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1003 Uniform Residential Loan Application.
A & D LOAN Acquisition and development loan- a
loan for the purchase of raw land for the purpose development.
Abstract Title A written history of the ownership of a parcel of land.
Acceleration Clause Allows the lender to speed up the rate at which
your loan comes due or even to demand immediate payment of the entire
outstanding balance of the loan should your default on you loan.
Acknowledgment A declaration by a notary, certifying, by way of
personal knowledge or written identification, the identity of the signer.
Adjustable Rate Mortgage Is a mortgage in
which the interest rate is adjusted periodically based on a pre-selected index.
Also sometimes known as the renegotiable rate mortgage, the variable rate
mortgage or the Canadian rollover mortgage. (ARM)
Adjustment Interval On an adjustable rate mortgage, the time between
changes in the interest rate and/or monthly payment, typically one, three or
five years, depending on the index.
Affidavit A sworn statement in writing.
ALTA American Land Title Association An organization of title
companies specializing in Real Property Law which has standardized forms and
coverage on a national basis. This is standardized coverage.
Amortized / Amortization Amortization refers to the principal portion
of the loan payment and is the loan payment by equal periodic payments
calculated to pay off the debt at the end of a fixed period, including accrued
interest on the outstanding balance. A fully amortized loan will be completely
paid off at the end of the loan term.
Annual Percentage Rate An interest rate reflecting the cost of a
mortgage as a yearly rate. This rate is likely to be higher than the stated note
rate or advertised rate on the mortgage, because it takes into account points
and other credit costs. The APR allows homebuyers to compare different types of
mortgages based on the annual cost for each loan. (APR)
Appraisal An estimate of the value of real property, made by a
qualified professional called an "appraiser." An appraisal will be
needed to determine the value of your property.
APR Annual Percentage Rate A form of disclosure on the truth and
lending form that explains the interest rate after factoring in the cost of
obtaining the loan. It is a measure of the cost of credit, expressed as a yearly
ARM Adjustable Rate Mortgage A mortgage loan where the interest rate
is not fixed for the entire term of the loan, but changes during the life of the
loan in line with movements in an index rate.
Assumption The agreement between buyer and seller where the buyer
takes over the payments on an existing mortgage from the seller. This must be
approved by the lender and be allowed by the note, which was originally signed
by the seller.
Back End This refers to the debt-to-income ratio
calculated using principal, interest, taxes, insurance and consumer credit
obligations divided by gross monthly income. It is expressed as a percentage.
Balloon Usually a short-term fixed-rate loan which involves small
payments for a certain period of time and one large payment for the remaining
amount of the principal at a time specified in the contract.
Beneficiary The entity funding the loan. This is the entity to which
the loan is owed.
BK / Bankruptcy A reorganization or discharge of debts. Could also be
referred to as Chapter 7, 11 or 13.
Broker An individual in the business of assisting in arranging funding
or negotiating contracts for a client but who does not loan the money himself.
Brokers usually charge a fee or receive a commission for their services.
Buy Down When the lender and/or the home builder subsidizes the
mortgage by lowering the interest rate during the first few years of the loan.
While the payments are initially low, they will increase when the subsidy
Cap The highest rate that an adjustable rate mortgage may
reach. It can be expressed as the actual rate or as the amount of change allowed
above the start rate. For example, a 7.99 % start rate with a 6% rate change cap
would have a maximum interest rate cap of 13.99%.
Cash Out Any funds disbursed directly to the borrower.
Certificate of Occupancy A certificate issued by local city government
to a builder, stating that the building is in proper condition to be occupied.
Certified Copy A true copy, attested to be true by the officer holding
the original. It should have a stamp and signature stating that it is a true
Clear-to-close Loan is ready to be closed with no additional
Closing The meeting between the buyer, seller and lender or their
agents where the property and funds legally change hands. Also called
Closing Costs Usually include an origination fee, discount points,
appraisal fee, title search and insurance, survey, taxes, deed recording fee,
credit report charge and other costs assessed at settlement. The costs of
closing usually are about 3 percent to 6 percent of the total mortgage amount.
