Home Mortgage Glossary
203(b):
FHA
program which provides mortgage insurance to protect lenders from
default; used to finance the purchase of new or existing one- to
four family housing; characterized by low down payment, flexible
qualifying guidelines, limited fees, and a limit on maximum loan
amount.
203(k):
this FHA mortgage insurance program enables homebuyers to finance
both the purchase of a house and the cost of its rehabilitation
through a single mortgage loan.
A
Adjustable-rate loans: also known as variable-rate loans, usually offer a lower initial interest rate than fixed-rate
loans. The interest rate fluctuates over the life of the loan based on
market conditions, but the loan agreement generally sets maximum and
minimum rates. When interest rates rise, generally so do your loan
payments; and when interest rates fall, your monthly payments may be
lowered.
Adjustable Rate Mortgage (ARM): does not apply the same interest rate toward monthly payments for the life of the loan. Throughout the life of that loan, the homebuyer's principal and interest payment will adjust periodically based on fluctuations in the interest rate. See: Adjustable Rate Mortgage
Amenity:
a feature of the home or property that serves as a benefit to the
buyer but that is not necessary to its use; may be natural (like
location, woods, water) or man-made (like a swimming pool or garden).
Amortization:
repayment of a mortgage loan through monthly installments of
principal and interest; the monthly payment amount is based on a
schedule that will allow you to own your home at the end of a specific
time period (for example, 15 or 30 years)
Annual
Percentage Rate (APR): the
cost of credit expressed as a yearly rate. The APR includes the interest
rate, points, broker fees, and certain other credit charges that the
borrower is required to pay.
Application:
the first step in the official loan approval process; this form
is used to record important information about the potential borrower
necessary to the underwriting process.
Appraisal:
a document that gives an estimate of a property's fair market
value; an appraisal is generally required by a lender before loan
approval to ensure that the mortgage loan amount is not more than
the value of the property.
Appraiser:
a qualified individual who uses his or her experience and knowledge
to prepare the appraisal estimate.
ARM:
Adjustable Rate Mortgage; a mortgage loan subject to changes in
interest rates; when rates change, ARM monthly payments increase
or decrease at intervals determined by the lender; the Change in
monthly payment amount, however, is usually subject to a Cap. See What is An ARM?
Assessor:
a government official who is responsible for determining the value
of a property for the purpose of taxation.
Assumable
mortgage: a mortgage that can be transferred from a seller to
a buyer; once the loan is assumed by the buyer the seller is no
longer responsible for repaying it; there may be a fee and/or a
credit package involved in the transfer of an assumable mortgage.
B
Balloon
Mortgage: a mortgage that typically offers low rates for
an initial period of time (usually 5, 7, or 10) years; after that
time period elapses, the balance is due or is refinanced by the
borrower. See: Balloon Payments
Bankruptcy:
a federal law whereby a person's assets are turned over to a
trustee and used to pay off outstanding debts; this usually occurs
when someone owes more than they have the ability to repay.
Borrower:
a person who has been approved to receive a loan and is then obligated
to repay it and any additional fees according to the loan terms.
Broker: a person or firm that originates and processes loans for a number of lenders.
See mortgage broker
Building
code: based on agreed upon safety standards within a specific
area, a building code is a regulation that determines the design,
construction, and materials used in building.
Budget:
a detailed record of all income earned and spent during
a specific period of time.
C
Cap:
a limit, such as that placed on an adjustable rate mortgage, on
how much a monthly payment or interest rate can increase or decrease.
Cash
reserves: a cash amount sometimes required to be held in
reserve in addition to the down payment and closing costs; the amount
is determined by the lender.
Certificate
of title: a document provided by a qualified source (such
as a title company) that shows the property legally belongs to the
current owner; before the title is transferred at closing, it should
be clear and free of all liens or other claims.
Closing:
also known as settlement, this is the time at which the property
is formally sold and transferred from the seller to the buyer; it
is at this time that the borrower takes on the loan obligation,
pays all closing costs, and receives title from the seller.
