Tiffany Baublitz
Your White Picket Fence Agent

Mobile: 720 217-2454

Glossary


Alphabetical Index

Feel free to use this glossary to help familiarize yourself with some of the common terms used in the Mortgage Banking Industry. Simply click on the letter your subject would be listed under.

A

  • Abstract of Title - A summary of recorded transactions concerning a property. (An attorney or title insurance company examines an abstract of title for any title defects which must be cleared before a buyer can purchase clear, marketable, and insurable title.)

  • Acceleration Clause -Condition in a mortgage that gives the lender the right to require immediate repayment of the loan balance if regular mortgage payments are not made, or for breach of other conditions of the mortgage.

  • Accrued Interest -Interest earned but not yet paid.

  • Adjustable Rate - An interest rate that changes periodically according to an index.

  • Adjustable Rate Mortgage (ARM) - A mortgage in which the interest rate is adjusted periodically based on a pre-selected index. Thus, interest rate and payments rise and fall with the market.

  • Adjustment Interval -The time between changes in the interest rate and monthly payments on an ARM

  • Agreement of Sale - Contract signed by buyer and seller stating the terms and conditions under which a property will be sold.

  • Alternative Documentation - A method of documenting a loan file that relies on information the borrower is likely to be able to provide instead of waiting on verification sent to third parties for confirmation of statements made in the application.

  • Amortization - A monthly repayment schedule according to which a loan is repaid in fixed payments of principal and interest. For the first few years, most of each payment is applied toward interest. During the final years of the loan, payment amounts are applied almost exclusively to the remaining principal.

  • Annual Percentage Rate (APR)- The cost of a mortgage expressed as a yearly rate. This percentage takes into account interest, points, origination fees, and mortgage insurance, so will be slightly higher than the interest rate on the loan.

  • Application - An initial statement of personal and financial information required to approve your loan.

  • Application Fee - Fees charged by lender to cover initial costs of processing a loan application, often including charges for property appraisal and a credit report.

  • Appraisal - A written estimate of a property's current market value, based on recent sales information for similar properties, the condition of the property, and how the neighborhood might affect future property value.

  • Appraisal Fee - A fee charged by a licensed, certified appraiser to render an opinion of market value as of a specific date.

  • APR - See Annual Percentage Rate.

  • ARM - See Adjustable Rate Mortgage.

  • Assessment - A local tax levied against a property for a specific purpose, such as road or sidewalk construction, a sewer, or street lights.

  • Asset - Anything of monetary value that is owned by a person. Assets include real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, and so on).

  • Assignment - The transfer of property rights by one person, the assignor, to another, the assignee.

  • Assumability - A feature of a loan which allows it to be transferred to the new purchaser of a home. Assumable mortgages can help attract buyers since assumption of a loan requires lower fees and/or qualifying standards than a new loan.

  • Assumption - Agreement between buyer and seller for the buyer to take over the payments on an existing mortgage.

  • Abstract of Title - A summary of recorded transactions concerning a property. (An attorney or title insurance company examines an abstract of title for any title defects which must be cleared before a buyer can purchase clear, marketable, and insurable title.)

  • Acceleration Clause -Condition in a mortgage that gives the lender the right to require immediate repayment of the loan balance if regular mortgage payments are not made, or for breach of other conditions of the mortgage.

  • Accrued Interest -Interest earned but not yet paid.

  • Adjustable Rate - An interest rate that changes periodically according to an index.

  • Adjustable Rate Mortgage (ARM) - A mortgage in which the interest rate is adjusted periodically based on a pre-selected index. Thus, interest rate and payments rise and fall with the market.

  • Adjustment Interval -The time between changes in the interest rate and monthly payments on an ARM

  • Agreement of Sale - Contract signed by buyer and seller stating the terms and conditions under which a property will be sold.

  • Alternative Documentation - A method of documenting a loan file that relies on information the borrower is likely to be able to provide instead of waiting on verification sent to third parties for confirmation of statements made in the application.

