Learn About Mortgages: Glossary

Mortgage Glossary

Click a term to see the definition. Use the alphabetical table of contents, below, to quickly access the term you desire.

A B C D E F G H I J L M N O P R S T U V

Mortgage Glossary


Address
Please provide the street address of the property owned Back to Top


Adjustable Rate Mortgage (ARM)
The interest rate on an ARM is not fixed for the life of the loan. These mortgages adjust periodically based on an index that changes with market conditions. The rate of interest is the sum of the index plus a margin. Most ARMs have periodic interest rate and payment caps, as well as a life cap. Back to Top


Agent
Person authorized to act on behalf of another in dealings with third parties. Back to Top


Amortization
The gradual reduction in the principal of a mortgage through scheduled installment payments. Back to Top


Amortization Schedule
A schedule that shows the portions of each payment that are applied to interest and to principal. It also shows the loan balance remaining after each payment. Back to Top


Amt. Of Mortgage Liens
Record the dollar amount of all outstanding 1st and 2nd mortgages and other liens against this property. Back to Top


Annual Percentage Rate (APR)
A rate that reflects the actual annual cost of a loan and includes the loan interest rate, private mortgage insurance, points and some fees. Back to Top


Application
A form, commonly referred to as a 1003 form, used to apply for a mortgage and to provide information about a prospective mortgagor and the proposed loan. Back to Top


Appraisal
A professional assessment of a property's market value. Back to Top


Appreciation
Increase in market value of a property. Back to Top


Assessed Value
The value placed on a property by local officials for taxation purposes (may or may not equal appraised value). Back to Top


Asset
Assets include real property, personal property, bank accounts, stocks and mutual funds. Back to Top


Assumable Mortgage
A mortgage with a specific provision, which allows the buyer to accept responsibility for repayment from the seller of a property. Back to Top


Assumption
New owner takes over the responsibility for repaying an existing mortgage. Both FHA and VA loans are fully assumable. Some adjustable rate mortgages may be partially assumable, but the new owners may be required to re-qualify for the loan. Back to Top


Balance
The current amount owed for the liability. Back to Top


Balance Sheet
A report of the financial position of a business at a specific point in time, showing its assets, liabilities, and owner's equity. Back to Top


Balloon Mortgage
A mortgage allowing for lower monthly payments, which are insufficient to fully amortize the face amount of the note prior to maturity. This means that a principal sum known as a "Balloon" is due at maturity. Back to Top


Balloon Payments
The final payment of a mortgage, which is larger than the regular payment and usually extinguishes the debt. Back to Top


Bankruptcy
A court action to restructure debt. Back to Top


Basis Point
One one-hundredth of one percent. Used primarily to describe changes in yield or price of mortgages. Back to Top


Binder
A preliminary agreement, secured by the payment of earnest money, under which a buyer offers to purchase real estate. Or an agreement confirming temporary coverage pending issuance of a formal policy, when used in reference to insurance. Back to Top


Biweekly Mortgage
A mortgage in which payments are made every two weeks instead of monthly, thus making the equivalent of 13 monthly payments a year (there are 26 two week periods) instead of 12. Allows for more rapid repayment of mortgage and decreases the amount of interest paid over the life of the loan. Back to Top


Borrower Closing Costs Paid by Seller
An agreement by the Seller of a property to pay a certain amount toward the loan closing costs typically paid by a Borrower to secure a loan. Back to Top


Broker
A person who represents another, for a fee, in real estate transactions. Mortgage brokers help consumers locate suitable real estate loans and are paid a fee for their services. Back to Top


Cap
Dictates how much the interest rate or monthly payments for an ARM loan may increase. Back to Top


Capital Gain
Taxable profit on the sale of an appreciated asset. Back to Top


Cash Reserve
A requirement of some lenders that the buyer have enough cash left after closing to make the first two mortgage payments. Back to Top


Cash-out Refinance
Using a new mortgage to cash out an existing mortgage with the objective of converting (all or part of) the difference in value between the original property value and the reappraised property value to cash. Back to Top


