1
Q
Borrower (Mortgagor)
A
An individual who applies for and receives funds in the form of a loan obligated to repay the loan in full under the terms of the loan.
2
Q
Title
A
Title is the document that gives evidence of ownership of a property. Also indicates the rights of ownership and possession of the property. Individuals who will have legal ownership in the property are considered “on title” and will sign the mortgage and other documentation.
3
Q
Refinancing
A
The process of paying off one loan with the proceeds from a new loan secured by the same property.
4
Q
Escrow Company
A
An escrow company is a licensed neutral third party that distributed legal documents and funds on behalf of a buyer and seller. Or more simply stated, they are the middle man. They are the authority to make sure that the seller, lender, and borrower all follow through on their agreed upon terms. The seller doesn’t get any less than what they agreed upon and buyer doesn’t pay any more than what they agreed upon. The same goes between the borrower and the bank. The bank agreed to only charge the borrower ‘x’ fees and escrow makes sure of that. Escrow is the neutral third party to make sure everyone behaves. Their role is to keep track of what is going on between the borrower and the lender and the title company. Escrow keeps records of what is going on between all the parties.
5
Q
Escrow Agent
A
A person with fiduciary responsibility to the buyer and seller, or borrower and lender, to ensure that the terms of the purchase/sale or loan are carried out.
6
Q
Title Company
A
The title company makes sure that a piece of real estate is legitimate, then issues title insurance for that property that protects both the lender and the owner from lawsuits as a result of title disputes. Their main responsibilities in a mortgage transaction is to accurately record liens, lien holders and ownership to the property in the transaction. The title company’s role is to be in charge of anything that is being recorded against the property. Lastly, their job is to make sure all the liens, ownership and lien holders are recorded with the county the property resides in.
7
Q
Title Insurance
A
Title insurance protects a lender against any title disputes that may reside over a particular property. It is required to close on your home. You may also purchase owner’s title insurance which protects you as the homeowners.
8
Q
Lender
A
The lender is the bank that is lending the money. The lender has the biggest role in the process, because without them lending the money, there would be no need for a title or escrow company. This is the reason why the majority of the documents in your loan signings are lender documents.
9
Q
Deed of Trust and Rider
A
The deed of trust, also known as the mortgage in some states, has 5 main functions:
- It records who actually owns the property: e.g. Jane Doe and John Doe, husband and wife as joint tenants
- It records the amount the borrower is borrowing from the bank, also known as the lien amount.
- It records who is lending the money, also known as the lien holder.
- It records the legal description of the property. We all know the street address to a property. The legal description is how the county recognize the property location via the lot boundaries and lot location within the county.
- Last but not least, it states the rules and regulations in which the property owner has to abide by.
Riders are simply amendments to the deed of trust. Something the lender wants to add to the deed. As an example, you may see a VA rider letting everyone know that it is a VA loan. Riders are just amendments that get recorded with the deed. Examples would be condo riders, adjustable rate riders, or PUD riders.
10
Q
Principal
A
The amount of debt, not counting interest, left on a loan.
11
Q
Note
A
The note is a fancy way of saying contract. The bank note is where the borrower agrees to the terms of the loan. For example, the note would specify that the borrower is borrowing $300,000 at a 4% interest rate, and will have a certain fixed payment for 30 years.
12
Q
Interest Rate
A
The interest rate is what the borrower agrees to pay back the bank on the money that is borrowed.
13
Q
Loan to Value
A
How much you owe versus the value (appraised value or sale price, whichever is lower) of the home. For example, if your house is worth 200K and you owe 100K, your loan value is 50%. The higher the loan value, the higher the perceived risk.
14
Q
Fix Rate Note
A
This means the interest rates will not change for the duration of the loan. The longer the term, the higher the interest rate.
15
Q
Adjustable Rate Mortgage Loans
A
Unlike a fixed rate mortgage, an adjustable rate loan’s interest rate will change, often after a set amount of years of fixed payments. The payment may be low initially because it is based on payment that is 30 years but the rate will change/adjust after “x” years. The most common adjustable rate terms are 3, 5, 7, or 10 years. After the fixed term is up, the interest rate will change on a yearly basis until it is completely payed off. Hence why they are called 5/1, 7/1, or 10/1. After the term is up, the rate will change via an index (usually the treasury bill or the LIBOR) plus a margin that is set by the lender. The margin never changes but the index will go up or down with the libor or treasury note. For example if the index is 3% and the margin is 3% the rate for that year would be 6%.
16
Q
Home Equity Line of Credit (HELOC)
A
A home equity line of credit is a line of credit that is tied to the equity of your house. For instance, the home is worth $500,000 and there is a first loan for $200,000, this means there is $300,000 of equity. In this example, a bank may approve the borrower for a line of credit for $100,000.
Unlike a loan that has a specific payoff term (15, 20, or 30 years), the line of credit works like a credit card. The borrower only pays back the amount that is actually borrowed.
17
Q
Reverse Mortgage
A
A reverse mortgage enables older homeowners (62+) to convert part of their equity in their homes into tax-free income without having to sell the home, give up title, or take on a new monthly mortgage payment. The reverse mortgage is aptly named because the payment stream is reversed. Instead of making monthly payments to a lender, as with a regular mortgage, a lender makes payments to you based off equity you have in the home.
