Stonegate Mortgage Corporation: A Private Mortgage Banker

Glossary of Mortgage Terms

A.L.T.A. Policy:

An acronym for American Land Title Association. It is a title insurance policy insuring the lender against losses sustained due to lien priority. This policy protects the lender from claims which might have been recorded but may not have been identified by title search and examination. It also protects the lender from defects which might not have been recorded at the time the search was completed. The borrower may pay all, a part, or none of this cost, depending on the terms of the sales contract or local custom.

Acceleration Clause:

Provision in a mortgage that allows the lender to demand payment of the entire principal balance if a monthly payment is missed or some other default occurs.

Additional Principal Payment:

A way to reduce the remaining balance on the loan by paying more than the scheduled principal amount due.

Additional Security:

Security offered to a lender that would be different from the primary security property. This might include an additional piece of real property or a savings account, in addition to the down payment, in order to convince a lender to grant a mortgage loan.

Adjustable Rate Mortgage (ARM):

A mortgage loan in which the interest rate periodically changes according to terms and conditions specified in a mortgage note. The changing interest rate is based upon the upward and downward movement of an index, such as the current U.S. Treasury Securities, and a fixed margin above that index.

Adjusted Basis:

The cost of a property plus the value of any capital expenditures for improvements to the property minus any depreciation taken.

Adjustment Date:

The date that the interest rate changes on an adjustable-rate mortgage (ARM).

Adjustment Period:

The period elapsing between adjustment dates for an adjustable-rate mortgage (ARM).

Affordability Analysis:

An analysis of a buyers ability to afford the purchase of a home. Reviews income, liabilities, and available funds, and considers the type of mortgage you plan to use, the area where you want to purchase a home, and the closing costs that are likely.

Amortization:

The gradual repayment of a mortgage loan, both principal and interest, by installments.

Amortization Term:

The length of time required to amortize the mortgage loan expressed as a number of months. For example, 360 months is the amortization term for a 30-year fixed-rate mortgage.

Annual Percentage Rate (APR):

The cost of credit, expressed as a yearly rate including interest, mortgage insurance, and loan origination fees. This allows the buyer to compare loans, however APR should not be confused with the actual note rate.

Application Fee:

A fee charged by a lender for initiating a loan application.

Appraisal:

A written analysis prepared by a qualified appraiser and estimating the value of a property.

Appraised Value:

An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property.

Appreciation:

An increase in property value beyond the original purchase price.

ARM:

Assessed Valuation:

The dollar value assigned to real property by a local government for the purpose of assessing taxes.

Asset:

Anything owned of monetary value including real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, etc.).

Assignment:

The transfer of a mortgage from one person to another.

Assumability:

An assumable mortgage can be transferred from the seller to the new buyer. Generally requires a credit review of the new borrower and lenders may charge a fee for the assumption. If a mortgage contains a due-on-sale clause, it may not be assumed by a new buyer.

Assumption Fee:

The fee paid to a lender (usually by the purchaser of real property) when an assumption takes place.

Balance Sheet:

A financial statement that shows assets, liabilities, and net worth as of a specific date.

Balloon Mortgage:

A mortgage with level monthly payments that amortizes over a stated term but also requires that a lump sum payment be paid at the end of an earlier specified term.

Balloon Payment:

The final lump sum paid at the maturity date of a balloon mortgage.

Bankruptcy:

Legal protection for an individual against their creditors. All judgments filed prior to the bankruptcy that may have been awarded to lenders must be dropped. See "Chapter 11," "Chapter 13" and "Chapter 7" below.

Before-tax Income:

Income before taxes are deducted.

Biweekly Payment Mortgage:

A plan to reduce the debt every two weeks (instead of the standard monthly payment schedule). The 26 (or possibly 27) biweekly payments are each equal to one-half of the monthly payment required if the loan were a standard 30-year fixed-rate mortgage. The result for the borrower is a substantial savings in interest.

