Mortgage originators substantiate that potential borrowers can afford the mortgage they are applying for. Originators are required to look at a borrower’s total current income and existing debt, for example, to make sure that the existing debt plus the potential mortgage debt, property taxes and required insurance do not exceed a stated percentage of the borrower’s income.
Paying off a mortgage loan faster than required by terms of the mortgage agreement or mortgage NOTE. As interest on a mortgage is compounded, early principal payments diminish the period needed to pay off the mortgage and avoid compounding interest.
The mortgagee or lender reserves the right to demand payment if certain obligations are not met by the mortgagor or by using the right vested in the Due on Sale Clause.
Adjustable Rate Mortgage (ARM)
A mortgage in which the interest rate is fixed for predetermined period of time which then can adjust at the end of that period. The loans are based on a pre-selected index. Also sometimes referred to as a renegotiable rate mortgage or variable rate mortgage.
The cost of a property plus the added value of capital expenditures for improvements to the property minus any depreciation taken for determine profit for taxes.
The date that the interest rate can change based on the adjustment cap for an adjustable rate mortgage (ARM).
How often an ARM can adjust once the fixed period has expired. the interest rate of the mortgage or loan can change when this is reached. Often, the adjustment interval lasts one year, but some loans change rates as often as once a month or as seldom as every fifth year. The shorter the adjustment interval, the higher the financial risk is for the homeowner. For example, if the adjustment interval for a mortgage is one month then a homeowner’s mortgage payment can increase every month.
ARMs begin with a fixed rate for a certain period of time and then adjust up or down according to the index on which it is based, after the fixed period expires. For example, if you have a 5/1 ARM, the interest rate is fixed for the first five years and then the rate adjusts once each year beginning in year 6..
An analysis of a buyer liabilities and available funds and considers the type of mortgage you plan to use the area where you want to purchase a home and the closing costs that are likely.
Loan payment divided into equal periodic payments calculated to pay off the debt at the end of a fixed period including accrued interest on the outstanding balance.
The length of time required to amortize the mortgage loan expressed as a number of months. For example 360 months is the amortization term for a 30-year fixed rate mortgage.
Annual Percentage Rate (APR)
the cost of consumer credit as a percentage spread out over the term of the loan. It includes any charges payable directly or indirectly by the consumer and imposed directly by the creditor as an incident to or a condition of the extension of credit. It does not include any charge of a type payable in a comparable cash transaction.
an annual percentage rate that is based on average interest rates, fees, and other terms on mortgages offered to highly qualified borrowers.
An appraisal is the estimation of a home’s market value by a licensed appraiser based on comparable recent sales of homes in the neighborhood. Appraisals are ordered on behalf of a home buyer’s lender to protect the interests of the lender. The lender’s underwriter will compare the appraisal price to the final sale price of the home to ensure the value of the home is equal to or greater than the loan amount. If the home appraises lower than the final sale price, the home buyer may be able to renegotiate a lower price with the seller. If the seller won’t lower the price, the buyer’s lender may ask that the buyer put more money toward their down payment in order to make up the difference.
Appraisal Management Company (AMC)
a business entity that administers a network of certified and licensed appraisers to fulfill real estate appraisal assignments on behalf of mortgage lending institutionsAssessment
A local tax levied against a property for a specific purpose such as a sewer or street lights.
The transfer of a mortgage from one person to another.
An assumable mortgage can be transferred from the seller to the new buyer. Generally requires a credit review of the new borrower and lenders may charge a fee for the assumption. If a mortgage contains a due on sale clause it may not be assumed by a new buyer.
The conveyance of the terms and balance of an existing mortgage to the purchaser of a financed property, commonly requiring that the assuming party is qualified under lender or guarantor guidelines. All mortgages are potentially assumable, though lenders may attempt to prevent assumption of a mortgage loan with a due-on-sale clause. Certain mortgage types are irrefutably assumable, such as those insured by the FHA, guaranteed by the VA, or guaranteed by the USDA.