18
Q
Discount Points/Buy Down
A
Points are an up-front fee paid to the lender at the time that you get your loan to lower the interest rate you qualified for. You can literally buy down an interest rate. For example you qualify for a 5% rate on a 30 year fixed mortgage. You can pay the bank an agreed upon price to get 4.5%. This is why they call it buying down the rate.
19
Q
Default
A
Lenders only lend on a house if they have the right to take the house from the borrower if the borrower fails to pay back the loan on the terms that were agreed upon. Banks usually give you 30 days past your due date before they consider you in default of your loan. Default means the borrower has not lived up to the agreed upon terms.
20
Q
Foreclosure
A
The process initiated by the lender when the borrower has not made the agreed upon repayments. The bank can take the property away from the borrower. The lender will then own the property. Most lenders start the foreclosure process after 3 consecutive missed payments.
21
Q
Lien
A
A form of security interest granted over a property to secure the payment of a debt. Anyone can put a lien against a property as long as they have the owners’ consent. In term of mortgages, when the bank lends money to a borrower, they guarantee repayment by recording a lien against the property. The lien recorded equals what they have lent the borrower. If the borrower fails to live up to the agreed upon repayment terms, the lender has the right to sell the property and recoup the lien amount.
22
Q
Property Tax
A
Taxes that are due to the county where the property resides. Usually due twice a year.
23
Q
Impound Account/Escrow Account
A
An account established to collect property tax and hazard/fire insurance on the property. Sometimes required by the lender as a term of the loan. The impound account and escrow account are the same thing. As the taxes and insurance come due, the lender will make the payments for the borrower. Not all borrowers are required to have an impound account, but they may prefer it.
24
Q
Amortization
A
Repayment of a loan with periodic payments of both principal and interest calculated to pay off the loan at the end of a fixed period of time.
25
Hazard Insurance
Protects the insured against loss due to fire or other natural disaster in exchange for a premium paid to the insurer.
26
PITI
Abbreviation for Principal, Interest, Taxes and Insurance; the components of a monthly mortgage payment.
27
FHA Loans
Fixed- or adjustable-rate loans insured by the U.S. Department of Housing and Urban Development. FHA loans are designed to make housing more affordable, particularly for first-time home buyers. FHA loans typically permit borrowers to buy a home with a lower down payment than conventional loans. With FHA insurance, eligible buyers can purchase a home with a down payment of as little as 3% of the appraised value or the purchase price, whichever is lower.
28
VA Loan
Fixed-rate loans guaranteed by the U.S. Department of Veterans Affairs. They are designed to make housing affordable for eligible U.S. veterans. VA loans are available to veterans, reservists, active-duty personnel, and surviving spouses of veterans with 100% entitlement. Eligible veterans may be able to purchase a home with no down payment, no cash reserve, no application fee, and lower closing costs than other financing options.
29
Escrow Instructions
Document that describes escrow's role and responsibility during the transaction to the borrower.
30
Escrow Amendment
Describes any changes made to the original escrow instructions.
31
Closing Statement
Document that brings together all of escrow, title and the lender's fees for the borrower to see and approve. Escrow creates the closing statement.
32
Insurance Information Sheet
Document where the borrower lets escrow know what insurance company they use. Incudes insurance company name, policy # and the insurance agent's name and phone number.
33
Disbursement of Proceeds
Document that informs escrow how the borrower wants to receive funds that may be due after closing.
34
Borrower Information Sheet
Document that gives escrow all the information they need to open escrow. The current payoff, whom they owe and how much, any private liens, HOA info and/or insurance information.
35
Payoff Demand/Payoff Statement
Document that shows what the borrower owes their current lender. Escrow is responsible for ordering the demand statement from the current lender. They then present it to the borrower for approval to pay off the amount stated.
36
Statement of Information (S.I.)
An application for title insurance.
37
Grant Deed/Quitclaim Deed
Document that changes the way property title is held. Could be from a seller to a buyer, or an owner changing the way they currently hold title. For instance, an owner got married and is adding their spouse to the property or an owner is putting their house in a trust.
38
Trust Certification
Document that proves that a borrower has an established valid trust, in lieu of actually providing the whole entire trust (which at times could exceed 100 pages). If the property is held in a trust in any matter, a trust certification has to be filled out.
39
P.C.O.R
Stands for Preliminary Change of Ownership Report. This helps the county understand what is going on with the grant deed or quitclaim deed. For example, if there is a transfer between spouses because of a removal from a trust, a PCOR would be filled out to help define that. A PCOR only gets filled out if there is a grant deed or quitclaim deed.
40
Subordination Agreement
Document stating that the loans in the subordinate position stay in the same lien position even though the lien above them has been paid off. This allows is a new lien holder to go into the empty 1st position. As an example, if someone refinances a first but there is also a second on the property, the new lender will only approve the loan if their loan will goes in the first lien position.
41
Lien Position
When a lien is recorded, its position of importance is noted on the title. If a lien is recorded in the first position, it is the first to be paid off. Most mortgages are first liens. If something happens to the property, the lien recorded in the first position gets paid first. There can be a number of lien positions (1st, 2nd, 3rd, etc.). As liens are paid off, the lien that was in the next position moves into the lien position that had been vacated.
