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MORTGAGE TERMS

203(b): FHA program that provides mortgage insurance to protect lenders from default; used to finance the purchase of new or existing one- to four family housing. This type of loan has a low down payment, limited fees, flexible qualifying guidelines, and a limit on maximum loan amount.

203(k): FHA mortgage insurance program that enables homebuyers to finance both the purchase of a house and the cost of its renovation through a single mortgage loan.

Acceleration Clause: This is the part of a loan contract that determines when a loan may be declared due and payable.

Adjustable-Rate: This is an interest rate that changes, based on fluctuations in a published market-rate index.

Adjustable-Rate Loans: These are also known as variable-rate loans; they usually offer a low initial interest rate than fixed-rate loans. The interest rate changes over the life of the loan based on market conditions, but the loan agreement generally sets maximum and minimum rates. When interest rates rise, generally so do your loan payments; when interest rates fall, your monthly payments may be lowered.

Amenity: This is a feature of the home or property that serves as a benefit to the buyer but that is not necessary to its use; may be natural (i.e. surrounding environment, proximity to hiking, fishing, etc.) or man-made (like a swimming pool or shopping area).

Amortization: This is the repayment of a mortgage loan through monthly payments of principal and interest; the monthly installment amount is based on a schedule that will allow the homeowner to own his/her home at the end of a specific time period (for example, 15 or 30 years).

Annual Percentage Rate (APR): This rate is calculated by using a standard formula; the APR indicates the cost of a loan. It is expressed as a yearly interest rate and it includes the interest, points, mortgage insurance, and other fees associated with the loan.

Annuity: This ia a monthly cash payment that one receives from an insurance company for the rest of one's life.

Application: This is the first step in the loan approval process; this form is used to record important information about the potential borrower necessary to the underwriting process.

Appraisal: This is a document that gives an estimate of a property's fair market value. In general, a lender requires an appraisal before loan approval to ensure that the mortgage loan amount is not more than the value of the property.

Appraiser: This is a qualified individual who uses acquired knowledge and experience to prepare an appraisal estimate.

Appreciation: This is the increase in value of a residence or property.

Adjustable Rate Mortgage (ARM): This is a mortgage loan that is subject to changes in interest rates. When rates change, ARM monthly payments increase or decrease at intervals determined by the lender. The change in monthly payment amount, however, is usually subject to a limit or cap.

Assessor: This is a government official who is responsible for determining the value of a property for the purpose of calculatiing the property tax that will be levied.

Assumable Mortgage: This is a mortgage that can be transferred from a seller to a buyer; once the loan is assumed by the buyer, the seller is no longer responsible for repaying it. There may be a fee and/or a credit package involved in the transfer of an assumable mortgage.

Balloon Mortgage: This is a mortgage that typically offers low rates for an initial period of time (usually 5, 7, or 10) years. After that time period expires, the balance is due or may be refinanced by the borrower.

Bankruptcy: This is a federal law whereby a person's assets are turned over to a trustee and used to pay off outstanding debts. This usually happens when someone owes more than they have the ability to repay.

Borrower: This is a person who has been approved to receive a loan andwhen the loan is given, he or she is then obligated to repay it and any additional fees according to the requirements or terms of the loan.

Cap: This is a limit that, for example, can be placed on an adjustable rate mortgage (on how much a monthly payment or interest rate can increase or decrease).

Cash Reserves: This is a cash amount sometimes required to be held in reserve (over and above the down payment and closing costs). This amount is determined by the lender.

Certificate of Title: This is a document provided by a qualified entity (such as a title company) that shows the property legally belongs to the current owner before the title is transferred at closing. The property should be free and clear of all liens or other claims.

Closing: This is also known as "settlement." This is when the property is formally sold and transferred from the seller to the buyer. It is at this time that the borrower takes on the loan obligation, pays all closing costs, and receives title from the seller.

Closing Costs: These are customary costs above and beyond the sale price of the property that must be paid to cover the transfer of ownership at closing. These costs generally vary by geographic location and are typically disclosed to the borrower after submission of a loan application.

