Get Started!
  spacerHelp & Advice
Expert loan consultants are available nights and on weekends for your convenience.


  spacerTools & Resources
  • Tools & Calculators
  • Mortgage Basics
  • The Loan Process
  • Mortgage Glossary

Call Today! 1-800-788-4498

Employee Login
Glossary of Mortgage Terms

A | B | C | D | E | F | G | H | I | J | L | M | N | O | P | Q | R | S | T | U | V | Z

Term Definition

Adjustable Rate Mortgage (ARM) A mortgage in which the interest rate is adjusted periodically based on an index. Also known as the renegotiable rate mortgage, the variable rate mortgage or the Canadian rollover mortgage.

Amortization The gradual reduction of a debt by periodic payments of interest and principal that are large enough to pay off a loan at maturity. The loan is repaid through regular, monthly payments of principal and interest paid for a predetermined amount of time.

Annual Percentage Rate (APR) The annual cost of a loan to a borrower. Like an interest rate, the APR is expressed as a percentage of the loan amount. Unlike an interest rate, however, it includes other charges or fees to reflect the total cost of the loan. The Federal Truth in Lending Act requires that every consumer loan agreement disclose the APR in large, bold print. Since all lenders must follow the same rules to ensure the accuracy of the APR, borrowers can use the APR as a good basis for comparing the cost of loans.

Appraisal A written analysis of the estimated value of a property, as prepared by a qualified appraiser. A fee is typically charged for a real estate appraisal because a home appraisal is time-consuming. An appraisal of an auto is usually not necessary because auto dealers, sellers and buyers all have quick access to the market value of autos.

Assumable Mortgage An assumable mortgage is a mortgage that allows you to take over a mortgage on a home you are buying or allows a buyer to take over your mortgage if you are selling your house. The advantage of this is that you assume a mortgage that has a lower interest rate than current rates, and you avoid high closing costs.

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.

Balloon (Payment) Mortgage Usually a short-term fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a specific time.

Bankruptcy A proceeding in a federal court in which a borrower who owes more than his or her assets can relieve the debts by transferring his or her assets to a trustee. Different chapters or types of bankruptcy exist. If a person files bankruptcy, a record of the filing appears on the borrower's credit report for up to 10 years.

Borrower One who receives funds in the form of a loan with the obligation of repaying the loan in full with interest

Bridge Loan A bridge loan is a short-term loan that covers the time between your closing date of a home you are buying and the closing date of the home you are selling. You usually need a contract to sell your current house.

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.

Buydown When the lender and/or the home builder subsidizes 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.

Caps (Interest) Consumer safeguards which limit the amount the interest rate on an adjustable rate mortgage may change per year and/or the life of the loan.

Caps (Payment) Consumer safeguards which limit the amount monthly payments on an adjustable rate mortgage may change.

Cash-out Refinance Refinancing transaction in which the money the borrower receives from the new loan exceeds the total amount he uses to repay the existing first mortgage, closing costs, points; and satisfy any outstanding subordinate mortgage liens. In other words, a refinance transaction in which the borrower receives additional cash he can use for any purpose.

Certificate of Title A certificate issued by a title company or a written opinion by an attorney that the seller has good marketable and insurable title to the property which he is offering for sale. A certificate of title offers no protection against any hidden defects in the title which an examination of the records could not reveal. The issuer of a certificate of title is liable only for damages due to negligence.

Closing The meeting between the buyer, seller and lender where the property and funds legally change hands. Also called settlement.

Closing Cost Includes a loan origination fee, points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. The closing costs usually are about 2 percent to 6 percent of the mortgage amount.

Closing Day The day on which the formalities of a real estate sale are finished. The certificate of title, abstract, and deed are generally prepared for the closing by an attorney and this cost charged to the buyer. The buyer signs the mortgage, and closing costs are paid. The final closing merely reiterates the original agreement reached in the agreement of sale.

Cloud (On Title) An outstanding claim which negatively affects the marketability of title.

Collateral Property offered to support a loan that can be seized if you default.

Commission The fee charged by or paid to a broker, agent or auto sales rep for negotiating a real estate, car sale or loan transaction. A commission is generally a percentage of the sales price.

Compounded Interest Interest is computed on the principal balance of a mortgage plus accrued interest.

Condominium Individual ownership of a unit and an individual interest in the common areas and facilities which serve the project.

