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7/23 and 5/25 Mortgages
Mortgages with a one time rate adjustment after seven years and five years respectively.
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3/1, 5/1, 7/1 and 10/1 ARMs
Adjustable-rate mortgages in which rate is fixed for three-year, five-year, seven-year and 10-year periods, respectively, but may adjust annually after that.
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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.
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Adjustable rate mortgage (ARM)
Is a mortgage in which the interest rate is adjusted periodically based on a pre-selected index. Also sometimes known as the renegotiable rate mortgage, the variable rate mortgage or the Canadian rollover mortgage.
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Adjusted Basis
The cost of a property plus the value of any capital expenditures for improvements to the property minus any depreciation taken.
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Adjustment Date
The date that the interest rate changes on an adjustable-rate mortgage (ARM).
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Adjustment interval
On an adjustable rate mortgage, the time between changes in the interest rate and/or monthly payment, typically one, three or five years depending on the index.
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Adjustment Period
The period elapsing between adjustment dates for an adjustable-rate mortgage (ARM).
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Affordability Analysis
An analysis of a buyers 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.
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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.
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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.
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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.
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Appraisal
An estimate of the value of property, made by a qualified professional called an "appraiser".
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Appraised Value
An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property.
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Assessment
A local tax levied against a property for a specific purpose, such as a sewer or street lights.
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Assignment
The transfer of a mortgage from one person to another.
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Assumability
An assumable mortgage can be transferred from the seller to the new buyer. Generally requires a credit review of the new borrower and lenders may charge a fee for the assumption. If a mortgage contains a due-on-sale clause, it may not be assumed by a new buyer.
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Assumption
The agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller. Assuming a loan can usually save the buyer money since this is an existing mortgage debt, unlike a new mortgage where closing cost and new, probably higher, market-rate interest charges will apply.
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Assumption Fee
The fee paid to a lender (usually by the purchaser of real property) when an assumption takes place.
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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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Balloon Payment
The final lump sum paid at the maturity date of a balloon mortgage.
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Biweekly Payment Mortgage
A plan to reduce the debt every two weeks (instead of the standard monthly payment schedule). The 26 (or possibly 27) biweekly payments are each equal to one-half of the monthly payment required if the loan were a standard 30-year fixed-rate mortgage. The result for the borrower is a substantial savings in interest.
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Blanket Mortgage
A mortgage covering at least two pieces of real estate as security for the same mortgage.
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Borrower (Mortgagor)
One who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan in full.
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Bridge Loan
A second trust that is collateralized by the borrower's present home allowing the proceeds to be used to close on a new house before the present home is sold. Also known as "swing loan."
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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.
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Buy-down
When the lender and/or the home builder subsidized the mortgage by lowering the interest rate during the first few years of the loan. While the payments are initially low, they will increase when the subsidy expires.
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Cash Flow
The amount of cash derived over a certain period of time from an income-producing property. The cash flow should be large enough to pay the expenses of the income producing property (mortgage payment, maintenance, utilities, etc.).
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Caps (interest)
Consumer safeguards which limit the amount the interest rate on an adjustable rate mortgage which may change per year and/or the life of the loan.
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Caps (payment)
Consumer safeguards which limit the amount monthly payments on an adjustable rate mortgage may change.
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CEM
Consolidation, Extension and Modification Agreement (CEM). A legal instrument in New York State that allows individuals to refinance their mortgage loan and avoid paying the New York State Mortgage Tax on a refinanced loan. This only applies to real property. This does not apply to cooperative loans.
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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)
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Certificate of Occupancy
Written authorization given by the local municipality that allows a newly completed or substantially completed structure to be inhabited.
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Certificate of Reasonable Value (CRV)
An appraisal issued by the Veterans Administration showing the property's current market value
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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).
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Change Frequency
The frequency (in months) of payment and/or interest rate changes in an adjustable-rate mortgage (ARM).
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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.
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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.
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COFI
Adjustable-rate mortgage with rate that adjusts based on a cost-of-funds index, often the 11th District Cost of Funds.
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Condominium
Real property interest consisting of fee ownership. The owner receives title to a particular unit and a proportionate interest in certain common areas. A condominium generally defines each unit as a separately owned space to the interior surfaces of the perimeter walls, floors and ceilings. Title to the common areas is in terms of percentages and refers to the entire project less separately owned units.
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Conforming Loan
A mortgage that meets the requirements to be eligible for purchase or securitization by one of the government-sponsored enterprises such as Fannie Mae, Freddie Mac and Ginnie Mae. Requirements include size of the loan, type and age.
