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Mortgage Real Estate Glossary

Below is a list of common mortgage and financial cost terms explained for you.

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mortgage-term-explained

Adjustable Rate
An interest rate that changes periodically in relation to an index. Payments may increase or decrease accordingly.

Adjustment Date
The date on which the interest rate changes for an adjustable-rate mortgage (ARM).

Adjustment Period
The period that elapses between the adjustment dates for an adjustable-rate mortgage (ARM).

Amortization
A repayment method in which the amount you borrow is repaid gradually though regular monthly payments of principal and interest. During the first few years, most of each payment is applied toward the interest owed. During the final years of the loan, payment amounts are applied almost exclusively to the remaining principal.

Annual Membership
An amount that may be charged annually for having a line of credit available. Often charged regardless of whether or not you use the line. Also referred to as a “participation fee.”

Annual Percentage Rate (APR)
The cost of credit on a yearly basis, expressed as a percentage. Required to be disclosed by the lender under the federal Truth in Lending Act, Regulation Z. Includes upfront costs paid to obtain the loan, and is, therefore, usually a higher amount than the interest rate stipulated in the mortgage note. Does not include title insurance, appraisal, and credit report.

Application
An initial statement of personal and financial information which is required to approve your loan.

Application Fee
Fees that are paid upon application. An application fee may frequently include charges for property appraisal ($200-$400) and a credit report ($30-50).

Appraisal
A fee charged by an appraiser to render an opinion of market value as of a specific date. Required by most lenders to obtain a loan.

Appreciation
An increase in the value of a property due to changes in market conditions or other causes. The opposite of depreciation.

Asset
Anything of monetary value that is owned by a person. Assets include real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, and so on).

Assumption of Mortgage
The agreement of a purchaser to become primarily liable for the payments on a mortgage loan. Unless otherwise specified by the lender, the seller may remain secondarily liable for payments.igibility.

Assumption Clause
A provision in an assumable mortgage that allows a buyer to assume responsibility for the mortgage from the seller. The loan does not need to be paid in full by the original borrower upon sale or transfer of the property.

Assumption Fee
The fee paid to a lender (usually by the purchaser of real property) resulting from the assumption of an existing mortgage.

Balloon Mortgage
A mortgage that has level monthly payments that will amortize it over a stated term but that provides for a lump sum payment to be due at the end of an earlier specified term.

Balloon Payment
A lump sum payment for the unpaid balance of the loan.

Bankrupt
A person, firm, or corporation that, through a court proceeding, is relieved from the payment of all debts after the surrender of all assets to a court-appointed trustee.

Bankruptcy
A proceeding in a federal court in which a debtor who owes more than his or her assets can relieve the debts by transferring his or her assets to a trustee.

Basis Point
A basis point is 1/100th of a percentage point. For example, a fee calculated as 50 basis points of a loan amount of $100,000 would be 0.50% or $500.

Before-tax Income
Income before taxes are deducted.

Beneficiary
The person designated to receive the income from a trust, estate, or a deed of trust.

Binder
A preliminary agreement, secured by the payment of an earnest money deposit, under which a buyer offers to purchase real estate.

Biweekly Payment Mortgage
A mortgage that requires payments 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 that would be required if the loan were a standard 30-year fixed-rate mortgage, and they are usually drafted from the borrower’s bank account. The result for the borrower is a substantial savings in interest.

Blanket Mortgage
The mortgage that is secured by a cooperative project, as opposed to the share loans on individual units within the project.

Bond
An interest-bearing certificate of debt with a maturity date. An obligation of a government or business corporation. A real estate bond is a written obligation usually secured by a mortgage or a deed of trust.

Breach
A violation of any legal obligation.

Bridge Loan
A form of second trust that is collateralized by the borrower’s present home (which is usually for sale) in a manner that allows the proceeds to be used for closing on a new house before the present home is sold. Also known as “swing loan.”

Broker
A person who, for a commission or a fee, brings parties together and assists in negotiating contracts between them.

Buy Down Mortgage
A temporary buy down is a mortgage on which an initial lump sum payment is made by any party to reduce a borrower’s monthly payments during the first few years of a mortgage. A permanent buy down reduces the interest rate over the entire life of a mortgage.

Cap
The maximum allowable increase, for either payment or interest rate, for a specified amount of time on an adjustable rate mortgage.

