1003: Uniform Residential Loan Application.
Abstract Title: A written history of the
ownership of a parcel of land.
Acceleration Clause: Allows the lender
to speed up the rate at which your loan comes due
or even to demand immediate payment of the entire
outstanding balance of the loan should your default
on you loan.
Adjustable Rate Mortgage (ARM):
A mortgage in which the interest rate is adjusted
periodically based on a pre-selected index.
Adjustment Interval: On an adjustable rate
mortgage, the time between changes in the interest
rate and/or monthly payment, typically one, three
or five years, depending on the loan terms.
Amortization: Refers to the principal portion
of the loan payment and the portion going to interest
for each payment. In the beginning of a mortgage
loan, more of the monthly payment goes toward interest
than principal. Towards the end of the loan, the
opposite is true. A fully amortized loan will be
completely paid off at the end of the loan term.
Annual Percentage Rate (APR):
An interest rate reflecting the cost of a mortgage
as a yearly rate. This rate is likely to be higher
than the stated note rate or advertised rate on
the mortgage because it takes into account points
and other closing costs. The APR allows homebuyers
to compare different types of mortgages based on
the annual cost for each loan.
Appraisal: An estimate of the value of
real property made by a qualified professional called
an appraiser. An appraisal will be needed to determine
the value of real property in order to reassure
the lender there is sufficient collateral to recoup
their loss if the borrower defaults.
Assumption: An agreement between buyer
and seller where the buyer takes over the payments
on an existing mortgage from the seller. This must
be approved by the lender and be allowed by the
note, which was originally signed by the seller.
Back-End Ratio: This refers to the debt-to-income
ratio calculated using principal, interest, taxes,
insurance and consumer credit obligations divided
by gross monthly income. It is expressed as a percentage.
Balloon: 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 time specified in the
contract. It typically has a conditional right to
Beneficiary: The entity funding the loan.
This is the entity to which the loan is owed.
Buy Down: When the borrower pays a fee
(included in the loan amount) to temporary lower
the interest rate during the first few years of
the loan. While the payments are initially low,
they will increase when the interest rate increases.
A buy down is used in situations when the borrowers
reasonably expect their income to increase from
their present situation.
Cap: The highest rate that an adjustable
rate mortgage may reach. It can be expressed as
the actual rate or as the amount of change allowed
above the start rate. For example, a 7.5 % start
rate with a 6% rate change cap would have a maximum
interest rate cap of 13.5%.
Cash Out: Any funds disbursed directly
to the borrower.
Certificate of Occupancy: A certificate
issued by local city government to a builder, stating
that the building is in proper condition to be occupied.
Certified Copy: A true copy, attested to
be true by the officer holding the original. It
should have an authorized stamp and signature stating
that it is a true copy.
Closing: The meeting between the buyer,
seller and lender or their agents, where the property
and funds legally change hands. Also called a settlement.
Closing Costs: Usually include an origination
fee, discount points, appraisal fee, title search
and insurance, survey, taxes, deed recording fee,
credit report charge and other costs assessed at
settlement. The costs of closing usually are about
3 percent to 6 percent of the total mortgage amount.
Commission: An agent's or broker's fee
for bringing the principals together and helping
to negotiate a real estate transaction, a percentage
of the sales price or flat fee.
Commitment: An agreement in writing, between
a lender and a borrower to loan money at a future
date subject to the completion of paperwork or compliance
with stated conditions.
Comp / Comparable: A property with the
same basic characteristics as the property someone
is attempting to find the value of (usually a real
estate appraiser.) It should have been sold recently
and be as similar as possible.
Condominium: A property owned as a group,
with rights to occupy specific units of the structure.
An overseeing board, often referred to as a Homeowners
Association, governs the property.
Construction Loan: A short-term interim
loan for financing the cost of construction. The
lender advances funds to the builder at periodic
intervals as the work progresses.
Consumer Credit: Credit owed by an individual,
not secured by real estate.
Contingency: A condition that must be met
for a contract or a commitment to remain binding.
Conventional Loan: A mortgage not insured
by FHA or guaranteed by the VA or Farmers Home Administration
Conversion Clause: A provision in some
ARMs, (Adjustable Rate Mortgages) that allow borrowers
to change the ARM to a fixed-rate loan at some point
during the loan term.
Credit Ratio: The ratio, expressed as a
percentage, which results when a borrower's monthly
payment obligation on long-term debts is divided
by their net effective income or
gross monthly income (Conventional loans).
