Glossary of Mortgage Terminology

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

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A

Abstract of title

A historical summary provided by a title insurance company of all records affecting the title to a property.

 

Acceleration clause

Allows a lender to declare the entire outstanding balance of a loan immediately due and payable should a borrower violate specific loan provisions or default on the loan.

 

Additional principal payment

Additional principal payment is a way to reduce the remaining balance on the loan by paying more than the scheduled principal amount due.

 

Adjustable rate mortgage (ARM)

A variable or flexible rate mortgage with an interest rate that varies according to the financial index it is based upon. To limit the borrower's risk, the ARM may have a payment or rate cap. See also: Cap.

 

Adjustment cap

Adjustment cap is a set limit on how much the interest rate or the monthly payment can increase, either at each adjustment or during the life of the mortgage. Payment caps don’t limit the amount of interest the lender is earning and may cause negative amortization. See also: Cap.

 

Adjustment date

Adjustment date is the date that the interest rate changes on an adjustable-rate mortgage (ARM).

 

Adjustment period

Adjustment period is the period elapsing between adjustment dates for an adjustable-rate mortgage (ARM).

 

Affordability analysis

Affordability analysis is an analysis of a buyer’s ability to afford the purchase of a home. It includes a review of income, liabilities, and available funds, and considers the type of mortgage you plan to use, the area where you want to purchase a home, and the closing costs that are likely. See also: DTI

 

Amenities

Features of your home that fit your preferences and can increase the value of your property. Some examples include the number of bedrooms, bathrooms, or vicinity to public transportation.

 

Amortization

The liquidation of a debt by regular, usually monthly, installments of principal and interest. An amortization schedule is a table showing the payment amount, interest, principal and unpaid balance for the entire term of the loan.

 

Annual percentage rate (A.P.R.)

The actual interest rate, taking into account points and other finance charges, for the projected life of a mortgage. Disclosure of APR is required by the Truth-in-Lending Law and allows borrowers to compare the actual costs of different mortgage loans.

 

Application fee

Application fee is the cost for applying for a loan or line of credit. This fee may include the cost of pulling a credit report. We do not charge an application fee.

 

Appraisal

An estimate of a property's value as of a given date, determined by a qualified professional appraiser. The value may be based on replacement cost, the sales of comparable properties or the property's ability to produce income.

 

Appraised value

Appraised value is an opinion of a property’s fair market value, based on an appraiser’s knowledge, experience, and analysis of the property.

 

Appreciation

A property's increase in value due to inflation or economic factors.

 

Assessment

Charges levied against a property for tax purposes or to pay for municipality or association improvements such as curbs, sewers, or grounds maintenance.

 

Asset

Asset is anything owned of monetary value including real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, etc.).

 

Assignment

The transfer of a contract or a right to buy property at given rates and terms from a mortgagee to another person.

 

Assumability

Assumability means an assumable mortgage can be transferred from the seller to the new buyer. Generally, it requires a credit review of the new borrower and lenders may charge a fee for the assumption. If a mortgage contains a due-on-sale clause, it may not be assumed by a new buyer.

 

Assumption

An agreement between a buyer and a seller, requiring lender approval, where the buyer takes over the payments for a mortgage and accepts the liability. Assuming a loan can be advantageous for a buyer because there are no closing costs, and the loan's interest rate may be lower than current market rates. Depending on what is in the mortgage or deed of trust, the lender may raise the interest rate, require the buyer to qualify for the mortgage, or not permit the buyer to assume the loan at all.

 

Assumption fee

Assumption fee is paid to a lender (usually by the purchaser of real property) when an assumption takes place.

 

B

Balance sheet

Balance sheet is a financial statement that shows assets, liabilities, and net worth as of a specific date.

 

Balloon Mortgage

Mortgage with a final lump sum payment that is greater than preceding payments and pays the loan in full.

 

Before-tax income

Before-tax income is income before taxes are deducted.

 

Biweekly Mortgage Payment

A loan requiring payments of principal and interest at two-week intervals. This type of loan amortizes much faster than monthly payment loans. The payment for a biweekly mortgage is half what a monthly payment would be.