Commission: This is an amount, usually a percentage of the property sales price that is collected by a real estate professional as a fee for negotiating the transaction.

Condemnation: This is a court action determining that a property is unfit for use; or, the taking of private property by the government for use by the public under the right of "eminent domain."

Condominium: This is a form of ownership in which individuals purchase and own a unit of housing in a multi-unit complex. The owner also shares financial responsibility for common areas usually through a home owners' association (HOA)..

Conventional Loan: This is a private sector loan, one that is not guaranteed or insured by the U.S. government.

Cooperative (Co-op): The residents purchase stock in a cooperative corporation that owns a buildin.; Each stockholder is then entitled to live in one of the units of the building and is responsible for paying a portion of the loan.

Credit Bureau Score: This is a number representing the possibility a borrower may default. It is based upon an individual's credit history and is used to determine ability to qualify for a mortgage loan.

Credit History: This is the history of an individual's debt payment. Lenders use this information to evaluate a potential borrower's ability to repay a loan.

Credit Line: This is a credit account that lets a borrower decide when to take money out and how much to take out. This is also known as a "Line of Credit."

Credit Report: This is a record that lists all past and present debts and the timeliness of their repayment. It sets forth in written form an individual's credit history.

Current Interest Rate: In the HECM program, the interest rate currently being charged on a loan; it equals the one-year rate for United States Treasury Securities, plus the lender's margin.

Debt-To-Income Ratio: This is a comparison of gross income to housing and non-housing expenses. With the FHA, the-monthly mortgage payment should be no more than 29% of monthly gross income (before taxes) and the mortgage payment combined with non-housing debts should not exceed 41% of income.

Deed: This is the document that transfers ownership of a property.

Deed-In-Lieu: To avoid foreclosure ("in lieu" of foreclosure), a deed is given to the lender to fulfill the obligation to repay the debt; this process doesn't allow the borrower to remain in the house but helps avoid the costs, time, and effort associated with foreclosure.

Default: This refers to the inability of the borrower to pay monthly mortgage payments in a timely manner or to otherwise meet the mortgage terms.

Deferred Payment Loan (DPL): This is a reverse mortgage that gives the borrower a lump sum of cash to repair or improve a home; usually offered by state or local governments.

Depreciation: This refers to a decrease in the value of a home.

Delinquency: The failure of a borrower to make timely mortgage payments under a loan agreement.

Discount Point: This is normally paid at closing and is generally calculated to be equivalent to 1% of the total loan amount, discount points are paid to reduce the interest rate on a loan.

Down Payment: This refers to the portion of a home's purchase price that is paid in cash and is not part of the mortgage loan.

Earnest money: This refers to money put down by a potential buyer to show that he or she is serious about purchasing the home. It becomes part of the down payment if the offer is accepted, or it is returned if the offer is rejected. It is forfeited if the buyer pulls out of the deal.

Eminent Domain: This refers to the right of a government to take private property for public use; such as, taking privately owned land in order to build a park or highway.

Energy Efficient Mortgage (EEM): This refers to an FHA program that helps homebuyers save money on utility bills by enabling them to finance the cost of adding energy efficiency features to a new or existing home as part of the home purchase.

Equity: This is an owner's financial interest in a property, and is calculated by subtracting the amount still owed on the mortgage loan(s) from the fair market value of the property.

Escrow: This refers to the holding of money or documents by a neutral third party prior to closing. It can also be an account held by the lender (or servicer) into which a homeowner pays money for taxes and insurance.

Escrow Account: This is a separate account into which the lender puts a portion of each monthly mortgage payment; an escrow account provides the funds needed for such expenses as property taxes, homeowners insurance, mortgage insurance, etc.

Expected Interest Rate: In reference to the Home Equity Conversion Mortgage (HECM) program, this is the interest rate used to determine a borrower's loan advance amounts; it equals the ten year rate for United States Treasury Securities, plus the lender's margin.

Fair Housing Act: This is a law that prohibits discrimination in all phases of the home buying process on the basis of race, color, national origin, religion, sex, familial status, or disability.

