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Mortgage Glossary

A B C D

F G H I J K 

L M N O P Q

 R S T U V W 

X Y Z 

 


A B C D F G H I J K  L M N O P Q R S T U V W  X Y Z #

Select the first letter of the word from the list above to jump to appropriate section of the glossary. If the term you are looking for starts with a digit or symbol, choose the '#' link.


- A -

Acceleration

The right of the mortgagee (lender) to demand the immediate repayment of the mortgage loan balance upon the default of the mortgagor (borrower), or by using the right vested in the Due-on-Sale Clause.


Adjustable Rate Mortgage (ARM)
A type of mortgage loan, usually lasting 30 years, where the interest rate fluctuates and depends on a particular preselected interest rate index. The advantage of this type of loan is that lenders typically offer initial discounts (teaser rates) on the interest rate  index making the loans less expensive than a traditional fixed rate mortgage. In  addition, the loan payment goes up and down depending on the actual financial conditions of the economy which can be an advantage if interest rates remain constant or decline during the life of the loan. The disadvantage of this type of loan is that your exact payment over time is unpredictable and can increase. Also called variable rate mortgage.


Adjustment Interval
On an adjustable rate mortgage, the time between changes in the interest rate and/or monthly payment, typically one, three or five years depending on the index.

Amortization
Literally to "kill off" (root: mort) the outstanding balance of a loan by making equal payments on a regular schedule (usually monthly). The payments are structured so that the borrower pays both interest and principal with each equal payment.


Annual Percentage Rate (APR)
APR is a measurement of the full cost of a loan including interest and loan fees expressed as a yearly percentage rate. Because all lenders apply the same rules in calculating the annual percentage rate, it provides consumers with a good basis for comparing the cost of loans.


Application Fee
The fee charged by the lender to the borrower for applying for a loan. Payment of this fee does not guarantee that a loan will be approved. Some lenders may apply the cost of the application fee to certain closing costs.


Appraisal
An estimate of the value of property based on recent sales information of similar properties. The appraisal is made by a qualified professional called an "appraiser".

 

Assessed Valuation  

The value that a taxing authority places on real or personal property for the purpose of taxation.

Assessment  

A charge against a property for purposes of taxation. This may take the form of a levy for a special purpose or a tax in which the property owner pays a share of the cost of community improvements according to the valuation of his or her property.

Assumption
The agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller. Assuming a loan can usually save the buyer money since this is an existing mortgage debt, unlike a new mortgage where closing cost and new, probably higher, market-rate interest charges will apply.


- B -

Balloon Mortgage
A type of mortgage loan that is exactly like a traditional fixed rate mortgage except that it becomes 100% due after a specified amount of time has elapsed (usually five or seven years).When the loan matures, you must pay the loan off in cash (Balloon Payment) or refinance. The advantage of this type of loan is that the initial rate is usually lower than a normal fixed rate loan. The disadvantage of this type of loan is that you may have to refinance or pay off the loan if you do not sell the home by the time the loan matures.

Biweekly Mortgage

A type of fixed-rate mortgage with payments for half the usual monthly amount scheduled every two weeks. Because you make the equivalent of 13 months of payments every year, the loan term is shortened from 30 years to 18 or 19 years, and total interest cost are substantially lower.


Borrower (Mortgagor)
One who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan in full.


Broker
An individual in the business of assisting in arranging funding or negotiating contracts for a client but who does not loan the money himself. Brokers usually charge a fee or receive a commission for their services.


Buydown
The process of paying additional points on the loan to reduce the monthly mortgage. There are typically two specific types: a Permanent Buydown, and a Temporary Buydown. In a Permanent Buydown, a sufficient amount of interest is prepaid to lower the rate permanently. In a Temporary  Buydown, only a sufficient interest is paid to lower the payment for the first three years. The reason to Temporarily Buydown a loan is to lower the current payments thereby more easily qualifying for the loan. This usually makes sense because income will usually continue to increase as the interest rate does. The most common Temporary Buydown is called 3-2-1, meaning three percent lower the first year, two percent lower the second year, and one percent lower the third year.


