This mortgage dictionary was compiled to help you have a better understanding of the mortgage terms you will most frequently encounter during your mortgage process. If you have any questions about these terms listed here, or a question about a mortgage term not listed here, then please contact Northside Mortgage, Inc. at (773) 286-5800 for more information.
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Adjustable Rate Mortgage (ARM): A mortgage that changes interest rate periodically according to a pre-selected index. The 3 most popular are based on the 1 Year Treasury Bill, the Cost of Funds Index (COFI) and the London InterBank (LIBOR). There is a new index, the Cost of Savings Index (COSI) that is extremely stable and offers many benefits to the savvy home owner.
Adjustment Date: The date on which the interest rate changes for an Adjustable Rate Mortgage (ARM).
Adjustment Period: The period of time between the adjustment dates for an Adjustable Rate Mortgage (ARM). There are hybrid ARMs that allow for longer fixed periods. For example a 3/1 ARM is fixed for the first 3 years and from there after adjusts yearly.
Amortization: The systematic and continuous payment of a mortgage loan by installments to cover the principal and interest.
Amortization Term: The amount of time required to amortize the mortgage loan. The amortization term is expressed as a number of months. For example, for a 30-year fixed-rate mortgage, the amortization term is 360 months, so in 360 months the mortgage loan will be completely paid off.
Annual Percentage Rate (APR): An interest rate that reflects the cost of a mortgage stated as a yearly rate. The APR rate is usually higher than the stated note rate because it includes such items as interest, mortgage insurance, and loan origination fees (points).
Application Fee: A sum of money paid for estimated initial mortgage processing expenses such as appraisal and credit report.
Appraisal: A written report of the estimated value of a property prepared by a certified real estate appraiser.
Appreciation: An increase in the value of a property due to changes in market conditions or other causes (such as home improvements).
Asset: Anything of monetary value that is owned by a person. Assets include real property, personal property, bank accounts, stocks, bonds, mutual funds, etc.
Assessed Valuation: The value that a taxing authority places on real property for the purpose of determining the amount of taxation for that property.
Assessment: A charge against a property for the purposes of taxation. This may be in the form of a levy for a special purpose or a tax in which the property owner pays a share of the cost of community improvements according to the assessed valuation of the property.
Balloon Mortgage: A mortgage that is usually a short-term fixed-rate loan with level monthly payments that will amortize it over a stated term but 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.
Bankruptcy: A proceeding in a federal court in which a debtor who owes more than his or her assets, can relieve the debts by surrendering his or her assets to a Bankruptcy Court. After bankruptcy, the debtor is discharged and his or her unsecured creditors may not pursue further collection efforts against him or her. Secured creditors continue to be secured by the property, but they may not take any other action to collect from the debtor.
Beneficiary: The person designated to receive the income from a trust, estate, or a deed of trust. A contingent beneficiary has conditions attached to their rights.
Binder: A preliminary agreement, secured by the payment of an earnest money deposit, in which a buyer offers to purchase real estate.
Bi-weekly Payment Mortgage: A mortgage that requires payments every two weeks (instead of the standard monthly payment schedule). The 26 (or possibly 27) bi-weekly 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 required to be on an automatic payment system directly from the borrower's bank account. The benefit for the borrower is a substantial savings in interest.
Bridge Loan (AKA, Swing 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 of that sale to be used for payment of the closing costs on a new house before the present home is sold. The mortgage payment on the present property typically is not counted when determining your ratios for your new home.
Buy-Down: A payment to the lender from the seller, buyer, or third party which will cause the lender to reduce the interest rate for either the entire life of the loan (permanent) or during the first few years of the loan (temporary).
Call Option: A provision in the mortgage that gives the mortgagee (the lender) the right to call the mortgage due and payable at the end of a specified period for whatever reason.
Caps: A consumer safeguard of an Adjustable Rate Mortgage (ARM) that limits how much the interest rate or mortgage payments may increase or decrease.
Capital Improvement: Any structure or component erected as a permanent improvement to real property that adds to its value and useful life.
Cash-out Refinance: A refinance transaction in which the amount of money received from the new loan is in excess of the total 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, such as college tuition, paying off high interest rate credit card debt, etc. The maximum loan to value for a cash-out refinance is 80% to avoid the requirement of mortgage insurance.
Caveat Emptor: "Buyer Beware" - The buyer must inspect the property he or she wants to purchase and satisfy themselves that it is adequate for their needs. The seller is under no obligation to disclose defects of the property, but the seller may not actively conceal a known defect or lie about the defect if asked about it.
