Mortgage Glossary
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Abstract of Title - A written History of the title transaction or conditions which affect the title to a designated parcel of land from the original source of title to present, noting all conveyances, transfers, grants, wills and judicial proceedings, and all encumbrances and liens, together with evidence of satisfaction, and any other facts affecting title.
Acquisition Cost - The price and all fees (Closing Costs) required to obtain a property.
Adjustable Rate Mortgage (ARM) - A mortgage loan that allows the interest rate to be changed at specific intervals over the life of the loan.
Adjusted Gross Income (AGI) - The Gross Income reduced by allowable deductions. This figure is usually found on line 22 or 23 on the individuals Personal Tax Return (1040).
Alimony - The payment for support of ones estranged spouse in the case of divorce or separation. PLEASE NOTE- If a borrower is “Receiving” alimony payments, we can use this as qualifying income provided the borrower can furnish copies of twelve (12) months canceled checks (front and back), showing the consistency of payment from the former spouse. Also required is proof that the alimony payments will continue for at least two (2) more years.
Amortization - The gradual reduction of a debt by means of periodic payments sufficient to pay Principal and thereby liquidate the debt.
Annual Percentage Rate (APR) - The cost of credit that a consumer pays, expressed as a simple annual percentage. According to the Federal Truth in Lending Act, every consumer loan agreement must disclose the APR in large bold type.
Appraisal - The act of placing an estimate of value on real property and the process of preparing such an estimate.
Appraisal Review - A second appraisal ordered by a lending institution, in the event there is a question raised by the underwriter, about the first appraisal.
Appraised Value (Market Value) - The current Resale Market Value of a property based on recent resale prices in the area.
Appraiser - A Person qualified to estimate the value of real property. Leading professional designations for real-estate appraisers are offered by the Society of Real Estate Appraisers, and the American Institute of Real Estate Appraisers. PLEASE NOTE: If a borrower insists on using an appraiser of their own choice, the appraiser must be on the Bank or Mortgage Lender’s Approved Appraiser List.
Approved Appraiser List - A list of appraisers that have previously met qualification standards, and have been approved by a Bank or Mortgage Lender to appraise a prospective borrower’s home.
Assessed Value - A dollar value assigned to property by a municipality. PLEASE NOTE: The assessed value of a home is not the market value in most cases. Depending on different cities, counties, and states, Assessed Value is usually lower than Market Value or Appraised Value.
Assumable With Qualifications (Assumable Mortgage) - A loan whereby a purchaser may takeover payments of a sellers mortgage payments provided the purchaser fully QUALIFIES for the mortgage.
Back End Ratio - The same as Gross Debt Ratio (GDR).
Balloon Payment - Final payment on a loan when that payment is greater than the preceding installment payments and pays the loan in full. For example, a debt requires interest-only payments annually for five years, at the end of, which time the remaining principal balance (a balloon payment) is due.
Bankruptcy - The state of insolvency of an individual or an organization, that is, an inability to pay debts. There are two kinds of legal bankruptcy under U.S. law: Chapter 7 or Involuntary, when one or more creditors petition to have a debtor judged insolvent by a court; and Chapter 13, or Voluntary, when the debtor brings the petition. In both cases the objective is an orderly and equitable settlement of obligations.
BI-Weekly Mortgage Payments - Mortgage payments which are paid every two weeks instead of once a month. At the end of the year, a borrower ends up making twenty-six (26) payments, or Thirteen (13) Monthly payments, which is equal to one extra payment per year towards the principal balance. If a borrower paid a 30-year mortgage on a BI-weekly program, the mortgage would be paid off in approximately twenty-two (22) years instead of thirty (30) years.
Bonus Pay - Compensation that a borrower receives over and above their salary. PLEASE NOTE- Bonus pay can only be used as qualifying income if the borrower has been receiving the bonus for at least 2 years.
Borrower - One who receives funds, with the expressed or implied intention of repaying the loan in full.
Cash Out - When a borrower refinances, and borrows money against the equity in their home, over and above the amount needed to pay off mortgages. Such as; to consolidate bills, pay for home improvements or cash in hand.
Chattel Mortgage - Mortgage on Personal Property created to secure the payment of money owed or the performance of some other obligation.
Child Support - Payment for the care of one’s children to an estranged spouse in the case of divorce or separation. PLEASE NOTE: If a borrower is Receiving child support payments, we can use this as qualifying income, provided the borrower can furnish copies of twelve (12) months canceled checks (front and back), showing the consistency of payment from former spouse, and proof that the payments will continue for at least two (2) more years.
Closing - The formal Signing of paperwork (By All Parties Involved) to finalize the purchase or refinancing of a property.
Closing Costs - Various fees and expenses paid by the borrower at closing, usually included in the total loan amount when a property is refinanced.
