Glossary

Adjustable Rate Mortgage Example

Jenny decides to purchase her new home using an adjustable rate mortgage. She is assured that the interest rate she pays may change in relation to the prime rate. Her quoted rate is 3% over the prime rate (sometimes called Prime Plus Three.) Therefore she can expect her interest rate to go up or down, depending on changes in the prime rate.

Amortization Example

When Fred decides to buy a home, the bank will determine the amortization of the loan. This means the bank will calculate how long it will take Fred to pay off the loan completely and also how much he will pay in total for the loan. The bank will add the principle and all the interest together. In this way, Fred may find out the total amount he is paying over time for the house.

Annual Percentage Rate Example

Ophelia purchases a home at an interest rate of 6.5%. At closing, it is revealed to her that her Annual Percentage Rate, or APR is 7.25%. Her APR is higher because all the other parts of the financing are included in the calculation. The Truth In Lending Act requires this disclosure to make sure that consumers understand how the extra charges affect the actual interest they are paying.

Application Example

Regina decides to refinance her home to get a lower monthly payment. She visits her local loan officer, Chad, who has her fill out an application. The application is necessary so that Chad has all accurate information to help Regina get the best refinance loan available. Regina provides information about her home, her income and her expenses on the application form.

Application Fee Example

John decides to purhase a new home. He visits his favorite mortgage broker, Mike, and fills out an application. Mike uses John's application information to gather a credit report and process the information. Because all mortgage brokers must pay for credit reports and other information, John can expect to pay a small application fee for Mike's costs and effort to process it.

Appraisal Example

Lloyd and his realtor find the perfect home for him. The asking price is $350,000, which Lloyd can afford. So, he brings all the information to his mortgage broker. She starts the paperwork to help get Lloyd the loan for the house. One of the steps she will take is to get an appraisal of the new home. The appraisal needs to come back at least $350,000 for Lloyd to get the loan.

Assessed Valuation Example

There are many ways to determine the value of a property. Realtors often use a comparative market analysis, which is a rough estimate based on the value of comparable properties. Mortgage banks use a more detailed appraisal. The government also uses a method of determining the value of a property called Assessed Valuation. This is so they can charge appropriate property taxes.

Assessment Example

The government can collect taxes in a variety of ways. One way that can often affect people when they are purchasing or refiancing homes is called an assessment. An assessment occurs when the government attaches a special charge or tax to a property. This might happen if the government decides to improve roadways or sewer systems in a certain area.

Borrower Example

Andrew gets a loan from Directors Mortgage to buy his new home. Directors finds the best loan from a XYZ Lending and helps Andrew qualify for the loan. Andrew gets the loan and moves into his new home. In this scenario, Directors Mortgage is the broker, XYZ Lending is the lender and Andrew is the borrower. In many cases, borrower is simply another word for client or customer.

Buydown Example

Carla really wants to purchase a home for $450,000. She can afford it only if she can get a favorable interest rate from the lender. The seller of the home, Jim, is very interested in selling the home to Carla. Jim contacts the lender and offers to buydown the loan in order to get Carla an interest rate that suits her. Buydowns are not common practice.

Cash to Close Example

Ferdinand covers his closing costs on his new home purchase with cash he has saved for that purpose. In some cases, he could finance his closing costs.

Closing Example

The last step Lisa needs to take to purchase her home is to go through the closing. This will involve her signing paperwork and then receiving the deed to the property.

Closing Costs Example

When Lisa closes on her new home, she will be expected to pay for various services associated with the purchase and the loan.

Closing Statement Example

At closing, Lisa receives a clear statement explaining the costs she is paying and the description of each.

Commitment Fee Example

Conforming Loan Example

Alex's loan is a conforming loan because it fits the normal criteria for a loan. Conforming loans generally have better interest rates and are easier to obtain.

Conventional Loan Example

Alex's loan is a conventional loan because it meets government criteria.

Credit Report Example

Ossie's search for a new home requires him to get an updated credit report. The information from the report detals Ossie's credit history and helps his mortgage broker find the best rate and program for him.

Deed of Trust Example

Janice's home purchase involves deed the land to a trust that technically owns the property in her name.

Default Example

If Velma fails to pay her mortgage, she will go into default on it.

Delinquency Example

Before Velma goes into default on her loan, she will be declared to be delinquent. This all happened because she did not pey her mortgage on time.

