a decent home and suitable living environment for all Americans; it
does this by addressing housing needs, improving and developing American
communities, and enforcing fair housing laws. |
| HUD1 Form | The
form a borrower receives at closing that details all the payments and
receipts among the parties in a real estate transaction, including borrower,
lender, home seller, mortgage broker and various service providers. |
| Hybrid financing | The
joining together of two forms of finance, such as combining a convertible
loan with a participation loan, under which the lender has the right at loan
maturity to convert the debt to a 50% ownership in the property. |
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| Indexed Arm | An
ARM on which the interest rate adjusts mechanically based on changing an
interest rate index, as opposed to a "discretionary ARM" on which
the lender can change the rate at any time subject only to advance notice.All ARM's in the US are indexed. |
| Initial Interest Rate | The
interest rate that is fixed for some specified number of months at the
beginning of the life of an ARM.The
initial rate is sometimes referred to as a "teaser," when it is
below the fully indexed interest rate. |
| Initial Rate Period | The
number of months for which the initial rate holds, ranging from 1 month to 10
years. |
| Interest Accrual Period | The
period over which the interest due the lender is calculated.If the interest accrual period on a 6%
mortgage for $100,000 is a year, the interest for the year is .06.If interest accrues monthly, as it does on
most mortgages in the US, the monthly interest is .06/12 ($100,000) = $500.If interest accrues biweekly, as on a few programs in the US, the biweekly interest is .06/24 ($100,000) = $230.77.And if interest accrues daily, as HELOC’s and some other mortgages in the US do, the daily interest is .06/360 ($100,000) = $16.44. |
| Interest Cost | A
time-adjusted measure of cost to a mortgage borrower.It is calculated the same way as the APR
except that the APR assumes that the loan runs full term, and is always
measured before taxes.Interest cost
is measured over the individual borrower's time horizon, and it may be measured after taxes at the individual borrower’s rate.In addition, the cost items included in interest costs may be more of less inclusive than those including the APR. |
| Interest Due | The
amount of interest, expressed in dollars, computed by multiplying the loan
balance at the end of the preceding period times the annual interest divided
by the interest accrual period.It is
the same as interest payment except when the scheduled mortgage payment is less than the interest due, in which case the difference is added to the balance and constitutes negative amortization. |
| Interest-Only Mortgage | A
mortgage on which for some period the monthly mortgage payment consists of
interest only.During that period, the
loan balance remains unchanged. |
| Interest Payment | The
dollar amount of interest paid each month.It is the same as interest so long as the scheduled mortgage payment
is equal to or greater than the interest due.Otherwise, the interest payment is equal to the scheduled payment. |
| Interest Rate | The
rate charged the borrower each period for the loan of money, quoted on an
annual basis. |
| Interest rate adjustment period | The
frequency of rate adjustments on an ARM after the initial rate period is
over.The rate adjustment period is
sometimes but not always the same as an initial rate period. |
| Interest Rate Ceiling | The
highest interest rate possible under an ARM contract.It is often expressed as a specified number
of percentage points above the initial interest rate. |
| Interest Rate floor | The
lowest interest rate possible under an ARM contract.Floors are less common than ceilings. |
| Interest rate increase cap | The
maximum allowable increase in the interest rate on an ARM each time the rate
is adjusted.It is usually 1 or 2
percentage points. |
| Interest rate decrease cap | The
maximum allowable decrease in the interest rate on an ARM each time the rate
is adjusted.It is usually 1 or 2
percentage points. |
| Interim refinance | An
ill-advised scheme to avoid a prepayment penalty by refinancing twice instead
of once. |
| Internet mortgages | Mortgages
delivered using the internet as a major part of the communication process
between the borrower and the lender. |
| Investor | In
real estate, a borrower who owns or purchases a property as an investment
rather than as a residence |
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| Jumbo Mortgage | A
mortgage larger than the maximum eligible for purchase by the two Federal
agencies, Fannie Mae and Freddie Mac, $359,650 in 2005.However, some lenders use the term to refer
to programs for even larger loans, such as e.g., greater than $500,000. |
| Junk Fees | A
derogatory term for lender fees expressed in dollars rather than as a percent
of the loan amount. |
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| Late Fees | Fees
that lenders are entitled to collect from borrowers who don't pay within the
grace period.Most mortgage notes
offer borrowers a 15-day grace period, with a late charge of 5% on payments
received on the 16th or later. |
| Lien | The
lender's right to claim the borrower's property in the event the borrower
defaults.If there is more than on
lien, the claim of the lender holding the first lien will be satisfied before