Certificate of Eligibility
A document issued by the federal government certifying a veteran's eligibility for a Department of Veterans Affairs (VA) mortgage. An Original is required for all VA Loans. Back to Top


Certificate of Title
A written document by a title attorney or company stating that the title to a parcel of real property is legally vested in the present owner. Back to Top


Clear Title
A title to a property that is free of liens and legal questions concerning ownership Back to Top


Closing
Conclusion of a real estate sale, where the title of the property is transferred to the new owners and funds are transferred to the appropriate parties including but not limited to: seller, previous lender, real estate broker/agents. Back to Top


Closing Costs
Expenses incurred by the buyer/borrower and the seller in a real estate or mortgage transaction. These may include, but are not limited to: points, taxes, settlement fees, vendor fees, such as appraisal, title and escrow, and various kinds of applicable insurance including flood or hazard insurance. Back to Top


Closing Statement
A statement showing the various closing costs and recording which party paid these costs. Also called a settlement statement or HUD-1. Back to Top


Co-Signer
A person who signs and assumes joint liability with another person for the repayment of a debt. Back to Top


COFI (Cost of Funds Index)
An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It represents the weighted-average cost of savings, borrowings, and advances of the 11th District members of the Federal Home Loan Bank of San Francisco. Back to Top


Collateral
Property pledged as security for a debt, for example, mortgaged real estate. Back to Top


Combined Loan-to-Value (CLTV)
The ratio of all the mortgage loan amounts outstanding on a property (usually a first and second mortgage) to the property's appraised value (or the selling price, whichever is less). Back to Top


Commitment Letter
A lender's formal notice to a borrower that a loan has been approved; states the terms and conditions of the loan. Back to Top


Common Areas
Those portions of a building, land, and amenities owned (or managed) by a planned unit development (PUD) or condominium association (or a cooperative corporation) that are used by all of the unit owners, who share in the common expenses of their operation and maintenance. Common areas include swimming pools, tennis courts, and other recreational facilities, as well as common corridors of buildings, parking areas, means of ingress and egress. Back to Top


Comparables
Properties used as comparisons to determine the value of a specified property. Back to Top


Condo Fee (or homeowners association dues)
The monthly maintenance fee condominium unit (or planned unit development) owners must pay to cover common area expenses. Back to Top


Condominium
A form of property ownership in which the owner holds the title to an individual dwelling, plus interest in common areas of a multi-unit project. Back to Top


Condominium Conversion
Changing the ownership of an existing building (usually a rental project) to the condominium form of ownership. Back to Top


Conforming Loan
A conventional loan with a loan amount equal to or below that of the current loan limits established by the Federal National Mortgage Association (FNMA). Back to Top


Construction
A lender offers one combination loan with a single loan closing. The Construction loan combines financing for the purchase of land, the construction of a new home, and a permanent mortgage in one loan with one closing. The lender typically disburses payments periodically during a construction draw period from the loan and at the end of the construction draw period; the loan is modified to become the permanent mortgage loan. Back to Top


Construction-Permanent
A lender offers two individual loans with two loan closings. One for the short-term interim construction loan and one for the long-term permanent mortgage loan. The lender typically disburses payments periodically during the construction period from the interim construction loan and at the end of the construction period; the interim loan is paid off by the permanent mortgage loan. Back to Top


Contingency
Condition which must be satisfied before the buyer can consummate the purchase of a property. Contingencies are generally outlined in the purchase contract between the buyer and seller. Back to Top


Contract
An agreement between two or more parties, which structures an obligation to do or not to do a particular thing. Back to Top


Conventional Mortgage
Any mortgage that is not insured or guaranteed by the federal government. Back to Top


Convertible ARM
An adjustable-rate mortgage (ARM) that can be converted to a fixed-rate mortgage under specified conditions. Back to Top


Cooperative
A form of common property ownership in which the residents of an apartment building do not own their own units, but rather own shares in the corporation that owns the property. Back to Top