Cash Out
A refinance transaction in which the amount of money received from the new loan exceeds the total of the money needed to repay the existing first mortgage, closing costs, points, and the amount required to satisfy any outstanding subordinate mortgage liens. In other words, a refinance transaction in which the borrower receives additional cash that can be used for any purpose.

Certificate of Eligibility
A document issued by the federal government certifying a veteran’s eligibility for a Department of Veterans Affairs (VA) mortgage.

Certificate of Reasonable Value (CRV)
A document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA mortgage.

Certificate of Title
A statement provided by an abstract company, title company, or attorney stating that the title to real estate is legally held by the current owner.

Chain of Title
The history of all of the documents that transfer title to a parcel of real property, starting with the earliest existing document and ending with the most recent.

Change Frequency
The frequency (in months) of payment and/or interest rate changes in an adjustable-rate mortgage (ARM).

Clear Title
A title that is free of liens or legal questions as to ownership of the property.

Ceiling
The maximum allowable interest rate over the life of the loan of an adjustable rate mortgage.

Closing Costs
Any fees paid by the borrowers or sellers during the closing of the mortgage loan. This normally includes an origination fee, discount points, attorney’s fees, title insurance, survey, and any items which must be prepaid, such as taxes and insurance escrow payments.

Collateral
An asset (such as a car or a home) that guarantees the repayment of a loan. The borrower risks losing the asset if the loan is not repaid according to the terms of the loan contract.

Collection
The efforts used to bring a delinquent mortgage current and to file the necessary notices to proceed with foreclosure when necessary.

Combination Loan
With this type of loan, you receive a first mortgage for 80 percent of the loan amount, and a second mortgage at the same time for the remainder of the balance. If avoiding PMI (mortgage insurance) is important to you, consider combination loans–known as 80/10/10 loans or 80/20′s.

Combined Loan-to-Value (CLTV)
The unpaid principal balances of all the mortgages on a property (first and second usually) divided by the property’s appraised value.

Co-maker
A person who signs a promissory note along with the borrower. A co-maker’s signature guarantees that the loan will be repaid, because the borrower and the co-maker are equally responsible for the repayment. See endorser.

Commission
The fee charged by a broker or agent for negotiating a real estate or loan transaction. A commission is generally a percentage of the price of the property or loan.

Commitment Letter
A formal offer by a lender stating the terms under which it agrees to lend money to a home buyer. Also known as a “loan commitment.”

Common Areas
Those portions of a building, land, and amenities owned (or managed) by a planned unit development (PUD) or condominium project’s homeowners’ association (or a cooperative project’s cooperative corporation) that are used by all of the unit owners, who share in the common expenses of their operation and maintenance. Common areas include swimming pools, tennis courts, and other recreational facilities, as well as common corridors of buildings, parking areas, means of ingress and egress, etc.

Comparables
An abbreviation for “comparable properties”; used for comparative purposes in the appraisal process. Comparables are properties like the property under consideration; they have reasonably the same size, location , and amenities and have recently been sold. Comparables help the appraiser determine the approximate fair market value of the subject property.

Condominium
A real estate project in which each unit owner has title to a unit in a building, an undivided interest in the common areas of the project, and sometimes the exclusive use of certain limited common areas.

Condominium Conversion
Changing the ownership of an existing building (usually a rental project) to the condominium form of ownership.

Conforming Loan
Generally, a mortgage loan under $203,150. Qualifying ratios and underwriting methods are standardized to a large degree.

Contingency
A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector.

Contract
An oral or written agreement to do or not to do a certain thing.

Contract of Sale
The agreement between the buyer and seller on the purchase price, terms, and conditions necessary to both parties to convey the title to the buyer.

Conventional Mortgage
A mortgage that is not insured or guaranteed by the federal government.

Convertibility Clause
A provision in some adjustable-rate mortgages (ARMs) that allows the borrower to change the ARM to a fixed-rate mortgage at specified time frames after loan origination.

Convertible ARM
An adjustable-rate mortgage (ARM) that can be converted to a fixed-rate mortgage under specified conditions.

Credit
An agreement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date.

Credit History
A record of an individual’s open and fully repaid debts. A credit history helps a lender to determine whether a potential borrower has a history of repaying debts in a timely manner.

Credit Report
A report of an individual’s credit history prepared by a credit bureau and used by a lender in determining a loan applicant’s creditworthiness.