Conforming Loan Any loan that meets the criteria and limits set forth by the largest buyers of loans, Fannie Mae or Freddie Mac.

Construction Loan A short term interim loan for financing the cost of construction. The lender advances funds to the builder as the work progresses.

Contractor A person who contracts to erect buildings. There are also contractors for each phase of construction: heating, electrical, plumbing, air conditioning, road building and others.

Conventional Loan A mortgage not insured by FHA or guarantee by the VA or Farmers Home Administration (FmHA).

Conventional Mortgage Any mortgage which is not insured or guaranteed by a government agency such as HUD/FHA, VA, or the Farmers Home Administration.

Conversion Option A conversion option allows you to convert an ARM to a fixed rate mortgage. You will likely pay a higher rate or more points to have this option.

Cooperative Housing An apartment building or a group of dwellings owned by a corporation, the stockholders of which are the residents of the dwellings. It is operated for their benefit by their elected board of directors. In a cooperative, the corporation or association owns title to the real estate. A resident purchases stock in the corporation which entitles him to occupy a unit in the building or property owned by the cooperative. While the resident does not own his unit, he has an absolute right to occupy his unit for as long as he owns the stock.

Cosigner Another person who signs your loan and assumes equal responsibility for it.

Cost of Funds These ARMs are indexed to the actual costs of what banks pay to borrow money. Rates can adjust every month, six months, or every year.

Credit The right granted by a creditor to pay in the future in order to buy or borrow in the present; also, a sum of money owed to a person or business.

Credit Bureau An agency that keeps your credit record.

Credit Card Any card used from time to time to borrow money or buy goods or services on credit.

Credit History The record of how you've borrowed and repaid debts.

Credit Report Report of an individual's credit history that a credit reporting company (CRC) or credit repository prepares that you use to determine a borrower's creditworthiness.

Credit Reporting Company Company that collects information received from more than one credit repository, merges all the information, and reports it in one form; merged credit reports.

Credit Repository Company that collects information on an individual's credit history and reports it in one form, the in-file credit report.

Credit Scoring System Statistical system used to rate credit applicants according to various characteristics relevant to creditworthiness.

Creditor A person or business from whom you borrow or to whom you owe money.

Creditworthiness Past and future ability to repay debts.

Current Index Value Your current index value is the index that is used to figure your interest adjustment on ARMs.

Deed A formal written instrument by which title to real property is transferred from one owner to another. The deed should contain an accurate description of the property being conveyed, should be signed and witnessed according to the laws of the State where the property is located, and should be delivered to the purchaser at closing day. There are two parties to a deed: the grantor and the grantee. (See also deed of trust.

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 repay a loan or otherwise meet the terms of your credit agreement.

Deferred Interest 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 deffering your interest is that the buyer ends up owing more than the original amount of the loan. Also called Negative Amortization.

Delinquency Failure to make payments on time. This can lead to foreclosure.

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.

Depreciation Decline in value of a house due to wear and tear, adverse changes in the neighborhood, or any other reason.

Disclosures Information that must be given to consumers about their financial dealings.

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). Also referred to as points.

Documentary Stamps A State tax, in the forms of stamps, required on deeds and mortgages when real estate title passes from one owner to another. The amount of stamps required varies with each State.

Documentation A list of documents you will be required to provide when submitting a loan application. The required documents range from w2's to a signed sales contract.

Down Payment The difference between the loan amount and the purchase price, usually paid immediately upon purchase with cash or a trade-in

Down Payment and Fees Money paid to make up the difference between the purchase price and mortgage amount plus the closing cost fees to close the loan.

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.

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

Encumbrance A legal right or interest in land that affects a good or clear title, and diminishes the land's value. It can take numerous forms, such as zoning ordinances, easement rights, claims, mortgages, liens, charges, a pending legal action, unpaid taxes, or restrictive convenants. An encumbrance does not legally prevent transfer of the property to another. A title search is all that is usually done to reveal the existence of such encumbrances, and it is up to the buyer to determine whether he wants to purchase with the encumbrance, or what can be done to remove it.

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.

Equity The difference between the fair market value and current indebtedness, also referred to as the owner's interest.

Escrow Refers to a neutral third party who carries out the instructions of both the buyer and seller to handle all the paperwork of settlement or "closing." Escrow may also refer to an account held by the lender into which the homebuyer pays money for tax or insurance payments.

15 year fixed You generally pay a lower interest rate with a 15 year loan. You will pay less interest and build equity quickly.

