|
Real Estate Loan Terms |
|
Type |
Description |
|
Terminology |
To help
you navigate through the mortgage
process here is a list of terms and
definitions. |
|
|
Mortgage
Terms |
|
Select a letter to browse for terms: |
A-B-C-D-E-F-G-H-I-J-L-M-N-O-P-Q-R-S-T-U-W |
|
Abstract of Title |
A written history of ownership to a specific
area of land. An abstract of title covers the
period from the original source of title to the
present time and summarizes all subsequent
documents that have been recorded against that
land. |
|
Adjustable-Rate Mortgage (ARM)
|
With adjustable-rate mortgages (commonly called
ARMs), the interest rate changes over time
according to terms specified in advance by the
lender. The initial interest rate is usually
lower than that offered with a fixed-rate
mortgage. This means that the monthly repayment
amount would also be lower. At predetermined
times, the interest rate will be adjusted either
up or down. Consequently, the monthly payment
amount will also increase or decrease. Even
though the interest rate is subject to change,
most adjustable-rate mortgage programs offer the
protection of a "rate cap," which limits the
amount the rate can be increased each year and
over the life of the loan. |
|
Adjustment Date |
The date the
interest rate changes on an ARM. |
|
Adjustment
Period |
The amount of
time between the adjustment dates for an
adjustable-rate mortgage.
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|
Amortization
|
The loan payment
consists of a portion which will be applied to
pay the accruing interest on a loan, with the
remainder being applied to the principal.
Over time, the interest portion decreases as the
loan balance decreases, and the amount applied
to principal increases so that the loan is paid
off (amortized) in the specified time.
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|
Amortization
Term |
The amount of
time required to repay the mortgage loan. The
amortization term is expressed in months. For
example, for a 30-year, fixed-rate mortgage, the
amortization term is 360 months (30 years X 12
months). Return to Top |
|
Amortization Schedule |
A table which
shows how much of each payment will be applied
toward principal and how much toward interest
over the life of the loan. It also shows
the gradual decrease of the loan balance until
it reaches zero. Return to
Top |
|
Annual
Percentage Rate (APR)
|
This is not the
note rate on your loan. The annual
percentage rate is a rate that reflects the
total cost of your mortgage loan expressed in
terms of an annual interest rate. The APR
reflects factors including the interest rate on
your mortgage loan, the term of the loan, and
the other applicable costs of financing such as
points, fees and certain closing costs.
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|
Application
|
The form used to
apply for a mortgage loan, containing
information about a borrower's income, savings,
assets, debts, and more.
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|
Appraisal |
A written
justification made of the price paid for a
property, primarily based on an analysis of
comparable sales of similar homes nearby.
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|
Asset
|
Items of value owned by an individual.
Assets that can be converted into cash are
considered "liquid assets." These are bank
accounts, stocks, bonds, mutual funds, and so
on. Other assets include real estate,
personal property, and debts owed to an
individual by others. Return
to Top |
|
Balloon
Mortgage
|
A balloon
mortgage is a mortgage that is amortized over
the full term of the loan repayment period but
at the end of a specified period the balance of
the mortgage comes due. Thus, a balloon payment
needs to be made. For example, with a 7-year
balloon you would make monthly payments for
seven years that have been calculated based on a
30-year mortgage payment. At the end of the 7
years, the remaining principal balance would be
due and payable in full.
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|
Balloon Payment
|
The final lump
sum payment that is due at the termination of
a balloon mortgage. Return to
Top |
|
Borrower
|
The person
applying for a mortgage loan, and the person who
will be responsible for repaying the loan.
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|
Bridge Loan
|
Not used much anymore, bridge loans are obtained
by those who have not yet sold their previous
property, but must close on a purchase property.
The bridge loan becomes the source of their
funds for their down payment. One reason
for their lack of use is that lenders can now
lend a higher loan to value. In addition,
sellers often prefer to accept offers from
buyers who have already sold their property.
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|
Buydown
Mortgage |
A temporary
buydown is a mortgage where an initial lump sum
payment is made by any party to reduce a
borrower's monthly payments during the first few
years of a mortgage. A permanent buydown reduces
the interest rate over the entire life of a
mortgage.
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|
Cap
|
Adjustable Rate
Mortgages have fluctuating interest rates, but
those fluctuations are usually limited to a
certain amount. Return
to Top |
|
Cash
|
Currency, checks
and other negotiable instruments acceptable for
direct deposit by a bank.