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 the 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 the ownership of the property.
Closing: A meeting between the buyer, seller, and lender or their agents where the property and funds legally change hands. Also called "settlement."
Closing Costs: Expenses (over and above the price of the property) incurred by the buyers and usually include an origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at the settlement. The average cost of closing is usually about 1 to 3 percent of the mortgage amount but varies depending on the area of the country.
Closing Statement: Also referred to as the HUD1. The final statement of itemized 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.
Co-Borrower: Additional borrower(s) whose income and credit contributes to qualifying for the loan and whose name(s) appears on the loan documents with equal legal obligations.
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.
Commitment Fee: Any fee paid by a potential borrower to a lender for the lender's guarantee to lend money at a specified rate and within a specified time period.
Commitment Letter: A formal written offer by a lender stating the terms (such as amount, interest rate, etc.) under which it agrees to lend money to a borrower. 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.
Community Home Improvement Mortgage Loan: An alternative financing option that allows low- and moderate-income home buyers to obtain 95 percent financing for the purchase and improvement of a home in need of modest repairs. The repair work can account for as much as 30 percent of the appraised value.
Community Property: In some western and southwestern states, community property is a form of ownership under which property acquired during a marriage is presumed to be jointly owned unless it was acquired as separate property of either spouse.
Community Property ROS (Right of Survivorship): Community property with the common law right of survivorship (ROS), so that if one dies, then the other automatically inherits the property.
Comparables: An abbreviation for "comparable properties" which are used for comparative purposes in the property appraisal process. Comparables are properties that are similar to 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. Each individual owner may sell or encumber his/her own unit.
Condominium Conversion: Changing the ownership of an existing building (usually a rental project like an apartment building) to the condominium form of ownership.
Conforming Mortgage Loan: A mortgage loan that conforms to regulatory limits such as loan-to-value ratio, term, and other characteristics. These mortgages are eligible for sales and delivery to either Fannie Mae or Freddie Mac.
Construction Loan: A short-term, interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the construction work progresses.
Construction-Permanent Loan: A construction loan that automatically converts to a regular mortgage (referred to as “permanent” financing) once construction has been completed.
Consumer Reporting Agency (or Bureau): An organization that prepares reports that are used by lenders to determine a potential borrower's credit history. The agency obtains data for these reports from a credit repository (see definition) as well as from other sources.
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.
Conventional Mortgage: A mortgage that is not obtained under a federal government insured program, such as FHA or VA.
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 the loan origination.
Convertible ARM: An Adjustable Rate Mortgage (ARM) that can be converted to a fixed-rate mortgage as specified in the convertibility clause.
Cost of Funds Index (COFI): An index that is used to determine interest rate changes for certain Adjustable Rate Mortgages (ARMs). It represents the weighted-average cost of savings, borrowings, and advances of the 11th District members of the Federal Home Loan Bank of San Francisco.
Covenant: A clause in a mortgage that obligates or restricts the borrower on the use of land or promising certain acts and if violated, can result in foreclosure. For example, homeowners associations often enforce restrictive covenants governing the architectural controls (such as how the house is built and what the house can look like) and maintenance responsibilities. However, land could be subject to restrictive covenants even if there is no homeowner's association.
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 detailing an individual's credit history and current status of an individual's credit standing prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness.
Credit Repository: An organization that gathers, records, updates, and stores financial and public records information about the payment records of individuals who are being considered for credit.
Debt-to-Income Ratio: The ratio, expressed as a percentage, which results when a borrower's total monthly payment obligation on long-term debts is divided by his or her net effective income (for FHA or VA loans) or gross monthly income (for conventional loans).
Deed: The legal document conveying title to a property.
Deed-in-Lieu: A deed given by the mortgagor to the mortgagee to satisfy a debt and avoid foreclosure.
Deed of Trust: A document used in some states in place of a mortgage. Property is transferred to a trustee by the borrower (trustor), in favor of the lender (beneficiary) and reconveyed upon payment in full.
Default: Failure to make mortgage payments on a timely basis or failure to comply with other requirements of the mortgage.
Delinquency: Failure to make mortgage payments when mortgage payments are due, but still within the period allowed before actual default is declared.
Delivery: The final, unconditional and absolute transfer of a deed to the Grantee so that the Grantor may not revoke it.