Credit Limit
The maximum amount that you can borrow under a home equity plan.

Debt Service
The total amount of credit card, auto, mortgage or other debt upon which you must pay.

Deed of Trust
Used in many western states, the agreement used to pledge your home or other real estate as security for a loan. Similar to a mortgage.

Default
Failure to make mortgage payments on a timely basis or to comply with other requirements of a mortgage.

Delinquency
Failure to make mortgage payments when mortgage payments are due.

Deposit
A sum of money given to bind the sale of real estate, or a sum of money given to ensure payment or an advance of funds in the processing of a loan.

Depreciation
A decline in the value of property; the opposite of appreciation.

Discount Points (or Points)
The amount paid either to maintain or lower the interest rate charged. Each point is equal to one percent (1%) of the loan amount (i.e., two points on a $100,000 mortgage would equal $2,000).

Down Payment
The difference between the purchase price and that portion of the purchase price being financed. Most lenders require the down payment to be paid from the buyer’s own funds. Gifts from related parties are sometimes acceptable, and must be disclosed to the lender.

Due on Sale
A clause in a mortgage agreement providing that, if the mortgagor (the borrower) sells, transfers, or, in some instances, encumbers the property, the mortgagee (the lender) has the right to demand the outstanding balance in full.

Earnest Money Deposit
A deposit made by the potential home buyer to show that he or she is serious about buying the house.

Easement
A right of way giving persons other than the owner access to or over a property.

Effective Age
An appraiser’s estimate of the physical condition of a building. The actual age of a building may be shorter or longer than its effective age.

Effective Interest Rate
The cost of credit on a yearly basis expressed as a percentage. Includes upfront costs paid to obtain the loan, and is, therefore, usually a higher amount than the interest rate stipulated in the mortgage note. Useful in comparing loan programs with different rates and points.

Encumbrance
A claim against a property by another party which usually affects the ability to transfer ownership of the property.

Equity
The difference between the fair market value (appraised value) of your home and your outstanding mortgage balance.

Escrow
An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the deposit by a borrower with the lender of funds to pay taxes and insurance premiums when they become due, or the deposit of funds or documents with an attorney or escrow agent to be disbursed upon the closing of a sale of real estate.

Escrow Account
The trust account in which escrow funds are held.

Escrow Analysis
The periodic examination of escrow accounts to determine if current monthly deposits will provide sufficient funds to pay taxes, insurance, and other bills when due.

Escrow Collections
Funds collected by the closing agent and set aside in an escrow account to pay the borrower’s property taxes, mortgage insurance, and hazard insurance.

Escrow Disbursements
The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.

Escrow Payment
The portion of a mortgagor’s monthly payment that is held by the closing agent to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Known as “impounds” or “reserves” in some states.

Fair Credit Reporting Act
A consumer protection law that regulates the disclosure of consumer credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one’s credit record.

Fair Market Value
The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept.

Fannie Mae
A congressionally chartered, shareholder-owned company that is the nation’s largest supplier of home mortgage funds.

Fannie Mae’s Community Home Buyer’s Program
An income-based community lending model, under which mortgage insurers and Fannie Mae offer flexible underwriting guidelines to increase a low- or moderate-income family’s buying power and to decrease the total amount of cash needed to purchase a home. Borrowers who participate in this model are required to attend pre-purchase home-buyer education sessions.

First Mortgage
A mortgage which is in first lien position, taking priority over all other liens (which are financial encumbrances).

Fixed Rate
An interest rate which is fixed for the term of the loan. Payments as well are fixed at one amount.

FHA Loan
More appropriately termed “FHA Insured Loan.” A loan for which the Federal Housing Administration insures the lender against losses the lender may incur due to your default.

Foreclosure
The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.

Fully Amortized ARM
An adjustable-rate mortgage (ARM) with a monthly payment that is sufficient to amortize the remaining balance, at the interest accrual rate, over the amortization term.

Good Faith Estimate
A written estimate of closing costs which a lender must provide you within three days of submitting an application.

Grace Period
A period of time during which a loan payment may be paid after its due date but not incur a late penalty. Such late payments may be reported on your credit report.

Gross Income
For qualifying purposes, the income of the borrower before taxes or expenses are deducted.

