Mortgage loans glossary

1031 Exchange

a tax deferred exchange of real estate employed to offset or even avoid capital gains tax.

ACH

automated clearing house

Adjustable Rate Mortgage (ARM)

A mortgage with a variable interest rate, which adjusts monthly, biannually, or annually. Option-ARMS and hybrid mortgages are also considered ARMS

ALT-A mortgage

a home loan that isn’t prime or sub-prime but somewhere in the middle.

Amortization

Loan payments by equal periodic amounts calculated to pay off the debt at the end of a fixed period, including accrued interest on the outstanding balance

Amortized loan

A loan to be repaid, by a series of regular installments of principal and interest, that are equal or nearly equal, without any special balloon payment prior to maturity

anniversary date

the date upon which the twelfth payment is due. this occurs in the same calendar month and day each year thereafter on any MOP promissory note

annual percentage rate (APR)

A percentage rate that reflects the amount of interest earned or charged

annual percentage yield (APY)

the annual interest rate taking into account the frequency and cost of compounding interest.

Application checklist

an itemized list of documentation that the borrow and the campus need to provide to the office of loan programs for either pre-approval or loan approval. Also known as form OLP-09

Appraisal

a comprehensive report that determines the value of a property based on a number of valuation factors

Appraised value

the dollar value assigned to a single-family residence by an appraiser

Assumption

the act of assuming responsibility for the payment of a mortgage lien

AUS

automated underwriting system

automated clearing house (ACH)

an electronic funds transfer network that enables direct money transfers between participating bank accounts and lenders. this feature is available only to borrowers who are not currently on active payroll status.

balloon mortgage

a short-term mortgage with small monthly installments and a large lump sum due at the end of the loan term. an example would be 30 due in 15, which amortizes like a 30 year fixed, but is due 15 years earlier

balloon payment

an installment payment on a promissory note- usually the final one for discharging the debt - which is significantly larger than the other installment payments provided under the terms of the promissory note

Beneficiary

the lender on the note secured by a deed of trust

binder

term referring to the evidence of insurance (EOI)

biweekly mortgage

a mortgage where 26 half payments, or 13 full payments, are made annually

borrower

an eligible person as specified in an executed certification of eligibility, prepared by the appropriate campus representative, who will be primarily responsible for the repayment of a program loan

bridge loan

a temporary loan, usually less than 12 months, provided to a borrower when the net proceeds from a sale of a prior residence are not available for the purchase of a new home. it is intended that a bridge loan will be paid off with the net proceeds from the prior residences sale

buy-down

the act of securing a lower than par interest rate by paying the bank lender a premium

caps

initial, periodic, and lifetime payment caps which limit how much and how frequently an interest rate can change on an adjustable-rate mortgage

cash-in refinance

a refinance transaction where borrowers bring money to the closing table to lower their mortgage

certificate of reasonable value (CRV)

an appraisal issued by the veterans administration to determine the value of a property. the loan amount may not exceed the CRV on a VA loan

close of escrow

the meeting between the buyer, seller, and lender (or their agents) where the property and funds legally change hands

closing cost worksheet/good faith estimate

a disclosure which details your loan summary and an estimate of the charges you’ll incur upon settlements

closing costs

the amount of money that must be paid to close the loan, including lender fees and third-party charges, along with taxes and transfer fees

closing

the final step in the loan process when loan documents are signed at an escrow or title company

co-borrower

any individual who will assume responsibility on the loan, take a title interest in the property and intends to occupy the property as their primary residence

community property

property acquired by a married couple, or either spouse in a married couple, during marriage, when not acquired as the separate property of either

confomring loan

a loan that meets Fannie Mae and Freddie Mac guidelines, which also falls under a certain loan amount

construction loan

a short-term loan given to a builder during intervals of the building process which is due upon completion of the project

conventional mortgage

any mortgage that is not insured or guaranteed by the federal government

co-signer

any individual who will assume responsibility on the loan, but who will not take a title interest in the property nor occupy the property

credit report

a tool used to review your credit profile and your ability to carry and repay the debt

