TERMS & DEFINITIONS
A B C D E F G H I J K L M N O P Q R S T U V Y
A
Affordability Analysis
An analysis of a buyer’s ability to afford the purchase of a home; reviews income, liabilities and available funds and considers the type of mortgage you plan to use, the area where you want to purchase a home, and the closing costs that are likely.
Amortization
A periodic reduction of a mortgage by making specific payments over a stated period of time.
Annual Percentage Rate (APR)
The measurement of the full cost of a loan including interest and loan fees expressed as a yearly percentage rate.
Appraisal
An estimate of the value of property made by an appraiser who is considered to be an expert in real estate property evaluations, the appraisal usually determines how much money the lender will loan on that property.
Assessment
A local tax levied against a property for a specific purpose, such as a sewer or street lights.
Assignment
The transfer of a mortgage from one person to another.
Assumability
An assumable mortgage can be transferred from the seller to the new buyer and generally requires a credit review of the new borrower and lenders may charge a fee for the assumption.
Assumption of Mortgage
The agreement between buyer and seller where the buyer takes over a mortgage obligation incurred by the original borrower
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 or seven year term.
Balloon Payment
The final lump sum paid at the maturity date of a balloon mortgage.
Borrower (Mortgagor)
The person who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan in full.
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.
C
Caps (Interest)
Consumer safeguards which limit the amount of change to the interest rate for an adjustable rate mortgage.
Caps (Payment)
Consumer safeguards which limit the amount of change to the monthly payments for an adjustable rate mortgage.
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 the veteran’s separation papers to the local VA office with a Request for Certificate of Eligibility.
Certificate of Reasonable Value (CRV)
An appraisal issued by the VA showing the property’s current market value.
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
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.
Commitment
A promise by a lender to make a loan with specific terms or conditions to a borrower, also a promise by an investor to purchase mortgages from a lender with specific terms or conditions.
Commitment Fee
An up-front charge paid to bind an agreement to lend an amount of money at a specific interest rate.
Contract Sale or Deed
Contract between purchaser and a seller of real estate to convey title after certain conditions have been met.
Conversion Clause/Option
A conversion of an adjustable rate mortgage into a fixed rate mortgage, generally, the borrower must hold the adjustable rate mortgage for a specified amount of time, a fee is usually charged for this conversion.
D
Debt-to-Income Ratio
An allowable percentage of monthly gross income which includes the proposed mortgage payment and any recurring debt.
Deed of Trust
In many states, this document is used in place of a mortgage to secure the payment of a note.
Default
Failure to meet legal obligations in a contract, specifically, failure to make the monthly payments on a mortgage, loan default may cause foreclosure.
Deferred Interest
When a mortgage is written with a monthly payment that is less than required to satisfy the note rate, the unpaid interest is deferred by adding it to the loan balance, see negative amortization.
Delinquency
Failure to make payments on time, can lead to foreclosure.
Discount Point
A device used to equalize interest rate yields for lenders and investors.
Down Payment
Money paid to make up the difference between the purchase price and the 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.
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 , also known as eligibility.
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.
Equity
The value a property owner has in real estate once the obligations and costs of selling are deducted.
Escrow/Escrow Account
An account held by the lender into which the home buyer pays money for tax or insurance payments.
Escrow Disbursements
The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.
Escrow Payment
The part of a mortgagor’s monthly payment that is held by the servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due.
F
Federal Housing Administration (FHA)
A division of the Department of Housing and Urban Development, insuring of residential mortgage loans made by private lenders and setting standards for underwriting mortgages.
FHA Loan
A loan insured by the Federal Housing Administration open to all qualified home purchasers, generous enough to handle moderately priced homes almost anywhere in the country.
Firm Commitment
A promise by FHA to insure a mortgage loan for a specified property and borrower, a promise from a lender to make a mortgage loan with specific terms.
Fixed Rate Mortgage
The mortgage interest rate will remain the same on these mortgages throughout the term of the mortgage for the original borrower.
Fully Amortized ARM
An ARM with a monthly payment that is sufficient to amortize the remaining balance, at the interest accrual rate, over the amortization term.
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.
G
General Lien
The right of a creditor to have all of a debtor’s property, both real and personal, sold to satisfy a debt.
Gross Margin
The lenders profit margin on an ARM.
H
Hazard Insurance
A form of insurance in which the insurance company protects the insured from specified losses, such as fire, wind, vandalism, theft, etc.
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.
I
Initial Interest Rate
This refers to the original interest rate of the mortgage at the time of closing, this rate changes for an ARM, also known as start rate or teaser.
Installment
The regular periodic payment that a borrower agrees to make to a lender.
Insured Mortgage
A mortgage that is protected by the FHA or by PMI.
Interest
The fee charged for borrowing money.