Department of Veterans Affairs: An independent agency of the federal government which guarantees long-term, low- or no-down payment mortgages to eligible veterans.
Deposit: A sum of money given to bind the sale of real estate (AKA, earnest money), 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 brought about by age, physical deterioration, functional or economic obsolescence, etc.
Discount Point: An amount payable to the lending institution by the borrower or seller to increase the lender's effective yield. One point = 1% of the loan amount.
Discounted Loan: When the note rate on a loan is less than the market rate, the lender requires additional points to raise the yield on the loan to the market rate.
Down Payment: The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.
Due-on-Interest Provision: A provision in a mortgage that allows the lender to call the loan due and payable at its option upon the transfer of the property.
Due-on-Sale Provision: A provision in a mortgage that allows the lender to demand immediate payment in full of the remaining mortgage balance if the borrower sells the property that serves as security for the mortgage.
Earnest Money Deposit: Money given by a buyer to a neutral third party (i.e., title company) as part of the purchase price 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 for a specific limited purpose.
Effective Age: A real estate 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 Gross Income: Normal annual income (before taxes) including overtime that is regular or guaranteed. The income may be from more than one source. Salary is generally the principal source, but other income may qualify if it is significant and stable.
Eminent Domain: The power of the state to take private property for public use upon payment of just compensation.
Encroachment: The physical intrusion of a structure or improvement on the land of another. For example, a neighbor's fence or driveway that crosses over your property line.
Encumbrance: Anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements, or restrictions.
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, receipt of income from public assistance programs, or past exercising of rights under the Consumer Credit Protection Act.
Equity: The difference between the fair market value of the property and the amount still owed on its mortgage.
Escrow: Funds and documents that are set aside and held in trust by a third party, usually for payment of taxes and insurance on real property. 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 account in which a mortgage servicer holds the borrower's escrow payments prior to paying property expenses.
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 servicer 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 servicer 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.
Estate: The ownership interest of an individual in real property. The sum total of all the real property and personal property owned by an individual at time of death.
Examination of Title: The report on the title of a property from the public records or an abstract of the title.
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. Also, if a lender is rejecting a loan request because of adverse credit information, then the lender is required to inform the borrower of the source of that information.
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 (Federal National Mortgage Association - FNMA): A congressionally chartered, shareholder-owned company that is the nation's largest supplier of home mortgage funds. It was created by Congress to support the secondary mortgage market. It purchases and sells residential mortgages insured by FHA or guaranteed by the VA as wells as conventional home mortgages.
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 for a down payment to purchase a home. Borrowers who participate in this model are required to attend pre-purchase home-buyer education sessions.
Farmers Home Administration (FmHA): Agency that provides financing to farmers and other qualified borrowers who are unable to obtain loans elsewhere.
Federal Housing Administration (FHA): An agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity is the insuring of residential mortgage loans made by private lenders. The FHA sets standards for construction and underwriting but does not lend money or plan or construct housing.
Fee Simple: The greatest possible interest a person can have in real estate.
FHA Mortgage: A mortgage that is insured by the Federal Housing Administration (FHA) open to all qualified home buyers. While there are limits to the size of FHA loans, they are generous enough to handle moderately-priced homes almost anywhere in the country. Also known as a government mortgage.
FHA Mortgage Insurance: A required small fee paid at closing or a portion of this fee may be added to each monthly payment of an FHA loan to insure the loan with FHA. In addition, FHA mortgage insurance requires an annual fee of .5% of the current loan amount, paid in monthly installments. The lower the down payment, the more years the fee must be paid.
Firm Commitment: A promise from a lender to make a mortgage loan.
First Mortgage: A mortgage that is the primary lien against a property and has priority over any subsequently recorded mortgages.
Fixed Rate Mortgage (FRM): A mortgage in which the interest rate does not change during the entire term of the loan.
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. Also known as repossession of property.
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.
Gift Letter: A written explanation signed by the individual giving the gift stating that it is a bona fide gift of money and there is no obligation to repay the money at any time.
Good Faith Estimate: An estimate of charges which a borrower is likely to incur during settlement.
Graduated Payment Mortgage (GPM): A type of mortgage where the payments increase for a specified period of time and then level off to consistent payments. This type of mortgage involves negative amortization.
Gross Monthly Income: Your total monthly income earned before taxes are deducted, which is why it is also known as before-tax income.
Hazard Insurance: Insurance protecting against loss to real estate caused by fire, some natural causes, vandalism, etc., depending upon the terms of the policy.