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|
Cash-Out
Refinance
|
When a borrower
refinances his mortgage at a higher amount than
the current loan balance with the intention of
pulling out money for use.
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|
Change
Frequency |
The frequency
(in months) of payment and/or interest rate
changes in an adjustable-rate mortgage.
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|
Closing
|
A meeting at
which the sale of a property is finalized by the
buyer and seller signing the documents needed to
transfer legal ownership of the property. The
mortgage documents are signed and closing costs
are also paid at this time. Also called
"settlement."
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|
Closing Costs
|
Money paid by
the borrower in connection with the closing of a
mortgage loan. This generally involves an
origination fee, discount points, appraisal,
credit report, title insurance, attorney's fees,
survey and pre-paid items such as tax and
insurance escrow payments. Also called
"settlement."
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|
Closing Statement
|
A list giving a
complete breakdown
of costs involved in
a real estate
transaction,
prepared by the
lender's agent at
closing. Also
referred to as the
HUD1.
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|
Co-Borrower
|
If more than one
person will be
responsible for
repaying the loan,
the second person
listed on the
application is the
Co-Borrower. If
there will be more
than one borrower,
either one can be
listed as the
borrower and/or
co-borrower, but the
borrower's name must
appear on the deed
to the property
being purchased.
|
|
Commitment
(Loan)
|
A binding pledge
made by the lender
to the borrower to
make a loan, usually
at a stated interest
rate within a given
period of time for a
given purpose,
subject to the
compliance of the
borrower to stated
conditions.
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|
Commitment
Letter
|
A formal offer by a
lender stating the
terms under which it
agrees to lend money
to a homebuyer. Also
known as a "loan
commitment."
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|
Comparables
|
Comparables are
properties similar
to the property
under consideration;
they are reasonably
similar in size,
location, and
amenities and have
been recently sold.
Comparables help the
appraiser determine
the approximate fair
market value of the
subject property.
Also referred to as
"Comps."
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|
Construction
Loan
|
A short-term,
interim loan for
financing the cost
of construction. The
lender makes
payments directly to
the builder at
periodic intervals
as the home is
built. Once the home
is complete, the
interim loan is
converted to the
mortgage loan.
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|
Contingency
|
A condition that
must be met before a
contract is legally
binding. For
example, home
purchasers often
include a
contingency that
specifies that the
contract is not
binding until the
purchaser obtains a
satisfactory home
inspection report
from a qualified
home inspector.
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|
Conventional
Mortgage
|
A mortgage that is
not insured or
guaranteed by the
federal government.
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|
Convertible ARM
|
An adjustable-rate
mortgage that can be
converted to a
fixed-rate mortgage
under specified
conditions.
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|
Credit History
|
A record of an
individual's open
and fully repaid
debts. A credit
history helps a
lender determine
whether a potential
borrower has a
history of repaying
debts in a timely
manner.
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|
Credit Report
|
An account of an
individual's credit
history that is
prepared by a credit
bureau and used by a
lender to determine
a loan applicant's
creditworthiness.
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|
Credit
Repository
|
An organization that
gathers, records,
updates, and stores
financial and public
records information
about the payment
records of
individuals who are
being considered for
credit.
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|
Debt
|
An amount owed to
another. Also
referred to as
liability.
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|
Debt-to-Income
Ratio
|
Relationship of a
borrower's monthly
payment obligation
on long-term debts
divided by gross
monthly income,
expressed as a
percentage. Also
called the bottom
ratio or back-end
ratio.
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|
Deed |
The legal document
conveying title to a
real property.
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|
Default
|
The failure to make
on-time payment in
the amount specified
in the terms of the
obligation or note.
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|
Deposit
|
The sum of money
given to bind a sale
of real estate. Also
knows as "earnest
money."
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|
Discount Point
|
A point paid to the
lender to
permanently buy down
or lower and
interest rate. It is
usually a percentage
of the loan amount.
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|
Down Payment
|
Money paid to make
up the difference
between the purchase
price and the
mortgage amount.
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|
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.
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|
Equity
|
A homeowner's
financial interest
in a property.
Equity is the
difference between
the fair market
value of the
property and the
amount owed on its
mortgage.
