Adjustable-Rate Mortgage (ARM): Also known as a variable-rate loan, an ARM usually offers a lower initial rate than a fixed-rate loan, but your payment can go up at set times and by set amounts. The interest rate can change at a specified time, known as an adjustment period, based on a published financial index that tracks changes in the current financial market. ARMs also have caps and floors, or a maximum and minimum that the interest rate can change at each adjustment period, as well as over the life of the loan.
Amortization: Paying off a loan over a period of time and at the interest rate specified in the loan documents. The amortization of a loan includes the payment of interest and a part of the amount borrowed in each mortgage payment. For instance, on a 30-year fixed-rate mortgage, the amortization period is 30 years.
Annual Percentage Rate (APR): How much a loan costs over the loan term expressed as a rate. The APR includes the interest rate, points, broker fees and certain other credit charges a borrower is required to pay. This is not the interest rate that is used in setting your monthly payment.
Appraisal: an evaluation of a property’s value based on a given point in time that is performed by a professional appraiser during the mortgage origination process. The appraiser is usually chosen by the lender, but the appraisal is paid for by the borrower. (AKA. Appraised Value)
Appraisal Receipt Disclosure (ARD): A disclosure sent to the borrower(s) acknowledging they have received a copy of the official appraisal from the Lender.
Assets: Items of value an individual owns, such as money in checking accounts, savings accounts, retirement accounts, stocks, and bonds.
Borrower: A legal term for a person or entity that obtains funds from a business or individual for a specified period of time upon condition of promising to repay the loan.
Buyers Agent: Real estate professionals or companies that offer to buy goods or property on behalf of another party. Usually they represent the Borrower.
Collateral: Property which is used as security for a debt. In the case of a mortgage, the collateral is the house and land.
Closing Costs: The costs to complete the real estate transaction. These costs are in addition to the price of the home and are paid at closing. They include points, taxes, title insurance, financing costs… Your lender is required to provide you with the Loan Estimate and the Closing Disclosure so that you will understand your closing costs.
Closing Date: Date the Purchase Contract is signed and the borrower takes possession of the property. (AKA Note & Deed of Trust).
Closing Disclosure: A standard form required by Federal law that discloses the fees and services associated with closing your mortgage loan, as well as information about the terms of your loan. It discloses the mortgage loan amount being financed, closing fees and charges, the payment schedule, the interest rate, the annual percentage rate and any other costs associated with the mortgage loan.
Co-Borrower: Any additional borrower(s) whose name(s) appear on loan documents and whose income and credit history are used to qualify for the loan. Under this arrangement, all parties involved have an obligation to repay the loan.
Co-Signer: A term used to describe an individual who signs a loan or credit application with another person and promises to pay if the primary borrower doesn’t pay. A co-signer is different from a co-borrower in that a co-signer takes responsibility for the debt only when the borrower defaults.
Comparable: is a real estate appraisal term referring to properties with characteristics that are similar to a subject property whose value is being sought.
Credit: The ability of a person to borrow money, or buy goods by paying over time. Credit is extended based on a lender’s assessment of the person’s financial situation and ability to pay.
Credit Bureau: A company that gathers information on consumers who use credit. Lenders will ask for your permission before getting a copy of your credit report from these companies.
Credit Report: A document used by the lender to examine your use of credit. It provides information on money that you’ve borrowed from credit institutions, the amount of available credit you have in your name and your payment history. Lenders obtain credit reports from credit bureaus.
Credit Score: A computer-generated number that summarizes your credit profile and predicts the likelihood that you’ll repay future debts.
Deed in Lieu: A potential option taken by a mortgagor (a borrower) to avoid foreclosure under which the mortgagor deeds the collateral property (the home) back to the mortgagee (the lender) in exchange for the release of all obligations under the mortgage. “Title in Lieu”
Debt: Money owed by one person or institution to another person or institution.
Debt to Income: ratio (DTI) is one way lenders (including mortgage lenders) measure an individual’s ability to manage monthly payment and repay debts. DTI is calculated by dividing total recurring monthly debt by gross monthly income, and it is expressed as a percentage.
Default: Failure to fulfill a legal obligation, like paying your mortgage. A default includes failure to pay on a financial obligation, but may also be a failure to perform some action or service that is non-monetary. For example, a mortgage requires the borrower to maintain the property.
Disbursement Date: is a noun that describes the spending or distributing of money. Governments manage the disbursement of funds to various departments and groups.
Down Payment: A portion of the price of a home, paid upfront and not part of your mortgage.
Due Diligence: reasonable steps taken by a person in order to satisfy a legal requirement by a certain date, especially in buying or selling something.