the claim of the lender holding the second lien, which in turn will be satisfied before the claim of a lender holding a third lien, etc. |
| Loan amount | The
amount the borrower promises to repay, as set forth in the mortgage
contract.It differs from the amount
of cash disbursed by the lender by the amount of points and upfront costs
included in the loan. |
| Loan flipping | The
process of raising cash periodically through successive cash-out
refinancings.It is a scam initiated
by mortgage brokers that victimizes wholesale lenders, with the connivance of
borrowers. |
| Loan modification | A
change in the terms of a loan, usually the interest rate and/or term, in
response to the borrower’s inability to make the payments under the existing
term. |
| Loan officer | Employees
of lenders or mortgage brokers who find borrowers, sell to them, counsel
them, and take applications. |
| Loan-to-value ratio | The
loan amount divided by the lesser of the selling price or the appraised
value.Also referred to as LTV.The LTV and down payment are different ways
of expressing the same set of facts. |
| Lock | An
option exercised by the borrower, at the time of the loan application, to
"lock in" the rates and points prevailing in the market at that
time.The lender and borrower are
committed to those terms, regardless of what happens between that point and
the closing date. |
| Lock commitment letter | A
written statement from a lender verifying that the price and other terms of a
loan have been locked.Borrowers who
lock through a mortgage broker should always demand to see the lock
commitment letter. |
| Lock jumper | A
borrower, usually refinancing rather than purchasing a home, who allows the
lock to expire when interest rates go down in order to lock again at the
lower rate. |
| Lock period | The
number of days for which any lock or float-down holds.Ordinarily, the longer the period, the higher
the price to the borrower. |
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| Mandatory disclosure | The
array of loans and regulations dictating the information that must be
disclosed to mortgage borrowers, and the method and timing of disclosure. |
| Manufactured housing | A
house built entirely in a factory, transported to a site and installed
there.They are usually built without
knowing where they will be sited, and are subject to a Federal building code
administered by HUD. |
| Margin | The
amount added to the interest rate index to obtain the fully indexed interest
rate on an ARM. |
| Market niche | A
particular combination of loan, borrower and property characteristics lenders
use in setting prices and underwriting requirements.These characteristics are believed to
affect the default risk or cost of the loan. |
| Maturity | The
period until the last payment is due.This is usually but not always the term, which is the period used to
calculate the mortgage payment. |
| Maximum Loan Amount | The
largest loan size permitted on a particular loan program.For a program where the loan is targeted
for sale to Fannie Mae or Freddy Mac, the maximum will be the largest loan
eligible for purchase by these agencies.FHA loans, the maximums are set by The Federal Housing Administration and vary somewhat by geographical area. On other loans, maximums are set by lenders. |
| Maximum lock | The
longest period for which the lender will lock the rate and points on a
program.The most common maximum lock
period is 60 days, but on some programs the maximum is 90 days; only a few go
beyond 90 days. |
| Minimum down payment | The
minimum allowable ratio of down payment to sale price on any program.If the minimum is 10%, for example, it
means that you must make a down payment of at least $10,000 on a $100,000
house, or a $20,000 on a $200,000 house. |
| Monthly debt service | Monthly
payments required on credit cards, installment loans, home equity loans, and
other debts but not including payments on the loan applied for. |
| Mortgage | A
written document evidencing the lien on a property taken by a lender as
security for the repayment of a loan.The term "mortgage" or "mortgage loan" is used
loosely to refer both to the lien and the loan.In most cases they are defined in two
separate documents; a mortgage and a note. |
| Mortgage Broker | An
independent contractor who offers the loan products of multiple lenders
termed "wholesalers."A
mortgage broker counsels on the loans available from different wholesalers,
takes the application, and usually processes the loan.When the file is complete, but sometimes sooner, the lender underwrites the loan.In contrast to a correspondent, a mortgage broker does not fund a loan. |
| Mortgage formulas | Equations
used to derive common measures used in the mortgage market such as monthly
payment, balance, and APR. |
| Mortgage insurance premium | The
up-front and/or periodic charges that the borrower pays for mortgage
insurance.There are different
mortgage insurance plans with differing combinations of up-front, monthly and
annual premiums. |
| Mortgage Lender | The
party who disburses funds to the borrower at the closing table.The lender receives the note evidencing the
borrower's indebtedness and obligation to repay, and the mortgage which is
the lien on the subject property. |
| Mortgage Payment | The
monthly payment of interest and principal made by the borrower. |
| Mortgage price | The
interest rate, points and fees paid to the lender and/or mortgage
broker.On ARM's, the price also
includes the fully indexed rate and the maximum rate. |
| Mortgage program | A