42
Hazard Insurance
The borrower's homeowners' insurance. Covers anything that may happen to the residence like a fire, flood or anything can happen to the structure of the house. Banks won't lend against a residence that is not insured.
43
Power of Attorney
Also known as an Attorney in Fact; when someone gives another person authority to sign on their behalf. For instance, a spouse who is in the military and is deployed might give their spouse power of attorney to sign loan docs on their behalf.
44
Purchase Contract
The contract between the buyer and seller on the terms of the sale.
45
Receipt/Proof of Deposit
Proof of a monetary deposit required to open escrow. It shows the seller that the buyer is serious about buying the property.
46
Payoff (Purchase)
The payoff in a purchase transaction is the same as payoff for a refinance. It shows how much is owed on a current mortgage; however, the reason why it is ordered is slightly different. In a purchase, the payoff is ordered to show what the seller owes on the house that they are selling. The buyer never sees the payoff; it is acknowledged by the seller, approving that they want escrow to pay off the balance owed on the property.
47
Termite Report
A report that tells the homeowner and the lender if there are any termites found on the property. If there is, usually a termite clearance is needed to show that the problem areas have been addressed.
48
Lender's Instructions/Closing Instructions
Instructions to the escrow and title companies from the lender on exactly how the lender wants their loan closed. The borrower and the escrow officer usually sign the instructions acknowledging them.
49
1003 Loan Application
Usually referred to as the "ten-oh-three." A loan application within the mortgage industry.
50
Notice of Right to Cancel
In a refinance transaction on a primary residence, the borrower gets three business days (not including Sundays and some holidays) from the day they sign loan documents to cancel the loan if they want. This is a law and cannot be waived.
51
Closing Disclosure/CD
Document that replaces what used to be called the truth in lending form. Informs the borrower about everything pertinent about the loan; all costs associated with the transaction, just like the closing statement. The lender must disclose everything about the loan so the borrower has a concise look at what they are getting in to. This form is a little redundant as it has information found on different forms throughout the loan documents.
52
4506
The borrower signs this form to give permission to lender to request and receive a copy of the borrower's taxes that are filed with the IRS.
53
Occupancy Affidavit
This tells the lender whether the property being bought or refinanced is a primary residence, second home or investment property.
54
California Domestic Partnership Addendum to Uniform Residential Loan Application
Document informing the lender that the borrower does or does not have a domestic partner. Some states recognize a domestic partnership as if two people are married.
55
Borrower Certification and Authorization
This form gives permission to the lender to confirm employment, and have the borrower's assets, credit report and financial records in their possession.
56
Hazard insurance Authorization and Requirements
Properties with mortgages must have hazard insurance. This form also allows the lender to be the loss payee.
57
W-9
Required document in order for the borrower to deduct interest paid on their mortgage loan.
58
Acknowledgment of Receipt of Appraisal Report
If there was an appraisal completed the borrower has the right to a copy. By signing this form, the borrower confirms that they have a copy.
59
Compliance Agreement
This document informs the borrower that if anything else needs to be signed before the loan funds, the borrower will comply with any requests.
60
Consumer Credit Score Disclosure
Document that gives the borrower their credit score, and discloses that the borrower has the right to know their credit score.
61
The Housing Financial Discrimination Act of 1977 Fair Lending Notice
This document says the borrower was not discriminated against.
62
Hazard Insurance Disclosure
The max amount of insurance coverage the lender can require to borrower to have is replacement cost of the house. Not the appraised value.
63
California Impound Disclosure/Waiver
This document states whether the borrower has to have an impound/escrow account or if they request to have one, or decline to have one.
64
California per Diem Interest Disclosure
The borrower has to pay interest the day the loan funds. This page tells the borrower how much interest they will pay per day(per diem). The day the new loan funds the borrower is responsible to pay interest. You may notice two boxes; one needs to be checked. It's because sometimes there is overlapping interest. In a refinance, if the new loan funds on a Friday, the borrower starts paying interest on the new loan. However, if the old loan will not be paid off until Monday, the borrower has to pay interest on two loans. In this case, the borrower may want to check the box that states they do not want the new loan to fund until after a weekend or holiday so this situation never arises. In a purchase, the problem arises if the loan funds on a Friday but the house doesn't record (meaning the borrower doesn't get the keys) until Monday. They would be paying interest on house they don't even own. Once again they may want to check the box that says they don't want to fund the loan until after a weekend or holiday to prevent this. The other box states that they don't care when the loan funds and they understand they will start paying interest immediately.
65
Signature Affidavit AKA Statement
The borrower signs this confirming their signature is their signature. This is why their signature needs to be consistent. The lender uses this page to cross reference all signatures on the other docs to make sure no one forged the borrower's signatures. All names found on the borrower's credit report will go on the AKA section of this form. The lender is letting them know the names that came up on their credit report. The borrower signs the aka line exactly as their name appears to confirm that they have gone by this name before. If the AKA is not them, instead of signing the wrong name they print "not known as."
66
Contact Verification Form
The borrower confirms all contact information the lender has for them is correct; mailing address, phone numbers, etc.