Covenant
A clause in a mortgage that obligates or restricts that borrower and which, if violated, can result in foreclosure. Back to Top


Credit History
A record of an individual's open and fully repaid debts. A credit history helps a lender to determine whether a potential borrower has a history of repaying debts in a timely manner. Back to Top


Credit Report
A report of an individual's credit history prepared by a credit bureau and used by a lender to determine a loan applicant's creditworthiness. Back to Top


Credit Reporting Agency
An organization that prepares reports that are used by lenders to determine a potential borrower's credit history. The agency obtains data for these reports from a credit repository as well as from other sources. Back to Top


Credit Repository
An organization that gathers, records, updates, and stores financial and public record information about the payment records of individuals who are being considered for credit. Back to Top


Current-Subject
The home you are currently living in should be marked as "Current". If this is also the property that you are refinancing then mark it as "Both". If you are refinancing investment property or a second home then mark the property as "Subject". For all other properties leave this column blank. Back to Top


Debt-to-Income Ratio
Monthly debt and housing payments divided by gross monthly income. Back to Top


Deed
The legal document conveying title to a property. Back to Top


Deed of Trust
The document used in some states instead of a mortgage; title is conveyed to a trustee instead of the borrower. Back to Top


Default
To fail to make mortgage payments on a timely basis or to comply with other mortgage conditions. Back to Top


Delinquency
Failure to make a loan payment on time; the loan is not yet in default. Back to Top


Dependents
Persons who rely upon you for financial support. Back to Top


Deposit
Cash the buyer pays to the seller when both sign a formal sales contract. Back to Top


Depreciation
A decline in property value; opposite of appreciation. Back to Top


Detached Condo
A single family dwelling where title is held as a condominium, or a single family dwelling located in a condominium development. Back to Top


Discount
Sometimes referred to as "points", this fee results in a lower interest rate for the borrower by allowing him to pay more money to reduce his interest rate (or pay less for a higher rate). Back to Top


Down Payment
The part of the purchase price of a home, which the buyer pays in cash up front; not included in the loan. Back to Top


Due-on-sale Provision
A provision in a mortgage that allows the lender to demand repayment in full if the borrower sells the property that serves as security for the mortgage. Back to Top


Earnest Money
Deposit given to the seller by the buyer when submitting an offer to show serious intent about buying a property. Back to Top


Easement
A right created by grant, reservation, agreement, prescription, or necessary implication, which one has in the land of another. Back to Top


Effective Age
An appraiser's estimate of the physical condition of a building. The actual age of a building may be shorter or longer than its effective age. Back to Top


Eligibility
Eligibility is the veteran’s entitlement to VA home loan benefits under the law, based on military service. An eligible veteran must still meet credit and income standards in order to qualify for a VA-guaranteed loan. A lender cannot make a VA-guaranteed loan to an ineligible applicant under any circumstances. Back to Top


Encroachment
Structures that extended onto the property of another owner, for example, fences. Gradual possession by means of trespass. Back to Top


Encumbrance
Claim or lien or interest in a property that complicates the title process, interfering with its use or transfer. Restrictive covenants. Back to Top


Energy Efficient Home
Allows for the cost of energy conservation improvements to be added to the mortgage amount. This benefit is available to all existing homes (resales) and includes such improvements as storm windows/doors, solar or conventional heating/cooling systems, water heater, weather-stripping/caulking, insulation, and other weather related considerations. Back to Top


Entitlement Amount
The amount of Guaranty available is determined by The Department of Veterans Affairs. Your basic entitlement appears on the Veteran’s Certificate of Eligibility. Back to Top


Equal Credit Opportunity Act (ECOA)
A federal law prohibiting lenders from denying loans on the basis of the borrower's race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs. Back to Top


Equity
The difference between the market value of a property and the owner's outstanding mortgage balance; measures the degree of ownership. Back to Top