The fee paid to a lender (usually by the purchaser of real property) when an assumption takes place.
A loan which is amortized for a longer period than the term of the loan. Usually this refers to a thirty year amortization and a five or seven year term. At the end of the term of the loan the remaining outstanding principal on the loan is due. This final payment is known as a balloon payment.
The final lump sum paid at the maturity date of a balloon mortgage.
Bimonthly Mortgage Payment
The borrower’s monthly payment in split into two pieces of equal size, one due on the 15th of the month and the other on the first. While the borrower makes 24 payments a year instead of 12, they add to the same total. However, the lender credits the half payment on the 15th to the balance on the 15th, which reduces the interest due on the first.
Biweekly Mortgage Payment
A plan to reduce the debt every two weeks (instead of the standard monthly payment schedule). The 26 (or possibly 27) biweekly payments are each equal to one half of the monthly payment required if the loan were a standard 30-year fixed rate mortgage. The result for the borrower is a substantial savings in interest.
A mortgage covering at least two pieces of real estate as security for the same mortgage.
One who applies for and receives a loan with the intention of repaying it in full. Also known as the Mortgagor when referring tom mortgages.
Borrower Paid Compensation
Compensation for mortgage brokers can either be paid directly from the borrower or by the lender. It is most common for lender paid compensation but there situation where the borrower may benefit from paying the broker directly.
A second trust that is collateralized by the borrower’s present home allowing the proceeds to be used to close on a new house before the present home is sold.
An independent agent that brings two parties together who enter into a contract for particular goods or services. See Mortgage Broker or Real Estate Brokers.
When discount fee or percentage or the loan amount is charged at closing for a much lower rate for the 1st few years of the mortgage. The borrower and/or home builder or a combination of both can pay the fee at closing.
The amount of cash derived over a certain period of time from an income producing property. The cash flow should be large enough to pay the expenses of the income producing property (mortgage payment maintenance utilities etc…).
Consumer safeguards which limit the amount of change to the interest rate for an adjustable rate mortgage (ARM).
A consumer safeguard which limits the amount of change to the monthly payment for an adjustable rate mortgag (ARM).
Certificate of Eligibility
The document given to qualified veterans which entitles them to VA guaranteed loans for homes business and mobile homes. Certificates of eligibility may be obtained by sending form DADA (Separation Paper) to the local VA office with VA form 1880 (Request for Certificate of Eligibility).
Certificate of Reasonable Value (CRV)
An appraisal issued by the Veterans Administration showing the property’s current market value.
Certificate of Veteran Status
The document given to veterans or reservists who have served 90 days of continuous active duty (including training time). It may be obtained by sending DD 214 to the local VA office with form 26-8261a (Request for Certificate of Veteran Status). This document enables veterans to obtain lower down payments on certain FHA insured loans.
The frequency (in months) of payment and/or interest rate changes in an adjustable rate mortgage (ARM) or adjustment interval.
Where the loan is consummated
Fees paid at the closing of a real estate transaction. This point in time called the closing is when the title to the property is conveyed to the buyer. Closing costs are incurred by either the buyer or the seller. In many cases, LEND Financial Mortgage can pay closing costs on the borrower’s behalf.
An adjustable-rate mortgage with a rate that adjusts based on a cost-of-funds index often the 11th District Cost of Funds.
A short term interim loan to pay for the construction of buildings or homes. These are usually designed to provide periodic disbursements to the builder as he or she progresses.
Consumer Financial Protection Bureau (CFPB)
agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives.
Consumer Reporting Agency (or Bureau)
An organization that handles the preparation of reports used by lenders to determine a potential borrower’s credit history. The agency gets data for these reports from a credit repository and other sources.
Contract Sale or Deed:
A contract between purchaser and a seller of real estate to convey title after certain conditions have been met. It is a form of installment sale.
