1003

The term used for a standard residential mortgage application.

1031 Exchange

A tax strategy to postpone capital gains from sold property to new property.

2055 Exterior

A limited appraisal that gives an estimate of fair market value without inspecting inside the home.

2055 Interior

A limited appraisal that gives an estimate of fair market value.

2075

Appraisal form that photographs the property but does place a value on the property. This can be ordered if a lender’s automated system accepts the value entered and allows for only a 2075. This type of appraisal costs less.

Amortization

Repayment of a mortgage loan through monthly installments of principal and interest. The monthly payment amount is based on a schedule that will allow you to own your home at the end of a specific time period (for example, 15, 20, or 30 years).

Annual Percentage Rate (APR)

Calculated by using a standard formula, the APR shows the cost of a loan. Expressed as a yearly interest rate, it includes the interest, points, mortgage insurance, and other fees associated with the loan.

Application

The first step in the official loan approval process. This form is used to record important information about the potential borrower necessary to the underwriting process.

Appraisal

A document that gives an estimate of a property’s fair market value. An appraisal is generally required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property.

Appraiser

A qualified individual who uses his or her experience and knowledge to prepare the appraisal estimate.

ARM (Adjustable Rate Mortgage)

A mortgage loan subject to changes in interest rates. When rates change, the interest rate (and therefore the monthly payment) on an ARM loan can increase or decrease at intervals determined by the index and margin. The change in the interest rate, however is usually subject to a periodic and lifetime cap.

Assessor

A government official who is responsible for determining the value of a property for the purpose of taxation.

Assumable Mortgage

A mortgage that can be transferred from a seller to a buyer. Once the buyer assumes the loan, the seller is no longer responsible for repaying it. There may be a fee and/or a credit package involved in the transfer of an assumable mortgage.

Balloon Mortgage

A mortgage that typically offers low rates for an initial period of time (usually 3, 5, 7, or 10) years. After that time period elapses, the balance is due or is refinanced by the borrower.

Bankruptcy

A federal law whereby a person’s assets are turned over to a trustee and used to pay off outstanding debts. This usually occurs when someone owes more than they have the ability to repay.

Borrower

A person who has been approved to receive a loan and is then obligated to repay it and any additional fees according to the loan terms.

Building Code

Based on agreed upon safety standards within a specific area, a building code is a regulation that determines the design, construction, and materials used in building.

Budget

A detailed record of all income earned and spent during a specific period of time.

Cap

A limit, such as that placed on an adjustable rate mortgage, on how much a monthly payment or interest rate can increase or decrease.

Cash Reserves

A cash amount is sometimes required to be held in reserve in addition to the down payment and closing costs. The amount is determined by the lender.

Certificate of Title

A document provided by a qualified source (such as a title company) that shows the property legally belongs to the current owner. Before the title is transferred at closing, it should be clear and free of all liens or other claims.

Closing

Also known as settlement, this is the time at which the property is formally sold and transferred from the seller to the buyer. It is at this time that the borrower takes on the loan obligation, pays all closing costs, and receives title from the seller.

Closing Costs

Customary costs above and beyond the sale price of the property that must be paid to cover the transfer of ownership at closing. These costs generally vary by geographic location and are typically detailed to the borrower after submission of a loan application.

Commission

An amount, usually a percentage of the property sales price, that is collected by a real estate professional as a fee for negotiating the transaction.

Condominium

A form of ownership in which individuals purchase and own a unit of housing in a multi-unit complex. The owner also shares financial responsibility for common areas.

Conforming Limit

The loan limit set to receive the best rates from Fannie Mae and Freddie Mac. Currently this limit is $417,000.

Conventional Loan

A private sector loan, one that is not guaranteed or insured by the U.S. government.

Cooperative (Co-op)

Residents purchase stock in a cooperative corporation that owns a structure. Each stockholder is then entitled to live in a specific unit of the structure and is responsible for paying a portion of the loan.

Credit History

History of an individual’s debt payment. Lenders use this information to gauge a potential borrower’s ability to repay a loan.

Credit Report

A record that lists all past and present debts and the timeliness of their repayment. It documents an individual’s credit history.

Credit Bureau Score

A number representing the possibility a borrower may default. It is based upon credit history and is used to determine ability to qualify for a mortgage loan.

Debt-To-Income (DTI) Ratio

A comparison of gross income to housing and non-housing expenses. Traditionally, this ratio should not exceed 41%, but lenders offer much more liberal ratios to strong borrowers.

Deed

The document that transfers ownership of a property.

Deed-In-Lieu

To avoid foreclosure (“in lieu” of foreclosure) A deed is given to the lender to fulfill the obligation to repay the debt. This process does not allow the borrower to remain in the house but helps avoid the costs, time, and effort associated with foreclosure.

Default

The inability to pay monthly mortgage payments in a timely manner or to otherwise meet the mortgage terms

Delinquency

Failure of a borrower to make timely mortgage payments under a loan agreement.

Discount Point

Normally paid at closing and generally calculated as a percentage of the total loan amount. Discount points are paid to reduce the interest rate on a loan.