 

Bond

A certificate serving as security for payment of a debt. Bonds backed by mortgage loans are pooled together and sold in the secondary market.

 

Bridge Loan

A loan to "bridge" the gap between the termination of one mortgage and the beginning of another, such as when a borrower purchases a new home before receiving cash proceeds from the sale of a prior home. Also known as a swing loan.

Broker

An intermediary between the borrower and the lender. The broker may represent several lending sources and may charge a fee or commission for services. Freestone Mortgage is a broker.

Buy-down

Where the buyer or seller pays additional discount points or makes a substantial down payment in return for a below market interest rate; or the seller offers 3-2-1 interest payment plans or pays closing costs such as the origination fee. During times of high interest rates, buy-downs may induce buyers to purchase property they may not otherwise have purchased.

C

Cap

A limit in how much an adjustable rate mortgage's monthly payment or interest rate can increase. A cap is meant to protect the borrower from large increases and may be a payment cap, an interest cap, a life-of-loan cap or an annual cap.

A payment cap is a limit on the monthly payment.
An interest cap is a limit on the amount of the interest rate.
A life-of-loan cap restricts the amount the interest rate can increase over the entire term of the loan.
An annual cap limits the amount the interest rate can increase over a twelve-month period.

Certificate of Eligibility

Certificate of Eligibility is 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 Veteran's Administration appraisal that establishes the maximum VA mortgage loan amount for a specified property.

 

Certificate of Title

Document rendering an opinion on the status of a property's title based on public records.

 

Change Frequency

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

 

Closed-end Mortgage

A mortgage principal amount that is fixed and cannot be increased during the life of the loan. See also: open-end mortgage.

 

Closing

Closing refers to the transfer of ownership from the seller to the buyer. It includes the completion of all necessary paperwork and the payment of closing costs. In a mortgage situation, it also refers to the disbursement of funds from the lender to the seller. In refinancing, closing refers to the final payment of the existing loan with the refinanced loan. Also called “settlement.”

 

Closing Costs

Costs payable by both seller and buyer at the time of settlement, when the purchase of a property is finalized. These costs can be up to ten percent of the mortgage amount. Also known as settlement costs.

 

Cloud

A claim to the title of a property that, if valid, would prevent a purchaser from obtaining a clear title.

Collateral

Something of value pledged as security for a loan. In mortgage lending, the property itself serves as collateral for a mortgage loan.

 

Commitment Fee

A fee charged when an agreement is reached between a lender and a borrower for a loan at a specific rate and points and the lender guarantees to lock in that rate.

 

Co-Mortgagor

One who is individually and jointly obligated to repay a mortgage loan and shares ownership of the property with one or more borrowers. See also: co-signer.

 

Compound Interest

Compound interest is paid on the original principal balance and on the accrued and unpaid interest.

 

Condominium

An individually owned unit within a multi-unit building where others or the Condominium Owners Association share ownership of common areas such as the grounds, the parking facilities, and other shared areas.

 

Conforming Loan

A loan that conforms to Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC) guidelines. See also: non-conforming loan.

 

Construction Loan

A short-term loan financing improvements to real estate, such as the building of a new home. The lender advances funds to the borrower as needed while construction progresses. Upon completion of the construction, the borrower must obtain permanent financing or pay the construction loan in full.

 

Consumer Handbook on Adjustable Rate Mortgages (C.H.A.R.M.)

A disclosure required by the federal government to be given to any borrower applying for an adjustable rate mortgage (ARM).

 

Consumer reporting agency (or bureau)

Consumer reporting agency is an organization that handles the preparation of reports used by lenders to determine a potential borrower’s credit history. The agency gets data for these reports from a credit repository and from other sources.

 

Conventional Loan

A mortgage loan that is not insured, guaranteed or funded by the Veterans Administration (VA), the Federal Housing Administration (FHA) or Rural Economic Community Development (RECD) (formerly Farmers Home Administration).

 

Convertible Mortgage OR Conversion clause

An adjustable rate mortgage (ARM) that allows a borrower to switch to a fixed-rate mortgage at a specified point in the loan term.

 

Co-Signer

One who is obligated to repay a mortgage loan should the borrower default but who does not share ownership in the property. See also: co-mortgagor.

