| Commonly Used Lending
Terminology |
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This loan glossary
is here to help you fully understand commonly used
lending terminology, Use this page as a handy referance,
if you still have questions feel free to call Sean
McMahan at 805.238.0880 or toll-fee 888.995.7587.. |
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 |
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| adjustable-rate
mortgage (ARM) - A mortgage that permits the
lender to adjust its interest rate periodically on
the basis of changes in a specified index. |
| adjustment date
- The date on which the interest rate changes for
an adjustable-rate mortgage (ARM). |
| adjustment period
- The period that elapses between the adjustment dates
for an adjustable-rate mortgage |
| amortization
- The gradual repayment of a mortgage loan by installments. |
| amortization
schedule - A timetable for payment of a mortgage
loan. An amortization schedule shows the amount of
each payment applied to interest and principal and
shows the remaining balance after each payment is
made. |
| amortization
term - The amount of time required to amortize
the mortgage loan. The amortization term is expressed
as a number of months. For example, for a 30-year
fixed-rate mortgage, the amortization term is 360 |
| annual percentage
rate (APR) - The cost of a mortgage stated
as a yearly rate; includes such items as interest,
mortgage insurance, and loan origination fee (points). |
| appraisal
- A written analysis of the estimated value of
a property prepared by a qualified appraiser. Contrast
with home inspection. |
| appraised value
- An opinion of a property's fair market value, based
on an appraiser's knowledge, experience, and analysis
of the property. |
| asset
- Anything of monetary value that is owned by a person.
Assets include real property, personal property, and
enforceable claims against others (including bank
accounts, stocks, mutual funds, and so on). |
| assumable mortgage
- A mortgage that can be taken over ("assumed") by
the buyer when a home is sold. |
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| balloon mortgage
- A mortgage that has level monthly payments that
will amortize it over a stated term but that provides
for a lump sum payment to be due at the end of an
earlier specified term. |
| 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. |
| beneficiary
- The person designated to receive the income from
a trust, estate, or a deed of trust. |
| bill of sale
- A written document that transfers title to personal
property. |
| bond
- An interest-bearing certificate of debt with a maturity
date. An obligation of a government or business corporation.
A real estate bond is a written obligation usually
secured by a mortgage or a deed of trust. |
| bridge loan
- A form of second trust that is collateralized by
the borrower's present home (which is usually for
sale) in a manner that allows the proceeds to be used
for closing on a new house before the present home
is sold. Also known as "swing loan." |
| broker
- A person who, for a commission or a fee, brings
parties together and assists in negotiating contracts
between them. |
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| cap -
A provision of an adjustable-rate mortgage (ARM) that
limits how much the interest rate or mortgage payments
may increase or decrease. See lifetime payment cap,
lifetime rate cap, periodic payment cap, and periodic
rate cap. |
| cash-out refinance
- A refinance transaction in which the amount of money
received from the new loan exceeds the total of the
money needed to repay the existing first mortgage,
closing costs, points, and the amount required to
satisfy any outstanding subordinate mortgage liens.
In other words, a refinance transaction in which the
borrower receives additional cash that can be used
for any purpose. |
| Certificate
of Eligibility - A document issued by the federal
government certifying a veteran's eligibility for
a Department of Veterans Affairs (VA) mortgage. |
| certificate
of title - A statement provided by an abstract
company, title company, or attorney stating that the
title to real estate is legally held by the current
owner. |
| closing costs
- Expenses (over and above the price of the property)
incurred by buyers and sellers in transferring ownership
of a property. Closing costs normally include an origination
fee, an attorney's fee, taxes, an amount placed in
escrow, and charges for obtaining title insurance
and a survey. Closing costs percentage will vary according
to the area of the country; lenders or Realtors® often
provide estimates of closing costs to prospective
home buyers. |
| commission
- The fee charged by a broker or agent for negotiating
a real estate or loan transaction. A commission is
generally a percentage of the price of the property
or loan. |
| comparables
- An abbreviation for "comparable properties"; used
for comparative purposes in the appraisal process.
Comparables are properties like the property under
consideration; they have reasonably the same size,
location , and amenities and have recently been sold.