30 year fixed The 30 year fixed is one of the most popular loans. Many people like the fixed interest rate and lower monthly payments. But since the term of the loan is long, you will pay more interest over the life of the loan.

Fannie Mae A tax-paying corporation created by Congress that purchases and sells conventional residential mortgages as well as those insured by FHA or guaranteed by VA. This institution, which provides funds for one in seven mortgages, makes mortgage money more available and more affordable. Also Referred to as Federal National Mortgage Association.

Farmers Home Administration (FmHA) Provides financing to farmers and other qualified borrowers who are unable to obtain loans elsewhere.

Federal Home Loan Mortgage Corporation (FHLMC) Also called Freddie Mac, is a quasi-governmental agency that purchases conventional mortgages from insured depository institutions and HUD-approved mortgage bankers.

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 standard for underwriting mortgages.

Federal National Mortgage Association (FNMA) Also known 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.

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, they are generous enough to handle moderate-priced homes almost anywhere in the country.

FHA Mortgage Insurance Requires a small fee (up to 3 percent of the loan amount) paid at closing or a portion of this fee added to each monthly payment of an FHA loan to insure the loan with FHA. On a 9.5 percent $75,000 30-year fixed-rate FHA loan, this fee would amount t o either $2,250 at closing or an extra $31 a month for the life of the loan. In addition, FHA mortgage insurance requires an annual fee of 0.5 percent of the current loan amount, the more years the fee must be paid.

Finance Charge The total dollar amount credit will cost.

Fixed Rate Mortgage A mortgage on which the interest rate is set for the term of the loan.

Float Period The float period refers to the time between when you accept a loan and when you lock-in your rate. During this time the interest rate and points on your loan will fluctuate with the market until you lock.

Foreclosure A legal procedure in which property securing debt is sold by the lender to pay a defaulting borrower's debt.

Freddie Mac Is a quasi-governmental agency that purchases conventional mortgages from insured depository institutions and HUD-approved mortgage bankers. Also Referred to as Federal Home Loan Mortgage Corporation.

General Warranty Deed A deed which conveys not only all the grantor's interests in and title to the property to the grantee, but also warrants that if the title is defective or has a "cloud" on it (such as mortgage claims, tax liens, title claims, judgments, or mechanic's liens against it) the grantee may hold the grantor liable.

Ginnie Mae Provides sources of funds for residential mortgages, insured or guaranteed by FHA or VA.. Also referred to as Government National Mortgage Association.

Government National Mortgage Association (GNMA) Also known as Ginnie Mae, provides sources of funds for residential mortgages, insured or guaranteed by FHA or VA..

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.

Grantee That party in the deed who is the buyer or recipient.

Grantor That party in the deed who is the seller or giver.

Gross Monthly Income The total amount the borrower earns per month, before any expenses are deducted.

Gross Pay The total amount of salary earned before taxes and other deductions are made. Different than net pay or take home pay, which is the amount of salary after taxes and other deductions are taken. Lenders look at your gross and net pay to help decide how much money to lend you.

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

Home Equity Line of Credit (HELOC) Secondary financing that consists of a revolving line of credit secured by a lien junior to a mortgage.

Home-equity loan A Loan in real estate property that is used to secure or guarantee the amount borrowed. Sometimes referred to as a second mortgage or borrowing against your home. The loan allows you to tap intoyour home's built-up equity, which is the difference between the amount your home could be sold for, and any claims held against it. People often use a home-equity loan for home improvements or to pay for a new car. A home-equity loan is a good way to borrow money for two main reasons. First, the interest rate is usually one of the lowest loan rates a borrower can get. Also, the interest you pay on the loan is usually tax-deductible. But taking out a home-equity loan also means the lender can take possession of the home if the loan isn't repaid. This is why some people decide to not borrow against their home, and may decide to take out a personal loan. But for many borrowers, a home-equity loan can be the best loan option. Your best loan option is the loan that best meets your needs.

Housing Expenses-to-Income Ratio The ratio, expressed as a percentage, which results when a borrower's housing expenses are divided by his/her net effective income (FHA/VA loans) or gross monthly income (Conventional loans).

HUD U.S. Department of Housing and Urban Development. Office of Housing/Federal Housing Administration within HUD insures home mortgage loans made by lenders and sets minimum standards for such homes.

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.

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.

In-File Credit Report Information issued by one credit repository that contains an individual credit history for you to review in determining a loan applicant's creditworthiness.