Fair Market Value: This refers to the hypothetical price that a willing buyer and seller will agree upon when they are acting freely, carefully, and with complete knowledge of the situation.

Federally Insured Reverse Mortgage: This is a reverse mortgage guaranteed by the federal government so the borrower will always get what the loan promises; also a Home Equity Conversion Mortgage (HECM).

Fixed Monthly Loan Advances: These are payments of the same amount that are made to a borrower each month

Fixed-Rate Mortgage: This refers to a mortgage with payments that remain the same throughout the life of the loan because the interest rate and other terms are fixed and do not change.

Flood Insurance: This is insurance that protects homeowners against losses from a flood especially if a home is located in a flood plain. In locations of this type, the lender will usually require flood insurance before approving a loan.

Foreclosure: This refers to a legal process in which mortgaged property is sold to pay the loan of the defaulting borrower.

Good Faith Estimate: This is an estimate of all closing fees including pre-paid and escrow items as well as lender charges.; The GFE must be given to the borrower within three days after submission of a loan application.

Home Equity: Refers to the value of a home, subtracting any money owed on it.

Home Equity Conversion: This is in reference to turning home equity into cash without having to leave your home or make regular loan repayments.

Home Equity Conversion Mortgage (HECM): This is the only reverse mortgage program insured by the Federal Housing Authority, a federal government agency.

Home Equity Loan: Refers to a mortgage on the borrower's principal residence, usually for the purpose of making home improvements or debt consolidation.

Home Inspection: This is an examination of the structure and mechanical systems to determine a home's safety. This inspection makes the potential homebuyer aware of any repairs that may be needed.

Home Warranty: This guarantee offers protection for mechanical systems and attached appliances against unexpected repairs not covered by homeowner's insurance; coverage extends over a specific time period and does not cover the home's structure.

Homeowner's Insurance: This is an insurance policy that combines protection against damage to a dwelling and its contents with protection against claims of negligence or inappropriate action that result in someone's injury or property damage.

Housing Counseling Agency: This agency provides counseling and assistance to individuals on a variety of issues, including loan default, home buying and fair housing.

HUD1 Statement: This is also known as the "settlement sheet."It itemizes all closing costs and must be given to the borrower at or before closing.

HVAC: This is an acronym for Heating, Ventilation and Air Conditioning; a home's heating and cooling system.

Index:This is a measurement used by lenders to determine changes to the Interest rate charged on an adjustable rate mortgage.

Inflation: This refers to a situation where the number of dollars in circulation exceeds the amount of goods and services available for purchase; inflation results in a decrease in the dollar's value.

Initial Interest Rate: In the HECM program,this is the interest rate that is first charged on the loan beginning at closing; it equals the one year rate for United States Treasury Securities, plus a margin

Interest: This refers to a fee charged for the use of money.

Interest-Only Mortgage: This is a mortgage on which for some periodof time, the monthly mortgage payment consists of interest only. During that period, the loan balance remains unchanged.

Interest Rate: This refers to the amount of interest charged on a monthly loan payment. It is usually expressed as a percentage.

Insurance: This is protection against a defined loss (such as fire, earthquake, theft, etc.) over a period of time that is secured through the payment of a regularly scheduled premium.

Judgment: This is a legal decision. When requiring debt repayment, a judgment may include a property lien that secures the creditor's claim by providing a collateral source.

Jumbo Loan: This is a nonconforming loan that is larger than the limits set by the Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC) guidelines.

Lease purchase: This assists low- to moderate-income homebuyers in purchasing a home by allowing them to lease a home with an option to buy. The rent payment is made up of the monthly rental payment plus an additional amount that is credited to an account for use as a down payment.

Leftover Equity: This refers to the sale price of the home minus the total amount owed on it and the cost of selling it. It is the amount the homeowner or heirs get after the house is sold.

Lien: This is a legal claim against property that must be satisfied when the property is sold.

Loan: This refers to money borrowed that is usually repaid with interest.

Loan Advances: These are payments made to a borrower, or to another party on behalf of a borrower.