  • Amortization - A monthly repayment schedule according to which a loan is repaid in fixed payments of principal and interest. For the first few years, most of each payment is applied toward interest. During the final years of the loan, payment amounts are applied almost exclusively to the remaining principal.

  • Annual Percentage Rate (APR)- The cost of a mortgage expressed as a yearly rate. This percentage takes into account interest, points, origination fees, and mortgage insurance, so will be slightly higher than the interest rate on the loan.

  • Application - An initial statement of personal and financial information required to approve your loan.

  • Application Fee - Fees charged by lender to cover initial costs of processing a loan application, often including charges for property appraisal and a credit report.

  • Appraisal - A written estimate of a property's current market value, based on recent sales information for similar properties, the condition of the property, and how the neighborhood might affect future property value.

  • Appraisal Fee - A fee charged by a licensed, certified appraiser to render an opinion of market value as of a specific date.

  • APR - See Annual Percentage Rate.

  • ARM - See Adjustable Rate Mortgage.

  • Assessment - A local tax levied against a property for a specific purpose, such as road or sidewalk construction, a sewer, or street lights.

  • Asset - Anything of monetary value that is owned by a person. Assets include real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, and so on).

  • Assignment - The transfer of property rights by one person, the assignor, to another, the assignee.

  • Assumability - A feature of a loan which allows it to be transferred to the new purchaser of a home. Assumable mortgages can help attract buyers since assumption of a loan requires lower fees and/or qualifying standards than a new loan.

  • Assumption - Agreement between buyer and seller for the buyer to take over the payments on an existing mortgage.

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B

  • Balloon Mortgage - A short-term fixed-rate loan with low payments for a set number of years and one large final balloon payment of the remainder of the principal.

  • Balance Sheet - A document showing the financial situation--assets, liabilities, and net worth--of a company at a specific point in time.

  • Bankruptcy - Proclamation by a court of an individual's (or organization's) state of insolvency, or inability to pay debts. Petition may be brought by an individual or his creditors, with a goal of orderly and equitable settlement of obligations.

  • Bearer - The legal owner of a piece of property.

  • Bequest - A gift of personal property by will.

  • Bill of Sale - A document by which one transfers ownership of goods to another.

  • Bi-Weekly Mortgage - A payment plan under which one pays one half of a monthly payment every two weeks, saving substantially over the life of the loan.

  • Blanket Mortgage - A mortgage covering at least two pieces of real estate, both of which serve as collateral for the loan.

  • Bona Fide - In good faith.

  • Bond - A document representing a right to certain payments on underlying collateral.

  • Borrower (Mortgagor) - An individual who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan in full

  • Bridge loan (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 to be used for closing on a new house before the present home is sold.

  • Broker - An individual who assists in arranging funding or negotiating contracts for a client but does not loan money himself.

  • Buy-down - A situation in which the seller contributes money which allows the lender to give the buyer a lower rate and payment, usually in exchange for an increase in sales price.

  • Buyers Broker - An agent hired by a buyer to locate a property for purchase and to represent the buyer in negotiations with the seller's broker for the best possible deal for the buyer.

  • Buyers Market - Market conditions that favor buyers. With more sellers than buyers in the market, buyers have ample choice of properties and can negotiate lower prices.

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C

  • Call Option - A provision in the mortgage that gives the mortgagee the right to call the mortgage due and payable at the end of a specified period for whatever reason.

  • Caps - Limits on changes in ARM interest rates or monthly payments, either in an adjustment period or over the life of the loan.

  • Caps (interest) - Consumer safeguards which limit the amount the interest rate on an adjustable rate mortgage can change in an adjustment interval and/or over the life of the loan.

  • Caps (payment) -Consumer safeguards which limit the amount monthly payments on an adjustable rate mortgage may change. Since they do not limit the amount of interest the lender is earning, they may cause negative amortization.