Down Payment

The portion of a homes purchase price that is paid in cash and is not part of the mortgage loan.

Earnest Money

Money put down by a potential buyer to show that he or she is serious about purchasing the home. It becomes part of the down payment if the offer is accepted, is returned if the offer is rejected, or is forfeited if the buyer pulls out of the deal after the deadline set in the real estate sales contract.

Equity

An owner’s financial interest in a property. Calculated by subtracting the amount still owed on the mortgage loan(s) from the fair market value of the property.

Escrow Account

A separate account into which the lender puts a portion of each monthly mortgage payment. An escrow account provides the funds needed for such expenses as property taxes, homeowners insurance, mortgage insurance, etc.

Fair Housing Act

A law that prohibits discrimination in all facets of the home buying process on the basis of race, color, national origin, religion, sex, familial status, or disability.

Fannie Mae (Federal National Mortgage Association)

A federally-chartered enterprise owned by private stockholders that purchases residential mortgages and converts them into securities for sale to investors. By purchasing mortgages, Fannie Mae supplies funds that lenders may loan to potential homebuyers.

FHA (Federal Housing Administration)

Established in 1934 to advance home ownership opportunities for all Americans. Assists homebuyers by providing mortgage insurance to lenders to cover most losses that may occur when a borrower defaults. This encourages lenders to make loans to borrowers who might not qualify for conventional mortgages.

Fixed-Rate Mortgage

A mortgage with principal and interest payments that remain the same throughout the life of the loan, because the interest rate does not change.

Flood Insurance

Insurance that protects homeowners against losses from a flood. If a home is located in a flood plain, the lender will require flood insurance before approving a loan.

Foreclosure

A legal process in which mortgaged property is sold to pay the loan of the defaulting borrower.

Freddie Mac (Federal Home Loan Mortgage Corporation)

A federally chartered corporation that purchases residential mortgages, securitizes them, and sells them to investors. This provides lenders with funds for new homebuyers.

Ginnie Mae (Government National Mortgage Association)

A government-owned corporation overseen by the U.S. Department of Housing and Urban Development, Ginnie Mae pools FHA-insured and VA-guaranteed loans to back securities for private investment. As With Fannie Mae and Freddie Mac, the investment income provides funding that may then be lent to eligible borrowers by lenders.

Good Faith Estimate

An estimate of all closing fees including pre-paid and escrow items as well as lender charges. The estimate must be given to the borrower within three days after submission of a loan application.

HELP (Homebuyer Education Learning Program)

An educational program from the FHA that counsels people about the home buying process. HELP covers topics like budgeting, finding a home, getting a loan, and home maintenance. In most cases, completion of the program may entitle the homebuyer to a reduced initial FHA mortgage insurance premium-from 2.25% to 1.75% of the home purchase price.

Home Inspection

An examination of the structure and mechanical systems to determine a home’s safety. This makes the potential homebuyer aware of any repairs that may be needed.

Home Warranty

Offers protection for mechanical systems and attached appliances against unexpected repairs not covered by homeowner’s insurance. Coverage extends over a specific time period and does not cover the home’s structure.

Homeowner’s Insurance

An insurance policy that combines protection against damage to a dwelling and its contents with protection against claims of negligence.

Housing Counseling Agency

Provides counseling and assistance to individuals on a variety of issues, including loan default, fair housing, and home buying.

HUD (The U.S. Department of Housing and Urban Development

Established in 1965, HUD works to create a decent home and suitable living environment for all Americans. It does this by addressing housing needs, improving and developing American communities, and enforcing fair housing laws.

HUD 1 Statement

Also known as the “settlement statement,” it itemizes all closing costs. The statement must be given to the borrower at or before closing.

HVAC

Heating, Ventilation and Air Conditioning, a home’s heating and cooling system.

Index

A measurement used by lenders to determine changes to the Interest rate charged on an adjustable rate mortgage.

Inflation

The number of dollars in circulation exceeds the amount of goods and services available for purchase. Inflation results in a decrease in the dollar’s value.

Interest

A fee charged for the use of money.

Interest Rate

The amount of interest charged on a monthly loan payment, usually expressed as a percentage.

Insurance

Protection against a specific loss over a period of time that is secured by the payment of a regularly scheduled premium.

Judgment

A legal decision. When requiring debt repayment, a judgment may include a property lien that secures the creditor’s claim by providing a collateral source.

Jumbo Limit

Loan limit above the conforming limit. Jumbo loans are subject to higher rates. Currently this applies to loan amounts over $417,000 or potentially higher if the property is in a designated high cost area.

Lease/Purchase

Assists low- to moderate-income homebuyers in purchasing a home by allowing them to lease a home with an option to buy. The rent payment is made up of the monthly rental payment plus an additional amount that is credited to an account for use as a down payment.

Lien

A legal claim against property that must be satisfied when the property is sold.

Loan

Money borrowed that is usually repaid with interest.

Loan Fraud

Purposely giving incorrect information on a loan application in order to better qualify for a loan may result in civil liability or criminal penalties.