A mortgage not insured by FHA or guaranteed by VA.
A provision in an ARM allowing the loan to be converted to a fixed-rate at some point during the term. Usually conversion is allowed at the end of the first adjustment period. The conversion feature may cost extra.
A report documenting the credit history and current status of a borrower’s credit standing.
A credit risk score is a statistical summary of the information contained in a consumer’s credit report. The most well-known type of credit risk score is the Fair Isaac or FICO score. This form of credit scoring is a mathematical summary calculation that assigns numerical values to various pieces of information in the credit report. The overall credit risk score is highly relative in the credit underwriting process for a mortgage loan.
A person, institution or entity that extends credit by giving another entity permission to borrow money if it is paid back at a later date. Real creditors Banks or lenders have legal contracts with the borrower granting the lender the right to claim any of the debtor’s real estate car or real property if he or she fails to pay back the loan.
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 gross monthly income. See housing expenses-to-income ratio.
Deed of Trust
In many states this document is used in place of a mortgage to secure the payment of a note.
Deed in Lieu of Foreclosure
A deed instrument in which a mortgagor (i.e. the borrower) conveys all interest in a real property to the mortgagee (i.e. the lender) to satisfy a loan that is in default and avoid foreclosure proceedings.
Failure to meet legal obligations in a contract specifically failure to make the monthly payments on a mortgage
When a mortgage is written with a monthly payment that is less than required to satisfy the note rate the unpaid interest is deferred by adding it to the loan balance. See negative amortization.
In reference to mortgages, it is missing two successive payments making the account delinquent.
Any account or mortgage account that is 30 days past the due date.
Department of Veterans Affairs (VA)
An independent agency of the federal government which guarantees long term low-or-no-down payment mortgages to eligible veterans
A fee that is paid for a reduction to the interest rate. This rate would be considered below par rate. The fee is typically percentage of the loan amount.
Money paid to make up the difference between the purchase price and the mortgage amount.
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 or Earnest Money Deposit
Money given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment.
The VA home loan benefit is called an entitlement (i.e. entitlement for a VA guaranteed home loan). This is also known as eligibility.
Equal Credit Opportunity Act (ECOA)
A federal law that requires lenders and other creditors to make credit equally available without discrimination based on race color religion national origin age sex marital status or receipt of income from public assistance programs.
The difference between the fair market value and current indebtedness also referred to as the owner’s interest. The value an owner has in real estate over and above the obligation against the property.
See Earnest Money Deposit.
An account held by the lender into which the home buyer pays money for tax or insurance payments. Also earnest deposits held pending loan closing.
The use of escrow funds to pay real estate taxes hazard insurance mortgage insurance and other property expenses as they become due.
The part of a mortgagor hazard insurance mortgage insurance lease payments and other items as they become due.
A government-sponsored enterprise (GSE) that was created in 1938 to expand the flow of mortgage money by creating a secondary mortgage market. Fannie Mae is a publicly traded company which operates under a congressional charter that directs Fannie Mae to channel its efforts into increasing the availability and affordability of homeownership for low, moderate and middle income Americans.
Farmers Home Administration (FmHA)
Provides financing to farmers and other qualified borrowers who are unable to obtain loans elsewhere.
Federal Home Loan Bank Board (FHLBB)
The former name for the regulatory and supervisory agency for federally chartered savings institutions. The agency is now called the Office of Thrift Supervision
Federal Home Loan Mortgage Corporation
See Freddie Mac.
Federal Housing Administration (FHA)
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 standards for underwriting mortgages.
Federal National Mortgage Association
See Fannie Mae.
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 moderately priced homes almost anywhere in the country.
FHA Mortgage Insurance
Requires a fee (up to 1.75 percent of the loan amount) paid or financed into the loan at closing to insure the loan with FHA. In addition FHA mortgage insurance requires an annual fee of up to 0.85 percent of the current loan amount paid in monthly installments. Mortgage Insurance stays with the loan until paid off.
