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Glossary
Finding
the right loan for you is a baffling enough process. The terminology
surrounding home mortgages and the refinance involved can be intimidating
for buyers. So, we offer you an exhaustive glossary explaining these terms
that every one can understand.
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- Additional Borrowers
Borrowers who contribute income and credit history to the
qualification process of a loan and whose names appear on all closing
documents. Each additional borrower is equally liable for the debt and
condition of the property.
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Adjustment Date
The date the interest rate changes for an adjustable rate mortgage
(ARM).
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Adjustment Period
The interval of months between the interest rate adjustment dates for
an adjustable rate mortgage (ARM).
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Adjustable Rate Mortgage (ARM)
A mortgage loan in which the interest rate is adjusted periodically
according to a pre-determined adjustment criteria.
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Amount Financed
The Amount Financed is not the amount of the loan. It is the
requested loan amount minus the prepaid finance charge. The Amount
Financed is the amount on which the APR is based. For example, if the
borrower requests $100,000 and the Prepaid Finance Charge totals $4,000,
the Amount Financed would be $96,000.
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Annual Percentage Rate (APR)
The actual cost of a mortgage loan expressed as a yearly rate. The
APR will be higher than the interest rate stated on the application and
note if it includes fees which are categorized as pre-paid finance
charges such as: interest, discount points, origination fee, required
mortgage insurance and other related fees. The Truth in Lending Act
requires lenders to disclose an APR to assist the borrower in measuring
the actual cost of a loan on an annualized basis.
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Application
A form used by mortgage lenders to document necessary information
concerning the mortgage loan applicant(s).
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Appraisal
An official report created by a qualified appraiser that establishes
an opinion or estimate of property value. The estimate of value is
generally obtained by comparing homes similar to the "subject" home
within the same location or neighborhood.
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Appraised Value
An opinion or estimate of property value provided by a certified
property appraiser. The estimate of value is generally obtained by
comparing homes similar to the "subject" home that are within the same
location or neighborhood.
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Available Cash
The amount of liquid assets (i.e. checking, savings, mutual funds, etc.)
immediately available to pay closing costs and down payment.
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Average Interest Rate
The actual average interest rate for a combination of debts based
upon a total weighted interest rate calculation. Utilizing each loan
balance and interest rate, the calculator determines an average interest
rate for multiple debts.
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Borrower
An individual (also known as mortgagor) who receives funds in the
form of a loan with an obligation to repay the principal with interest.
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CAPS
Safeguards on ARM loans that limit the amount a monthly payment or
interest rate may increase. An interest rate cap limits the percent the
rate can increase or decrease for the initial and additional adjustment
periods. The payment cap limits the amount the payment can increase or
decrease for each adjustment period. An ARM loan must also have a "life
of loan" cap limiting the maximum percent the rate can increase or
decrease for the life of the loan.
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Cash Needed
The total dollar amount required for payment of closing costs and down
payment.
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Cash Out Refinance
A mortgage loan that allows the borrower to pay off an existing debt
and obtain excess money from the equity of their home for payment of
closing costs and additional funds for personal needs (i.e., college
tuition, home improvement, remodel home, purchase automobile and etc).
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Closing
The final meeting where the sale and transfer of property and/or loan
settlement is fully executed. This meeting generally requires the
borrower(s), seller(s), lender (or their agent) to be present. The
closing includes the delivery of a deed, signing of notes, and the
collection and disbursement of funds necessary to complete the sale and
loan transaction. Also known as Settlement.
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Closing Costs
The costs associated with purchasing a new home (or transfer of home)
and obtaining a mortgage loan. Fees are generally assessed at closing
and may include: insurance, loan fees, title fees, transfer fees, taxes,
settlement or closing fee, survey fee, title insurance, appraisal fees,
etc. The total closing costs are approximately 5% of the mortgage loan
amount.
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Co-borrower
Borrower(s) who contribute income and credit history to the
qualification process of a loan and whose name(s) appear(s) on all
closing documents. The co-borrower is also liable for the debt and
condition of property.
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Collateral
An item of value pledged as security for a debt. The real estate is
pledged as collateral for a mortgage loan and is bound by signing and
recording a mortgage or deed of trust.
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Condominium
A structure of two or more units where the interior space is
individually owned, and the balance of the land (structure and land) are
commonly owned by the owners of each individual unit.
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Cooperative
A structure of two or more units in which the right to occupy a unit
is obtained by the purchase of stock in the corporation that owns the
building or units.
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Cost to Refinance a Loan
The fees and total cost associated with obtaining a new mortgage loan
and refinancing an existing mortgage loan. Generally fees are assessed
at closing and may include: insurance, title fees, transfer fees, taxes,
settlement or closing fee, survey fee, title insurance, appraisal fees,
etc. The total closing cost is typically 5% of the mortgage loan amount.