Deposit Example

At the start of his home purchase, Dave puts a deposit down to show his commitment to the process.

Depreciation Example

Because of age and problems with the structure, Kim's home experienced depreciation over recent years.

Discount Point Example

An amount of money paid to the lender as incentive to finance the loan. A point is worth 1% of the total loan amount.

Discounted Loan Example

Bonnie gets a discounted loan to purchase her new home.

Earnest Money Example

John puts down $2000 to show his interest in buying the new home. This money, which will be applied to his closing costs, is called earnest money.

Equal Credit Opportunity Act (ECOA) Example

Yolanda checks her credit report and finds errors. Under the ECOA, she has the right to challenge and correct the errors.

Equity Example

Lee owns his home and decides to seek a refinance loan. The first thing he will have to determine is the equity in his home - which simply means that he compares the current value of his home with the amount he still owes on it.

Escrow Example

Fred is purchasing a home from Wilma. During the process, they put money into an escrow account, which helps to fairly guard the money for both parties.

Fair Credit Reporting Act (FCRA) Example

Charlie's loan request was denied due to bad credit. According to this law, the lender must provide accurate information to Charlie about the source of the information.

Federal Home Loan Mortgage Corporation Example

A government organization authorized to insure loans.

Federal National Mortgage Association Example

A government organization authorized to purchase loans.

First Mortgage Example

In order to achieve 100% financing, Gina gets a first and second mortgage. The first mortgage is larger and takes priority over the second.

Fixed Interest Rate Example

Dennis gets the rate he wants, so he agrees to freeze that rate over the entire term of the loan. This is called a fixed rate loan.

Foreclosure Example

Megan is unable to make her mortgage payments over a long period of time. As a result, the lending bank takes the home and sells it to try to cover their losses.

Gift Letter Example

Roger gets a gift of $10,000 to help him buy a house from his great aunt Alma. Alma writes the gift letter so that the $10,000 can be used in the loan process.

Gross Monthly Income Example

Fiona's monthly income will be considered as she applies for a refinance of her vacation home. The broker will gather her gross monthly income - which is her income before taxes and other deductions.

Hazard Insurance Example

Earl may be required to carry hazard insurance on his new home by his lender. This would cover the home in case of hazards like earthquakes.

High-Ratio Loan Example

Because Ronnette is looking to get a loan for 90% of the value of her home, she is seeking a high-ratio loan.

Homeowner's Association Dues Example

Lilly's new condominium has homeowner's dues of $128 per month. She is required to make these payments each month or she will risk having a lien put on the property.

Insured Loan Example

Sophia's loan has the additional advantage of being insured by the FHA - The Federal Housing Authority.

Interest Example

Greg's bank is willing to lend him money to buy a house because it will charge him interest - money - for the benefit of using their money.

Interest Rate Example

The amount of money Greg pays for the use of the bank's money is based on a percentage of the amount he borrows - the interest rate.

Investment Property Example

Willard's latest investment is to buy a rental property and collect the rent as income. This makes his new home an investment property as long as he does not live in it as his primary residence.

Jumbo Loan Example

Edna's newest home purchase is for $459,000. If she finances the whole amount, it will be considered a jumbo loan and subject to special criteria.

Lien Example

Michael has started the process of buying a home. The title search uncovers a lien on the property because the seller had not paid all the property taxes. This lien will need to be satisfied by the seller before the home can be sold to Michael.

Loan To Value Ratio Example

If Arthur's home is appraised at $150,000 but he has a loan on the property for $180,000, then his loan to value ratio is off by $30,000. This ratio is used to determine refinancing options and other specifics.

Market Value Example

This statistic is usually based on comparing similar homes and the state of the real estate market. When Ilse gets a market value of her home at $489,000, it means it is the best prediction of experts that she can hope to get that value for it, but there are no guarantees.

Maturity Example

Kind of like the deadline for the loan, this is the date at which the loan is expected to be paid off completely. If James opened a 30 year loan on December 5, 2000 then his maturity date will likely be around December 5, 2030.

Monthly Payment Example

Polly's new home loan carries a monthly payment of $782.33. This is the amount she owes she owes each month - and it covers her payment toward the principal of the loan, the interest, taxes and insurance.

Mortgage Example

A mortgage is simply a loan based on real property. The real property is the security on the loan, which means defaulting on the loan could mean you lose the home. Mortgage is a comprehensive term that includes purchasing and refinancing.