Homeowners' Association Dues: Fees imposed by condominium or homeowners' associations for maintenance of common areas.
Housing Expenses-to-Income Ratio: The ratio of the monthly housing payment in total (PITI - Principal, Interest, Taxes, and Insurance) divided by the gross monthly income (for conventional loans) or net effective income (for FHA/VA loans). This ratio is also sometimes referred to as the top ratio or front end ratio.
HUD: The U.S. Department of Housing and Urban Development.
Index: A published interest rate to which the interest rate on an Adjustable Rate Mortgage (ARM) is tied. Some commonly used indices include the 1 Year Treasury Bill, 6 Month LIBOR, and the 11th District Cost of Funds (COFI) and they are used to determine the adjustment to the interest rate on ARMs.
Insured Loan: A loan insured by FHA or a private mortgage insurance company (PMI).
Interest Rate: The percentage of a loan amount which is paid for being allowed to use the loan amount for a specified time.
Interim Financing: A construction loan made during construction of a building or a project. A permanent loan typically replaces the construction loan once the building is completed.
Investment Property: Real estate owned with the intent of supplementing one's income and is not intended for owner occupancy (i.e., rental houses, apartment buildings, etc).
Joint Ownership Agreement: An agreement between owners defining their rights, ownership, monetary obligations and responsibilities.
Joint Tenancy: Two or more persons own a property. Joint tenants with common law right of survivorship means that the survivor inherits the property without reference to the deceased's will. Creditors may sue to have the property divided to settle claims against one of the owners.
Jumbo Mortgage: A loan which is larger than the limits (currently $240,001 and above) set by Fannie Mae and Freddie Mac. Because jumbo loans cannot be funded by these two agencies, they may carry a higher interest rate.
Lien: A legal claim or attachment against property as security for payment of an obligation. Liens may be either voluntary or involuntary, but all liens must be removed in order to clear the title.
Lifetime Cap: A provision of an Adjustable Rate Mortgage (ARM) that limits the highest rate that can occur over the life of the loan.
Loan-to-Value Ratio (LTV): The ratio of the amount of your loan to the appraised value of the home. The LTV will affect loan programs available to the borrower and generally, the lower the LTV the more favorable the terms of the loan programs offered by lenders.
Lock-In: AKA, Rate Lock Option. A written agreement guaranteeing the home buyer a specified interest rate provided the loan is closed within a set period of time, usually within 60 days. The lock-in also usually specifies the number of points to be paid at closing.
Margin: The number of percentage points a lender adds to the index value to calculate the Adjustable Rate Mortgage (ARM) interest rate at each adjustment period. A representative margin would be 2.75%.
Maturity: The termination or due date on which final payment on a loan must be paid in full.
Mortgage: A legal document that pledges a property to the lender as security for payment of the loan for that property.
Mortgage Broker: An individual who is in the business of assisting in the arranging of funding for clients with lenders. The broker, himself, does not loan the money.
Mortgage Disability Insurance: A disability insurance policy which will pay the monthly mortgage payment in the event of a covered disability of an insured borrower for a specified period of time.
Mortgage Insurance (MI): Insurance written by an independent mortgage insurance company protecting the mortgage lender against loss incurred by a mortgage default. It is usually required for loans with an loan-to-value (LTV) ratio greater than 80%.
Mortgagee: The mortgage lender.
Mortgagor: The mortgage borrower.
Negative Amortization: This type of amortization occurs 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, which may cause the home buyer to owe more than the original amount of the loan.
Net Effective Income: The borrower's gross income after taxes have been deducted.
No Income Verification Loan (NIV): A loan that does not require income verification.
Non-Assumption Clause: A statement in a mortgage contract forbidding the assumption of the mortgage (AKA, assumable loan) without the prior approval of the lender.
Non-Conforming Loan: AKA, jumbo loan. Conventional home mortgages not eligible for sale and delivery to either Fannie Mae (FNMA) or Freddie Mac (FHLMC) because of various reasons, including loan amount, loan characteristics or underwriting guidelines. Non-conforming loans usually incur a rate and origination fee premium. The current non-conforming loan limit is $240,001 and above.
Note: A written agreement containing a promise of the signer to pay to a named person, or order, or bearer, a definite sum of money at a specified date or on demand.
Origination Fee: A fee imposed by a lender to cover certain processing expenses in connection with making a real estate loan. It is usually stated as a percentage of the loan amount, such as one percent (or point).
