This is just some of the
terms used in the mortgage industry. We will be
adding more as time permits. Fell free to call or
e-mail us with any questions. 623-780-0083.
Comps: An
abbreviation for "comparable properties" which are used
for comparison purposes in a property appraisal. Comps
give a rough idea of the value of a property, by
comparing items such as square footage, amenities, lot
size, and condition to other similar properties in the
area. Comparables give the appraiser a starting point
to appraise a fair market value of the subject property.
Conforming Mortgage
Loan: A mortgage loan that conforms to
regulatory limits such as loan-to-value ratio, term, and
other characteristics.
Construction Loan:
A loan for financing the cost of construction, as
opposed to purchasing a completed new house from a
builder.
Contingency:
A condition that must be met before a contract is
legally binding.
Conventional Mortgage:
A mortgage that is not obtained under a federal
government insured program, such as FHA or VA.
Cost of Funds Index (COFI):
One of the many different indexes that can be used to
determine interest rate changes for certain Adjustable
Rate Mortgages (ARMs)
Credit History:
A record of an individual's debts. One of several
factors lenders use to determine whether a potential
borrower has a history of repaying debts in a timely
manner.
Credit Report:
A report detailing an individual's credit history and
current status of an individual's current credit
standing. These reports detail a FICO score, open and
closed credit lines, and repayment history.
Debt-to-Income Ratio:
The ratio, expressed as a percentage, which results when
a borrower's total monthly payment obligation on
long-term debts is divided by net effective income (FHA
and VA) or gross monthly income (for conventional
loans).
Deed: The
legal document conveying title to a property.
Default:
Failure to make mortgage payments in the scheduled,
agreed upon time frame, or failure to comply with other
requirements of the mortgage. Typically loans more than
90 days late are considered in default
Delinquency:
Failure to make mortgage payments by the mortgage due
dates, but still within the period allowed before actual
default is declared. Sometimes referred to as “Mortgage
Lates”
Department of Veterans
Affairs: An independent agency of the federal
government, which, among other things, provides VA loans
to eligible veterans.
Depreciation:
A decline in the value of property brought about by age,
physical deterioration, functional or economic
obsolescence, etc.
Discount Point:
An amount payable to the lending institution by the
borrower or seller, typically paid in exchange for a
lower interest rate. One point = 1% 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 be paid
in exchange for the lower rate.
Down Payment:
The cash that a buyer will pay to the seller, in
addition to the money from the mortgage loan. Many
lenders will require a minimum down payment of 10% of
the purchase price, although some lenders are willing to
lend with 5%, 3% or even 0% down.
Due-on-Sale Provision:
A provision in a mortgage stipulates the remaining
balance on the mortgage must be paid if the borrower
sells the property for which the mortgage is secured.
Earnest Deposit:
Money given by a buyer to a neutral third party (i.e.,
title company) as part of the purchase price to show
that he or she is serious about buying the house.
Equal Credit
Opportunity Act (ECOA): A federal law that
requires lenders to make credit equally available
without discrimination based on race, color, religion,
national origin, age, sex, marital status, receipt of
income from public assistance programs, or past
exercising of rights under the Consumer Credit
Protection Act.
Equity: The
difference between the fair market value of the property
and the amount still owed on its mortgage.
Escrow:
Funds that are held in trust by a third party, usually
for payment of taxes and insurance on real property.
This money is typically collected monthly with your
mortgage payment (the TI in
PITI payments)_
Escrow Account:
The account in which a mortgage servicer holds the
borrower's escrow payments prior to paying expenses,
such as taxes and insurance.
Escrow Analysis:
The periodic examination of escrow accounts to determine
if current monthly deposits will provide sufficient
funds to pay taxes, insurance, and other bills when due.
Fair Credit Reporting
Act: Law that regulates the disclosure of
consumer credit reports by consumer/credit reporting
agencies and establishes procedures for correcting
mistakes on one's credit record. Also, if a lender is
rejecting a loan request because of adverse credit
information, then the lender must inform the borrower of
the source of that information.
Fannie Mae (Federal
National Mortgage Association - FNMA): A
congressionally chartered, shareholder-owned company
that is the nation's largest supplier of home mortgage
funds. It purchases and sells residential mortgages
insured by FHA or guaranteed by the VA in addition to
conventional home mortgages.
Federal Housing
Administration (FHA): An agency of the U.S.
Department of Housing and Urban Development (HUD). Its
main activity is the insuring of residential mortgage
loans made by private lenders. The FHA sets standards
for construction and underwriting but does not lend
money or plan or construct housing.
FHA Mortgage:
A mortgage on which the lender is insured by the Federal
Housing Administration, with the borrower paying the
mortgage insurance premium. The main advantage of an FHA
mortgage is a lowed required down payment, but the
maximum loan amount is lower than what is available for
conventional mortgages. Also known as a government
mortgage.
FHA Mortgage Insurance:
A required small fee paid at closing or as part of the
monthly payment of an FHA loan to insure the loan with
FHA. In addition, FHA mortgage insurance requires an
annual fee of .5% of the current loan amount, paid in
monthly installments. The lower the down payment, the
more years the fee must be paid.
First Mortgage:
A mortgage that is the primary lien against a property
and has priority over any subsequently recorded
mortgages in the event that the borrow defaults on the
loan.
Fixed Rate Mortgage
(FRM): A mortgage in which the interest rate
is specified in the mortgage contract and does not
change during the life of the loan.
Foreclosure:
The legal process by which a lender acquires possession
of the property securing a mortgage loan when the
borrower defaults on a loan.
Gift Letter:
A written explanation signed by the individual giving
the gift stating that it is a bona fide gift of money
and there is no obligation to repay the money at any
time.