 

Covenants

Rules and restrictions governing the use of property.

 

Curtailments

The borrower's privilege to make payments on a loan's principal before they are due. Paying off a mortgage before it is due may incur a penalty if so specified in the mortgage's prepayment clause.

 

Credit

Credit is the ability of a customer to obtain funds, goods, or services before payment based on the trust that payment(s) will be made in the future.

 

Credit Report

Credit report is a report detailing an individual’s credit history that is prepared by a credit bureau and used by a lender to determine a loan applicant’s creditworthiness.

 

Credit Risk Score

A credit risk score measures a consumer’s credit risk relative to the rest of the U.S. population, based on the individual’s credit usage history. The credit score most widely used by lenders is the FICO® score, developed by Fair, Isaac and Company. This 3-digit number, ranging from 300 to 850, is calculated by a mathematical equation that evaluates many types of information that are on your credit report. Higher FICO® scores represent lower credit risks, which typically equate to better loan terms. In general, credit scores are critical in the mortgage loan underwriting process.

 

D

Debt

Money owed to repay someone.

Debt-to-Income Ratio (DTI)

The ratio between a borrower's monthly payment obligations divided by their net effective income (FHA or VA loans) or gross monthly income (conventional loans).

 

Deed of Trust

A document, used in many states in place of a mortgage, held by a trustee pending repayment of the loan. The advantage of a deed of trust is that the trustee does not have to go to court to proceed with foreclosure should the borrower default on the loan.

Default

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

 

Delinquency

Delinquency is failure to make mortgage payments on time.

 

Department of Housing and Urban Development (HUD)

The U.S. government agency that administers FHA, GNMA and other housing programs.

 

Discount Points OR Discount Fees

Amounts paid to the lender based on the loan amount to buy the interest rate down. Each point is one percent of the loan amount; for example, two points on a $100,000 mortgage is $2,000. Points are commonly paid on both fixed-rate and adjustable-rate mortgages. Points are paid at closing and may be paid by either the borrower or seller of the property, or evenly split between them.

 

Down Payment

The difference between the purchase price and mortgage amount. The down payment becomes the property equity. Typically it should be cash savings, but it can also be a gift that is not to be repaid or a borrowed amount secured by assets.

 

Due-On-Sale

A clause in a mortgage or deed of trust allowing a lender to require immediate payment of the balance of the loan if the property is sold (subject to the terms of the security instrument).

Duplex

Dwelling divided into two units.

E

Earnest Money

Deposit in the form of cash or a note, given to a seller by a buyer as good faith assurance that the buyer intends to go through with the purchase of a property.

 

Easement

The right one party has in regard to the property of another, such as the right of a public utility company to lay lines.

 

Equal Credit Opportunity Act

A federal law prohibiting lenders and other creditors from discrimination based on race, color, sex, religion, national origin, age, marital status, receipt of public assistance or because an applicant has exercised his or her rights under the Consumer Credit Protection Act.

 

Equity

The value of a property beyond any liens against it. Also referred to as owner's interest.

 

Escape Clause

A provision allowing one party or more to cancel all or part of the contract if certain events fail to happen, such as the ability of the buyer to obtain financing within a specified period.

 

Escrow

Money placed with a third party, usually a title company, for safekeeping either for final closing on a property or for payment of taxes and insurance throughout the year.

F

FICO

FICO® stands for Fair Isaac Corporation, which is the creator of the FICO® score. This score is used to make up part of a credit report that lenders use to determine the borrower’s risk when extending a loan.

 

FICO Score

FICO® score is the most widely used credit score in U.S. mortgage loan underwriting. This 3-digit number, ranging from 300 to 850, is calculated by a mathematical equation that evaluates many types of information on your credit report. Higher FICO® scores represent lower credit risks, which typically equate to better loan terms.

 

Fifteen-Year Mortgage

A loan with a term of 15 years. Although the monthly payment on a 15-year mortgage is higher than that of a 30-year mortgage, the amount of interest paid over the life of the loan is substantially less.

 

First Mortgage

First mortgage is the primary lien against a property

 

Fixed-Rate Mortgage

A mortgage whose rate remains constant throughout the life of the mortgage.

