Mortgage Material 1 (Glossary)

Above par

When a mortgage is sold for more than its face value because it has an above market interest rate.

EX: $100k mortgage may be sold for $101K

“A” Credit Mortgages

Mortgages which generally meet the credit underwriting guidelines of Fannie Mae, Freddie Mac, FHA, VA.

Above par

When a mortgage is sold for more than its face value because it has an above market interest rate.

EX: $100k mortgage may be sold for $101K

“A” Credit Mortgages

Mortgages which generally meet the credit underwriting guidelines of Fannie Mae, Freddie Mac, FHA, VA.

Adjustable rate mortgage

Mortgage in which the interest rate changes at certain intervals during the term of the mortgage

Alternative documentation

Use of bank statements, W-2’s, and pay stubs to document an applicant’s income and assets instead of verification forms mailed by the lender.

Amortization schedule

A table that shows the principal changes of a mortgage balance either on a monthly or annual basis.

Annual percentage rate (APR)

Represents the total cost of borrowing money, including the interest rate and other fees, expressed as a yearly percentage.

Application fee

Fee charged by the lender at the time of the loan application. This fee may include the cost of an appraisal, credit report, and others occurred in the process.

Appraisal

Estimation of value. For residential properties the appraiser would utilize the uniform residential appraisal report (URAR).

Appreciation

The increase in value of property over time.

Assumption

Act if taking over the previous borrowers obligation of a mortgage note. terms are not changed by the lender when the mortgage is assumed.

Automated underwriting systems

Systems that take into account credit scores and other characteristics about borrowers history to develop a rating which the underwriting can make a decision. Includes “desktop underwriter” (fannie mae) and “loan processor” (freddie mac)

Back to back settlement

Transactions involving selling one home and purchasing another on the same day.

Balloon

Mortgage that does not fully amortize over the term of the mortgage. there is going to be principal amount left at the end, known as the ballon payment.

Base mortgage amount

The mortgage amount before mortgage insurance or VA funding fee is added.

Bi-weekly mortgage

Mortgage that requires ½ of a monthly payment every two weeks. Results lead to an extra monthly payment each year. Should lower the term around to 22-25 years (instead of 30).

Bridge loan

Short term mortgage, usually interest only, helps purchaser settle on home before their current is sold.

Buydown

Lowers the interest rate of the mortgage.

Permanent buydown

Lowers the rate for the entire term of the mortgage.

Temporary buydown

Lowers the rate for a certain portion of the term, usually in the first years.

Capital gains income

Income derived though the sale of assets such as real estate.

Capped rate

Rate commitment by a lender which locks in a maximum rate but allows the borrower to relock if market rates decrease. Known as CAP or FLOAT.

Cash out refinance

A refinance in which the borrower takes cash or equity out of the property.

Certificate of deposit index (CODI)

The 12-month average of the most recently published dealer bid rates (yields) on nationally traded three-month certificates of deposit

Certificate of eligibility (COE)

Confirms you meet the military service requirements for a VA loan.

Certificate of reasonable value (CRV)

Appraisal of a property for a VA mortgage.

Closing costs

The costs incurred in order to purchase real estate.

Co-borrower

2 or more borrowers obtaining the same mortgage. If they aren’t living in the same property, co-borrower is now a non owner occupant co-borrower.

Combined loan to value

the principal balance of all mortgages on the property divided by the value of the property.

Commercial mortgage

A loan that secures commercial real estate.

Commercial real estate

Shopping centers, office buildings, apartment buildings. Utilized for the production of income rather than residences.

Comparables

Properties utilized in an appraisal to determine the value of the property being appraised.

Compensating factor

A positive characteristic of a mortgage application that may offset a negative factor.

Compressed buydown

temporary buydown that has rate changes every 6 months as opposed annually.

Conditional right to refinance

Provision of a balloon mortgage which, at the time of the scheduled balloon payment, allows the borrower to convert to a fixed rate for the remainder of the loan term.

Conditional commitment

term for an FHA appraisal.

Condominium

Project in which each unit owner has title to a unit and has undivided interest to the common areas.

Conforming mortgage

Mortgage that can be purchased by fannie mae or freddie mac.

Construction mortgage

Loan secured by real estate which is for the purpose of funding construction of improvement or buildings.

Construction to permanent mortgage

Loan secured by real estate that is for the purpose of replacing a construction mortgage soon after the improvements are completed.

Consumer price index

An index of the federal governments measure of price increases at the retail level.

Contribution

Cash or other concession by the seller of the property in order to induce a purchaser to buy that property.

Conventional Mortgage

A mortgage not guaranteed by VA or insured by FHA, rural housing or state bond agencies.

Conversion feature

A feature of a mortgage that allows the conversion to another interest rate, mortgage term, or type of mortgage instrument

Cooperative (COOP)

A form of ownership in which the right to occupy the unit is obtained by the purchase of shares in a corporation which owns the building.

Deed of trust

Legal document that enables the lender, or mortgage, to hold legal claim or title to a property while the note is outstanding. The deed of trust transfers title to a trustee designated by the lender.

Department of housing and urban development

A cabinet level federal agency which houses the federal housing administration (FHA) and government national mortgage association (ginnie mae).

Department of federal affairs (VA)

Cabinet level federal agency whose chief purpose is to aid veterans through a variety of programs.

Desktop underwriter (DU)

Fannie Mae’s automated underwriting system

Discount Point

A charge by a lender levied to buy down the interest rate (equals 1% of the loan amount).

Down payment

Money given by the purchaser of a property to the seller to acquire the mortgage and hence the property.

Draws

Money taken out of an escrow account to finance the rehabilitation or construction of a house.