Closing Statement - The accounting of funds from a real estate sale, made to both the seller and buyer separately. This is the same closing statement used for refinancing, and is referred to as the HUD Settlement Statement. Most states require the lender to furnish accurate closing statements to all parties to the transaction.
Cloud On Title - Any matter appearing in the record of title to real estate that on its face appears to reflect the existence of an outstanding Claim or Encumbrance that, if valid, would defeat or impair title, but that might be proven invalid by evidence outside the title record.
Co- Signer - A person who signs a promissory note in addition to the maker, thus becoming responsible for the obligation if the maker should default.
Combined Loan to Value (CLTV) – The total amount of all mortgages on a property added together and divided by the property value(QSV)
Commercial Property - A property designed for use by retail, wholesale, office, hotel, or service users.
Commitment - A promise or pledge by a lender to make a specific loan to a prospective borrower.
Commitment Fee - A lender’s charge for contracting to hold credit available.
Co-Mortgagor - Same as Co-Signer.
Comparables - Properties that have recently been sold similar to the one being appraised.
Compensating Factor - When a qualification standard is exceptionally good, compared to the minimum required such as; a very low LTV or GDR, perfect credit, no bills other than a mortgage payment.
Compliance - Operating under regulatory guidelines set forth by State and Federal lending laws.
Conforming Loan - A loan that is within the FNMA, and FHLMC underwriting guidelines.
Consolidation Loan - A loan that combines and refinances other loans or debts. It is normally an installment loan designed to reduce the dollar amount of an individual’s monthly payments.
Construction Loan - A loan, which is made to finance the actual Construction of improvements on land. It is the practice to divide the loan into four or five parts, or disbursements, which are paid as construction progresses.
Conventional Mortgage - A residential mortgage loan, which is usually from a bank or mortgage lender, with a fixed term. It is repayable in monthly payments over a period of usually 30 years or less, secured by real property, and not insured by the Federal Housing Administration (FHA) or guaranteed by the Veterans Administration (VA).
Conversion Clause - The borrower may convert the Interest Rate to a Fixed Rate Mortgage from the thirteenth (13th) month Throughout the Sixtieth (60th) month by paying a Conversion Fee. The new Fixed Interest Rate will be the Current FNMA Rate (at the time of conversion) plus (+) approximately .625%.
Conversion Fee - The fee charged by a lender when converting an Adjustable Rate Mortgage (ARM) into a Fixed Rate Mortgage.
Convertible Mortgage - An Adjustable Rate Mortgage (ARM) program in which the adjustable interest rate can be converted to a fixed interest rate during a specified time period over the life of the loan. *
Conveyance - The transfer of the title to land from one person or class of persons to another.
Cost Of Funds Index-The COFI index is based upon the 11th District Cost of Funds Index (COFI). This is the rate at which Bank in the 11th district (Arizona, California and Nevada) loan money to each other. The index is published on the last day of the month and reflects the cost of funds for the prior month. The 11th District COFI is commonly used as an index for adjustable-rate mortgages.
Courier Fee - A fee charged to the borrower in their closing costs, and paid to a messenger, in the event closing documents need to be transferred from one location to another immediately.
Credit Bureau - A private organization that maintains consumer credit data files and provides credit information to authorized users for a fee.
Credit Explanation Letter - A letter written by a borrower, explaining why payments were reported as being late on ones credit report.
Credit Inquiry - The checking of one’s credit report by a potential creditor.
Credit Rating - A formal evaluation of an individual’s or a company’s Credit History and capability of repaying obligations. A number of firms investigate, analyze, and maintain records on the credit responsibility of individuals and businesses.
Credit Scores - There are several scoring methods, the score most commonly used by lenders is known as a FICO because of its origins with Fair Isaac and Company. Fair Isaac is an independent company that came up with the scoring method and software used by banks and lenders, insurers and other businesses. Each of the three major credit bureaus (Experian, Equifax and TransUnion) worked with Fair Isaac in the early 1980's to come up with the scoring method. The three national credit bureaus each have their own version of the FICO score with their own names. Equifax has the Beacon system, TransUnion has the Empirica system, and Experian has the Experian/Fair Isaac system. Each is based on the original Fair Isaac FICO scoring method and produces equivalent numerical results for any given credit report. Some lenders also have their own scoring methods. Other scoring methods may include information such as your income or how long you've been at the same job.
Credit Reconstruction Program – A loan program designed to re-establish a borrower’s credit over an 18 to 24 month time period. After this time period, if the borrower continues to make monthly payments in a timely manner, the Credit Reconstruction Loan will be refinanced by a Bank or Mortgage Lender into a conforming FNMA loan program provided all other qualification criteria is met.