curtailment

an additional payment made to reduce the principle balance of a loan

date of recordation

the date on which a deed of trust is officially entered on the books of the country recorder in the county in which the property is located

debt-to-income ratio

the ratio of monthly liabilities and housing expenses divided by the monthly gross income of the borrower

deed of trust

a security instrument, used in place of a mortgage, conveying title in trust to a third party covering a piece of property. it is used to secure payment of a promissory note

deed-in-lieu of foreclosure

a method of avoiding foreclosure by deeding your property to the lender

default

failure to fulfill a duty or promise as specified in the promissory note and/or deed of trust

deferred interest

the amount of interest added to the principal loan balance when a borrower pays less than the interest-only note rate (see option-ARM)

deferred payment loan

a loan which allows the borrower to defer all the monthly principal and interest payments until the maturity date of the promissory note, at which time the outstanding principal and loan balance and all accrued interest is due and payable

delinquency

the failure to make a monthly mortgage on time, which can eventually lead to a notice of default, and later foreclosure.

discount rate

the interest rate the federal reserve offers to member banks and thrifts

down payment

the difference between the purchase price of real estate and the loan amount

earnest money

a deposit paid to the seller by the buyer as a pledge to complete a real estate transaction. if the seller accepts the offer, the deposit is held in escrow and applied to closing costs once the deal is closed.

employee

an appointee who has actively begun to serve in his or her full-time position

equal credit opportunity act (ECOA)

a federal law that prevents lenders from discriminating applicants based on race, religion, national origin, sex, age, marital status, or involvement in public assistance programs

equity

the difference between the fear market value of a property and the current indebtedness secured on the property

escrow holdback

funds retained by the escrow company after the close of escrow until repairs and/or required termite work funds has been completed

escrow

a situation in which a third party, acting as the agent for the buyer and the seller, carries out the instructions of both and assumes the responsibilities of handling all the paperwork and disbursement of funds at settlement or at closing,

evidence of insurance (EOI)

sometimes referred to as a binder. written documentation from a hazard insurance company that a homeowners policy is in existence on a property. typically this is NOT an insurance policy, but a commitment from the insurance company to provide a policy for a specific property at a specific time and premium amount

Fannie Mae

federal national mortgage corporation, a publicly owned, government-sponsored corporation that packages mortgages and resells them on the secondary market

federal funds rate

the interest rate banks charge one another for overnight use of excess reserves

FHA loan

a program originated during the Great Depression that allows lower income borrowers to qualify for mortgages as long as they fit a certain criteria set forth by the federal housing administration who insures them

first-time homebuyer

typically defined as someone who has not owned another property at any time during the three years prior to the date of purchase

fixed-rate mortgage

a mortgage with a constant interest rate that will not adjust at any time during the three years prior to the date of purchase

foreclosure

the legal process by which a bank or lender sells a property after a borrower fails to meet the repayment terms on the loan

freddie Mac

federal home loan mortgage corporation, one of the largest financiers of conventional mortgages on the secondary market

graduated payment mortgage

(GP-MOP) is an alternative loan product under the moorage origination program that results in an initial lower interest rate (borrower rate) than the most recently published MOP rate (standard rate). the initial borrower rate is stated as a percentage below the standard rate, subject to a 2.75% minimum rate. the stated reduction in th standard rate is known as the interest rate differential. the interest rate differential is established to decrease annually between .25 to .50% until such time as the borrower rate equals the standard rate

hard money loan

a mortgage of last resort for borrowers who cant obtain financing in the standard market due to poor credit

HARP loan

a refinance loan offered to those with negative equity

Hazard insurance

a contract where an insurer, for a premium, undertakes to compensate the insured for loss on a specific property due to certain hazards.

home equity line of credit

a line of credit that uses the value of the property as collateral

home equity

the value of a property less any and all existing liens. if a borrower owns a property worth 500,000 and has liens of 400,000, equity is 100,000

home improvement

repairs and/or additions made to better the status of the permanent structure of the primary residence.

homeowners insurance policy

an insurance policy available to owners of private dwellings that covers the dwelling and contents in the case of fire, wind damage, theft, and personal liability. the typical policy does not include flood or earthquake coverage

homeowners association

an organization of homeowners residing within a particular development whose major purpose is to maintain and provide community facilities and services for the common enjoyment of the residents.

