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Select
the first letter of the word from the list above to jump to appropriate
section of the glossary. If the term you are looking for starts with a
digit or symbol, choose the '#' link.
Acceleration
The
right of the mortgagee (lender) to demand the immediate repayment of
the mortgage loan balance upon the default of the mortgagor (borrower),
or by using the right vested in the Due-on-Sale Clause.
Adjustable Rate Mortgage (ARM)
A type of mortgage
loan, usually lasting 30 years, where the interest rate fluctuates and
depends on a particular preselected interest rate index. The advantage
of this type of loan is that lenders typically offer initial discounts
(teaser rates) on the interest rate index making the loans less
expensive than a traditional fixed rate mortgage.
In addition,
the loan payment
goes up and down depending on the actual financial conditions
of the economy which can
be an advantage if interest rates remain constant
or decline during the life of the loan. The disadvantage of this
type of loan is that your exact payment over time is unpredictable and
can increase. Also called variable rate mortgage.
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 index.
Amortization
Literally to "kill off" (root: mort) the outstanding balance
of a loan by making equal payments on a regular schedule (usually
monthly). The payments are structured so that the borrower pays both
interest and principal with each equal payment.
Annual Percentage Rate (APR)
APR is a measurement of the full cost of a loan including interest and
loan fees expressed as a yearly percentage rate. Because all lenders
apply the same rules in calculating the annual percentage rate, it
provides consumers with a good basis for comparing the cost of loans.
Application Fee
The fee charged by the lender to the borrower for applying for a loan.
Payment of this fee does not guarantee that a loan will be approved.
Some lenders may apply the cost of the application fee to certain
closing costs.
Appraisal
An estimate of the value of property based on recent sales information
of similar properties. The appraisal is made by a qualified
professional called an "appraiser".
Assessed
Valuation
The
value that a taxing authority places on real or personal property for
the purpose of taxation.
Assessment
A
charge against a property for purposes of taxation. This may take the
form of a levy for a special purpose or a tax in which the property
owner pays a share of the cost of community improvements according to
the valuation of his or her property.
Assumption
The agreement between buyer and seller where the buyer takes over the
payments on an existing mortgage from the seller. Assuming a loan can
usually save the buyer money since this is an existing mortgage debt,
unlike a new mortgage where closing cost and new, probably higher,
market-rate interest charges will apply.
Balloon
Mortgage
A type of mortgage loan that is exactly like a traditional fixed rate
mortgage except that it becomes 100% due after a specified amount of
time has elapsed (usually five or seven years).When the loan matures,
you must pay the loan off in cash (Balloon Payment) or refinance. The
advantage of this type of loan is that the initial rate is usually
lower than a normal fixed rate loan. The disadvantage of this type of
loan is that you may have to refinance or pay off the loan if you do
not sell the home by the time the loan matures.
Biweekly
Mortgage
A
type of fixed-rate mortgage with payments for half the usual monthly
amount scheduled every two weeks. Because you make the equivalent of 13
months of payments every year, the loan term is shortened from 30 years
to 18 or 19 years, and total interest cost are substantially lower.
Borrower (Mortgagor)
One who applies for and receives a loan in the form of a mortgage with
the intention of repaying the loan in full.
Broker
An individual in the business of assisting in
arranging funding or negotiating contracts for a client but who does
not loan the money himself. Brokers usually charge a fee or receive a
commission for their services.
Buydown
The process of paying additional points on the loan to reduce the
monthly mortgage. There are typically two specific types: a Permanent
Buydown, and a Temporary Buydown. In a Permanent Buydown, a sufficient
amount of interest is prepaid to lower the rate permanently. In a
Temporary Buydown, only a sufficient interest is paid to lower
the payment for the first three years. The reason to Temporarily
Buydown a loan is to lower the current payments thereby more easily
qualifying for the loan. This usually makes sense because income will
usually continue to increase as the interest rate does. The most common
Temporary Buydown is called 3-2-1, meaning three percent lower the
first year, two percent lower the second year, and one percent lower
the third year.
