Glossary

A

B

C

D

E

F

G

H

I

J

K

L

M

N

O

P

Q

R

S

T

U

V

W

X

Y

Z

A

Acceleration Clause

• A contractual provision that allows the lender to demand payment of the outstanding balance in the event of default.

Accrued Interest

• Interest that is earned, but not paid.

Adjustable Rate Mortgage (ARM)

• Loan on which the interest rate can change over the period of the loan. Rate changes are based on the interest rate of a defined index. The lender does not have control of the rate change. The index, and therefore the interest rate, of your loan is established at the time of application. The rate that is quoted on an ARM is the initial rate. The rate is fixed for an initial period. The period ranges from 1 month to 10 years.
• When the initial period is over, the ARM rate is adjusted so that the new rate will equal the most recent value of the particular rate index, plus a margin.
• There are 2 conditions to this rule:
• The increase cannot exceed any rate adjustment cap (sometimes called a periodic cap) specified in the ARM contract.
• Adjustment cap – limits how much the rate can increase at one time
• The new rate cannot exceed the maximum rate specified in the ARM contract.
• Lifetime cap – limits how much the rate can increase over the life of the loan
• Examples of Rate Indexes:
• 11th District Cost of Funds Index (COFI) – stable compared to others
• Cost-of-Savings Index (COSI)
• MTA (12-month moving Treasury average)
• Treasury series of constant maturity
• Prime Rate
• One-month and six-month Libor
• Six-month CDs
• Convertible ARM: An ARM that can be converted to an FRM during a fixed time period.
• Notes: Choosing an ARM is a risk that the borrower must decide whether or not worth taking. Determine whether the interest cost will be lower on an ARM than a FRM over the period of the mortgage and whether or not the borrower will still be able to make payments if the interest rates drastically increase.

Amortization

• The repayment of a loan, including principal and interest, in installments over a fixed period of time.
• Amortization Schedule: a detailed table that shows the amortization of the loan.
• Amortization term - The amount of time required to amortize, or repay a mortgage loan with regular payments. The amortization term is expressed as a number of months. For example, for a 30-year fixed-rate mortgage, the amortization term is 360 months.

Annual Percentage Rate (APR)

• The yearly rate of interest that includes any fees incurred by the borrower, including insurance, closing costs, and fees.

Appraisal

• An estimate of the value of the property.
• Might include an appraisal fee that is assessed by the appraiser. Usually paid by the borrower.

Assumable Mortgage

• Allows the transfer of the mortgage from the seller to the new buyer.
• The buyer assumes all the terms and conditions of the mortgage contract.

Assumption

• The buyer of the property agrees to repay the existing loan on the property.

B

Balloon Mortgage

• A mortgage that is payable in full at the end of the term of the loan. The loan is amortized for a longer period than the term.
• Final payments is known as a Balloon Payment.

Bankruptcy

• A proceeding in a federal court in which a debtor who owes more than his or her assets can relieve the debts by transferring his or her assets to a trustee.
•  Usually, at least 2 years must elapse from the discharge of the bankruptcy before lenders will consider making a loan to someone who had declared bankruptcy.

Bimonthly Mortgage

• Half the monthly payment is paid twice a month.

Biweekly Mortgage

• Half the monthly payment is paid every two weeks.

Blanket Mortgage

• A mortgage covering two pieces of real estate

Bridge Loan

• A loan that “bridges” the phase between the closing of sale of a home and the closing of a purchase of a home.
• Also known as a “swing loan”.

Broker

• A person who, for a commission or a fee, brings parties together and assists in negotiating contracts between them.

Buydown Mortgage

• A temporary buydown is a mortgage on which an initial lump sum payment is made by any party to reduce a borrower's monthly payments during the first few years of a mortgage. A permanent buydown reduces the interest rate over the entire life of a mortgage.

C

Caps

• Consumer safeguard which limits the amount the monthly payment or interest on a loan can change in a given period.

Cash-Out Refinancing

• Refinancing for an amount that exceeds the old loan.
• Includes settlement/closing costs or fees.
• Generally a higher rate than No Cash-Out Refinancing because borrowers that need cash are considered financially weaker.

Closing

• The completion of a new or existing mortgage or loan.
• Consists of the transferring of ownership from the seller to the buyer, reallocation of funds from the buyer and lender to the seller, and the completion of the all the necessary documents associated with the sale and loan.