Initial Interest Rate The initial interest rate is the rate you pay when you first get your loan. On an ARM, this rate may be for 5 years (5/1 ARM) or only a month.

Installment Debt Liability that typically has a fixed interest rate, fixed term, and equal payments amortized over a set number of months, agreed upon by the lender and the borrower prior to disbursement.

Interest A charge paid for borrowing money. Interest is usually expressed as a percentage of the amount borrowed or interest rate.

Interest Cost Interest cost shows how much you will pay in interest over the life of the loan, assuming you keep the loan for the entire period.

Interest Due Interest due is the portion of the mortgage payment that goes toward interest. When you close on your home, you will usually owe interest for the time between your closing date and when you make your first payment.

Interest Rate The annual rate of interest on the loan, expressed as a percentage of 100.
Interest Rate Adjustment Period The interest rate adjustment period is how often your rate is adjusted on an ARM after the initial rate period is over. For example, a 5/1 ARM means you have an initial rate period of 5 years that is fixed and then after 5 years, your rate changes every year.

Interest Rate Ceiling The interest rate ceiling is the highest interest rate possible under an ARM. You may hear this called the lifetime cap and it based on the number of percentage points your rate can increase from your initial rate.

Interest Rate Decrease Cap An interest rate decrease cap is the maximum allowable decrease in your interest rate (on an ARM) each time your rate is adjusted. It is usually 1 or 2 percentage points. If rates go down 4% your rate may only go down 2% due to the cap.

Interest Rate Floor The rate floor is the lowest interest rate possible under an ARM loan.

Interest Rate Increase Cap The interest rate increase cap is the maximum allowable increase in your interest rate (on an ARM) each time your rate is adjusted. It is usually 1 or 2 percentage points. For example, if your rate adjusts every year, each year it cannot exceed the stated cap.

Interest Rate Index The interest rate index is the specific fund/security that your interest rate on an ARM is tied to. Common indexes are Treasury Constant Maturities or Cost of Funds indices. All the indices are published regularly in readily available sources.

Joint Account A credit account held by two or more people so that all can use the account and all assume legal responsibility to repay.

Jumbo Loan A loan which is larger (more than $203,150) 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.

Late Payment A payment made later than agreed upon in a credit contract and on which additional charges may be imposed.

Lender Company that performs the functions necessary to complete a mortgage transaction. Lenders include approved sellers, mortgage brokers, and third-party originators (TPOs).

Lessee A person who signs a lease to get temporary use of property.

Lessor A company that provides temporary use of property usually in return for periodic payment.

Liability on an Account Legal responsibility to repay debt.

Lien A claim upon a piece of property for the payment or satisfaction of a debt or obligation.

Liquid Assets Cash or assets that can be immediately converted to cash
Loan Amount The amount of debt not including interest.

Loan-To-Value Ratio The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.

Lock Period A lock period refers to the amount of time prior to closing that you can secure an interest rate for your loan. Generally, lock periods range from 30 days to over 90 days. Generally, the longer the lock period, the more you pay in points or interest.

Lockable You can "lock in" the current interest rate for a set length of time, usually 30, 45 or 60 days. By "locking in" a rate the interest rate is locked and if interest rates increase, your "locked in" rate will not change.

Margin The amount a lender adds to the index on an adjustable rate mortgage to establish the adjusted interest rate.

Marketable Title A title that is free and clear of objectionable liens, clouds, or other title defects. A title which enables an owner to sell his property freely to others and which others will accept without objection.

Material Debt Liability that is substantial. The debt results from a recent inquiry and could affect the ratios used to make a decision on the loan.

Merged Credit Reports Information issued by one credit reporting company that receives credit history information from more than one credit repository and combines all of it into one concise format. May be individual or joint.

Minimum Down Payment Minimum down payment is the amount of money you are required to put down at closing. If the minimum is 10%, you must make a down payment of at least $10,000 on a $100,000 house.

Monthly Payment The amount paid each month towards the principal and interest amount of a loan. The monthly payment may or may not include taxes and insurance.

Mortgage A lien or claim against real property given by the buyer to the lender as security for money borrowed. Under government-insured or loan-guarantee provisions, the payments may include escrow amounts covering taxes, hazard insurance, water charges, and special assessments. Mortgages generally run from 10 to 30 years, during which the loan is to be paid off.