Earnest Money: Funds from you to the seller, held on deposit, to show that you’re committed to buying the home. The deposit will not be refunded to you after the seller accepts your offer. It will go toward your total closing costs and any remaining amount will then go toward your down payment, unless one of the sales contract contingencies is not fulfilled.
Energy Efficient Mortgage (EEM): (or “green mortgage”) is a loan product that allows borrowers to reduce their utility bill costs by allowing them to finance the cost of incorporating energy-efficient features into a new housing purchase or the refinancing of existing housing.
Entities: A transaction where either the borrower or lender assigns an existing mortgage (bank loan to purchase a residential property) from the current holder to another person or entity.
Escrow: A deposit by a borrower to the lender of funds to pay property taxes, insurance premiums and similar expenses when they become due.
Equal Credit Opportunity Act: (ECOA) is a United States law (codified at 15 U.S.C. § 1691 et seq.), enacted in 1974, that makes it unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction, on the basis of race, color, religion, national origin, sex, marital status, or age (provided the applicant has the capacity to contract); to the fact that all or part of the applicant’s income derives from a public assistance program; or to the fact that the applicant has in good faith exercised any right under the Consumer Credit Protection Act. The law applies to any person who, in the ordinary course of business, regularly participates in a credit decision, including banks, retailers, bankcard companies, finance companies, and credit unions.
Equity: The value of your home above the total mortgage amount you owe for your home. If you owe $100,000 on your house but it is worth $130,000, you have $30,000 of equity. Your equity can fluctuate over time, based not only on your outstanding loan balance, but home price values in your local market area.
Fair Credit Reporting Act: 15 U.S.C. § 1681 (“FCRA”) is U.S. Federal Government legislation enacted to promote the accuracy, fairness, and privacy of consumer information contained in the files of consumer reporting agencies.
Fair Housing Act: A law enacted as part of civil rights legislation that prohibits discrimination of home sales, rentals and financing based on race, color, national origin, religion, sex, familial status or those with disabilities.
Fannie Mae: The Federal National Mortgage Association (FNMA), usually known as Fannie Mae, is a government-sponsored enterprise that buys loans from mortgage lenders, packages them together, and sells them as a mortgage-backed security to investors on the open market.
Fixed-Rate Mortgage: A mortgage with an interest rate that does not change during the entire term of the loan.
Foreclosure: A legal action that ends all ownership rights to a home when the homeowner fails to make a series of mortgage payments or is otherwise in default under the terms of the mortgage.
Freddie Mac: FHLMC) is a stockholder-owned, government-sponsored enterprise (GSE) chartered by Congress in 1970 to keep money flowing to mortgage lenders in support of homeownership and rental housing for middle income Americans.
Gift Fund: money that was given as a gift to borrower.
Governmental Entity: that which is closely affiliated, generally by government ownership or control, with State and local governments.
Guidelines: they are constantly changing in the Mortgage Industry. Please refer to the online resources for all updated guidelines and rules for each loan type.
Gross Income: An individual’s total personal income, before accounting for taxes or deductions.
USDA APPROVAL: also known as the Rural Development Guaranteed Housing Loan Program, is a mortgage loan offered to rural property owners.
Homeowners Insurance: A policy that protects you and the lender against losses due to fire, flood, or other acts of nature. It also offers protection against liability in the event that a visitor to your home is injured on your property.
Interest Rate: the proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding.
Investment Property: Property purchased for the purpose of renting or creating revenue from. This property Is not used as the main residence.
Liabilities: Your debts and other financial obligations.
Lien: A claim or charge on property for payment of a debt. A mortgage is a lien, meaning the lender has the right to take the title to your property if you don’t make the mortgage payments.
Loan: Money you borrow from a bank or other lender with a written promise to pay it back later. Banks and other lenders charge you fees and interest to borrow money.
Loan Estimate: A document that provides you with an estimate of the costs associated with your mortgage loan, as well as some other features of your loan. Your loan officer must provide you with a Loan Estimate within three business days of submitting the loan application.
Loan Officer: The person who takes applications for loans offered at the bank. The loan officer can answer your questions, provide written information explaining loan products and help you fill out a loan application.
Loan Originator: Loan Officer
Loan Origination Fees: Fees paid to your mortgage lender for processing the mortgage loan application. These fees are usually in the form of points. One point equals one percent of the mortgage amount. For instance on a $100,000 mortgage, one point is $1,000.
Loan Types: also known as “Products”
- CONVENTIONAL: A mortgage loan not insured by any government program, conventional loans are the most common type of mortgage. They differ from FHA loans (Federal Housing Administration Loan).