Borrower:

A person who obtains a loan in order to take ownership of real property. The borrower is responsible for the repayment of that loan according to the terms and conditions of the mortgage note.

Bridge Loan:

A second trust that is collateralized by the borrower's present home allowing the proceeds to be used to close on a new house before the present home is sold. Also known as "swing loan."

Broker:

An individual or company that brings borrowers and lenders together for the purpose of loan origination.

Buydown:

When the seller, builder or buyer pays an amount of money up front to the lender to reduce monthly payments during the first few years of a mortgage. Buydowns can occur in both fixed and adjustable rate mortgages.

Buy Up:

A provision granted by a lender that allows the borrower to pay fewer points, which results in a higher interest rate.

Cap(s):

Limits, set by the lender, on the upward (ceiling) or downward (floor) rate changes permitted on an adjustable rate mortgage at each adjustment period.

Cash Out:

Cash in hand given to you from the proceeds if a loan that appears on a HUD-1 closing statement.

CONSUMER CREDIT COUNSELING SERVICES (CCCS):

A non-profit organization that assists people in financial difficulty. The individual cannot pay his debts according to schedule yet they do not want to file bankruptcy. The service will request that their lenders stop charging interest and accept a reduced payment. Lenders consider this one-step before filing bankruptcy, and may consider it as if it is bankruptcy. The counseling service actually is paid by your lenders (since they are trying to keep the customer from filing bankruptcy and costing the lender all the remaining balance owed).

Certificate of Eligibility:

A document issued by the federal government certifying a veteran’s eligibility for a Department of Veterans Affairs (VA) mortgage.

Certificate of Reasonable Value (CRV):

A document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA mortgage.

Change Frequency:

The frequency (in months) of payment and/or interest rate changes in an adjustable-rate mortgage (ARM).

Chapter 11:

Bankruptcy protection for a business/corporation.

Chapter 13:

Payment schedule for all creditors owed. Typically, all credit card/signature loans that are owed are paid back at ten cents on the dollar and the secured accounts are paid back in full. Chapter 13's are typically set up on a five year payback plan.

Chapter 7:

Total liquidation of all creditors. Any accounts that are secured by collateral must be re-affirmed (a new account is opened and must be paid back), or you will lose the security (ie: car, house, personal property).

City Inspection:

An inspection of the property required by some cities. The seller is required to meet specific property standards established by the city. Properties that meet these standards may be issued a certificate of occupancy.

Closing:

A meeting held to finalize the sale of a property. The buyer signs the mortgage documents and pays closing costs. Also called "settlement."

Closing Costs:

The costs or fees associated with closing the loan. These fees include but are not limited to: appraisals, title, recording, mortgage broker fees, underwriting, processing, doc prep, credit, loan discount, and wire transfer.

CLTV:

Combined loan-to-value. All mortgages combined divided by the market value of the home.

Collateral:

Real property and/or other security pledged to a lender as an inducement for granting a loan. If the borrower defaults, the lender has the legal right to seize and sell the collateral in order to collect repayment of the debt.

Commitment Fee:

A fee charged by a lender for extending the period of time to which the lender will commit to approval of a specific interest rate and/or loan amount.

Compensating Factors:

The strengths of a loan that are mentioned to counter the negative issues to obtain an approval. Compensating factors include but are not limited to: Long time in a home, long time on a job, pride in ownership, good disposable income, saving you a great deal of money with a new loan.

Compound Interest:

Interest paid on the original principal balance and on the accrued and unpaid interest.

Comps:

Properties that have sold recently that are similar to the home that we are using as collateral on a loan. The properties are compared to determine the market value of our property.

Consumer Reporting Agency (or Bureau):

An organization that handles the preparation of reports used by lenders to determine a potential borrower's credit history. The agency gets data for these reports from a credit repository and from other sources.

Conventional Loan:

A mortgage loan that is not insured by government agencies like the FHA or VA.