Mortgage (Open-End) A mortgage with a provision that permits borrowing additional money in the future without refinancing the loan or paying additional financing charges. Open-end provisions often limit such borrowing to no more than would raise the balance to the original loan figure.

Mortgage Broker A person or entity that specializes in loan originations, receiving a commission to match borrowers and lenders. The Mortgage Broker performs some or most of the loan processing functions such as taking loan applications, ordering credit reports, appraisals, and title reports. Typically the Mortgage Broker does not underwrite the loan and generally does not use its own funds for closing. The Mortgage is generally closed in the name of the lender who commissioned the broker's services. A Mortgage Broker will not service the Mortgage. An entity or individual engaged to handle or perform, for a Seller or correspondent, part of the mortgage application processing, underwriting, funding or postclosing functions, but not any activities related to obtaining an application for a wholesale origination. This entity is typically paid on a fee basis for services performed, with the payment of fees not being contingent on Mortgage approval or closing.

Mortgage Commitment A written notice from the bank or other lending institution saying it will advance mortgage funds in a specified amount to enable a buyer to purchase a house.

Mortgage Insurance Money paid to insure the mortgage when the down payment is less than 20 percent.

Mortgage Insurance Premium The payment made by a borrower to the lender for transmittal to HUD to help defray the cost of the FHA mortgage insurance program and to provide a reserve fund to protect lenders against loss in insured mortgage transactions. In FHA insured mortgages this represents an annual rate of one-half of one percent paid by the mortgagor on a monthly basis.

Mortgage Note A written agreement to repay a loan. The agreement is secured by a mortgage, serves as proof of an indebtedness, and states the manner in which it shall be paid. The note states the actual amount of the debt that the mortgage secures and renders the mortgagor personally responsible for repayment.

Mortgagee The lender.

Mortgagor The borrower or homeowner.

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 buyer ends up owing more than the original amount of the loan.

No-Doc Mortgage A no-documentation or "no-doc" mortgage is a product that certain lenders offer to borrowers which generally requires a down payment of at least 5% to 30% or more of the home purchase price or who generally have at least 25% equity in their home. Loan programs featuring lower down payments (5-24%) are also available to borrowers with excellent credit. No-doc mortgages are generally a wise choice for self-employed people, those who do not wish to verify their income, and those with a brief or blemished credit history, or no credit. The benefits of a no-doc mortgage include a shorter application process since you are not required to provide income, employment or asset documentation, as well as a streamlined approval process through the lender because there is little subsequent verification. However, no doc mortgages generally will be at slightly higher interest rates and are offered by fewer lenders.

Non-Assumption Clause A statement in a mortgage contract forbidding the assumption of the mortgage without the prior approval of the lender.

Non-Conforming Loan A conventional home mortgage that does not meet the criteria of Fannie Mae or Freddie Mac for various reasons including loan amount, loan characteristics or underwriting guidelines. Non-Conforming loans usually incur a higher rate and/or points.

Open-End Credit A line of credit that may be used over and over again, including credit cards, overdraft credit accounts, and home equity lines.

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 face value of the loan. .

Personal Loan An unsecured loan, which means a borrower does not put up any collateral or security to guarantee the repayment of the loan. For this reason, personal loans carry high interest rates. If a borrower owns a home, a lower-interest-rate alternative is a home-equity loan. But this option requires that the borrower put up his or her home or other real estate property as collateral. Your best loan option is the loan that best meets your needs.

Piggyback Loan An alternative to private mortgage insurance, also known as a second trust loan. The most common type is an 80/10/10 where a first mortgage is taken out for 80% of the home’s value, a down payment of 10% is made and another 10% is financed in a second trust at a higher interest rate. In some cases, you may even qualify for a piggyback loan with as little as a 5% down payment

PITI Principal, interest, taxes, and insurance. Also called monthly housing expense.

Points The amount of prepaid interest you will be assessed at closing. Each point is equal to 1 percent of the loan amount (e.g. two points on a $100,000 mortgage would cost $2,000). Also referred to as Discount Points.

Power of Attorney A legal document authorizing one person to act on behalf of another.

Prepaids Expenses necessary to create an escrow account or to adjust the seller's existing escrow account. Can include taxes, hazard insurance, private mortgage insurance and special assessments.

Prepayment A privilege in a mortgage permitting the borrower to make payments in advance of their due date.

Prepayment Premium Money charged for an early repayment of debt. Prepayment premiums are allowed in some form (but not necessarily imposed) in 36 states and the District of Columbia.