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Construction loan
A short term interim loan to pay for the construction of buildings or homes. These are usually designed to provide periodic disbursements to the builder as he or she progresses.
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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.
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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.
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Conventional loan
A mortgage not insured by FHA or guaranteed by the VA.
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Conversion Clause
A provision in an ARM allowing the loan to be converted to a fixed-rate at some point during the term. Usually conversion is allowed at the end of the first adjustment period. The conversion feature may cost extra.
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Cooperative
A form of multiple ownership, represented by ownership in stock, of real estate in which a corporation or business trust entity holds title to a property and grants the occupancy rights to particular apartments or units to shareholders by means of proprietary leases.
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Credit Report
A report documenting the credit history and current status of a borrower's credit standing.
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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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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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Deed
An instrument used to transfer ownership of property. The recording of a deed ends ownership of one party and starts ownership of another party. To be valid, a deed must have a grantor, words of conveyance and delivery. Some states require the signature of the grantor to be acknowledged or witnessed.
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Deed of Trust
In some states, the document is used in place of a mortgage. A type of security instrument conveying title in trust to a third party covering a particular piece of property. It is used to secure the payment of Note. This instrument is a conveyance of the title land to a trustee as collateral security for the payment of a debt with the condition that the trustee shall reconvey the title upon the payment of debt. The trustee is empowered to sell the land and pay the debt in the event of a default on the part of the debtor.
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Default
Failure to meet legal obligations in a contract, specifically, failure to make the monthly payments on a mortgage.
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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.
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Delinquency
Failure to make payments on time. This can lead to foreclosure.
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Department of Veterans Affairs (VA)
An independent agency of the federal government which guarantees long-term, low-or no-down payment mortgages to eligible veterans.
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Discount Point
see point
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Down Payment
Money paid to make up the difference between the purchase price and the mortgage amount.
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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.
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Earnest Money
Money given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment.
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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.
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Equal Credit Opportunity Act
(ECOA) Is 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.
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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.
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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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Escrow Disbursements
The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.
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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.
Fannie Mae
see Federal National Mortgage Association.
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Farmers Home Administration
(FmHA) Provides financing to farmers and other qualified borrowers who are unable to obtain loans elsewhere.
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Federal Home Loan Bank Board
(FHLBB) The former name for the regulatory and supervisory agency for federally chartered savings institutions. Agency is now called the Office of Thrift Supervision
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Federal Home Loan Mortgage Corporation
(FHLMC) also called "Freddie Mac" Is a quasi-governmental agency that purchases conventional mortgage from insured depository institutions and HUD-approved mortgage bankers.
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Federal Housing Administration
(FHA) A division of the Department of Housing and Urban Development. Its main activity is the insuring of residential mortgage loans made by private lenders. FHA also sets standards for underwriting mortgages.
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Federal National Mortgage Association
(FNMA) also know as "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.
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Fee Simple
The greatest possible interest a person can have in real estate, including the right to dispose of the property or pass it on to one's heirs
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FHA loan
A loan insured by the Federal Housing Administration open to all qualified home purchasers. While there are limits to the size of FHA loans ($155,250 as of 1/1/96), they are generous enough to handle moderately-priced homes almost anywhere in the country.
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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.
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FHLMC
The Federal Home Loan Mortgage Corporation provides a secondary market for savings and loans by purchasing their conventional loans. Also known as "Freddie Mac."
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Financed Amount
The Loan Amount less prepaid finance charges. Typical prepaid finance charges are points and interim interest.
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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.
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First Mortgage
The primary lien against a property.
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Fixed Installment
The monthly payment due on a mortgage loan including payment of both principal and interest.
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Fixed Rate Mortgage
The mortgage interest rate will remain the same on these mortgages throughout the term of the mortgage for the original borrower.
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Fully Amortized ARM
An adjustable-rate mortgage (ARM) with a monthly payment that is sufficient to amortize the remaining balance, at the interest accrual rate, over the amortization term.
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Fully Indexed Rate
Equals the Index plus Margin. Also known as the "Roll Rate". This applies to adjustable rate mortgages.
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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."
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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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Freddie Mac
see Federal Home Loan Mortgage Corporation
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Funding Date
The day loan proceeds are disbursed. If the loan is to purchase property or to refinance a second home, the funding date is the day of closing. If the loan is to refinance of a primary residence, then the funding date is the fourth business day following the closing, this is known as the rescission period.
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Ginnie Mae
see Government National Mortgage Association.
