Fairway Asset Corporation - MORTGAGE DICTIONARY

Morgage Dictionary

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There are currently 138 names in this directory
A written or verbal of an offer to buy a home, made from the seller to the buyer.

Change to an existing contract. Prior to the signing of a valid legal contract parties use addenda to clarify a portion of the original document or alter the terms of the contract.

Adjustable-Rate Mortgage (ARM)
A mortgage with a variable interest rate. This can adjust monthly, biannually, or annually. Option-arms and hybrid mortgages are also considered adjustable-rate mortgage.

Adjustment Interval
On an adjustable rate mortgage, the time between changes in the interest rate and/or monthly payment, typically one, three or five years, depending on the index.

The way a loan is paid off over time in installments, detailing how much goes toward interest, and how much is paid through principal.

Annual Percentage Rate (APR)
The truest cost of a home loan.

An estimate of the value of the property, made by a qualified professional 'Appraiser.'

Agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller. Assuming a loan can usually save the buyer money. Since this is an existing mortgage debt, unlike a new mortgage where closing costs and new, possibly higher, market-rate interest charge will apply.

Balloon Mortgage
A short-term mortgage with small monthly installments and a large lump sum due at the end of the loan term. Balloon mortgages may be payment free or they may require interest-only installment payments.

Blanket Mortgage
A single home loan used to provide financing for multiple properties, such as rental units.

Bridge Loan
A short term loan taken out against one property to finance the purchase of a new property.

An individual in the business of assisting in arranging funding or negotiating contracts for a client but does not loan the money themselves. There is usually a fee charged or commission for their services.

A financing technique in which money is paid upfront to temporarily reduce a loan's interest rate and lower the monthly payment.

Capital Gain
A profit gained on asset such as home or property.

Cash-out Refinance
A second mortgage in which the borrower takes out money from the home equity at the same time a refinance deal is made; an alternative to a home equity loan.

Certificate of Reasonable Value (CRV)
An appraisal issued by the Veterans Administration to determine the value of a property. The loan amount may not exceed the CRV on a VA loan.

The final step in a loan process where the buyer, seller and lender or their agents come together and legally change hands. This is the formal documented sale of a home and/or property where all documents are signed, and the payment of required closing fees are exchanged. Also called settlement.

Closing Agent
Person responsible for mediating the closing, documenting the process and assuring all associated paperwork is completed.

Closing Costs
The amount of money payable by the buyer and seller required to close the loan. These can include but are not limited to: appraisal fee, attorney's fees, credit report charge, documentation fees, escrow, recording fees, taxes, title fees, etc. Most closing costs must be paid out-of-pocket at closing unless agreed otherwise.

Closing Statement
A comprehensive itemized list of closing costs for both the buyer and the seller. Also called an HUD-1.

Personal property or any asset that a borrower offers to a lender in order to secure a loan. Lenders refer to collateral loans as secured loans because the asset secures the funding.

Combined Loan-to-Value Ratio (CLTV)
An overall mortgage debt loan expressed as a percentage of the borrower's home fair market value.

Combo Loan
A type of loan that combines an initial loan typically for new home construction, with a second conventional home loan that supplants the first.

An agreement between a lender and a borrower to loan money at a future date subject to the completion of paperwork or compliance with stated conditions.

Comparable sales, Comps
Similar home sale prices in the region used as a metric in the calculation of a home's appraised value.

Conforming Loan
A loan that meets Fannie Mae and Freddie Mac guidelines, which also falls under a certain loan amount, often referred to as a conventional loan

Construction Loan
Short-term loan for new home construction. Given to a builder during intervals of the building process which is due upon completion of the project.

A possible event that may occur in the future. If conditions of the contingency written on the contract are not met, you can back out of the transaction and keep your earnest money.

Conventional Loan
Any loan which is not insured by the FHA or guaranteed by the VA or FmHA. Just a plain vanilla home loan that is ideal for borrowers with good/excellent credit.

Credit Report
Summary of all borrower's debts.

Credit Score
A three digit number that represents a person's creditworthiness. The three major credit bureaus: Experian, Equifax, and Transunion have proprietary algorithms to determine these three-digit numbers. Lenders use the middle score out of the three for qualification.