Credit Requirements - Qualification standards established by banks and mortgage lenders that must be satisfied by potential borrowers in order for credit to be given.
Creditor - One to whom money is owed by the debtor; one to whom an obligation exists.
Current Market Value - The worth of property on the present day market.
Debt Retirement - The repayment of debt.
Deed - Instrument in writing that conveys an interest in land (realty) from the grantor to the grantee. Its main function is to pass title to land.
Default - The failure of a debtor to make timely payments of principal and interest as they become due or to meet some other provision of a bond, mortgage, lease, or other contract.
Deferred Payments - Payments that are put off to a future date.
Deficiency Judgment - A court order stating that the borrower still owes money when the security for a loan does not entirely satisfy a defaulted debt.
Depreciation - The loss of value over a period of time or use.
Discharge In Bankruptcy - Release of the Bankrupt from all provable debts, whether then payable or not, and debts founded on a contract, expressed or implied; but not a release from debts specifically excluded from discharge by the bankruptcy statue.
Discount Points - The amount paid to a lender at closing to account for the difference between the market interest rate and the lower face rate of the note. (Points are pre-paid interest).
Divorce Decree - The legal paperwork describing property distribution and payment responsibilities of the legal and formal dissolution of a marriage.
Document Preparation Fee – (Doc Prep) The fee charged by the Closing Agent or Title Company for preparing one’s documents for a real estate closing.
Due On Sale Clause - A provision in a mortgage that states that the loan is due upon the sale of the property.
Duplex - Two (2) dwellings under one roof.
Employee - A person who works for compensation, whether direct or indirect, for another in return for stipulated services. An employee may work on a per-hour, a per-diem, or an annual wage basis.
Employee Profit Sharing - An employee benefit plan that entitles employees to a share in the profits of a company. When the company does well, employees get a bonus; when the company loses money, employees receive only their regularly established pay.
Encroachment - A building, part of a building, or obstruction that physically intrudes upon, overlaps, or trespasses upon the property of another; verified by a survey.
Encumbrance - Any right to, interest in or legal liability upon real property that does not prohibit passing title to land but that diminishes its value. Encumbrances include easements, licenses, leases, timber privileges, homestead privileges, mortgages, and judgment liens.
Equal Credit Opportunity Act (ECOA) - Federal legislation passed in the mid-1970s prohibiting discrimination in granting credit based on age, race, religion, sex, ethnic background, or whether a person is receiving public assistance or alimony. The Federal Trade Commission enforces the act.
Equifax - A credit reporting agency.
Equity - The property value in excess of debt.
Escrow Account - An account whereby the monthly deposits by a homeowner, to the mortgage holder, are placed to pay for taxes and insurance when they come due.
Escrow Analysis Statement - An annual statement sent to a homeowner, by the mortgage holder, reflecting the record of payments for taxes and insurance, the current account balance, and any shortages or overages in the account.
Estate - Broadly, all that a person owns, whether real property or personal property.
Federal Emergency Management Administration (FEMA) - The federal agency that determines Federal Flood Areas. The homes within this area are required to carry Federal Flood Hazard Insurance if there is a mortgage on the property.
Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac) - A publicly chartered agency, which buys qualifying residential mortgages from lenders, packages them into new securities backed by those pooled mortgages, provides certain guarantees, and then resells the securities on the open market.
Federal Housing Administration (FHA) - An agency, within the U.S. Department of Housing and Urban Development (HUD), that administers many loan, loan guarantee, and loan insurance programs designed to increase the availability of housing. FHA Loan Benefits FHA Loan Quote FHA Streamline Mortgage
Federal National Mortgage Association (FNMA or Fannie Mae) - A government regulated corporation that specializes in buying mortgage loans in the Secondary Mortgage Market. It provides liquidity for primary mortgage lenders. To sell loans to FNMA, lenders must follow FNMA’s underwriting guidelines.
Federal Tax Lien - A lien of the United States on all property and rights to property of a taxpayer who fails to pay a tax for which he is liable to the federal government.
Fee Simple - The absolute ownership of real property.
FHA Loan -
FHA Streamline Refinance -
Fico Credit Scoring - There are several scoring methods, the score most commonly used by lenders is known as a FICO because of its origins with Fair Isaac And Company. Fair Isaac is an independent company that came up with the scoring method and software used by banks and lenders, insurers and other businesses. Each of the three major credit bureaus (Experian, Equifax and TransUnion) worked with Fair Isaac in the early 1980's to come up with the scoring method. The three national credit bureaus each have their own version of the FICO score with their own names. Equifax has the Beacon system, TransUnion has the Empirica system, and Experian has the Experian/Fair Isaac system. Each is based on the original Fair Isaac FICO scoring method and produces equivalent numerical results for any given credit report. Some lenders also have their own scoring methods. Other scoring methods may include information such as your income or how long you've been at the same job.
