• Before You Apply   What to do to prepare up to a year in   advance of your mortgage application. • Can  You Trust Your Loan Officer?   Who does your loan officer work for,   and how do you find the best one? • Lender, Broker, Bank   What type of loan Provider is right for   you? • Types of Mortgage Loans   The types of mortgage loans and   their advantages and disadvantages. • Types of Documentation   Your options for disclosing how much   you make and where it comes from. • Underwriting   What does an underwriter look for   when analyzing your loan application? • Pre-Approval   What it is and isn't and how it saves    you time and heartache. • Credit   What it is, and how it affects your    life. • Income & Employment   How much you need to make and for   how long in order to qualify. • Assets/ Down Payments   How much, where from, and what kind   of money will work. • Down Payment Assistance  Short on funds?  Learn about your   options and explore these resources. • Processing   What happens to your application after  you sign it and before you close? • Title   What is it, what does it mean, and how   does it work? • Appraisals   What is your home worth, why you   should bother  to find out, and how   does it affect your loan? • Alternate Financing   Facing rejection?  Time to get creative. • Which 1st, a Mortgage or a Home?   Why you should get pre-approved   first before you start to fall in love with   a house. • FHA   Low down payment, forgiving   qualifications.  A great loan option.

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  N |O | P |Q | R |S | T | U | V | W | X | Y | Z

  Alternative Documentation: Expedited and simpler documentation requirements designed to speed up the loan approval process. The documentation modifications can range from the modest, such as substituting payroll stubs for tax returns, to no documentation whatever.

Amortization Schedule: A timetable for payment of a mortgage showing the amount of each payment applied to interest and principal and the balance remaining.

Annual Percentage Rate (APR): The total cost of a mortgage stated as a yearly rate; includes such items as the base interest rate, loan origination fee, discount points, commitment fees, prepaid interest and other credit costs that may be paid by the borrower.

Application Fee: A fee that some lenders charge to accept an application for a mortgage loan. It may or may not be refundable if the lender declines the loan.

Approval: Acceptance of the borrower's loan application. Approval means that the borrower meets the lender's qualification requirements and also its underwriting requirements. In some cases, especially where approval is provided quickly as with automated underwriting systems, the approval may be conditional on further verification of information provided by the borrower.

Assumable Mortgage: A mortgage contract that allows, or does not prohibit, a creditworthy buyer from assuming the mortgage contract of the seller. Assuming a loan will save the buyer money if the rate on the existing loan is below the current market rate, and closing costs are avoided as well. A loan with a "due-on-sale" clause stipulating that the mortgage must be repaid upon sale of the

property, and is not assumable.

Automated Underwriting: A computer-driven process for informing the loan applicant very quickly, sometimes within a few minutes, whether the applicant will be approved, rejected, or asked for additional information. The quick decision is based on information provided by the applicant, which is subject to later verification, and other information retrieved electronically including information about the borrower's credit history and the subject property.

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Balance: The amount of the original mortgage loan remaining to be paid. It is equal to the loan amount less the sum of all prior payments of principal.

Balloon mortgage: A mortgage which is payable in full after a period that is shorter than the term. It therefore has a balloon that must be repaid or refinanced. On a 7-year balloon term, for example, the payment is usually calculated over a 30-year period, and the balance at the end of the 7th year must be repaid or refinanced at that time.

Bi-Weekly mortgage: A mortgage loan on which the borrower pays half the monthly payment every two weeks. Because this results in 26 (rather than 24) payments per year, the biweekly mortgage amortizes before term.

Bridge loan: A short-term loan that "bridges" the period between the closing date of a home purchase and the closing date of a home sale. To qualify for a bridge loan, the borrower must have a contract to sell the existing home.

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Cash-out refi: Refinancing for an amount in excess of the balance on the old loan plus settlement costs. The borrower takes "cash out" of the transaction.

Closing Costs: Costs that the borrower must pay at the time of closing in addition to the down payment and points. Also referred to as "settlement costs".