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Credit Report
A report obtained from a credit bureau agency or company that
discloses a borrower's credit history and current credit status.
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Debt Consolidation Loan
A type of loan that allows the borrower to payoff all or a portion of
existing debt (including the existing mortgage loan) from loan proceeds.
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Deed of Trust
An instrument used in many states in place of a mortgage. The
property is transferred to a trustee by the borrower (trustor), in favor
of the lender (beneficiary) and reconveyed upon payment in full.
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Deposit
A sum of money given to the seller, real estate broker or escrow
agent with an offer to purchase real estate as evidence of good faith.
Also known as earnest money.
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Discount Points
An amount payable to the lender paid by the borrower or seller to
increase the lender's effective yield and reduce the interest rate. One
point is equal to one percent of the loan amount. Also known as discount
fee.
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Down Payment
A percent of the purchase price that is paid in cash to the seller.
The down payment is the difference between the sales price and mortgage
loan amount. Typically, the down payment is 5-20% of the purchase price.
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Earnest Money
A sum of money given to the seller, real estate broker or escrow
agent with an offer to purchase real estate as evidence of good faith.
Also known as deposit.
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Estimated Property Value
The Purchase Price or Current Market value of a specific property.
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Equifax Credit Services
A credit reporting agency that provides a detailed report itemizing an
individual's credit history and current credit status.
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Equity
The portion of a property's value over and above the loans (liens)
against it (i.e., value of property minus loans against property).
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Finance Charge
The total amount of interest, prepaid finance charge and specific
required insurance premiums (if applicable) that the borrower is
expected to pay over the life of the loan.
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First Mortgage
A real estate loan with a lien (i.e., mortgage or deed of trust) on
the subject property that has priority over any subsequently lien.
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Fixed Interest Rate
An interest rate that does not change during the entire term or life
of the loan.
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Fixed Monthly Debt
The amount of monthly payment required to be paid each month.
Sometimes referred to as "minimum monthly payment" for credit card or
revolving accounts.
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Gift Funds
Transfer of funds to assist with payment of closing costs and/or down
payment. Investors typically require that gift funds may only be
received from the borrower's parents and/or grandparents with no intent
for repayment.
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Gross Monthly Income
The total monthly income earned before taxes and any other
deductions.
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Hazard Insurance
Insurance for a specific property that protects the insured for loss
caused by natural causes (i.e., fire, disasters and vandalism, depending
on the terms of the policy also known as Homeowner's Insurance).
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Home Equity Loan
A type of loan that allows homeowners to acquire a loan in addition
to their original mortgage/lien using a portion or all of the equity in
their home (primary residence). A home equity loan is a generally a
second mortgage on the subject property and may be used for any personal
needs (i.e., college education, debt consolidation, home improvement,
etc).
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Homeowner's Insurance
Insurance for a specific property that protects the insured for loss
caused by natural causes (i.e., fire, disasters and vandalism, depending
on the terms of the policy also known as Hazard Insurance).
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Installment
Loans
A loan that has a fixed (or closed-end) term (i.e., 36 months) and fixed
unchanging monthly payments. When the loan is paid in full the borrower
cannot advance additional money unlike a revolving loan.
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Interest Rate
The percentage of an amount of money that is borrowed and is paid for
during a specific period specified in the terms of the loan.
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Investment Property
A property designated solely as a "rental" or "leased" property.
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Lender Name
The name of the mortgage lender that has been assigned to review and
process the loan application.
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Lien
A legal claim against a specific property as security for payment of
a debt. The mortgagor (borrower) still holds legal title to the
property, however, a lien is pledged as collateral.
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Line of Credit (Revolving Line of Credit)
A loan with a maximum credit limit that allows the borrower(s) to
disburse funds up to the maximum credit line as needed. Funds may be
disbursed repeatedly as the principal balance is paid down up to the
maximum credit limit available. A line of credit functions similar to a
credit card and may be accessed by writing a check or a using a debit
card.
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Loan Amount
The total amount requested by the borrower to be financed. This
amount is the basis of many loan fee calculations. For refinance loans,
the loan amount will include the balance of all loans the borrower
requests to be paid off, including the original mortgage, other personal
debt and/or cash out amount.
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Loan Balance
The outstanding balance of a loan not paid in full, excluding any
accrued interest.
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Loan Product
The loan program that dictates the finance type, amortization term
and other pertinent loan functions (i.e., fixed or adjustable rate and
360 or 180 months).
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Loan Term
The total number of payments required to pay the loan in full. This
is also known as amortization term.
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Loan-To-Value Ratio (LTV)
The ratio between the amount of a given mortgage loan and the lower
of sales price or appraised value. To determine a loan-to-value ratio,
divide the loan amount by the sales price or appraised value.