Or any costs being charged to facilitate granting of the credit request.
Commitment An agreement, often in writing, between a lender and a
borrower to loan money at a future date subject to the completion of paperwork
or compliance with stated conditions.
Community Property Property owned in common by a husband and wife,
which was not acquired as separate property. A classification of property
peculiar to certain states. In community property states, assets may be owned in
part by a spouse even if their name does not appear on the title.
Comp. / Comparable A property with the same basic characteristics as
the property you are attempting to find the value of (usually a real estate
appraisal.) It should have been sold recently and be as similar as possible.
Condominium A property owned as a group, with rights to occupy
specific units of the structure. An overseeing board, often referred to as a
Homeowners Association, governs the property.
Construction Loan A short term interim loan for financing the cost of
construction. The lender advances funds to the builder at periodic intervals as
the work progresses.
Consumer Credit Credit owed by the individual, not secured by real
Conventional Loan A mortgage not insured
by FHA or guarantee by the VA or Farmers Home Administration (FMHA).
Conversion Clause A provision in some ARMS, (Adjustable Rate Mortgage)
that allows you to change the ARM to a fixed-rate loan at some point during the
Credit Ratio The ratio, expressed as a percentage, which results when
a borrower's monthly payment obligation on long-term debts is divided by his or
her net effective income (FHA/VA loans) or gross monthly income (Conventional
Credit Report History of buyers past credit performance.
Credit Score The score given to an individual to
determine the credit worthiness. These scores come from TRW, Equifax and Trans
D.R. / Debt Ratio The customer's monthly obligations
divided by their monthly gross income. See also Back End.
Deed Legal document which conveys the title to a property.
Deed of Trust A document used which pledges real property to secure a
debt. In some cases a deed of trust can replace a mortgage.
Default Failure to meet legal obligations in a contract, specifically,
failure to make the monthly payments on a mortgage.
Deferred Interest See Negative Amortization
Delinquency Failure to make payments on time. This can lead to
Department of Veterans Affairs An independent agency of the federal
government which guarantees long-term, low- or no-down payment mortgages to
eligible veterans. (VA)
Derog Letter A letter written by the borrower giving an explanation
for any derogatory credit.
Derog This is short for derogatory and refers to negative credit
Discharge Following a completed bankruptcy proceeding, discharged
debts are no longer owed or collectable. We will require copies of the discharge
papers on any prior bankruptcy filings.
Discount Points Prepaid interest 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).
Dismissal If a bankruptcy is dropped without being completed, a
Bankruptcy Dismissal document will be needed to proceed with the loan. Either
the court or the debtor can prompt the dismissal.
Down Payment Money paid to make up the difference between the purchase
price and mortgage amount. Down payments usually are 10 percent to 20 percent of
the sales price on Conventional loans, and no money down up to 5 percent on FHA
and VA loans.
Due-On-Sale Clause A provision in a mortgage or deed of trust that
allows the lender to demand immediate payment of the balance of the mortgage if
the mortgage holder sells the home.
Earnest Money Money given by a buyer to a seller as part
of the purchase price to bind a transaction or assure payment.
Easements An interest in property, owned by another that entitles the
holder to a specific limited use or privilege, such as the right to cross or to
build adjoining structures on the property.
Encroachment A fixture of a piece of property which intrudes on
Equal Credit Opportunity Act Is 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. (ECOA)
Equity The difference between the fair market value and current
indebtedness, also referred to as the owner's interest.
Escrow Instructions Instructions to the escrow agent giving the
parameters and contingencies involved in the transaction and agreed upon by both
Escrow Waiver The Request for a borrower to pay their own taxes and
insurance. Escrow wavers are rarely granted with less than a 25% equity position
Escrow Refers to a neutral third party who carries out the
instructions of both the buyer and seller to handle all the paperwork of
settlement or "closing." Escrow may also refer to an account held by
the lender into which the homebuyer pays money for tax or insurance payments.