Closing Costs

• Costs the borrower must pay at closing.

Closing Date

• Date closing occurs.

Co-Borrowers

• One or more persons equally and legally responsible to repay the loan.

Co-Signing

• Accept responsibility for another party’s payment should that party default.

Cost of Funds Index (COFI)

• An adjustable rate mortgage index used to determine interest rate adjustments.

Conforming Loan

• Loan that conform to Government Sponsored Enterprise (GSE) guidelines.
• Generally, these loans are those that do not meet the guidelines for non-conforming loans. Fannie Mae and Freddie Mac set criteria each year for what constitutes a conforming loan.
• Conforming loans benefit from greater liquidity than non-conforming loans.

Construction Loan

• A short term loan used when the borrower contracts to have a building or house built.

Conventional Loan

• A loan not insured by the Federal Housing Administration (FHA) or guaranteed by the US Department of Veteran Affairs (VA)

Conversion Clause

• A clause in the contract which allows the borrower to convert an ARM to an FRM at some point during it’s term.

Cost-of-Savings Index (COSI)

• An adjustable rate mortgage index used to determine interest rate adjustments.

Credit Report

• A report issued by a credit bureau documenting the borrower’s credit history and current standing.

Credit Score

• A numerical score based on a borrower’s credit report which indicates the borrower’s creditworthiness.
• The most commonly used credit score is called FICO for Fair Isaac Co. which places numerical values on various determinants, including payment history, amount and distribution of current debts, mix of credit, age of accounts, etc.

 

D

Debt Consolidation

• Converting short term debt into a home mortgage loan. This can be done at either the time of purchase or later.
• The borrower basically converts unsecured debt into secured debt.

Debt-to-Income Ratio

• The ratio of monthly payment obligation of long term debt divided by gross monthly income.

Default

• Borrower’s failure to honor the terms and conditions of the loan.

Deferred Interest

• Rise in the balance of the loan because the payment is less than the interest due. The excess/unpaid interest is “deferred” by adding it to the loan balance.
• See Negative Amortization

Delinquency

• A mortgage payment that is more than 30 days late.

Demand Clause

• A clause in the contract which allows the lender to demand repayment of the full balance.

Discretionary ARM

• The lender has the right to change interest rate at any time, for any reason, and by any amount as long as the borrower is notified in advance.

Down Payment

• Difference between the purchase price and the loan amount.

Due-on-Sale Clause

• Clause which stipulates that the remaining balance on the loan is due when the property is sold.

E

Effective Rate

• The interest rate adjusted for intra-year compounding.

Equal Credit Opportunity Act (ECOA)

• Federal law that requires lenders and creditors to make credit equally available without discrimination based on race, religion, color, national origin, age, sex, marital status, or receipt of income from public assistance programs.

Equity

• The value of the home less the balance of outstanding mortgage loans on the home.

Escrow Account

• An account funded by the borrower and maintained by the lender, from which tax and insurance payments are made as they are due.
• Note: A borrower may avoid escrow by making a down payment of 20% or more. An important reason for is to give the borrower full control over the payments. Also, a borrower might want to capture the interest earnings on the account themselves.

F

Fannie Mae

• Also known as Federal National Mortgage Association (FNMA)
• Federal agency that purchases home loans from lenders.

FHA Loans

• Loan programs administered by the Federal Housing Administration (FHA). The lender is insured against loss by the FHA. These types of loans have a lower down payment and are easier to qualify for than a conventional loan. FHA loans are subject to statutory limits which vary from state to state.
• FHA loans are generally for those who cannot afford the 5% down payment and/or have bad credit.

FICO Score

• see Credit Score

First Mortgage

• A mortgage that has a first-priority claim against the property in the event the borrower defaults on the loan.

Fixed Rate Mortgage (FRM)

• The monthly payments and the interest rate remain fixed throughout the life of the loan.
• FRMs are available for 30, 25, 20, 15 and 10 years. The longer the term of the loan, the higher the interest rate.

Float

• Allowing the interest rate and points to vary with alterations in market conditions.
• Note: This exposes the borrower to market risk.

Float-Down

• An option to reduce the rate if the market interest rate declines during the lock down period.

Flood Insurance

• Insurance that reimburses the policyholder for physical property damage resulting from flooding.
• It is required for properties located in federally designated areas.

Forbearance Agreement

• An agreement by the lender not to foreclose in exchange for an agreement by the borrower to a payment plan that will clear the borrower’s delinquency.