Escrow
The holding of documents and money (such as a deposit) by a neutral third party prior to closing. Also an account held by the lender into which a homeowner pays money for taxes and insurance. Back to Top


Escrow Account
The account in which a mortgage servicer holds the borrower's escrow payments prior to paying property expenses. Back to Top


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. Back to Top


Escrow Disbursements
The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due. Back to Top


Escrow Payment
That portion of a mortgagor's monthly payment held in trust by the lender to pay for taxes, mortgage insurance, hazard insurance, lease payments, and other items as they become due, also known as "impounds" in some states. Back to Top


Estate
The ownership interest of an individual in real property. The sum total of all the real property and personal property owned by an individual at time of death. Back to Top


Fair Credit Reporting Act
A consumer protection 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. Back to Top


Fair Market Value
The highest price that a buyer, willing but not compelled to buy would pay, and the lowest a seller, willing but not compelled to sell, would accept. Back to Top


Fannie Mae (FNMA)
An acronym for the Federal National Mortgage Association. Fannie Mae purchases mortgage loans originated by local lenders and sets guidelines that lenders must follow to qualify prospective borrowers. Back to Top


Fannie Mae's Community Home Buyer's Program
An alternative financing option that allows moderate-income household to qualify for loans. It allows for higher housing-to-income and debt-to-income ratios, as well as non- traditional credit histories and waiver of cash reserve requirements at closing. Back to Top


FHA Loan
A mortgage that is insured by the Federal Housing Administration (FHA). Down payment may be as little as 3 percent, but the purchase price is limited. Back to Top


FHA Streamline Refinance
An FHA Streamline Refinance involves the refinance of an existing FHA loan with a new FHA loan. FHA offers two types of Streamline Refinance Loans: Streamline Refinance without Appraisal – This type of FHA loan saves the cost of the appraisal but may limit the ability to finance loan closing costs. Generally limits the new FHA Loan to the lesser of: The existing FHA Mortgage Balance, first lien only + Closing Costs + Discount Points + Prepaids – any UFMIP refund amount OR The Original FHA Loan Amount + New UFMIP Streamline Refinance with Appraisal – This type of FHA loan includes the cost of a new appraisal but may allow financing of closing costs. Generally limits the new FHA Loan to the lesser of: The FHA Maximum Loan to Value allowed based on Current Appraised Value or the Original Sale Price if the property was owned less than one year. OR The existing FHA Mortgage Balance, first lien only + Closing Costs + Discount Points + Prepaids – any UFMIP refund amount Back to Top


Finance Charge
The cost of credit expressed in dollars. It is the total amount of interest calculated at the interest rate over the life of the loan, plus Prepaid Finance Charges and the total amount of any required mortgage insurance charged over the life of the loan. Back to Top


Financial Institution
The business or entity to which the liability is owed. Back to Top


Fixed Rate Mortgage (FRM)
A mortgage in which the interest rate does not change during the entire life of the loan. Back to Top


Flood Certification
The determination as to whether or not a property is located in a flood zone. If it is, the lender will require federally provided flood insurance. Back to Top


Flood Insurance
Insurance that will be required if a property is in a federally designated flood hazard area. Back to Top


Foreclosure
The legal process by which a mortgaged property may be sold when a mortgage is in default. Back to Top


Freddie Mac (FHLMC)
An acronym for the Federal Home Loan Mortgage Corporation. Freddie Mac purchases mortgage loans originated by local lenders and sets guidelines that lenders must follow to quality prospective borrowers. Back to Top


Fully Indexed Interest Rate
The index plus the margin for an adjustable rate mortgage. Back to Top


Gift
Money given to borrowers to assist in the purchase of a home, usually from a relative, that does not require repayment. Back to Top


Good Faith Estimate
A written estimate of closing costs provided by the lender within three days after someone applies for a loan. Back to Top


Government National Mortgage Association (GNMA)
A government owned agency that acts as a secondary market conduit for FHA and VA loans. GNMA guarantees the timely principal and interest payments to investors. Back to Top


