Additional Principal Payment
A payment by a borrower
of more than the scheduled principal
amount due in an effort to reduce the remaining balance on the loan
Adjustable Rate Mortgage (ARM)
whose interest rate
changes periodically based on the changes in a specified index
Detailed table showing the principal
portions of a payment
, along with remaining principal balance
and ending balance.
Amount of money financed for a loan
. Equal to the sales price minus the down payment
and prepaid fees
Annual Real Estate Appreciation
The increase in value
of a property
over time due to inflation, supply and
demand, capital improvements and other factors.
A sum charged by a lender
for accepting an application
in which a prospective borrower
details his or her financial situation in an effort to qualify for a loan
A written analysis of the estimated value of real estate prepared by a licensed appraiser
An opinion of a property's fair market value
based on the appraiser's
analysis of the property and recent sales in the area.
A person licensed to evaluate the worth of real estate.APR
The cost of credit on a yearly basis, expressed as a percentage. Required to be disclosed by the lender
under the federal Truth
in Lending Act, Regulation Z. Includes up-front costs paid to obtain the loan
,and is, therefore, usually a higher amount than the
stipulated in the mortgage
note. Does not include title insurance
, and credit report
Usually a short-term
loan that involves small payments for a certain period of time and one large payment for the remaining balance of the principal
at a time specified in the contract.
A loan installment
that is larger than the other periodic payments
and pays off the remaining principal
that schedules 26 payments
per year instead of the normal 12. Biweekly payments are equal to one-half of a normal monthly payment and reduce interest
payments (since the loan is paid off more quickly).
secured by more than one property
. Usually refers to commercial property.
One who applies for and receives a loan
in the form of a mortgage
with the intention of repaying the loan principal
Break Even Point
The time it takes to recoup the cost of refinancing
a loan or paying discount points
to "bridge the gap" between the purchase
of a new home and the sale of the borrower's
current home. The borrower's current home is used as collateral
, and the money is used to close on the new home before the current home is sold.
A provision of an adjustable-rate loan (ARM)
that limits how much the interest rate
or loan payments
may increase or decrease. These can be lifetime payment cap, lifetime interest rate cap, periodic payment cap, and periodic interest rate caps.
The money left over when refinancing
and the money being borrowed is greater than the principal balance
remaining on the original loan
Cash Out 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
, 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.Ceiling
The highest percentage a lender
can charge for an adjustable-rate mortgage
Any fees paid by the borrowers
or sellers during the closing
of the mortgage loan
. This normally includes an origination fee
, discount points
, attorney's fees, title insurance
, survey, and any items which must be prepaid, such as taxes
and insurance escrow
pledged as a security to a debt
. If a
fails to pay on a loan, the lender
the collateral and sell it to recover money.
The unpaid principal balances
of all the mortgages
on a property
(first and second, usually) divided by the property's appraised value
two criteria: 1.) They cannot exceed the current year's maximum loan amount limits.
The 2006 conforming loan limit is $417,000 2.) They also must conform to the credit
, and debt
guidelines established by Fannie Mae and/or Freddie Mac.
is not insured or guaranteed by a government agency such as the
Home Administration (FHA)
or Veterans Administration (VA)
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.
A report from a credit
bureau containing detailed information bearing on credit-worthiness, including the
individual's credit history
A measure of your credit worthiness.
One who is owed money.
Money that one person/business owes to another person/business.Debt-to-Income Ratio
The ratio, expressed as a percentage, which results from a borrower's
monthly payment obligations
on long-term debts
divided by gross monthly income
. This also is referred to as
a back-end ratio and is generally expected to come in at about 36-38 percent. Some
, especially those offering FHA
or subprime loans
stretch this ratio to 40 percent or even beyond. Also known as Total Debt Ratio
Document that provides title
owner and is recorded with a county recorder.
Deed of Trust
Similar to a mortgage
, except title
is conveyed to the
, rather than the borrower
Condition where a
fails to make payments
on a loan
Information a borrower
is required to provide for proof of income. Primarily, this includes W2’s, tax returns
and pay stubs.
The part of the purchase
of a property
that the buyer pays in cash and does not finance with a mortgage
Money offered by a prospective
buyer when making a formal offer on a property
Money is used to indicate to the seller that the buyer is seriously interested in
purchasing the property.