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|
Escrow
|
An item of value,
money, or documents
deposited with a
third party to be
delivered upon the
fulfillment of a
condition. For
example, the deposit
by a borrower to the
lender of funds to
pay taxes and
insurance premiums
when they become
due, or the deposit
of funds or
documents with an
attorney or escrow
agent to be
disbursed upon the
closing of a sale of
real estate.
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|
Escrow Account
|
Third-party account
for holding money,
such as a buyer's
earnest money or the
owner's taxes and
insurance payment,
prior to paying the
expenses. |
|
Escrow Analysis
|
The periodic
examination of
escrow accounts to
determine if current
monthly deposits
will provide
sufficient funds to
pay taxes,
insurance, and other
bills when due.
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|
Escrow Payment
|
The portion of a
mortgagor's monthly
payment that is held
by the servicer to
pay for taxes,
hazard insurance,
mortgage insurance,
lease payments, and
other items as they
become due. Known as
"impounds" or
"reserves" in some
states.
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|
Estate
|
The ownership
interest of an
individual in real
property. The sum
total of all the
real property and
personal property
owned by an
individual at time
of death.
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|
Examination of
Title
|
The review of title
on a property from
the public records
or an abstract of
the title.
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|
Fair Credit
Reporting Act (FCRA)
|
This law requires
consumer reporting
agencies to exercise
fairness,
confidentiality and
accuracy in
preparing and
disclosing credit
information.
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|
Fair Market
Value |
The price at which
property is
transferred between
a willing buyer and
a willing seller,
each of whom has a
reasonable knowledge
of all pertinent
facts and neither
being under any
compulsion to buy or
sell.
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|
Fannie Mae (FNMA) |
The nation's largest
mortgage investor
created in 1968 by
an amendment to
Title III of the
National Housing Act
(12 USC 1716 et
seq.) this
stockholder-owner
corporation, a
portion of whose
board of directors
is appointed by the
President of the
United States,
supports the
secondary market in
mortgages on
residential property
with mortgage
purchase and
securitization
programs.
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|
FHA Loan |
A loan made through
an approved lender
and insured by the
Federal Housing
Administration.
While there are
limits to the size
of FHA loans, they
are intended to
finance moderately
priced homes.
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to Top |
|
First Mortgage
|
A mortgage that is
the primary lien
against a property.
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|
Fixed-Rate
Mortgage
(FRM) |
A mortgage in which
the interest rate
does not change
during the entire
term of the loan.
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|
Freddie Mac
(Federal Home Loan
Mortgage Corp) |
Created by Congress
in Title III of the
Emergency Home
Finance Act of 1970
(12 USC 1451 et
seq.). This
stockholder-owned
corporation, a
portion of whose
board of directors
is appointed by the
President of the
United States,
supports the
secondary market in
mortgages on
residential and
multifamily
properties with
mortgage purchase
and securitization
programs.
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|
Good Faith
Estimate
|
A document, which
tells borrowers the
approximate costs,
they will pay at or
before settlement,
based on common
practice in the
locality.
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|
Gross Monthly
Income
|
Total monthly income
earned before tax
and other
deductions.
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|
Hard Costs |
Land acquisition
and construction costs. Return to
Top |
|
Hazard
Insurance |
Insurance
coverage which provides compensation to the
insured in case of property loss or damage.
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|
Home Equity Line
of Credit
|
A form of revolving
credit in which your
home serves as
collateral.
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|
Home Equity Loan |
A second mortgage
loan based on the
equity in the
mortgagor's house.
The property is the
security for the
loan, which is
usable for any
purpose.
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|
Home Mortgage
Disclosure Act (HMDA) |
Federal legislation
which requires
certain types of
lenders to compile
and disclose data on
where their mortgage
and home improvement
loans are being
made.
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|
Homeowners'
Association Dues
|
The fees imposed by
a condominium or
homeowners'
association for
maintenance of
common areas.
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|
Homeowner's
Insurance
|
Insurance
carried by the
homeowner to
protect the
dwelling against
fire and other
hazards. |
|
Homeowner's
Policy
|
Insurance policy
that combines
liability coverage
and hazard insurance
covering at least
the appraised value
of a house and
property.
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|
Housing Expense
Ratio
|
The relationship of
a borrower's monthly
payment obligation
on housing (PITI -
Principal, Interest,
Taxes, and
Insurance) divided
by the gross monthly
income, expressed as
a percentage. This
ratio is sometimes
referred to as the
top ratio or
front-end ratio.