First Mortgage - A mortgage that has priority as a First Lien over all other mortgages. In cases of foreclosure, the first mortgage will be satisfied before all other mortgages.
Fixed Rate Mortgage/Loan - The type of loan in which the Interest Rate does not fluctuate with general market conditions.
Floating The Rate - A borrower willing to take a chance on what the Interest Rate will be on the day of closing, rather than letting a Bank or Mortgage Lender guarantee the interest rate at the time of application.
Flood Insurance (Federal Flood Hazard Insurance) An insurance policy that covers property damage due to natural flooding. Flood insurance is offered by private insurers, but is encouraged and subsidized by the federal government.
Forbearance Agreement - An agreement by the lender not to exercise the legal right to foreclose in exchange for an agreement by the borrower to a payment plan that will cure the borrowers delinquency.
Foreclosure - The termination of all rights of a homeowner in the property covered by a mortgage. The foreclosed property may be sold to satisfy a debt.
Form 1099 - The income form furnished to a self employed person at the end of the year for monies received.
Form W-2 - The income form furnished to Salaried Employees by an employer at the end of the year, indicating the gross income paid, and total taxes that were deducted from income during the course of the year. This information is also furnished to the IRS.
Front End Debt Ratio (Front End or Housing Ratio) - All Housing Expenses added together (Principal, Interest, Taxes, Insurance, Maintenance Fees, and Homeowners Dues), divided by the borrowers Total Gross Monthly Income. This formula is used to determine the percentage of the gross income that is being used for housing expenses for income qualification.
Fully Amortized Payment - A monthly payment where there is a sufficient amount of Principal being applied to the mortgage balance to retire the debt within the original term of the mortgage.
Good Faith Estimate (GFE) – A written estimate given to a borrower by a Bank, Mortgage Lender, Mortgage Broker or Loan Officer at the time of application estimating the total Closing Costs.
Grace Period - A period of time in most loan contracts during which default or cancellation will not occur even though payment is past due. Under normal circumstances, if a mortgage payment is credited to the account by 2PM on the 15th day of every month, a late charge is not due.
Green Card - A card issued to Resident Aliens working in the United States without being granted citizenship.
Gross Debt Ratio (GDR or Back-end) - Front-End, added to all other outstanding Monthly Payments on borrowers credit report, divided by the Gross Monthly Income.
Gross Earnings - An employee’s salary Prior to deductions for taxes, social security, and benefit contributions.
Gross Income - The total of a taxpayer’s income from any source, except items specifically excluded by the Internal Revenue Code and other items not subject to tax.
Gross Rental Income - The amount of rental income paid by a tenant.
Hazard Insurance - An insurance to protect the homeowner and the lender against physical damage to a property from fire, wind, vandalism or other hazards.
Home Equity Line Of Credit (HELOC) - A credit line offered by banks allowing a homeowner to access the equity in their home. Such an account is in effect, a Revolving-Credit second mortgage. This is no different than having a credit card (Open Line Of Credit) however, the borrower’s property is used as security for the loan.
Homeowners Association - An organization of homeowners in a particular subdivision, planned unit development (PUD), or condominium. It is generally formed for the purpose of enforcing deed restrictions or managing the common elements of the development.
Homeowners Insurance Policy (Hazard Insurance) - An insurance policy designed especially for homeowners, that combines Liability Coverage and Hazard Insurance.
Homestead Tax Exemption - A reduction in the Assessed Value allowed for one’s principal residence.
HUD Settlement Statement - The accounting of funds from a real estate sale, made to both the seller and buyer separately. This is the same closing statement used for refinancing, and is referred to as the Closing Statement.
Income Property (Investment Property) - Real estate which produces rental income.
Income To Debt Ratios - The total amount of Monthly Bills, compared to the borrowers Gross Monthly Income. This is to determine the borrower’s ability to repay the loan.
Independent Contractor - A Self Employed (1099) party who is not a salaried employee, such as; a commissioned sales person, a hair dresser who works exclusively for tips, Etc.
Index (Rate Index) - A regularly published rate, independent of the lending institution, that measures the prevailing cost of funds, and is used periodically with the Margin to set the Adjustable Mortgage Loan accrual rates. Common indices are the Monthly Treasury Average (MTA), Cost of Savings Index (COSI), One-Year Treasury Security (T-BILL), the London Interbank Offered Rate (LIBOR), and the 11th District Cost of Funds Index (COFI).
Individual Credit Account - A credit account listed on one’s credit report, which is reported as not being a shared (Joint) account, with another person.
Installment Loan - A loan by which the debt is paid in Set Installment Payments with a Set Term. This type of loan is not an open line of credit and is common with automobile financing and mortgages.
