Phone: (209) 533-8411
Glossary of Terms
A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
A
adjustable rate mortgage (ARM)
A mortgage whose interest rate changes periodically based on the changes in a specified index.
amortization
The repayment of a mortgage loan by installments with regular payments to cover the principal and interest.
annual percentage rate (APR)
The cost of a mortgage stated as a yearly rate; includes such items as interest, mortgage insurance,
loan origination fee and points.
appraisal
A written analysis of the estimated value of a property prepared by a qualified appraiser.
B
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
The final lump sum payment that is made at the maturity date of a balloon mortgage.
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 by 0.50% or $500.
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. The result for the borrower is a substantial savings in interest.
C
certificate of eligibility
A document issued by the federal government certifying a veteran’s eligibility for a Department of Veteran’s Affairs (VA) mortgage.
chain of title
The history of all the documents that transfer title to a parcel of real property, starting with the
earliest existing document on public record and ending with the most recent.
clear title
A title that is free of liens or legal questions as to ownership of the property.
closing cost item
A fee or amount that a home buyer must pay at closing. Closing costs are made up of individual
closing cost items such as loan, escrow, title fees, etc. Closing costs percentage will vary according to the area of the country.
closing statement
also referred to as the HUD-1. The final statement of costs incurred to close on a loan or to
purchase a home.
cloud on title
Any conditions revealed by a title search that adversely affect the title to real estate. Usually,
clouds on title cannot be removed except by a quitclaim deed, release or court action.
conforming loan
The current conforming loan limit is $417,000 and below. Conforming loan limits change annual.
contingency
A condition that must be met before a contract is legally binding. For example, home buyers often
include a contingency that specified that the contract is not binding until the purchaser obtains
satisfactory home inspection report from a qualified home inspector.
conventional mortgage
A mortgage that is not insured or guaranteed by the federal government, such as FHA or VA.
D
deed of trust
The document used in some states instead of mortgage; title is conveyed to a trustee. The deed is the legal document conveying title to a property.
down payment
The part of the purchase price of a property that the buyer pays in cash and does not finance with the mortgage.
E
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.
equity
A homeowner’s financial interest in a property. Equity is the difference between the fair market
value of the property and the amount still owed on its mortgage.
escrow account
The account in which a mortgage servicer holds the borrower’s escrow payments prior to paying
property expenses. (For example, property taxes and hazard insurance)
F
FHA mortgage
A mortgage that is insured by the Federal Housing Administration (FHA). Also known as a
government mortgage.
fixed rate mortgage
A mortgage in which the interest rate does not change during the entire term of the loan.
foreclosure
The legal processes 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.
G
good faith estimate
An estimate of charges which a borrower is likely to incur in connection with a purchase and/or
financing of real property.
H
hazard insurance
Insurance protecting against loss to real estate caused by fire, some natural causes, vandalism, etc.,
depending upon the terms of the policy.
housing ratio
The ratio of the monthly housing payment in total (PITI – principal, interest, taxes, insurance) divided by the gross monthly income. This ratio is sometimes referred to as the top ratio or front end ratio.
HUD
The U.S. Department of Housing and Urban Development.
I
impound account
An impound account is an account established by the lender to pay a borrower’s tax and insurance costs. The borrower’s monthly mortgage payment is then increased to cover these costs, with the additional amount being held in the impound account and disbursed by the lender when the payments are due. Lenders typically prefer this arrangement because it reduces the possibility of a lapse in tax or insurance payments that could diminish the value of the lender’s investment (your house). Therefore, while it is often possible to opt out of an impound account it could result in additional charges.
J
jumbo mortgage
Loan amounts that exceed the current conforming limit of $417,000 and are considered non-conforming or jumbo mortgages and are usually subject to higher pricing.
K
L
loan to value ratio (LTV)
The unpaid principal balance of the mortgage on a property divided by the property’s appraised value. The LTV will affect programs available to the borrower and generally, the lower LTV the more favorable the termsof the programs offered by lenders.
M
mortgage
A legal document that pledges a property to the lender as security for payment of a debt.
mortgage insurance (MI)
Insurance written by an independent mortgage insurance company protecting the mortgage lender against loss incurred by a mortgage default. Usually required for loans with an LTV of 80.01% or higher.
N
negative amortization
Negative Amortization, or “deferred interest” occurs when the mortgage payment is less than a loan’s accruing interest. This causes a loan’s balance to grow instead of reduce or “amortize”.
O
origination fee
A fee imposed by a lender to cover certain expenses in connection with making a real estate loan. usually a percentage of the amount financed, such as one percent.
P
PITI
Principal, Interest, Taxes and Insurance – the components of the monthly payment.
points
Charges levied by the mortgage lender and usually payable at closing. One point represents 1% of the mortgage loan amount. Also referred to as discount points as the payment of points discounts the interest rate.
prepaids
Those expenses of property which are paid in advance of their due date and will usually be prorated upon sale, such as taxes, insurance, and mortgage interest.
Q
qualifying ratios
The ratio of our fixed monthly expenses to your gross monthly income, used to determine how much you can afford to borrow. The fixed monthly expenses would include PITI along with other obligations such as credit debt.
R
rate lock-in
A written agreement in which the lender guarantees the borrower a specified interest rate, provided the loan closes within a set period of time.
refinance
The process of paying off one loan with the proceeds from a new loan using the same property as security.
S
subordination
If you are refinancing your first mortgage and have an existing second or home equity line, one
option is to “subordinate” the second mortgage: request that your second mortgage holder go back into the second lien position when you replace your existing first mortgage with the new refinance loan.
T
title
The evidence one has of right to possession of land.
title insurance
Insurance against loss resulting from defects of title to a specifically described parcel of real estate.
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 forms of different financial institutions.
U
V
Veteran’s Administration
A government agency guaranteeing mortgage loans with no down payment to qualified veterans.