 

Flood Insurance

The Federal Flood Disaster Protection Act of 1973 requires that federally-regulated lenders determine if real estate to be used to secure a loan is located in a Specially Flood Hazard Area (SFHA). If the property is located in a SFHA area, the borrower must obtain and maintain flood insurance on the property. Most insurance agents can assist in obtaining flood insurance.

G

Gifted Funds

This includes amounts from a relative or a grant from the borrower's employer, a municipality, non-profit religious organization, or non-profit community organization that does not have to be repaid.

 

Good Faith Estimate (GFE)

Estimate on closing costs and monthly mortgage payments provided by the lender to the homebuyer within 3 days of applying for a loan.

Graduated Payment Mortgage (GPM)

A fixed-interest loan with lower payments in the early years than the later years. The amount of the payment gradually increases over a period of time and then levels off at a payment sufficient to pay off the loan over the remaining amortization period.

H

 

Hazard Insurance

A form of insurance that protects the insured property against physical damage such as fire and tornadoes. Mortgage lenders often require a borrower to maintain an amount of hazard insurance on the property that is equal at least to the amount of the mortgage loan.

 

Home Equity

Home equity is the difference between the appraised value of your home and the remaining balance of your mortgage loan. Also called equity.

 

Home Equity Line Of Credit

A Home Equity Line of Credit (HELOC) is a revolving line of credit secured by the equity in your home. It's similar to a credit card, allowing you to borrow money as needed up to a set limit and repay it as you go, then redraw the funds. You only pay interest on the amount you borrow. HELOCs typically have a draw period (when you can borrow and repay) followed by a repayment period.

 

Home Equity Loan

A mortgage on the borrower's principal residence, usually for the purpose of making home improvements or debt consolidation.

 

Home Inspection

A thorough review of the physical aspects and condition of a home by a professional home inspector. This inspection should be completed prior to closing so that any repairs or changes can be completed before the home is sold.

Homeowners Insurance

A form of insurance that protects the insured property against loss from theft, liability and most common disasters.

 

Housing and Urban Development. (HUD)

The U.S. government agency that administers FHA, GNMA and other housing programs.

 

Housing Affordability Index

Indicates what proportion of homebuyers can afford to buy an average-priced home in specified areas. The most well known housing affordability index is published by the National Association of Realtors.

 

HUD-1 Statement

HUD-1 statement is a document that provides an itemized listing of the funds that are payable at closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow amounts. Each item on the statement is represented by a separate number within a standardized numbering system. The totals at the bottom of the HUD-1 statement define the seller’s net proceeds and the buyer’s net payment at closing.

I

 

Income Approach to Value

A method used by real estate appraisers to predict a property's anticipated future income. Income property includes shopping centers, hotels, motels, restaurants, apartment buildings, office space and so forth.

 

Index

A published interest rate compiled from other indicators such as U.S. Treasury bills or the monthly average interest rate on loans closed by savings and loan organizations. Mortgage lenders use the index figure to establish rates on adjustable-rate mortgages (ARMs).

 

Interest

The amount of the entire mortgage loan which does not include the principal. Also, as a part of PITI, the amount of the monthly mortgage payment which does not include the principal, taxes, and insurance.

 

Interest Rate

The simple interest rate, stated as a percentage, charged by a lender on the principal amount of borrowed money. See also: Annual Percentage Rate

 

Installment

Installment is the regular periodic payment that a borrower agrees to make to a lender.

 

Insured Mortgage

Insured mortgage is a mortgage that is protected by the Federal Housing Administration (FHA) or by private mortgage insurance (MI).

 

Interest-Only Mortgage

Interest-only mortgage is a mortgage that gives the borrower the option of paying only the interest portion of a payment without paying on the principal balance.

 

Interest Rate Ceiling

Interest rate ceiling for an adjustable-rate mortgage (ARM) is the maximum interest rate, as specified in the mortgage note.

 

Interest Rate Floor

Interest rate floor for an adjustable-rate mortgage (ARM) is the minimum interest rate, as specified in the mortgage note.

 

J

Jumbo Loan

A nonconforming loan that is larger than the limits set by the Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC) guidelines.