Interest Per Diem - Interest paid Per Day.
Interest Rate - A percentage of a sum of money charged for its use.
Interim Interest - Pro-Rated Interest which is usually Pre-Paid in a real estate closing and listed on the HUD Settlement Statement.
Joint Account - A credit account listed on one’s Credit Report which is reported as being a Shared Account with another person where by, the responsibility for repayment on the account is also shared.
Joint Tax Return - A tax return filed by a husband and wife, setting forth tax information concerning each of them, and computing a combined tax liability. A husband and wife can also file separate tax returns.
Joint Tenancy - The ownership of an asset by two or more persons, each of who has an undivided interest with the right of survivorship. Typically used by related persons. Also referred to as Joint Tenancy with the Right of Survivorship.
Judgment - A debt resulting from a court order.
Judgment Lien - A claim upon the property of a debtor resulting from a judgment.
Jumbo Mortgage - A FNMA mortgage in excess of $417,000.00. 2009 FNMA Loan Limits
Junior Mortgage - The same as a Second Mortgage.
Late Payment Charge - A late payment charge (usually equal to 5% of the monthly payment), if the monthly payment is not received and posted by 2PM on the 15th day of every month.
Lease - A contract granting use of real estate for a specific time in exchange for payment, usually in the form of rent.
Lease With Option To Purchase - A lease that gives the tenant the right to purchase the property at an agreed-upon price under certain conditions.
Legal Description - A legally accepted identification of real estate by one of the following: the government rectangular survey, metes and bounds, and recorded plat (lot, block, and subdivision).
Lender - An individual or firm that extends money to a borrower with the expectation of being repaid, usually with interest.
Lien - A charge against property making it security for the payment of a debt, judgment, mortgage, or taxes.
Lifetime Interest Rate Cap (Life Cap) – The maximum interest rate/catastrophic rate cap, placed on an adjustable rate mortgage to guarantee the highest interest rate will never exceed this percentage.
Liquid Assets - Cash or easily convertible to cash in an emergency (Bank Deposits, Money Market accounts, Certificate of deposits, Stock, Retirement Plans, Etc.).
Loan Application (FNMA-1003) - The document required by a lender prior to issuing a loan commitment. The application includes the following information: name and address of borrower(s), amount and terms of the loan, and the borrower’s financial and employment data.
Loan Commitment - An agreement to lend money, generally of a specified amount, at specific terms at some time in the future.
Loan-To-Value Ratio (LTV) - The relationship between the Amount of the Loan and the Appraised Value of the property expressed as a Percentage. (Example: $300,000.00 Loan Amount ÷ $400,000.00 Property Value = 75% LTV)
Loan Transfer - The transfer of the Servicing of a mortgage from one lender to another.
London Interbank Offered Rate (LIBOR) - The rate that most creditworthy international banks dealing in Eurodollars charge each other for large loans.
Maintenance Fee - An assessment by a homeowners association, or condominium owners’ association to pay costs of operating the common elements. (This could be charged Monthly or Quarterly).
Margin (Also Called “Spread”) - The amount the lender adds to the Index to determine the Fully Indexed Accrual Rate. Usually the margin is a fixed percentage throughout the loan.
Market Value - The same as Appraised Value.
Mechanic’s Lien - A lien against buildings or other structures, allowed by some states to contractors, laborers, and suppliers of materials used in their construction or repair. The lien remains in effect until these people have been paid in full.
Mobile Home (Manufactured Housing) - A dwelling unit manufactured in a factory and designed to be transported to a site and permanently or semi-permanently attached.
Modular Housing - Dwelling units constructed from components prefabricated in a factory and permanently erected on the site.
Mortgage - A debt instrument by which the borrower (mortgagor), gives the lender (mortgagee), a lien on property as a security for the repayment of a loan. The borrower has use of the property, and the lien is removed when the obligation is fully paid.
Mortgage Banker - One who originates, sells, and services mortgages loans.
Mortgage Broker - One who, for a fee, places loans with investors, but does not service such loans.
Mortgage Commitment (Loan Commitment) - An agreement between a lender and a borrower to lend money at a future date, subject to the conditions described in the agreement.
Mortgage Debt - The amount of money owed under a mortgage.
Mortgage Insurance Premium (MIP) - The insurance premium paid on FHA mortgages. Usually paid in an up front lump sum, and included/financed in the total mortgage balance.
Mortgage Lien - An encumbrance on property to secure a loan. The holder of the lien has a claim to the property in case of loan default. The priority of the claim depends on the order of recording and any subordination agreements. A First Mortgage generally has prior claim to all other mortgage lien holders.
Mortgage Life Insurance - Generally term insurance (to the extent of a mortgage debt), on the life of the household money earners.