Fannie Mae See Federal National Mortgage Association.
Farmers Home Administration Provides financing to farmers and other
qualified borrowers who are unable to obtain loans elsewhere. (FMHA)
Federal Home Loan Mortgage Corporation Also called Freddie Mac, is a
quasi-governmental agency that purchases conventional mortgages from insured
depository institutions and HUD-approved mortgage bankers. (FHLMC)
Federal Housing Administration A division of the Department of Housing
and Urban Development. Its main activity is the insuring of residential mortgage
loans made by private lenders. FHA also sets standard for underwriting
Federal National Mortgage Association Also known as Fannie Mae. A
tax-paying corporation created by Congress that purchases and sells conventional
residential mortgages as well as those insured by FHA or guaranteed by VA. This
institution, which provides funds for one in seven mortgages, makes mortgage
money more available and more affordable. (FNMA)
Fee Simple The most common form of ownership where the vestee owns
both the land and the structures.
FHA See FEDERAL HOUSING ADMINISTRATION
FHA Loan A loan insured by the Federal Housing
Administration open to all qualified home purchasers. While there are limits to
the size of FHA loans, they are generous enough to handle moderate-priced homes
almost anywhere in the country.
FHA Mortgage Insurance Requires a small fee (up to 3 percent of the
loan amount) paid at closing or a portion of this fee added to each monthly
payment of an FHA loan to insure the loan with FHA. On a 9.5 percent $75,000
30-year fixed-rate FHA loan, this fee would amount t o either $2,250 at closing
or an extra $31 a month for the life of the loan. In addition, FHA mortgage
insurance requires an annual fee of 0.5 percent of the current loan amount, the
more years the fee must be paid.
FHLMC (FREDDIE-MAC) Federal Home Loan Mortgage Corporation.
Fixed-Rate Mortgage A mortgage on which the interest rate is set for
the term of the loan.
Flood Insurance A mandatory insurance for some homeowners whose
property is built in a designated flood zone.
FNMA - (FANNIE-MAE) Federal National Mortgage Association.
Foreclosure A legal procedure in which property securing debt is sold
by the lender to pay a defaulting borrower's debt.
Free and Clear This means the property is completely paid for and has
no liens attached.
Functional Obsolescence A detraction from the property value due to
the design or material being less functional than the norm.
GFE Good Faith Estimate of Buyers Loan Charges.
Ginnie Mae See Government National Mortgage Association.
Government National Mortgage Association (GNMA) Also known as Ginnie
Mae, provides sources of funds for residential mortgages, insured or guaranteed
by FHA or VA.
Graduated Payment Mortgage (GPM) A type of flexible-payment mortgage
where the payments increase for a specified period of time and then level off.
This type of mortgage has negative amortization built into it.
Grant Deed A Grant Deed is the most common form of title transfer
deed. A Grant Deed contains warranties against prior conveyances or
Gross Monthly Income The total amount the borrower earns per month,
before any expenses are deducted.
Guarantee A promise by one party to pay a debt or perform an
obligation contracted by another if the original party fails to pay or perform
according to a contract.
Hazard Insurance A form of insurance in which the
insurance company protects the insured from specified losses, such as fire,
windstorm and the like, it would not cover earthquake, riot, or flood damage.
Homestead The dwelling (house and contiguous land) of the head of the
family. Some states grant statutory exemptions, protecting homestead property
(usually to a set maximum amount) against the rights of the creditors. Property
tax exemptions are also available in some states.
Housing Expenses-to-Income Ratio The ratio, expressed as a percentage,
which results when a borrower's housing expenses are divided by his/her net
effective income (FHA/VA loans) or gross monthly income (Conventional loans).