67
Counseling Checklist for Military Home Buyers
VA document informing the veteran that if they miss any payments, home counseling may be required. Essentially the counseling is letting them know how bad foreclosure is and they should not miss more payments.
68
U.S.A. Patriot Act
This document is where the notary signing agent records for the lender the ID information used to identify the borrower.
69
Federal Equal Credit Opportunity Act Notice
This document lets the borrower know that their credit score was a determining factor on their approval. Also, that the lender can discriminate based on credit score. Bad credit equals a higher interest rate.
70
Flood Insurance Coverage Subject to Change Disclosure
Flood zones are constantly being updated all over the country. The lender is letting the borrower know that if the property is ever rezoned as a flood zone they will be required to have flood insurance.
71
Initial Escrow Account Disclosure Statement
This form shows how the impound account will look over the next 12 months. It shows the balance every month for the next 12 months, when the lender will make the tax and insurance payments, and how much will be paid.
72
Mailing Address Certification
Not all borrowers want the mortgage statement (the bill) sent to the property address. This form lets the lender know exactly where the borrower prefers the mortgage statement to be sent.
73
Notice Concerning the Furnishing of Negative Information to the Consumer Reporting Agency
This form states if the borrower misses a mortgage payment, it will be reported and it will negatively affect their credit score.
74
Notice to VA Loan Borrowers
Document informing the veteran that their VA loan is assumable.
75
Payment Letter to Borrower
This document is two different forms for most lenders. First and foremost it tells the borrower what their full payment is, including their impound account, if they have one. This form also doubles as their first payment coupon in the rare case that the lender forgets to send the bill to the borrower. There is an an address indicating where to send the first payment.
76
Payoff Schedule/Amortization Table
This shows every payment for the duration of the loan. Breaking down every payment into what amount goes toward principal and what amount goes to interest.
77
Quality Control Release and Authorization to Re-verify
This lets the borrower know there may be a survey asking how the loan officer did. This is how the lender does quality control.
78
Federal Collection Policy Notice
This lets the borrower know how the lender will or will not share their information.
79
Acceleration Clause
A common provision of a mortgage or note providing the holder with the right to demand that the entire balance is immediately due and usually payable in the event of default.
80
Adjustment Interval
The length of time between changes in the interest rate or monthly payment on an ARM loan.
81
Agreement of Sale
Contract signed by buyer and seller stating the terms and conditions under which a property will be sold.
82
Alternative Documentation
A method of documenting a loan file that relies on information that the borrower is likely to be able to provide instead of waiting on verification sent to third parties for confirmation of statements made in the application.
83
Amount Financed
This figure is used to calculate the borrower's APR. It represents the loan amount minus any prepaid finance charges and assumes the borrower will keep the loan to maturity and make only the required monthly payments.
84
Annual Percentage Rate (APR)
There are two interest rates applied to a loan: the Actual Interest Rate and the Annual Percentage Rate. The Actual Rate is the annual interest rate the borrower pays on the loan (sometimes referred to as the "note rate"), and is the rate used to calculate monthly payments. The amount of interest paid, as determined by the Actual Rate, is only one of the costs associated with the loan; there may be others. The Annual Percentage Rate (APR) includes both the interest and any additional costs or prepaid finance charges the borrower might pay, such as prepaid interest, private mortgage insurance, closing fees, points, etc. The APR represents the total cost of credit on a yearly basis after all charges are taken into consideration. It will usually be slightly higher than the Actual Rate because it includes these additional items and assumes the borrower will keep the loan to maturity.
85
Application Fee
Fee charged by a lender to cover the initial costs of processing a loan application. The fee may include the cost of obtaining a property appraisal, a credit report, and a lock-in fee or other closing costs incurred during the process, or the fee may be in addition to these charges.
86
Appraisal
A written analysis of the estimated value of a property. A qualified appraiser who has knowledge, experience and insight into the marketplace prepares the document. It demonstrates approximate fair market value based on recent sales in the neighborhood and is required to purchase or refinance a new home or property.
87
Appraisal Fee
A fee charged by a licensed, certified appraiser to render an opinion of market value as of a specific date. This fee is paid to the outside appraisal company to objectively determine the fair market value of a property. This fee varies based on the location and type of property.
88
Assessed Value
The valuation placed upon a property by a public tax assessor for the purposes of taxation.
89
Assignment
The transfer of ownership, rights, or interests in property by one person, the assignor, to another, the assignee.
90
Assignment Recording Fee
In many instances, after closing, the lender transfers a loan to a specialized loan "servicer" who handles the collection of monthly payments. The Assignment Fee covers the cost of recording this transfer at the local recording office.
91
Assumption
A method of selling real estate where the buyer of the property agrees to become responsible for the repayment of an existing loan on the property. VA loans usually allow another party to assume the loan.
92
Ballon Mortgage
Short-term, fixed-rate loans, with fixed monthly payments for a set number of years followed by one large final balloon payment for the entire remainder of the principal. The balloon payment may be due at the end of five, seven, or ten years. Borrowers with balloon loans may have the right to refinance the loan when the balloon payment is due, but the right to refinance is not guaranteed.
93
Bankruptcy
A proceeding in a federal court to relieve certain debts of a person or a business unable to pay its debts.