Mortgage Note (Promissory Note or Note) - A negotiable instrument wherein the maker agrees to pay a specific sum at a definite time.
Mortgage Servicing - The administration of a mortgage loan, including collecting monthly payments and penalties on late payments, keeping track of the amount of principal and interest that has been paid at any particular time, acting as an escrow agent for funds to cover taxes and insurance, and if necessary, curing default and foreclosing when a homeowner is seriously delinquent.
Mortgagee (Lender) - One who holds a lien on property or title to a property as security for a debt.
Mortgagor (Borrower) - One who pledges property as security for a loan.
Multifamily Housing - A residential structure with more than one dwelling unit in the same dwelling.
Negative Amortization - An increase in the outstanding balance of a loan resulting from the monthly payments not paying the required interest due on the loan.
Net Income - The sum remaining after all expenses/taxes have been met or deducted.
Net Rental Income - The Gross rent minus all expenses for mortgage payments, taxes, insurance, and maintenance.
Net Worth - The net assets of a borrower by subtracting all liabilities from the value of all assets.
No Income Verification - Loan programs that do not require the verification of income for qualification but rely on other factors such as; low LTV, high credit scores, and the total amount of liquid assets.
Non Owner Occupied (NOO) - The same as Investment Property.
Non-Amortizing Loan - The monthly payment is an Interest Only payment and will not pay down the principal balance of the loan. This will usually result in a Balloon Payment.
Non-Conforming Loan - A loan program that does not conform to the FNMA underwriting guidelines due to a high LTV, low income, slow or bad credit, Etc.
Non-convertible - An ARM program in which the Adjustable Interest Rate can never be converted to a fixed interest rate.
Open End Mortgage - The same as Home Equity Line Of Credit.
Origination Fee - This is the fee that a Bank or Mortgage Lender earns for originating the loan.
Partially Amortized - Insufficient principal is being applied to the mortgage balance on a monthly basis to completely retire the debt in the original term of the loan. This could result in a Balloon Payment.
Part-Time Employment - A second job, not the primary source of income, or an only employment position which is less than forty (40) hours per work-week. In most cases, the borrower must demonstrate two (2) years history of part-time employment to use the income towards the qualification of a mortgage.
Pay Stubs - Receipts attached to an employee’s paycheck indicating gross pay, salary, bonuses, all payroll deductions, bonuses, net pay, and year-to-date totals on all items.
Pension Plan - A fund set up by a corporation, labor union, governmental entity, or other organization to pay the pension benefits of Retired workers.
Permanent Disability - Permanent income payments paid to an insured wage earner when income is interrupted or terminated because of illness, sickness, or accident.
Personal Income - The amount of income actually received by a personal individual.
Personal Tax Return (1040) - The form filed with the Internal Revenue Service providing Personal Information concerning taxable income.
Plan 401(K) - A plan that allows employees to contribute pre-tax earnings to a company pool, which is invested in stocks, bonds, or money market instruments; also known as a salary reduction plan. The contributions as well as earnings on them are only taxed when withdrawn.
Points - The same as Discount Points.
Pre-Paids - Prorated amounts charged to a borrower at closing for taxes, insurance, interim interest, and PMI. These moneys are either set up for the borrower to bring to the closing in the form of a cashier’s or certified check, or may be included in the total loan amount if the LTV allows.
Prepayment Penalty - A fee paid by a borrower for the privilege of paying off a loan early.
Primary Residence - The address at which a property owner actually resides permanently.
Prime Rate - The Interest Rate banks charge their most creditworthy customers.
Principal and Interest Payment (P+I) - A periodic payment, usually paid monthly, that includes the interest charges for the period plus an amount applied to amortization of the principal balance; commonly used with amortizing loans.
Principal Balance - The face amount of the obligation due under a debt instrument exclusive of interest.
Principal Residence - The same as Primary Residence.
Principal, Interest, Taxes, and Insurance Payment (PITI) - The periodic, typically monthly, payment required by an amortizing loan that includes escrow deposits. Each periodic payment includes a principal and interest payment plus a contribution to the escrow account set up by the lender to pay property taxes and insurance premiums on the mortgaged property.
Private Mortgage Insurance (PMI) - Default insurance required on Conventional loans, provided by private insurance companies, and included in the monthly payment, when the LTV exceeds a certain percentage on loan programs. PMI Protects the Lender against loss if a borrower defaults.
Processing Fee - A bank charge included in a borrower’s closing costs to cover processing the loan.
Profit And Loss Statement - A summary of the revenues, costs, and expenses of a company during an accounting period.
Property Tax - The tax imposed by municipalities upon owners of property within their jurisdiction, based upon the assessed value of such property. The property tax on real estate is the principal method of financing for local governments and school districts.
