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Find explanations for many loan terms and programs
here! |
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C-E |
F-I |
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P-V |
Adjustable Rate Mortgage (ARM)
A mortgage in which the interest rate is adjusted periodically based on an index. Also called a variable rate mortgage. |
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Adjustment Invertal
For an adjustable rate mortgage, the time between changes in the
interest rate charged. The most common adjustment intervals are one,
three or five years. |
Amortization
Literally to "kill off" (root: mort) the outstanding balance of a loan by making equal payments on a regular schedule (usually monthly). The payments are structured so that the borrower pays both interest and principal with each equal payment. |
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Annual
Percentage Rate (APR)
The interest rate which reflects the cost of a mortgage as a yearly
rate. This rate is usually higher than the stated loan rate for the
mortgage, because it takes into account points and other settlement
charges |
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Application Fee
The fee charged by the lender to the borrower for applying for a
loan. Payment of this fee does not guarantee that a loan with be
approved. Some lenders may apply the cost of the application fee to
certain closing costs. |
Appraisal
The determination of property value based on recent sales information of similar properties with adjustment made for differences to find an average value between a minimum of 3 properties. |
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Assumable
Loan
These loans may be passed on from a seller of a home to the buyer.
The buyer "assumes" all outstanding payments, however the seller is
still on the note and responsible for those payments. |
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Back
ratio
Monthly debt and housing payments divided by gross monthly income. Also
known as Back-end ration |
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Balloon
Mortgage
Behaves like a fixed-rate mortgage for a set number of years (usuallu
five or seven) and then must be paid off in full in a single "balloon"
payment. Balloon loans are popular with those expecting to sell or
refinance their property within a definite period of time |
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Broker
An individual in the business of assisting in arranging funding or
negotiation contracts for a client but who does not loan the money
himself. Brokers usually charge a fee or receive a commission for their
services. |
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Caps A set percentage amount by which an adjustable rate mortgage may adjust
each adjustment period. For adjustable loans, caps are usually quoted in
two numbers, such as 2/6. The first number indicates how much a loan may
adjust at each adjustment period while the second number indicated how
much a loan may adjust over its lifetime.
Loans like
the 3/1 and 5/1 adjustable, which have an initial fixed period are
quoted with three numbers as in 2/6/3, which would mean that the first
adjustment may be as much as three percent, subsequent adjustments are
capped at two percent each, and the lifetime cap is six percent.
Two-step loans are quoted with a single cap, which is the amount by
which the loan may adjust at its single adjustment date. |
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Closing
Costs
Fees paid by the borrower when property is purchased or refinanced.
These typically include a loan origination fee, discount points, title
search, title insurance, survey, taxes, deed recording fee and credit
report charges. Title insurance is typically considered a part of
closing costs. This fee is usually in the range of 25-30 cents per
$1,000 borrowed. An N/A in the closing costs category means that the
information was not available from the lender or, in the case of
multiple-state lenders, differed materially from state to state. |
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Commitment
A written letter of agreement detailing the terms and condition by
which the lender will lend and the borrower will borrow funds to finance
a home in a purchase transaction. This will increase your negotiating
strength when searching for a home. |
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Conforming Loan
A mortgage loan for 359,650 or lower and follows the underwriting
guidelines from FNMA (Freddie Mac) |
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Construction Loan A short-term (three to six months) loan for funding the cost of
construction. The lender advances funds to the builder as the work
progresses in phases (draws). |
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Convention Loan A mortgage neither insured by the FHA nor guaranteed by the VA and not
sub prime. |
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Conversion
The right of a borrower to convert an adjustable or balloon loan
into a fixed loan. The conversion option column balloon tables indicates
