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    Mortgage Glossary

    Brush up on your mortgage vocabulary.

    Mortgage Glossary

    Adjustable Rate Mortgage (ARM)
    A mortgage loan with the interest rate on the note periodically adjusted based on an index which reflects the cost to the lender of borrowing on the credit markets.

    Adjustment Date
    The date the interest rate changes on an ARM loan.

    Amortization Schedule
    A complete table of periodic blended loan payments, showing the amount of principal and the amount of interest that comprise each payment so the loan will be paid off at the end of its term.

    Annual Percentage Rate (APR)
    The cost of credit expressed as an annual rate; It includes closing costs such as prepaid interest, PMI and Prepaid Finance charges (discount points, origination fees and other credit costs). The APR disclosed is often higher than the interest rate on a loan.

    A report from a professional (appraiser) which gives an estimate of a property's fair market value based on the sales of comparable homes in the area and the features of a property; an appraisal is required before loan approval to ensure the mortgage loan amount is not more than the value of the property.

    Signed document giving creditor permission to pull credit, verify employment, income and other financial information.

    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.

    Cash-Out Refinance
    When a mortgage is refinanced or a mortgage is put on a property to get cash out for the equity held in the property.

    Closing Costs
    Fees charged by the lender and third parties, related to the purchase/refinance of a property. Include the following fees: closing attorney, loan origination, credit report, flood certificate, title insurance, title search, escrow deposit, recording, pest inspection, appraisal, property evaluation, discount points.

    Closing Disclosure (CD)
    A list of all closing fees including pre-paid and escrow items as well as lender and third party charges, indicates the APR and finance charge for a loan; 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 ; designed to be consumer friendly in understanding the key features, costs and risks of the mortgage loan they are applying for; must be provided to the borrower no later than 3 business prior to the loan consummation (closing) *Does not apply to Home Equity Lines of Credit.

    A person who signs a credit application with another person, agreeing to be equally responsible for the repayment of the loan.

    Condominium (Condo)
    A large property complex divided into individual units and sold as individual units. Ownership usually includes a non-exclusive interest in certain "common properties" controlled by the condominium management. The ownership does not include the building itself or the land it sits on.

    Credit Bureau
    An agency who provides financial information and payment history to lenders about potential borrowers. Also known as a National Credit Repository. Experian, Transunion and Equifax are the three main credit repositories.

    Credit History
    A record of an individual listing all debts and the payment history for each. The report generated from the history is called a credit report. Lenders use this information to gauge a potential borrower's ability to repay a loan.

    Credit Inquiry
    A credit report request from a creditor to verify someone’s credit history in order to finance something. Each time a credit application is completed or credit is requested. A large number of inquiries on a credit report can sometimes make a credit score lower.

    Credit Report
    A report generated by the credit bureau containing the borrower's credit history for the past seven years. Lenders use this information to determine if a loan will be granted.

    Debt-to-Income Ratio (DTI)
    A comparison ratio of gross income to housing and non- housing expenses (total of all liabilities and divide by the total gross income) also called Back End Ratio or Total Debt Ratio.

    A document which legally transfers ownership of property from one person to another. The deed is recorded on public record with the property description and the owner's signature, also known as the title.

    Deed of Trust (DOT)
    The legal instrument by which a property is pledged as security for the mortgage loan; in some states the term “Mortgage” instrument is used.

    Derogatory Credit
    Credit reported to the bureaus as not being paid as agreed, negative information. Examples: late payments, collection, judgment, foreclosure, repossession and bankruptcy. A letter of explanation concerning the derogatory credit is usually required.

    Documents providing key details of the mortgage loan applied for; must be provided within 3 business days of application.

    Discount Point
    A type of prepaid interest borrowers can purchase which lowers their interest rate. Each discount point generally costs 1% of the total loan amount; discount points are tax deductible only for the year in which they were paid.

    Down Payment
    The portion of a home's purchase price paid in cash and is not part of the mortgage loan.

    Any building containing only two dwelling units; most commonly refers to the units being side by side sharing a common wall and roof.

    Earnest Money or Binder Check
    Money put down by a potential buyer showing they are serious in purchasing a home; becomes part of the down payment.

    A right of way giving individuals other than the owner permission to use a property for a specific purpose. Example: driveway easement (shared driveway).

    Elevation Certificate
    Verifies the elevation of the lowest floor of your house relative to the ground. It is especially important if your house/building is in a high-risk flood area.