  • Cash Out - A refinance for more than the balance of the original mortgage, so that money is taken out of the equity built up in the house.

  • Cashier's Check (or Bank Check) - A check whose payment is guaranteed because it was paid for in advance and is drawn on the bank's account instead of the customer's.

  • CC&Rs - See Covenants, Conditions and Restrictions.

  • Ceiling - The maximum allowable interest rate of an adjustable rate mortgage.

  • Certificate of Eligibility -Document issued by the Veterans Administration to qualified veterans which entitles them to VA guaranteed loans. Obtainable through local VA office by submitting form DD-214 (Separation Paper) and VA form 1880 (request for Certificate of Eligibility).

  • Certificate of Occupancy - Document issued by local government agency stating that a property meets the requirements of health and building codes.

  • Certificate of Reasonable Value (CRV) - A property appraisal performed by a VA approved appraiser which establishes the limit on the principal of the VA loan.

  • Certificate of Title - Written opinion of the status of title to a property, given by an attorney or title company. This certificate does not offer the protection given by title insurance.

  • Certificate of Veteran Status - Document given to veterans or reservists who have served 90 days of continuous active duty (including training time) which enables them to obtain lower down payments on certain FHA-insured loans. Obtainable through local VA office by submitting form DD 214 (Separation Paper) with form 26-8261a (request for certificate of veteran status).

  • Certified Check - A check drawn on the issuer's account for funds that have been segregated by the bank, guaranteeing payment.

  • Chain of Title - The chronological order of conveyance of a property from the original owner to the present owner.

  • Clear Title - A marketable title, free of clouds and disputes.

  • Closing (or Settlement) -Meeting between the buyer, seller and lender or their agents at which property and funds legally change hands.

  • Closing Costs - Fees incurred in a real estate or mortgage transaction and paid by borrower and/or seller during the closing of the mortgage loan. These typically include a loan origination fee, discount points, attorney's fees, title insurance, appraisal, survey, and any items which must be prepaid, such as taxes and insurance escrow payments. The cost of closing is usually about 3 percent to 6 percent of the mortgage amount.

  • Closing Statement - Financial disclosure statement that lists the funds received and expected at the closing.

  • Cloud on Title - An outstanding claim or encumbrance that, if valid, would affect or impair the owner's title.

  • COFI - See Cost of Funds Index.

  • Collateral - Assets that back a mortgage loan.

  • Combined Loan-to-Value (CLTV): - the ratio of the total mortgage liens against the subject property to the lesser of either the appraised value or the sales price.

  • Commission - Money paid to a real estate agent or broker by the seller (usually 6-7% of the sale price of the house).

  • Commitment - A formal offer by a lender to make a loan under certain terms or conditions to a borrower.

  • Condominium - A form of property ownership in which the homeowner holds title to an individual dwelling unit and an interest in common areas and facilities of a multi-unit project.

  • Conforming Loan - A mortgage loan under the maximum amount of loans FNMA and FHLMC are legally allowed to buy (up to $275,000 for a one unit property).

  • Construction Loan - A short term interim loan to fund the construction of buildings or homes, which usually advances the money to the builder as work progresses. After completion, a permanent loan is used to pay off the construction loan.

  • Contingency - A condition which must be satisfied before a contract is legally binding--before a sale can close.

  • Contract of Sale - The agreement between the buyer and seller on the purchase price, terms, and conditions of a sale.

  • Conventional Loan - A mortgage not insured by the FHA or guaranteed by the VA.

  • Conversion Clause - A provision in some ARMs that allows you to change an ARM to a fixed-rate loan, usually after the first adjustment period. The new fixed rate will be set at current rates, and there may be a charge for the conversion feature.

  • Convertible ARMs - ARMs with the option of conversion to a fixed loan during a given time period.

  • Conveyance - The transfer of a deed, or possibly a lease or mortgage.