the right of a borrower to convert this balloon loan. The possible
options are as follows: Not available:
borrower may not convert this loan
Must requalify: borrower may convert but must requalify,
conversion fee applies
Auto-Requalify: borrower may convert and is automatically qualified,
conversion fee applies |
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Credit
Rating
Borrowers are rated by underwriters according to the borrower's
credit-worthiness or risk profile. Credit ratings are expressed as
letter grades, such as A, A-, B, C+ or D. These ratings are based on
various factors such as a borrower's payment history, foreclosures,
bankruptcies and charge-offs. There is no exact science to rating a
borrower's credit, and different lenders may assign different grades to
the same borrower. |
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Debt to
Income Ratio
Monthly debt and housing payments divided by gross monthly income. Also
known as back-end ratio |
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Deed A legal document which affects the transfer of ownership of real estate
from the seller to the buyer. This is usually recorded in the land
records as a public record |
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Default
The failure to make payments on a loan |
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Down
Payment
Money paid by a borrower from his own funds, as opposed to that
portion of the purchase price which is financed |
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Equity
The difference between the current market value of a property and the
principal balance of all outstanding loans |
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Escrows
Money collected and held the lender for payment of taxes and insurance
generally required on all loans with less than 20 percent equity |
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Finance Charge
The total dollar amount your loan will cost you. It includes all
interest payments for the life of the loan, any interest paid at
closing, your origination fee and any other charges paid to the lender
and/or broker. Appraisal, credit report and title search fees are not
included in the finance charge calculation |
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Fixed-Rate Mortgages
A mortgage where the monthly rate remains fixed throughout the life of
the loan |
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Float
Between the time of the application and closing, a borrower may choose
to bet on interest rates decreasing by electing to float. Floating is
essentially choosing not to lock the interest rate. Since it is the
borrower's responsibility to lock his or her rate before closing,
choosing to float is considered risky and may result in a higher
interest rate. Request information from your loan officer regarding lock
procedures. |
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Front Ratio
The ratio of the monthly housing payment to total gross income. Also
called payment-to-income or front-end ratio |
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Foreclosure
A legal procedure in which real estate is sold by the lender to pay a
defaulting borrower's debt |
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Good Faith Estimate
An estimate of all costs which a borrower is likely to incur with
connection with a loan closing. This should be presented by your loan
officer within three days of the initial application and may be updated
as time goes on |
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Gross Monthly Income
The total amount the borrower earns per month, not counting
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Hazard Insurance
A form of insurance in which the insurance company protects the insured
from certain losses, such as fire, vandalism, storms and certain other
natural causes. Also known as homeowner's insurance. |
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Housing Ratio
The ratio of the total monthly housing payments to total gross monthly
income, also called payment-to-income ratio or front-end ratio |
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Index
A published interest rate not controlled by any lender to which the
interest rate on an Adjustable Rate Mortgage (ARM) is tied. The index
and the interest rate linked to it may increase or decrease. The typical
index values quoted on CNBC are as follows:
1ytb-
One year treasury bill yield
3ytb-
Three year treasury note yield
5ytb-
Five year treasury note yield
10ytb-
Ten year treasury bond yield
30ytb- 30
year treasury bond yield
6mtb- Six
month treasury bill yield
6mcd- Six
month CD rate
6mlib-
Six month libor
1lib- One
year libor
11di-
11th District cost-of-funds rate
Prim-
Prime interest rate |
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Interest
Rate
The percentage of an amount of money which is paid for its use for a
specified time |
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Jumbo Loan
A loan above 359,650. These limits are set by the Federal National
Mortgage Association and the Federal Home Loan Mortgage Corporation.