Loan Balance: This is the amount owed, including principal and interest; capped in a reverse mortgage by the value of the home when the loan is repaid.

Loan Fraud: This refers to a prospective borrower purposely giving incorrect information on a loan application in order to better qualify for a loan. This can result in civil liability or criminal penalties.

Loan-To-Value (LTV) ratio: This is a percentage calculated by dividing the amount borrowed by the price or appraised value of the home to be purchased. The higher the LTV, the less cash a borrower is required to pay as down payment.

Lock-In: Because interest rates can change frequently, many lenders offer an interest rate lock-in that guarantees a specific interest rate if the loan is closed within a specific time.

Loss Mitigation: This is a process that helps avoid foreclosure. The lender tries to help a borrower who has been unable to make loan payments and is in danger of defaulting on his or her loan.

Lump Sum: This is a single loan advance at closing.

Margin: This refers to an amount the lender adds to an index to determine the interest rate on an adjustable rate mortgage.

Maturity: This refers to a time when a loan must be repaid. In other words, this is when the loan becomes 'due and payable'.

Mortgage: This is a lien on the property that secures the promise to repay a loan.

Mortgage Banker: This is a company that originates loans and resells them to secondary mortgage lenders like: Fannie Mae or Freddie Mac.

Mortgage Broker: This refers to a firm that originates and processes loans for a number of lenders.

Mortgage Insurance: This is a policy that protects lenders against some or most of the losses that can occur when a borrower defaults on a mortgage loan. Mortgage insurance is required primarily for borrowers with a down payment of less than 20% of the home's purchase price.

Mortgage Insurance Premium (MIP): This is a monthly payment -usually part of the mortgage payment - paid by a borrower for mortgage insurance.

Mortgage Modification: This is a loss mitigation option that allows a borrower to refinance and/or extend the term of the mortgage loan and thus reduce the monthly payments.

Non-Recourse Mortgage: This refers to a home loan in which the borrower can never owe more than the home's value at the time the loan is repaid.

Offer: This is a indication by a potential buyer of a willingness to purchase a home at a specific price that is generally presented in writing.

Origination: This is the process of preparing, submitting, and evaluating a loan application. It generally includes a credit check, verification of employment, and a property appraisal.

Origination Fee: This is the charge for originating a loan and is usually calculated in the form of points and paid at closing.

Overages: This is the difference between the lowest available price and any higher price that the home buyer agrees to pay for the loan. Loan officers and brokers are often allowed to keep some or all of this difference as extra compensation.

Partial Claim: This is a loss mitigation option offered by the FHA that allows a borrower, with help from a lender, to get an interest-free loan from HUD to bring their mortgage payments up to date.

PITI: Principal, Interest, Taxes, and Insurance - the four elements of a monthly mortgage payment; payments of principal and interest go directly towards repaying the loan while the portion that covers taxes and insurance (homeowner's and mortgage, if applicable) goes into an escrow account to cover the fees when they are due.

Points: These are the fees paid to the lender for the loan. One point equals one percent of the loan amount. Points are usually paid in cash at closing. In some cases, the money needed to pay points can be borrowed, but doing so will increase the loan amount and the total costs.

Private Mortgage Insurance (PMI): These are privately-owned companies that offer standard and special affordable mortgage insurance programs for qualified borrowers with down payments of less than 20% of a purchase price.

Pre-Approve: This is when the lender commits to lend to a potential borrower. The commitment remains as long as the borrower still meets the qualification requirements at the time of purchase.

Pre-Foreclosure Sale: This allows a defaulting borrower to sell the mortgaged property to satisfy the loan and avoid foreclosure.

Pre-Qualify: a lender informally determines the maximum amount an individual is eligible to borrow.

Premium: an amount paid on a regular schedule by a policyholder that maintains insurance coverage.

Prepayment: payment of the mortgage loan before the scheduled due date; may be subject to a prepayment penalty.

Principal: the amount borrowed from a lender; doesn't include interest or additional fees.

Private Mortgage Insurance (PMI): insurance designed to protect the lender against a loss if a borrower defaults on the loan. It is typically required for loans in which the down payment is less than twenty percent of the sales price or, in a refinancing, when the amount financed is greater than eighty percent of the appraised value.