Prime Rate The interest rate charged by lenders to their best, most creditworthy customers. A less credit worthy customer may be offered a loan at the prime rate plus anywhere from 2 to 10 percent. Borrowing at below-prime also occurs, but is less common and usually applies to businesses, not individual consumers. The Federal Reserve determines whether to lower or raise the prime rate based on a variety of economic factors. Many consumer loans, such as auto, home equity, mortgage and credit card loans are based upon the prime rate. Building and maintaining a good credit history are two of the most important qualifications for prime-rate borrowing.

Principal The amount of debt, not counting interest, left on a loan.

Private Mortgage Insurance (PMI) In the event that you do not have a 20 percent down payments, lenders will allow a smaller down payment-as low as 5 percent in some cases. With the smaller down payments loans, however, borrowers are usually required to carry private mortgage insurance. Private mortgage insurance will require an initial premium payment of 1.0 percent to 5.0 percent of your mortgage amount and may require an additional monthly fee depending on your loan's structure. On a $75,000 house with a 10 percent down payments, this would mean either an initial premium payment of $2,025 to $3,375, or an initial premium of $675 to $1,130 combined with a monthly payment of $25 to $30.

Processing Processing are the steps a lender takes with your loan application to gather your information for underwriting. Processing involves building your file of information for your loan. Processing includes getting the credit report, appraisal, verification of employment, assets, etc.

Purchase option Typically, the option to buy a leased auto usually during the life of a lease (lease buy out) or when the lease ends.

Qualification Qualification is the initial process to see if you have enough cash and sufficient income to meet the requirements of the lender for a loan you want. Qualification is not an approval because it does not include your credit history. Qualified borrowers can be turned down if they have poor credit history.

Qualification Ratios Qualification ratios are set by the lender that state your housing expense to income, and housing expense plus other debts to income, cannot exceed a specified number. Many lenders use a 28% housing expense to income and a 36% housing expense plus debts to income. Other ratios may be how much you put down on a home.

Quitclaim Deed A deed which transfers whatever interest the maker of the deed may have in the particular parcel of land. A quitclaim deed is often given to clear the title when the grantor's interest in a property is questionable. By accepting such a deed the buyer assumes all the risks. Such a deed makes no warranties as to the title, but simply transfers to the buyer whatever interest the grantor has.

Rate In lending, the amount of interest on the loan expressed as an interest rate or annual percentage rate (APR) of the principal.

Rate Cap Insurance Rate cap insurance limits how much the interest rate can increase during the float period (usually no more than .5%). For example, if you get the insurance when the rate is 7.5%, you will be guaranteed that the rate will not go above 8%. This protects you from uncertainty in the market and rising rates. With the insurance you will be told that you can lock-in a rate, usually within 60 days of closing. You can also lock if the rate goes lower.

Rate/Point Options These options are all the combinations of interest rate and points that are offered on a particular loan. Usually you will find that paying more points lowers interest rates.

Real Estate Broker A middle man or agent who buys and sells real estate for a company, firm, or individual on a commission basis. The broker does not have title to the property, but generally represents the owner.

Real Estate Settlement Procedures Act (RESPA) RESPA is a federal law that allows consumers to review information on known or estimated settlement costs once after application and once prior to or at settlement. The law requires lenders to furnish information after application only.

Realtor A real estate broker or an associate holding active membership in a local real estate board affiliated with the National Association of Realtors.

Recision 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.

Recording Fees Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records.

Refinancing The process of the same mortgagor paying off one loan with the proceeds from another loan.

Required Cash Required cash is the total cash required for you to close the loan. This cash goes towards down payment, points, and other charges paid to the lender. It also goes towards up-front charges for things like mortgage insurance and other settlement charges associated with the transaction such as title insurance, taxes, etc. Your good faith estimate will show how much cash you need for closing.

Reserves Verified liquid assets remaining after the borrower pays downpayment and closing costs.

Residential Mortgage Credit Report (RMCR) Detailed account of the credit, employment, and residence history, as well as public-record information, concerning an individual.

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 security.

Revolving Debt Debt that typically has a variable interest rate, an open-ended term, and payments that are based on a percentage of the balance. The debt has a set limit agreed upon by the lender and borrower.

Second Home One-unit property owned by an individual, occupied by the borrower for some portion of the year, and not subject to any timesharing ownership arrangement. The property must be in a location where it can function reasonably as a second home.