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Government National Mortgage Association (GNMA)
Also known as "Ginnie Mae," provides sources of funds for residential mortgages, insured or guaranteed by FHA or VA.
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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.
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Growing-Equity Mortgage (GEM)
A fixed-rate mortgage that provides scheduled payment increases over an established period of time. The increased amount of the monthly payment is applied directly toward reducing the remaining balance of the mortgage.
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Guarantor
One who agrees to pay the debt of another in the event the debt is not paid. This differs from a co-signer because their must be a failure to pay before the guarantee can go into effect. The Guarantor signs a Guarantee Agreement and is typically not on the Note.
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Guaranty
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.
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Guarantee Mortgage
A mortgage that is guaranteed by a third party.
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Hazard Insurance
A form of insurance in which the insurance company protects the insured from specified losses, such as fire, windstorm and the like.
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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.
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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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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.
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Index
A published interest rate against which lenders measure the difference between the current interest rate on an adjustable rate mortgage and that earned by other investments (such as one- three-, and five-year U.S. Treasury security yields, the monthly average interest rate on loans closed by savings and loan institutions, and the monthly average costs-of-funds incurred by savings and loans), which is then used to adjust the interest rate on an adjustable mortgage up or down.
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Indexed rate
The sum of the published index plus the margin. For example if the index were 9% and the margin 2.75%, the indexed rate would be 11.75%. Often, lenders charge less than the indexed rate the first year of an adjustable-rate mortgage.
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Initial Interest Rate
This refers to the original interest rate of the mortgage at the time of closing. This rate changes for an adjustable-rate mortgage (ARM). It's also known as "start rate" or "teaser."
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Installment
The regular periodic payment that a borrower agrees to make to a lender.
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Insured Mortgage
A mortgage that is protected by the Federal Housing Administration (FHA) or by private mortgage insurance (MI).
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Interest
The fee charged for borrowing money.
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Interest Accrual Rate
The percentage rate at which interest accrues on the mortgage. In most cases, it is also the rate used to calculate the monthly payments.
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Interest Only Loans
An advance of money in which the installments pay only the interest that accumulates on the loan balance. The loan balance does not decrease with the payments. Usually the interest-only payments last for a limited period, after which payments rise and the borrower begins paying principal in addition to interest.
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Interest Rate Buydown Plan
An arrangement that allows the property seller to deposit money to an account. That money is then released each month to reduce the mortgagor's monthly payments during the early years of a mortgage.
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Interest Rate Ceiling
For an adjustable-rate mortgage (ARM), the maximum interest rate, as specified in the mortgage note.
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Interest Rate Floor
For an adjustable-rate mortgage (ARM), the minimum interest rate, as specified in the mortgage note.
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Interim Financing
A construction loan made during completion of a building or a project. A permanent loan usually replaces this loan after completion.
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Interim Interest
Interest paid at the time of closing for interest that will accrue from funding date to the first day of the following month.
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Investor
A money source for a lender.
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Joint Tenancy
Two or more borrowers. Creates equal, undivided interests and right of survivorship.
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Jumbo Loan
A loan which is larger (more than $240,000 as of 1/1/99) than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.
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Late Charge
The penalty a borrower must pay when a payment is made a stated number of days (usually 15) after the due date.
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Leasehold
An estate or interest in an estate in real property held by virtue of a lease.
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Lease-Purchase Mortgage Loan
An alternative financing option that allows low- and moderate-income home buyers to lease a home with an option to buy. Each month's rent payment consists of principal, interest, taxes and insurance (PITI) payments on the first mortgage plus an extra amount that accumulates in a savings account for a down payment.
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Liabilities
A person's financial obligations. Liabilities include long-term and short-term debt.
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Lien
A claim upon a piece of property for the payment or satisfaction of a debt or obligation.
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Lifetime Payment Cap
For an adjustable-rate mortgage (ARM), a limit on the amount that payments can increase or decrease over the life of the mortgage.
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Lifetime Rate Cap
For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can increase or decrease over the life of the loan. See cap.
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Limited Documentation Loan
A loan that is originated with limited information from the borrower (Employment, income and/or assets).
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Loan
A sum of borrowed money (principal) that is generally repaid with interest.
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Loan-to-Value Ratio
The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.
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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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Margin
The amount a lender adds to the index on an adjustable rate mortgage to establish the adjusted interest rate.
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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.
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Maturity
The date on which the principal balance of a loan becomes due and payable.