Closing
costs: customary costs above and beyond the sale price
of the property that must be paid to cover the transfer of ownership
at closing. These costs generally vary by geographic location and
are typically detailed to the borrower after submission of a loan
application. Transaction, settlement, or closing costs may
include application fees; title examination, abstract of title, title
insurance, and property survey fees; fees for preparing deeds,
mortgages, and settlement documents; attorneys’ fees; recording fees;
and notary, appraisal, and credit report fees. Under the Real Estate
Settlement Procedures Act, the borrower receives a good faith estimate
of closing costs at the time of application or within three days of
application. The good faith estimate lists each expected cost either as
an amount or a range.
Commission:
an amount, usually a percentage of the property sales price, that
is collected by a real estate professional as a fee for negotiating
the transaction.
Condominium:
a form of ownership in which individuals purchase and own
a unit of housing in a multi-unit complex; the owner also shares
financial responsibility for common areas.
Conventional
loan: a private sector loan, one that is not guaranteed or insured
by the U.S. government.
Cooperative
(Co-op): residents purchase stock in a cooperative corporation
that owns a structure; each stockholder is then entitled to live
in a specific unit of the structure and is responsible for paying
a portion of the loan.
Credit
history: history of an individual's debt payment; lenders
use this information to gouge a potential borrower's ability to
repay a loan.
Credit
report: a record that lists all past and present debts and the
timeliness of their repayment; it documents an individual's credit
history.
Credit
bureau score: a number representing the possibility a borrower
may default; it is based upon credit history and is used to determine
ability to qualify for a mortgage loan.
D
Debt-to-income
ratio: a comparison of gross income to housing and non-housing
expenses; With the FHA, the-monthly mortgage payment should be no
more than 29% of monthly gross income (before taxes) and the mortgage
payment combined with non-housing debts should not exceed 41% of
income.
Deed:
the document that transfers ownership of a property.
Deed-in-lieu:
to avoid foreclosure ("in lieu" of foreclosure), a deed
is given to the lender to fulfill the obligation to repay the debt;
this process doesn't allow the borrower to remain in the house but
helps avoid the costs, time, and effort associated with foreclosure.
Default:
the inability to pay monthly mortgage payments in a timely manner
or to otherwise meet the mortgage terms.
Delinquency:
failure of a borrower to make timely mortgage payments under
a loan agreement.
Discount
point: normally paid at closing and generally calculated to
be equivalent to 1% of the total loan amount, discount points are
paid to reduce the interest rate on a loan.
Down
payment: the portion of a home's purchase price that is
paid in cash and is not part of the mortgage loan.
E
Earnest
money: money put down by a potential buyer to show that he or
she is serious about purchasing the home; it becomes part of the
down payment if the offer is accepted, is returned if the offer
is rejected, or is forfeited if the buyer pulls out of the deal.
EEM:
Energy Efficient Mortgage; an FHA program that helps homebuyers
save money on utility bills by enabling them to finance the cost
of adding energy efficiency features to a new or existing home as
part of the home purchase
Equity: an owner's financial interest in a property;
calculated by subtracting the amount still owed on the mortgage
loan(s) from the fair market value of the property.
Equity Stripping: foreclosing on a loan made without regard to the borrower’s ability to pay, taking the home and equity
in it. See Equity stripping
Escrow: the holding of money or documents by a neutral third party
prior to closing. It can also be an account held by the lender (or
servicer) into which a homeowner pays money for taxes and
insurance.
Escrow
account: a separate account into which the lender puts a portion
of each monthly mortgage payment; an escrow account provides the
funds needed for such expenses as property taxes, homeowner's insurance,
mortgage insurance, etc.
F
Fair
Housing Act: a law that prohibits discrimination in all facets
of the homebuying process on the basis of race, color, national
origin, religion, sex, familial status, or disability.
Fair
market value: the hypothetical price that a willing buyer and
seller will agree upon when they are acting freely, carefully, and
with complete knowledge of the situation.
Fannie
Mae: Federal National Mortgage Association (FNMA); a federally-chartered
enterprise owned by private stockholders that purchases residential
mortgages and converts them into securities for sale to investors;
by purchasing mortgages, Fannie Mae supplies funds that lenders
may loan to potential homebuyers.
Fannie Mae's Web Site
Fees: Costs associated with home loans, such as loan origination or underwriting fees, broker fees, and transaction, settlement, and closing costs. Many of these fees are negotiable. Some fees are paid when you apply for a loan (such as application and appraisal fees), and others are paid at closing. In some cases, you can borrow the money needed to pay these fees, but doing so will increase your loan amount and total costs. "No cost" loans are sometimes available, but they usually involve higher rates.