Conventional Mortgage:

A residential mortgage loan that is not insured or guaranteed by an agency of the government, payable in monthly installments over a specified period of time.

Conversion Clause:

A provision in an ARM allowing the loan to be converted to a fixed-rate at some point during the term. Usually conversion is allowed at the end of the first adjustment period. The conversion feature may cost extra.

Conveyance:

A transfer of ownership in real property from one party to another party.

Conveyance Fee:

This is the fee paid to a county recorder to log the transfer of title from the seller to the buyer. This fee is set by the local government and is based on the selling price of the property.

Co-Signer:

One who signs for another, thereby accepting full responsibility for repayment of a debt in the event of default.

Cost to Cure:

Pertains to appraisals. If deferred maintenance is noted on an appraisal, an estimate of the amount to fix the problem must be listed. Normally, the cost to cure figure cannot exceed 3% of the appraised value (unless the deferred maintenance is extremely important portion of the property. For example, a new roof would be extremely important and would have to be repaired prior to closing the loan).

Credit Report:

A report detailing an individual's credit history that is prepared by a credit bureau and used by a lender to determine a loan applicant's creditworthiness.

Credit Scores:

Appear on a credit report. It is based upon different credit criteria set up by each credit reporting service. The score provides the lender a tool to base their lending decision.

Debt-To-Income Ratio:

The percentage of a borrower's monthly income that is used to repay debts. This ratio helps lenders determine how large of a mortgage.

Deed of Trust:

The document used in some states instead of a mortgage. Title is conveyed to a trustee.

Default:

Failure to make mortgage payments on a timely basis or to comply with other requirements of a mortgage.

Deferred Maintenance:

Portions of the home that are in need of repair. These problems are listed on an appraisal. Normally, the deferred maintenance figure cannot exceed 3% of the market value. If the deferred maintenance is something extremely important to the property (such as a roof), then the problem areas must be fixed prior to the loan closing.

Delinquency:

Failure to make mortgage payments on time.

Deposit:

This is a sum of money given to bind the sale of real estate, or a sum of money given to ensure payment or an advance of funds in the processing of a loan.

Discharge Date:

The date the court files the final paperwork on a bankruptcy proceeding and the case is closed. Ending stage of a bankruptcy.

Discount:

In an ARM with an initial rate discount, the lender gives up a number of percentage points in interest to reduce the rate and lower the payments for part of the mortgage term (usually for one year or less). After the discount period, the ARM rate usually increases according to its index rate.

Disposable Income:

The amount of money remaining once mortgage payments, homeowner's insurance, real estate taxes, child support payments, and any unpaid bills have been subtracted from total gross monthly income.

Dower:

The interest in the real property of a homeowner allowed to the non-title holding spouse.

Down Payment:

The cash that a buyer pays toward the purchase of a house. The down payment/equity represents the difference between the mortgage amount and the purchase price, and includes the earnest money (escrow deposit) and secondary financing.

Earnest Money (Escrow Deposit):

Money given by a buyer, to a seller or a seller’s agent, in order to secure the purchase of real property and to show that the buyer’s offer is being made in good faith.

Effective Gross Income:

A borrowers normal annual income, including overtime that is regular or guaranteed.Salary is usually the principal source, but other income may qualify if it is significant and stable.

Equity:

The amount of financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on the mortgage.

Escrow:

Money that is set up in reserve to pay real estate taxes and homeowner's insurance.

Escrow Account:

Funds included in the monthly real estate loan payment to accumulate the amounts necessary for the future payment of county taxes and any of the following, when applicable: Private Mortgage Insurance (PMI), homeowner’s insurance, flood insurance, mortgage life insurance and disability insurance. Using the funds in the escrow account, the lender makes these payments as they become due.

Escrow Agent:

An impartial third party responsible for overseeing the transfer of real property according to conditions set forth in the purchase agreement and any attached addenda.

Escrow Deletion Letter:

A letter, signed by both buyer and seller, which deletes the escrow agent listed in the purchase agreement and names a new escrow agent.