Impound That portion of a borrower's monthly payments held
by the lender or servicer to pay for taxes, hazard insurance, mortgage
insurance, lease payments, and other items as they become due. Also known as
Index A published interest rate against which lenders measure the
difference between the current interest rate on an adjustable rate mortgage and
that earned by other investments (such as 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 Costs-of-Funds incurred
by savings and loans), which is then used to adjust the interest rate on an
adjustable mortgage up or down.
Interest Bearing A form of interest calculation where the loan is
charged at a daily or monthly rate (1/365 or 1/12 of the annual interest rate)
on the current outstanding balance.
Investor Money source for a lender.
Joint Tenants A form of holding title where the owners
have 100% rights of survivorship unless redirected by a will.
Jumbo Loan A loan which is larger (more than
$300,700) than the limits set by the Federal National Mortgage Association and
the Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be funded
by these two agencies, they usually carry a higher interest rate.
Land Contract An agreement between the
seller and the buyer where the title is withheld until a time where the required
payments have been completed.
Leasehold Estate A kind of real estate ownership where the lessor does
not hold title to the property but has use of the property subject to the terms
of the lease.
Legal Description A method of geographically locating a piece or
parcel of land, which is acceptable in a court of law.
LIBOR London InterBank Offered Rate. LIBOR is the base interest rate
paid on deposits between banks in the Eurodollar market.
Lien A claim upon a piece of property for the payment or satisfaction
of a debt or obligation.
Loan Committee Generally the Underwriting process.
Loan Risk The rate category assigned to the loan, which estimates the
probable risk of delinquency and loss in the future.
Loan-To-Value Ratio The relationship between the amount of the
mortgage loan and the appraised value of the property expressed as a percentage.
Margin The number of percentage points the lender adds to
the index rate to calculate the ARM interest rate at each adjustment.
Market Value The highest price that a buyer would pay and the lowest
price a seller would accept on a property. Market value may be different from
the price a property could actually be sold for at a given time.
Mortgage Escrow Accounts The account set by the Lender to pay Taxes
and Insurance on behalf of the Borrower.
Mortgage Insurance Money paid to insure the mortgage when the down
payment is less than 20 percent. See Private Mortgage Insurance or FHA Mortgage
Mortgagee The lender.
Mortgagor The borrower or homeowner.
Negative Amortization Amortization means that monthly
payments are large enough to pay the interest and reduce the principal on a
mortgage. Negative amortization occurs when the monthly payments do not cover
all of the interest cost. The interest cost that isn't covered is added to the
unpaid principal balance. This means that even after making many payments, a
borrower may owe more than was owed at the beginning of the loan.
Net Effective Income The borrower's gross income minus federal income
Non-Assumption Clause Statements in the mortgage contract forbidding
the assumption of the mortgage without the prior approval of the lender.
Non-Owner Occupied A property not used as a residence by the owner of
Notary Public A person, designated by the state, which can certify the
identity of a person when signing various documents.
Note Short for promissory note. This document gives the parameters of
the loan and legally obligates the borrower to pay back the debt.
Obligations Any debt, or recurring payment the borrower is
obligated to pay, including mortgage payments.
Origination Fee The fee charged by a lender to prepare loan documents,
make credit checks, inspect and sometimes appraise a property; usually computed
as a percentage of face value of the loan.
Owner Occupied Designation given to property used as the owner's
Owners Policy A policy of the title insurance which protects the buyer
against problems with the title.
P & I Principal and Interest. This refers to the
principal and interest portions of the monthly mortgage payment.
P & L / Profit and Loss A statement of a businesses gross income,
cost of goods, operating costs and net profit or loss.
P.I.T.I. Principal, interest, taxes and insurance. The complete
monthly cost associated with financing a property.
P.U.D. Planned Unit Development. Property owned as a group, where
individuals own the specific piece of land and structure they occupy, but also
have a divided interest in a common area. A board, often referred to as a
Homeowners Association, will govern the development.
Piggy Back Loan Financing obtained, subordinate to the first mortgage,
to facilitate closing the first mortgage. Also known as a Secondary Financing.