  • Cost of Funds Index (COFI) -An index of the weighted-average interest rate paid by savings institutions for sources of funds, usually by members of the 11th Federal Home Loan Bank District.

  • Covenants, Conditions and Restrictions (CC&Rs) - A document that defines the use, requirements and restrictions of a property.

  • Credit Report - A report detailing the credit history of a prospective borrower, used to help determine creditworthiness.

  • Credit Risk - The possibility that the borrower may default on financial obligations to the investor.

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D

  • Debt-to-Income Ratio - The ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on long-term debts is divided by his or her gross monthly income.

  • Deed- Legal document by which title to a property is transferred from one owner to another. The deed contains a description of the property, and is signed, witnessed, and delivered to the buyer at closing.

  • Deed of Trust - Agreement to pledge property as security for a loan, used in many states in place of a mortgage. In such an arrangement, the borrower transfers legal title to a trustee who holds the property in trust as security for the repayment of the debt. The deed of trust becomes void if the debt is repaid, but if the borrower defaults on the loan, the trustee may sell the property to pay the debt.

  • Default - Failure to meet legal obligations in a contract, including failure to make payments on a loan. A mortgage is generally considered to be in default when a payment is 30 days past due.

  • Deferred Interest - Interest added to the balance of a loan when monthly payments are not sufficient to cover it. (See negative amortization.)

  • Delinquency - Failure to make payments on time.

  • Deposit - Cash paid to the seller when a formal sales contract is signed.

  • Depreciation � When the value of property declines.

  • Discount Points (or Points) - Money paid to a lender at closing in exchange for lower interest rates. Each point is equal to 1% of the loan amount.

  • Documentary Stamps - A state tax, in the forms of stamps, required on deeds and mortgages when real estate title passes from one owner to another.

  • Document Review - Fee charged by lender for review of documents necessary to fund a loan.

  • Down Payment - Money paid for a house from one's own funds at closing. The down payment will be in the amount of the difference between the purchase price and mortgage amount.

  • Due-on-Sale Clause -Provision in a mortgage or deed of trust allowing the lender to demand immediate payment of the loan balance upon sale of the property.

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E

  • Earnest Money - Deposit made by a buyer towards the down payment in evidence of good faith when the purchase agreement is signed.

  • ECOA - See Equal Credit Opportunity Act.

  • Effective Interest Rate - The cost of a mortgage expressed as a yearly rate, usually higher than the interest rate on the mortgage since this figure includes up-front costs of acquiring the loan.

  • Encumbrance - A legal right or interest in a property that affects title and lessens the property value. Encumbrances can take the form of claims, liens, unpaid taxes, etc. These will usually have to be taken care of before a buyer will want to purchase the property.

  • Equal Credit Opportunity Act (ECOA) - Federal law requiring creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs.

  • Equity - The percentage of property value held by the owner; the difference between the current market value of a property and the outstanding mortgage balance.

  • Equity Loan - A loan based on the borrower's equity in his or her home.

  • Escrow Account - Account held by lender containing funds collected as part of mortgage payments for annual expenses such as taxes and insurance, so that the homeowner does not have to collect a large sum when these fall due.

  • Escrow Waiver - When a buyer borrows less than 80% of the cost of the house, he may pay a one-time fee and elect not to open an escrow account, but to pay the hazard insurance and property taxes himself.

     

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F

  • Fannie Mae - See Federal National Mortgage Association.

  • Farmer's Home Administration (FmHA) - An agency, within the U.S. Department of Agriculture, that provides financing for purchasers of homes and farms in small towns and rural areas.

  • FDIC - See Federal Deposit Insurance Corporation

  • Federal Deposit Insurance Corporation (FDIC) - Independent deposit insurance agency created by Congress to maintain stability and public confidence in the nation's banking system.

  • Federal Home Loan Bank Board (FHLBB) - Former name for the regulatory and supervisory agency for federally chartered savings institutions, now called the Office of Thrift Supervision.