    Eminent Domain
    When a government takes private property for public use. The owner receives payment for its fair market value. The property can then proceed to condemnation proceedings.

    A structure extending over the legal property line on to another individual's property. The property surveyor will note any encroachment on the lot survey done before property transfer. The person who owns the structure will be asked to remove it to prevent future problems.

    Anything affecting title to a property, such as loans, leases, easements, or restrictions.

    The market value of a homeowner’s unencumbered interest in their property; difference in between the home’s fair market value and the outstanding balance of all liens on the property.

    Escrow Account
    A separate account for property taxes flood insurance and homeowners insurance where a portion of each monthly mortgage payment is deposited.

    Escrow Holdback
    Refers to the holding of funds related to real estate transactions; the most common escrow holdback occurs when some portion of sale proceeds are withheld pending completion of repairs.

    The ownership interest of a person in real property; the sum total of all property, real and personal, owned by a person.

    Fair Market Value
    An estimate of the market value of a property based on what a knowledgeable, willing and unpressured buyer would probably pay to a knowledgeable, willing and unpressured seller.

    FHA Loan
    Government backed loan product with low down payments, low closing costs and easy credit qualifying; provides mortgage insurance (the borrower pays for) which protects lenders against any loss resulting from a borrower defaulting.

    Finance Charge
    Any fee representing the cost of credit or the cost of borrowing money; a finance charge affects the APR of the loan.

    Financed Fees
    Anytime a borrower includes a fee (any closing costs) associated with the loan in the loan amount, also called “rolling in closing costs”.

    First Mortgage
    A mortgage in first lien position on a property securing the mortgage; has priority over all other liens or claims on a property in the event of default.

    Fixed-Rate Mortgage
    A mortgage with a fixed interest rate for the entire term of the loan.

    Flood Hazard Determination
    A certificate verifying what flood zone the property is located in and if the community participates in the National Flood Insurance Program.  Sometimes called a flood certificate.

    Flood Hazard Boundary Map
    Official map of a community issued by the Federal Insurance Administrator, where the boundaries of the flood, mudflow, and related erosion areas having special hazards have been designated.

    Flood Insurance
    Insurance protecting the home against losses incurred from a flood; if a home is located in a flood plain, the lender will require flood insurance before closing the loan.

    Flood Zone
    A geographical area shown on a Flood Hazard Boundary Map or a Flood Insurance Rate Map reflecting the severity or type of flooding in the area.

    The legal process in which a lender attempts to recover the balance of a loan from a borrower who has stopped making payments by forcing the sale of the house/property used as collateral for the loan.

    Gift of Equity
    The sale of a home to a family member or someone with whom the seller has a relationship, at a price below the current market value. The difference between the actual sales price and the market value.

    Gift Funds
    Money given to the borrower by a family member or friend which does not require being repaid.

    Gift Letter
    A letter provided to a lender or acknowledging the money is to be used, usually for a down payment, is a gift from a relative and carries no obligation for repayment.

    Homeowner’s Insurance / Hazard Insurance
    Insurance including both property and liability coverage; covers the property in case of a loss.

    Home Equity Line of Credit
    An open ended mortgage loan or line of credit using the borrower’s home as collateral allowing a borrower to obtain cash against the equity of a home, up to a predetermined amount; interest can change on a pre-determined variable rate; usually a second mortgage.

    Home Equity Loan
    A closed ended loan secured by a second mortgage, allowing home owners to borrow against their equity in the home. The loan is based on the difference between the homeowner's equity and the home's current market value. The mortgage also provides collateral for an asset-backed security issued by the lender and sometimes tax deductible interest payments for the borrower.

    Home Inspection
    An examination of a real estate property's condition; usually performed in connection with the property's sale. A qualified home inspector can assess the condition of a property's roof, foundation, heating and cooling systems, plumbing, electrical work, water and sewage, and some fire and safety issues.

    Homeowner’s Association (HOA)
    Governing body of the neighborhood; have covenants and property restrictions. Membership in the homeowners association by a residential buyer is typically a condition of purchase; a buyer isn't given an option to reject it. Associated with condominium associations and planned unit developments.

    Homeowner’s Association Dues
    Dues paid by home/property owners for the upkeep of common land and facilities owned and managed by the owner's or neighborhood association. Can become a lien against the property if not paid.