See Freddie Mac.
A promise by FHA to insure a mortgage loan for a specified property and borrower. A promise from a lender to make a mortgage loan.
The primary lien against a property.
The monthly payment due on a mortgage loan including payment of both principal and interest or fully amortized loan.
Fixed Rate Mortgage
The mortgage interest rate will remain the same on these mortgages throughout the term of the mortgage for the original borrower.
See Fannie Mae.
A legal process by which the lender or the seller forces a sale of a mortgaged property because the borrower has not met the terms of the mortgage. Also known as property repossession.
A stockholder-owned, government-sponsored enterprise (GSE) chartered by Congress in 1970 to keep money flowing to mortgage lenders in support of homeownership and rental housing for middle income Americans. The FHLMC purchases, guarantees and securitizes mortgages to form mortgage-backed securities. The mortgage-backed securities that it issues tend to be very liquid and carry a credit rating close to that of U.S. Treasuries.
Fully Amortized ARM
An adjustable rate mortgage (ARM) with a monthly payment that is sufficient to amortize the remaining balance at the interest accrual rate over the amortization term.
Provides sources of funds for residential mortgages insured or guaranteed by FHA or VA.
Government National Mortgage Association (GNMA)
See Ginnie Mae
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.
Growing Equity Mortgage (GEM)
A fixed rate mortgage that provides scheduled payment increases over an established period of time. The increased amount of the monthly payment is applied directly toward reducing the remaining balance of the mortgage.
A promise by one party to pay a mortgage or perform an obligation contracted by another if the original party fails to pay or perform according to a contract.
Insurance that protects a property owner against damage caused by fires, severe storms, earthquakes or other natural events included in the policy. The property owner will receive check to repair or replace the home depending on the severity of the damage.
Higher-Priced Mortgage Loan
Loan with an annual percentage rate (APR) higher than a benchmark rate called the Average Prime Offer Rate (APOR).
Insurance that includes the definition of hazard insurance but also provides liability coverage against accidents in the home, on the property or anywhere on the premises.
Housing Expenses-to-Income Ratio
The ratio expressed as a percentage which results when a borrower’s housing expenses are divided by his/her gross monthly income. See debt-to-income ratio.
A document that provides an itemized listing of the funds that are payable at closing. Items that appear on the statement include real estate commissions loan fees points and initial escrow amounts. Each item on the statement is represented by a separate number within a standardized numbering system. The totals at the bottom of the HUD-1 statement define the seller’s net proceeds and the buyer’s net payment at closing.
The 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 escrow reserves.
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.
The sum of the published index plus the margin. For example if the index is 4% and the margin is 2.25% the indexed rate would be 6.25%. Often lenders charge less than the indexed rate the first year of an adjustable rate mortgage.
Initial Interest Rate
This refers to the original interest rate of the mortgage at the time of closing. This rate changes for an adjustable rate mortgage (ARM). It’s also known as “start rate” or “teaser.”
The regular periodic payment that a borrower agrees to make to a lender.
A mortgage that is protected by the Federal Housing Administration (FHA) or by private mortgage insurance (PMI).
The fee charged for borrowing money.
Interest Accrual Rate
The percentage rate at which interest accrues on the mortgage. In most cases it is also the rate used to calculate the monthly payments.
A loan payment type where the borrowers pays the only the interest portion of the payment. They have the option to pay principal.
Interest Rate Buy Down Plan
An arrangement that allows the property seller to deposit money to an account. That money is then released each month to reduce the mortgagor’s monthly payments during the early years of a mortgage
Interest Rate Ceiling
For an adjustable rate mortgage (ARM) the maximum interest rate as specified in the mortgage note.
Interest Rate Floor
For an adjustable rate mortgage (ARM) the minimum interest rate as specified in the mortgage note.