Loan-To-Value (LTV)

A ratio representing the amount borrowed versus the agreed upon value of the property. A percentage calculated by dividing the amount borrowed by the lower of the price or appraised value on a purchase or the appraised value on a refinance. The higher the LTV, the less cash a borrower is required to pay as down payment.

Lock-In

Since interest rates can change frequently, many lenders offer an interest rate lock-in that guarantees a specific interest rate if the loan is closed within a specific time.

Loss Mitigation

A process to avoid foreclosure. The lender tries to help a borrower who has been unable to make loan payments and is in danger of defaulting on his or her loan.

Margin

An amount the lender adds to an index to determine the interest rate on an adjustable rate mortgage.

Mortgage

A lien on the property that secures the promise to repay a loan.

Mortgage Banker

A company that originates and funds loans internally and then sells them on the secondary market or to a selected investor.

Mortgage Broker

A firm that originates loans for mortgage lenders.

Mortgage Insurance

A policy that protects lenders against some or most of the losses that can occur when a borrower defaults on a mortgage loan. Mortgage insurance is required primarily for borrowers with a down payment of less than 20% of the home’s purchase price.

Mortgage Insurance Premium (MIP)

A monthly payment — usually part of the mortgage payment — paid by a borrower for mortgage insurance.

Mortgage Modification

A loss mitigation option that allows a borrower to refinance and/or extend the term of the mortgage loan and thus reduce the monthly payments.

Offer

Indication by a potential buyer of a willingness to purchase a home at a specific price. The offer is usually presented in writing.

On Q Financial

A premier Mortgage Banker that provides expert counsel, low rates and costs, and Client First service at the highest standard of integrity and performance.

Origination

The process of preparing, submitting, and evaluating a loan application. The process generally includes a credit check, verification of employment, and a property appraisal.

Origination Fee

The charge for originating a loan; is usually calculated in the form of points and paid at closing.

PITI (Principal, Interest, Taxes, and Insurance)

The four elements of a monthly mortgage payment. Payments of principal and interest go directly towards repaying the loan while the portion that covers taxes and insurance (homeowner’s and mortgage, if applicable) goes into an escrow account to cover the fees when they are due.

PMI (Private Mortgage Insurance)

Privately-owned companies that offer standard and special affordable mortgage insurance programs for qualified borrowers with down payments of less than 20% of a purchase price.

Pre-approve

Lender commits to lend to a potential borrower. The commitment remains as long as the borrower still meets the qualification requirements at the time of purchase.

Pre-foreclosure Sale

Allows a defaulting borrower to sell the mortgaged property to satisfy the loan and avoid foreclosure.

Pre-qualify

A lender informally determines the maximum amount an individual is eligible to borrow.

Premium

The amount paid on a regular schedule by a policyholder that maintains insurance coverage.

Prepayment

Payment of the mortgage loan before the scheduled due date. This may be subject to a prepayment penalty.

Principal

The amount borrowed from a lender; doesn’t include interest or additional fees.

Real Estate Agent

An individual who is licensed to negotiate and arrange real estate sales. Works for a real estate broker.

Realtor

A real estate agent or broker who is a member of the National Association of Realtors and its local and state associations.

Refinancing

Paying off one loan by obtaining another. Refinancing is generally done to secure better loan terms (like a lower interest rate).

RESPA (Real Estate Settlement Procedures Act)

A law protecting consumers from abuses during the residential real estate purchase and loan process by requiring lenders to disclose all settlement costs, practices, and relationships.

Settlement

Another name for closing.

Special Forbearance

A loss mitigation option where the lender arranges a revised repayment plan for the borrower that may include a temporary reduction or suspension of monthly loan payments.

Subordinate

To place in a rank of lesser importance or to make one claim secondary to another. Usually necessary if refinancing a first mortgage, while keeping an existing second mortgage in place.

Survey

A property diagram that indicates legal boundaries, easements, encroachments, rights of way, improvement locations, etc.

Sweat Equity

Using labor to build or improve a property as part of the down payment.

Title 1

An FHA-insured loan that allows a borrower to make non-luxury improvements (like renovations or repairs) to their home. Title I loans less than $7,500 do not require a property lien.

Title Insurance

Insurance that protects the lender against any claims that arise from arguments about ownership of the property. This is also available to homebuyers.

Title Search

A check of public records to be sure that the seller is the recognized owner of the real estate and that there are no unsettled liens or other claims against the property.

Truth in Lending

A federal law obligating a lender to give full written disclosure of all fees, terms, and conditions associated with a loan’s initial period and any adjustments to another rate that lasts for the term of the loan.

Underwriting

The process of analyzing a loan application to determine the amount of risk involved in making the loan. It includes a review of the potential borrower’s credit history and a judgment of the property value.

VA (Department of Veterans Affairs)

A federal agency which guarantees loans made to veterans. Similar to mortgage insurance, a loan guarantee protects lenders against loss that may result from a borrower default.

Waiver

The appraisal requirement may be waived if the lender’s automated underwriting system accepts the value input for the property.