Foreclosure

• The legal process by which a lender obtains possession of the property securing a mortgage loan when the borrower has not met the terms of the mortgage.
• Also known as the repossession of property.

Freddie Mac

• Federal agency that purchases home loans from lenders.

Fully Amortizing Payment

• The monthly mortgage payment which, if unchanged through the life of the loan that the then-existing interest rate, will pay off the loan.

Fully Indexed Rate

• The loan interest rate.
• On an ARM, the current value of the interest rate, plus the margin.
• It is the actual rate of interest, independent of discounts, buy downs, and other factors that may effect the payment rate.

G

Gift of Equity

• A sale price below the market value, where the difference is a “gift” from the seller to the buyer.

Good Faith Estimate

• A written estimate of the closing costs which are provided by the lender within three business days of receiving the loan application.

Government Mortgage

• A mortgage that is insured by the Federal Housing Administration (FHA) or   guaranteed by the Department of Veterans Affairs (VA) or the Rural Housing Service (RHS).

Government National Mortgage Association (GNMA)

• Also known as Ginnie Mae
• A government-owned corporation within the U.S. Department of Housing and Urban Development (HUD). Created by Congress on September 1, 1968, GNMA assumed responsibility for the special assistance loan program formerly administered by Fannie Mae..

Grace Period

• Number of days, usually 10 to 15, that a borrower is allowed to be late in making the mortgage payment without suffering any penalty.

Graduated Payment Mortgage (GPM)

• A mortgage where the payments increase by a constant percentage for a specific period of time and then level off.
• This type of mortgage has negative amortization built into it.

Graduated Equity Mortgage (GEM)

• A fixed rate mortgage that provides scheduled payment increase over an established period of time.

Guaranty

• A promise by one party to pay a debt or perform an obligation contracted by another if the original party becomes delinquent.

H

Hazard Insurance

• A contract whereby an insurer, or premium, undertakes to compensate the insured for loss on a specific property due to certain hazards.
• Also known as “homeowner insurance.”

Historical Scenario

• The assumption that the index value to which the interest rate on an ARM is tied follows the same pattern s in the prior historical period.

Homebuyer Protection Plan

• A plan aimed to protect FHA home-buyers against property defects.

Home Equity Conversion Mortgage (HECM)

• A reverse mortgage administered by the FHA.

Home Equity Line of Credit (HELOC)

• A mortgage loan set up as a line of credit that allows the borrower multiple advances of the loan proceeds at his or her own discretion, up to an amount that represents a specified percentage of the borrower’s equity in the property.
• The interest is calculated daily because the balance of the HELOC may change from day to day.
• Draw Period:
• Period during which the borrower can use the line.
• Usually 5 to 10 years.
• Repayment Period:
• Period during which the HELOC must be repaid.
• Usually 10 to 20 years.
• HELOCs have a low up-front cost but have high exposure to interest rate risk.
• HELOC rates are tied to the prime rate, which is directly affected by the market.
• Note: A HELOC is not the same from one lender to another. The margin differs among lenders.
• The margin is the amount added to the prime rate to determine the HELOC rate.
• Make sure to ask your lender about this!

Home Keeper

• A reverse mortgage program administered by Fannie Mae.

Homeowners Association Dues

• A monthly or quarterly fee paid to a homeowners association.

Homeowners Insurance

• An insurance policy that combines personal liability insurance and hazard insurance coverage for a swelling and its contents.

Homeowners Warranty (HOW)

• A type of insurance that covers repairs to specified parts of a house for a specific period of time. It may be provided by the builder or property seller as a condition of the sale.

Housing Expense

• The sum of the monthly mortgage payment, hazard insurance, property taxes, and homeowner association fees.

Housing Expense Ratio

• The ratio of housing expense to borrower income.
• For example, if you earn $6,000 (gross) and your house expense is $2,000, you have a 33% housing ratio. ($2,000 is 1/3 of $6,000).

Housing Investment

• The amount invested in a house, equal to the sale price less the loan amount.

HUD Median Income

• Median family income for a particular county or metropolitan statistical area (MSA), as estimated by the Department of Housing and Urban Development (HUD)

HUD-1 Statement

• A document that provides an itemizing listing of the funds that are payable at closing. Items that appear on the statement include real estate commissions, loan fees, points and initial escrow amounts. Each item on the statement is represented by a separate number within a standardizing numbering system. The totals at the bottom of the HUD-1 statement define the seller’s net proceeds and the buyer’s net payment at closing.
• The bank form for the statement is published by the Department of Housing and Urban Development (HUD).
• The HUD-1 statement is also known as the “closing statement” or “settlement sheet”.