Escrow Disbursements:

The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.

Escrow Fee:

A fee paid to the escrow agent for overseeing the transfer of real property.

Escrow Payment:

The part of a mortgagor’s monthly payment that is held by the servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due.

Fannie Mae:

A congressionally chartered, shareholder-owned company that is the nation's largest supplier of home mortgage funds.

FHA Mortgage:

A mortgage that is insured by the Federal Housing Administration (FHA). Also known as a government mortgage.

FICO Score:

FICO scores are the most widely used credit score in U.S. mortgage loan underwriting. This 3-digit number, ranging from 300 to 850, is calculated by a mathematical equation that evaluates many types of information that are on your credit report. Higher FICO scores represent lower credit risks, which typically equate to better loan terms.

Filing Date:

The date that a bankruptcy is recognized and filed by the courts. The beginning stage of a bankruptcy.

Finance Charge:

The cost of interest and other charges involved in borrowing money to build or purchase real estate.

First Mortgage:

The mortgage/deed of trust that appears on a title that has been recorded the longest has first position. It is solely based upon filing dates. Loan officers must payoff all the liens on a title search to be placed in first position.

Fixed Installment:

The monthly payment due on a mortgage loan including payment of both principal and interest.

Fixed Rate Mortgage:

Home loans with fully-amortized payment schedules. The interest rate and monthly payment amount remain constant for the life of the loan.

Flood Insurance:

A federal insurance plan required for any property purchased in a certain floodhazard area identified by FEMA (Federal Emergency Management Agency). If your property is within such an area, you may be required by federal law to carry flood insurance on your home. Such insurance may be purchased in participating communities under the National Flood Insurance Act.

Foreclosure:

When you have failed to make payments. The lender pursues a legal action and is awarded the property. This is the worse entry that can appear on a credit report. The people residing in the home are also evicted. The home is resold, and any balance remaining is still owed by the borrower.

Fully Amortized ARM:

An adjustable-rate mortgage (ARM) with a monthly payment that is sufficient to amortize the remaining balance, at the interest accrual rate, over the amortization term.

Gift of Equity:

Pertains to purchase money deals. When you are given equity in a home to buy a home and the money does not have to be paid back. Normally, it is between relatives.

Gift of Funds:

Pertains to purchase money deals. When you are given funds to buy a home and the money does not have to be paid back. The gift must come from an immediate family member.

GNMA:

A government-owned corporation that assumed responsibility for the special assistance loan program formerly administered by Fannie Mae. Popularly known as Ginnie Mae.

Good Faith Estimate:

A calculation offered by a lender, usually at the time of application, that provides a breakdown of fees and estimated closing costs.

Gross Debt Ratio:

Total remaining debts divided by the monthly income. Expressed in a percentage basis. The higher the percentage the more risk to the mortgage payments.

Gross Income:

Total income from all sources for all borrowers on a loan. This is the income before any deductions, including taxes, 401k contributions, insurance premiums or charitable deductions.

Growing-Equity Mortgage (GEM):

A fixed-rate mortgage that provides scheduled payment increases over an established period of time. The increased amount of the monthly payment is applied directly toward reducing the remaining balance of the mortgage.

Guarantee Mortgage:

A mortgage that is guaranteed by a third party.

Homeowner's Hazard Insurance:

Insurance protecting a house against certain hazards including loss from fire, certain natural causes and vandalism, and guaranteeing payment to the insured in cases of such loss.

Housing Expense Ratio:

The percentage of gross monthly income budgeted to pay housing expenses.

HUD-1 Statement:

A document that provides an itemized listing of the funds that are payable at closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow amounts. Each item on the statement is represented by a separate number within a standardized numbering system. The totals at the bottom of the HUD-1 statement define the seller's net proceeds and the buyer's net payment at closing.

Index:

A base indicator for the interest rate of an adjustable rate mortgage. A typical index is the 1-year Treasury Bill averaged to a constant maturity, plus the margin. Another typical index would be the Prime Interest Rate.