Caps
A set percentage amount by which an adjustable rates mortgage may
adjust each adjustment period. For adjustable loans, caps are usually
quoted as two numbers as in 2/6. The first number indicates how much a
loan may adjust at each adjustment period while the second number
indicates how much a loan may adjust over its lifetime.
Loans like the 3/1 and 5/1 adjustable, which have an initial fixed
period are quoted with numbers as in 2/6/3 which would mean that
the first adjustment may be as much as 3%, subsequent adjustments are
capped at 2% each, and the lifetime cap is 6%. Two-Step loans are
quoted with a single cap, which is the amount by which the loan may
adjust at its single adjustment date.
Cash
Out
A
loan transaction in which the borrower receives funds as the time of
closing.
Certificate
of Eligibility
A
document issued by the federal government certifying a veteran’s
eligibility for a Veterans Administration (VA) mortgage guarantee.
Certificate
of Title
A
written statement usually furnished by a title company or attorney
which presents the status of the title to a piece of property.
Cash
to Close
Liquid
assets that are readily available to be used to pay the closing costs
involved in a closing of a mortgage transaction.
Closing
The
meeting between the buyer, seller and lender (or their agents) where
the property and funds legally change hands. Also called settlement.
Closing
Agent (Escrow/Title Company)
A
third party who oversees the closing of the loan transaction.
Closing Costs
The meeting between the buyer, seller and lender or their agents where
the property and funds legally change hands, also called 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 cost of closing usually is about 3 percent to 6 percent
of the mortgage amount.
Closing
Documents
The
documents which are signed at closing. These include the Deed of Trust
or Mortgage with attachments, Promissory Note, Truth-in-Lending
Disclosure, and other documents related to the transaction.
Closing
Statement
A
form used at closing that gives an account of the funds received and
paid at the closing, including the escrow deposits for taxes, hazard
insurance, and mortgage insurance.
Co-Borrower
Additional
borrower(s) whose income contributes to qualifying for a loan and whose
name(s) appears on documents with equal legal obligations.
COFI - Cost of funds index
Adjustable-rate mortgage with rates that adjust based on a
cost-of-funds index, often the 11th District Cost of Funds.
Collateral
Property
pledged as security for a debt, such as the real estate pledged as
security for a mortgage.
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.
Commitment
Fee (Loan)
Any
fee paid by a potential borrower to a lender for the lender's promise
to lend money at a specified rate and within a given time period.
Commitment
Letter
A
lender's written offer to grant a mortgage loan outlining the terms,
the amount of the loan, the interest rate and any other conditions. It
can also serve as a communication of the lender's decision to the
borrower's application.
Comparables
An
abbreviation for comparable properties used for comparative purposes in
the appraisal process; facilities of reasonably the same size and
location with similar amenities; properties which have been recently
sold, which have characteristics similar to the property under
consideration, thereby indicating the approximate fair market value of
the subject property.
Conforming Loan
A mortgage loan for $300,700 or lower.
Convertible
ARM
A
type of adjustable rate mortgage that allows the borrower to change
from an ARM to a fixed rate loan according to the terms of the note and
security instrument.
Construction Loan
A short term loan for funding the cost of construction. The lender
advances funds to the builder as the work progresses.
Conventional Loan
A mortgage neither insured by the FHA nor guaranteed by the VA.
Conversion
The right of a borrower to convert an adjustable or balloon loan into a
fixed loan.
Credit Rating
Borrowers are rated by lenders according to the borrower's
credit-worthiness or risk profile. Credit ratings are expressed as
letter grades such as A-, B, or C+. These ratings are based on various
factors such as a borrowers payment history, foreclosures, bankruptcies
and charge-offs. There is no exact science to rating a borrowers
credit, and different lenders may assign different grades to the same
borrower.
Credit Report
A report to a prospective lender on the credit standing of a
prospective borrower. Used to help determine creditworthiness.
Information regarding late payments, defaults, or bankruptcies will
appear here.
Debt
Ratio
One of several financial calculations performed by your lender to
determine if you can afford a particular monthly payment. The debt
ratio (also known as the obligations ratio) is the sum of all of your
monthly debt payments including your total monthly mortgage payment
divided by your total monthly income. Typically acceptable debt ratios
for Conventional Loans are 36-38%, FHA Loans are 41-43%, and VA Loans
are 41%.
