Mortgage 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

Adjustable Rate Mortgage
A mortgage loan or deed of trust which allows the lender to adjust the interest rate in accordance with a specified index periodically and as agreed to at the inception of the loan. Also called a variable rate mortgage (VRM)
Amortization
Repaying of a mortgage debt with equal periodic payments of both principal and interest, calculated to retire the obligation at the end of a fixed period of time.
Annual Percentage Rate
A figure that states the total yearly cost of a mortgage as expressed by the actual rate of interest paid. The APR includes the base interest rate, points and any other add on loan fees and costs. As a result the APR is invariably higher for the rate of interest that the lender quotes for the mortgage but gives a more accurate picture of the likely costs of the loan. Keep in mind, however, that most mortgages are not held for their full 15 or 30 year terms, so the effective annual percentage rate is higher than the quoted APR because the points and loan fees are spread out over fewer years.
Appraisal
The determination of a property value based on recent sales information of similar properties.

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B

Back ratio
The proportion of purchaser income a lender will allow for principal interest, taxes, insurance and regular monthly debt when evaluation of loan applications, normally reflected in a percentage.
Balloon Mortgage
Behaves like a fixed rate mortgage for a set number of years (usually five or seven) and then must be paid off in full in a single “balloon payment> Balloon loans are popular with those expecting to sell or refinance their property within a definite period of time.
Balloon Payment
The final lump sum that is paid at the end of the balloon mortgage

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C

Cap
Safeguards that limit how much your ARM rates and payments can go up or down at any one time and over the life of the loan
Cash out Refinance
The cash you receive when refinancing with a new loan that is larger than the amount you own on the existing loan, based on the equity in the house. The cash out amount is calculated by subtracting the sum of the old loan and fees from the new mortgage loan.
Certificate of Eligibility
A document issued by the Veteran Administration which verifies a veteran’s eligibility for a VA mortgage guaranteed.
Closing
In real estate, the delivery of a deed, financial adjustments, the signing of notes and the disbursement of funds necessary to consummate a sale or loan transaction.
Closing Costs
Closing costs are fees paid by the borrower when a property is purchased or refinanced. Costs incurred include a loan origination fee, discount points, appraisal fee, title search, title insurance, survey, taxes, deed recording fee and credit report charges. All closing costs are separated into “non-recurring” and “prepaid:” Non- recurring charges are any items that are paid only once because a loan was obtained or a property bought, such as an origination fee. Prepaid charges are those that recur over time, like insurance and property taxes. These are summarized in the Good Faith Estimate.
Conforming loan
Conventional home mortgages eligible for sale and delivery to to either the FNMA or FHLMC. These agencies generally purchase traditional fixed rate level payment first mortgages up to the loan amounts mandated by Congressional directive.
Collateral
Property pledged as security to back up a promise. In a home loan, the property is considered collateral that can be revoked if the loan is not repaid according to the terms of the mortgage or deed of trust.

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D

Debt to Income Ratio
The comparison of your gross (before tax) income to housing expenses as compared to non-housing expenses. For certain loans such as government backed FHA loans, monthly mortgage payments can’t exceed 31% of the monthly gross income (before taxes) and the mortgage payment combined with non-housing debt can’t exceed 43% of income.
Deed
The legal document that transfers the title of ownership of a property from one owner to another. The deed contains a description of the property and is signed, witnessed and delivered to the buyer at closing.
Deed of Trust
A type of security instrument in which the borrower conveys a trust to hold property to a third party (trustee) as security for the lender, with the condition that the trustee shall re convey the title upon the payment of the debt, and conversely will sell the land and pay the debt in the event of a default by the borrower.
Default
A breach or non-performance of the terms of a note of the covenants under the mortgage.
Down payment
The part of a purchase price of a property that the buyer pays in cash and does not finance with a mortgage

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E

Earnest Money Deposit
A deposit by the potential homebuyer to show that he or she is serious about buying the house.
Equity
Net ownership- the difference between the fair market value of a property and the total debt against the property. For example if you currently owe $200,000 on your mortgage but your home is currently worth $120,000, you have $20,000 equity or full ownership of $20,000 of the home’s value.
Escrow Account
An account held by the lender to which the borrower pays monthly installments as part of the monthly mortgage payment to cover annual expenses such as taxes and/or homeowners insurance. The lender then disburses escrow account funds on behalf of the borrower when they become due.