FHA:
Federal Housing Administration; established in 1934 to advance homeownership
opportunities for all Americans; assists homebuyers by providing
mortgage insurance to lenders to cover most losses that may occur
when a borrower defaults; this encourages lenders to make loans
to borrowers who might not qualify for conventional mortgages.
Fixed-rate
mortgage: a mortgage with payments that remain the same throughout
the life of the loan (generally 15 or 30 years). Both the interest rate
and the monthly payments (for principal and interest) stay the same
during the life of the loan. See
Fixed-Rate Mortgage
Flood
insurance: insurance that protects homeowners against losses
from a flood; if a home is located in a flood plain, the lender
will require flood insurance before approving a loan.
Foreclosure:
a legal process in which mortgaged property is sold to pay the loan
of the defaulting borrower.
Freddie
Mac: Federal Home Loan Mortgage Corporation (FHLM); a federally-chartered
corporation that purchases residential mortgages, securitizes them,
and sells them to investors; this provides lenders With funds for
new homebuyers.
G
Ginnie
Mae: Government National Mortgage Association (GNMA); a government-owned
corporation overseen by the U.S. Department of Housing and Urban
Development, Ginnie Mae pools FHA-insured and VA-guaranteed loans
to back securities for private investment; as With Fannie Mae and
Freddie Mac, the investment income provides funding that may then
be lent to eligible borrowers by lenders.
Good
faith estimate: an estimate of all closing fees including pre-paid
and escrow items as well as lender charges; must be given to the
borrower within three days after submission of a loan application.
H
HELP:
Homebuyer Education Learning Program; an educational program from
the FHA that counsels people about the homebuying process; HELP
covers topics like budgeting, finding a home, getting a loan, and
home maintenance; in most cases, completion of the program may entitle
the homebuyer to a reduced initial FHA mortgage insurance premium-from
2.25% to 1.75% of the home purchase price.
Home
inspection: an examination of the structure and mechanical systems
to determine a home's safety; makes the potential homebuyer aware
of any repairs that may be needed.
Home
warranty: offers protection for mechanical systems and attached
appliances against unexpected repairs not covered by homeowner's
insurance; overage extends over a specific time period and does
not cover the home's structure.
Homeowner's
insurance: an insurance policy that combines protection against
damage to a dwelling and its contents with protection against claims
of negligence or inappropriate action that result in someone's injury
or property damage.
Housing
counseling agency: provides counseling and assistance to individuals
on a variety of issues, including loan default, fair housing, and
homebuying.
HUD:
the U.S. Department of Housing and Urban Development; established
in 1965, HUD works to create a decent home and suitable living environment
for all Americans; it does this by addressing housing needs, improving
and developing American communities, and enforcing fair housing
laws.
HUD1
Statement: also known as the "settlement sheet," it
itemizes all closing costs; must be given to the borrower at or
before closing.
HVAC:
Heating, Ventilation and Air Conditioning; a home's heating
and cooling system.
I
Index.
a measurement used by lenders to determine changes to the Interest
rate charged on an adjustable rate mortgage.
Inflation:
the number of dollars in circulation exceeds the amount of goods
and services available for purchase; inflation results in a decrease
in the dollar's value.
Interest:
a fee charged for the use of money.
Interest rate: the cost of borrowing money expressed as a
percentage rate. Interest rates can change because of market conditions.
Insurance:
protection against a specific loss over a period of time that
is secured by the payment of a regularly scheduled premium.
J
Judgment:
a legal decision; when requiring debt repayment, a judgment
may include a property lien that secures the creditor's claim by
providing a collateral source.
L
Lease
purchase: assists low- to moderate-income homebuyers in purchasing
a home by allowing them to lease a home with an option to buy; the
rent payment is made up of the monthly rental payment plus an additional
amount that is credited to an account for use as a down payment.
Lien:
a legal claim against property that must be satisfied When the
property is sold
Loan: money borrowed that is usually repaid with interest.
Loan Flipping: when a lender convinces a homeowner to refinance their
home, then offers a bigger loan for a non-necessity. The lender then refinances the original loan charging high points and fees and an increased interest rate for each refinancing. See Loan flipping
Loan
fraud: purposely giving incorrect information on a loan application
in order to better qualify for a loan; may result in civil liability
or criminal penalties. Also, being defrauded or mislead by a predatory lender. See Loan fraud
Loan origination fees: fees charged by the lender for
processing the loan and are often expressed as a percentage of the loan
amount.