 

K

Key Lot

Real estate deemed highly valuable because of its location.

 

L

 

Late Charge

Late charge is the penalty a borrower must pay when a payment is made a stated number of days (usually 15) after the due date.

 

Lease-Purchase Mortgage Loan

Lease-purchase mortgage loan is an alternative financing option that allows low- and moderate-income home buyers to lease a home with an option to buy. Each month’s rent payment consists of principal, interest, taxes, and insurance (PITI) payments on the first mortgage plus an extra amount that accumulates in a savings account for a down payment.

 

Liabilities

Liabilities are a person’s financial obligations. Liabilities include long-term and short-term debt.

 

Life-Cap

Life-cap refers to the interest rate on a home equity line of credit (HELOC). Because you secure your credit line at the risk of your home, home equity lines of credit are required by law to have a ceiling on how high the variable interest rate can climb over the term.

 

Lien

A claim against a property for the payment of a debt. A mortgage is a lien; other types of liens a property might have include a tax lien for overdue taxes or a mechanics lien for unpaid debt to a subcontractor.

 

Liquidity OR Liquid Asset

The capability of an asset to be readily converted into cash.

 

Loan

Loan is a sum of borrowed money (principal) that is generally repaid with interest.

 

Loan-to-Value Ratio (LTV)

The relationship, expressed as a percentage, between the amount of the proposed loan and a property's appraised value. For example, a $75,000 loan on a property appraised at $100,000 is a 75% loan-to-value.

 

Lock-In Rate:

The guarantee of a specific interest rate and/or points for a specific period of time. Some lenders will charge a fee for locking in an interest rate.

 

Lock-In Period

Lock-in period is the guarantee of an interest rate for a specified period of time by a lender, including loan term and points, if any, to be paid at closing. Short-term locks (under 21 days) are usually available after lender loan approval only. However, many lenders may permit a borrower to lock a loan for 30 days or more prior to submission of the loan application.

 

M

Maintenance Costs

The cost of the upkeep of the house. These costs may be minor in cost and nature (replacing washers in the faucets) or major in cost and nature (new heating system or a new roof) and can apply to either the interior or exterior of the house.

 

Margin

The amount a lender adds to the index of an adjustable rate mortgage to establish an adjusted interest rate. For example, a margin of 1.50 added to a 7 percent index establishes an adjusted interest rate of 8.50 percent.

 

Market Value

The price a property can realistically sell for, based upon comparable selling prices of other properties in the same area.

 

Maturity OR Maturity Event

Maturity is the date on which the principal balance of a loan becomes due and payable.

Modification

A change in the terms of the mortgage note, such as a reduction in the interest rate or change in maturity date.

 

Mortgage

A legal instrument in which property serves as security for the repayment of a loan. In some states, a deed of trust is used rather than a mortgage.

 

Mortgage Banker

A lender that originates, closes, services and sells mortgage loans to the secondary market.

 

Mortgage Broker

An intermediary between a borrower and a lender. A broker's expertise is to help borrowers find financing that they might not otherwise find themselves.

 

Mortgage Insurance

Money paid to insure the lender against loss due to foreclosure or loan default. Mortgage insurance is required on conventional loans with less than a 20 percent down payment. FHA mortgage insurance requires a payment of 1.5 percent of the loan amount to be paid at closing, as well as an annual fee of 0.5 percent of the loan amount added to each monthly payment.

 

Mortgage Interest Premium (MIP)

Interest rate charge for borrowing the money for the mortgage. It is a used to calculate the interest payment on the mortgage each month.

 

Mortgage Life Insurance

Mortgage life insurance is a type of term life insurance. In the event that the borrower dies while the policy is in force, the debt is automatically paid by insurance proceeds.

 

Mortgage Term

The length of time that a mortgage is scheduled to exist. Example: a 30-year mortgage term is for 30 years.

 

Mortgagee

The lender.

 

Mortgagor

The borrower.

 

N

Negative Amortization

A situation in which a borrower is paying less interest than what is actually being charged for a mortgage loan. The unpaid interest is added to the loan's principal. The borrower may end up owing more than the original amount of the mortgage.