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|
HUD-1 Uniform
Settlement
Statement
|
Standard form used
to disclose costs at
closing. All charges
imposed in the
transaction,
including mortgage
broker fees, must be
disclosed
separately.
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|
Income
|
Sources of revenue
such as salary,
bonuses, interest,
investment income,
etc.
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|
Index
|
A published interest
rate to which the
interest rate on an
adjustable-rate
mortgage is tied.
Some commonly used
indices include the
1-Year Treasury
Bill, 6-Month LIBOR,
and the 11th
District Cost of
Funds (COFI).
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|
Interest
|
Consideration in the
form of money paid
for the use of
money. Also a right,
share or title in
property.
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|
Interest Rate
|
The fee paid to a
lender to borrow
money.
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|
Joint Tenancy
|
An undivided
interest in
property, taken by
two or more joint
tenants. Upon the
death of a joint
tenant, the interest
passes to the
surviving joint
tenants, rather than
to the heirs of the
deceased.
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|
Late Charge
|
The penalty a
borrower must pay
when a payment is
made after the due
date.
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|
Lien
|
A legal claim or
attachment against
property as security
for payment of an
obligation.
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|
Lifetime Cap
|
A provision of an
adjustable-rate
mortgage (ARM) that
limits the highest
rate that can occur
over the life of the
loan.
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|
Loan Amount
|
The amount of money
the homebuyer will
borrow from the
lender to purchase
the home.
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|
Loan-To-Value
Ratio (LTV)
|
The ratio of the
amount of a mortgage
loan to the
appraised value of
the home or the
sales price,
whichever is lowest.
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|
Lock-In
|
The process by which
a lender commits to
lend at a particular
rate as long as the
mortgage transaction
closes within a
specified time
period. The
document, which
specifies the terms
of the lock-in, is
called a "rate
commitment" or
"lock-in agreement."
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|
Margin
|
The set percentage
the lender adds to
the index rate to
determine the
interest rate of an
ARM.
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|
Maturity
|
The date on which an
agreement expires;
termination of a
promissory note.
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|
Monthly Payment
|
The monthly payment
of principal and interest collected by
mortgage lenders. May also include
escrow items for taxes or insurance and
thereby called the housing payment.
Return
to Top |
|
Mortgage
|
A pledge of
property,
usually real
property, as
security for a
debt. By
extension, the
document
evidencing the
pledge.
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|
Mortgage
Insurance (MI)
|
Insurance which
protects mortgage
lenders against loss
in the event of
default by the
borrower. This
allows lenders to
make loans with
lower down payments.
The federal
government offers MI
through HUD/FHA;
private entities
offer MI for
conventional loans.
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|
Mortgage Note
|
A written promise to
pay a sum of money
at a stated interest
rate during a
specified term. A
mortgage note is
secured by a
mortgage.
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|
Mortgagee
|
The person or
company (lender) who
receives the
mortgage as a pledge
for repayment of the
loan.
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|
Mortgagor
|
The borrower in a
mortgage transaction
who pledges property
as security for a
deal.
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|
Note
|
A general term for
any kind of paper or
document signed by a
borrower that is an
acknowledgment of
the debt, and is, by
inference, a promise
to pay. When the
note is secured by a
mortgage, it is
called a mortgage
note and the
mortgagee is name as
the payee.
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|
Open-End
Mortgage |
A mortgage with
a provision that the outstanding loan amount may
be increased upon mutual agreement of the lender
and the borrower. Return to Top |
|
Origination Fee
|
The lender's fee
charged a borrower
to prepare
documents, make
credit checks,
inspect and
sometimes appraise a
property. Usually
stated as a
percentage of the
face value of the
loan.
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|
P& I
|
An abbreviation for
Principal and
Interest. For the
complete monthly
payment associated
with a loan see PITI.
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|
Payment Cap
|
The limitation on
increases or
decreases in the
payment amount of an
adjustable-rate
mortgage.
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|
Perfecting Title |
The elimination of
claims against
title.
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|
Permanent Financing |
A mortgage loan,
usually covering
development costs,
interim loans,
construction loans,
financing expenses,
and marketing,
administrative,
legal, and other
costs. This loan
differs from the
construction loan in
that financing goes
into place after the
project is
constructed and open
for occupancy. It is
a long-term
obligation,
generally for a
period of 10 years
or more.