HUD-1 closing statement

a financial disclosure giving an accounting of all funds received and disbursed at loan closing

impound account

also referred to as an escrow account, an account established by the issuing bank/lender or loan servicer to collect monthly and automatically pay a borrowers property taxes and insurance costs when payments are due

inspection reports

reports ordered by the borrower to assess the quality of the home. typically, this includes a termite report and ‘‘whole house’’ inspection. other reports that may be ordered include roof, foundation, geological, and septic tank inspections.

interest

consideration in the form of money paid for the use of money, usually expressed as an annual percentage. also a right, share or title in property.

interest-only payment loan

a non-amortizing loan in which the lender receives interest during the term of the loan and the principal is repaid in a lump sum at maturity

interest-only

paying just the interest portion of the mortgage payment each month

IRS 1098 mortgage interest statement

a statement provided by the lender to the borrower indicating the total amount of interest paid by the borrower for a given calendar year

islamic mortgage

a mortgage that avoids the payment or receipt of interest, which is prohibited under islamic law

joint tenancy

joint ownership by two or more persons giving each tenant equal interest and equal rights in the property, including the right to survivorship

jumbo loan

a loan amount above the conforming loan limits, which is set each year by Fannie Mae and Freddie Mac. these fans typically carry higher interest rates than conforming loans

lender credit

a credit paid by the lender to the borrower for taking an above-market interest rate.

lender overlay

a guideline (or set of guidelines) in addition to those required by Fannie Mae, Freddie Mac, or the fha/vha

lenders escrow instructions

instructions produced by the office of loan programs for an escrow or title company detailing the documentation and procedures required before. loan is funded

lender-paid mortgage insurance

the lender pays for your mortgage insurance in exchange for a higher rate of mortgage

letter of explanation (LOE or LOX)

a brief document you can use to explain anything in your financial or employment documents that might make an underwriter pause. for example, you may need to write a letter of explanation if you have unusual over sudden activity in your credit report or banking statements.

lien

a claim against a property by the issuing bank or lender to secure repayment of a debt, typically in the form of a mortgage.

loan commitment

letter/loan approval issued by the office of loan programs (OLP) committing to the funding of a program loan for a specific borrower and property. a ;can commitment letter will only be issued after olps satisfactory review of all property documentation (purchase contract, appraisal, inspections) and will state the approved loan amount, initial rate, and loan term. the letter will also require that certain conditions are met prior to loan funding. the initial interest rate specified will be the program rate in effect at the time a loan commitment is issued. a loan commitment expires within 60 days of date issues

loan denial letter

a letter from the office of loan programs denying a loan to a specific individual. the reasons for denial include credit history, lack of verifiable liquid assets, inadequate income

loan officer

a representative of a bank or broker who originates mortgages on their behalf

loan origination

the initiation of the home loan processes whereby a borrower submits their information to a bank or lender in order to obtain mortgage financing

loan processor

the individual who handles all the paperwork associated with closing a loan

loan underwriting

the analysis of risk and the decision whether to make a loan to a potential homebuyer base don credit, employment, assets, and other factors.

loan to value ratio (LTV)

the ratio of the principal balance of a mortgage loan to the value of the securing property, as determined by the purchase price or appraised value, whichever is less

margin

a given amount specified by the bank to lender which when added to the accompanying mortgage index sets the interest rate for an adjustable rate mortgage

MIP

mortgage insurance premium

MOP calculator

a web-based calculator for potential applicants to determine whether they might meet the minimum requirements for a mop loan

mortgage broker

an independent loan originator who works on behalf of consumers to obtain mortgage financing. brokers dont represent a single-bank, but rather work with numerous lenders

mortgage discount points

a form of prepaid interest whereby the borrower lowers the interest rate of the mortgage at closing.

mortgage due date

the date your mortgage payment is due each month during the loans duration