Interest Accrual Rate
The percentage rate at which interest accrues on the mortgage, in most cases, it’s also the rate used to calculate the monthly payments.
Interest Rate Buy Down
The payment of money to a lender to reduce the borrower’s interest rate either temporarily or permanently, this would help reduce the buyer’s payments and help him/her qualify for the mortgage.
Investor
A money source for a lender.
L
Loan
A sum of borrowed money (principal) that is generally repaid with interest.
Loan to Value Ratio
The relationship between the mortgage loan and the appraised value of the property which is expressed by a percentage.
Lock
A lender’s guarantee that the mortgage rate quoted will be good for a specific number of days from the day of application.
M
Margin
The amount a lender adds to the index on an adjustable rate mortgage to establish the adjusted interest rate.
Market Value
The highest price that a buyer would pay and the lowest price a seller would accept on a property.
Maturity
The date on which the principal balance of a loan becomes due and payable.
MIP (Mortgage Insurance Premium)
Insurance from FHA to the lender against incurring a loss on account of the borrower’s default.
Monthly Fixed Installment
The portion of the total monthly payment that is applied toward principal and interest.
Mortgage
A legal document that pledges a property to the lender as security for payment of a debt.
Mortgagee
The lender of money for the purchase of real estate.
Mortgage Insurance
Money paid to insure the mortgage when the down payment is less than 20%.
Mortgagor
The borrower of money to purchase real estate.
N
Net Effective Income
The borrower’s gross income minus federal income tax.
Non Assumption Clause
A statement in a mortgage contract forbidding the assumption of the mortgage without the prior approval of the lender.
Note
The signed obligation to repay a debt such as a mortgage note.
O
One Year Adjustable Rate Mortgage
Mortgage where the annual rate changes yearly.
Origination Fee
The fee charged by a lender to prepare loan documents, make credit checks, inspect and sometimes appraise a property; usually computed as a percentage of the face value of the loan.
P
Payment Adjustment Period
The time frame between payment adjustments made on adjustable rate mortgages.
Payment Change Date
The date when a new monthly payment amount takes effect on an ARM.
Permanent Loan
A long term mortgage, usually ten years or more, also called an end loan.
Pre-Approval
The process of determining how much money you will be eligible to borrow before you apply for a loan.
Prepayment
The right of a borrower to pay off a loan before the maturity date without incurring penalty.
Primary Mortgage Market
Lenders, such as savings and loan associations, commercial banks, and mortgage companies, who make mortgage loans directly to borrowers.
Principal
The amount borrowed or remaining unpaid.
Principal, Interest, Taxes, and Insurance (PITI)
The four components of a monthly mortgage payment.
Q
Qualifying Ratios
Calculations used to determine if a borrower can qualify for a mortgage.
R
Rate Lock
A commitment issued by a lender to a borrower or another mortgage originator guaranteeing a specified interest rate and lender costs for a specified period of time.
Realtor
A real estate broker or an associate holding active membership in a local real estate board affiliated with the National Association of Realtors.
Real Estate Agent
A person licensed to negotiate and transact the sale of real estate on behalf of the property owner.
Refinance
Obtaining a new mortgage loan on a property already owned often to replace existing loans on the property.
Reverse Annuity Mortgage (RAM)
A form of mortgage in which the lender makes periodic payments to the borrower using the borrower’s equity in the home as collateral for and repayment of the loan.
S
Satisfaction of Mortgage
The document issued by the mortgagee when the mortgage loan is paid in full, also called a release of mortgage.
Second Mortgage
A mortgage made subsequent to another mortgage and subordinate to the first one.
Security
The property that will be pledged as collateral for a loan.
Shared Appreciation Mortgage (SAM)
A mortgage in which a borrower receives a below market interest rate in return for which the lender (or another investor such as a family member or other partner) receives a portion of the future appreciation in the value of the property, may also apply to mortgage where the borrowers share the monthly principal and interest payments with another party in exchange for part of the appreciation.
Simple Interest
Interest which is computed only on the principle balance.
Standard Payment Calculation
The method used to determine the monthly payment required to repay the remaining balance of a mortgage in substantially equal installments over the remaining term of the mortgage at the current interest rate.
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 buildings.
T
Title
A document that gives evidence of an individual’s ownership of property.
Title Insurance
Insurance issued to the owner of real estate to protect them against claims arising by reason of defects in the title to the property.
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 APR to home buyers shortly after they apply for the loan, also known as Regulation Z.
U
Underwriting
The decision whether to make a loan to a potential home buyer based on credit, employment, assets, and other factors and the matching of this risk to an appropriate rate and term or loan amount.
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.
Y
Yield
A return on an investment which includes the interest rate charged, discount points paid and any other charges collected.