All monies earned or received
that are considered income.
The difference between the
fair market value
of a home and current indebtedness; the value an owner
has in real estate over and above the amount still owed on the property
. Also referred
to as the owner's interest
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
premiums when they become due, or the deposit of funds
or documents with an attorney or escrow agent to be disbursed upon the closing
a sale of real estate.
Account where property taxes
home owner's insurance
are held until being paid.
FFair Market Value (FMV)
The selling price that both a buyer and seller would agree on for a property
. Also known as Property Value
Federal Home Administration (FHA)
within the federal Department of Housing and Urban Development that provides mortgage
and sets construction and underwriting
FHA Mortgage Insurance
A type of Mortgage Insurance
offered by the Federal Housing Authority
that is similar to PMI
, but carry additional restrictions. For
example, mortgage insurance lasts through the life of the loan, instead of until a certain point of equity
A mathematical equation developed by Fair Isaac Corp.
that determines how likely you are to pay your bills on time. Many lenders
score to determine not only if a mortgage
loan will be made, but also the interest
you will be charged. Because of differences in calculation methods, not all
are the same. Your credit scores may differ among the credit-reporting
agencies and likely also will vary from your FICO score.
First Adjustment Cap
(Adjustable Rate Mortgage) products have a feature known generally as "caps"
can greatly influence the
amount payments can go up immediately after the fixed introductory period expires.
The adjustment cap limits the degree of interest rate
changes during a specific period and during the life of the loan.
The First Adjustment Cap deals with the first number of an ARM loan.
For instance, 2/1 ARM loan means interest rates can not adjust up or down by more than 2%.
Thus, an ARM loan at 6.5% with a 2% first adjustment cap, can only go up to 8.5%.
Fixed Rate Mortgage
where the interest rate
does not change during the entire term of the loan
Minimum allowable adjusted interest rate
A legal process by which
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
Future Real Estate Value
The value that a piece of Real Property (which is a dwelling permanently attached to land) will be worth in the future based on a specified period of time and Real Estate Appreciation value.
How a loan
will be paid off; frequently
from another type of account the borrower
holds, such as
a checking or savings account.
GGood Faith Estimate
A written estimate of expected
that a lender
provide a prospective home buyer within three days of the homeowner submitting a
Total amount of income
before taxes or other deductions. Used to calculate ratios such as housing expense ratio
and Debt-to-Income Ratio
HHome Equity Line of Credit (HELOC)
providing you with the ability to borrow funds at the time and in the
amount you choose, up to a maximum credit limit for which you have qualified. Repayment
is secured by the equity
in your home. Simple
(interest-only payments on the outstanding balance) is usually
. Often used for home improvements, major purchases or expenses, and
Home Equity Loan
or adjustable rate loan
for a variety of purposes, secured by the equity
in your home.
paid is usually tax-deductible
. Often used for
home improvement or freeing of equity
for investment in other real estate or investment.
Recommended by many to replace or substitute consumer loans whose interest is
not tax-deductible, such as auto or boat loans, credit card debt, medical debt,
and education loans.
Process where third-party
inspector is hired, usually by the prospective buyer(s), to inspect the property
. Many times, the loan closing will
be contingent on the results of the home inspection.
Home Owner's Insurance
policy that includes coverage for property
damage or loss, as well as personal liability
Housing Expense Ratio
ratio, expressed as a percentage, calculated by dividing a borrower's
by gross monthly income
. Also known as Primary Housing Ratio
Payments for housing, rent or mortgage
, plus any taxes
paid. Also known as PITI
Payment (usually monthly) used to pay off principal balance
. Also known as an Installment
A published interest rate
measure the difference between the current interest rate on an adjustable-rate
and that earned by other investments. Common indices include one-, three-,
and five-year U.S. Treasury security yields; the monthly average interest rate on
loans closed by savings and loan institutions, and the monthly average cost of funds
incurred by S&Ls. These data are then used to adjust up or down the interest
rate on an adjustable-rate mortgage.
Payment (usually monthly)
used to pay off principal balance
. Also known as a Housing Payment
Money owed to
that is expected to be in equal amounts over
a pre-determined period of time.