- C -

Caps
A set percentage amount by which an adjustable rates mortgage may adjust each adjustment period. For adjustable loans, caps are usually quoted as two numbers as in 2/6. The first number indicates how much a loan may adjust at each adjustment period while the second number indicates how much a loan may adjust over its lifetime.

Loans like the 3/1 and 5/1 adjustable, which have an initial fixed period are quoted with  numbers as in 2/6/3 which would mean that the first adjustment may be as much as 3%, subsequent adjustments are capped at 2% each, and the lifetime cap is 6%. Two-Step loans are quoted with a single cap, which is the amount by which the loan mayadjust at its single adjustment date.

Cash Out  

A loan transaction in which the borrower receives funds as the time of closing.

Certificate of Eligibility  

A document issued by the federal government certifying a veteran’s eligibility for a Veterans Administration (VA) mortgage guarantee.

Certificate of Title  

A written statement usually furnished by a title company or attorney which presents the status of the title to a piece of property.

Cash to Close  

Liquid assets that are readily available to be used to pay the closing costs involved in a closing of a mortgage transaction.

 

Closing  

The meeting between the buyer, seller and lender (or their agents) where the property and funds legally change hands. Also called settlement.

 

Closing Agent (Escrow/Title Company)  

A third party who oversees the closing of the loan transaction.


Closing Costs
The meeting between the buyer, seller and lender or their agents where the property and funds legally change hands, also called settlement. Closing costs usually include an origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. The cost of closing usually is about 3 percent to 6 percent of the mortgage amount.

 

Closing Documents

The documents which are signed at closing. These include the Deed of Trust or Mortgage with attachments, Promissory Note, Truth-in-Lending Disclosure, and other documents related to the transaction.

 

Closing Statement

A form used at closing that gives an account of the funds received and paid at the closing, including the escrow deposits for taxes, hazard insurance, and mortgage insurance.

Co-Borrower 

Additional borrower(s) whose income contributes to qualifying for a loan and whose name(s) appears on documents with equal legal obligations.


COFI - Cost of funds index
Adjustable-rate mortgage with rates that adjust based on a cost-of-funds index, often the 11th District Cost of Funds.


Collateral  

Property pledged as security for a debt, such as the real estate pledged as security for a mortgage.

Commitment (Loan) 

A binding pledge made by the lender to the borrower to make a loan, usually at a stated interest rate within a given period of time for a given purpose, subject to the compliance of the borrower to stated conditions.

Commitment Fee (Loan) 

Any fee paid by a potential borrower to a lender for the lender's promise to lend money at a specified rate and within a given time period.

Commitment Letter

A lender's written offer to grant a mortgage loan outlining the terms, the amount of the loan, the interest rate and any other conditions. It can also serve as a communication of the lender's decision to the borrower's application.

Comparables 

An abbreviation for comparable properties used for comparative purposes in the appraisal process; facilities of reasonably the same size and location with similar amenities; properties which have been recently sold, which have characteristics similar to the property under consideration, thereby indicating the approximate fair market value of the subject property.


Conforming Loan
A mortgage loan for $227,150 or lower.

Convertible ARM

A type of adjustable rate mortgage that allows the borrower to change from an ARM to a fixed rate loan according to the terms of the note and security instrument.


Construction Loan
A short term loan for funding the cost of construction. The lender advances funds to the builder as the work progresses.


Conventional Loan
A mortgage neither insured by the FHA nor guaranteed by the VA.


Conversion
The right of a borrower to convert an adjustable or balloon loan into a fixed loan.


Credit Rating
Borrowers are rated by lenders according to the borrower's credit-worthiness or risk profile. Credit ratings are expressed as letter grades such as A-, B, or C+. These ratings are based on various factors such as a borrowers payment history, foreclosures, bankruptcies and charge-offs. There is no exact science to rating a borrowers credit, and different lenders may assign different grades to the same borrower.


Credit Report
A report to a prospective lender on the credit standing of a prospective borrower. Used to help determine creditworthiness. Information regarding late payments, defaults, or bankruptcies will appear here.


- D -

Debt Ratio
One of several financial calculations performed by your lender to determine if you can afford a particular monthly payment. The debt ratio (also known as the obligations ratio) is the sum of all of your monthly debt payments including your total monthly mortgage payment divided by your total monthly income. Typically acceptable debt ratios for Conventional Loans are 36-38%, FHA Loans are 41-43%, and VA Loans are 41%.