Purchase Money Mortgage (PMM or Owner financing) - A private loan from a seller in lieu of cash for the purchase of property when buyers are unqualified to borrow from commercial sources.
Quarterly Payments - Paid every three- (3) months.
Quitclaim Deed - a deed that conveys only the right, title or interest that the grantor has. The grantor under a quitclaim deed releases whatever interest he may have to the grantee.
Rate and Term Refinance - Only changing the Interest Rate and the Term of an existing mortgage(s).
Rate Caps - A limit on the amount of which the Interest Rate charged to a borrower can be changed with an Adjustable Rate Mortgage (ARM). A Periodic Cap (Annual Adjustment Cap) places a ceiling on the amount the interest rate can be changed per each adjustment period. A Life Cap places a ceiling on the Maximum interest rate that can ever be charged, over the life of the loan.
Real Estate Settlement and Procedures Act (RESPA) - RESPA was enacted to help protect consumers when they buy and sell real estate. The disclosures RESPA requires lenders and others to give you estimates that make it easier to compare loans and services. Some disclosures outline typical costs and servicing policies, others force settlement participants to disclose affiliations.
Recording Fees - The fee(s) charged by the local courthouse or registry of deeds to record the deed, mortgage, and note.
Refinance - The placing of a new mortgage on a property that pays off an existing mortgage(s), for the purpose of reducing interest rates, consolidating bills, reducing monthly payments, reducing the term of the mortgage(s), or receiving cash back against the equity in the property.
Rental Property - The same as Income Property.
Reserve Account - The same as Escrow Account.
Resident Alien - A person who has been admitted to permanent resident status but has not been granted citizenship.
Residential Property - Owner occupied housing.
Retirement Accounts - Any account for retirement, which can be counted as a liquid asset. (IRA, SEP IRA, ROTH IRA, 401-K, Annuity, Thrift Savings Plan, Profit Sharing, Etc.).
Retirement Fund - Monies specifically reserved by an organization for retiring employees.
Retirement Plan - A plan provided by an employer or self employed individual for an employee’s or self-employed individuals retirement. Because of tax advantages, most retirement plans are designed to insure a present deduction to the employer while employee is permitted to avoid recognizing the income until he has actively or constructively received it.
Reverse Mortgage - A special type of mortgage that enables a senior homeowner 62 years of age or older to access a portion of their equity tax-free based on their age, home value and the current interest rate. Unlike traditional home loans, or second mortgages, no repayment is required until the homeowner(s) no longer occupy the property as their primary residence. This is a way for a Retired person to enjoy the Equity in property through extra Monthly Income.
Revolving Charge Account (Credit Cards) - An account that does not have to be paid to a zero balance. Although there is a credit limit, a payment on this account will allow further borrowing.
Revolving Credit - A loan account requiring minimum monthly payments of less than the full amount due. The balance carried forward is subject to a financial charge.
Right of Survivorship - The right of a surviving joint tenant to acquire the interest of a deceased joint owner; distinguishing feature of both Joint Tenancy and Tenancy by the Entirety.
Rule of 78s - Unearned interest is not charged to a borrower if an installment loan is paid off before the set term.
Satisfaction of A Debt - The Release and discharge of an obligation in reference to which performance is executed.
Seasoned Loan - A mortgage in which twelve (12) monthly payments have been collected.
Second Home - A home used by a property owner as a Vacation Home or Secondary Residence.
Second Mortgage - A mortgage in 2nd lien position, whose claim against the property will be satisfied only after prior mortgages have been repaid.
Second Mortgage Lending - Advancing funds to a borrower that are secured by real estate previously pledged in a first mortgage loan. In the case of default, the first mortgage has priority of claim over the second mortgage.
Secondary Mortgage Market - The market for buying and selling mortgages that have already been issued or originated.
Secured Debt - A debt obligation that is guaranteed by the pledge of assets or other collateral.
Security - Property offered by a borrower to a lender to secure a loan.
Self-Employed - Individuals who work for themselves and are not employed by another. A self-employed individual is termed sole proprietorship, partnership, and owner operator.
Servicing The Loan - The act of billing, collecting payment, and management of tax and insurance escrow accounts. Mortgage bankers often perform it for a fee after loans are sold to investors.
Settlement - The same as Closing.
Short Sale - The sale of a property in which the sale price is insufficient to pay off all encumbrances and pay the expenses of sale. If the lender is convinced that the owner, for various reasons, is unable to continue making the payments the lender will often agree to take less than the full amount owed to allow the sale to close. The incentive for the bank to approve a short sale is to have the property sell before the loan becomes a problem account on their books.
Simple Interest - Interest that is paid only on the Principal Balance of a loan.
Single Family Dwelling - A residence housing one family or house hold, also called a House.