Initial Interest Rate:

This refers to the original interest rate of the mortgage at the time of closing. This rate changes for an adjustable-rate mortgage (ARM). It's also known as "start rate" or "teaser."

Installment:

The regular periodic payment that a borrower agrees to make to a lender.

Installment Debt:

Where loan payments are the same set amount each month regardless of the balance.

Insured Mortgage:

A mortgage that is protected by the Federal Housing Administration (FHA) or by private mortgage insurance (MI).

Interest:

The cost of borrowing money from a lender.

Interest Accrual Rate:

The percentage rate at which interest accrues on the mortgage. In most cases, it is also the rate used to calculate the monthly payments.

Interest Rate:

The rate used to perform interest calculations and establish the monthly mortgage payment.

Interest Rate Buydown Plan:

An arrangement that allows the property seller to deposit money to an account. That money is then released each month to reduce the mortgagor's monthly payments during the early years of a mortgage.

Interest Rate Ceiling:

For an adjustable-rate mortgage (ARM), the maximum interest rate, as specified in the mortgage note.

Interest Rate Floor:

For an adjustable-rate mortgage (ARM), the minimum interest rate, as specified in the mortgage note.

Judgment:

The decree of a court which produces a lien against the real property of a debtor as a result of the court’s award of money to a creditor.

Jumbo Mortgage:

A loan amount that exceeds the limits set by government-backed companies Fannie Mae and Freddie Mac. Late Charge: The penalty a borrower must pay when a payment is made a stated number of days (usually 15) after the due date.

Lease-Purchase Mortgage Loan:

An alternative financing option that allows low- and moderate-income home buyers to lease a home with an option to buy. Each month's rent payment consists of principal, interest, taxes and insurance (PITI) payments on the first mortgage plus an extra amount that accumulates in a savings account for a downpayment.

Liabilities:

A person's financial obligations. Liabilities include long-term and short-term debt.

Lien(s):

Loans on a property. All liens must be paid that are owed on a property if it is being used as collateral or calculated into the loan-to-value ratios but they cannot be ignored.

Lifetime Payment Cap:

For an adjustable-rate mortgage (ARM), a limit on the amount that payments can increase or decrease over the life of the mortgage.

Lifetime Rate Cap:

For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can increase or decrease over the life of the loan. See "Cap(s)".

Line of Credit:

An agreement by a commercial bank or other financial institution to extend credit up to a certain amount for a certain time.

Liquid Asset:

A cash asset or an asset that is easily converted into cash.

Loan:

A sum of borrowed money (principal) that is generally repaid with interest.

Loan Commitment:

A guarantee by a lending institution to a borrower to lock in an interest rate for a certain number of days.

Loan-To-Value (LTV):

A percentage representing the mortgage amount divided by the appraised property value or selling price of the property (whichever is less). For example, if the market value of a house is $100,000, and the amount of the loan is $80,000, the LTV is 80%.

Lock-In Period:

The guarantee of an interest rate for a specified period of time by a lender, including loan term and points, if any, to be paid at closing. Short term locks (under 21 days), are usually available after lender loan approval only. However, many lenders may permit a borrower to lock a loan for 30 days or more prior to submission of the loan application.

Long-Term Commitment:

A rate and/or loan amount guarantee by a lending institution which is longer than its basic commitment period.

LTV:

Margin:

The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.

Market Value:

The most likely price at which a property will sell in a competitive and open market.

Maturity:

The date on which the principal balance of a loan becomes due and payable.

Monthly Fixed Installment:

That portion of the total monthly payment that is applied toward principal and interest. When a mortgage negatively amortizes, the monthly fixed installment does not include any amount for principal reduction and doesn't cover all of the interest. The loan balance therefore increases instead of decreasing.

Mortgage:

Liens or loans that are owed on a property. They must be calculated into the loan-to-value ratio or paid off but cannot be ignored.