Good Faith Estimate (GFE):
An estimate of charges that a borrower is likely to
incur during settlement. A lender is required to provide
you with a GFE within 3 days of completing a loan
application.
Gross Monthly Income:
Your total monthly income earned before taxes are
deducted. Sometimes referred to as pre-tax income.
Hazard Insurance:
Insurance protecting against loss to real estate caused
by fire, some natural causes, vandalism, etc., depending
upon the terms of the policy. Typically required by a
lender in order to get a mortgage loan.
Homeowners' Association
Dues: Fees imposed by condominium or
homeowners' associations for maintenance of common
areas, such as sidewalks, parks and other community
common areas.
HUD: The
U.S. Department of Housing and Urban Development.
Index: A
general interest rate to which the interest rate on an
ARM is tied. Some commonly used indices include the 1
Year Treasury Bill and the 6 Month LIBOR.
Insured Loan:
A loan that is insured for the lender, typically by the
FHA or a private mortgage insurer.
Investment Property:
Real estate owned that is not intended for owner
occupancy (i.e., rental houses, apartment buildings,
etc). Also referred to as non-owner occupied.
Jumbo Mortgage:
A loan that is larger than the limits set by Fannie Mae
and Freddie Mac for conventional mortgages. Because
jumbo loans cannot be funded by these two agencies, they
typically carry a higher interest rate.
Lien: A
legal claim to a property by the lien holder (for
mortgages, the lender) in the event the mortgage or
property taxes are in default.
Loan-to-Value Ratio
(LTV): The ratio of the amount of a loan to
the appraised value of the home.
Lock An
option exercise by the buyer to “lock in” the rates and
terms of a loan for a specified amount of time. For
examples, a borrower may get a 30-day lock at a rate of
7%. At this point the borrower and lender are bound by
the terms of the lock, regardless of the current market
conditions.
Margin: The
number of percentage points a lender adds to the index
value to calculate the Adjustable Rate Mortgage (ARM)
Maturity:
The period of time until the last payment is due on a
mortgage loan.
Mortgage: A
legal document that the lender a lien as security for
payment of the loan for a property.
Mortgage Broker:
An individual who is in the business of assisting in the
arranging of funding for clients with lenders. The
broker does not loan the money directly.
Mortgagee:
The mortgage lender.
Mortgagor:
The mortgage borrower.
Net Effective Income:
Income after taxes have been deducted.
No Income Verification
Loan (NIV): A loan that does not require
income verification. These loans typically have higher
rates in exchange for not verifying income.
Non-Assumption Clause:
A statement in a mortgage contract prohibiting the
assumption of the mortgage by a third party, without the
prior approval of the lender.
Non-Conforming Loan:.
Any loan that does not fall under the guidelines set
forth by Fannie Mae or Freddie Mac. Loans for amounts
higher than the conforming limits, or loans for
individuals with credit problems fall into this
category.
Origination Fee:
Fee imposed by the lender to cover certain costs
involved with processing the loan. Typical origination
fee is one point (one percent of the loan).
PITI:
Principal, interest, taxes
and insurance.
Points: Fees
charge by the mortgage lender payable at closing. 1
point = 1% of the total amount of the mortgage loan.
Prepaid Expenses:
Expenses of property that are paid I;n advance (and
placed in escrow accounts) prorated by the date of
closing. (i.e. a loan that closes on the 20th
of the month will have less in prepaid expenses than one
that closes on the 5th).
Prepayment Penalty:
A charge imposed by a mortgage lender on a borrower who
wants to pay off a mortgage loan in advance of schedule.
Primary Residence:
A residence in which the borrower intends to occupy as
his or her main residence.
Principle:
The amount of debt, not including interest.
Private Mortgage
Insurance (PMI): Insurance provided by
private insurers that protects a lender in the cause of
a mortgage default. Generally required for loans with
loan-to-value (LTV) ratio greater than 80%.
Processing:
The preparation of a
mortgage loan application and supporting documentation
to be delivered to a lender for loan consideration.
Purchase Contract:
An agreement between the
buyer and the seller of the property, which details the
price and terms of the sale. Also known as a sales
contract.
Qualifying Ratios:
The ratio of a prospective borrower’s fixed monthly
expenses to their gross monthly income, used in
determining the maximum amount the borrower qualifies
for. The fixed monthly expenses would include PITI along
with other fixed expenses such as student loans, car
loans, or minimum credit card payments.
Rate Cap: A
limit on how much the interest rate can change, either
at each adjustment period or over the life of the loan
on Adjustable Rate Mortgages (ARMs).
Real Assets:
Real estate or real
property owned by an individual or business.
Recision:
The right to cancel a mortgage contract (in some cases)
once it is signed if the transaction uses equity in the
home as security.
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:
The process of paying off one loan by securing a new
loan using the same property as security.
Second Mortgage:
A mortgage made subsequent to the first mortgage and is
always subordinate to the first mortgage. Typically
caries a higher rate than the first mortgage.
Term: The
time limit within which a loan must be repaid.
Title: The
document that provides legal evidence that the person
has the right to the possession of the land.
Title Insurance:
Insurance against loss resulting from defects of title
to a specifically described parcel of real property.
Title Search:
An investigation of public records into the history of
ownership of a property to check for liens, unpaid
claims, restrictions or problems, to prove that the
seller can transfer free and clear ownership.
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 different
financial institutions.
Underwriting:
Analysis of risk and setting of an appropriate rate and
term for a mortgage on a given property for given
borrowers.
VA Mortgage Funding
Fee: A premium of up to 3.0% which is paid
DIRECTLY to VA on VA-backed loan.