    Housing Ratio
    Mortgage payment including taxes, insurance (homeowners insurance, flood insurance and mortgage insurance-if applicable) compared to the total gross income (mortgage payment divided by total gross income). Also called Front End Ratio.

    Interest Rate
    The amount of interest charged on a monthly loan payment, expressed as a percentage.

    Late Payment Charges
    The penalty the homeowner must pay when a mortgage payment is made after the due date grace period.

    A written agreement between a property owner and a tenant (resident) that stipulates the payment and conditions under which the tenant may occupy a home or apartment and states a specified period of time.

    Legal Description or Legal
    Written words which describe a specific piece of real property; found on the warranty deed, quit claim deed, deed of trust, and title commitment.

    Letter of Explanation
    A letter explaining reasons why incidents happened: derogatory credit, unemployment, credit inquiries or large deposits.

    A person’s financial obligations such mortgages, installment loans, revolving debt, property taxes, homeowner’s insurance, alimony, child support, etc.

    A form of security interest granted over an item of property to secure the payment of a debt or performance of some other obligation.

    Liquid Asset
    An asset easily converted into cash with minimal impact to the price received.

    A debt provided by a financial institution to a borrower at an interest rate, and evidenced by a note specifying the principal amount, interest rate and date of repayment. A loan entails the reallocation of the subject asset(s) for a period of time, between the lender and the borrower.

    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.

    Loan to Value (LTV)
    The ratio of the loan to the value of the property; the loan amount divided by the value.

    Manufactured Home
    A prefabricated structure, built in a factory on a permanently attached chassis before being transported to site. To be considered real property, the towing hitch/running gear must be removed and taxed as real property; must have the affixed HUD seal(s).

    Maturity Date
    The date on which the principal amount of a note must be paid in full. Modular Home- Homes fabricated in a factory setting, divided into multiple sections and then taken to the property and assembled.

    Mortgagee Clause
    Clause on the declarations page of the homeowner’s or flood insurance that in the event of a payment being made under the policy in relation to the insured risk, payment will be made to the mortgagee rather than the insured.

    Mortgage Insurance
    An insurance policy which compensates lenders or investors for losses due to the default of a mortgage loan. Mortgage insurance can be either public or private depending upon the insurer. Required for loans with more than 80% loan to value; depending on the type of loan mortgage insurance is available through government (FHA, VA, USDA) or private mortgage insurance (PMI).

    Mortgage Loan Originator (MLO)
    A representative of a financial institution who is responsible for interviewing the borrower(s) and completing the loan application process; must be licensed with the Nationwide Mortgage Licensing System (NMLS) and/or registered depending on the type of financial institution they work for. They may also be called lender, loan representative, account executive or loan officer.

    Non Traditional Credit
    Factors which show the ability of a borrower to repay a loan based on less traditional criteria such as rent and utility, car insurance, rental insurance, cell phone payment history.

    Notice of Completion (NOC)
    Document filed at the county clerk stating a home previously under construction is 100% complete. A borrower must wait 10 days after a NOC has been filed before he or she can close on their loan. The 10 day period gives any parties (mechanics, contractors, etc) the right to file a lien against the property for any monies due to them.

    Owner's Title Insurance
    Protects the owner (borrower) against problems with the title to the property which occurred before the date of the policy; ensures against any defects in the property title which could affect your interest. This is optional for the member to purchase but is required to be disclosed on all Good Faith Estimates.

    Payment Due Date
    Contract language specifying when payments are due on money borrowed. The due date is always indicated and means the payment must be received on or before the specified date. Grace periods prior to assessing a late fee or additional interest do not eliminate the responsibility of making payments on time.

    Per Diem Interest
    Interest paid per day on the loan once the loan closes until the first day of the following month. Initially based on the estimated closing date and the final is based on the closing date.

    Pest Inspection
    Property report by a licensed pest inspector, looking for signs of damage, dry rot, moisture which could lead to an environment for wood destroying insects such as termites, carpenter ants or boring bees. Infestations must be treated prior to closing.

    P&I (Principal and Interest)
    The monthly payment amount going directly towards paying off the loan.

    PITI (Principal, Interest, Taxes, and Insurance)
    The four elements of a monthly mortgage payment used to qualify for a loan; does not matter if the borrower is setting up an escrow account or not.