Grace Period
Period of time (usually 15 days) after a mortgage payment is due in which the lender will not charge a late penalty or report the payment as late. Back to Top


Graduated Payment Mortgage (GPM)
A mortgage that starts with lower monthly payments that increase at a predetermined rate over time. Back to Top


Gross Income
Normal annual income including overtime that is regular or guaranteed. The income may be from more than one source. Salary is generally the principal source, but other income may qualify if it is significant and stable. Back to Top


Gross Rental Income
Record the gross monthly rent payments received on this property before expenses. Back to Top


Hazard Insurance
Insurance to protect the homeowner and lender against physical damage to property from fire, wind, vandalism and other hazards. Back to Top


HELOC Combined Loan-To-Value (HCLTV)
The ratio of all mortgage loan amounts outstanding on a property including the maximum Line of Credit Limit available to be drawn in relation to the property’s appraised value (or the selling price, whichever is less). Back to Top


High Rise Condo
A condominium located in a building exceeding six floors. Back to Top


Home Equity Line of Credit
An open-end loan, usually recorded as a second mortgage, that permits borrowers to obtain cash advances based on an approved line of credit. Back to Top


Home Equity Loan
A loan based on the borrower's equity in his or her home. Back to Top


Homeowner's Insurance
An insurance policy that combines hazard insurance and liability coverage. Back to Top


Homeowner's Insurance Declaration
Insurance protecting against loss to real estate caused by fire, some natural causes, vandalism, etc., depending upon the terms of the policy. Back to Top


Housing Ratio
The ratio of the monthly housing payment in total (PITI - Principal, Interest, Taxes, and Insurance) divided by the gross monthly income. This ratio is sometimes referred to as the top ratio or front-end ratio. Back to Top


HUD
Initials of the U.S. Department of Housing and Urban Development. Back to Top


Impounds
That portion of a monthly mortgage payment which is placed in an account to be used to pay for property taxes, private mortgage insurance and insurance. Also known as escrows. Back to Top


Income Property
Real estate developed or improved to produce income. Back to Top


Index
A published rate or benchmark measure of current interest rate levels used to calculate periodic changes in rates charged on adjustable rate mortgages. Back to Top


Ins, Maint, Taxes
Provide the current combined monthly expenses for Hazard Insurance, property taxes, and home maintenance. Back to Top


Installment
The periodic payment that a borrower agrees to pay a mortgage lender. Back to Top


Interest
The cost of borrowing money. Back to Top


Interest Rate Cap
A provision of an ARM that limits how much the interest rate can increase per adjustment period. Back to Top


Interest Reserve
An amount of funds included in a construction loan, which may be applied to Borrower’s interest payments due during the Construction Phase. The interest reserve amount is calculated by the Lender and may be included in the construction loan amount under certain conditions. Back to Top


Investment Property
A property that is not occupied by the owner and who, in most cases, receives income off the property. Back to Top


Joint Application
Assets and liabilities for two borrowers, usually a married couple, are reported together. A single credit report for the joint applicants is requested instead of separate credit reports for each applicant. Back to Top


Joint Credit
Joint credit occurs when the assets and liabilities for two married or unmarried individuals are sufficiently joined so as to be meaningfully and fairly presented on a combined basis. Back to Top


Jumbo Mortgage
A conventional loan with a loan amount in excess of the current loan limit established by the Federal National Mortgage Association. Back to Top


Lender
Person or entity that invests in or originates mortgage loans, such as a mortgage banker, credit union, commercial bank, or savings and loan. Back to Top


Lien
A legal claim against a property that must be paid when a property is sold. Back to Top


Lifetime Cap
A provision of an ARM limiting the total increase in the interest rate over the life of the loan. Back to Top


Line of Credit Max Limit
The maximum Line of Credit limit that can be drawn on a Home Equity Line of Credit or HELOC loan. Back to Top


Loan Servicing
Loan servicing is the function of collecting loan payments, managing the property tax and insurance escrows, foreclosing on defaulted loans, and remitting payments to the investor/beneficiary. Back to Top