Deed of Trust
A legal document which affects the transfer of ownership of real estate from the seller to the buyer.


Default
Failure to meet legal obligations in a contract. Typically failure to make the monthly payments on a mortgage.


Delinquency
Failure to make payments on time, which can lead to foreclosure.

Deminimus PUD  

A PUD in which the common property has less than a 2% influence upon the value of the premises. The 2% rule of thumb is calculated by dividing the dollar amount of amenities by the total number of units. Also see PUD.

 

Department of Veterans Affairs
An independent agency of the federal government that guarantees long- term, low-or no-down payment mortgages to eligible veterans.

 

Deposit 

A sum of money given to bind a sale of real estate. Also known as earnest money.

 

Depreciation  

A loss of value in real property brought about by age, physical deterioration, functional or economic obsolescence.

Discount Point 

Amount payable to the lending institution by the borrower or seller to increase the lender's effective yield. One point is equal to one percent of the loan amount.

 

Discounted Loan 

When the note rate on a loan is less than the market rate, the lender requires additional points to raise the yield on the loan to the market rate.


Down Payment
The amount of money the buyer puts down, normally anywhere from 5-25%.


Due-on-Sale-Clause
A provision in a mortgage or deed of trust that allows the lender to demand immediate payment of the balance of the mortgage if the mortgage holder sells the home.


- E -

Earnest Money
Money given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment.



Equal Credit Opportunity Act (ECOA)
Is a federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs.


Equity
The difference between the amount owed on the loan and the current market value of the home or property.



Escrow
Documentation held impartially pertaining to the sale and transfer of real estate.


- F -

Fair Credit Reporting Act (FCRA) 

A Federal law which requires a lender who is rejecting a loan request because of adverse credit information to inform the borrower of the source of such information.

Farmers Home Administration (FMHA)
Provide financing to farmers and other qualified borrowers who are unable to obtain loans elsewhere.



Federal Home Loan Bank Board (FHLBB)

The former name for the regulatory and supervisory agency for federally chartered savings institutions. Agency is now called the Office of Thrift Supervision.



Federal Home Loan Mortgage Corporation (FHLMC)
A quasi-governmental agency that purchases conventional mortgages from insured depository institutions and HUD-approved mortgage bankers.



Federal Housing Administration (FHA)
A division of the Department of Housing and Urban Development. Its main activity is the insuring of residential mortgage loans made by private lenders. FHA also sets standards for underwriting mortgages.


FHA loan
A loan insured by the Federal Housing Administration open to all qualified home purchasers. While there are limits to the size of FHA loans ($155,250 as of 1/1/96), they are generous enough to handle moderately-priced homes almost anywhere in the country.



FHA mortgage insurance
Requires a fee (up to 2.25 percent of the loan amount) paid at closing to insure the loan with FHA. In addition, FHA mortgage insurance requires an annual fee of up to 0.5 percent of the current loan amount, paid in monthly installments. The lower the down payment, the more years the fee must be paid.


Federal Home Loan Mortgage Corporation (FHLMC)
The Federal Home Loan Mortgage Corporation provides a secondary market for savings and loans by purchasing their conventional loans. Also known as "Freddie Mac."


Federal National Mortgage Association (FNMA)
A tax-paying corporation created by Congress that purchases and sells conventional residential mortgages as well as those insured by FHA or guaranteed by VA. This institution, which provides  funds for one in seven mortgages, makes mortgage money more available and more affordable.



Finance Charge
The total dollar amount your loan will cost you. It includes all interest payments for the life of the loan, any interest paid at closing, your origination fee and any other charges paid to the lender and/or broker. Appraisal, credit report and title search fees are not included in the finance charge calculation.


Firm Commitment
A promise by the FHA to insure a mortgage loan for a specified property and borrower.



Fixed-Rate Mortgage
A type of mortgage loan, usually lasting 30 years, where the interest rate remains constant throughout the life of the loan. An advantage of a fixed rate loan is your own security that the interest rate will not increase. The disadvantage of a fixed rate loan occurs when interest rates substantially decline below the interest rate of your loan.