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|
PITI
|
An abbreviation for
Principal, Interest,
Taxes and Insurance,
the components of a
total monthly
mortgage payment.
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|
Point |
An amount equal to
one percent of the
principal amount of
a mortgage. Loan
discount points are
a one-time charge
assessed at closing
by the lender to
increase the yield
on the mortgage loan
to a competitive
position with other
types of
investments.
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|
Prepayment
|
The payment of all
or part of a
mortgage debt before
it is due.
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|
Prepayment
Penalty
|
A fee charged to a
borrower who pays
off a loan before it
is due.
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|
Prequalification
|
Evaluation of a
potential borrower's
financial status to
determine the size
and type of mortgage
available to him or
her.
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|
Principal
|
The original balance
of money lent,
excluding interest.
Also, the remaining
balance of a loan,
excluding interest.
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|
Private Mortgage
Insurance (PMI)
|
Insurance written by
a private company
protecting the
mortgage lender
against financial loss
resulting from a
mortgage default.
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|
Purchase
Agreement |
An agreement between
a buyer and seller
of real property,
setting forth the
price and terms of
the sale. Also known
as a sales contract.
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|
Purchase Price
|
The price a
homebuyer pays to
buy a home.
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|
Qualification |
The process which
determines whether
an applicant can be
approved for a
mortgage loan.
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|
Quitclaim Deed |
A deed relinquishing
all interest, title,
or claim an owner
has in a property. A
quitclaim deed
implies no warranty.
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|
Rate Cap |
A limit on how much
the interest rate
can change, either
at each adjustment
period or over the
life of the loan.
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|
Rate Lock-In
|
The process by which
a lender commits to
lend at a particular
rate as long as the
mortgage transaction
closes within a
specified time
period. The
document, which
specifies the terms
of the lock-in, is
called a rate
commitment or
lock-in agreement.
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|
Raw Land |
Land in its natural
state, having no
physical
improvements such as
grading, sewers, or
structures.
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|
Refinancing
|
The repayment of a
debt from the
proceeds of a new
loan using the same
property as security.
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|
Rescission |
The cancellation
of a transaction or contract by law or by mutual
consent. Return to Top |
|
Satisfaction of
Mortgage
|
The recorded
instrument the
lender provides to
evidence payment in
full of the mortgage
debt.
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|
Second Home Purchase |
A
property purchased
for occupancy by the
owner but is not the
primary residence.
Usually recreational
properties.
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|
Second Mortgage |
A mortgage that has
rights subordinate
to a first mortgage.
Also called "second
trust."
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|
Security
Interest |
The interest of a
creditor in the
security
collateralizing an
investment.
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|
Subject To
Mortgage |
A mortgage clause in
which title to a
mortgaged property
is taken without
assuming personal
liability for the
mortgage debt.
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|
Tax Lien
|
A claim against
property for unpaid
taxes.
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|
Term
|
The period of time
between the
commencement date
and termination date
of a note, mortgage,
legal document, or
other contract.
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|
Title
|
Written evidence of
the right to or
ownership in
property.
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|
Title Insurance
Policy |
A contract by which
the insurer agrees to pay the insured a
specific amount for any loss caused by
defects of title to real estate, wherein
the insured has an interest as
purchaser, mortgagee, or otherwise.
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|
Title Search
|
An
examination of public records, laws, and
court decisions to ensure that no one
except the seller has a valid claim to
the property, and to disclose past and
current facts regarding ownership of the
subject property. Return to
Top |
|
Total Monthly
Payment
|
The total monthly
mortgage payment
includes principal,
interest, taxes, and
insurance.
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Truth-in-Lending
Act
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Federal law which
requires a truth in
lending statement to
be disclosed for
consumer loans. This
statement would
include disclosure
of the annual
percentage rate, or
APR, as well as
other facets of the
mortgage program.
The law also
requires the right
of rescission period
which follows the
closings of
refinances.
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Underwriting
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The analysis of the
risk involved in
making a mortgage
loan to determine
whether the risk is
acceptable to the
lender. Underwriting
involves the
evaluation of the
property as outlined
in the appraisal
report, and of the
borrower's ability
and willingness to
repay the loan.
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URLA
|
Uniform residential
loan application.
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Waiver of lien |
The written
evidence from a contractor or supplier,
surrendering the right of lien to enforce
collection of debt against a property.
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