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Manufactured Home
A type of house that is constructed in a factory, delivered to a
property location and set on a foundation. In the past, manufactured
homes were called "mobile homes". However, "mobile" is no longer an
accurate name because fewer than five percent of such homes are ever
moved off the owner's original site.
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Maturity
The termination or due date on which final payment of a loan must be
paid in full.
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Maximum Monthly Payment
The maximum payment a borrower may qualify for based on their income
and debt. The maximum payment is calculated by using a debt-to-income
ratio.
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Mobile Home
A type of home that is 100% constructed in a factory, delivered to a
property location and set on a lot or foundation. A mobile home can
generally be moved off of the owner's original site.
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Monthly Housing Payment
Typically the total amount of principal, interest, taxes, and
insurance (PITI) paid each month on a mortgage loan. Many lenders and
investors limit the monthly housing payment to 28% of the gross monthly
income.
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Monthly Payment
The amount of principal and interest paid each month on a loan. The
monthly payment on a mortgage loan may also include an escrow payment
for taxes and insurance.
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Monthly Payment Savings
The total monthly payment reduction a borrower may gain by
refinancing their mortgage loan.
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Mortgage
An instrument used in some states as a claim in real estate pledging
the subject property as collateral for a mortgage loan and terminating
once the loan is paid in full.
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Mortgage Insurance (MI)
Insurance required by investors to protect the lender in case the
borrower defaults on the loan. Mortgage Insurance is typically required
for conventional loans that have a down payment less than 20% of the
purchase price. FHA and VA loans have different insurance and
guidelines. Also known as Private Mortgage Insurance.
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Mortgagee
The lender on a mortgage loan transaction.
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Mortgagor
The borrower on a mortgage loan transaction.
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Multi Family
A term generally to distinguish a house designed for use by more than
one family.
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Note
A written agreement and promise from the borrower(s) to pay a
definite sum of money at a stated interest rate during a specified date
and term. The note contains a description of the collateral and
conditions under which the loan is to be repaid.
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Number of People Applying for Loan
The total number of individuals who will be contributing income and
credit to the approval process. Investors may limit the number of
individuals applying for a loan.
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Number of Years at this Address
The total number of years the borrower has lived at the current
residence. Many loan programs may contain specific criteria allowing
higher Loan-to-Value or Debt-to-Income ratios based upon years at
current residence.
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Number of Years with Employer
The total number of years the borrower has been employed with the
current employer. Many loan programs may contain specific criteria
allowing higher Loan-to-Value or Debt-to-Income ratios based upon years
with current employer.
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Origination Fee
The fee charged by a lender to originate a mortgage loan. Typically
the fee is a percentage of the loan amount, such as one percent.
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Outstanding Debt to Consolidate
The total amount of all debt the borrower desires to payoff and
consolidate into one loan and monthly payment.
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Payment Schedule
A schedule detailing the amount and due date of payments required to
be paid over the life of the loan. The dollar figures represent
principal, interest and private mortgage insurance (if applicable). This
schedule does not reflect payment for taxes and insurance.
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Points
An amount payable to the lender paid by the borrower or seller to
increase the lender's effective yield and reduce the interest rate. One
point is equal to one percent of the loan amount.
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Preferred Communication Method
A process of communication used to respond to a borrowers loan
request.
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Pre-qualification
A request by a prospective loan applicant for a preliminary
determination of whether the prospective applicant would likely qualify
for credit under a lender's standards, or of the amount of credit for
which the prospective applicant likely would qualify. Some lenders
evaluate pre-qualification requests through a procedure that is separate
from the lender's normal loan application process; others use the same
process. Pre-qualification is generally not a commitment to lend.
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Prepaid Finance Charge
Certain charges made in connection with the loan that must be paid
upon the loan closing. These charges are defined in Regulation Z of
Federal Register and entail, but not inclusive to: Loan Origination Fee,
Discount Points, Private Mortgage Insurance and Tax Service Fee. Some
loan fees are excluded from the Prepaid Finance Charge such as appraisal
and credit report fees.
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Primary Borrower
An individual who is listed first on the mortgage loan application and
is considered to be the primary borrower. Some lenders allow a
non-occupying co-borrower or co-signor to be on the application. In this
case, the borrower occupying the property will need to be the primary
borrower.
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Primary Home
A property that the owner intends to occupy and will be their primary
residence.
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Primary Residence
A home which the borrower intends to occupy as the principal
residence.
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Principal and Interest (PI)
A portion of the monthly payment that is applied toward the loan
balance and accrued interest. Payment for property taxes and insurance
is considered PITI (principal, interest, taxes and insurance).