Credit Report: A documented history of
a buyers past credit performance.
Credit Score: The score given to an individual
to determine their credit worthiness. These scores
come from Experian, Equifax and TransUnion. The
range is 350 to 850.
Debt Ratio: The customer's monthly obligations
divided by their monthly gross income. See also
Back End Ratio.
Deed: The legal document which conveys
the title to a property.
Deed of Trust: A document which pledges
real property to secure a debt. In some cases a
deed of trust can replace a mortgage.
Default: Failure to meet legal obligations
in a contract, specifically, failure to make the
monthly payments on a mortgage.
Delinquency: Failure to make agreed to
monthly payments on time.
Department of Veterans Affairs: An independent
agency of the federal government which guarantees
long-term, low- or no-down payment mortgages to
eligible veterans. (VA)
Derog Letter: A letter written by the borrower
giving an explanation for any derogatory credit.
Derog: This is short for derogatory and
refers to negative credit items.
Discharge: Following a completed bankruptcy
proceeding, discharged debts are no longer owed
or collectable. Lenders require copies of the discharge
papers on any prior bankruptcy filings.
Discount Points: Pre-paid 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).
Dismissal: If a bankruptcy is dropped without
being completed, a Bankruptcy Dismissal document
will be needed to proceed with the loan. Either
the court or the debtor can prompt the dismissal.
Down Payment: Money paid to make up the
difference between the purchase price and
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. It is typically held
in a trust account and credited toward the purchase
price at closing.
Easements: An interest in property, owned
by another that entitles the holder to a specific
limited use or privilege, such as the right to cross
or to build adjoining structures on the property.
Utility companies may have easements on a property
for access or to allow the placements of wires or
Encroachment: A fixture of a piece of property
that intrudes on another's property.
Equal Credit Opportunity Act (ECOA):
A federal law that requires lenders and other creditors
to make credit equally available without discrimination
based on race, color, religion, national origin,
age, sex, marital status or receipt of income from
public assistance programs.
Equity: The difference between the fair
market value and current indebtedness, also referred
to as the owner's interest.
Escrow Instructions: Instructions to the
escrow agent from the lendergiving the parameters
and contingencies involved in the transaction and
agreed upon by both parties.
Escrow Waiver: The request for a borrower
to pay their own taxes and insurance separate from
their mortgage paymen
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.
Fannie Mae: See Federal National Mortgage
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 an agency wholly owned
by the United States government that purchases pools
of 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 standards for underwriting the mortgages
they are willing to insure.
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: See Federal Housing Administration.
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: An upfront premium
which can be included in the loan amount along with
a monthly premium that guarantees the loan with
Federal Home Loan Mortgage Corporation.
Fixed-Rate Mortgage: A mortgage on which
the interest rate is set for the term of the loan.
Flood Insurance: A mandatory insurance
for some borrowers whose property is built in a
designated flood zone.
Federal National Mortgage Association.
Foreclosure: A legal procedure in which
property securing debt is sold by the lender to
pay a defaulting borrower's debt.
Free and Clear: This means the property
is completely paid for and has no liens attached.
GFE: Good Faith Estimateof borrowers loan
Ginnie Mae: See Government National Mortgage
Government National Mortgage Association (GNMA):
Also known as Ginnie Mae, provides sources of funds
for residential mortgages insured or guaranteed
by the 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.
Gross Monthly Income: The total amount
the borrower earns per month, before any expenses
like taxes and social security are deducted.
Guarantee: A promise by one party to pay
a debt or perform an obligation contracted by another
if the original party fails to pay or perform according
to a contract.
Hazard Insurance: A form of insurance in
which the insurance company protects the insured
from specified losses, such as fire, windstorm and
the like. It would not cover earthquake, riot or
Homestead: The dwelling (house and contiguous
land) of the head of the family. Some states grant
statutory exemptions, protecting homestead property
(usually to a set maximum amount) against the rights
of the creditors. Property tax exemptions are also
available in some states.
Housing Expenses-to-Income Ratio: The
ratio, expressed as a percentage, which results
when a borrower's housing expenses are divided
by their net effective income
HUD-1 Form: See Real Estate Settlement
Impound: That portion of a borrower's monthly
payments held by the lender or servicer to pay for
taxes, hazard insurance, or 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.
Interest: A charge paid for the use of
Investor: Institutions that buy pools of
mortgages for investment purposes.
Income Property: Real estate that is owned
for investment purposes and not used as the owner's
Jumbo Loan: A loan which is larger 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.