Home Equity Line of Credit
A loan providing you with the ability to borrow funds at the time and in the amount you choose, up to a maximum credit limit for which you have qualified. Repayment is secured by the equity in your home. Simple interest (interest-only payments on the outstanding balance) is usually tax-deductible. Often used for home improvements, major purchases or expenses, and debt consolidation.

Home Equity Loan
A fixed or adjustable rate loan obtained for a variety of purposes, secured by the equity in your home. Interest paid is usually tax -deductible. Often used for home improvement or freeing of equity for investment in other real estate or investment. Recommended by many to replace or substitute for consumer loans whose interest is not tax-deductible, such as auto or boat loans, credit card debt, medical debt, and education loans.

Hazard Insurance
A contract between purchaser and an insurer, to compensate the insured for loss of property due to hazards (fire, hail damage, etc.), for a premium.

HUD I Settlement Statement
A form utilized at loan closing to itemize the costs associated with purchasing the home. Used universally by mandate of HUD, the Department of Housing and Urban Development.

Index
A number, usually a percentage, upon which future interest rates for adjustable rate mortgages are based. Common indexes include the Cost of Funds for the Eleventh Federal District of banks or the average rate of a one year Government Treasury Security.

Interest Rate
The periodic charge, expressed as a percentage, for use of credit.

Jumbo Loan
Mortgage loans over $322,700 for all states except Alaska and Hawaii.. Terms and underwriting requirements may vary from conforming loans.

(LIBOR) the London Interbank Offered Rate Index

LIBOR is the London Interbank Offered Rate. It’s similar to our fed funds rate, in that it represents the rate at which banks are willing to loan each other reserves. Unlike fed funds, which represents the rate on an overnight loan between banks, LIBOR is quoted for specific maturities.

A lot of floating-rate debt is priced off the LIBOR yield curve. It ‘s an international standard for interest rates. LIBOR is quoted as one-month, three-month, six-month and one-year rates.

Loan to Value Ratio (LTV)
A ratio determined by dividing the sales price or appraised value into the loan amount, expressed as a percentage. For example, with a sales price of $100,000 and a mortgage loan of $80,000, your loan to value ratio would be 80%. Loans with an LTV over 80% may require Private Mortgage Insurance, defined below.

Lock or Lock In
A commitment you obtain from a lender assuring you a particular interest rate or feature for a definite time period. Provides protection should interest rates rise between the time you apply for a loan, acquire loan approval, and, subsequently, close the loan and receive the funds you have borrowed.

Margin
An amount, usually a percentage, which is added to the index to determine the interest rate for adjustable rate mortgages.

Minimum Payment
The minimum amount that you must pay, usually monthly, on a home equity loan or line of credit. In some plans, the minimum payment may be “interest only,” (simple interest). In other plans, the minimum payment may include principal and interest (amortized).

Mortgage Banker
Originates mortgage loans, loaning you their funds and closing the loan in their name.

Mortgage Broker
As do mortgage bankers, takes loan application and processes the necessary paperwork. Unlike a mortgage banker, brokers do not fund the loan with their own money, but work on behalf of several investors, such as mortgage bankers, S and L’s, banks, or investment bankers.

Mortgage Insurance (MIP or PMI)
Insurance purchased by the borrower to insure the lender or the government against loss should you default. MIP, or Mortgage Insurance Premium, is paid on government-insured loans (FHA or VA loans) regardless of your LTV (loan-to-value). Should you pay off a government-insured loan in advance of maturity, you may be entitled to a small refund of MIP. PMI, or Private Mortgage Insurance, is paid on those loans which are not government-insured and whose LTV is greater than 80%. When you have accumulated 20% of your home’s value as equity, your lender may waive PMI at your request. Please note that such insurance does not constitute a form of life insurance which pays off the loan in case of death.

Mortgage Loan
A loan which utilizes real estate as security or collateral to provide for repayment should you default on the terms of your loan. The mortgage or Deed of Trust is your agreement to pledge your home or other real estate as security.

Mortgagee
The lender in a mortgage loan transaction.

Mortgagor
The borrower in a mortgage loan transaction.

Negative Amortization
Amortization in which the payment made is insufficient to fund complete repayment of the loan at its termination. Usually occurs when the increase in the monthly payment is limited by a ceiling. The portion of the payment which should be paid is added to the remaining balance owed. The balance owed may increase, rather than decrease over the life of the loan.

PITI
Principal, interest, taxes and insurance, which comprise your monthly mortgage payment.