Second Trust Loan An alternative to private mortgage insurance, also known as a "piggyback loan." The most common type is an 80/10/10 where a first mortgage is taken out for 80% of the home’s value, a down payment of 10% is made and another 10% is financed in a second trust at a higher interest rate. In some cases, you may even qualify for a second trust loan with as little as a 5% down payment.

Secured Debt Money borrowed that is guaranteed (or secured) by the borrower's funds and held by the lender in an interest-bearing account. Typically required when a borrower is without credit or has poor credit. The lender usually returns the secured money plus a nominal rate of earned interest to the borrower with a certain period of time if a good credit history is established. Distinguished from unsecured debt.

Security Property pledged to the creditor in case of a default on a loan; also referred to as collateral.

Security Interest The creditor's right to take property or a portion of property offered as security.

Self-Employed Borrower Applicant who owns 25 percent or more interest in a business.

Service Charge A component of some finance charges, such as the fee for triggering an overdraft checking account into use.

Servicing All the steps and operations a lender perform to keep a loan in good standing, such as collection of payments, payment of taxes, insurance, property inspections and the like.

Settlement The meeting between the buyer, seller and lender where the property and funds legally change hands. Also referred to as Closing.

Settlement Costs Includes a loan origination fee, points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. The closing costs usually are about 2 percent to 6 percent of the mortgage amount.

Simple Interest Interest that is paid on the principal amount borrowed. Considered the best interest term for a borrower because it is not compounded.

Special Assessments A special tax imposed on property, individual lots or all property in the immediate area, for road construction, sidewalks, sewers, streetlights, etc.

Special Lien A lien that binds a specified piece of property, unlike a general lien, which is levied against all one's assets. It creates a right to retain something of value belonging to another person as compensation for labor, material, or money expended in that person's behalf. In some localities it is called "particular" lien or "specific" lien. Also see lien.

Special Warranty Deed A deed in which the grantor conveys title to the grantee and agrees to protect the grantee against title defects or claims asserted by the grantor and those persons whose right to assert a claim against the title arose during the period the grantor held title to the property. In a special warranty deed the grantor guarantees to the grantee that he has done nothing during the time he held title to the property which has, or which might in the future, impair the grantee's title.

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 building.

Tax As applied to real estate, an enforced charge imposed on persons, property or income, to be used to support the State. The governing body in turn utilizes the funds in the best interest of the general public.

Term The period of time between the beginning loan date on the legal documents and the date the entire balance of the loan is due.

Term Mortgage Usually a short-term fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a specific time. Also known as Balloon Payment Mortgage.

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

Title Insurance A policy, usually issued by a Title Insurance company, which insures a homebuyer 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.

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

Treasury Index These ARMs are indexed to treasury bills or securities. Depending on the ARM, the rate will adjust every 6 months, every year, or every 3 years.

Trustee A party who is given legal responsibility to hold property in the best interest of or "for the benefit of" another. The trustee is one placed in a position of responsibility for another, a responsibility enforceable in a court of law.

Truth-in-Lending A federal law requiring disclosure of the Annual Percentage Rate to homebuyers shortly after they apply for the loan.

Underwriting The analysis of the risk involved in making a mortgage loan to determine whether the risk is acceptable to the lender. Underwriting involves the evaluation of the property as outlined in the appraisal report, and of the borrower's ability and willingness to repay the loan.

VA Loan Mortgage loan made by an approved lender and guaranteed by the Department of Veterans Affairs. VA loans are made eligible to veterans and those currently serving in the military, and can have lower downpayment than other types of loans.

VA Mortgage Funding Fee A premium of up to 2 percent (depending on the size of the down payment) paid on a VA-backed loan. On a $75,000 30-year fixed-rate mortgage with no down payment, this would amount to $1,406 either paid at closing or added to the amount financed.

Variable Rate Mortgage (VRM) See Adjustable Rate Mortgage.

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 A document signed by the borrower's employer verifying his/her position and salary.

Waiver Relaxing a requirement pertaining to the eligibility of a loan. Waivers may include permitting less documentation than would otherwise be required.

Wholesaler A wholesaler is a lender that provides loans to borrowers through mortgage brokers or correspondents. The mortgage broker or correspondent works with you and gets your application.

Wraparound 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.

Zoning Ordinances The acts of an authorized local government establishing building codes, and setting forth regulations for property land usage.

red star
red star
red star
red star
red star
red star