Loan-to-Value (LTV)
The ratio of the mortgage loan amount to the property's appraised value (or the selling price whichever is less). Back to Top


Lock-in Rate
The interest rate the lender guarantees to the borrower provided the mortgage is closed within a certain time period. Back to Top


Manufactured Home in a Condo/PUD/Co-Op
A manufactured home where title is held as a condominium, planned unit development, or cooperative, or a manufactured home located in a condominium, planned unit development, or cooperative. Back to Top


Manufactured Housing
Any dwelling built on a permanent chassis and attached to a permanent foundation system is a "manufactured home" for the purposes of residential loan applications. Other factory- built housing (not built on a permanent chassis) such as modular, prefabricated, panelized, or sectional housing is not considered manufactured housing. A manufactured home must be a one-family dwelling that is legally classified as real property. The towing hitch, wheels, and axles must be removed and the dwelling must assume the characteristics of site-built housing. The land on which the manufactured home is situated must be owned by the borrower in fee simple, unless the manufactured home is located in a cooperative or condominium project. Back to Top


Margin
The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment. Back to Top


Market Value (Fair Market)
The most likely price a given property will bring if widely exposed on the market, assuming fully informed buyer and seller. Back to Top


Maturity
The date on which an agreement expires; termination of a promissory note. Back to Top


Monthly Maintenance
Maintenance fees for the care of common and shared areas. Back to Top


Monthly Payment
The minimum monthly amount the owner is obligated to pay toward the liability. Back to Top


Mortgage
A legal document that pledges a property to the lender as security for payment of a debt. Back to Top


Mortgage Credit Certification
A governmental program to provide taxpayers with financing to help them buy a principal residence. This certificate must be used in regards to the purchase, rehabilitation or home improvement of your primary residence. Back to Top


Mortgage Insurance (MI)
Insurance similar to FHA or VA insurance, insuring part of the first mortgage or deed of trust, and enabling a lender to make a conventional loan of a higher percentage of the property value. This type of insurance protects the upper portion of a mortgage loan thereby reducing the lender's risk to principal loss in the event of a borrower's default. The coverage allows lenders to make higher loan-to-value ratios. Back to Top


Mortgage Note
A legal document obligating a borrower to repay a loan at a stated interest rate during specified time period; this is secured by a mortgage. Back to Top


Mtg Payments
Provide the current monthly mortgage payment (Principal and Interest only) for this property. If more than one mortgage exists, please combine the amounts. Back to Top


Multi-Family
A building with more than four residential rental units. Back to Top


Negative Amortization
Payment terms under which the borrower's monthly payments are insufficient to cover interest due, thus increasing the loan balance. Back to Top


Net Income
The amount remaining after total operating expenses (excluding interest payments) are deducted from effective gross income. Back to Top


Net Rental Income
Rental Income for Investment Properties other than the subject property securing the loan. Typically calculated as (Gross Rental Income x 75%) - mortgage payment, insurance, taxes, and maintenance. Back to Top


Non-Conforming Loan
Also known as jumbo loans. Loans that are above the loan limits set by FNMA and FHLMC. Back to Top


Non-Owner Occupant
A borrower that will not occupy the property and in most cases receives income off the property. Back to Top


Offer to Purchase
A formal document in which a buyer proposes to purchase a property for a specified amount and under certain conditions. Acceptance by the seller creates a contract binding on both parties, subject to any contingencies. Back to Top


Origination Fee
A fee paid to a lender for processing a loan application. This is shown as a percentage of the mortgage amount and is due at closing. Back to Top


Owner
The person obligated for the liability. If more than one borrower on the loan application is responsible for the same liability, just select the name of one of those persons. Back to Top


Owner Financing
A purchase where the seller provides all or part of the financing for the buyer. Back to Top


Owner Occupant
The residence that the owner physically occupies and uses as his or her home. Back to Top