A construction loan made during completion of a building or a project. A permanent loan usually replaces this loan after completion.
A money source for a lender.
A loan which is larger 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.
The penalty a borrower must pay when a payment is made a stated number of days after the due date.
Lease Purchase Contract
Each month’s rent payment consists of amount that is put in escrow and accumulates for up to 2 years so the renter can buy with mon towards the down payment on the first mortgage plus an extra amount that accumulates in a savings account for a down payment.
A person’s financial obligations. Liabilities include long term and short term debt.
A claim upon a piece of property for the payment or satisfaction of a debt or obligation.
Lifetime Payment Cap
For an adjustable rate mortgage (ARM) a limit on the amount that payments can increase or decrease over the life of the mortgage.
Lifetime Rate Cap
For an adjustable rate mortgage (ARM) a limit on the amount that the interest rate can increase or decrease over the life of the loan. See cap
A sum of borrowed money (principal) that is generally repaid with interest.
Loan-to-Value Ratio (LTV)
The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage
A lender’s guarantee that the mortgage rate quoted will be good for a specific number of days from the day the loan is locked. Shorter locks equal better pricing.
The amount a lender adds to the index on an adjustable rate mortgage to establish the adjusted interest rate.
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.
The date on which the principal balance of a loan becomes due and payable.
MIP (Mortgage Insurance Premium)
Insurance from FHA to the lender against incurring a loss on account of the borrower’s default.
Monthly Fixed Installment
The portion of the total monthly payment that is applied toward principal and interest. When a mortgage negatively amortizes the monthly fixed installment does not include any amount for principal reduction and doesn’t cover all of the interest. The loan balance therefore increases instead of decreasing.
A legal document that pledges a property to the lender as security for payment of a debt.
A company that originates mortgages for resale in the secondary mortgage market.
An intermediary who brings mortgage borrowers and mortgage lenders together, but does not use its own funds to originate mortgages. A mortgage broker gathers paperwork from a borrower, and passes that paperwork along to a mortgage lender for underwriting and approval.
The lender on title as the lien holder.
Money paid to insure the mortgage when the down payment is less than 20 percent for convention mortgage. FHA loans carry mortgage insurance regard See private mortgage insurance FHA mortgage insurance.
Mortgage Life Insurance
A type of term life insurance policy that automatically pays the mortgage debt in the even the borrower passes away.
The person obtaining financing for the purchase of a primary residence, 2nd home or investment property. Also known as the borrower.
When your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan. The home buyer ends up owing more than the original amount of the loan.
Nationwide Mortgage Licensing System (NMLS)
A free service for consumers to confirm that the financial-services company or professional with whom they wish to conduct business is authorized to conduct business in their state.
Net Effective Income
The borrower’s gross income minus federal income tax.
Non Assumption Clause
A statement in a mortgage contract forbidding the assumption of the mortgage without the prior approval of the lender.
A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.
Office of Thrift Supervision (OTS)
The regulatory and supervisory agency for federally chartered savings institutions. Formally known as Federal Home Loan Bank Board
One Year Adjustable Rate Mortgage – Mortgage where the annual rate changes yearly. The rate is usually based on movements of a published index plus a specified margin chosen by the lender
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 the face value of the l
Owner Financing – A property purchase transaction in which the party selling the property provides all or part of the financing.
Par Rate – Is the rate the borrower receives with no points in origination or discount being charged and no credits being issued to the borrower. .
Payment Change Date – The date when a new monthly payment amount takes effect on an adjustable rate mortgage (ARM) or a graduated-payment mortgage (GPM). Generally the payment change date occurs in the month immediately after the adjustment date.
Periodic Payment Cap
A limit on the amount that payments can increase or decrease during any one adjustment period.
Periodic Rate Cap
A limit on the amount that the interest rate can increase or decrease during any one adjustment period regardless of how high or low the index might be.
Principal interest taxes and insurance. Also called monthly housing expense.