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F

FHA Mortgage
A mortgage that is insured by the Federal Housing Administration. Along with VA loans, an FHA loan will often be referred to as a government loan.
First Mortgage
The loan that is in first place among any loans recorded against a property. Usually refers to the date in which loans are recorded, but there are exceptions.
Fixed-Rate
A mortgage where the interest rate does not change for the life of the loan.
Flood insurance
Protection against flood loss through the 1973 Flood Disaster Protection Act. This insurance compensates for physical damage to a property by flood. Flood is typically excluded from the standard homeowner’s hazard insurance provisions.

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G

Good Faith Estimate
The form that lists the settlement charges the borrower must pay at closing,
which the lender is obliged to provide the borrower within three business days
of receiving a complete loan application.

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H

Hazard Insurance
Also known as homeowner’s insurance. Extra insurance taken out on a home that protects the property and lender in the event of damage. Usually covers the value of the home.
HO Association
An association attached to a neighborhood, condo or town home complex that established certain rules of ownership. Common, but not exhaustive responsibilities of a homeowner’s association includes collection of neighborhood dues for landscape maintenance or membership in recreation and entertainment facilities.
Home Inspection
A comprehensive and exhaustive examination of a home by a licensed inspector--often required as part of a sales contract, mortgage or home loan process.
HUD-1 Settlement
A document that provides an itemized listing of the funds that were paid at closing. Items that appear on the statement include real estate commissions, loan fees, points and initial escrow amounts. Each type of expenses goes on a specific numbered line on the sheet. The totals at the bottom of the HUD-1 statement define the seller’s note proceeds and the buyer’s net payment at closing. It is called a HUD 1 because the form is printed by the Department of Housing and Urban Development (HUD) The HUD-1 settlement is also known as the “closing statement” or “settlement sheet”.

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I

No terms listd.

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J

Jumbo Mortgage
A mortgage larger than the limits set by FNMA or Freddie Mac. This limit is changed periodically. A C&F Mortgage Loan Officer can tell you the current limit. This does not mean that you cannot borrow more than the limit it simply means that FNMA and Freddie Mac agencies would not service the loan.

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K

No terms listed.

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L

Late Charge
An additional charge that a borrower is required to pay as a penalty for failure to pay a regular installment when due.
Loan
Money lent from a financial institution to a creditworthy borrower(s) over a specified period of time and at a particular interest rate.
Loan to value
The percentage relationship between the amount of the loan and the appraised value or sales price (whichever is lower).

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M

Margin
The amount a lender adds to the quoted index rate for an adjustable rate loan to determine the new interest rate
Mortgage Insurance
When buyers take out a mortgage loan with less than a certain dollar percentage to put down on a loan. Lenders require them to pay mortgage insurance, a monthly premium that is added to the mortgage. This protects the lenders should a buyer default on the home loan.
Mortgage Insurance Premium
The amount paid by a mortgagor for mortgage insurance, either to a government agency, such as FHA or to a private mortgage insurance company
Monthly Housing Expense
Total principal, interest, taxes and insurance paid by the borrower on a monthly basis. Used with gross income to determine affordability.

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N

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 loan.
Notice of Incomplete Application
A form sent to the buyer that indicates missing or incomplete loan information. Buyer must provide all required information for the lender to complete the application process

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O

Occupancy
The use of property as a full time residence, either by the title holder (owner occupancy) or by another party through formal agreement.
Origination Fee
A fee calculated as a small percentage of the value of the loan, charged by a mortgage lender for processing the loan. One of many fees often due at closing and one that must be disclosed on the Good Faith Estimate when a buyer first completes a loan application.