Debt-To-Income (DTI) Ratio
Ratio of monthly liabilities and housing expenses divided by the monthly gross income of the borrower

A legal document used to transfer rights to an asset or a real property from one person to another.

Deed in Lieu of Foreclosure
If you fall behind on your payments as a homeowner, you may enter into a deed in lieu of foreclosure. This relinquishes all homeownership rights to the mortgage lender. But in many cases, the lender will forgive the outstanding debt.

Deed of Trust
A legal document which can be referred to as a lien on the subject property in place of a mortgage to secure the payment of a note. Differs from a mortgage in that the bank can foreclose on the property without judicial proceedings.

Failure to meet legal obligations in a contract; inability for the borrower to make regular and consecutive payments on a loan.

To owe on an overdue debt. This may refer to an individual borrower or business with a contract specifying a payment schedule for a loan. Delinquency can impact a borrower's credit negatively and gets worse the longer the balance remains unpaid.

Department of Veterans Affairs (VA)
An independent agency of the federal government which guarantees long-term, low or no-down payment mortgages to eligible veterans.

The measure of loss in value of a home or property. This could be due to property damage or poor economic factors.

Down Payment
The amount of money paid to make up the difference between the purchase price and the mortgage amount.

Earnest Money
A deposit paid to the seller by the buyer as a pledge to complete a real transaction. If the seller accepts the offer, the deposit is held in escrow and applied to closing costs when the deal is closed.

Equal Credit Opportunity Act (ECOA)
A federal law that prevents lenders from discriminating applicants based on race, religion, national origin, sex, age, marital status or involvement in public assistance programs.

The measurable value of a home or property above that owned on a loan.

A neutral third part who carries out instructions for both the buyer and seller to handle all the paperwork of settlement or 'closing.' This term may also refer to an account help by the lender into which the homebuyers pays money for a tax or insurance payment.

Fair Market Value
The price of a home or property that will bear in the current market.

Farmer's Home Administration (FmHA)
Provides financing to farmers and other qualified borrowers who are unable to obtain loans elsewhere.

Federal Housing Administration (FHA)
Federal Housing Administration, a division of the Department of Housing and Urban Development. FHA sets the standards for underwriting mortgages.

Federal Housing Administration (FHA) Loan
Loans which are extended by FHA approved lenders which are typically designed to assist borrowers whom are unable to get approvals for conventional home loans elsewhere.

Fixed-Rate Mortgage
A mortgage with a set interest rate for the term of borrowing. This rate will not adjust at any point during the life of the loan.

What happens before your interest rate is 'locked.' When your interest rate is in 'float,' you actively watch interest rate fluctuations and wait for a time to lock.

Flood Certification
In areas where properties are located in a flood zone, the borrower may be required to purchase standalone flood insurance before a loan is approved.

When a lender sells the asset used as a collateral in a loan to recover money owed to them from the borrower. In many cases, homes or property can be used as assets.

Money borrowers receive from an eligible source (non-profit organizations, family, etc.) You can use gift money on any type of loan but remember, loans have their own set of restrictions.

Good Faith Estimate
A loan summary disclosure and an estimate of the charges that will incur upon settlement, now known as a Loan Estimate.

Government Mortgage
A mortgage that is insured by a government agency.

Graduated Payment Mortgage
Intended for young couples who are unable to make the full mortgage payment at the time of singing but whose income will increase over time. A negative amortization mortgage with flexible payment options that gradually increase over time until leveling off.

Hard Money Loan
A loan which is made as a last resort for borrowers who cannot obtain financing in the standard market due to poor credit.

A refinance loan for borrowers with negative equity.

Hazard Insurance
Insurance in which the insurance company protects the insured from specific losses, such as fire, windstorm and the like.

High Risk Loan
A long extended to borrowers with poor credit history or that fall outside the conventional or conforming loan limits which are set by Fannie Mae and Freddie Mac.

Home Equity Line of Credit
A line of credit that uses the value of a property as collateral.