bundle of mortgage characteristics that lenders see fit to distinguish as a
distinct instrument.These include
whether it is an FRM, ARM, or Balloon for the term; the initial rate period
on an ARM; whether it is FHA-insured or VA-guaranteed; and if it is not FHA or VA, whether it is "conforming" (eligible for purchase by Fannie Mae or Freddie Mac) or "non-conforming." |
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| Negative amortization | A
rise in the loan balance when the mortgage payment is less than the interest
due.Sometimes called deferred
interest.Negative amortization arises most frequently on ARM's. |
| Negative amortization cap | The
maximum amount of negative amortization permitted on an ARM, usually
expressed as a percentage of the original loan amount (e.g., 110%).Reaching the cap triggers an automatic
increase in the repayment, usually the fully amortizing payment level, overriding any payment increase cap. |
| Negative Points | Points
paid by a lender for a loan with a rate above the rate on a zero point
loan.For example, a wholesaler quotes
the following prices to a mortgage broker.8% / 0 points, 7.5% / 3 points, 8.75% / -3 points.On mortgage websites, negative points are usually referred to as "rebates" because they are used to reduce a borrower’s settlement costs. |
| Net Branch | A
facility offered by some lenders to mortgage brokers where the
brokers become employees of the lender but retain their
independence as brokers.One of the
advantages of this arrangement to brokers is that they need not disclose yield spread premiums received from lenders. |
| Nichification | Proliferation
in the number of loan, borrower and property characteristics used by lenders
to set mortgage prices and underwriting requirements. |
| No change scenario | On
an ARM, the assumption that the value of the index to which the rate tied
does not change from its initial level. |
| No-Cost mortgage | A
mortgage on which all settlement costs except interest and escrows
are paid by the lender and /or the home seller. |
| Non-conforming mortgage | A
mortgage that does not meet the purchase requirements of the two Federal
agencies, Fannie Mae and Freddie Mac, because it is too large or for other
reasons such as poor credit or inadequate documentation. |
| No asset loan | A
documentation requirement where the applicant's assets are not disclosed. |
| No ratio loan | A
documentation requirement where the applicant's income is disclosed and
verified but not used in qualifying the borrower.The conventional maximum ratios of expense
to income are not applied. |
| Note | A
document that evidences a debt and a promise to repay.A mortgage loan transaction always includes
both a note evidencing the debt, and a mortgage evidencing the lien on the
property, usually in two documents. |
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| Originiation Fee | An
upfront fee charged by some lenders, expressed as a percent of the loan
amount.It should be added to points
in determining the total fees charged by the lender that are expressed as a
percent of the loan amount.Unlike
points however an origination |
| Overage | The
difference between the price posted to its loan officers by a lender or
mortgage broker, and the price charged the borrower. |
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| Partial prepayment | Making
a payment larger than the scheduled payment as a way of paying off the loan
officer. |
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| Qualification Rate | The
interest rate used in calculating the initial mortgage payment in qualifying
a borrower.The rate used in this
calculation may or may not be the initial rate on the mortgage. |
| Qualifying Ratio | The
ratio of the borrowers fixed monthly expenses to his gross monthly
income.Ratios are expressed as two
numbers like 28/36 where 28 would be the Front-End Ratio and 36 would be the
Back-End ratio. |
| Quitclaim Deed | A
deed that transfers, without warranty, whatever interest or title a grantor
may have at the time the conveyance is made. |
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| Rate Lock | A
commitment issued by a lender to a borrower or other mortgage originator
guaranteeing a specified interest rate for a specified period of time at a
specific cost. |
| Rate/point breakeven | The
period you must retain a mortgage in order for it to be profitable to pay
points to reduce the rate. |
| Rate Protection | Protection
for a borrower against the danger that rates will rise between the time the
borrower applies for a loan and the time the loan closes.This protection can take the form of a
"lock" where the rate and points are frozen at their initial levels
until the loan closes; or a float down where the rates and points cannot rise
from their initial levels but they can decline if market rates decline. |
| Real Estate Agent | A
person licensed to negotiate and transact the sale of real estate. |
| Real Estate Settlement Procedures Act (RESPA) | An
act requiring the revelation of all costs involved in a real estate closing
to all participants. |
| Realtor | A
real estate agent, broker, or associate that holds an active membership in a
local real estate board that is affiliated with the National Association of
Realtors. |
| Recast | To
redesign an existing loan balance into a new loan for the same period or
longer, to reduce payments and help a distressed borrower. |
| Reconciliation | Determining
the final estimate of value by weighing the results of the various approaches