    Power of Attorney (POA)
    A legal document authorizing another person to act on your behalf.   A power of attorney can grant complete authority or can be limited to certain acts or certain periods of time or both.

    Pre-qualification or Prequal
    A borrower can see what loan amount they qualify for; this can be done in person, by phone or online and is based on information given by the borrower. Not a pre-approval.

    Property Tax
    A tax charged by local government and used to fund municipal services such as schools, police, or street maintenance. The amount of property tax is determined locally by a formula, usually based on a percent per $1,000 of assessed value of the property.

    Planned Unit Development (PUD)
    PUD can be attached or detached units and is a form of a type of building development with a Master Plan. The main difference between a PUD and a condo is with a PUD, one has ownership of the land the home sits on. A PUD can take the form of a community of town homes or detached homes. There a Homeowners Association Membership (HOA) which is mandatory. The HOA fee is often used to cover road maintenance, or maintenance of commonly owned land or buildings.

    Qualifying Ratios
    Guidelines utilized by lenders to determine how much money a homebuyer is qualified to borrow. Lending guidelines typically include a maximum housing expense to income ratio and a maximum monthly expense to income ratio.

    Quitclaim Deed
    A legal instrument by which the owner of real property transfers any interest to another person; does not contain a title covenant therefore there is no guarantee as to the status of the property title.

    Rate Lock Period
    The length of time the lender has guaranteed a specific interest rate to a borrower.

    Real Property
    Land, including all the natural resources and permanent buildings on it.

    Recording Fees
    Charges for recording a deed with the appropriate government agency.

    Paying off one loan by obtaining another; refinancing is generally done to secure better loan terms.

    Second Mortgage
    An additional mortgage on property behind the 1st mortgage. Second loans are riskier for the lender and usually carry a higher interest rate.

    Secured Loan
    A loan backed by collateral such as property.

    The property being pledged as collateral for a loan.

    Septic Inspection
    Inspection and testing by a licensed professional of the property’s septic system.

    Structural Inspection
    Inspection by licensed professional examining the structural elements such as the foundation, roofing, framing, etc.

    To make one mortgage secondary to another; each time a lien is released the next lien automatically moves in 1st lien position regardless of the location of the loans UNLESS a subordination agreement is agreed upon with the secondary lien.

    A property diagram indicating legal boundaries, easements, encroachments, rights of way, improvement locations, etc.; conducted by licensed surveyors.

    Title Insurance Commitment
    Along with certain property, buyer, and lender information, this document will likely have a list of requirements and exceptions. This document binds the title company to issue the insurance policy subject to the requirements being met. The exceptions are those items not being covered by the insurance policy.

    Title Search
    Search of public records reviewing events in the history of the real property to determine appropriate interests and regulations relating to the property.

    A style of construction; can be planned unit developments or condominiums.

    Transfer Taxes
    State and local taxes charged for the transfer of real estate; a transaction fee enforced on the transfer of title to property. This kind of tax is typically imposed where there is a legal requirement for registration of the transfer. Deed is based on the purchase price and the deed of trust is based on the loan amount.

    Trust Agreement
    A document spelling out the rules to be followed for the property held in trust for your beneficiaries. Common objectives for trusts are to reduce the estate tax liability, to protect property in your estate, and to avoid probate.

    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, income, assets and property valuation.

    USDA Loan (United States Department of Agriculture)
    Government backed loan product for rural areas with income limitations offering 100% financing. Also called Rural Development; the loan guarantee fee protects lenders against any loss resulting from a borrower defaulting.

    VA Loan
    A government backed loan product; for veterans only; pest inspection required on purchase and refinances; the loan guarantee fee protects lenders against any loss resulting from a borrower defaulting.

    Verbal Verification of Employment
    Verifying a member is still an active employee at the employer listed on their application and their hire date.

    Verification of Rent
    A verification validating the borrower’s last 12 to 24 months’ rent payments with a landlord, can be verbal or written. Usually ordered through a third party, cannot be given to the borrower directly for completion.

    Warranty Deed
    A type of deed where the seller guarantees he or she holds clear title to a piece of real estate and has a right to sell it to the buyer.

    Well Inspection
    Inspection and testing by a licensed professional of the property’s well water system.

    Written Verification of Employment
    Completed by the employer’s payroll or HR department; verifies current and previous income, position, hire date, probability of continued employment, etc. Cannot be completed or touched by the borrower.

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