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Mechanic's Lien
A lien created by statute for the purpose of securing priority of payment for the price or value of work performed and materials furnished in construction or repair of improvements to land, and which attaches to the land as well as the improvements.
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MIP (Mortgage Insurance Premium)
It is insurance from FHA to the lender against incurring a loss on account of the borrower's default.
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Monthly Fixed Installment
That portion of the total monthly payment that is applied toward principal and interest. When a mortgage negatively amortizes, the monthly fixed installment does not include any amount for principal reduction and doesn't cover all of the interest. The loan balance therefore increases instead of decreasing.
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Mortgage
A legal document that pledges a property to the lender as security for payment of a debt.
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Mortgage Banker
A company that originates mortgages exclusively for resale in the secondary mortgage market.
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Mortgage Broker
An individual or company that charges a service fee to bring borrowers and lenders together for the purpose of loan origination.
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Mortgagee
The lender.
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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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Mortgage Life Insurance
A type of term life insurance In the event that the borrower dies while the policy is in force, the debt is automatically paid by insurance proceeds.
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Mortgagor
The borrower or homeowner.
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Negative Amortization
Occurs when your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan. The danger of negative amortization is that the home buyer ends up owing more than the original amount of the loan.
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Net Effective Income
The borrower's gross income minus federal income tax.
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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 pay a debt, as a mortgage note.
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No Documentation Loan
A form of “limited documentation” whereby the borrower’s employment, income or assets are not disclosed or relied upon in the mortgage origination process.
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Nonpermanent Resident Alien
Individuals who have been granted the right to live in the United States on a temporary basis. They reside here normally for fixed periods of time and for specific purposes such as attending school or for temporary work assignment.
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Non-Resident Alien
Visitors to the United States who have not established residency.
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Note
A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.
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Office of Thrift Supervision (OTS)
The regulatory and supervisory agency for federally chartered savings institutions. Formally known as Federal Home Loan Bank Board
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One-year adjustable
Mortgage whose annual rate changes yearly. The rate is usually based on movements of a published index plus a specified margin, chosen by the lender.
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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.
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Owner Financing
A property purchase transaction in which the party selling the property provides all or part of the financing.
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Payment Change Date
The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM) or a graduated-payment mortgage (GPM). Generally, the payment change date occurs in the month immediately after the adjustment date.
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Periodic Payment Cap
A limit on the amount that payments can increase or decrease during any one adjustment period.
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Periodic Rate Cap
A limit on the amount that the interest rate can increase or decrease during any one adjustment period, regardless of how high or low the index might be.
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Permanent Loan
A long term mortgage, usually ten years or more. Also called an "end loan."
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Permanent Resident Alien
Individuals who, though not U.S. citizens, have been granted the right to work and live permanently in the United States. They are immigrants who have been granted permanent residency and are entitled to the same products, processes, and credit criteria as U.S. citizens.
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PITI
Principal, Interest, Taxes and Insurance. Also called monthly housing expense.
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Planned Unit Development (PUD)
(1) A comprehensive development plan for a large land area. It usually includes residences, roads, schools, recreational facilities, commercial, office and industrial areas; (2) a subdivision having lots or areas owned in common and reserved for the use of some or all of the owners of the separately owned lots.
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Plans and Specifications
Architectural and engineering drawings and specifications for construction of a building or project. They include a description of materials to be used and the manner in which they are to be applied.
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Pledged account Mortgage
(PAM): Money is placed in a pledged savings account and this fund plus earned interest is gradually used to reduce mortgage payments.
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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).
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Portfolio Loan
Mortgage Loans that are not sold on the secondary market, typically due to special conditions within the loan, product, or other credit reasons.
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Power of Attorney
A legal document authorizing one person to act on behalf of another.
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Pre-Approval
The process of determining how much money you will be eligible to borrow before you apply for a loan.
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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.
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Prepayment
A privilege in a mortgage permitting the borrower to make payments in advance of their due date.
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Prepayment Penalty
Money charged for an early repayment of debt. Prepayment penalties are allowed in some form (but not necessarily imposed) in many states.
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Primary Mortgage Market
Lenders, such as savings and loan associations, commercial banks, and mortgage companies, who make mortgage loans directly to borrowers. These lenders sometimes sell their mortgages to the secondary mortgage markets such as to FNMA or GNMA, etc.
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Principal
The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.
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Principal Balance
The outstanding balance of principal on a mortgage not including interest or any other charges.
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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.
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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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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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Rate Lock
A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate and lender costs for a specified period of time.