Escrow

Financial arrangement where a neutral third party holds funds or assets on behalf of two parties involved in a transaction, typically a real estate purchase.

Easement

Right to utilize another property other than one’s own. (utility company working on lines)

Encroachment

Existence of a protrusion or infringement of a structure such as a fence on a property.

Equity

present value of the property - mortgage amount of the property.

Farmers home administration (FmHA)

Federal agency that guarantees mortgages in rural areas.

Federal bond subsidy act

federal legislation empowering state and local governments to issue tax free bonds to fund mortgages for lower to middle income borrowers.

federal home loan mortgage corporation (Freddie mac)

focuses on smaller banks and credit unions.

Federal national mortgage association (fannie mae)

purchases mortgages from larger, commercial banks.

Frannie mae and freddie mac

Government sponsored enterprises (GSE’s) that are publicly traded corporations supervised by federal government. Called conforming mortgages.

Federal housing administration (FHA)

government agency located within the department of housing and urban development.

Fee simple

unrestricted ownership of real property.

FHA direct endorsement

FHA program in which lenders approve FHA mortgages directly as opposed to submitting the applications to the agency for approval.

Fixed rate mortgage

mortgage in which the interest rate (and payment) does not change over the term of the mortgage.

Fixed payment mortgage

payment doesn’t change though the life of the mortgage.

Float

application in which the lender haas not committed to lend at a particular interest rate.

Floor

The lowest interest rate of an adjustable rate mortgage.

FSBO

An acronym that stands for for sale by owner, as opposed to a home that is listed for sale through a real estate company.

Full Documentation Mortgage

verification process that relies upon verification forms sent by the lender rather than alternative documentation (such as pay stubs) provided by the applicant.

Fully Amortized

A mortgage that has a zero balance at the end of the mortgage term.

Fully Indexed Accrual Rate

The index plus the margin for an adjustable rate mortgage (FIAR).

Graduated Payment Mortgage (GPM)

A mortgage which has regularly scheduled payment increases during some portion of the mortgage term.

Gross Monthly Income

A person's income before deductions for taxes, medical insurance, etc. referred to as take home pay.

Ground Rent

The land upon which a home is located is under a long-term lease (leasehold ownership as opposed to fee simple).

Growing Equity Mortgage (GEM)

A type of graduated payment mortgage that has a shorter mortgage term due to future payment increases.

Government Mortgages

Mortgages insured or guaranteed by the government (FHA, VA, Rural Housing, or State Bond Agencies).

Government National Mortgage Association (Ginnie Mae)

Government agency located within the Department of Housing and Urban Development. Created in 1968, its purpose is to facilitate the access of mortgages through creation of a secondary market for government mortgages (FHA and VA).

Guaranty

Amount of money VA will reimburse a lender upon default of a VA mortgage. Also referred to as the amount of entitlement or eligibility.

Home Equity Line of Credit (HELOC)

An open line of credit against the equity in a home (typically a second mortgage).

Homeowners Association Fees (HOA Fees)

A fee typically paid monthly by a homeowner to a homeowners association in order for the association to take care of areas owned in common by all homeowners within a planned unit development.

Homeowners Insurance

Insurance carried by the homeowner to protect the dwelling against fire and other hazards. Also known as "fire insurance."

Index

An indicator that is typically measured by an average of a variable over a certain period of time. Adjustable rate mortgage indices are measures of the movement of interest rates.

Interest Only Mortgages

Mortgage programs that require no repayment of principal. Typical of bridge loans, which will balloon at the end of their term.

Investor Purchase

The purchase of a home for the purpose of generating income by renting the property.

IRS 4506 (Request for Copy of Tax Form)

IRS Form required that allows the lender to pull tax returns on the borrower directly from the IRS, usually accomplished as a quality control check on a certain number of cases after closing. More recently has been replaced by the IRS 8801.

Jumbo Mortgage

A mortgage that is larger than the purchase limits of Fannie Mae and Freddie Mac.

K-1

Federal tax form that reports the income of an individual from a Partnership or Subchapter S Corporation. Other important information on this form includes the percentage of ownership by the individual as well as capital contributed to the entity.

Lender Appraisal Processing Program (LAPP)

VA program that allows lenders to directly issue appraisals, or CRVs.

Lender Paid Mortgage Insurance

Mortgage Insurance program that allows the lender to collect a higher interest rate from the borrower and forward the excess payment to the mortgage insurance company to pay for the mortgage insurance.

Lender Subsidized Buydown

A buydown that has a higher note rate than market. The higher rate funds the initial costs, or subsidy, of the temporary buydown.

LIBOR Index

London Interbank Offered Rates, which is the average rate of interest that major world banks are willing to pay each other for U.S. dollar deposits for various terms on the London market

Lien

A claim against a property. A mortgage is one form of a lien.

Limited Documentation

A mortgage that does not verify income, assets or another aspect of the credit package.

Loan-to-Value (LTV)

The principal amount of a mortgage on a property divided by the value of that property.

Lock-in

The process by which a lender commits to lend at a particular rate as long as the mortgage transaction closes within a specified time period. The document that specifies the terms of the lock-in is called a rate commitment or lock-in agreement.

Margin

The amount added to the index on an adjustable rate mortgage to determine the interest rate at each adjustment

Mortgage

A loan secured against real estate as opposed to personal property. States which are not Trust States utilize a mortgage as the legal instrument to secure the lien against the real estate which means that the owner holds title rather than a trustee.

Mortgagee

The lender of money that is secured by real estate.

Mortgagor

The borrower of money that is secured by real estate.

Mortgagee Clause

Verbiage in the homeowners and title insurance policies which identifies the mortgage holder and its successors and/or assigns.