Comparables help the appraiser determine the approximate
fair market value of the subject property. |
| construction
loan - A short-term, interim loan for financing
the cost of construction. The lender makes payments
to the builder at periodic intervals as the work progresses. |
| credit
reporting agency (or bureau) - An organization
that prepares reports that are used by lenders to
determine a potential borrower's credit history. The
agency obtains data for these reports from a credit
repository as well as from other sources. |
| conventional
mortgage - A mortgage that is not insured
or guaranteed by the federal government. Contrast
with government mortgage. |
| convertibility
clause - A provision in some adjustable-rate
mortgages (ARMs) that allows the borrower to change
the ARM to a fixed-rate mortgage at specified timeframes
after loan origination |
| convertible
ARM - An adjustable-rate mortgage (ARM) that
can be converted to a fixed-rate mortgage under specified
conditions. |
| credit history
- A record of an individual's open and fully repaid
debts. A credit history helps a lender to determine
whether a potential borrower has a history of repaying
debts in a timely manner. |
| credit report
- A report of an individual's credit history prepared
by a credit bureau and used by a lender in determining
a loan applicant's creditworthiness. See merged credit
report. |
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| deed of trust
- The document used in some states instead of a mortgage;
title is conveyed to a trustee. |
| Department of
Veterans Affairs (VA) - An agency of the federal
government that guarantees residential 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. |
| discount points -
See point. |
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| earnest money
deposit - A deposit made by the potential home
buyer to show that he or she is serious about buying
the house. |
| encumbrance
- Anything that affects or limits the fee simple title
to a property, such as mortgages, leases, easements,
or restrictions. |
| Equal Credit
Opportunity Act (ECOA) - 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
- A homeowner's financial interest in a property.
Equity is the difference between the fair market value
of the property and the amount still owed on its mortgage. |
| escrow
- An item of value, money, or documents deposited
with a third party to be delivered upon the fulfillment
of a condition. For example, the deposit by a borrower
with the lender of funds to pay taxes and insurance
premiums when they become due, or the deposit of funds
or documents with an attorney or escrow agent to be
disbursed upon the closing of a sale of real estate. |
| escrow account
- The account in which a mortgage servicer
holds the borrower's escrow payments prior to paying
property expenses. |
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| Fair Credit
Reporting Act - A consumer protection law that
regulates the disclosure of consumer credit reports
by consumer/credit reporting agencies and establishes
procedures for correcting mistakes on one's credit
record. |
| Fannie Mae -
A congressionally chartered, shareholder-owned company
that is the nation's largest supplier of home mortgage
funds. |
| first mortgage
- A mortgage that is the primary lien against a property. |
| fixed-rate mortgage
(FRM) - A mortgage in which the interest rate
does not change during the entire term of the loan. |
| flood insurance
- Insurance that compensates for physical property
damage resulting from flooding. It is required for
properties located in federally designated flood areas. |
| foreclosure
- The legal process by which a borrower in default
under a mortgage is deprived of his or her interest
in the mortgaged property. This usually involves a
forced sale of the property at public auction with
the proceeds of the sale being applied to the mortgage
debt. |
| fully amortized
ARM - An adjustable-rate mortgage (ARM) with
a monthly payment that is sufficient to amortize the
remaining balance, at the interest accrual rate, over
the amortization term. |
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| hazard insurance
- Insurance coverage that compensates for physical
damage to a property from fire, wind, vandalism, or
other hazards. |
| HUD-1 statement
- A document that provides an itemized 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 standardized 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 blank 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." |
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| index
- A number used to compute the interest rate for an
adjustable-rate mortgage (ARM). The index is generally
a published number or percentage, such as the average
interest rate or yield on Treasury bills. A margin
is added to the index to determine the interest rate
that will be charged on the ARM.. This interest rate
is subject to any caps that are associated with the
mortgage. |
| in-file credit
report - An objective account, normally computer-generated,
of credit and legal information obtained from a credit
repository. |
| interest
- The fee charged for borrowing money. |
| interest rate
- The rate of interest in effect for the monthly payment
due. |
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| judgment
- A decision made by a court of law. In judgments
that require the repayment of a debt, the court may
place a lien against the debtor's real property as
collateral for the judgment's creditor. |
| jumbo loan
- A loan that exceeds Fannie Mae's legislated mortgage
amount limits. Also called a non conforming loan. |
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| liabilities
- A person's financial obligations. Liabilities include
long-term and short-term debt, as well as any other
amounts that are owed to others. |
| lien
- A legal claim against a property that must be paid
off when the property is sold. |
| lifetime payment
cap - For an adjustable-rate mortgage
(ARM), a limit on the amount that payments can increase
or decrease over the life of the mortgage. See cap. |
| lifetime rate
cap - For an adjustable-rate mortgage (ARM),
a limit on the amount that the interest rate can increase
or decrease over the life of the loan. See cap. |
| line of credit
- An agreement by a commercial bank or other financial
institution to extend credit up to a certain amount
for a certain time to a specified borrower. |
| liquid asset
- A cash asset or an asset that is easily converted
into cash. |
| loan
- A sum of borrowed money (principal) that is generally
repaid with interest. |
| loan origination
- The process by which a mortgage lender brings into
existence a mortgage secured by real property. |
| loan-to-value
(LTV) percentage - The relationship between
the principal balance of the mortgage and the appraised
value (or sales price if it is lower) of the property.