Float
Between the time of application and closing, a borrower may choose to bet on interest rates decreasing by electing to float. Floating is essentially choosing not to lock the interest rate. Since it is the borrowers responsibility to lock his or her rate before (or at) closing, choosing to float is considered risky and may result in a higher interest rate.


Foreclosure
A legal process by which the lender or the seller forces a sale of a mortgaged property because the borrower has not met the terms of the mortgage. Also known as a repossession of property.


- G -

Gift Letter 

A  written explanation signed by the individual giving the gift stating, "This is a bona fide gift and there is no obligation expressed or implied to repay this sum at any time."

 

Government Loans
One of two loan types called FHA or VA loan. These loans are partially backed by the
government and can help veterans and low-to-moderate income families afford homes. The advantages of these types of loans is that they often have a lower interest rate, are easier to qualify for, have lower down-payment requirements, and can be assumed by someone else if the home is sold. Many mortgage bankers can obtain these types of loans for you.


Graduated Payment Mortgages
A type of mortgage where the monthly payments start low but increases by a fixed amount each year for the first five years. The payment shortfall or negative amortization is added to the principal  balance due on the loan. The advantages of this type of loan is a lower monthly payment at the  beginning of the loan term. The disadvantages are typically a slightly higher rate than traditional  fixed-rate mortgage loans and lenders usually require a larger down payment.  In addition, the   negative amortized amount increases the balance due on the total loan, which can be a problem  if the value of the home declines.


Gross Monthly Income
The total amount the borrower earns per month, not counting any taxes or expenses. Often
used in calculations to determine whether a borrower qualifies for a particular loan.


Growing Equity Mortgage
Growing Equity Mortgage: A type of mortgage where the monthly payments start low but increase by a fixed amount each year for the entire life of the loan as compared to five years with a Graduate Payment Mortgage. The advantage of this type of loan is that the loan can usually be paid off in a shorter duration than a traditional fixed rate loan. The disadvantage of this loan is that the payment continues to go up irrelevant of the income of the borrower.


Guaranty
A promise by one party to pay a debt or perform an obligation contracted by another if the
original party fails to pay or perform according to a contract.


- H -

Hazard Insurance
A form of insurance in which the insurance company protects the insured from certain loss
es, such as fire, vandalism, storms and certain other natural causes.

High Ratio Loan 

Mortgage loans in excess of 80 percent of the loan amount divided by the lower of the sales price or appraised value.

 

Homeowners Association Dues  

The fees imposed by a condominium or homeowners' association for maintenance of common areas.


Housing Ratio

One of several financial calculations performed by your lender when applying for a
conventional loan to determine if you can afford a particular monthly payment. The housing ratio (also known as the income ratio) is your total monthly payment including taxes and insurance divided by your total monthly income. Typically acceptable housing ratios for Conventional Loans are 28-33% and FHA Loans are 29-31%.


- I -

 

Impound
The portion of a borrower's monthly payments held by the lender or servicer to pay for taxes,
hazard insurance, mortgage insurance, lease payments, and other items as they become due. Also known as reserves.



Index
A nationally published financial measure of economic conditions usually relative to other
financial instruments such as bonds or Treasury Bills. The lender uses a particular index (such as the 6 month Treasury Bill) to calculate your particular monthly payment by adding a fixed margin to the index. The margin is the lenders profit and is over and above the normal index because of the assumption of loan risk. Your lender will adjust the interest on your ARM at regular time intervals also called adjustment intervals (like 6 months), by adding their particular margin to the particular index of the loan. The amount the loan is adjusted is also controlled by a periodic cap (the maximum amount the loan can change during your particular adjustment interval), the monthly cap (the maximum amount the monthly payment can change from one adjustment interval to the next), and the lifetime cap (the total amount the loan can change from their initial rate of the loan).


Indexed Rate
The sum of the published index plus the margin. For example if the index were 9% and the
margin 2.75%, the indexed rate would be 11.75%. Often, lenders charge less than the indexed rate the first year of an adjustable-rate mortgage.

 

Insured Loans 

A loan insured by FHA or a private mortgage insurance company.

 

Interest  

The sum paid for borrowing money, which pays the lender's costs of doing business.