Deed of Trust
A legal document which affects the transfer of ownership of real estate
from the seller to the buyer.
Default
Failure to meet legal obligations in a contract. Typically failure to
make the monthly payments on a mortgage.
Delinquency
Failure to make payments on time, which can lead to foreclosure.
Deminimus
PUD
A
PUD in which the common property has less than a 2% influence upon the
value of the premises. The 2% rule of thumb is calculated by dividing
the dollar amount of amenities by the total number of units. Also see
PUD.
Department
of Veterans Affairs
An independent agency of the federal government that guarantees long-
term, low-or no-down payment mortgages to eligible veterans.
Deposit
A
sum of money given to bind a sale of real estate. Also known as earnest
money.
Depreciation
A
loss of value in real property brought about by age, physical
deterioration, functional or economic obsolescence.
Discount
Point
Amount
payable to the lending institution by the borrower or seller to
increase the lender's effective yield. One point is equal to one
percent of the loan amount.
Discounted
Loan
When
the note rate on a loan is less than the market rate, the lender
requires additional points to raise the yield on the loan to the market
rate.
Down Payment
The amount of money the buyer puts down, normally anywhere from 5-25%.
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.
Equal Credit Opportunity Act (ECOA)
Is 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 amount owed on the loan and the current
market value of the home or property.
Escrow
Documentation held impartially pertaining to the sale and transfer of
real estate.
Fair
Credit Reporting Act (FCRA)
A
Federal law which requires a lender who is rejecting a loan request
because of adverse credit information to inform the borrower of the
source of such information.
Farmers
Home Administration (FMHA)
Provide financing to farmers and other qualified borrowers who are
unable to obtain loans elsewhere.
Federal Home Loan Bank Board (FHLBB)
The former name for the regulatory and supervisory agency for federally
chartered savings institutions. Agency is now called the Office of
Thrift Supervision.
Federal Home Loan Mortgage Corporation
(FHLMC)
A quasi-governmental agency that purchases 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 mortgages.
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 ($239,250 as of 1/1/01), they are generous enough to handle
moderately-priced homes almost anywhere in the country.
FHA mortgage insurance
Requires a fee (up to 2.25 percent of the loan amount) paid at closing
to insure the loan with FHA. In addition, FHA mortgage insurance
requires an annual fee of up to 0.5 percent of the current loan amount,
paid in monthly installments. The lower the down payment, the more
years the fee must be paid.
Federal Home Loan Mortgage Corporation
(FHLMC)
The Federal Home Loan Mortgage Corporation provides a secondary market
for savings and loans by purchasing their conventional loans. Also
known as "Freddie Mac."
Federal National Mortgage Association
(FNMA)
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.
Finance Charge
The total dollar amount your loan will cost you. It includes all
interest payments for the life of the loan, any interest paid at
closing, your origination fee and any other charges paid to the lender
and/or broker. Appraisal, credit report and title search fees are not
included in the finance charge calculation.
Firm Commitment
A promise by the FHA to insure a mortgage loan for a specified property
and borrower.
Fixed-Rate Mortgage
A type of mortgage loan, usually lasting 30 years, where the interest
rate remains constant throughout the life of the loan. An advantage of
a fixed rate loan is your own security that the interest rate will not
increase. The disadvantage of a fixed rate loan occurs when interest
rates substantially decline below the interest rate of your loan.
Float
Between the time of application and closing, a borrower may choose to
bet on interest rates decreasing by electing to float. Floating is
essentially choosing not to lock the interest rate. Since it is the
borrowers responsibility to lock his or her rate before (or at)
closing, choosing to float is considered risky and may result in a
higher interest rate.
Foreclosure
A legal process by which the lender or the seller forces a sale of a
mortgaged property because the borrower has not met the terms of the
mortgage. Also known as a repossession of property.
Gift
Letter
A
written explanation signed by the individual giving the gift stating,
"This is a bona fide gift and there is no obligation expressed or
implied to repay this sum at any time."