PMI Private Mortgage Insurance A way for lenders and the buyers to
insure their exposure on the loan to no less than 20% equity in a property.
Points A point is equal to one percent of the principal amount of a
mortgage, see also Discount Points.
Power of Attorney An authority by which one person enables another to
act on his or her behalf. Power of attorney can be limited to specific areas or
be general in some cases.
PRE-Approval The Buyer has actually begun the application process and
an underwriter has approved their income, funds and credit. Beware of any
conditions on the approval.
Prelim. / Preliminary Title Report The title report generated at the
beginning of the application process. It tells the mortgage company what liens
are on the property and gives advice as to what will need to be done to gain
clear title prior to recording the trust deed.
Prepaid Interest Charge The portion of interest, collected at loan
closing, which covers the time period between funding and the beginning of the
first 30-day period covered by the first payment. For example, if the loan
closed on 2/15, the first payment due on 4/1 would pay interest from 3/1 to 4/1.
The prepaid interest would cover the period from 2/15 to 2/28.
Prepaids Expenses necessary to create an escrow account or to adjust
the seller's existing escrow account. Can include taxes, hazard insurance,
private mortgage insurance and special assessments.
Prepayment Penalty Money charged for an early repayment of debt.
Prepayment penalties are allowed in some form (but not necessarily imposed) in
36 states and the District of Columbia.
Prepayment A privilege in a mortgage permitting the borrower to make
payments in advance of their due date.
PRE-Qualified Buyer has discussed their financial situation with a
loan expert. No attempt has been made to verify the validity of any of the
borrowers information. PRE-Qualification is only an indication of what the buyer
should qualify for.
Principal The amount of debt, not counting interest, left on a loan.
Private Mortgage Insurance In the event that you do not have a 20
percent down payments, lenders will allow a smaller down payment-as low as 5
percent in some cases. With the smaller down payments loans, however, borrowers
are usually required to carry private mortgage insurance. Private mortgage
insurance will require an initial premium payment of 1.0 percent to 5.0 percent
of your mortgage amount and may require an additional monthly fee depending on
your loan's structure. On a $75,000 house with a 10 percent down payments, this
would mean either an initial premium payment of $2,025 to $3,375, or an initial
premium of $675 to $1,130 combined with a monthly payment of $25 to $30. (PMI)
Purchase Agreement The agreement made between the buyer and seller of
a property, containing the purchase price and contingencies of the sale.
Quit Claim A deed operating as a release; intended to pass
any title, interest or claim, which the grantor may have in the property, but
not containing any warranty of a valid interest or title in the grantor.
Rate Float Assuming market risk on an interest rate in the
hopes that it will go lower prior to closing.
Rate Lock Choosing to have no change to a rate for a specific length
Ratios How a buyers housing expense and debt picture relates to their
Real Estate Settlement Procedures Act (RESPA) RESPA is a federal law
that allows consumers to review information on known or estimated settlement
costs once after application and once prior to or at settlement. The law
requires lenders to furnish information after application only.
Realtor A real estate broker or an associate holding active membership
in a local real estate board affiliated with the National Association of
Rescission The cancellation of a contract. With respect to mortgage
refinancing, the law that gives the homeowner three days to cancel a contract in
some cases once it is signed if the transaction uses equity in the home as
Recon / Reconveyance A release of lien filed with the county recorder
by the trustee.
Recording Fees Money paid to the lender for recording a home sale with
the local authorities, thereby making it part of the public records.
REFI Slang for refinance, or a new mortgage on a property that does
not change ownership.
Request for Reconveyance Verification given by the beneficiary to the
trustee that the conditions of the lien have been fulfilled and request that the
lien be canceled.
Reverse Annuity Mortgage (RAM) A form of mortgage in which the lender
makes periodic payments to the borrower using the borrower's equity in the home
S.I. / Statement of Information The form the customer
fills out for the title company giving further identification of the customer.