 

Interest Rate 

The percentage of an amount of money which is paid for its use for a specified time.

 

Initial Borrower Interest Rate 

The rate on which the borrower’s first payment is calculated. If the loan is discounted or brought down, it may be lower than the Fully Indexed Accrual Rate.

 

Initial Borrower Payment Rate 

The annual interest rate used to calculate the borrower's initial cash payment. If, for example, the note specifies that a fully amortizing annual rate of 11% be used to calculate the initial monthly payment, and that rate is "brought down" 2%, the IBPR is 9%.

 

Investment Property 

Real estate owned with the intent of supplementing income and not intended for owner occupancy


- J -

Jumbo Loan
A loan above $227,150(as of 1/1/98). These limits are set by the Federal National Mortgage
Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.

- K -

(empty)

- L -

 

Lender
The bank, mortgage company, or mortgage broker offering the loan. Many institutions only
"originate" loans and then resell the obligation to third parties.

 

LENDER BUY-DOWN MORTGAGE  

A convertible mortgage offering a discounted interest rate at the beginning of the loan that gradually increases to an agreed-upon fixed-rate over the first few years of the loan. It provides lower initial payments and a stable final monthly rate, but the final rate may be somewhat higher than on a standard fixed-rate mortgage.

 

LIEN  

A legal claim or attachment against property as security for payment of an obligation.



Life of Loan Cap
The maximum interest rate that can be charged during the life of the loan. Also called
Lifetime Cap. This value is often expressed as an increment above the initial loan rate. For example, an adjustable rate loan with an initial rate of 7.25% and a 6% lifetime cap will never adjust above a rate of 13.25% (7.25+6.0).

 

Loan Origination Fee  

The fee charged by a lender to prepare all the documents associated with your mortgage.


Loan-To-Value Ratio
The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage. A LTV ratio of 90 means that a borrower is borrowing 90% of the value of the property and paying 10% as a down payment. For purchases, the value of the property is assumed to be the purchase price, for refinances the value is determined by an assessment.



Lock (noun)
The period, expressed in days, during which a lender will guarantee a rate. Some lenders will lock rates at the time of application while others will allow the borrower to lock the rate after the application is taken. Request information from your lender regarding lock procedures.

 

Lock (verb)
The act of committing to a mortgage rate. This action, taken by a borrower some time
between the application and the closing dates, is sometimes accompanied by a payment by the borrower to the lender. Opposite of float.


- M -

 

Market Value 

The highest price which a ready, willing and able buyer would pay and a willing seller will accept, both being fully informed under no pressure to act. The market value may be different from the price a property can actually be sold for at a given time (market price).

 

Margin
The amount a lender adds to the index on an adjustable rate mortgage to establish the
adjusted interest rate.

 

Maturity 

The termination or due date on which final payment on a loan must be paid in full.

 

Monthly Payment 

Usually, the amount of PITI (principal, interest, taxes, and insurance) paid each month on a mortgage loan.

 

Mortgage  

The conveyance of an interest in real property given as security for the payment of a loan.

 

Mortgage Banker 

A company that originates and funds, and services mortgages exclusively for resale in the secondary market.

 

Mortgage Broker 

A company that for a fee matches borrowers with Mortgage Bankers.


Mortgage Insurance
A type of insurance charged by most lenders to offset the risk of your loan when your down payment is less than 20% of the value of the home.

 

Mortgage Note  

A written promise to pay a sum of money at a stated interest rate during a specified term. The note contains a complete description of the conditions under which the loan is to be repaid and when it is due.


Mortgage Reduction Programs
A type of accelerated payment program whereby payments are made more frequently
usually bi-weekly or weekly rather than the traditional monthly payment. Making more frequent and accelerated payments reduces the amount of principal more quickly which interest accumulation is based on. The net effect can be savings on the total interest paid.


Mortgagee
The lender.


Mortgagor

The borrower.


- N -

Negative Amortization
Occurs when your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan. the danger of negative amortization is that the home buyer ends up owing more than the original amount of the loan.


Net Effective Income
Gross income less federal income tax.