- FHA: is a mortgage issued by federally qualified lenders and insured by the Federal Housing Administration (FHA). FHA loans are designed for low-to-moderate income borrowers who are unable to make a large down payment.
- VA: Veterans Only!!
- USDA: home loan from the USDA loan program, also known as the USDA Rural Development Guaranteed Housing Loan Program, is a mortgage loan offered to rural property owners by the United States Department of Agriculture.
Lock Rate Agreement: A written agreement from your lender guaranteeing a specific mortgage interest rate for a certain amount of time.
Mortgage: A loan using your home as collateral. In some states the term mortgage is also used to describe the document you sign (to grant the lender a lien on your home). It may also be used to indicate the amount of money you borrow, with interest, to purchase your house. The amount of your mortgage is usually the purchase price of the home minus your down payment.
Mortgage Broker: A home finance professional who specializes in bringing together borrowers and lenders to facilitate real estate mortgages.
Mortgage Insurance (MI): Insurance that protects mortgage lenders against loss in the event of default by the borrower. If you make a down payment of less than twenty percent, your lender will generally require mortgage insurance.
Mortgage Insurance Premium (MIP): is an insurance policy used in FHA loans if your down payment is less than 20%. The FHA assesses either an “upfront” MIP (UFMIP) at the time of closing, or an annual MIP that is calculated every year and paid in 12 installments.
Mortgage Lender: The lender providing funds for a mortgage. Lenders also manage the credit and financial information review, the property review and mortgage loan application process through closing.
Mortgage Note: A legal document that provides evidence of your indebtedness and your formal promise to repay the mortgage loan, according to the terms you’ve agreed to. The Note also explains the consequences of failing to make your monthly mortgage payments.
Mortgage Servicer: The financial institution or entity that is responsible for collecting your mortgage loan payments.
Outstanding Judgements: a court order giving a creditor or someone who is owed money (such as money that was borrowed from a friend) the legal right to collect the debt in accordance with the laws of the state.
Patriot Act: Federal law that was designed to try and stop or detour terrorist activities. This law effects real estate transactions by requiring identification disclosure requirements from banks, lenders, mortgage brokers, and escrow agents regarding transfer of title and deposits of cash. The law also requires new disclosure and signature requirements for buyers and sellers of real estate.
Primary Residence: the property that is declared as the main residence.
Principal: The amount of money borrowed from the lender to buy your house or the amount of the mortgage loan that has not yet been repaid to the lender. This does not include the interest you will pay to borrow that money. The principal balance (sometimes called the outstanding or unpaid principal balance) is the amount owed on the loan minus the amount you repaid.
Privacy Act: enacted December 31, 1974. United States federal law, establishes a Code of Fair Information Practice that governs the collection, maintenance, use, and dissemination of personally identifiable information about individuals that is maintained in systems of records by federal agencies.
Processor: The individual who completes the initial review of a loan application after disclosures are signed.
Purchase Contract: A sales and purchase agreement (SPA) is a legal contract that obligates a buyer to buy and a seller to sell a product or service. SPAs are found in all types of businesses but are most often associated with real estate deals as a way of finalizing the interests of both parties before closing the deal.
Real Estate Professional: An individual who provides services in buying and selling homes. A real estate professional who is a member of the National Association of REALTORS® is referred to as a Realtor®.
Refinance: Finance (something) again, typically with a new loan at a lower rate of interest. The borrower may sometimes walk away with money or owe money at time of closing.
Sellers Agent: A listing agent is a real estate agent that helps homeowners sell their home. more info. to come to a final price agreed upon by the buyer and seller. The buyer’s agent is paid once the deal goes through.
Sellers Concessions: The seller will give money back to the buyer to help cover closing costs. In most cases, the seller is mainly concerned with what they are netting… meaning how much money they are actually walking away with. A Seller’s Concession is a tool to help a potential buyer qualify to purchase.
Supporting Documentation: documents that are required to submit an application for a Mortgage by the originator. These documents usually include:
- Bank Statements
- Credit Report
- Federal Tax Returns
- Government Issued ID
- Mortgage Statements (if any)
- URLA (Loan Application)
- Other docs may be necessary
Title Commitment: the title company’s promise to issue a title insurance policy for the property after closing. The title commitment contains the same terms, conditions, and exclusions that will be in the actual insurance policy.
Uniform Residential Loan Application (URLA): A standard mortgage loan application form on which you provide the lender with information required to assess your ability to repay the loan amount and to help the lender decide whether to lend you money.
Underwriting: The process that your lender uses to assess your eligibility to receive a mortgage loan. Underwriting involves the evaluation of your ability to repay the mortgage loan. This is known as the Underwriting Report. CREDIT, CAPACITY & COLLATERAL.