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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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Real Estate Agent
A person licensed to negotiate and transact the sale of real estate on behalf of the property owner.
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Real Estate Settlement Procedures Act (RESPA)
A consumer protection law that requires lenders to give borrowers advance notice of closing costs.
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Real Property
Houses, Townhomes, Condominiums and PUDs. Land and anything permanently affixed to the land, such as buildings, fences, and those things attached to the buildings, such as light fixtures, plumbing, heating fixtures, or other such items.
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Recission
The cancellation of a contract. With respect to mortgage refinancing, the law that gives the homeowner three days to cancel a contract in some cases once it is signed if the transaction uses equity in the home as security.
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Recognition Agreement
An agreement whereby the co-op "recognizes" the lender as a secured party, with right to notice of default and opportunity to cure. However, lender cannot transfer or sell or lease with out cooperative corporation's consent.
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Recording Fees
Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records.
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Refinance
Obtaining a new mortgage loan on a property already owned. Often to replace existing loans on the property.
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Renegotiable Rate Mortgage
A loan in which the interest rate is adjusted periodically. See adjustable rate mortgage.
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RESPA
Short for the Real Estate Settlement Procedures Act. RESPA is a federal law that allows consumers to review information on known or estimated settlement cost once after application and once prior to or at a settlement. The law requires lenders to furnish the information after application only.
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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.
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Revolving Liability
A credit arrangement, such as a credit card, that allows a customer to borrow against a preapproved line of credit when purchasing goods and services.
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Roll Rate
Equals the Index plus Margin. Also known as the "Fully Indexed Rate”.
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Salable Loan
Salable loans are sold on the secondary market.
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Satisfaction of Mortgage
The document issued by the mortgagee when the mortgage loan is paid in full. Also called a "release of mortgage."
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Second Mortgage
A mortgage made subsequent to another mortgage and subordinate to the first one.
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Secondary Mortgage Market
The place where primary mortgage lenders sell the mortgages they make to obtain more funds to originate more new loans. It provides liquidity for the lenders.
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Security
The property that will be pledged as collateral for a loan.
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Seller Carry-back
An agreement in which the owner of a property provides financing, often in combination with an assumable mortgage. See owner financing.
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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.
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Servicing
All the steps and operations a lender performs to keep a loan in good standing, such as collection of payments, payment of taxes, insurance, property inspections and the like.
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Settlement/Settlement Costs
see closing/closing costs
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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 shares the monthly principal and interest payments with another party in exchange for part of the appreciation.
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Simple Interest
Interest which is computed only on the principle balance.
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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.
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Start Rate
See "Initial Interest Rate"
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Stated Income Loan
A form of “limited documentation” whereby the borrower’s income is “stated” on their application but is not independently verified in the mortgage origination process.
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Step-Rate Mortgage
A mortgage that allows for the interest rate to increase according to a specified schedule (i.e., seven years), resulting in increased payments as well. At the end of the specified period, the rate and payments will remain constant for the remainder of the loan.
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Subordination
The act of one party acknowledging, by written recorded instrument, that a debt is inferior to the interest of another in the same property. Subordination may apply not only to mortgages, but to leases, real estate rights and any other type of debt instruments.
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Sub-prime Loan
A mortgage for someone who does not meet conventional guidelines. The borrower may have damaged credit, own too many properties, or have a debt-to-income ratio that exceeds the conforming loan guidelines. These loans are considered to have a higher risk of default and hence carry a higher interest rate than conforming loans.
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Super Jumbo Loans
The loan amount varies by Lender but the term “super jumbo” typically refers to mortgage amounts of $1,000,000 or more.
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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.
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Sweat Equity
Equity created by a purchaser performing work on a property being purchased.
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Tax Lien
(1) A lien for non-payment of property taxes. Attaches only to the property upon which the taxes are not paid. (2) A federal income tax lien. May attach to all property of the one owing taxes.
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Temporary Visas
Temporary Visas allow you to enter the U.S. for certain definable periods of time from six months to seven years, and sometimes indefinitely, based on the type of nonimmigrant visa for which you and/or your company qualify. The nonimmigrant visa categories range from the “A Visa” for Diplomats to the new “V Visa.”
(Some of the categories include):
B-1 Temporary visitor for business (six months – one year). The B-1 Visa is a temporary visa for business, permits a visit to negotiate contracts, seek investments or real estate or consult with business partners or associates.
E-1 The E-1 Visa allows the individual to carry on substantial trade, principally between the US and the foreign country.