94
Beneficiary
A person named to receive a benefit from a trust. A contingent beneficiary has conditions attached to his rights, usually someone else must die first.
95
Bequest
A gift of personal property by will.
96
Blanket Mortgage
A mortgage that covers more than one parcel of real estate.
97
Broker
An individual who brings buyers and sellers together and assists in negotiating contracts for a client.
98
Broker Processing Fee
The fee charged to the borrower to have their file packaged and handed over to a selected lender. (There is no broker involved in Quicken Loans transactions; the borrower deals with Quicken Loans from start to finish.)
99
Buy-Down
When the lender and/or the home builder subsidizes the mortgage by lowering the interest rate during the first few years of the loan. While the payments are initially low, they will increase when the subsidy expires.
100
Buyer’s Market
Market conditions that favor buyers. With more sellers than buyers in the market, sellers may be forced to make substantial price concessions.
101
Caps (interest)
Safeguards that limit the amount the interest rate on an adjustable rate mortgage can change in an adjustment interval and/or over the life of the loan. For example, if a per-period cap is 1% and the current rate is 7%, then the newly adjusted rate must fall between 6% and 8% regardless of actual changes in the index.
102
Caps (payment)
Consumer safeguards that limit the amount monthly payments on an adjustable rate mortgage may change. Since they do not limit the amount of interest the lender is earning, these consumer safeguards may cause negative amortization.
103
Cash Out
Any cash received when the borrower gets a new loan that is above the remaining balance of the current mortgage, based upon the equity built up in the property. The cash out amount is calculated by subtracting the sum of the old loan and fees from the new mortgage loan. For example, if the existing loan is $100,000, the borrower might refinance it with a loan of $120,000. After the current loan is paid off ($100,000) and any loan-origination costs for the new loan are paid (for example $2,000 in points), the borrower would be left with $18,000 cash out. Cash-out loans may not be available for all types of property.
104
Cash Reserve
A requirement of many lenders that the borrower have sufficient cash remaining after closing to make the first two mortgage payments
105
Cashier’s Check (or Bank Check)
A check whose payment is guaranteed because it was paid for in advance and is drawn on the bank's account instead of the customer's.
106
Ceiling
The maximum allowable interest rate of an adjustable rate mortgage.
107
Certificate of Eligibility
Document issued by the Veterans Administration to qualified veterans and that verifies a veteran's eligibility for a VA guaranteed loan.
108
Certificate of Reasonable Value (CRV)
An appraisal issued by the Veterans Administration showing the property's current market value.
109
Certificate of Title
Written opinion of the status of title to a property, given by an attorney or title company. This certificate does not offer the protection given by title insurance.
110
Certificate of Veteran Status
FHA form filled out by the VA to establish a borrower's eligibility for an FHA Vet loan.
111
Chain of Title
The chronological order of conveyance of a property from the original owner to the present owner.
112
Clear Title
A title that is free of liens and legal questions as to ownership of the property.
113
Closing (or Settlement)
The conclusion of a real estate transaction. It includes the delivery of the security instrument, signing of legal documents and the disbursement of the funds necessary to the sale of the property or loan transaction (refinance).
114
Closing Costs
Also known as settlement costs; costs for services that must be performed to process and close a loan application. Examples include title fees, recording fees, appraisal fee, credit report fee, pest inspection, attorney's fees, taxes, and surveying fees.
115
Collateral
Assets (such as a property) pledged as security for a debt.
116
Commission
Money paid to a real estate agent or broker for negotiating a real estate or loan transaction.
117
Commitment
A promise to lend and a statement by the lender of the terms and conditions under which a loan is made.
118
Comparables
An abbreviation for "comparable properties;" used for comparative purposes in the appraisal process. Comps are properties like the property under consideration; they have reasonably the same size, location, and amenities and have recently been sold. Comps help the appraiser determine the approximate fair market value of the subject property.
119
Compound Interest
Interest which is calculated not only on the initial principal but also the accumulated interest of prior periods.
120
Comparative Market Analysis
An informal estimate of market value that a real estate agent or broker calculates based on sales of comparable properties. An appraisal or a comparative market analysis are the most accurate ways to determine what your home is worth.
121
Condominium
A real estate project in which each unit owner holds title to a unit in a building, an undivided interest in the common areas of the project, and sometimes the exclusive use of certain limited common areas. The condominium may be attached or detached. The homeowners association dues are included in the total monthly mortgage payment for qualifying purposes.
122
Confirming Loan
A mortgage loan that meets all requirements to be eligible for purchase by federal agencies such as Fannie Mae and Freddie Mac.
123
Consumer Reporting Agency
A company that regularly gathers, files and sells information to creditors to facilitate their decisions to extend credit.
124
Construction Loan
A short term interim loan for financing the cost of construction. The lender advances funds to the builder at periodic intervals as the work progresses.
125
Contingency
A condition that must be satisfied before a contract is legally binding.
126
Contract of Sale
The agreement between the buyer and seller on the purchase price, terms and conditions of a sale.
127
Conventional Loan
Loans that are not made under any government housing program; they are not subject to the restrictions of government housing programs, such as loan size limits.
128
Conversion Clause
A provision in some ARMs that allows you to change an ARM to a fixed-rate loan, usually after the first adjustment period. The new fixed rate will be set at current rates, and there may be a charge for the conversion feature.