Owner Financing: A property purchase transaction in which the property seller provides all or part of the financing.
PITI: Principal, interest, taxes and insurance which are the components of a monthly mortgage payment.
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.
Points: Charges levied by the mortgage lender and usually payable at closing. 1 point = 1% of the face value of the mortgage loan.
Prepaid Expenses: Those expenses of property which are paid in advance (and placed in escrow accounts) of their due date and will usually be prorated upon sale, such as taxes, insurances, etc.
Prepayment Penalty: 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.
Primary Residence: A residence which the borrower intends to occupy as the principle residence (where they will live most of the time).
Principal: The 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) ratio greater than 80%.
Processing: The preparation of a mortgage loan application and supporting documentation to be delivered to a lender for their consideration.
PUD (Planned Unit Development): A planned combination of diverse land uses, such as housing, recreation, and shopping all in one contained development or subdivision.
Purchase Contract (Agreement or Offer): An agreement between the buyer and the seller of the property, which sets forth the price and terms of the sale. Also known as a sales contract.
Qualifying Ratios: The ratio of your 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 student loans, car loans, or credit card payments.
Quitclaim Deed: A deed releasing whatever interest you may hold in a property but making no warranty whatsoever.
Rate Cap: A limit on how much the interest rate can change, either at each adjustment period or over the life of the loan on Adjustable Rate Mortgages (ARMs).
Rate Lock-In Option: A written agreement in which the lender guarantees the borrower a specified interest rate, provided the loan closes within a set period of time, usually within 60 days.
Real Assets: Real estate or real property owned by an individual or business.
Real Estate Settlement Procedures Act (RESPA): A Federal law requiring lenders to provide home mortgage borrowers with information on known or estimated settlement costs. It also establishes guidelines on escrow account balances and the disclosure of settlement costs.
Rebate: Compensation received from a wholesale lender which can be used to cover closing costs or as a refund to the borrower. Loans with rebates often carry higher interest rates than loans with points.
Recision: With respect to mortgage refinancing, the law gives the homeowner 3 days to cancel a contract in some cases once it is signed if the transaction uses equity in the home as security.
Recording Fees: Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records.
Refinancing: The process of paying off one loan with the proceeds from a new loan using the same property as security.
Residential Mortgage Credit Report (RMCR): A report requested by your lender that utilizes information from at least two of the three national credit bureaus and information provided on your loan application.
Satisfaction of Mortgage: The recordable instrument issued by the lender verifying full payment of a mortgage debt.
Secondary Residence (Second Home): A residence other than the borrower's primary residence which the borrower intends to occupy for a portion of each year and it must be suitable for year-round occupancy.
Second Mortgage: A mortgage made subsequent to the first mortgage and is always subordinate to the first mortgage.
Security: In lending, security refers to the collateral given, deposited, or pledged to secure the payment of the loan.
Seller Carry Back: An agreement in which the owner of a property provides financing, often in combination with an assumed mortgage.
Simple Interest: Interest which is computed only on the principal balance.
Survey: A print, prepared by a registered surveyor, 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.
Tenants-by-the-Entirety: A husband and wife own the property with the common law right of survivorship (ROS), so that if one dies, then the other automatically inherits the property.
Tenants-in-Common: An undivided interest in property taken by two or more persons. The interest need not be equal and upon death of one or more persons, there is no right of survivorship, so if one dies, then his/her interest passes to his/her heirs and not necessarily to the co-owner(s).
Term: The time limit within which a loan must be repaid.
Title: The document that provides legal evidence that the person has the right to the possession of the land.
Title Insurance: Insurance against loss resulting from defects of title to a specifically described parcel of real property.
Title Search: An investigation of public records into the history of ownership of a property to check for liens, unpaid claims, restrictions or problems, to prove that the seller can transfer free and clear ownership.
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.
Underwriting: Analysis of risk and setting of an appropriate rate and term for a mortgage on a given property for given borrowers.
Usury: Interest charged in excess of the legal rate established by law.
Veterans Administration (VA): A government agency guaranteeing mortgage loans with no down payment to qualified veterans.
VA Mortgage Funding Fee: A premium of up to 3.0% (depends on down payment amount) which is paid on a VA-backed loan.
Verification of Deposits (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.
Zero Point Option: An option which allows the borrower not to pay the points associated with the loan origination fee, but this savings is offset by a slightly higher loan interest rate.
Copyright © 2002 Northside Mortgage, Inc.