Because jumbo loans cannot be funded by these two agencies, they usually
carry a higher interest rate. |
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Lender
The bank, mortgage company or mortgage broker offering the loan. Many
institutions "originate" loans and then resell the obligation to third
parties such as Fannie Mae or Freddie Mac. |
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Lock
(noun) The period, expressed in days, during which a lender will
guarantee a rate. Your loan officer may ask you to lock rates at the
time of application, or you may choose to lock the rate after the
application is taken. Request information from you loan officer
regarding lock procedures. |
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Lock
(verb) The act of committing to a mortgage rate. This action, taken
by a borrower sometime between the application and the closing dates can
be in increments of 30-60-90-120-180 days and is sometimes accompanied
by a payment from the borrower to the lender. Called a lock-in rate, it
is the opposite of a float. |
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Margin
The amount a lender adds to the quoted index rate for an adjustable
rate loan to determine the new interest rate |
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Minimum
Credit
This field on the Global underwriting guidelines refers to the minimum
credit rating a borrower may have in order to qualify for the loan
listed |
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Monthly
Housing Expense
Total principal, interest, taxes and insurance paid by the borrower on a
monthly basis. Used with gross income to determine affordability to
determine the housing income or front-end ratio |
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Mortgagee
The lender |
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Mortgagor
The borrower |
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Net
Effective Income
Gross income less federal tax income |
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Origination Fee
The fee charged by the lender to cover certain processing expenses in
connection with making a loan. Usually a percentage of the amount
loaned, please refer to the APR definition to see how this fee is
reflected |
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Points Prepaid
Interest paid by the borrower to the lender at closing. A point is equal
to one percent of the loan amount (e.g. 1.5 points on a $100,000
mortgage would cost the borrower $1500). By paying points at closing,
the borrower reduces the interest rate on his loan and thus future
monthly payments |
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Prepaids
Expenses such as taxes, insurance and assessments which are paid in
advance of their due date and which must be paid by the borrower on a
prorated basis at closing. Usually collected as an escrow. |
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Prepayment
The ability to pay off the remaining balance of a loan |
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Prepayment Penalty
Some loans impose prepayment penalties that will charge borrowers an
additional fee if they choose to repay a large part of all their loan in
the first few years either by refinancing or cash payoff. Generally this
is not charged on a sale. |
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Principal
The amount of debt, not counting interest, left on a loan, also
known as the principal balance |
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Private
Mortgage Insurance (PMI)
Paid by a borrower to protect the lender in case of default. PMI is
typically charged to the borrower when the Loan-to-Value ratio is
greater than 80 percent. Also see MI. |
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Qualifying Ratio
The ratio of the borrower's fixed monthly expenses to his gross
monthly income. Qualifying ratios are expressed as two numbers like
28/36 where 28 would be the front-end ration and 36 would be the
back-end ratio
The
front-end ratio is the percentage of a borrower's gross monthly income
(before income taxes) that would cover the cost of PITI (Mortgage
Principal Payment + Property Taxes + Homeowner's Insurance). In the case
of a 28 percent front-end ratio, a borrower could qualify if the
proposed monthly PITI payments were 28% or less than the borrower's
gross monthly income.
The
back-end ratio is the percentage of a borrower's gross monthly income
that would cover the cost of PITI plus any other monthly debt payments
like car or personal loans and credit card debt.
Please
note that qualifying ratios are only a rough guideline in determining a
potential borrower's credit-worthiness. Many factors such as excellent
or poor credit history, amount of down payment and size of loan will
influence the decision to qualify a particular loan. Global urges all
borrowers to discuss their particular situation with a qualified loan
officer regardless of the outcome of any self-qualification. |
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Settlement Costs
See Closing Costs |
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Tax Lien
A claim against real estate for the amount of its unpaid taxes, due to
local, state or federal government |
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Title
A document that gives evidence of an individual's ownership or
property |
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Title
Insurance
Insurance against loss resulting from defects of title of a specifically
described parcel of real estate. Two parts lender coverage (coverage to
lender) is mandatory, and owner's coverage is optional. |
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Title
Search
An examination of city, town or county records to determine the legal
ownership of real estate and any other possible claims or defects to
that property |
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Total
Debt Ratio
Monthly debt and housing payments divided by gross monthly income. Also
known as back-end ratio |
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Term
The lifespan of a loan expressed in years or months |
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Variable
Rate
See Adjustable Rate Mortgage |