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P

PITI
This stands for principal, interest, taxes and 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 principal, interest taxes and insurance (PITI) reserves must equal the amount the borrower would have to pay for PITI for a predefined number of months.
Planned Unit Development
A type of ownership where individuals actually own the building or unit they live in, but common areas are owned, jointly with other members of the development or association. Contrast with a condominium, where an individual actually owns the airspace of his unit, but the buildings and common areas are owned jointly with others in the development or association.
Points
An up-front fee; one point is equal to one percent of the loan amount. Many lenders allow customers the option of paying “points” in exchange for a lower interest rate on the loan.
Power of Attorney
A legal document that authorizes one person to act on behalf of another. A power of attorney can grant complete authority or can be limited to certain acts and/or certain periods of time. You may use a power of attorney if you have a closing scheduled but due to an extenuating circumstance, are unable to attend. It names the person who is authorized to act on your behalf. The legal document must be notarized and should be prepared by an attorney so that it meets the requirements needed to close the transaction.
Prepaid Expenses
Taxes, insurance, and assessments paid in advance of their due dates. These expenses are often included at closing to ensure that the insurance and taxes are up to date when a mortgage is taken out.
Prepaid Interest
Interest that is paid in advance of when it is due. Typically charged to a borrower at closing to cover interest on the loan between the closing date the first payment date.
Principal
The amount borrowed on a home loan.
Private Mortgage Insurance (PMI)
A type of insurance many homebuyers are required to purchase, particularly when they are unable to put down a certain dollar amount on the loan; protects the lender in the event of borrower default.

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Q

Quit Claim deed
A document that releases one party in a home title from any responsibility and grants all responsibility to another. Commonly used for spouses or in family situations in which more than one individual has an interest in a mortgage or property title.

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R

Reverse Mortgage
A type of mortgage designed for homeowners over 62 years of age; gives them access to home’s equity in cash payments, frees up money they may use for other important costs or to make needed home repairs.
Real Estate Settlement Procedures Act (RESPA)
A federal law that gives consumers the right to review information about loan costs after you apply for a loan and again at loan settlement. The law requires lenders to prove a list of settlement costs only after you apply for a loan.
Refinance transaction
The process of paying off one loan with the proceeds from a new loan using the same property as the security.
Right to Rescission
Under the provisions of the Truth in Lending ACT, the borrower’s right, on certain kinds of loans, to cancel the loan within three business days of signing a mortgage.

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S

Second Mortgage
A mortgage that has a lien position subordinate to the first mortgage.
Security
The property being pledged as security for your loan.
Sales contract
A real estate sales agreement is a formal written contract made between a homebuyer and seller. The document includes property address, condition, purchase price, inspections, date of closing, date of possession and more.
Servicing
The collection of payments, interest, principal and escrow or trust items, such as property taxes and hazard insurance on a note for a fee. The servicing fee is included in the price of the loan, so it is invisible to the borrower. Servicing includes the accounting functions and operational procedures for late payment, tax payments and loan analysis. Servicing rights are a valuable and marketable commodity in the secondary market and have a bearing on the interest rate quoted for a loan.
Survey
A “bird’s eye” diagram of your property that shows the boundary lines of your lot, and details any encroachments between you and your neighbors.

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T

Tax Lien
Claim against a property for unpaid taxes.
Tenancy in common
One or more persons may possess the property title but ownership may be declared in various percentages.
Title
The document that states legal ownership of a property. Also indicates the rights of ownership and possession of the property. A title may be obtained through a purchase, personal inheritance or through foreclosure of a mortgage.
Title Examination
A search of public records to determine the status of a title (i.e. the identity of the current owner and the existence and nature of any liens or claims outstanding against the property).
Title Insurance
Insurance taken out on the property title that protects both borrower and lender in the event of a title dispute.
Transfer Tax
Tax paid when title passes from one owner to another.
Truth in Lending Act
Federal law requiring written disclosure of the terms of a mortgage (including the APR and other charges) by a lender to a borrower after application. Also requires the right of rescission period.

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U

Underwriting
Guidelines the lender uses to determine if a borrower qualifies for a loan.

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V

Veterans Administration (VA)
An agency of the federal government that guarantees residential l mortgages made to eligible veterans of the military services. The guarantee protects the lender against loss and thus encourages lenders to make mortgages to veterans.

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W

Warranty Deed
A deed in which the grantor or seller warrants or guarantees `that he/she is conveying good title as opposed to a quit claim deed which contains no representation or warranty as to the quality of title being conveyed.

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X

No terms listed.

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Y

No terms listed.

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Z

No terms listed.

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