Points
The amount paid either to maintain or lower the interest rate charged. Each point is equal to one percent (1%) of the loan amount (i.e., two points on a $100,000 mortgage would equal $2,000).

Prepayment Penalty
A fee paid to the lending institution for paying a loan prior to the scheduled maturity date. A charge imposed by a mortgage lender on a borrower who wants to pay off part or all of a mortgage loan in advance of schedule.

Principal
Amount of debt, not including interest. The face value of a note or mortgage.

Private Mortgage Insurance (PMI)
Insurance provided by non-government insurers that protects lenders against loss if a borrower defaults. Fannie Mae generally requires private mortgage insurance for loans with loan-to-value (LTV) percentages greater than 80%.

Qualifying Ratios
Comparisons of a borrower’s debts and gross monthly income.

Right to Rescission
The legal right to void or cancel your mortgage contract in such a way as to treat the contract as if it never existed. Right of rescission is not applicable to mortgages made to purchase a home, but may be applicable to other mortgages, such as home equity loans.

Security Interest
An interest that a lender takes in the borrower’s property to assure repayment of a debt.

Seller Carry Back
An agreement in which the owner of a property provides financing, often in combination with an assumed mortgage.

Stated/Documented Income
Some loan products require only that applicants “state” the source of their income without providing supporting documentation such as tax returns.

Survey
A print showing the measurements of the boundaries of a parcel of land, together with the location of all improvements on the land and sometimes its area and topography.

Servicing a Loan
The ongoing process of collecting your monthly mortgage payment, including accounting for and payment of your yearly tax and/or homeowners insurance bills.

Title
The written evidence that proves the right of ownership of a specific piece of property.

Title Insurance
Protection for lenders or homeowners against financial loss resulting from legal defects in the title.

Total Debt Ratio
Monthly debt and housing payments divided by gross monthly income. Also known as Obligations-to-Income Ratio or Back-End Ratio.

Truth-in-Lending Act
A federal law requiring a disclosure of credit terms using a standard format. This is intended to facilitate comparisons between the lending terms of different financial institutions.

Transaction Fee
A fee which may be charged each time you draw on a home equity credit line.

Underwriting
The process of verifying data and approving a loan.

Variable Rate
An interest rate that changes periodically in relation to an index. Payments may increase or decrease accordingly.

VA Loan
More appropriately termed “VA Insured Loan“. A loan for which the Veteran’s Administration insures the lender against losses the lender may incur due to your default. Available only to veterans possessing a Certificate of Eligibility.

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Pacific Home Loans, Inc. All Rights Reserved | Pacific Home Loans, Inc. is licensed by California Bureau of Real Estate Broker License #01912112, Arizona License #0931057, Pacific Home Loans, Inc., DBA Washington Mortgage Advisors is licensed by WA DFI License# CL-906167, VA License #MC-5741, HI License# 906167, MD License# 06-20669, DC Licensed# 06-20669, Pacific Home Loans, Inc., DBA Texan Lending & Gulfstream Mortgage Inc., NMLS#906167. www.nmlsconsumeraccess.org. Pacific Home Loans, Inc., is not affiliated with any government agency.
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© 2016 Pacific Home Loans, Inc. All Rights Reserved | Pacific Home Loans, Inc. is licensed by California Bureau of Real Estate Broker License #01912112, NMLS #906167, Pacific Home Loans, Inc., DBA Washington Mortgage Advisors is licensed by WA DFI License #CL-906167, VA License #MC-5741, MD License #20669, Pacific Home Loans, Inc., DBA Hawaiian Mortgage Advisors Lic #906167, NC License #L-164426, DC License #MLB906167, AZ License #0931057, ID #MBL-8911, OR License #ML-5453, Pacific Home Loans, Inc., AK License #AK906167, NV License #4454, PA License #57796, IL License #MB6761193, Pacific Home Loans, Inc., DBA Texan Lending & Gulfstream Mortgage Inc., NMLS #906167. CO NMLS #906167. Rates may change without notice or may not be available at the time of loan commitment or lock in. There is no substitute for a Loan Estimate. Pacific Home Loans, Inc. is not associated with, or acting on behalf of your current lender. Pacific Home Loans, Inc., is an approved VA Lender but not affiliated with any government agency. License information can also be seen at www.nmlsconsumeraccess.org.
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