Mortgagee Example

If Gwyneth borrows money from First Planet Bank then the bank is considered the mortgagee. Often, the mortgagee is also called the lender.

Mortgage Insurance Premium (MIP) Example

In some cases, mortgage insurance, which protects against situations in which the borrower is not able to make payments, is recommended or required. The premium for the insurance, which can be paid in the monthly payments, is considered the mortgage insurance premium.

Mortgage Note Example

Among the paperwork that Sandy signed at the closing for her new home was the mortgage note. This set of papers is very specific about what she owes and when she must pay. Sandy files it very carefully.

Mortgagor Example

If Gwyneth borrows money from First Planet Bank then Gwyneth is considered the mortgagor. Often, the mortgagor is also called the borrower.

Negative Amortization Example

Randy's adjustable rate home loan has a limit as to how much the monthly payment can change each month. It is possible that the combination of changes in the prime interest rate and changes in his home value may make it so his payment is insufficient to satisfy the loan by the end of the term. This would be called negative amortization.

Non-Conforming Example

Most loans require a basic set of criteria, such as loan-to-value ratio, debt levels and credit scores. However, there are many ways to get loans if a person does not necessarily meet the standard criteria. Loans that do not need the standard requirements are called non-conforming loans.

Occupancy Example

If Matilda wants to live in the house she just bought, it would be considered "owner occupied." If she decides to rent it out, the occupancy status would be "rental" or "investment property."

Origination Fee Example

Tom notices on his closing statement that he has been charged an origination fee. This is the amount that goes to his broker to cover the costs of starting the loan and findings lender.

Percentage Point Example

When a mortgage broker refers to a point, he or she means one percent of the total loan amount. Often, brokers are compensated in points.

PITI Example

Anne's monthly payment consists of paying toward the principal of the loan, paying the interest on the loan, paying the property taxes and paying for homeowner's insurance. These are all totaled up for her in one easy payment.

Pre-Approval Example

Jen and Mike are looking to purchase a home. The first step they take is to get a pre-approved for a certain amount of money they can borrow. Now they know how much they can afford.

Preliminary Title Report Example

Before closing, Frank has his title company run a preliminary title report to make sure the home is legally sound. If it looks okay, he will go ahead with the buying process.

Prepayment Penalty Example

Leon gets an interest-only loan on his first home in order to keep his monthly payments low. One of the agreements he makes in order to get this loan is that he will not pay off the loan before it is fully due. He will pay a penalty if he does pay it off. Prepaymant penalty periods usually last two or three years.

Primary Residence Example

Because Sally is intending to live in the home she is purchasing, it is considered her primary residence. Generally, rates and qualifications are easier for a primary residence.

Principal Balance Example

The principal balance is the amount of the original loan amount left to pay off. It does not include interest. If Kelly borrows $200,000 and his monthly payments are split $500 to interest and $500 to principal, his principal balance after the first monthly payment will be $199,500.

Private Mortgage Insurance Example

A lender may require a borrower to insure against not being able to make the monthly payment. Typically, this is included in the payments.

Processing Example

After Maya, the loan officer, collects all of your materials for the loan, she sends them to Katie, who processes all the documents and sends the file to the lender.

PUD (Planned Unit Development) Example

Tim decides to buy a condo in an area that also includes a shopping center, a recreation space and some offices. As a homeowner, he will have a say in how all the areas are used.

Purchase Contract (Agreement/Offer) Example

Once Kelley decides to purchase the home from Rob, she signs a purchase contract. If Rob also signs it, the sale of the home can move forward.

Qualifying Ratios Example

If Belinda is trying to get a loan and her qualifying ratios are not helping her to qualify, it means that the amount she makes (income) and what she must pay (debts) are not comparing favorable for her. She may have an improved qualifying ratio if her income increases or debt decreases.

Rate Lock Option Example

Joey knows he will be closing on a loan in the next month. The current rates are low, but Joey is worried that they may rise before he signs on the loan. Joey decides to utilize a rate lock option to make sure he gets the rate he wants. In doing so, he guarantees the current low rate, even though the loan will close at a later date.

Real Assets Example

Felicia has many assets in her portfolio. Her real assets are the property she owns. These include her home and acreage, her vacation property and the storefont owned by her business. Her real assets do not include her stocks or her cash.