in an appraisal. |
| Reconveyance Clause | The
clause in a trust deed that gives the title back to the borrower when the
loan is paid in full. |
| Recording | The
formal filing of documents affecting a property's title. |
| Regulation Z | A
truth-in-lending provision that requires lenders to reveal the actual costs
of borrowing. |
| Refinancing | The
process of paying off one loan with the proceeds from a new loan, using the
same property as security. |
| Rehabilitation Mortgage | A
mortgage that covers the costs of rehabilitating (repairing or improving) a
property; some rehabilitation mortgages - like the FHA's 203 (k) - allow a
borrower to roll the costs of rehabilitation and home purchase into one
mortgage loan. |
| Rent-Loss Insurance | Insurance
that protects a landlord against loss of rent or rental value due to fire or
other casualty, resulting in the tenant being excused from paying rent. |
| Repayment Plan | An
agreement between a lender and a delinquent borrower regarding mortgage
payments, in which the borrower agrees to make additional payments to pay
down pas due amounts while still making scheduled payments. |
| Residual Qualifying | Under
a VA loan, using specified housing expenses to qualify for a loan payment. |
| Restrictions | Rules
imposed on the use of real estate in an effort to preserve property values. |
| Reverse Annuity Mortgage (RAM) | A
system developed for an elderly property owner in which regular monthly
payments can be received from a lender.When the total reaches a pre-determined amount, the owner begins
repaying the loan or sells the property. |
| Revolving Debt | A
credit arrangement that allows a customer to borrow against a pre-approved
line of credit used to purchase goods and services.The borrower is responsible for the actual
amount borrowed plus any interest due. |
| Right-of-First Refusal | A
provision that states that a property is to be first offered to a specific
person before it can be offered for sale or lease to other parties. |
| Rollover Loan | A
loan that includes a call date earlier than its normal amortization period. |
| Rule of 78 | Calculates
proportionate amount of interest due on a loan being paid in full before its
maturity. |
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| Sale-Buyback | A
financing arrangement in which an investor buys property from a developer and
immediately sells it back under a long-term sales agreement, wherein the
investor retains legal title. |
| Sale-Leaseback | A
financing arrangement whereby an investor purchases real estate owned and
used by a business corporation, then leases the property back to the
business. |
| Secondary Mortgage Market | A
market where mortgage originators may sell them, freeing up funds for
continued lending and distributes mortgage funds nationally from money-rich
to money poor areas. |
| Second Mortgage | A
mortgage that has a lien position subordinate to the first mortgage. |
| Secured Loan | A
loan that is backed by collateral |
| Security | Something
given, deposited, or pledged to make secure the fulfillment of an obligation,
usually the repayment of a debt. |
| Seller Carry-Back | An
agreement in which the owner of a property provides financing, often in
combination with an assumable mortgage. |
| Senior Loan | Real
estate loan in first priority position. |
| Servicer | An
organization that collects principal and interest payments from borrowers and
manages borrowers' escrow accounts.The servicer often services mortgages that have been purchased by an
investor in the secondary mortgage market. |
| Servicing | The
collection of mortgage payments from borrowers and related responsibilities
of a loan servicer. |
| Settlement | Another
name for closing. |
| Settlement Costs | Costs
that the borrower must pay at the time of closing, in addition to the down
payment. |
| Shared appreciation mortgage | A
mortgage on which the borrower gives up a share in future price appreciation
in exchange for a lower interest rate and/or interest deferral. |
| Short Sale | An
agreement between a mortgage borrower in distress and the lender that allows
the borrower to sell the house and remit the proceeds to the lender as an
alternative to foreclosure, or a deed in lieu of foreclosure. |
| Silent Second | A
second mortgage offered at preferential (subsidized) terms to those who
qualify.For example, a labor union
may offer members who are first-time home buyers a silent second to finance
closing costs or the down payment.The
second might bear no interest, and might not be repayable until the first
mortgage is repaid or the property is sold. |
| Simple interest mortgage | A
mortgage on which interest is calculated daily based on the balance at the
time of the last payment.The daily
interest charge within the month is constant--interest is not charged on the
interest charges of prior days. |
| Sinking Fund | Monies
deposited in advance in anticipation of satisfying a debt in the future. |
| Special Forbearance | A
loss mitigation option where the lender arranges a revised repayment plan for
the borrower that may include a temporary reduction or suspension of monthly
loan payments. |
| Stated Assets | A
documentation requirement where the borrower discloses her assets but they
are not verified by the lender. |
| Stated Income | A
documentation requirement where the lender verifies the source of the income
but not the amount. |
| Stop Date | Date
on a term loan when the balloon payment is due. |
| Streamlined refinancing | Refinancing