  • Federal Home Loan Mortgage Corporation (FHLMC, or Freddie Mac) - Quasi-governmental agency that purchases conventional mortgages from insured depository institutions and HUD-approved mortgage bankers.

  • Federal Housing Administration (FHA) - Government agency, division of the Department of Housing and Urban Development, which insures residential mortgage loans made by private lenders and sets standards for underwriting mortgage loans.

  • Federal National Mortgage Association (FNMA, or Fannie Mae) - Corporation created by Congress that buys and sells residential mortgages, providing funds for one in seven mortgages.

  • Federal Reserve - Central bank of the United States and major regulatory agency for many commercial banks.

  • Fee Simple - Absolute ownership of real property.

  • FHA - See Federal Housing Administration.

  • FHA Loan - Loan insured by the FHA for low- to middle-income homes, open to all qualified home purchasers.

  • FHLBB - See Federal Home Loan Bank Board.

  • FHLMC - See Federal Home Loan Mortgage Corporation.

  • First Mortgage - A mortgage which is in first lien position, taking priority over all other liens. In the case of a foreclosure, the first mortgage will be repaid before any other mortgages.

  • Fixed Rate - An interest rate which is fixed for the term of the loan.

  • Fixed-Rate Mortgage - A mortgage whose interest rate does not change for the life of the loan. Payments are also fixed.

  • Flood Insurance - A form of hazard insurance required by lenders to cover properties in flood zones.

  • Floor - The minimum rate of interest payable on an adjustable-rate mortgage.

  • FmHA - See Farmer's Home Administration.

  • FNMA - See Federal National Mortgage Association.

  • Forbearance - Grace period given when a lender postpones foreclosure to give the borrower time to catch up on overdue payments.

  • Foreclosure (or Repossession) - Legal process by which the lender forces the sale of a property because the borrower has not met the mortgage terms.

  • Freddie Mac - See Federal Home Loan Mortgage Corporation.

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G

  • Ginnie Mae - See Government National Mortgage Association.

  • GNMA - See Government National Mortgage Association.

  • Good Faith Estimate - Written estimate of costs the borrower will have to pay at closing, provided by a lender within three days of a loan application.

  • Government National Mortgage Association (GNMA, or Ginnie Mae) - Government agency that provides funds for VA and FHA loans.

  • Graduated Payment Mortgage (GPM) - Mortgage in which initial low payments (with potential negative amortization) increase regularly for several years and then level off.

  • Grace Period - Period of time during which a loan payment may be made after its due date without incurring a late penalty.

  • Gross - Before taxes.

  • Gross Income - Total income before taxes or expenses are deducted.

  • Gross Monthly Income - The total amount earned by the borrower each month.

  • Growing Equity Mortgage - A fixed-rate loan in which payments increase by some predetermined amount each year, which reduces the outstanding balance of the loan. This accelerated payment plan allows repayment of a 30-year loan in 15 to 20 years.

  • Guarantee - To assume liability for another's debts in the event of his default.

  • Guaranty - A promise by one party to pay a debt or perform an obligation contracted by another in case of that person's default.

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H

  • Hazard Insurance -Protects the insured against loss due to fire or other natural disaster in exchange for a premium paid to the insurer.

  • Home Equity Loan - A loan secured by the equity in your home. These are sought for a variety of purposes, including home improvements, major purchases or expenses, and debt consolidation. Interest paid is usually tax -deductible.

  • Homeowners Warranty - A type of insurance that covers repairs to specified parts of a house for a specific period of time.

  • Housing and Urban Development

  • (HUD) - A U.S. government agency established to implement federal housing and community development programs; oversees the Federal Housing Administration.

  • Housing Code - Local government ordinance that sets minimum standards of safety and sanitation for existing residential buildings.

  • Housing Expense-to-Income Ratio - The ratio, expressed as a percentage, which results when a borrower's housing expenses are divided by his/her gross monthly income.

  • HUD - See Housing and Urban Development.

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