Real Estate Settlement Procedures Act (RESPA) Example

When Monty signs the loan for his first home, he will be informed about all the settlement costs and fees. This is because RESPA requires it by law. This law helps Monty feel secure that the confusing loan process will be completely explained to him.

Real Property Example

Felicia's acreage in the country, her home and her vacation property at the coast are her "real property."

Refinancing Example

Lori bought her house ten years ago. As a result of the payments she has made and the growth in value of her home, she can now get a new loan with a lower rate. Lori's new loan is considered a refinancing loan because it is a new loan that pays off the old loan and it is still based on the same property.

Sales Price Example

Paul is selling his house and asking $350,000 for it. Kalie offers to buy the house for $325,000 and Paul agrees. Even though he wanted to sell for more, the final sales price of the house is the $325,000 to which he agreed.

Satisfaction of Mortgage Example

When Wendy finished paying her mortgage, she received a notice in the mail called a "satisfaction of mortgage." This officially indicates she has paid the loan in full. People also receive these when they refinance or sell their homes.

Second Home Example

Matt and Pat purchase a beach cabin to be used as a second home. This means that their primary home remains where they spend most of their time, but the beach cabin is a second home. Second homes typically have different lending requirements than primary homes.

Secondary Mortgage Market Example

Trina originated a home loan with a mortgage brokerage. A few months later, she gets a notice that her mortgage has been sold to a different company and that she must now make payments to the new lender. Her payments remain the same.

Security Example

In most loans, the security is the item purchased with the loan. In the case of home loans, the security is the home itself.

Security Interest Example

The bank wants to have some sort of security interest in case its borrowers do not repay their debts. In the case of most home loans, the security interest is the home itself. People who do not pay their mortgages risk losing their homes to the bank (foreclosure.)

Servicing A Loan Example

The company to whom you make your payments is said to be "servicing the loan." In most home loan cases, it is first the brokerage from whom you originated the loan. If the loan is sold to another company, that new company assumes the responsibility to provide the service.

Settlement Services Example

When the lender closes the loan, it provides services to pay off any debts related to the property and arrange for payments. These are called "settlement services" and may carry an extra fee.

Survey Example

Before Quincy could complete his home purchase, a company had to establish a survey of the new property. This showed the exact legal boundaries of the land and any changes that have been registered with the government.

Term Example

Paul took out a 30 year loan to pay for his new home. The term of his loan is 30 years because it is the time in which he is expected to pay off the loan entirely. Most loans do not go to term.

Title Example

Jenny's new home purchase paperwork includes the title to the house. If any person were ever to challenge her ownership of the home, she could use the title (a piece of paper) to prove that she owns it.

Title Insurance Example

At the closing of his home purchase, Noah received notification that the title company had provided him with title insurance. This means that they will protect him if there any problems with the title. Problems might include an error in how the title is recorded or dealing with another claim to owning the property.

Title Search Example

Noah's title company is willing to issue him title insurance because they first conducted a thorough records check on the property. If there were any problems, they would have been discovered in the title search.

Transaction Fee Example

Larry took out a home equity line of credit so he could draw money out as needed to complete his home renovation. Every time he withdraws money from the line of credit he may have to pay a flat or percentage-based transaction fee. This helps pay for the servicing of his loan.

Truth-In-Lending Act Example

This act means that no matter where you go to research your loan, you can be assured that each broker will give you clear information about how much you will pay for the loan.

Underwriting Example

The broker for Bill's loan gathers all the information and then sends the data to an underwriter named David. David makes the final decision about whether or not Bill will get the loan.

Underwriting Fee Example

During closing, Bill notices that he is paying a fee to cover the underwriting of the loan. This pays for David, the loan underwriter, to complete the approval process. Underwriting fees are typically reasonable.

Variable Rate Loan Example

A variable rate loan usually changes according to the prime interest rate. This means that your rate could change slightly every time the prime lending rate changes. Typically, a variable rate loan is "prime plus," which means that it might be the prime rate plus 5%. Variable rate loans usually have limits as to how much they can change in a given period of time.

VA (Veterans') Loan Example

A VA Loan is a special government program available to veterans of military service. They usually have desirable interest rates and easy qualification.

Zero Point Option Example

Raymond's loan would normally carry a charge for him at closing of 2 points, which means 2% of the total loan amount. He decides he does not want to pay that at closing, so he chooses a zero point option. Instead of paying the 2 points, he pays a slightly increased interest rate over the term of the loan.