that omits some of the standard risk control measures, and is therefore
quicker and less costly. |
| Subordinate Financing | A
second mortgage on the property which
is not paid off when a new loan is taken out.The second mortgage lender must allow subordination of the second to
the new first mortgage. |
| Sub-prime borrower | A
borrower with poor credit.Such
borrowers pay more than prime borrowers, and are sometimes taken advantage
of. |
| Sub-prime lender | A
lender who specializes in lending to sub-prime borrowers. |
| Survey | A
drawing or map that shows the precise legal boundaries of a property, the
location of improvements, easements, rights of way, encroachments, and other
physical features. |
| Sweat Equity | Increase
in property value due to improvement by owners. |
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| Takeout Mortgage | A
permanent mortgage, obtained by pre-arrangements between a builder and a
financial institution, to repay the interim mortgagee at the completion of
construction. |
| Tax Lien | A
claim against real estate for the amount of its unpaid taxes. |
| Temporary Buydown | A
reduction in the mortgage payment in the early years of the loan in exchange
for an upfront cash payment provided by the home buyer, the seller, or both. |
| Third-Party Origination | A
process by which a lender uses another party to completely or partially
originate, process, underwrite, close, fund, or package the mortgages it
plans to deliver to the secondary mortgage market. |
| Title | A
legal document showing a person's right to or ownership of a property. |
| Title 1 | An
FHA-insured loan that allows a borrower to make non-luxury improvements (like
renovations or repairs) to their home; title 1 loans less than $7,500 don't
require a property lien. |
| Title Company | A
company that specializes in examining and insuring titles to real estate. |
| Title Insurance | Title
Insurance policies typically insure a homebuyer against any title-search
errors or mistakes, and against loss due to disputes over property
ownership.Title Insurance can
additionally offer protection to the lender under similar circumstances.The cost of title insurance is usually
value per thousand of dollars of the total loan amount. |
| Title Search | A
check of the title records to make sure that the seller is the actual legal
owner of the property, and that there are no liens or other claims
outstanding. |
| Total Debt Ratio | Monthly
debt and housing payments divided by gross monthly income.Also known as Back-End Ratio |
| Transfer of Ownership | The
means by which the ownership of a property changes hands.Examples of such include the purchase of a
property "subject to" the mortgage, the assumption of the mortgage
debt by the property purchases, and any exchange of possession of the
property under a land sales contract or any other land trust device. |
| Transfer Tax | State
or local tax payable when the title passes from one owner to another. |
| Truth-in-Lending Law | Federal
law obligating a lender to give full written disclosure of all fees, terms,
and conditions associated with the loan initial period and then adjusts to
another rate that lasts for the term of the loan. |
| Two-Step Mortgage | A
loan where the interest rate is fixed for the first seven years and then is
adjusted one time for the balance of the loan period. |
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| Underage | Fees
collected from a borrower by a loan officer that are lower than the fees
specified by the lender or mortgage broker who employs the loan officer. |
| Underwriting | The
process of analyzing a loan application to determine the amount of risk
involved in making the loan; it includes a review of the potential borrower's
credit history and a judgment of the property value. |
| Underwriting Requirements | The
standards imposed by lenders in determining whether a borrower qualifies for
a loan.These standards are more
comprehensive than qualification requirements in that they include an
evaluation of the borrower's creditworthiness. |
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| VA Loan | A
government-backed mortgage loan supported by the US Veterans Administration. |
| Variable Rate Mortgage | See
Adjustable Rate Mortgage. |
| Vested | Means
that one has a right to use a portion of a fund, such as an individual's
retirement fund. |
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| Waive escrows | Authorization
by the lender for the borrower to pay taxes and insurance directly. |
| Wholesale Lender | A
lender who provides loans through mortgage brokers or correspondents.The mortgage broker or correspondent
initiates the transaction, takes the borrower's application, and processes
the loan. |
| Workout assumption | The
assumption of a mortgage, with permission of the lender, from a borrower
unable to continue making the payments. |
| Wrap-around mortgage | A
mortgage on a property that already has a mortgage, where the new assumes the
payment obligation on the old mortgage.Wrap-around mortgages arise when the current market rate is above the
rate on the existing mortgage, and home sellers are frequently the lender. |
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| Zero Percent Financing | A
loan with no interest in the contract.The IRS imputes 10 percent for both borrower and lender. |
| Zoning | The
right of a community, under its police power to dictate the use of property
within its boundaries. |
Real Estate Glossary