There are two types of insurance
that have relevance in the context of a monthly mortgage
and private mortgage insurance (PMI)
. A typical
homeowner's insurance policy includes coverage for property
damage or loss, as well
as personal liability and theft. You may need supplemental coverage for other risks
(for example, you may need flood insurance if your home is in an area with a high
risk of flooding). If you buy your home with less than a 20 percent down payment,
you may also be required to hold private mortgage insurance to protect the lender
from default. Both homeowner’s insurance and, if applicable, private mortgage insurance
(PMI), may be included in your monthly mortgage loan payment. The lender
responsible for disbursing these funds on your behalf to the appropriate parties.
Money paid to the
by the borrower
over the life of the
, in return for being able to borrow money from the lender
Rate at which
is charged on a loan
that generates income, such as an apartment building or a rental house.
A bank account owned by two
or more persons who share equally in the rights and liabilities of the account.
Not individually; with a co-applicant.Jumbo Mortgage
that is larger (more
than $417,000 as of 1/1/2006) than the limits set yearly by Fannie Mae and Freddie
Mac. Because jumbo loans cannot be funded by these two agencies, jumbo loans usually
carry a higher interest rate
. Also called a non-conforming loan
One who gives a loan to a
Legal claim against a property
of a debt
Money borrowed that is repaid, usually
Amount of money borrowed to be repaid, usually with interest
A document in
which a prospective borrower
details his or her financial
situation to qualify for a loan
Meeting where the sale of
is completed. Buyer and Seller will agree to terms and conditions
of the loan, and sign selling agreements
the buyer will pay the down payment
at the time of closing.
The different types
of programs available for obtaining rates and qualification parameters.
Loan To Value (LTV) Ratio
between the amount of the mortgage
loan and the appraised value
of the property
expressed as a percentage calculated by dividing the amount of the loan
by the appraised
value. The LTV will affect programs available to the borrower
the lower the LTV the more favorable the terms of the programs offered.
(also known as Rate-lock
A written agreement guaranteeing the home buyer a specified interest rate
is closed within a set period of time.
Expressed as percentage points, the
amount that a lender
adds to an index
to establish the adjusted
Marginal Tax Bracket
See Tax Bracket
The total amount of credit
card, auto loan, mortgage
or other debt
upon which you must pay.
Monthly Household Debt Amount
Total of recurring monthly payments (e.g. credit cards, student loans, car payments,
etc.). Amount should exclude current housing expenses
(current rent, current mortgage
finance the purchase of real estate, usually with specified payment periods and
. The borrower
gives the lender
for the loan.
statement of personal and financial information which is required to approve your
Insurance required to be carried by a borrower
if they fall under certain criteria.
For example, a borrower may be required to carry private mortgage insurance
if they have an LTV
of higher than 80%,
or they will have to carry FHA Mortgage Insurance
if they have obtained an FHA loan and have a poor credit history
to buy property
that will be inhabited by more than one family, but having one property
tax-payer. (e.g. mortgage to purchase an apartment building.)
NNeeded Loan Amount
of money a borrower
needs to borrow. If the purpose of the loan
is to purchase a
, this amount represents the difference between the purchase
the property and the down payment
amount. If the purpose of the loan is to refinance
a loan for an existing property, this amount is determined by the current loan balance
Negative Lifetime Cap
Maximum downward change allowed from the initial rate.Non-conforming Loan
See Jumbo Mortgage
A fee imposed by a lender
to cover certain processing
expenses in connection with making a real estate loan
. Usually a percentage of the
amount loaned, such as one percent.
A number of a particular mortgage
payment used to determine a certain value for that point in time.
A number of a particular mortgage payment
used to determine a certain value for that point in time.Periodic Adjustment Cap
A periodic adjustment cap limits how much an interest rate
can change from one adjustment period to the next.
Usually a six month adjustable rate mortgage
will have a one percent periodic adjustment cap while a one year
adjustable rate mortgage will have a two percent periodic adjustment cap. If a loan has a two
percent periodic adjustment cap, the interest rate can only increase or decrease by a maximum of two percent
per adjustment period.
The sum of principal
, (property) taxes
(home owner's) insurance
, also known as monthly housing
assessed at closing
by the lender
. Each point is equal to 1 percent of the loan amount
(e.g., two points
on a $100,000 mortgage
would cost $2,000).