E-2 Treaty investor for foreign nationals of countries which have signed the property treaty with the U.S. (two years and potential multiple renewals). The E-2 Visa could allow one to direct and develop the operations of business in which he or she has an investment or is in the process of investing a substantial amount of capital ($100,000 or more).
F-1 Student Visas. The F-1 Visa is issued to students who are enrolled in an academic or English language program. This is the visa that is required for international students who wish to study at a US college or university. F-1 students must maintain the minimum course load for full-time student status. They can remain in the US for up to 60 days beyond the length of time it takes to complete their academic program. They are expected to complete their studies by the expiration date on the I-20 form (Certificate of Eligibility for Nonimmigrant Student Status).
H-1B An H-1B Visa is for individuals in a Specialty Occupation holding a U.S. Bachelor’s Degree or equivalent in the Specialty.
J-1 Exchange Visitors (e.g., Teachers). The J-1 visa is issued to students who need to obtain practical training, which is not available in their home country, to complete their academic program.
L-1 Intracompany Transferees. The L-1 Visa is a visa which permits the individual to apply later for lawful permanent residence under what is called “Schedule A Group IV” of the Department of Labor’s List of Pre-Certified Occupations.
M-1 Vocational Students. The M-1 visa is issued to students attending non-academic trade and vocational schools. This type of visa is valid for a maximum of one year.
O-1 Individuals with extraordinary ability in the sciences, arts, education, business or athletics
P-1 Internationally recognized athletes and members of internationally recognized entertainment groups
Q-1 Participants in international cultural exchange programs
R-1 Individuals in religious occupations
V-1 Individuals who are married to, or are children of, U.S. Citizens, and for whom the USC’s Immigrant Visa Petition has been pending for more than three years
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Tenancy-by-Entirety
Husband and Wife only. Creates equal, undivided interests and right of survivorship and protects one spouse in the event of bankruptcy of other spouse.
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Tenancy-in-Common
Two or more borrowers. Can be unequal interests.
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Third-party Origination
When 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.
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Title
A document that gives evidence of an individual's ownership of property.
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Title Binder
A written evidence of temporary title insurance coverage that only runs for a limited time and must be replaced by a permanent policy.
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Title Defect
Any legal right held by others to claim property or to make demands upon an owner.
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Title Exception
An exception appearing in a title policy against which the company does not insure.
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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.
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Title Search
An examination of municipal records to determine the legal ownership of property. Usually is performed by a title company.
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Total Expense Ratio
Total obligations as a percentage of gross monthly income including monthly housing expenses plus other monthly debts.
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Townhouse
A residential unit on a small lot which has coincidental exterior limits with other similar units. Title to the unit and its lot is vested in the individual buyer with a fractional interest in common areas.
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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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Two-Step Mortgage
A mortgage in which the borrower receives a below-market interest rate for a specified number of years (most often seven or 10), and then receives a new interest rate adjusted (within certain limits) to market conditions at that time. the lender sometimes has the option to call the loan due with 30 days notice at the end of seven or 10 years. also called "Super Seven" or "Premier" mortgage.
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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.
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Unrecognized Co-op
A standard co-op loan, but no Recognition Agreement.
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Usury
Interest charged in excess of the legal rate established by law.
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VA Loan
A long-term, low- or no-down payment loan guaranteed by the Department of Veterans Affairs. Restricted to individuals qualified by military service or other entitlements.
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VA Mortgage Funding Fee
A premium of up to 1-7/8 percent (depending on the size of the down payment) paid on a VA-backed loan. On a $75,000 fixed-rate mortgage with no down payment, this would amount to $1,406 either paid at closing or added to the amount financed.
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Variable Rate Mortgage
(VRM) see adjustable rate mortgage
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Verification of Deposit
(VOD) A document signed by the borrower's financial institution verifying the status and balance of his/her financial accounts.
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Verification of Employment
(VOE) A document signed by the borrower's employer verifying his/her position and salary.
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Warehouse Fee
Many mortgage firms must borrow funds on a short term basis in order to originate loans which are to be sold later in the secondary mortgage market (or to investors). When the prime rate of interest is higher on short term loans than on mortgage loans, the mortgage firm has an economic loss which is offset by charging a warehouse fee.
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Wraparound mortgage
Results when an existing assumable loan is combined with a new loan, resulting in an interest rate somewhere between the old rate and the current market rate. The payments are made to a second lender or the previous homeowner, who then forwards the payments to the first lender after taking the additional amount off the top.
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Zoning
The act of city or county authorities specifying the type of use to which property may be put in specific areas.
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