Leasehold Estate: A kind of real estate
ownership where the homeowner does not hold title
to the land but has use of the property subject
to the terms of the lease.
Legal Description: A method of geographically
locating a piece or parcel of land, which is acceptable
in a court of law.
LIBOR: London InterBank Offered Rate. LIBOR
is the base interest rate paid on deposits between
banks in the Eurodollar market.
Lien: A claim upon a piece of property
for the payment or satisfaction of a debt or obligation.
Loan Committee: Generally the underwriting
Loan Risk: The rate category assigned to
the loan, which estimates the probable risk of delinquency
or loss in the future.
Loan-To-Value Ratio (LTV):
The relationship between the amount of the mortgage
loan and the appraised value of the property expressed
as a percentage.
Margin: The number of percentage points
the lender adds to the index rate to calculate the
ARM interest rate at each adjustment.
Market Value: The highest price that a
buyer would pay and the lowest price a seller would
accept on a property. Market value may be different
from the price a property could actually be sold
for at a given time.
Mortgage Escrow Accounts: The account established
by the lender to pay taxes and insurance on behalf
of the borrower.
Mortgage: A contract in which a borrower's
property is pledged as security for a loan that
is to be repaid on an installment basis.
Mortgage Insurance: Money paid to insure
the mortgage when the down payment is less than
20 percent. See Private Mortgage Insurance or FHA
Mortgage Note: A written promise to pay
a debt at a stated interest rate during a specified
term. The agreement is secured by real property.
Mortgagee: The lender in a mortgage contract.
Mortgagor: The borrower in a mortgage contract.
Negative Amortization: Amortization is the schedule
established to pay an installment loan within a
fixed amount of time. The payment consists of principal
and interest. Negative amortization occurs when
the monthly payments do not cover all of the interest
cost. The interest cost that isn't covered is added
to the unpaid principal balance. This means that
even after making many payments, a borrower may
owe more than was owed at the beginning of the loan.
Net Effective Income: The borrower's gross
income minus federal income tax.
Non-Assumption Clause: Statements in the
mortgage contract forbidding the assumption of the
mortgage without the prior approval of the lender.
Non-Owner Occupied: A property not used
as a residence by the owner of the property.
Notary Public: A person, designated by
the state, who can certify the identity of a person
when signing various documents.
Note: Short for promissory note. This document
gives the parameters of the loan and legally obligates
the borrower to pay back the debt.
Obligations: Any debt or recurring payment
the borrower is obligated to pay, including mortgage
Origination Fee: The fee charged by a lender
to generate a mortgage loan, usually computed as
a percentage of face value of the loan. This fee
can sometimes be waived by agreeing to take a higher
Owner Financing: A purchase in which the
seller provides all or part of the financing.
Owner Occupied: Designation given to property
used as the owner's primary residence.
Owners Policy: A policy of the title insurance
that protects the buyer against problems with the
P & I (Principal
and Interest): This refers to the principal and
interest portions of the monthly mortgage payment.
P & L / Profit and Loss: A statement
of a business's gross income, cost of goods, operating
costs and net profit or loss.
P.I.T.I.: Principal, interest, taxes and
insurance. The complete monthly cost associated
with financing a property. It can also be referred
to as PITIM, which includes mortgage insurance as
P.U.D.: Planned Unit Development. Property
owned as a group, where individuals own the specific
piece of land and structure they occupy, but also
have a divided interest in a common area. A board,
often referred to as a Homeowners Association, will
govern the development.
Piggy Back Loan: Financing obtained, subordinate
to the first mortgage, to facilitate closing the
first mortgage. Also known as secondary financing.
Mortgage Insurance): A way for lenders and the borrowers
to insure their exposure on the loan to no less
than 20% equity in a property.
Points: A point is equal to one percent
of the of the loan amount.
Power of Attorney: An authority by which
one person enables another to act on his or her
behalf. Power of attorney can be limited to specific
areas or be general in some cases.
Pre-Approval: The buyer has actually begun
the application process and an underwriter has approved
their income, funds and credit. The pre-approval
is contingent upon the material statements of the
application being accurate when the loan is actually
underwritten. The lender will state any other conditions
in the pre-approval.
Preliminary Title Report: The title report
generated at the beginning of the application process.
It tells the mortgage company what liens are on
the property and gives advice as to what will need
to be done to gain clear title prior to recording
the trust deed.