For example, a $100,000 home with an $85,000 mortgage
has a LTV percentage of 85 percent. |
| lock-in
- A written agreement in which the lender guarantees
a specified interest rate if a mortgage goes to closing
within a set period of time. The lock-in also usually
specifies the number of points to be paid at closing. |
| lock-in period
- The time period during which the lender has guaranteed
an interest rate to a borrower. See lock-in. |
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| margin
- For an adjustable-rate mortgage (ARM), the amount
that is added to the index to establish the interest
rate on each adjustment date, subject to any limitations
on the interest rate change. |
| merged credit
report - A credit report that contains information
from three credit repositories. When the report is
created, the information is compared for duplicate
entries. Any duplicates are combined to provide a
summary of a your credit. |
| mortgage broker
- An individual or company that brings borrowers and
lenders together for the purpose of loan origination.
Mortgage brokers typically require a fee or a commission
for their services. |
| mortgage insurance
- A contract that insures the lender against loss
caused by a mortgagor's default on a government mortgage
or conventional mortgage. Mortgage insurance can be
issued by a private company or by a government agency
such as the Veterans Administration (VA). Depending
on the type of mortgage insurance, the insurance may
cover a percentage of or virtually all of the mortgage
loan. See private mortgage insurance . |
| mortgage life
insurance - A type of term life insurance often
bought by mortgagors. The amount of coverage decreases
as the principal balance declines. In the event that
the borrower dies while the policy is in force, the
debt is automatically satisfied by insurance proceeds. |
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| no cash-out
refinance - A refinance transaction in which
the new mortgage amount is limited to the sum of the
remaining balance of the existing first mortgage,
closing costs (including prepaid items), points, the
amount required to satisfy any mortgage liens that
are more than one year old (if the borrower chooses
to satisfy them), and other funds for the borrower's
use (as long as the amount does not exceed 1 percent
of the principal amount of the new mortgage). |
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| origination
fee - A fee paid to a lender for processing
a loan application. The origination fee is stated
in the form of points. One point is 1 percent of the
mortgage amount. |
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| periodic payment
cap - For an adjustable-rate mortgage
(ARM), a limit on the amount that payments can increase
or decrease during any one adjustment period. See
cap. |
| periodic rate
cap - For an adjustable-rate mortgage (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. See cap. |
| 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. |
| prepayment
- Any amount 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. In each case, prepayment means payment
occurs before the loan has been fully amortized. |
| 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. |
| prime rate
- The interest rate that banks charge to their preferred
customers. Changes in the prime rate influence changes
in other rates, including mortgage interest rates. |
| principle
- The amount borrowed or remaining unpaid. The part
of the monthly payment that reduces the remaining
balance of a mortgage. |
| principle, interest,
taxes, and insurance (PITI) - The four components
of a monthly mortgage payment. 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. |
| private mortgage
insurance (PMI) - 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) percentage in excess of 80 percent. |
| purchase and
sale agreement - A written contract signed
by the buyer and seller stating the terms and conditions
under which a property will be sold. |
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| rate lock
- A commitment issued by a lender to a borrower or
other mortgage originator guaranteeing a specified
interest rate for a specified period of time. See
lock-in. |
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| second mortgage
- A mortgage that has a lien position subordinate
to the first mortgage. |
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| title
- A legal document evidencing a person's right to
or ownership of a property. |
| title company
- A company that specializes in examining and
insuring titles to real estate. |
| title insurance
- Insurance that protects the lender (lender's
policy) or the buyer (owner's policy) against loss
arising from disputes over ownership of a property. |
| title search
- A check of the title records to ensure that the
seller is the legal owner of the property and that
there are no liens or other claims outstanding. |
| Treasury index
- An index that is used to determine interest rate
changes for certain adjustable-rate mortgage (ARM)
plans. It is 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, which is based on the closing market
bid yields on actively traded Treasury securities
in the over-the-counter market. See adjustable-rate
mortgage (ARM). |
| 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. |
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| underwriting
- The process of evaluating a loan application
to determine the risk involved for the lender. Underwriting
involves an analysis of the borrower's creditworthiness
and the quality of the property itself. |
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| VA mortgage
- A mortgage that is guaranteed by the Department
of Veterans Affairs (VA). Also known as a government
mortgage. |
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