California Mortgage and Loan - Glossary or Definitions
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
A
Amenity: a feature of the home or property
that serves as a benefit to the buyer but that is
not necessary to its use; may be natural (like location,
Woods, water) or man-made (like a swimming pool or
garden).
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 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, ARM monthly payments increase or
decrease at intervals determined by the lender; the
Change in monthly -payment amount, however, is usually
subject to a 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 loan
is assumed by the buyer 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.
Top
B
Balloon Mortgage: a mortgage that
typically offers low rates for an initial period of
time (usually 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. Top
C
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 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.
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 gouge
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. Top
D
Debt-to-income ratio: a comparison
of gross income to housing and non-housing expenses;
With the FHA, the-monthly mortgage payment should
be no more than 29% of monthly gross income (before
taxes) and the mortgage payment combined with non-housing
debts should not exceed 41% of income.
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 doesn't 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 to be equivalent to 1% of the
total loan amount, discount points are paid to reduce
the interest rate on a loan.
Down payment: the portion of a home's
purchase price that is paid in cash and is not part
of the mortgage loan. Top
E
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.
EEM: Energy Efficient Mortgage;
an FHA program that helps homebuyers save money on
utility bills by enabling them to finance the cost
of adding energy efficiency features to a new or existing
home as part of the home purchase.
Equity: an owner's financial interest
in a property; calculated by subtracting the amount
still owed on the mortgage loon(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. Top
F
Fair Housing Act: a law that prohibits discrimination
in all facets of the homebuying process on the basis
of race, color, national origin, religion, sex, familial
status, or disability.
Fair market value: the hypothetical price
that a willing buyer and seller will agree upon when
they are acting freely, carefully, and with complete
knowledge of the situation.
Fannie Mae: Federal National Mortgage
Association (FNMA); 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 homeownership 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 payments
that remain the same throughout the life of the loan
because the interest rate and other terms are fixed
and do 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
(FHLM); a federally-chartered corporation that purchases
residential mortgages, securitizes them, and sells
them to investors; this provides lenders With funds
for new homebuyers. Top
G
Ginnie Mae: Government National Mortgage Association
(GNMA); 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; must be given to the borrower within
three days after submission of a loan application.
Top
H
HELP: Homebuyer Education Learning
Program; an educational program from the FHA that
counsels people about the homebuying 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;
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; ,overage
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 Is contents with protection against claims of
negligence )r inappropriate action that result in
someone's injury or )property damage.
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.
HUD1 Statement: also known as the "settlement
sheet," it itemizes all closing costs; must be
given to the borrower at or before closing.
HVAC: Heating, Ventilation and Air Conditioning;
a home's heating and cooling system. Top
I
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. Top
J
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. Top
L
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) ratio.- a percentage calculated
by dividing the amount borrowed by the price or appraised
value of the home to be purchased; 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. Top
M
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
loans and resells them to secondary mortgage lenders
like :Fannie Mae or Freddie Mac.
Mortgage broker: a firm that originates and
processes loans for a number of 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. Top
O
Offer: indication by a potential
buyer of a willingness to purchase a home at a specific
price; generally put forth in writing.
Origination: the process of preparing,
submitting, and evaluating a loan application; 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. Top
P
Partial Claim: a loss mitigation
option offered by the FHA that allows a borrower,
with help from a lender, to get an interest-free loan
from HUD to bring their mortgage payments up to date.
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; 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: an amount paid on a regular
schedule by a policyholder that maintains insurance
coverage.
Prepayment: payment of the mortgage
loan before the scheduled due date; may be Subject
to a prepayment penalty.
Principal: the amount borrowed from
a lender; doesn't include interest or additional fees.
Top
R
Radon: a radioactive gas found in
some homes that, if occurring in strong enough concentrations,
can cause health problems.
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).
Rehabilitation mortgage: a mortgage that covers
the costs of rehabilitating (repairing or Improving)
a property; some rehabilitation mortgages - like the
FHA's 203(k) - allow a borrower to roll the costs
of rehabilitation and home purchase into one mortgage
loan.
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. Top
S
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.
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. Top
T
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 don't require a property
lien.
Title insurance: insurance that
protects the lender against any claims that arise
from arguments about ownership of the property; also
available for 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 fuII written disclosure
of aII fees, terms, and conditions associated with
the loan initial period and then adjusts to another
rate that lasts for the term of the loan. Top
U
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.
V
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.
Top
|