 

Non-Assumption Clause

In a mortgage contract, a statement that prohibits a new buyer from assuming a mortgage loan without the approval of the lender.

 

Non-Conforming Loan

A loan that does not conform to Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC) guidelines. Jumbo loans are nonconforming.

 

Note

A signed document that acknowledges a debt and shows the borrower is obligated to pay it.

 

O

 

Open-End Mortgage

A mortgage allowing the borrower to receive advances of principal from the lender during the life of the loan.

 

Origination Fee

The amount charged by a lender to originate and close a mortgage loan. Origination fees are usually expressed in points.

 

Owner Financing OR Seller Carry-Back

Owner financing is a property purchase transaction in which the party selling the property provides all or part of the financing.

 

P

Payoff Amount

Payoff amount is the cash amount that will completely pay off your loan.

P&I

Abbreviation for principal and interest.

 

PITI

Abbreviation for principal, interest, taxes, and insurance.

Points

Charges levied by the lender based on the loan amount. Each point equals one percent of the loan amount; for example, two points on a $100,000 mortgage is $2,000. Discount points are used to buy down the interest rate. Points can also include a loan origination fee, which is usually one point.

 

Pre-Approval

Pre-approval is a written commitment from a lender to extend a mortgage to you up to a specific amount for a specific time. It involves an analysis of your financial status and credit history.

Prepayment Penalty

Prepayment penalty is a fee that may be charged to a borrower who pays off a loan or refinances before it’s due.

Pre-Qualification

Tentative establishment of a borrower's qualification for a mortgage loan amount of a specific range, based on the borrower's assets, debts, and income.

 

Prime Rate

The interest rate commercial banks charge their most creditworthy customers.

 

Principal

The amount of the entire mortgage loan, not counting interest. Also, as a part of PITI, the amount of the monthly mortgage payment which does not include the interest, insurance, and taxes.

private mortgage insurance (PMI)

 

Property Tax

The amount which the state and/or locality assesses as a tax on a piece of property.

 

Prorate

To proportionally divide amounts owed by the buyer and the seller at closing.

 

Q

Qualification

As determined by a lender, the ability of the borrower to repay a mortgage loan based on the borrower's credit history, employment history, assets, debts and income.

 

R

Rate Lock

Rate lock is a promise from the mortgage lender to hold a specific combination of an interest rate and points for an agreed upon time (typically 10, 15, 30, 45 or 60 days) until the borrower can close on their home purchase. To hold rates for longer periods of time, it typically requires more points or higher interest rates.

Real Estate Agent

Real estate agent is a person licensed to negotiate and transact the sale of real estate on behalf of the property owner.

 

Real Estate Settlement Procedures Act (RESPA)

Allows consumers to review settlement costs at application and once again prior to closing.

Recording

Recording is the noting in the registrar’s office of the details of a properly executed legal document, such as a deed, a mortgage note, a satisfaction of mortgage, or an extension of mortgage, thereby making it a part of the public record.

 

Refinance

Refinance means paying off one loan with the proceeds from a new loan using the same property as security. This may be done to receive more favorable rates, lower payments, or a decreased term. It may also be done to receive additional cash.

 

Reverse Mortgage

A type of mortgage loan in which the lender makes periodic payments to the borrower. The borrower's equity in the home is used as security for the loan.

 

Right of First Refusal

Purchasing a property under conditions and terms made by another buyer and accepted by the seller.

 

Right of Rescission

When a borrower's principal dwelling is going to secure a loan, the borrower has three business days following signing of the loan documents to rescind or cancel the transaction. Any and all money paid by the borrower must be refunded upon rescission. The right to rescind does not apply to loans to purchase real estate or to refinance a loan under the same terms and conditions where no additional funds will be added to the existing loan.

Rollover

Typically refers to the process of extending or renewing an existing mortgage at the end of its term. When a mortgage reaches the end of its agreed-upon term (often 1-5 years), the remaining balance can be refinanced for another term at the current interest rate. This may involve negotiating new terms and conditions.

 

S

Second Mortgage

A loan that is junior to a primary or first mortgage and often has a higher interest rate and a shorter term.