Loan-to-value
(LTV) ratio: a percentage calculated by dividing the amount
borrowed by the price or appraised value of the home to be purchased;
the higher the LTV, the less cash a borrower is required to pay
as down payment.
Lock-in: a written agreement guaranteeing a home buyer a
specific interest rate on a home loan provided that the loan is closed
within a certain period of time, such as 60 or 90 days. Often the
agreement also specifies the number of points to be paid at
closing.
Loss
mitigation: a process to avoid foreclosure; the lender tries
to help a borrower who has been unable to make loan payments and
is in danger of defaulting on his or her loan.
M
Margin:
an amount the lender adds to an index to determine the
interest rate on an adjustable rate mortgage.
Mortgage: a document signed by a borrower when a home loan
is made that gives the lender a right to take possession of the property
if the borrower fails to pay off on the loan. See Home Mortgage Loan Primer
Mortgage
banker: a company that originates loans and resells them to
secondary mortgage lenders like: Fannie Mae or Freddie Mac.
Mortgage
broker: a firm that originates and processes loans for a number
of lenders. See mortgage broker
Mortgage
insurance: a policy that protects lenders against some or most
of the losses that can occur when a borrower defaults on a mortgage
loan; mortgage insurance is required primarily for borrowers with
a down payment of less than 20% of the home's purchase price. See mortgage insurance
Mortgage
insurance premium (MIP): a monthly payment - usually part of
the mortgage payment - paid by a borrower for mortgage insurance.
Mortgage
Modification: a loss mitigation option that allows a borrower
to refinance and/or extend the term of the mortgage loan and thus
reduce the monthly payments.
O
Offer:
indication by a potential buyer of a willingness to purchase a home
at a specific price; generally put forth in writing.
Origination:
the process of preparing, submitting, and evaluating a
loan application; generally includes a credit check, verification
of employment, and a property appraisal.
Origination
fee: the charge for originating a loan; is usually calculated
in the form of points and paid at closing.
Overage: the difference between the lowest
available price and any higher price that the home buyer agrees to pay
for the loan. Loan officers and brokers are often allowed to keep some
or all of this difference as extra compensation. Points are fees paid to
the lender for the loan. One point equals 1 percent of the loan
amount.
P
Partial
Claim: a loss mitigation option offered by the FHA that
allows a borrower, with help from a lender, to get an interest-free
loan from HUD to bring their mortgage payments up to date.
PITI:
Principal, Interest, Taxes, and Insurance - the four elements
of a monthly mortgage payment; payments of principal and interest
go directly towards repaying the loan while the portion that covers
taxes and insurance (homeowner's and mortgage, if applicable) goes
into an escrow account to cover the fees when they are due.
Points: fees paid to the lender or broker for
the loan and are often linked to the interest rate; usually the more
points you pay, the lower the rate. Points are usually paid in cash at
closing. In some cases, the money needed to pay points can be borrowed,
but doing so will increase the loan amount and the total
costs. See Points and Fees
PMI:
Private Mortgage Insurance; protects the lender against a loss if a
borrower defaults on the loan. It is usually required for loans in which
the down payment is less than 20 percent of the sales price or, in a
refinancing, when the amount financed is greater than 80 percent of the
appraised value.
Pre-approve:
lender commits to lend to a potential borrower; commitment remains
as long as the borrower still meets the qualification requirements
at the time of purchase.
Pre-foreclosure
sale: allows a defaulting borrower to sell the mortgaged
property to satisfy the loan and avoid foreclosure.
Pre-qualify:
a lender informally determines the maximum amount an individual
is eligible to borrow.
Premium:
an amount paid on a regular schedule by a policyholder that maintains
insurance coverage.
Prepayment:
payment of the mortgage loan before the scheduled due date; may
be subject to a prepayment penalty.
Principal:
the amount borrowed from a lender; doesn't include interest
or additional fees.
R
Radon:
a radioactive gas found in some homes that, if occurring in strong
enough concentrations, can cause health problems.
Real
estate agent: an individual who is licensed to negotiate
and arrange real estate sales; works for a real estate broker.