I

Imperfect Credit

• Loans designed for borrowers with less than perfect credit

Index

• An interest rate indicator used to determine changes in the mortgage interest rate. Any index that is beyond the control of the lender and easily verifiable by the borrower can be used. The maturity of the index chosen usually corresponds to the loan’s adjustment interval.
• Some commonly used indexes include: 6-month Treasury Bill rates, 1-, 3-, 5-year Treasuries.

Indexed ARMs

• Adjustable rate mortgage on which the interest rate is determined based on the value of an interest rate index.

Indexed Rate

• The sum of the published index plus the margin.
• For example, if the index is 5% and the margin is 2.5%, the indexed rate is 6.5%.

In-file Credit Report

• A report issued by one credit repository that contains an individual credit history.

Initial Interest Rate

• The interest rate that is fixed for a specified number of months at the beginning of the life of the ARM.

Initial Rate Period

• The number of months for which the initial interest rate holds on an ARM.
• Ranges from 1 month to 10 years.

Interest Accrual Period

• The period over which the interest due the lender is calculated.

Interest Accrual Rate

• The percentage at which the interest rate accumulates or increases on a mortgage loan.

Interest Due

• The amount of interest, expressed in dollars, computed by multiplying the loan balance at the end of the preceding period times the annual interest rate divided by the interest accrual period.

Interest Only Mortgage (Option)

• An option specified in the mortgage, which allows the borrower to pay only the interest rate for some period.
• Note, as long as the payment remains interest only, the principal remains unchanged.

Interest Payment

• The amount of interest paid each month.

Interest Rate

• The rate charged to the borrower each period for the loan of money, quoted on an annual basis.

Interest Rate Adjustment Period

• The frequency of rate adjustments on an ARM after the initial rate period is over.

Interest Rate Cap

• For an ARM, a limitation on the amount the interest rate can change per adjustment or over the lifetime of the loan, as stated in the note.

Interest Rate Ceiling

• The maximum interest rate for an ARM, as specified in the mortgage contract.

Interest Rate Decrease Cap

• The maximum allowable decrease in the interest rate on an ARM each time the rate is adjusted.

Interest Rate Floor

• The minimum interest rate for an ARM, as specified in the mortgage contract.

Interest Rate Increase Cap

• The maximum allowable increase in the interest rate on and ARM each time the rate is adjusted.

Investment Property

• A property purchased to generate rental income, tax benefits, or profitable resale rather than to server as the borrower’s primary residence.

 

J

Judgment Lien

• A lien on the property of a debtor resulting from the decree of a court.

Jumbo Mortgage

• A mortgage larger than the maximum eligible for purchase by the two federal agencies, Fannie Mae and Freddie Mac.

Junior Mortgage

• A loan that is subordinate to the primary loan, such as a second or third mortgage.

Junk Fees

• A term for lender fees that are expressed in dollars rather than as a percent of the loan.

K

L

Late Fees

• Fees imposed by the lender when payments are late.

Late Payment

• A payment that is made after the specified grace period.

Lease-Purchase Option

• An option used by sellers to rent a property to a consumer, who has the option to buy the home within a specified period of time.

Liability Insurance

• Insurance coverage that protects property owners against claims of negligence, personal injury or property damage to another party.

LIBOR Index

• An index used to determine interest rate changes for certain ARM plans, based on the average interest rate at which banks lend to or borrow funds from the London Interbank Market.

Lien

• A claim on property as security for a debt.

Lifetime Cap

• On an ARM, a limit to how much the interest rate or monthly payment can increase or decrease over the life of the loan.

Loan Amount

• The amount the borrower promises to repay, as set forth in the loan contract.

Loan Origination

• The process by which a lender makes a loan which may include taking a loan application, processing and underwriting the application, and closing the loan.

Loan Origination Fee

• A fee to cover some of the administrative costs of processing a loan.
• Often expressed in points. One point is equal to 1 percent of the loan amount.

Loan Provider

• A mortgage lender or mortgage broker.

Loan-To-Value (LTV) Ratio

• The loan amount divided by the value of the property (the lesser of the appraised value or selling price), expressed as a percentage.