Payment Adjustment Period
The length of time, on an Adjustable Rate Mortgage (ARM) before the member's rate/payment will be reviewed and adjusted according to the market. For example: the first adjustment period for a 5/1 ARM is after five years. All subsequent adjustments are made every year thereafter. Back to Top


Payment Cap
A provision of some ARMs limiting how much the borrower's payments may increase, regardless of how much the interest rate increases, and may result in negative amortization. Back to Top


Payment Shock
A scenario in which monthly mortgage payments on an adjustable rate mortgage (ARM) rise so high that the borrower may not be able to afford the payments. Consumer protection guidelines regarding extremely low initial "teaser" rates, lifetime ceilings, and annual caps are designed to prevent payment shock. Back to Top


Payoff
The unpaid principal balance, accrued interest, outstanding late charges, legal fees, and all other amounts necessary to pay off the lender in full. Back to Top


Perc Test
A test to determine if a property is suitable for a septic tank. Back to Top


Periodic Rate Cap
A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or mortgage payments may increase or decrease over a specific period. Back to Top


PITI
Stands for principal, interest, taxes and insurance - the components of a monthly mortgage payment. Back to Top


Planned Unit Developments (PUD)
A housing development, where there is a homeowners' association and common areas owned by the homeowners. Back to Top


Points
A point is equal to one percent of the principal amount of your mortgage. For example, if you get a mortgage for $100,000, one point means you pay $1000 to the lender. These points are usually collected at closing and may be paid by the borrower or the home seller, or may be split between them. Back to Top


Pre-Qualification
The process of determining how large a loan a prospective homebuyer can qualify for; this procedure is done before actually applying for the loan. Back to Top


Prepaids
Those expenses of owning property, which are paid in advance of their due date and usually prorated upon sale, such as taxes, insurance, rent, etc. Back to Top


Prepayment Penalty
Charge levied by the lender for paying off a mortgage loan before its maturity date. Back to Top


Present Market Value
Estimate the current market value of this property. Back to Top


Primary Residence
Primary residence is a property that you physically occupy and use as your home. Back to Top


Private Mortgage Insurance (PMI)
Insurance provided by a non-government insurer to protect a lender against loss if a borrower defaults. Usually required if the down payment is less than 20 percent of the purchase price. Back to Top


Property Disposition
If the property is an investment property, then mark as "Rental". If you are planning on selling the property before the loan closes, then mark as "Pending Sale". If you will still own the property after the loan closing, then the property should be marked as "Retained". Back to Top


Property Type
Identify the type of property owned. Standard residential homes are designated as "Single Family." Back to Top


Purchase
A mortgage that enables the borrower to acquire a property, rather than refinance or pay for home improvements. Back to Top


Purchase Agreement
A written agreement between a buyer and seller of real property, setting forth the price and terms of sale. Back to Top


Purchase and Sale Agreement
A legal document requiring the buyer to buy and the seller to sell, under specified terms and conditions. Back to Top


Rate Cap
A limit on how much the interest rate can change, either at each adjustment period or over the life of the loan. Back to Top


Rate Lock
A written agreement in which the lender guarantees the borrower a specified interest rate, provided the loan closes within a set period of time. Back to Top


Real Estate Agent
A person licensed to negotiate and transact the sale of real estate; works on behalf of the seller, unless designated as a buyer's broker. Back to Top


Refinancing
The process of obtaining a new mortgage, usually at a lower rate, to repay and replace an existing mortgage. Back to Top


Right of First Refusal
An owner's promise to let someone make the first offer on a property, or to match the amount offered by another party. Back to Top


Sales Contract
A written agreement between buyer and seller stating terms and conditions of a sale or exchange of property. Back to Top


Second Home/Vacation Home
Second home/vacation home is a property that is not your primary residence and that you occupy less than six months a year. Back to Top


Second Mortgage
An additional mortgage behind the first mortgage on a property. The rights of the second mortgage holder are subordinate to the rights of the first mortgage holder. Back to Top