Social Security Award Letter - The letter a social security recipient receives at the beginning of the year, showing the amount of benefits that they will be paid in the coming year.
Sole Owner or Proprietorship - A business or financial venture that is carried on by a single person and is not a trust or corporation. A sole owner has unlimited liability.
Student Loan Marketing Association (SLMA or Sallie Mae) - A publicly traded Stock Corporation that guarantees student loans traded on the secondary market. Known as Sallie Mae, it purchases student loans from originating financial institutions and provides financing to state student loan programs.
Subordination - The establishment of priority of one mortgage or lien over another. An agreement whereby an existing second mortgage lender is willing to temporarily lift the lien on a property to allow a new first mortgage lender (usually with a greater balance), to establish a 1st lien position.
Tax Deductible - An expense that can be used to reduce taxable income. Mortgage interest and property taxes are generally tax deductible.
Tax Lien - A debt attached against property for failing to pay taxes. A tax lien may be may be imposed for failing to pay the following taxes: city, county, estate, income, payroll, sales, or school.
Tax Return - The form used for providing information concerning taxable income. To report income to the Internal Revenue service, individuals use Form 1040, 1040A or 1040EZ; corporations use Form 1120; and partnerships use Form 1065.
Tax Service - The fee charged to set up an Escrow Account for the payment of taxes.
Tenants In Common - The most common way that title to property is held, when two (2) or more partners are involved. The Heirs of the deceased partner rather than the surviving partner(s) acquire the ownership rights to the property.
Term - The time period in which loan payments are to be made.
Term Savings - To Reduce a borrowers Number of Payments on a specific loan or loans.
Title Insurance - An insurance policy that protects the holder from loss sustained through defects in the title. Mortgage lenders always require borrowers to buy a Mortgagee’s (Lender’s) policy of title insurance.
Title Report - The document indicating the current state of title, such as easements, covenants, liens, and any other defects.
Title Search - The investigation process of documents in the public record office to determine the state of a title, including all liens, encumbrances, mortgages, future interests, and so on, affecting the property; means by which a chain of title is ascertained.
Town House (Row Home) - A dwelling unit, generally having two or more floors and attached to other similar units by party walls.
Treasury Bill (T-Bill) - The U.S. government promissory note issued by the U.S. Treasury, having a maturity period of up to one year.
Truth-In-Lending Act (TIL) - Under this regulation, lenders must inform borrowers of the Annual Percentage Rate and the total cost of credit.
Underwriting - The actual examination process, by a loan underwriter, to approve or disapprove a loan.
Uniform Commercial Code Lien (UCC Lien) - A lien placed against personal property, attached to one’s home, for the security of repayment when a home improvement is financed. All UCC Liens must be paid off in any refinancing transaction. Example; solar hot water systems, siding, windows, roofs, satellite dishes, water purification systems, Etc.
Unsecured Debt - A Personal Loan without the pledge of specific collateral.
Usury - The charging a rate of interest greater than that permitted by state law. In most states, usury limits vary according to the type of lender and the type of loan.
VA Loan - A home loan guaranteed by the U.S. Veterans Administration (VA). The VA Guarantees restitution to the lender in the event of default. The home must be a Principal Residence.
Variable Interest Rate - The amount of compensation to a lender that is allowed to vary over the life of the loan.
Variable Rate Mortgage - The same as Adjustable Rate Mortgage (ARM).
Verification Of Deposit (VOD) - The form sent to savings institutions to verify current and average account balances.
Verification Of Employment (VOE) - The form sent to current and former employers of a borrower to obtain information regarding employment dates, income, and the probability of future employment.
Verification Of Mortgage (VOM) - The form sent to a mortgage company or bank to obtain information on a borrowers existing mortgage, such as; payment history, late charges paid, and the estimated payoff balance.
Veterans Administration (VA) - An agency of the federal government that provides services for eligible Veterans. Generally, a veteran who has served (beyond basic training) more than 120 days in active duty in the armed forces is eligible for a home loan with no down payment.
Voluntary Bankruptcy (Chapter 11) - The legal proceeding that follows a petition of bankruptcy filed by a Debtor in the appropriate U.S. district court under the Bankruptcy Act. Voluntary bankruptcy contrasts with involuntary bankruptcy, in which the creditors petition the court to have the debtor judged insolvent.
Warranty Deed - A deed that warrants that the grantor has the title he claims he has. It purports to convey property free and clear of all Encumbrances. A guarantee of title.
Wire Fee - The fee charged to wire money into a Bank or Mortgage Lender’s account for closing.
Workman’s Compensation - Medical payments and compensation for loss of income for an employee, due to injuries or sicknesses that arise out of and in the course of employment.
Year-To-Date (YTD) - The accumulation of accounts from the start of the fiscal year to the latest available period.
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