Lock Commitment Letter

• A letter from the lender verifying that the price and other terms of the loan have been locked.

Lock-In

• An agreement in which the lender agrees to “lock-in” the borrower’s interest rate and points for a set period of time before closing.
• This option is exercised by the borrower.

Lock Period

• The number of days for which any lock or float down holds.

M

Mandatory Disclosure

• Laws and regulations which determine the information that must be disclosed to mortgage borrowers, and the method and timing of disclosure.

Manufactured Housing

• Homes that are built entirely in a factory in accordance with a federal building code administered by the U.S. Department of Housing and Urban Development (HUD).
• Manufactured homes may be single- or multi-section and are transported from the factory to a site and installed.
• Homes that are permanently affixed to a foundation often may be classified as real property under applicable state law, and may be financed with a mortgage.
• Homes that are not permanently affixed to a foundation generally are classified as personal property, and are financed with a retail sales agreement.

Margin

• For an ARM, the amount (usually two or three percentage points) that is added to the index to determine the interest rate on each adjustment date, as stated in the note.

Market Niche

• A particular combination of loan, borrower, property, and transaction characteristics that lenders use in setting prices and underwriting requirements.

Maturity Date

• The date on which a mortgage loan is scheduled to be paid in full.

Maximum Loan-to-Value Ratio

• The maximum allowable ratio of loan-to-value (LTV) on any loan program.

Maximum Lock

• Longest period for which the lender will lock the rate and points.

Merged Credit Report

• A credit report issued by a credit reporting company that combines information from the three major credit repositories.

Modification

• Any change to the terms of a mortgage loan, including changes to the interest rate, loan balance, or loan term.

Mortgage

• A loan to finance the purchase of real estate, for which the borrower pledges the real property as security for the repayment of the loan. The borrower gives the lender a lien on the property as collateral for the loan.

Mortgage Banker

• A company that specializes in originating real estate loans, and typically uses its own funds or warehouse line of credit to close loans.

Mortgage Broker

• An independent contractor that brings borrowers and lenders together for the purpose of loan origination. A mortgage broker typically takes loan applications and may process loans, but do not lend.
• Brokers counsel borrowers on any problems associated with qualifying for a loan.  They also help the borrower select a loan that best meets the borrowers needs.

Mortgage Equations

• Equations used to derive common measures used in the mortgage market, such as monthly payment, balance, and APR.

Mortgage Insurance

• Insurance that protects lenders against losses caused by a borrower’s default on a mortgage loan.
• Typically required if a borrower’s down payment is less the 20% of the purchase price.

Mortgage Insurance Premium

• The upfront and/or periodic charges that the borrower pays for mortgage insurance.

Mortgage Lender

• The party advancing the money to a borrower at the closing table in exchange for a note evidencing the borrower’s debt and obligation to repay.

Mortgage Life Insurance

• A type of insurance that will pay off a mortgage if the borrower dies while the loan is outstanding.
• A form of credit life insurance.

Mortgage Payment

• The payment of principal and interest made by the borrower.

Mortgage Price

• The upfront fees and interest rate or rates paid to the lender or broker.

Mortgagee

• The lender
• The institution or individual to whom a mortgage is given.

Mortgagor

• The borrower
• The owner of the real estate who pledges property as security for the repayment of a debt.

Multifamily Mortgage

• A mortgage loan on a building with more than four dwellings.
• Typically, buildings with five or more dwellings.

N

Negative amortization

• A rise in the loan balance when the mortgage payment is less than the interest due. If a borrower makes the minimum payment it may not cover all of the interest that would normally be due at the current interest rate.
• Sometimes called "deferred interest." The deferred interest is added to the balance of the loan and the loan balance grows larger instead of smaller, which is called negative amortization.

Net Cash Flow

• The income that remains for an investment property after the monthly operating income is reduced by the monthly housing expense, which includes principal, interest, taxes, and insurance (PITI) for the mortgage, homeowners' association dues, leasehold payments, and subordinate financing payments.

Non-conforming loans

• Loans unable to meet bank criteria for funding due to various reasons including: loan amount larger than conforming loan limit, lack of sufficient credit, use of funds.

No Documentation Loans

• Loans designed to assist borrowers whose income, employment, or assets are difficult to verify.
• These types of loans could also be for borrowers who prefer not to disclose personal financial information to the lender for various reasons.
• Typically, these loans are provided with good credit, in exchange for a higher rate.