129
Convertible ARMs
A type of ARM loan with the option to convert to a fixed-rate loan during a given time period.
130
Conveyance
The document used to affect a transfer, such as a deed, or mortgage.
131
Covenant
A written agreement or restriction on the use of land or promising certain acts. Homeowner Associations often enforce restrictive covenants governing architectural controls and maintenance responsibilities. However, land could be subject to restrictive covenants even if there is no homeowner's association.
132
Credit Bureau
A credit bureau is a clearinghouse for credit history information. Credit grantors provide the bureau with factual information on how their credit customers pay their bills. The bureau regularly assembles this information, along with public record information obtained from courthouses around the country, into a "file" on each consumer.
133
Credit Report
A report detailing the credit history of a prospective borrower that's used to help determine borrower creditworthiness.
134
Credit Score
A statistical method of assessing an individual's creditworthiness. Uses credit card history; amount of outstanding debt; the type of credit used; negative information such as bankruptcies or late payments; collection accounts and judgments; too little credit history and too many credit lines with the maximum amount borrowed in credit-scoring models to determine the credit score.
135
Debt-to-Income Ratio
The ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on long-term debts is divided by his or her net effective income (FHA/VA loans) or gross monthly income (conventional loans).
136
Deed
Legal document with which title to real property is transferred from one owner to another. The deed contains a description of the property, and is signed, witnessed, and delivered to the buyer at closing.
137
Deed of Trust
A legal document that conveys title to real property to a third party. The third party holds title until the owner of the property has repaid the debt in full.
138
Down Payment
The amount of a home's purchase price needed to supply up front in cash to secure a loan. For conventional loans, borrowers should strive for a down payment that's at least 20% of the home's value, since lenders generally do not require private mortgage insurance with a down payment of at least 20% of the home's purchase price. (Note, however, that FHA and VA loans have different policies regarding insurance.)
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Due-on-Sale Clause
Provision in a mortgage or deed of trust allowing the lender to demand immediate payment of the loan balance upon sale of the property.
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Duplex
Owner-occupied property for more than one family.
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Earnest Money
Deposit made by a buyer towards the down payment in evidence of good faith when the purchase agreement is signed.
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Equifax
One of the three largest credit bureaus in the United States.
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Equal Credit Opportunity Act (ECOA)
Federal law requiring 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
The difference between the current market value of a property and the total debt obligations against the property. On a new mortgage loan, the down payment represents the equity in the property.
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Estimated Closing Fees
An estimate of the fees that must be paid on or before the closing date by the buyer and/or seller for services, taxes and items necessary to obtain a mortgage. These fees will average between 2% and 5% of the loan amount and vary by lender, property location, and type of mortgage.
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Experian
One of the three largest credit bureaus in the United States.
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Fair, Issac and Company
The company that invented credit-scoring software (FICO).
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Fannie Mae
This agency buys loans that are underwritten to its specific guidelines. These guidelines are an industry standard for residential conventional lending.
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Federal Deposit Insurance Corporation (FDIC)
Independent deposit insurance agency created by Congress to maintain stability and public confidence in the nation's banking system.
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Federal Housing Administration (FHA)
A federal agency within the Department of Housing and Urban Development (HUD), which insures residential mortgage loans made by private lenders and sets standards for underwriting mortgage loans.
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Fee Simple
Absolute ownership of real property.
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Federal Reserve Board
The 7-member Board of Governors that oversees Federal Reserve Banks, establishes monetary policy (interest rates, credit, etc.), and monitors the economic health of the country. Its members are appointed by the President subject to Senate confirmation, and serve 14-year terms. also called the Fed
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FICO
The most common credit-scoring model used by lenders, it is also known as a Fair, Isaac score. A FICO score can range from 200 to 900. According to this model, the higher an individual's score, the less likely they are to default on a loan.
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Filing Fees
The amount charged by public officials in your area for recording your mortgage and other documents.
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Finance Charge
The total of all the interest a borrower would pay over the entire life of the loan, assuming they kept the loan to maturity, as well as all prepaid finance charges. If the borrower pre-pays any principal during the loan, the monthly payments remain the same, but the total finance charge will be reduced.
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First Mortgage
A mortgage that is in first lien position, taking priority over all other liens. In the case of a foreclosure, the first mortgage will be repaid before any other mortgages.
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Float
Until a borrower requests to secure a lender's quoted interest rate, the interest rate will continue to change, or float, due to market fluctuations. Locking or securing a rate protects the borrower from these potential fluctuations from the time the lock is confirmed to the day the lock period expires. A borrower may choose to float the rate up until the time the lender contacts them to schedule the closing. At this time, an interest rate must be secured in order to prepare the closing documents.
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Flood Insurance
Insurance that compensates for physical damage to a property by flood. Typically not covered under standard hazard insurance.
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Flood Life of Loan Coverage
Flood zone determinations may change from time to time. The "Life of Loan Coverage" fee allows the lender to track any changes in a property's flood zone status over the life of the loan.
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Forbearance
The act by the lender of refraining from taking legal action on a mortgage loan that is delinquent.