Pledged Account Mortgage (PAM):
Money is placed in a pledged savings account and this fund plus earned interest is gradually used to reduce mortgage payments.
Is the amount
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 $100000 mortgage would cost $2000).
Power of Attorney
A legal document authorizing one person to act on behalf of another.
The process of determining how much money you will be eligible to borrow before you apply for a loan.
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.
A privilege in a mortgage permitting the borrower to make payments in advance of their due date.
Money charged for an early repayment of debt. Prepayment penalties are allowed in some form (but not necessarily imposed) in many states.
Primary Mortgage Market
Lenders such as savings and loan associations commercial banks and mortgage companies who make mortgage loans directly to borrowers. These lenders sometimes sell their mortgages to the secondary mortgage markets such as FNMA or GNMA etc Interest Taxes and Insurance (PITI)
The four components of a monthly mortgage payment. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the monthly cost of property taxes and homeowners insurance whether these amounts are paid into an escrow account each month or not.
Private Mortgage Insurance (PMI)
In the event that you do not have a 20 percent down payment lenders will allow a smaller down payment – as low as 3 percent in some cases. With the smaller down payment loans however borrowers are usually required to carry private mortgage insurance. Private mortgage insurance will usually require an initial premium payment and may require an additional monthly fee depending on your loan’s structure.
Calculations used to determine if a borrower can qualify for a mortgage. They consist of two separate calculations: a housing expense as a percent of income ratio and total debt obligations as a percent of income ratio.
A commitment issued by a lender to a borrower or another mortgage originator guaranteeing a specified interest rate and lender costs for a specified period of time.
Property consisting of land or buildings.
Real Estate Agent
A person licensed to negotiate and transact the sale of real estate on behalf of the property owner, buyer or both.
Real Estate Broker
Is a person who acts as an intermediary between sellers and buyers of real estate/real property and attempts to find sellers who wish to sell and buyers who wish to buy. Brokers are Real Estate Agents but not all agents are brokers.
Real Estate Settlement Procedures Act (RESPA)
RESPA requires that consumers receive disclosures at various times in the transaction and outlaws kickbacks that increase the cost of settlement services. RESPA is a HUD consumer protection statute designed to help homebuyers be better shoppers.
Any property that is attached directly to land, as well as the land itself. Real property not only includes buildings and other structures, but also rights and interests.
A real estate broker or an associate holding active membership in a local real estate board affiliated with the National Association of Realtors.
Are 3 business days after the closing of a refinance where the borrower can cancel the loan. Saturdays are considered rescission days but loans cannot fund then. This does not apply to purchases or the refinance of an investment property.
Money paid to title or closing company for recording a home sale with the local authorities thereby making it part of the public records.
Obtaining a new mortgage loan on a property already owned often to replace existing loans on the property.
Short for the Real Estate Settlement Procedures Act. 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 the information after application only.
A form of mortgage in which the lender makes periodic payments to the borrower using the borrower’s equity in the home as collateral for and repayment of the loan.
Revolving Liability or debt
A credit arrangement such as a credit card that allows a customer to borrow against a pre-approved line of credit when purchasing goods and services.
Satisfaction of Mortgage
The document issued by the mortgagee when the mortgage loan is paid in full. Also known as lien release or mortgage release.
A mortgage made subsequent to another mortgage and subordinate to the first one
Secondary Mortgage Market
The place where primary mortgage lenders sell the mortgages they make to obtain more funds to originate more new loans. It provides liquidity for the lenders and banks.
The property that will be pledged as collateral for a loan or mortgage.
Seller Carry Back
An agreement in which the owner of a property provides financing often in combination with an assumable mortgage. See owner financing.
An organization that collects principal and interest payments from borrowers and manages borrower escrow account activity. The servicer often services mortgages that have been purchased by an investor in the secondary mortgage market.
All the steps and operations a lender performs to keep a loan in good standing such as collection of payments payment of taxes insurance property inspections and the like.