No-Cost Mortgage

• A mortgage in which all settlement costs except per diem interest and escrows are paid by the lender and/or home seller.
• Generally, the interest rate is high enough to command a rebate from the lender that covers the closing cost.
• It makes sense for borrowers who expect to hold their mortgages no more that five years because the interest rate is usually higher.

Note

• A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time

Note Rate

• The interest rate stated on a mortgage note.

Notice of default

• Formal notice to a borrower that a default has occurred and that legal action may be taken.

 

O

Original principal balance

• Total amount of principal owed on a mortgage before any payments are made.

Origination fee

• A fee paid to a lender for processing a loan application. The origination fee is stated in the form of points.
• On a government loan the loan origination fee is one percent of the loan amount, but additional points may be charged which are called "discount points." One point equals one percent of the loan amount. On a conventional loan, the loan origination fee refers to the total number of points a borrower pays.

P

Partial Payment

• A payment that is not sufficient to cover the scheduled monthly payment on a mortgage loan. Normally, a lender will not accept a partial payment, but in times of hardship you can make this request of the loan servicing collection department.

Payment Change Date

• The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM) or a graduated-payment mortgage (GPM).
• Generally, the payment change date occurs in the month immediately after the interest rate adjustment date.

Periodic Payment Cap

• For an adjustable-rate mortgage (ARM) where the interest rate and the minimum payment amount fluctuate independently of one another, this is a limit on the amount that payments can increase or decrease during any one adjustment period.

Periodic Rate Cap

• For an ARM, a limit on the amount that the interest rate can increase or decrease during any one adjustment period, regardless of how high or low the index might be.

Planned Unit Development (PUD)

• A type of ownership where individuals actually own the building or unit they live in, but common areas are owned jointly with the other members of the development or association.

Point

• A one-time charge by the lender for originating a loan. A point is 1 percent of the amount of the mortgage.

Power of Attorney

• A legal document that authorizes another person to act on one’s behalf. A power of attorney can grant complete authority or can be limited to certain acts and/or certain periods of time.

Pre-approval

• Generally means that a borrower has completed a loan application and provided debt, income, and savings documentation which an underwriter has approved.
• A pre-approval is usually done at a certain loan amount and makes assumptions about what the interest rate will actually be at the time the loan is actually made, as well as estimates for the amount that will be paid for property taxes, insurance, and others.

Prepayment

• When payment occurs before the loan has been fully amortized. The amount is paid to reduce the principal balance of a loan before the due date.
• Payment in full on a mortgage that may result from a sale of the property, the owner's decision to pay off the loan in full, or a foreclosure.

Prepayment Penalty

• A fee that may be charged to a borrower who pays off a loan before it is due.

Pre-qualification

• The process of determining how much money a prospective home buyer will be eligible to borrow before he or she applies for a loan. Usually the loan officer’s written opinion of the ability of a borrower to qualify for a home loan, after the loan officer has made inquiries about debt, income, and savings.
• The information provided to the loan officer may have been presented verbally or in the form of documentation, and the loan officer may or may not have reviewed a credit report on the borrower.

Prime rate

• The interest rate that banks charge to their preferred customers.
• Changes in the prime rate are widely publicized in the news media and are used as the indexes in some adjustable rate mortgages, especially home equity lines of credit.
• Changes in the prime rate do not directly affect other types of mortgages, but the same factors that influence the prime rate also affect the interest rates of mortgage loans. 

Principal

• The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.

Principal Balance

• The outstanding balance of principal on a mortgage. The principal balance does not include interest or any other charges.

Principal, Interest, Taxes, and Insurance (PITI)

• The four components of a monthly mortgage payment on impounded loans.
• Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage.
• Interest is the fee charged for borrowing money.
• Taxes and Insurance refer to the amounts that are paid into an escrow account each month for property taxes and mortgage and hazard insurance.

PITI Reserves

• A cash amount that a borrower must have on hand after making a down payment and paying all closing costs for the purchase of a home.
• The PITI reserves must equal the amount that the borrower would have to pay for PITI for a predetermined number of months.

Private Mortgage Insurance (MI)

• Mortgage insurance that is provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults.
• Most lenders generally require MI for a loan with a loan-to-value (LTV) ratio in excess of 80 percent.

Promissory Note

• A written promise to repay a specified amount over a specified period of time.