 
No Income Documentation Loans
Often grouped together despite their subtle differences, ``light documentation,''
  ``no-income verification'' and ``quick qualifier,'' or ``QQ'' loans are a solution for many buyers who have income from sources that are hard to verify. Usually these loans are used by self-employed borrowers who have difficulty verifying all of their     income, or by borrowers with very complex income structures. For example, a borrower who has income primarily from rental properties and investments may be hesitant to verify all sources of income due to the volumes of paperwork this would require. With a no income documentation  loan, the borrower can simply state his income on the application, and  the lender will use this stated income to qualify the loan. Why do lenders do this? Because they recognize that by charging a slightly higher rate of interest they can rely on this stated income of the borrower and cover the additional risk. Lenders do in fact rely on verifying that the borrower has assets  that logically match the stated income, along with excellent credit.

With a higher cash down payment, typically 25% or higher, along with good credit, these loans allow borrowers to buy into purchase prices a lender wouldn't ordinarily qualify them for. Because
no-income documentation loans carry a higher interest rate, they should only be used when necessary, not simply to avoid the paperwork requirements of a full documentation loan.

Non-Conforming  

A mortgage loan that does not conform to regulatory limits such as loan-to-value ratio, term and other characteristics.

 

Non-Conforming Loan 

Conventional home mortgages not eligible for sale and delivery to either FNMA or FHLMC because of various reasons, including loan amount, loan characteristics or underwriting guidelines.


- O -

Occupancy  

The use of a property as a full-time residence, either by the title holder (owner-occupancy) or by another party through a formal agreement (rental).

One-year adjustable
Mortgage whose annual rate changes yearly. The rate is usually based on movements of a published index plus a specified margin, chosen by the lender.


Origination Fee
The fee imposed by a lender to cover the costs of preparing loan documents, making credit
checks, inspecting and sometimes appraising property. It is usually computed as a percentage of the face value of the loan. Refer to the Points definition to see how this fee is reflected in the tables.

 

Owner Occupied  

This means that the property is the owner’s primary residence.


- P -

PITI (Principal, Interest, Taxes and Insurance)  

The four components that (for most homeowners) are included in the monthly mortgage payment. Principal and interest are the portions of the payment assigned to repay the mortgage itself; taxes and insurance are paid by your lender into a special escrow account to pay for homeowners insurance and property taxes.

Points ( Loan Disclosure Points)  

Prepaid interest on a mortgage that is usually paid at the time of closing. Each point is equal to one percent of the total amount of a mortgage (one point on an $80,000 mortgage is $800, or 1 percent of 80,000). Most lenders offer mortgages with several combinations of points and interest rates; generally, the lower the interest rate, the more points you will pay at settlement.

Preliminary Title Report  

The results of a title search by a title company prior to issuing a title binder or commitment to insure clear title.


Prepayment
The ability to pay off the remaining balance of a loan.


Prepayment Penalty
A fee charged by lenders for paying your mortgage off early.


Principal
The amount of debt, not counting interest, left on a loan.

 

Processing  

The preparation of a mortgage loan application and supporting documentation for consideration by a lender or insurer.


Private Mortgage Insurance (PMI)
In the event that you do not have a 20 percent down payment, lenders will allow a smaller
down payment - as low as 5 percent in some cases. With the smaller down payment loans, however, borrowers are usually required to carry private mortgage insurance. Private mortgage insurance will usually require an initial premium payment and may require an additional monthly fee depending on you loan's structure.

 

PUD (Planned Unit Development)  

A planned combination of diverse land uses, such as housing, recreation, and shopping in one contained development or subdivision. A major feature of a PUD includes areas of common land for use by the housing unit owners; the association of unit owners generally owns, pays fees, and maintains the common areas. Also see DeMinimus PUD.

 

Purchase Contract (Agreement/Offer)  

An agreement between a buyer and seller of real property, setting forth the price and terms of the sale. Also known as a sales contract.


- Q -

Qualifying Ratio
The ratio of the borrowers fixed monthly expenses to his gross monthly income. Ratios are expressed as two numbers like 28/36 where 28 would be the Front-End Ratio and 36 would be the Back-End Ratio.

The Front-End Ratio is the percentage of a borrowers gross monthly income (before income taxes) that would cover the cost of PITI (Mortgage Principal Payment + Mortgage Interest Payment + Property Taxes + Homeowners Insurance). In the case of a 28% Front-End Ratio a borrower could qualify if the proposed monthly PITI payments were 28% or less than the borrower's gross monthly income.