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Good Faith Estimate
Written estimate of the settlement costs the borrower will likely have to pay at closing. Under the Real Estate Settlement Procedures Act (RESPA), tThe lender is required to provide this disclosure to the borrower within three days of receiving a loan application.
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Grace Period
Period of time during which a loan payment may be made after its due date without incurring a late penalty. The grace period is specified as part of the terms of the loan in the Note.
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Guideline Ratios
There are two guideline ratios used to qualify a borrower for a mortgage. The first is called the front-end ratio, or top ratio, and is calculated by dividing the new total monthly mortgage payment by the gross monthly income. Typically, this ratio should not exceed 28%. The second is called the back-end, or bottom ratio, and is equal to the new total monthly mortgage payment plus the total monthly debt divided by the gross monthly income. Typically, this ratio should not exceed 36%.
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Homeowners Insurance
Required by all lenders to protect their investment, and must be obtained before closing. In most cases, coverage must be equal to the loan balance, or the value of the home.
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Index
A widely published rate such as LIBOR, T-Bill, or 11th District Cost of Funds (COFI). Lenders use these indices to establish the interest rates charged on mortgage loans. For ARMs, a predetermined margin is added to the index to compute the interest rate adjustment.
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Initial Cap
Consumer safeguard that limits the amount the interest rate on an adjustable rate mortgage can change during the first adjustment period.
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Initial Rate
The rate charged during the first interval of an ARM loan.
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Insurance
The type of insurance(s) required for your loan. Private mortgage insurance may also be required in addition to what is indicated.
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Interest
Charge paid for borrowing money.
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Interest Rate
The annual rate of interest on the loan, expressed as a percentage of 100.
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Interest Rate Cap
Consumer safeguards that limit the amount the interest rate on an ARM loan can change in an adjustment interval and/or over the life of the loan. For example, if a per-period cap is 1% and the current rate is 7%, then the newly adjusted rate must fall between 6% and 8% regardless of actual changes in the index.
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Interest Rate Disclosure
A description of the conditions applicable to the processing of a loan as well as the terms of the interest rate agreement.
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Joint Liability
Liability shared among two or more people, each of whom is liable for the full debt.
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Joint Tenancy
A form of ownership of property giving each person equal interest in the property, including rights of survivorship.
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Jumbo Loan
A mortgage larger than the limits set by Fannie Mae and Freddie Mac.
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Junior Mortgage
A mortgage subordinate to the claim of a prior lien or mortgage. In the case of a foreclosure, a senior mortgage or lien will be paid first.
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Late Charge
Penalty paid by a borrower when a payment is made after the due date.
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Lender
The bank, mortgage company or mortgage broker offering the loan.
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Lender Fees
Lender fees are fees paid to the lender.
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Lender Processing Fee
A fee covering the cost of analyzing a loan application and compiling and packaging the necessary supporting documentation to close a loan.
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LIBOR (London Interbank Offered Rate)
The interest rate charged among banks in the foreign market for short-term loans to one another; a common index for ARM loans.
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Lien
A legal claim by one person on the property of another for security for payment of a debt.
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Lifetime (or Overall) Cap
Consumer safeguard that limits the amount the interest rate on an adjustable rate mortgage loan (ARM) can change over the life of the loan.
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Loan Application
An initial statement of personal and financial information required to apply for a loan.
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Loan Origination Fee
Fee charged by lender to cover administrative costs of processing a loan.
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Loan Term
The period of time between the closing date and the date the last payment is paid.
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Lock or Lock In
A lender's guarantee of an interest rate for a set period of time-usually between loan application approval and loan closing. The lock-in protects the borrower against rate increases during that time.
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Manufactured Home
A factory assembled residence built in units or sections that are transported to a permanent site and erected on a foundation.
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Margin
The percentage difference between the index for a particular loan and the interest rate charged. This is a number predetermined by the lender.
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Maximum Cash Out
The maximum amount of money a borrower is allowed to get back from the mortgage transaction based on the loan information provided and the amount of equity in the home.
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Monthly Mortgage Payment
Typically contains four parts called the PITI (principal, interest, taxes, and insurance). If the borrower pays their taxes and insurance on their own, they pay only principal and interest to the lender.
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Monthly Principal and Interest (P and I) Payment
Principal and interest is the dollar portion to repay the loan. All interest that occurs is calculated on the current balance owing. The principal reduces the remaining balance of a mortgage.
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Mortgage
A legal document by which real property is pledged as security for the repayment of a loan.
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Mortgage Banker
An individual or company that originates and/or services mortgage loans. Usually works directly for the bank. For instance, a mortgage officer who works for wells fargo and in turn only sells wells fargo mortgage products.
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Mortgage Broker
An individual or company that arranges financing for borrowers that represents a number of lenders. A mortgage broker can sell Bank of America, wells fargo and chase mortgage products. They act as broker between the bank and the borrower. They are not limited to only one loan product like a banker.
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Mortgage Insurance
Insurance to protect the lender in case of default on a loan. With conventional loans, mortgage insurance is generally not required if there is a down payment of at least 20% of the home's appraised value. (Note, however, that FHA and VA loans have different insurance guidelines.)
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Mortgage Term
The length of time given to repay the loan.
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Mortgagee
The lender in a mortgage loan transaction.
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Mortgagor
The borrower in a mortgage loan transaction.