Purchase Agreement

• A written contract signed by a buyer and seller stating the terms and conditions under which a property will be sold.

Purchase money transaction

• The acquisition of property through the payment of money or its equivalent.

Q

Qualifying Ratios

• Calculations that are used in determining whether a borrower can qualify for a mortgage.
• 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. They consist of two separate calculations. The first number is the housing expense as a percent of income ratio known as the "top" or "front" ratio. This is a calculation of the borrower’s monthly housing costs (principle, taxes, insurance, mortgage insurance, and homeowner’s association fees) as a percentage of monthly income. The second number of the ratio is the total debt obligation (PITI plus other payments such as cars or credit) as a percent of income ratio. This is the “back" or "bottom" ratio that includes housing costs as well as all other monthly debt.
• 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. 

Quitclaim Deed

• A deed that transfers without warranty whatever interest or title a grantor may have at the time the conveyance is made.

R

Real Estate Settlement Procedures Act (RESPA)

• A consumer protection law that requires lenders to give borrowers advance notice of closing costs.

Real property

• Land and any buildings or structures that are attached to the land; includes anything of a permanent nature such as trees, minerals, and the interest, and inherent rights.

Recission

• The cancellation of a transaction or contract by the operation of a law or by mutual consent.
• Borrowers usually have the option to cancel a refinance transaction within three business days after it has closed.

Refinance

• The process of paying off one loan (usually at a higher interest rate) with the proceeds from a new loan (usually at a lower interest rate) using the same property as security.
• Refinancing can be a hassle so be sure to carefully weigh the pos and cons of refinancing.

Reverse Mortgage

• No recourse loans that enable elderly homeowners to utilize their homes equity without selling their home or moving from it.
• These loans should be used with caution because they may deplete estate equity, the interest and fees tends to be high and some may require repayment with a certain time span.

RHS loans

• Loan program administered by the Rural Housing Service (RHS).
• RHS guarantees loans made by private sector, should the borrower default on the loan. There is no required down payment, but borrower must be able to pay mortgage payments, including taxes and insurance.
• RHS loans are generally for those who are without adequate housing and are unable to obtain credit elsewhere with acceptable credit history.

S

Second Mortgage

• A mortgage that ranks second in the lien position recorded.  
• The sale of the home is paid off in the order of recorded mortgages in an event of foreclosure. The second or even third and fourth mortgages on a property have a higher risk of default and thus will have higher interest rates.

Security

• The property that will be pledged as collateral for a loan.

Services

• An organization that collects principal and interest payments from borrowers and manages borrowers' escrow accounts.

Supplemental Security Income

• A federal government program that provides monthly cash benefits to low- income persons disabled, blind, or 65 years old and older.

T

Tax deductible

• Payments that can be deducted against federal and state taxable income; the interest portion of mortgage payments (points and property taxes) are tax deductible.

Teaser Rate

• The term used to describe the low rate that most ARMs start with.
• It is important to look at the mortgage formula (index plus margin) rather than just the rate in order to get a more reliable method of estimating future interest rates.

Term

• The amount of time (typically 15 to 30 years)  in a mortgage plan a lender gives the borrower to repay the loan .

Title

• A legal document evidencing a person's right to or ownership of a property

Title insurance

• Insurance that covers legal fees and needed expenses to protect the lender (lender's policy) or the buyer (owner's policy) against loss arising from disputes over ownership of a property.

Treasury Bill Index

• An index based on the results of auctions that the U.S. Treasury holds for its Treasury bills and securities or is derived from the U.S. Treasury's daily yield curve; it is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans.
• The treasury bill indexes tend to respond quickly to market changes in interest rates.

Truth-in-Lending

• A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the annual percentage rate (APR) and other charges.

U

Underwriting

• The process of evaluating a loan application (involves analyzing the borrowers credit and evaluating the quality of the property) to determine the risk involved for the lender.

V

VA mortgage

• A mortgage that is guaranteed by the Department of Veterans Affairs (VA). These mortgages help those on active duty, qualified unmarried, former spouses of veterans, and veterans of the American military services buy residences. No down payment is required as long as the appraised home value is in below a certain threshold and the interest rate is lower than conventional loans.
• Also known as a government mortgage.

Vested

• Having the right to use a portion of a fund such as an individual retirement fund; taxes may due on the amount actually withdrawn.

W

X

Y

Z