Government
Loans
One of two loan types called FHA or VA loan. These loans are partially
backed by the government and can
help veterans and low-to-moderate income families afford homes. The
advantages of these types of loans is that they often have a lower
interest rate, are easier to qualify for, have lower down-payment
requirements, and can be assumed by someone else if the home is
sold. Many mortgage bankers
can obtain these types of loans for you.
Graduated Payment Mortgages
A type of mortgage where the monthly payments start low but increases
by a fixed amount each year for the first five years. The payment
shortfall or negative amortization is added to the principal
balance due on the loan. The advantages of this type of loan is a lower
monthly payment at the beginning of the loan term. The
disadvantages are typically a slightly higher rate than
traditional fixed-rate mortgage loans and lenders usually require
a larger down payment. In addition, the negative
amortized amount increases the balance due on the total loan, which can
be a problem if the value of the home declines.
Gross Monthly Income
The total amount the borrower earns per month, not counting any taxes
or expenses. Often used
in calculations to determine whether a borrower qualifies for a
particular loan.
Growing Equity Mortgage
Growing Equity Mortgage: A type of mortgage where the monthly payments
start low but increase by a fixed amount each year for the entire life
of the loan as compared to five years with a Graduate Payment Mortgage.
The advantage of this type of loan is that the loan can usually be paid
off in a shorter duration than a traditional fixed rate loan. The
disadvantage of this loan is that the payment continues to go up
irrelevant of the income of the borrower.
Guaranty
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 certain losses,
such as fire, vandalism, storms and certain other natural causes.
High
Ratio Loan
Mortgage
loans in excess of 80 percent of the loan amount divided by the lower
of the sales price or appraised value.
Homeowners
Association Dues
The
fees imposed by a condominium or homeowners' association for
maintenance of common areas.
Housing Ratio
One of several financial calculations performed by your lender when
applying for a conventional
loan to determine if you can afford a particular monthly payment. The
housing ratio (also known as the income ratio) is your total monthly
payment including taxes and insurance divided by your total monthly
income. Typically acceptable housing ratios for Conventional Loans are
28-33% and FHA Loans are 29-31%.
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I -
Impound
The portion of a borrower's monthly payments held by the lender or
servicer to pay for taxes, hazard
insurance, mortgage insurance, lease payments, and other items as they
become due. Also known as reserves.
Index
A nationally published financial measure of economic conditions usually
relative to other financial
instruments such as bonds or Treasury Bills. The lender uses a
particular index (such as the 6 month Treasury Bill) to calculate your
particular monthly payment by adding a fixed margin to the index. The
margin is the lenders profit and is over and above the normal index
because of the assumption of loan risk. Your lender will adjust the
interest on your ARM at regular time intervals also called adjustment
intervals (like 6 months), by adding their particular margin to the
particular index of the loan. The amount the loan is adjusted is also
controlled by a periodic cap (the maximum amount the loan can change
during your particular adjustment interval), the monthly cap (the
maximum amount the monthly payment can change from one adjustment
interval to the next), and the lifetime cap (the total amount the loan
can change from their initial rate of the loan).
Indexed Rate
The sum of the published index plus the margin. For example if the
index were 9% and the margin
2.75%, the indexed rate would be 11.75%. Often, lenders charge less
than the indexed rate the first year of an adjustable-rate mortgage.
Insured
Loans
A
loan insured by FHA or a private mortgage insurance company.
Interest
The
sum paid for borrowing money, which pays the lender's costs of doing
business.
Interest
Rate
The
percentage of an amount of money which is paid for its use for a
specified time.
Initial
Borrower Interest Rate
The
rate on which the borrower’s first payment is calculated. If the loan
is discounted or brought down, it may be lower than the Fully Indexed
Accrual Rate.
Initial
Borrower Payment Rate
The
annual interest rate used to calculate the borrower's initial cash
payment. If, for example, the note specifies that a fully amortizing
annual rate of 11% be used to calculate the initial monthly payment,
and that rate is "brought down" 2%, the IBPR is 9%.
Investment
Property
Real
estate owned with the intent of supplementing income and not intended
for owner occupancy
Jumbo Loan
A loan above $227,150(as of 1/1/98). These limits are 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.