Homeowner's Association (HOA)
An organization that creates and maintains bylaws and rules regarding a certain housing development. Homeowners within the project must pay dues to the HOA usually monthly or yearly.

Homeowner's Insurance
An insurance policy that insures the home being purchased in the case of fire or other hazards.

A document received prior to the signing of final loan paperwork at escrow. It is a breakdown of all fees associated with the loan and tells you're the final dollar amount you need to pay in order to close the loan.

Impound Account
See 'Escrow.'

Rate averages that determine the interest rate of an ARM after the initial fixed period.

offers financial protection in the event of a loss and protects you against financial losses on your property as a result of fire, wind, natural disasters or other hazards. Most lenders will require you to have a homeowner's insurance policy on your home because it will help protect their investment as well as yours.

cost of borrowing money. In the early stages of your mortgage term, your monthly payment is mostly interest. As you continue to make payments through the years, a smaller portion of your payment goes to interest.

Interest Rate
A figure calculated as a percentage which is used in the financial industry to indicate the rate charged for use of money in a loan.

Investment Property
Property or real estate which is bough for investment purposes as opposed to private residential usage, such as rental homes, apartments or other spaces that give owners the opportunity to create profit and income over the long term.

Joint Ownership
In which a home or property is shared equally between two people; common for spouses.

Joint Tenancy
Property in which two or more people share ownership.

Jumbo Loan
A loan amount above conforming loan limits. These loans typically carry higher interest rates than conforming loans because they can't be sold to Fannie Mae or Freddie Mac.

Lender Credit
A credit paid by the lender to the borrower for taking an above-market interest rate.

Lender Fees
Often called processing fees, deigned to cover costs incurred by lenders during the loan process and included in the fees associated with closing costs.

A claim upon a piece of property for the payment or satisfaction of a debt or obligation.

Loan-To-Value (LTV) Ratio
The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.

The act of securing an interest rate on a loan. Prior to a lock, future rate fluctuations in the market will not affect the interest rate on your loan.

Amount of extra interest the lender charges when an ARM begins to adjust.

The life span of a mortgage.

A loan used to finance the purchase of real property.

Mortgage Discount Points
A form of prepaid interest whereby the borrower lowers the interest rate of the mortgage upon closing.

Mortgage Insurance
Required insurance by lenders when buyers take out a mortgage. It is a monthly premium that is added to the mortgage. This protects the lender should a buyer default on their loan.

Mortgage Insurance Premium (MIP)
Required premium which is paid at closing added into an FHA loan.

Mortgage Term
The length of your mortgage.

Mortgage Underwriter
An individual who makes decisions on your mortgage by approval, suspension, or rejection.

The issuing bank or lender for the mortgage.

The borrower.

Negative Amortization
Occurs when a mortgage payment is not large enough to pay all the interest due on the loan. The unpaid interest is added to the unpaid balance of the loan hence putting the borrower in danger of owing more than the original amount of the loan.

No Closing Cost Refinance
A refinance transaction in which the bank or broker pays all settlement costs.

Non-prime Mortgage
See 'Sub-prime mortgage.'

A document which stands as a promise to repay the mortgage plus interest. The note includes the name of the borrower, issuing lender and the terms and provisions.

Principal and Interest payment on a home loan. This does not include taxes, insurance, or HOA dues.

Payment Cap
The maximum monthly payment amount a borrower can pay. Only for adjustable rate mortgages.

Piggyback Loan
When a borrower opens two mortgages (first and second) simultaneously when buying a home. This is usually done to avoid private mortgage insurance.

The buyer's full housing payment. Principal, Interest, Taxes, Insurance. This includes all costs from each plus any HOA dues.

Power of Attorney
Legal document authorizing one person to act on behalf of another.

Process of determining what the borrower(s) can afford through verification of legal documentation of income, assets and debts. Different from pre-qualification.

Process of determining what the borrower(s) can afford from non-verified information provided by the borrower(s).

Any expenses necessary to create an escrow account or adjust the seller's existing escrow account. This can include any taxes, insurance and special assessments.

Primary Residence
A house or condo which is occupied for the majority of the year by the borrower.