This allows the title company to eliminate debts and liens owed by people with
Second Mortgage A mortgage which is entered after the primary loan.
Called a second due to it being the second lien position to the first mortgage.
See also Secondary Financing.
Secondary Financing Financing obtained, subordinate to the first
mortgage, to facilitate closing the first mortgage. Also known as a
Servicing All the steps and operations a lender perform to keep a loan
in good standing, such as collection of payments, payment of taxes, insurance,
property inspections and the like.
Settlement Costs See Closing Costs.
Settlement See Closing.
Shared Appreciation Mortgage (SAM) A mortgage in which a borrower
receives a below-market interest rate in return for which a lender (or another
investor such as a family member or other partner) receives a portion of the
future appreciation in the value of the property. May also apply to mortgages
where the borrower shares the monthly principal and interest payments with
another party in exchange for a part of the appreciation.
Submission This refers to a complete loan application package
submitted for approval to the underwriting department.
Subordination Agreement The agreement detailing the contingencies of
subordination, filed with the county recorder. If a lien holder agrees to accept
a lien position after that of a later recorded lien.
Substitution of Trustee A document, filed by the beneficiary, which
changes the trustee on a particular trust deed.
Surety Bond A bond which ensures against harm to a party (usually the
lender or owner) by a lien still attached to the property. This is usually used
when the original deed was lost or the beneficiary cannot be located.
Survey A measurement of land prepared by a registered land surveyor
showing the location of the land with reference to known points, its dimensions,
and the location and dimensions of any building.
Suspended The underwriter cannot yet approve or deny the loan. More
information is required.
Tenants in Common A percentage interest in a property by
two or more individuals without rights of survivorship.
Term Mortgage See Balloon Payment Mortgage.
Title Insurance The insurance policy insuring the lender and/or the
buyer that the liens are as stated in the title report. Any claim arising from a
lien other than that disclosed is payable by the title insurance company.
Title Search An examination of municipal records to determine the
legal ownership of property. Usually is performed by a title company.
Title A document that gives evidence of an individual's ownership of
Trust Deed The Trust Deed attaches the note as a lien on the property.
This is the document which conveys the ability to collect from the proceeds of
Truth-in-Lending A federal law requiring disclosure of the Annual
Percentage Rate to homebuyers shortly after they apply for the loan. Also known
as a TIL
Two-Step Mortgage A mortgage in which the borrower receives a
below-market interest rate for a specified number of years (most often seven or
10 years), and then receives a new interest rate adjusted (within certain
limits) to market conditions at that time. The lender sometimes has the option
to call the loan, due within 30 days notice at the end of seven or 10 years.
Also called "Super Seven" or "Premier" mortgage.
Underwriting The decision whether to make a loan to a
potential homebuyers based on credit, employment, assets, and other factors and
the matching of this risk to an appropriate rate and term or loan amount.
VA VETERANS ADMINISTRATION
VA Loan A long-term, low-or no-down payment loan guaranteed by the
Department of Veterans Affairs. Restricted to individuals qualified by military
service or other entitlements.
VA Mortgage Funding Fee A premium of up to 2 percent (depending on the
size of the down payment) paid on a VA-backed loan. On a $75,000 30-year
fixed-rate mortgage with no down payment, this would amount to $1,406 either
paid at closing or added to the amount financed.
Variable Rate Mortgage (VRM) See Adjustable Rate Mortgage.
Verification of Deposit (VOD) A document signed by the borrower's
financial institution verifying the status and balance of his/her financial
Verification of Employment (VOE) A document signed by the borrower's
employer verifying his/her position and salary.
Wraparound Results when an existing assumable loan is
combined with a new loan, resulting in an interest rate somewhere between the
old rate and the current market rate. The payments are made to a second lender
or the previous homeowner, who then forwards the payments to the first lender
after taking the additional amount off the top.
Zoning The division of a
city or county by legislative regulations into areas (zones) specifying the uses
allowable for the real property in these areas.