Positive Lifetime Cap
Maximum upward change allowed from the initial rate.Pre-Approval Letter
Letter from a lender
stating the approximate amount that a
can borrow, based on current interest rates
and a preliminary look of the borrower's credit history
Those expenses of property
which are paid in advance of their due date and will usually be prorated upon sale, such as taxes
, rent, etc.Primary Housing Ratio
See Housing expense ratio
Principal or Principal Balance
, not counting interest
, remaining on a loan
Private Mortgage Insurance (PMI)
Money paid to insure the mortgage
is less than 20 percent. Lenders
will allow a smaller
down payment or no down payment at all, in some cases, but in those cases borrowers
are usually required to carry private mortgage insurance that generally calls for an initial
premium payment and may require an additional monthly fee, depending on the structure
of the loan
. PMI is not tax-deductible
and as a result, most homeowners have it
removed once the value of the equity in the home reaches 20 percent. Also, paying
PMI may be avoided by using a split loan
to purchase property
Item that is sold from one person
will be used by the borrower
can be designated as a primary residence, investment
, commercial property, or some other designation.
Fair Market Value
Obtaining a new mortgage
on a property
the consumer does not already own.
in which a buyer and seller agree on terms and price of the subject
. Also known as a Selling Agreement
QQualifying Loan Amount
amount which a person is able to borrow based on income and debts
of income that is spent on housing debt
and combined household debt. The first qualifying
ratio, called the front ratio, or Housing Expense Ratio
is the percentage of monthly before-tax income that goes toward a house payment
The back ratio, or Debt-to-Income Ratio
, is the
sum of the house payment and all other monthly debt - credit cards, car payments,
student loans and the like - divided by before-tax income.
Credit card payments,
child support, car loans, and other obligations that will not be paid off within
a relatively short period of time (6-10 months).
Obtaining a new mortgage
on a property
already owned, often to replace existing loans
on the same property.
Income received from
Money owed to a
where the amount is calculated by the current balance (e.g. Credit
See Purchase Agreement
.Single Family Mortgage
to purchase property
that will only be inhabited by one family,
and have one property tax-payer
a large amount of money is borrowed through multiple, smaller loans. In most
cases, a single, large amount is borrowed as a
, along with a second, smaller loan, usually an ARM
or Home Equity Loan
, and a
. This type of loan is usually made to avoid paying
. An example is an 80-10-10 loan, where 80% of the
fair market value
of the property is borrowed through a conventional
loan, 10% of the FMV
is borrowed through a
home equity loan
, and the last 10% is a down payment
In general, the second loan will have a shorter term and higher interest rate
the conventional loan.
Typically, subprime loans
are for persons with blemished or limited credit histories
. The loans
carry a higher
rate of interest
than prime loans to compensate for increased credit risk.
The level of income tax
of a given individual, as indicated by the amount of taxes they pay on their final
dollar of taxable income. Also called marginal tax bracket
or tax rate.
(Property/Real Estate) Taxes
Taxes owed to the local municipality based on the fair market value
The tax revenues are then used by the local municipality to pay for community schools,
roads, police and other municipal services.
Exempt from inclusion in one's taxable income
Ownership of property
to the exclusion
of anyone else to make claim on the property. Evidence of Title is held in
, which is held at the county Recorder's Office.
A policy that guarantees
that an owner properly has title
to a property
and can legally transfer title to someone else. Should a problem arise, the title
insurer pays any legal damages.
Total Debt Ratio
See Debt-to-Income Ratio
A federal law
that requires lenders
and brokers to fully disclose, in writing,
the terms and conditions of a loan
, including the
annual percentage rate
A person who holds and manages
assets for the benefit of beneficiaries.
The decision whether
to make a loan
to a potential homebuyer based on credit, employment, assets and
other factors, and the matching of this risk to an appropriate rate and term or
VVeteran's Administration (VA)
Now called the
U.S. Department of Veterans Affairs, which oversees the VA loan program, a benefit
to veterans that allows them to buy homes with no down payment
Verification of Deposit (VOD)
A document signed
by the borrower's
financial institution verifying the status and balance of the
person's financial accounts.
Verification of Employment (VOE)
signed by the borrower's
employer verifying the person's position, length of service,