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Negative Amortization
A loan payment schedule in which the outstanding principal balance of a loan goes up rather than down because the payments do not cover the full amount of interest due. The monthly shortfall in payment is added to the unpaid principal balance of the loan.
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Non-Assumption Clause
A statement in a mortgage contract forbidding the assumption of the mortgage by another borrower without the prior approval of the lender.
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Payment Schedule
Indicates what the required monthly payment will be throughout the life of the loan. The payment schedule for VA, FHA, one-time MIP and uninsured conventional loans should also indicate a fixed monthly payment. The payment schedule for fixed-rate insured loans may gradually decrease over time due to a declining insurance premium. For adjustable rate loans, the payment schedules will vary by loan type and are based on conservative assumptions of future interest rates.
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Per Diem Interest
Interest calculated per day. (Depending on the day of the month on which closing takes place, the borrower will have to pay interest from the date of closing to the end of the month. The first mortgage payment will probably be due the first day of the following month.)
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Planned Unit Development (PUD)
A project or subdivision that consists of common property and improvements that are owned and maintained by an owner's association for the benefit and use of the individual units within the project. For a project to qualify as a PUD, the owners' association must require automatic, non-severable membership for each individual unit owner, and provide for mandatory assessments.
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Pre-approval
The process of determining how much money a prospective homebuyer or refinancer will be eligible to borrow prior to application for a loan. A pre-approval includes a preliminary screening of a borrower's credit history. Information submitted during pre-approval is subject to verification at application.
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Prepaid Expenses
Taxes, insurance and assessments paid in advance of their due dates. These expenses are included at closing.
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Prepaid Interest
Interest that is paid in advance of when it is due. Typically charged to a borrower at closing to cover interest on the loan between the closing date and the first payment date.
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Prepayment
Full or partial repayment of the principal before the contractual due date.
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Prepayment Penalty
A prepayment penalty is a fee that is charged if the loan is paid off earlier than the specified term of the loan. Depending on the loan program and applicable state law, the borrower may or may not incur a prepayment penalty.
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Property Taxes
The taxes assessed on the property by the local government (e.g. city, county, village or township) for the various services provided to the property owner. Such services may include police and fire department services, garbage pick up and snow removal.
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Real Financing Cost
The real financing cost is a consumer-oriented rate that takes into account specific costs, fees, potential rate changes and the projected amount of time the borrower will have the loan. The fees and costs are distributed over the time the borrower plans to be in the house, allowing them to do an apples-to-apples comparison of a variety of loan types. The real financing cost is not the APR. The APR assumes that the borrower keeps the loan for the entire term (e.g. 30 years for a 30-year fixed loan) and includes only some of the loan fees. The total financing cost takes into account all of the closing costs associated with the loan and also how long the borrower plans to be in the house.
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Real Poperty
Land and any improvements permanently affixed to it, such as buildings.
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Recording
The act of entering documents concerning title to a property into the public records.
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RESPA
The Real Estate Settlement Procedures Act (RESPA) is a federal law that gives consumers the right to review information about loan settlement costs after they apply for a loan and again at loan settlement. The law obliges lenders to provide these settlement costs only after application.
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Security
This refers to the address of the property being pledged as security for the loan.
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Simple Interest
The interest calculated on a principal sum, not compounded on earned interest.
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Single Family
A residence that houses one family.
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Site Condominium
A detached single-family dwelling characterized as a site condominium by the way it is platted by the builder, however it is still considered a condominium.
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Streamline Refinance
FHA has permitted streamline refinance loans on insured mortgages since the 1980's. The streamline refinance refers to the amount of documentation and underwriting that needs to be performed by the lender.
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Structural Improvements
A "Structural Improvement" is any permanent improvement made to the property that is not strictly for decorating purposes. Examples include: additions, new flooring, kitchen or bathroom upgrades, new windows and central air. Swimming pools are considered structural improvements only if they are in ground and the property is in a year round warm weather climate.
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Subject Property
The home that the buyer intends to obtain the mortgage on is called the subject property.
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Survey
A mortgage survey is a bird's eye sketch of the property that shows the boundary lines of the lot, and details any encroachments between the property and its neighbors.
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Tax Lien
Claim against a property for unpaid taxes.
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Tax Sale
Public sale of property by a government authority as a result of non-payment of taxes.
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Tax Service Fee
Covers the cost of service when a third party monitors and/or handles the payment of property tax bills.
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Third Party Fees
Fees paid to a third party for services requested by the lender on the borrower's behalf.
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Trade Lines
The different credit accounts listed on a credit report.
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Trans Union
One of the three largest credit bureaus in the United States.
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Transfer Tax
Tax paid when title passes from one owner to another.
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Underwriting
In mortgage lending, the process of determining the risks involved in a particular loan and establishing suitable terms and conditions for the loan.
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Verification of Deposit (V.O.D.)
Document signed by the borrower's bank or other financial institution verifying the borrower's account balance and history.
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Verification of Employment (V.O.E.)
Document signed by the borrower's employer verifying the borrower's position and salary.
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Waiver
Voluntary relinquishment or surrender of some right or privilege.
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Walk-through
A final inspection of a home to check for problems that may need to be corrected before closing.
Loan Signing Agent
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