All applicable closing costs plus the funds necessary to establish a new escrow account and any prepaid interest.
Shared Appreciation Mortgage (SAM)
A mortgage in which a borrower receives a below market interest rate in return for which the 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 mortgage where the borrowers shares the monthly principal and interest payments with another party in exchange for part of the appreciation.
Interest which is computed only on the principle balance.
Standard Payment Calculation
The method used to determine the monthly payment required to repay the remaining balance of a mortgage in substantially equal installments over the remaining term of the mortgage at the current interest rate.
Step Rate Mortgage
A mortgage that allows for the interest rate to increase according to a specified schedule (i.e. seven years) resulting in increased payments as well. At the end of the specified period the rate and payments will remain constant for the remainder of the loan.
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 buildings.
Equity created by a purchaser performing work on a property being purchased.
Third Party Origination (TPO)
When a lender or bank uses another party to originate and underwrite close fund or package the mortgages it plans to deliver to the secondary mortgage market.
Is a document that gives evidence of an individual’s ownership of property.
Title Insurance (lender’s)
A policy usually issued by a title insurance company which insures a lenders interest against errors in the title search whether a refinance or purchase. The cost of the policy is usually a function of the loan amount and is paid for by the borrower at closing.
Title Insurance (owner’s)
A policy usually issued by a title insurance company which insures a home buyer against errors in the title search and typically issued for purchase transactions only. Previous purchased owner’s policy covers the homeowner in a refinance transaction. The cost of the policy is usually a percentage of the loan amount and is often paid by the purchaser at closing.
Is an examination of municipal records to determine the legal ownership of property. Usually is performed by a title company.
Total Expense Ratio
Total obligations as a percentage of gross monthly income including monthly housing expenses plus other monthly debts
A federal law requiring disclosure of the Annual Percentage Rate to home buyers shortly after they apply for the loan. Also known as Regulation Z.
Two Step Mortgage
A mortgage that offers an initial fixed-interest rate for a period of time (usually 5 or 7 years) after which, at a predetermined date, the interest rate adjusts according to current market rates. At the adjustment date, the borrower might have the option of choosing between a fixed-interest rate (based on current market rates) for the remaining term of the mortgage, or a variable interest rate structure for the remaining term of the mortgage.
The decision process of whether to make a loan to a potential home buyer based on credit employment assets and other factors and the matching of this risk to an appropriate rate and term or loan amount.
An individual working for mortgage lender or bank who determines whether or not a borrower’s loan is approved. If a borrower gets a loan from a mortgage broker, the broker will send the loan documents to the lender’s underwriter. The underwriter evaluates the entire loan application including the appraisal of the home, and then decides whether to approve or decline the loan application.
Underwriters often request additional information while evaluating the loan application. For example, underwriters often ask for additional pay stubs and documentation of the origins of funds used for the down payment
Interest charged in excess of the legal rate established by law.
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 fee (depending on the size of the down payment) paid on a fixed rate loan for VA loans.
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 accounts.
Verification of Employment (VOE)
A document signed by the borrower’s employer verifying his/her position and salary.
Verification of Mortgage (VOM)
An alternative way to verify the borrower has made on time payments within a certain time period. This method is used when a mortgage ins not reporting on credit or when a particular loan product does not require a credit report such as an FHA streamline refinance or VA IRRRL loan.
Many mortgage firms must borrow funds on a short term basis in order to originate loans which are to be sold later in the secondary mortgage market (or to investors). When the prime rate of interest is higher on short term loans than on mortgage loans the mortgage firm has an economic loss which is offset by charging a warehouse fee.
Line of credit mortgage lenders use to fund loans. Typically, the loans are sold immediately after the loan funds.
It is a form of secondary financing for the purchase of real property. The seller extends to the buyer a junior mortgage which wraps around and exists in addition to any superior mortgages already secured by the property.