Secondary Mortgage Market
The buying and selling of first mortgages of trust deeds by banks, insurance companies, government agencies, and other lenders. Back to Top


Seller Carry Back
An agreement in which the seller takes back a note for part of the purchase price secured by a junior mortgage, wrap-around mortgage, or contract for deed. Back to Top


Seller Concessions
The portion of mortgage related costs, other than closing costs, that the borrower would normally be responsible for that the seller has agreed to pay. Back to Top


Servicing (or Loan Servicing)
A mortgage banking function which includes the receipt of payments, member service, escrow administration, investor accounting, collections, and foreclosures. Back to Top


Single Family/Detached
A free-standing structure or single unit that does not share walls with any other homes. Back to Top


Subject Net Cash Flow
Cash Flow for Investment Properties when they are the subject property securing the loan. Typically calculated as: Owner Occupied Property = Gross Rental Income x 75%. Non Owner Occupied = (Gross Rental Income x 75%) - proposed mortgage payment, insurance, taxes, and maintenance. Back to Top


Survey
Map made by a licensed surveyor who measures that land and charts its boundaries, improvements and relationship to the property surrounding it. Back to Top


Target Interest Rate
The Target interest rate is the rate of interest that you would need to pay on this product in order to achieve your monthly payment goal. Back to Top


Tenants-in-common
An undivided interest in property taken by two or more persons. The interest need not be equal. Upon death of one or more persons, there is no right of survivorship. Back to Top


Term
The length of time you are given to repay a loan. Back to Top


Termite Certificate
A document certifying a property has no termites; may be required by a lender. Back to Top


Title
A legal document establishing the right of ownership. Back to Top


Title Insurance
Insurance to protect the lender (lender's policy) or the buyer (buyer's policy) against loss arising from disputes over property ownership. Back to Top


Title Search
A detailed examination of the title records to ensure that the seller of a property is the legal owner and that there are no liens or other claims outstanding. Back to Top


Total Debt Ratio
Monthly debt and housing payments divided by gross monthly income. Also known as Obligations-to-Income Ratio or Back-End Ratio. Back to Top


Townhouse
A home that is attached to one or more other houses, but which sits directly on a parcel of land that you also own. If you don't own the land, it is a condominium. Back to Top


Transfer Tax
State or local tax payable when title passes from one owner to another. Back to Top


Truth-in-Lending Act (TIL)
A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the APR and other charges. Back to Top


Underwriting
The process of evaluating a loan application to determine the risk involved for the lender. It involves an analysis of the borrower's ability and willingness to repay the debt, and the value of the property. Back to Top


Utilities
Monthly charges for water, sewer, gas, and/or electricity Back to Top


VA Funding Fee
A premium charged on all VA Loans to cover administrative costs of the program. The Funding Fee can vary depending on the size of downpayment with the maximum fee not to exceed 3%. Back to Top


VA Funding Fee Exemption
An exemption from paying the VA Funding Fee may be verified with: 1) VA Form 26-8937, Verification of VA Benefit-Related Indebtedness indicating the borrower’s exemption status. 2) An award letter issued within 1 year of the date of the loan application indicating the veteran is entitled to receipt of VA disability compensation. 3) For a veteran who elected service retirement pay instead of VA compensation, a copy of the original VA notification of disability rating and documentation of the veteran’s service retirement income. 4) Indications on the Certificate of Eligibility that the borrower is entitled as an "unremarried surviving spouse". Back to Top


VA Loan
A loan guaranteed by the Veteran's Administration with little or no down payment. These loans are available only to qualifying veterans for the purchase or refinance of a home, which is for their own personal occupancy. A VA funding fee is required. Back to Top


Valuation
The estimation of a property's price through appraisal. Back to Top


Veteran
A person who served on active duty status in the Military and was discharged under conditions other than dishonorable. Please contact The Department of Veteran Affairs to determine if you meet the eligibility requirements. Back to Top


Veteran's Administration
The agency that guarantees a veteran's mortgage enabling a lender to make the loan with little or no down payment. Back to Top