Prepaid Interest Charge: The portion of
interest, collected at loan closing, which covers
the time period between funding and the beginning
of the first 30-day period covered by the first
payment. For example, if the loan closed on 2/15,
the first payment due on 4/1 would pay interest
from 3/1 to 4/1. The prepaid interest would cover
the period from 2/15 to 2/28.
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 Penalty: A fee charged for an
early repayment of debt. Prepayment penalties are
allowed in some form (but not necessarily imposed)
in 36 states and the District of Columbia.
Prepayment: A privilege in a mortgage permitting
the borrower to make payments in advance of their
Pre-Qualified: Buyer has discussed their
financial situation with a loan professional. No
attempt has been made to verify the validity of
any of the borrower's information. Pre-qualification
is only an indication of what the buyer should qualify
Principal: The amount of debt, not counting
interest, left on a loan.
Private Mortgage Insurance (PMI):
Insurance carried on a mortgage when less than a
20% down payment is presented. PMI refers to loans
purchased by Fannie Mae or Freddie Mac. FHA loans
have a different type of mortgage insurance.
Purchase Agreement: The agreement made
between the buyer and seller of a property, containing
the purchase price, terms and contingencies of the
Quit Claim: A deed operating as a release;
intended to pass any title, interest or claim, which
the grantor may have in the property, but not containing
any warranty of a valid interest or title to the
Rate Float: An unlocked loan subject to
rate fluctuations caused by the market.
Rate Lock: A commitment by the lender to
fund a loan at a particular interest rate that stays
Ratios: How a buyer's housing expense and
debt picture relates to their income.
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.
Real Estate Settlement Statement: Final
settlement statement often referred to as the HUD-1
form, used to itemize buyer, seller, broker and
lender charges and credits at closing.
A real estate broker or sales associate holding
active membership in a local real estate board affiliated
with the National Association of Realtors'.
Rescission: 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.
Reconveyance: A release of lien filed with
the county recorder by the trustee.
Recording Fees: Money paid to the lender
for recording a home sale with the local authorities,
thereby making it part of the public records.
Refi: Slang for refinance, or a new mortgage
on a property that does not change ownership.
Request for Reconveyance: Verification
given by the beneficiary to the trustee that the
conditions of the lien have been fulfilled and request
that the lien be canceled.
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. Also called a reverse mortgage
and is overseen by the FHA.
S.I. / Statement of Information: The form
a borrower fills out for the title company giving
further identification of the customer. This allows
the title company to eliminate debts and liens owed
by people with similar names.
Second Mortgage: A mortgage which is entered
after the primary loan. It's called a second due
to it being recorded in the second lien position
to the first mortgage. See also Secondary Financing.
Secondary Financing: Financing obtained,
subordinate to the first mortgage, to facilitate
closing the first mortgage. Also known as a 'piggyback'
loan for purchases. Secondary financing can be obtained
to extract home equity.
Servicing: All the steps and operations
performed to keep a loan in good standing, such
as collection of payments, payment of taxes, insurance,
property inspections and the like.
Settlement Costs: See Closing Costs.
Settlement: See Closing.
Submission: This refers to a complete loan
application package submitted for approval to the
Subordination Agreement: The agreement
detailing the contingencies of subordination, filed
with the county recorder. If a primary loan is refinanced
without paying off a second lien loan, the second
lien loan must agree to return to secondary standing.
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
Suspended: The underwriter cannot yet approve
or deny the loan. More information is required.
Term Mortgage: See Balloon Payment Mortgage.
Title: A document that gives evidence of
an individual's ownership of property.
Title Insurance: The insurance policy insuring
the lender and the borrower there are no deficiencies
in the title report. Any claim arising from a lien
other than that disclosed is payable by the title
Title Search: An examination of municipal
records to determine the legal ownership of property.
Usually performed by a title company.
Trust Deed: The Trust Deed attaches the
note as a lien on the property. This is the document
that conveys the ability to collect from the proceeds
of the property.
A federal law requiring disclosure of the Annual
Percentage Rate to homebuyers shortly after they
apply for the loan.
Underwriting: The process of evaluating
a loan application to determine the risk involved
for the lender (based on credit, employment, assets
and other factors decided by the lender).
VA: Veterans Administration.
VA Loan: A long-term, low-or no-down payment
loan guaranteed by the Department of Veterans Affairs.
Restricted to individuals qualified by military
service or other entitlements.
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 their financial
Verification of Employment (VOE):
A document signed by the borrower's employer verifying
their position and salary.
Zoning: The division of a city or county
by legislative regulations into areas (zones) specifying
the uses allowable for the real property in these