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L -
Lender
The bank, mortgage company, or mortgage broker offering the loan. Many
institutions only "originate"
loans and then resell the obligation to third parties.
LENDER
BUY-DOWN MORTGAGE
A
convertible mortgage offering a discounted interest rate at the
beginning of the loan that gradually increases to an agreed-upon
fixed-rate over the first few years of the loan. It provides lower
initial payments and a stable final monthly rate, but the final rate
may be somewhat higher than on a standard fixed-rate mortgage.
LIEN
A
legal claim or attachment against property as security for payment of
an obligation.
Life of Loan Cap
The maximum interest rate that can be charged during the life of the
loan. Also called Lifetime
Cap. This value is often expressed as an increment above the initial
loan rate. For example, an adjustable rate loan with an initial rate of
7.25% and a 6% lifetime cap will never adjust above a rate of 13.25%
(7.25+6.0).
Loan
Origination Fee
The
fee charged by a lender to prepare all the documents associated with
your mortgage.
Loan-To-Value Ratio
The relationship
between the amount of the mortgage loan and the appraised value of the
property expressed as a percentage. A LTV ratio of 90 means that a
borrower is borrowing 90% of the value of the property and paying 10%
as a down payment. For purchases, the value of the property is assumed
to be the purchase price, for refinances the value is determined by an
assessment.
Lock (noun)
The period, expressed in days, during which a lender will guarantee a
rate. Some lenders will lock rates at the time of application while
others will allow the borrower to lock the rate after the application
is taken. Request information from your lender regarding lock
procedures.
Lock
(verb)
The act of committing to a mortgage rate. This action, taken by a
borrower some time between the
application and the closing dates, is sometimes accompanied by a
payment by the
borrower to the lender. Opposite of float.
Market
Value
The
highest price which a ready, willing and able buyer would pay and a
willing seller will accept, both being fully informed under no pressure
to act. The market value may be different from the price a property can
actually be sold for at a given time (market price).
Margin
The amount a lender adds to the index on an adjustable rate mortgage to
establish the adjusted
interest rate.
Maturity
The
termination or due date on which final payment on a loan must be paid
in full.
Monthly
Payment
Usually,
the amount of PITI (principal, interest, taxes, and insurance) paid
each month on a mortgage loan.
Mortgage
The
conveyance of an interest in real property given as security for the
payment of a loan.
Mortgage
Banker
A
company that originates and funds, and services mortgages exclusively
for resale in the secondary market.
Mortgage
Broker
A
company that for a fee matches borrowers with Mortgage Bankers.
Mortgage Insurance
A type of insurance charged by most lenders to offset the risk of your
loan when your down payment is less than 20% of the value of the home.
Mortgage
Note
A
written promise to pay a sum of money at a stated interest rate during
a specified term. The note contains a complete description of the
conditions under which the loan is to be repaid and when it is due.
Mortgage Reduction Programs
A type
of accelerated payment program whereby payments are made more
frequently usually bi-weekly or
weekly rather than the traditional monthly payment. Making more
frequent and accelerated payments reduces the amount of principal more
quickly which interest accumulation is based on. The net effect can be
savings on the total interest paid.
Mortgagee
The lender.
Mortgagor
The borrower.
Negative
Amortization
Occurs when your monthly payments are not large enough to pay all the
interest due on the loan. This unpaid interest is added to the unpaid
balance of the loan. the danger of negative amortization is that the
home buyer ends up owing more than the original amount of the loan.
Net Effective Income
Gross income less federal income tax.
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- No
Income Documentation Loans
Often grouped together despite their subtle differences, ``light
documentation,'' ``no-income
verification'' and ``quick qualifier,'' or ``QQ'' loans are a
solution for many buyers who have
income from sources that are hard to verify. Usually these loans are
used by self-employed borrowers who have
difficulty verifying all of their income, or
by borrowers with very complex
income structures. For example, a borrower who has income primarily
from rental properties and investments may be hesitant to verify all
sources of income due to the
volumes of paperwork this would require. With a no income documentation
loan, the borrower can simply state his income on the application,
and the lender will use this
stated income to qualify the loan. Why do
lenders do this? Because they
recognize that by charging a
slightly higher rate of interest they can rely on this stated
income of the borrower and cover
the additional risk. Lenders do in fact rely on verifying
that the borrower has assets
that logically match the stated income, along with excellent
credit.