REALTOR:
a real estate agent or broker who is a member of the NATIONAL ASSOCIATION
OF REALTORS, and its local and state associations.
Refinancing:
paying off one loan by obtaining another; refinancing is
generally done to secure better loan terms (like a lower interest
rate).
Rehabilitation
mortgage: a mortgage that covers the costs of rehabilitating
(repairing or Improving) a property; some rehabilitation mortgages
- like the FHA's 203(k) - allow a borrower to roll the costs of
rehabilitation and home purchase into one mortgage loan.
RESPA:
Real Estate Settlement Procedures Act; a law protecting consumers
from abuses during the residential real estate purchase and loan
process by requiring lenders to disclose all settlement costs, practices,
and relationships.
S
Second mortgage:
A mortgage made subsequent to the original mortgage on a given property, which is subordinate to the first mortgage, that is, it gets paid second in the event of a default.
Settlement:
another name for closing.
Special
Forbearance: a loss mitigation option where the lender
arranges a revised repayment plan for the borrower that may include
a temporary reduction or suspension of monthly loan payments.
Subordinate:
to place in a rank of lesser importance or to make one claim secondary
to another.
Survey:
a property diagram that indicates legal boundaries, easements, encroachments,
rights of way, improvement locations, etc.
Sweat
equity: using labor to build or improve a property as part of
the down payment
T
Title
1: an FHA-insured loan that allows a borrower to make non-luxury
improvements (like renovations or repairs) to their home; Title
I loans less than $7,500 don't require a property lien.
Title
insurance: insurance that protects the lender against any
claims that arise from arguments about ownership of the property;
also available for homebuyers.
Title
search: a check of public records to be sure that the seller
is the recognized owner of the real estate and that there are no
unsettled liens or other claims against the property.
Thrift institution: a general term for
savings banks and savings and loan associations.
Transaction, settlement, or closing costs: may
include application fees; title examination, abstract of title, title
insurance, and property survey fees; fees for preparing deeds,
mortgages, and settlement documents; attorneys’ fees; recording fees;
and notary, appraisal, and credit report fees. Under the Real Estate
Settlement Procedures Act, the borrower receives a good faith estimate
of closing costs at the time of application or within three days of
application. The good faith estimate lists each expected cost either as
an amount or a range.
Truth-in-Lending:
a federal law obligating a lender to give full written disclosure
of all fees, terms, and conditions associated with the loan initial
period and then adjusts to another rate that lasts for the term
of the loan.
Underwriting:
the process of analyzing a loan application to determine
the amount of risk involved in making the loan; it includes a review
of the potential borrower's credit history and a judgment of the
property value.
VA:
Department of Veterans Affairs: a federal agency which guarantees
loans made to veterans; similar to mortgage insurance, a loan guarantee
protects lenders against loss that may result from a borrower default.
Home Mortgage News
Jumbo mortgage loan rates put damper on refinancing (Boston Globe)
While plunging mortgage rates have spawned a frenzy of refinancing, borrowers with larger, so-called jumbo loans are still seeing interest rates in the 7 percent range, prompting many to abandon refinancing plans altogether or resort to creative transactions. Lenders One and DSI partner on mortgage loan fulfillment (Finextra)
Lenders One Mortgage Cooperative, a national alliance of mortgage bankers, has developed a partnership with Document Systems Inc. (DSI) to provide ... Reverse mortgage loan: what is it all about? (The Hindu)
Any individual, above 60 years of age or any married couple with either husband or wife above 60 years of age, who are citizens of India, will be eligible senior citizens. Where does a senior citizen go for such a ... Lenders One, DocMagic Partner for Mortgage Loan Fulfillment (Centre Daily Times)
Lenders One Mortgage Cooperative , a national alliance of mortgage bankers, has developed a partnership with Document Systems Inc. (DSI) to provide cooperative members with preferred pricing of DocMagic's fully compliant initial disclosures and closing documents. DocMagic seamlessly integrates with all leading loan origination software systems to provide lenders with error-free mortgage ... Lenders One, DocMagic Partner for Mortgage Loan Fulfillment (Business Wire via Yahoo! Finance)
ST. LOUIS----Lenders One Mortgage Cooperative, a national alliance of mortgage bankers, has developed a partnership with Document Systems Inc. to provide cooperative members with preferred pricing of DocMagic's fully compliant initial disclosures and closing documents.
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