 

Secondary Market

A market comprising investors like GNMA, FHLMC and FNMA, which buy large numbers of mortgages from the primary lenders and sell them to other investors. It is where existing mortgages are bought and sold.

 

Secured Overnight Financing Rate (SOFR)

SOFR stands for Secured Overnight Financing Rate, and it’s a benchmark interest rate used to measure the cost of borrowing cash overnight that’s collateralized by U.S. Treasury securities. Financial institutions use SOFR to set interest rates for other businesses and borrowers.

 

Servicing

The responsibility of collecting monthly mortgage payments and properly crediting them to the principal, taxes and insurance, as well as keeping the borrower informed of any changes in the status of the loan.

 

Survey

A physical measurement of property done by a registered professional showing the dimensions and location of any buildings as well as easements, rights of way, roads, etc.

 

T

 

Tax Deed

A written document conveying title to property repossessed by the government due to default on tax payments.

Tax Savings

The amount of money that the homeowner is not required to pay the government in taxes because they own a home.

 

Term

Term is the amount of time used to calculate the monthly mortgage payments. The term is usually the time it takes for a loan to reach maturity.

 

Tenancy

Joint Tenancy - equal ownership of property by two or more parties, each with the right of survivorship.
Tenancy by the Entireties - ownership of property only between husband and wife in which neither can sell without the consent of the other and the property is owned by the survivor in the event of death of either party.
Tenancy in common - equal ownership of property by two or more parties without the right of survivorship.
Tenancy in severalty - ownership of property by one legal entity or a sole party.
Tenancy at will - a license to use or occupy a property at the will of the owner.

 

Title

A formal document establishing ownership of property.

 

Title Insurance

A policy issued by a title insurance company insuring the purchaser against any errors in the title search. The cost of title insurance may be paid for by the buyer, the seller or both.

 

Third-Party Origination

Third-party origination is when a lender uses another party to completely or partially originate, process, underwrite, close, fund, or package the mortgages it plans to deliver to the secondary mortgage market.

 

Treasury Index

Treasury index is used to determine interest rate changes for certain adjustable-rate mortgages (ARMs). Based on the results of auctions that the U.S. Treasury holds for its Treasury bills and securities or derived from the U.S. Treasury’s daily yield curve, which is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market.

 

Truth In Lending Act (TILA)

The Truth In Lending Act requires lenders to disclose the Annual Percentage Rate and other associated costs to homebuyers within three working days of the loan application.

 

U

Underwriter

A professional who approves or denies a loan to a potential homebuyer based on the homebuyer's credit history, employment history, assets, debts and other factors such as loan guidelines.

 

Underwriting

Underwriting is the process of evaluating a loan application to determine the risk involved for the lender. Underwriting involves an analysis of the borrower’s creditworthiness and the quality of the property itself.

USDA Loan

USDA loan is a loan guaranteed by the U.S. Department of Agriculture that can be used to buy or repair a home in designated rural areas.

Uniform Settlement Statement

A standard document prescribed by the Real Estate Settlement Procedures Act containing information for closing which must be supplied to both buyer and seller.

 

Utility Costs

Periodic housing costs for water, electricity, natural gas, heating oil, etc.

 

V

Variable Rate Mortgage (VRM)

See: adjustable rate mortgage

Veterans Administration (VA) Loan

The federal agency responsible for the VA loan guarantee program as well as other services for eligible veterans. In general, qualified veterans can apply for home loans with no down payment and a funding fee of 1 percent of the loan amount.

 

W

Walk-Through

An inspection of a property by the prospective buyer prior to closing on a mortgage.

 

Warranty Deed

A document protecting a homebuyer against any and all claims to the property.

X

 

 

Y

 

Yield

The rate of earnings from an investment.

 

Z

 

Zero Point/Zero Fee Loan

Zero point/zero fee loan is a loan where you pay no points or fees upfront. You pay a higher interest rate, and the lender pays the closing costs. In the 1990s, this was a popular loan for first-time buyers and refinancing, but it was not advantageous for people wanting to stay in their dwelling for a long period of time.

Zoning

The ability of local governments to specify the use of private property in order to control development within designated areas of land. For example, some areas of a neighborhood may be designated only for residential use and others for commercial use such as stores, gas stations, etc.