With a
higher cash down payment, typically 25% or higher, along with good
credit, these loans allow borrowers to buy into purchase prices a
lender wouldn't ordinarily qualify them for. Because no-income
documentation loans carry a higher interest rate, they should only be
used when necessary, not simply to
avoid the paperwork requirements of a full documentation
loan.
Non-Conforming
A
mortgage loan that does not conform to regulatory limits such as
loan-to-value ratio, term and other characteristics.
Non-Conforming
Loan
Conventional
home mortgages not eligible for sale and delivery to either FNMA or
FHLMC because of various reasons, including loan amount, loan
characteristics or underwriting guidelines.
Occupancy
The
use of a property as a full-time residence, either by the title holder
(owner-occupancy) or by another party through a formal agreement
(rental).
One-year
adjustable
Mortgage whose annual rate changes yearly. The rate is usually based on
movements of a published index plus a specified margin, chosen by the
lender.
Origination Fee
The fee imposed by a lender to cover the costs of preparing
loan documents, making credit checks,
inspecting and sometimes appraising property. It is usually computed as
a percentage of the face value of the loan. Refer to the Points
definition to see how this fee is reflected in the tables.
Owner
Occupied
This
means that the property is the owner’s primary residence.
PITI
(Principal, Interest, Taxes and Insurance)
The
four components that (for most homeowners) are included in the monthly
mortgage payment. Principal and interest are the portions of the
payment assigned to repay the mortgage itself; taxes and insurance are
paid by your lender into a special escrow account to pay for homeowners
insurance and property taxes.
Points
( Loan Disclosure Points)
Prepaid
interest on a mortgage that is usually paid at the time of closing.
Each point is equal to one percent of the total amount of a mortgage
(one point on an $80,000 mortgage is $800, or 1 percent of 80,000).
Most lenders offer mortgages with several combinations of points and
interest rates; generally, the lower the interest rate, the more points
you will pay at settlement.
Preliminary
Title Report
The
results of a title search by a title company prior to issuing a title
binder or commitment to insure clear title.
Prepayment
The ability to pay off the remaining balance of a loan.
Prepayment Penalty
A fee charged by lenders for paying your mortgage off early.
Principal
The amount of debt, not counting interest, left on a loan.
Processing
The
preparation of a mortgage loan application and supporting documentation
for consideration by a lender or insurer.
Private Mortgage Insurance (PMI)
In
the event that you do not have a 20 percent down payment, lenders will
allow a smaller down payment - as
low as 5 percent in some cases. With the smaller down payment loans,
however, borrowers are usually required to
carry private mortgage insurance. Private mortgage insurance
will usually require an initial premium payment and may require an
additional monthly fee depending on
you loan's structure.
PUD
(Planned Unit Development)
A
planned combination of diverse land uses, such as housing, recreation,
and shopping in one contained development or subdivision. A major
feature of a PUD includes areas of common land for use by the housing
unit owners; the association of unit owners generally owns, pays fees,
and maintains the common areas. Also see DeMinimus PUD.
Purchase
Contract (Agreement/Offer)
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.
Qualifying Ratio
The ratio of the borrowers fixed monthly expenses to his gross
monthly income. Ratios are expressed as two numbers like 28/36 where 28
would be the Front-End Ratio and 36 would be the Back-End Ratio.
The Front-End Ratio is the percentage of a borrowers gross monthly
income (before income taxes) that would cover the cost of PITI
(Mortgage Principal Payment + Mortgage Interest Payment + Property
Taxes + Homeowners Insurance). In the case of a 28% Front-End Ratio a
borrower could qualify if the proposed monthly PITI payments were 28%
or less than the borrower's gross monthly income.
The Back-End Ratio is the percentage of a borrowers gross monthly
income that would cover the cost of PITI plus any other monthly debt
payments like car or personal loans and credit card debt.