Condominium: A form of property ownership in which the homeowner holds title to an individual dwelling unit, an undivided interest in common areas of a multi-unit project, and sometimes the exclusive use of certain limited common areas.

Conduit: Private entities that specialize in purchasing mortgages from other lenders to form mortgage pools and sell in the secondary market. Conduits can provide an efficient outlet for smaller scale lenders to sell their loans and turn over funds to continue lending operations.

Conforming mortgage: A loan eligible for purchase by the two major Federal agencies that buy mortgages, Fannie Mae and Freddie Mac.

Contingency: A condition that must be met before a contract is legally binding.

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

Conversion option: The option to convert an adjustable rate mortgage to a fixed rate mortgage at some point during its life. These loans are likely to carry a higher rate or points than adjustable rate mortgages that do not have this option.

Correspondent: A lender that specializes in loan originations only. A correspondent lender sells its loans to a mortgage banker, servicing-released, for fee income.

Current index value: The most recently published value of the index used to adjust the interest rate on indexed adjustable rate mortgages.

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Depreciation: the loss in value from any physical deterioration, functional obsolescence and external obsolescence. 

Deterioration: the loss in value as a result of average wear and tear over time (peeling paint, metal corrosion, pavement wear, etc.). 

Down payment: The difference between the purchase price of the property and the loan amount, expressed in dollars, or as a percentage of the price. For example, if the house sells for $100,000 and the loan is for $80,000, the down payment is $20,000 or 20%. The loan amount used in this calculation does not include any prepaid finance charges that are included in the loan. For example, if the $80,000 loan in the example above includes a $1,000 up-front mortgage insurance premium, the down payment is $21,000.

Equal Credit Opportunity Act: A federal law that prohibits lenders from discriminating on the basis of the borrower's race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs.

Equity: The difference between the value of a home and the outstanding loan balance on the home.

External obsolescence: a loss in value caused by negative conditions outside of the property such as a change in zoning or excessive noise and traffic.

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FHA Mortgage: A mortgage that is insured by the Federal Housing Administration. Also referred to as a "government" mortgage.

First mortgage: The first-priority claim against the property in the event the borrower defaults on the loan.

Fixed rate mortgage (FRM): A mortgage on which the interest rate is specified in the loan contract and remains unchanged throughout the term of the mortgage.

Float: An option which the borrower may exercise at the time of the application to allow the rate and points to vary with changes in market conditions, rather than to "lock in" those prevailing at that time. The borrower may elect to "lock" at any point but must do so a few days before the closing.

Foreclosure: The legal process by which a mortgaged property may be sold when a mortgage is in default.

Functional obsolescence: the loss in value caused by implicit flaws in the home such as poor design or outdated mechanical equipment (such as an inefficient furnace). 

 

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Good faith estimate: The list of settlement charges that the lender is obliged to provide the borrower within three business days of receiving the loan application.

Graduated payment mortgage (GPM): A mortgage on which the payment rises by a constant percentage for a specified number of periods, after which it levels out over the remaining term and amortizes fully. For example, the payment might increase by 7.5% every 12 months for 60 months, after which it is constant for the remaining term at a fully amortizing level.

Hazard insurance: Insurance purchased by the borrower, and required by the lender, to protect the property against loss from fire and other hazards. It is the second "I" in PITI.

  Housing expenses: Housing expenses include the monthly

  principal and interest payments in addition to monthly escrow

  payments for the property taxes and hazard insurance (1/12 of

  the annual taxes and insurance). There may be other expenses,

  such as condominium association fees, special assessments,

  etc., which will also have to be included.

  Housing expense ratio: The ratio of housing expense to

  borrower income, which is used (along with the total expense

  ratio and other factors) in qualifying borrowers.

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Initial interest rate: The interest rate that is fixed for a specified number of months at the beginning of the life of a mortgage. On an adjustable rate mortgage (ARM), the initial rate is sometimes referred to as a "teaser" rate because it is below the fully indexed interest rate.