Property Tax Deferral (PTD): reverse mortgages that pay annual property taxes; usually offered by state or local governments.

Proprietary Reverse Mortgage: a reverse mortgage product owned by a private company.

Radon: a radioactive gas found in some homes that, if occurring in strong enough concentrations, can cause health problems.

Real Estate Agent: an individual who is licensed to negotiate and arrange real estate sales; works for a real estate broker.

Real Estate Settlement Procedures Act (RESPA): a law protecting consumers from abuses during the residential real estate purchase and loan process by requiring lenders to disclose all settlement costs, practices, and relationships.

Realtor: a real estate agent or broker who is a member of the NATIONAL ASSOCIATION OF REALTORS, and its local and state associations.

Refinancing: paying off one loan by obtaining another; refinancing is generally done to secure better loan terms (like a lower interest rate).

Rehabilitation Mortgage: a mortgage that covers the costs of rehabilitating (repairing or Improving) a property; some rehabilitation mortgages - like the FHA's 203(k) - allow a borrower to roll the costs of rehabilitation and home purchase into one mortgage loan.

Reverse Annuity Mortgage: a reverse mortgage in which a lump sum is used to purchase an annuity that gives the borrower a monthly income for life.

Reverse Mortgage: a home loan that gives cash advances to a homeowner, requires no repayment until a future time, and is capped by the value of the home when the loan is repaid.

Right of Rescission: a borrower's right to cancel a home loan within three business days of the closing.

Servicing: administering a loan after closing, such as maintaining loan records and sending statements.

Settlement: another name for closing.

Shared Equity: an itemized loan cost, based on a percent of a home's value at loan maturity.

Special Forbearance: a loss mitigation option where the lender arranges a revised repayment plan for the borrower that may include a temporary reduction or suspension of monthly loan payments.

Subordinate: to place in a rank of lesser importance or to make one claim secondary to another.

Supplemental Security Income (SSI): a federal monthly income program for low-income persons who are sixty-five years of age or older, blind, or disabled.

Survey: a property diagram that indicates legal boundaries, easements, encroachments, rights of way, improvement locations, etc.

Sweat Equity: using labor to build or improve a property as part of the down payment.

T-Rate: the rate for United States Treasury Securities; used to determine the initial, expected, and current interest rates for the HECM program.

Tenure Advances: fixed monthly loan advances for as long as a borrower lives in a home.

Term Advances: fixed monthly loan advances for a specific period of time.

Thrift Institution: general term for savings banks and savings and loan associations.

Title 1: an FHA-insured loan that allows a borrower to make non-luxury improvements (like renovations or repairs) to their home; Title I loans less than $7,500 don't require a property lien.

Title Insurance: insurance that protects the lender against any claims that arise from arguments about ownership of the property; also available for homebuyers.

Title Search: a check of public records to be sure that the seller is the recognized owner of the real estate and that there are no unsettled liens or other claims against the property.

Total Annual Loan Cost (TALC) Rate: the projected annual average cost of a reverse mortgage including all itemized costs.

Transaction, Settlement, or Closing Costs: may include application fees; title examination, abstract of title, title insurance, and property survey fees; fees for preparing deeds, mortgages, and settlement documents; attorneys' fees; recording fees; and notary, appraisal, and credit report fees. Under the Real Estate Settlement Procedures Act, the borrower receives a good faith estimate of closing costs at the time of application or within three days of application. The good faith estimate lists each expected cost either as an amount or a range.

Truth-in-Lending: a federal law obligating a lender to give full written disclosure of all fees, terms, and conditions associated with the loan initial period and then adjusts to another rate that lasts for the term of the loan.

Underwriting: the process of analyzing a loan application to determine the amount of risk involved in making the loan; it includes a review of the potential borrower's credit history and a judgment of the property value.

Uninsured Reverse Mortgage: a reverse mortgage that becomes due and payable on a specific date.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 
 

 
 

Mortgage Terms
Terms used in residential lending.

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