Please note that qualifying ratios are only a rough guideline in
determining a potential borrower's credit-worthiness. Many factors such
as excellent or poor credit history, amount of down payment, and size
of loan will influence the decision to approve or disapprove a
particular loan. We urge all borrowers to discuss their particular
situation with a qualified lender regardless of the outcome of any
self-qualification exercise.
Rate
Lock Option
An
agreement guaranteeing the home buyer a specified interest rate
provided the loan
Real
Assets
Real
estate or real property owned by an individual or business.
Real
Estate Owned (REO)
A
term frequently used by lending institutions as applied to ownership of
real property acquired for investment or as a result of a foreclosure.
Real
Estate Settlement Procedures Act (RESPA)
RESPA is a federal law that allows consumers to review information on
known or estimated settlement cost
once after application and once prior to or at a settlement. The law
requires lenders to furnish the information after application only.
Real
Property
Land
and that which is affixed to it.
Recording Fees
Money paid to the lender for recording a home sale with the local
authorities, thereby making it part of the public records.
Refinancing
Obtaining a new mortgage loan that pays off your existing loan thus
creating new payment and interest rate terms.
Residual Income
The amount of money left over after you have paid all of your ordinary
and necessary debts
including the mortgage. This calculation is typically used with VA
loans.
Satisfaction
of Mortgage
The
recordable instrument issued by the lender verifying full payment of a
mortgage debt
Second
Home
A
residence other than the borrower's primary residence which the
borrower intends to occupy for a portion of each year. Must be suitable
for year-round occupancy.
Second
Mortgage
A second loan on the same property or home that the first mortgage loan
is secured by.
Secondary
Mortgage Market
A
market where existing mortgages are bought and sold. It contrasts with
the primary mortgage market where mortgages are originated.
Security
In
lending, the collateral given, deposited, or pledged to secure the
payment of a debt.
Settlement Costs
See Closing Costs.
Shared Appreciation Mortgage (SAM)
A mortgage in which a borrower receives a below-market interest rate in
return for which the lender (or another investor such as a family
member or other partner) receives a portion of the future appreciation
in the value of the property. May also apply to mortgage where the
borrowers shares the monthly principal and interest payments with
another party in exchange for part of the appreciation.
Survey
The
measurement and description of land by a registered surveyor.
Title
A document that gives evidence of an individual's ownership of
property.
Title Insurance
A policy, usually issued by a title insurance company, which insures a
homebuyer against errors in the title search. The cost of the policy is
usually a function of the value of the property, and is often borne by
the purchaser and/or seller. Policies are also available to protect the
lender's interests.
Title Search
An examination of city, town, or county records to determine the legal
ownership of real estate.
Total Debt
Ratio
Monthly debt and housing payments divided by gross monthly income. Also
known as Back-End
Ratio.
Truth
in Lending Act
a
federal law requiring a disclosure of credit terms using a standard
format. This is intended to facilitate comparisons between the lending
terms of financial institutions.
Underwriting
The decision whether to make a loan to a potential home buyer based on
credit, employment, assets, and other factors and the matching of this
risk to an appropriate rate
and term or loan amount.
Variable Rate
Mortgage
See Adjustable Rate Mortgage.
Verification
of Deposit (VOD)
A document signed by the borrower's financial institution verifying the
status and balance of his/her financial accounts.
Verification of Employment (VOE)
A document signed by the borrower's employer verifying his/her position
and salary.
VA
(Department of Veterans Affairs) Mortgage -
government
insured loans guaranteed by the Department of Veterans Affairs,
requiring very low or no down payments and with generous requirements
for qualification. They are available only to veterans of the armed
services, those currently on active duty or in the reserves, and their
spouses.
Warehouse Fee
Many mortgage firms must borrow funds on a short term basis in order to
originate loans which are to be sold
later in the secondary mortgage market (or to investors). When the
prime rate of interest is higher on short term loans than on mortgage
loans, the mortgage firm has an economic loss which is offset by
charging a warehouse fee.
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Zero
Point Option
an
option which allows the borrower to not pay the points associated with
the loan origination fee. This savings is offset by a slightly higher
loan interest rate.
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