The Back-End Ratio is the percentage of a borrowers gross monthly income that would cover the cost of PITI plus any other monthly debt payments like car or personal loans and credit card debt.

Please note that qualifying ratios are only a rough guideline in determining a potential borrower's credit-worthiness. Many factors such as excellent or poor credit history, amount of down payment, and size of loan will influence the decision to approve or disapprove a particular loan. We urge all borrowers to discuss their particular situation with a qualified lender regardless of the outcome of any self-qualification exercise.

- R -

Rate Lock Option  

An agreement guaranteeing the home buyer a specified interest rate provided the loan

 

Real Assets  

Real estate or real property owned by an individual or business.

 

Real Estate Owned (REO)  

A term frequently used by lending institutions as applied to ownership of real property acquired for investment or as a result of a foreclosure.

 

Real Estate Settlement Procedures Act (RESPA)
RESPA is a federal law that allows consumers to review information on known or
estimated settlement cost once after application and once prior to or at a settlement. The law requires lenders to furnish the information after application only.

 

Real Property

Land and that which is affixed to it.


Recording Fees
Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records.


Refinancing
Obtaining a new mortgage loan that pays off your existing loan thus creating new payment and interest rate terms.


Residual Income
The amount of money left over after you have paid all of your ordinary and necessary
debts including the mortgage. This calculation is typically used with VA loans.


- S -

Satisfaction of Mortgage 

The recordable instrument issued by the lender verifying full payment of a mortgage debt

Second Home

A residence other than the borrower's primary residence which the borrower intends to occupy for a portion of each year. Must be suitable for year-round occupancy.

Second Mortgage
A second loan on the same property or home that the first mortgage loan is secured by.

Secondary Mortgage Market 

A market where existing mortgages are bought and sold. It contrasts with the primary mortgage market where mortgages are originated.

Security

In lending, the collateral given, deposited, or pledged to secure the payment of a debt.


Settlement Costs
See Closing Costs.


Shared Appreciation Mortgage (SAM)
A mortgage in which a borrower receives a below-market interest rate in return for which the lender (or another investor such as a family member or other partner) receives a portion of the future appreciation in the value of the property. May also apply to mortgage where the borrowers shares the monthly principal and interest payments with another party in exchange for part of the appreciation.

 

Survey

The measurement and description of land by a registered surveyor.


- T -

Title
A document that gives evidence of an individual's ownership of property.


Title Insurance
A policy, usually issued by a title insurance company, which insures a homebuyer against errors in the title search. The cost of the policy is usually a function of the value of the property, and is often borne by the purchaser and/or seller. Policies are also available to protect the lender's interests.


Title Search
An examination of city, town, or county records to determine the legal ownership
of real estate.

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

Truth in Lending Act 

a federal law requiring a disclosure of credit terms using a standard format. This is intended to facilitate comparisons between the lending terms of financial institutions.


- U -

Underwriting
The decision whether to make a loan to a potential home buyer based on credit, employment, assets, and other factors and the matching of this risk to an appropriate
rate and term or loan amount.

- V -

Variable Rate Mortgage
See Adjustable Rate Mortgage.

Verification of Deposit (VOD)
A document signed by the borrower's financial institution verifying the status and balance of his/her financial accounts.


Verification of Employment (VOE)
A document signed by the borrower's employer verifying his/her position and salary.

 

 

VA (Department of Veterans Affairs) Mortgage

government insured loans guaranteed by the Department of Veterans Affairs, requiring very low or no down payments and with generous requirements for qualification. They are available only to veterans of the armed services, those currently on active duty or in the reserves, and their spouses.


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Warehouse Fee
Many mortgage firms must borrow funds on a short term basis in order to originate loans
which are to be sold later in the secondary mortgage market (or to investors). When the prime rate of interest is higher on short term loans than on mortgage loans, the mortgage firm has an economic loss which is offset by charging a warehouse fee.

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Zero Point Option

an option which allows the borrower to not pay the points associated with the loan origination fee. This savings is offset by a slightly higher loan interest rate.


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