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Principal, Interest, Taxes and Insurance (PITI)
The monthly payment that is applied toward the loan balance, accrued
interest and escrow account. Principal, interest, taxes and insurance
are the four major components of a regular monthly mortgage payment.
Payment for principal and interest is considered PI (principal and
interest).
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Principal Balance
The outstanding balance due on a debt, excluding any accrued interest
or other fees.
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Private Mortgage Insurance (PMI)
Insurance required by investors to protect the lender in case the
borrower defaults on the loan. Mortgage Insurance is typically required
for conventional loans that have a down payment less than 20% of the
purchase price. FHA and VA loans have different insurance and
guidelines. Also known as Mortgage Insurance.
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Proceeds from Sale of Current Home
The total funds remaining from the sale and transfer of a current
home. The proceeds are calculated by subtracting all settlement fees and
lien payoffs from the sales price (purchase price). Many borrowers use
the proceeds from the sale of the current home as down payment and/or
payment of closing costs for the purchase of a new home.
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Product Type
The loan type typically details the purpose of the loan (i.e.,
purchase new home, refinance existing home, home equity, debt
consolidation and second mortgage). Many loan programs may contain
specific criteria allowing only certain loan types.
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Property Class
A description of the structure of the property determining whether it
is uses as a Single (one) Family Home, Multi Family Home (2-4),
Condominium, Town Home, Manufactured or Mobile Home and Cooperative
Housing.
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Property Taxes
A tax collected on real estate property by local, state and/or
federal government. The amount of tax is determined by the value of the
property.
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Property Type
A description of the property that determines whether the property
will be used as a Primary Residence Home, Investment Property or Second
Home.
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Property Use
A description of the property that determines whether the property
will be used as a Primary Residence Home, Investment Property or Second
Home.
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Purchase Price
The amount of money paid for a specific property and is based upon a
written agreement (purchase agreement) between the seller and buyer.
Also known as sales price.
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Qualify
A process of preparing a borrower for a mortgage loan by analyzing
their financial data and comparing to loan program criteria to determine
the best-fit program based upon loan-to-value ratio, debt-to-income
ratio and credit information (if applicable).
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Rate Type
A factor that determines the payment structure and whether the rate
may adjust during the life of the loan. Generally fixed or adjustable
(ARM).
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Refinance
The process of obtaining a new mortgage loan to pay off the existing
debt from loan proceeds using the same property as collateral. This type
of loan is generally requested to obtain a lower interest rate and/or
reduce payment or term.
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Revolving Loan
A loan with a maximum credit limit that provides the borrower with
the ability to disburse funds up to the maximum credit line as needed.
The line of credit can be accessed repeatedly as the balance is paid
down. A revolving loan functions similar to a credit card and may be
accessed by writing a check or a using a debit card.
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Sales Price
The amount of money paid for a specific property, the sales price is
based upon a written agreement between the seller and buyer (also known
as purchase price).
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Second Home
A property designated as a second residence or vacation home and is
livable year round. The property owner generally resides at different
property referred to as "Primary Home."
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Security
Real estate property pledged as collateral to secure the payment of a
debt, most commonly used in mortgage loan transactions.
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Settlement
The final meeting where the sale and transfer of property and/or loan
closing is fully executed. This meeting generally requires the
borrower(s), seller(s), lender (or their agent) to be present. The
closing includes the delivery of a deed, signing of notes, and the
collection and disbursement of funds necessary to complete the sale and
loan transaction (also known as closing).
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Single Family
A term generally to distinguish a house designed for use by one
family.
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Specific Monthly Payment
A desired monthly payment or pre-determined monthly payment.
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State Property is Located
The actual state of which the property is located.
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Student Loans
A government affirmed loan obtained to finance the cost of tuition
for approved colleges and universities.
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Survey
The measurement of the boundaries of a parcel of land documented by a
registered surveyor.
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Term
A period of time (usually months) that a loan must be repaid.
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Title
The evidence of ownership and rights an individual has to a specific
property/real estate.
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Title Insurance
Insurance obtained from a title insurance company that insures the
purchaser, lender (mortgagee), or other agent from any loss caused by
defects of title on the subject property/real estate.
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Total of Payments
The Total of Payments represents the sum of all payments made toward
principal, interest and mortgage insurance (if applicable) for the life
of the loan.
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Total Fixed Monthly Debt
The total monthly sum of all monthly loan payments for all borrowers.
This total should only include the minimum required payment and not the
actual payment made (if excess payment is made).
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Transfer Tax
State or local tax on the transfer of title (ownership) when the
title passes from one owner to another.
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Type of Property
A description of the structure of the property determining whether it
is uses as a Single (one) Family Home, Multi Family Home (2-4),
Condominium, Town Home, Manufactured or Mobile Home and Cooperative
Housing.
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