Interest Rate Cap: A provision of an adjustable rate mortgage limiting how much interest rates may increase per adjustment period or over the life of the mortgage loan.

Joint Tenancy: A form of co-ownership giving each tenant equal interest and equal rights in the property, including the right of survivorship.

Jumbo mortgage: A mortgage larger than the maximum eligible for purchase by the two Federal agencies, Fannie Mae and Freddie Mac, currently $227,150.

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Lien: A legal claim against a property that must be paid off when the property is sold.

Loan amount: The amount the borrower promises to repay, as set forth in the mortgage contract. It differs from the amount of cash disbursed by the amount of points and other credit charges.

Loan-to-value ratio: The loan amount divided by the lesser of the selling price or the appraised value. Also referred to as LTV.

Loan Servicing: All responsibilities and tasks a lender performs to protect the mortgage investment including collecting monthly payments, managing escrow accounts, monitoring and dealing with delinquencies and overseeing foreclosures. (Also referred to as loan administration).

Lock: An option exercised by the borrower, at the time of the loan application, or later, to "lock in" the rates and points prevailing in the market at that time. The lender and the borrower are committed to those terms, regardless of what happens between that point and the closing date.

Lock period: The number of days for which any "lock" or "cap" holds.

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  Margin: The amount added to the interest rate index, ranging generally from 2 to 3 percentage points, to obtain the fully indexed interest rate on an adjustable rate mortgage.

Monthly debt: Monthly debt includes credit obligations, such as installment loans, revolving charge cards or other borrower obligations.

Mortgage: A legal document that pledges a property to the lender as security for payment of a debt.

Mortgage Banker: A company that originates mortgages exclusively for resale in the secondary market.

Mortgage Broker: An individual or company that acts as an intermediary between borrowers and lenders.

  Non-conforming mortgage: A mortgage that does not meet the purchase requirements of the two Federal agencies, Fannie Mae and Freddie Mac, because it is too large or for other reasons such as poor credit or inadequate documentation.

Non-permanent resident alien: A non-citizen with a green card employed in the U.S. As distinct from a permanent resident alien, which lenders do not distinguish from U.S. citizens. Non-permanent resident aliens are subject to somewhat more restrictive qualification requirements than U.S. citizens.

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Origination fee: An upfront fee charged by some lenders, expressed as a percentage of the loan amount. Should be added to points in determining the total fees charged by the lender that are expressed as a percentage of the loan amount.

Payment shock: A very large increase in the payment on an adjustable rate mortgage that may surprise the borrower.

Pipeline risk: The lender's risk that between the time a commitment is given to the borrower and the time the loan is closed, interest rates will rise and the lender will take a loss on selling the loan.

PITI: Stands for principal, interest, taxes and insurance - the components of a monthly mortgage payment.

Planned Unit Development (PUD): A project or subdivision that consists of common property that is owned and maintained by an owner's association for the benefit and use of the individual unit owners.

Points: A one-time charge by the lender to increase the yield of the loan; a point is 1 percent of the amount of the mortgage.

Prepaids: Fees collected at closing to cover items such as setting up escrow accounts for property taxes, homeowner's insurance and mortgage insurance premiums.

Prepayment penalty: A charge imposed by the lender if the borrower pays off the loan early. The charge is usually expressed as a percent of the loan balance at the time of prepayment.

Principal: The portion of the monthly mortgage payment that is used to reduce the loan balance.

Private Mortgage Insurance: Insurance provided by non-government insurers that protect lenders against loss if a borrower defaults on their mortgage loan. Secondary market investors generally require PMI for loans with loan-to-value percentages greater than 80 percent.

Processing: What the lender does with your loan application. Processing involves compiling and maintaining the file of information about the transaction, including the credit report, appraisal, verification of employment and assets. The processed loan file is given to underwriting for the loan decision.