Prime Rate
Interest rate offered by commercial banks

the amount of money you borrow based on the sale price of the home. In the early stages of your mortgage term, your monthly payment includes only a small portion that repays your original principal. As you continue to make payments through the years, a greater portion of your payment goes to reduce the principal.

Private Mortgage Insurance (PMI)
An insurance policy that covers your mortgage lender In case the borrower defaults on the loan. This is borrower paid monthly when there is less than 20% down on a conventional loan.

Property Taxes
Annual local taxes charged upon the value of a homeowner's property.

Quit-claim Deed
A document In which an entity disclaims interest in a property or home or transfers said interest to another person, typically a spouse.

Rate lock
A 'short-term' agreement by a lender to 'hold' a certain interest rate on a home loan while the buyer negotiates a sale transaction.

Real Estate Settlement Procedures Act (RESPA)
An act passed in 1974 which reeled in hidden costs, fees and kickbacks that had become widespread among real estate entities. Following this act, all fees and costs must be disclosed to both buyers and sellers.

The termination or cancellation of a contract. With respect to mortgage refinancing, this is a law that gives the homeowner three days to cancel a contract.

Recording Fees
Money which is paid to the lender for recording a home sale with local authorities. Thereby making it part of public records.

When a borrower replaces an existing loan(or loans) with a new loan on the same property. There are mainly two type of refinance: rate and term refinance and cash-out refinance.

Repayment Schedule
See 'Amortization.'

Resetting the clock
A term used after refinancing a loan when the loan term of the mortgage is extended.

Reverse Mortgage
A loan specifically for individuals 62 years and older, which gives the homeowner access to the home's equity in cash payments. Though it may be seen as a good source of income, it is still structured as a loan, therefore they are not typically considered as income.

Sales Contract
A formal written contract in agreements of real estate sales made between a homebuyer and seller. This document includes the property address, condition of the home, purchase price, prior inspections, date of closing, all contact information and more.

Second Mortgage
A mortgage taken out after a first mortgage which gives borrowers flexibility to access the cash equity in their home. Also known as a home equity loan.

See 'Closing.'

Short Refinance
A refinance in which the lender agrees to lower the rate and/or change the term despite the mortgage balance exceeding the value of the property.

Short Sale
A foreclosure alternative where a property is sold for less than the balance written on the existing associated mortgage.

Streamline Refinance
An expedited refinance that requires limited underwriting, in some cases may even forego the need of an appraisal.

Subprime Loan
A loan reserved for those who have difficulty qualifying for a traditional loan.

A formal inspection of property that establishes boundary lines and defines any types of limits on construction and other features that could possibly affect the value of the property. In many cases lenders require buyers to purchase a property survey.

Swing Loan
See 'Bridge Loan.'

paid by the homeowners to local governments and are usually charged as a percentage of the assessed property value. Tax amounts vary depending on where you live.

Tenancy in Common
When there are one or more persons in possession on property title but ownership may be declared in various percentages.

The length of a loan.

The document which shows ownership history, outstanding debts tied to the property and current ownership of the property.

Title Company
Handles all tasks associated with the property title, including insurance and search.

Title Insurance
Insurance that protects both the buyer as well as the lender against any previous owner who claims rights to the property.

Title Search
A search performed on a property title to determine if there are any existing or outstanding liens against the property prior to a sales transaction.

The decision whether to make a loan to a potential homebuyer based on their credit, employment, assets as well as other factors and matching said buyer to an appropriate rate, term and loan amount.

A USDA insured loan which allows borrowers to purchase homes in rural areas with no money down.

VA Loan
Loans guaranteed by the Veterans Administration offered to veterans and their families.

Variable Rate Mortgage
See 'Adjustable Rate Mortgage.'

Verification of Deposit (VOD)
A document signed by the borrower's financial institution verifying the current status of the borrower's financial accounts.

Verification of Employment (VOE)
A document signed by the borrower's employer (in many cases by the HR representative) verifying the borrower's position and salary.

Warranty Deed
An indication of no past liens or disputes against the property. The holder of this deed has the right to sell the property to a buyer.

Wire Transfer
Also referred to as a bank wire or bank transfer, is the movement of funds between people or entities over an electronic payment system.