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Qualification: The process of determining whether a customer has enough cash and sufficient income to meet the qualification requirements set by the lender on a requested loan. It is sometimes referred to as "pre-qualification" because it is subject to verification of the information provided by the applicant.

Rate/point options: All the combinations of interest rate and points that are offered on a particular program. On an adjustable rate mortgage, rates and points may also vary with the margin and interest rate cap.

Rate protection: Protection against the danger that rates will rise between the time a borrower applies for a mortgage loan and the time the loan closes. This protection can take the form of a "lock" where the rate and points are frozen at their initial levels until the loan closes; or a "cap" where the rates and points cannot rise from their initial levels but they can decline if market rates decline. In either case, the protection only runs for a specified period. If the loan is not closed within that period the protection expires and the borrower will either have to accept the terms quoted by the lender on new loans at that time, or start the shopping process over again.

Real Estate Settlement Procedures Act (RESPA): A consumer protection law that requires lenders to give borrowers advance notice of closing costs.

Required cash: The total cash required of the home buyer to close the transaction, including down payment, points and fixed dollar charges paid to the lender, any portion of the mortgage insurance premium that is paid upfront, and other settlement charges. These settlement charges may include title insurance, taxes, etc., and are shown on the Good Faith Estimate of settlement charges that the borrower receives.

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Sale of Servicing: The sale of loan servicing rights.

Secondary Mortgage Market: A market where existing mortgages are bought and sold. The two largest players are the Federal National Mortgage Association or Fannie Mae, and the Federal Home Loan Mortgage Corporation or Freddie Mac. There are also individual mortgage conduits to the secondary market.

Servicing Fees: The compensation a lender receives from Fannie Mae or Freddie Mac for servicing loans which have been sold to them. The fee is usually calculated monthly based on the principal outstanding on each loan serviced.

Servicing Released: Sale of the rights to service a mortgage loan when the loan is sold in the secondary market.

Sub-servicing: An arrangement whereby the lender retains ownership of the servicing rights, but enters into an agreement with a mortgage servicer to perform the servicing function.

Subordinate financing: A second lien on the property securing the loan at the time of closing. This arises when there is a second lien on the property at the time the new loan is taken out, and the new loan does not pay it off.

Survey: A drawing or map showing the precise legal boundaries of a property and the location of improvements, easements, rights of way, encroachments and other physical features.

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Temporary buydown: A reduction in the mortgage payment in the early years of the loan in exchange for an upfront cash payment provided by the home buyer, the seller or both.

Title: A legal document evidencing a person's right to or ownership of a property.

Total Monthly Debt: The sum of the proposed monthly housing expense and the monthly debt

  equals the total monthly debt obligation.

Total Debt-to-Income Ratio: This ratio is derived by dividing your total monthly debt (housing plus other debt) by your monthly income.

 

Truth-In-Lending Act: A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the APR and other charges.

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Underwriting: The process of evaluating a mortgage loan application to determine the risk involved for the lender. It involves an analysis of the borrower's creditworthiness and the quality of the property itself.

Underwriting requirements: The standards imposed by lenders in determining whether a borrower qualifies for a mortgage loan. These standards are more comprehensive than qualification requirements in that they include an evaluation of the borrower's creditworthiness.

VA Loan: A loan that is guaranteed by the U.S. Department of Veterans Affairs. Also referred to as a "government" mortgage.

Waive escrows: The borrower has the right to pay taxes and insurance directly. This is in contrast to the standard procedure where the lender adds a charge to the monthly mortgage payment that is deposited in an escrow account, from which the lender pays the borrower's taxes and insurance when they are due. On some loans, lenders will not waive escrows, and on loans where waiver is permitted, lenders are likely to charge for it as it increases the lenders risk if the borrowers neglect to pay taxes and insurance on the property.

Wholesale lender: A lender who provides loans to borrowers through mortgage brokers or correspondents. The mortgage broker or correspondent initiates the transaction and take the borrower's application.

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