Mortgage Banker:

A company that originates mortgages exclusively for resale in the secondary mortgage market.

Mortgage Broker:

An individual or company that brings borrowers and lenders together for the purpose of loan origination.

Mortgage Disability Insurance:

Optional insurance which, under circumstances spelled out in the insurance policy, makes payments on a mortgage loan when the borrower is injured, ill or disabled.

Mortgage Insurance:

A contract that insures the lender against loss caused by a mortgagor's default on a government mortgage or conventional mortgage. Mortgage insurance can be issued by a private company or by a government agency.

Mortgage Insurance Premium (MIP):

The amount paid by a mortgagor for mortgage insurance.

Mortgage Life Insurance:

A type of term life insurance In the event that the borrower dies while the policy is in force, the debt is automatically paid by insurance proceeds.

Mortgagee:

A lender that accepts a debt instrument as a security interest in real property in return for granting a loan.

Mortgagor:

The borrower in a mortgage agreement.

Negative Amortization:

Amortization means that monthly payments are large enough to pay the interest and reduce the principal on your mortgage. Negative amortization occurs when the monthly payments do not cover all of the interest cost. The interest cost that isn't covered is added to the unpaid principal balance. This means that even after making many payments, you could owe more than you did at the beginning of the loan. Negative amortization can occur when an ARM has a payment cap that results in monthly payments not high enough to cover the interest due.

Net Worth:

The value of all assets minus the amount of all liabilities. It is often used as a measure of financial strength.

Non Liquid Asset:

An asset that cannot easily be converted into cash.

Non-Obligated Borrower:

Spouse or other individual who has a vested interest in a property and is not going to sign on the loan. By signing non-obligated, they are authorizing the other party to use the equity in the home as collateral for a loan. The non-obligated party is required to sign the following documents at closing: HUD-1, Deed of Trust, Notice of Right to Cancel, Truth-in-Lending. The non-obligated party is not responsible to make payments should you default the loan.

Non-Owner Occupied:

An investment property for an individual. You do not live in this particular property but rent it out for an additional home.

Note:

A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.

Origination Fee:

A fee paid to a lender for processing a loan application. The origination fee is stated in the form of points. One point is 1 percent of the mortgage amount.

Owner Financing:

A property purchase transaction in which the party selling the property provides all or part of the financing.

Owner Occupied:

The home that you live in.

Owner's Fee Policy:

A title insurance policy guaranteeing that the buyer of a property enjoys free and clear title at the time the deed is filed for record. This policy goes beyond the title guarantee by protecting the buyer against defects which might not have been of record at the time the title search was performed. In some areas, it is customary for the seller to provide the buyer with an owner’s policy and for the seller to pay for this policy. In other areas, if the buyer desires an owner’s policy, he or she must pay for it. It shows the location of the land, its dimensions and any improvements on the land. It also checks for easements of record, encroachments and building line violations.

Payment Change Date:

The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM) or a graduated-payment mortgage (GPM). Generally, the payment change date occurs in the month immediately after the adjustment date.

Periodic Payment Cap:

A limit on the amount that payments can increase or decrease during any one adjustment period.

Periodic Rate Cap:

A limit on the amount that the interest rate can increase or decrease during any one adjustment period, regardless of how high or low the index might be.

PITI:

An acronym for the components of a monthly mortgage payment. It stands for Principal, Interest, Taxes and Insurance.

PITI Reserves:

A cash amount that a borrower must have on hand after making a down payment and paying all closing costs for the purchase of a home. The principal, interest, taxes, and insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a predefined number of months (usually three).

Point Form:

A form signed by whoever is paying the purchaser’s points and/or costs.

Points:

A one-time charge used to “buy down” the interest rate on a loan. Each point is equal to 1% of the mortgage amount. For example, if a lender charges one point on an $80,000 loan, this amounts to a charge of $800.

Pre-Approval:

The process of determining how much money you will be eligible to borrow before you apply for a loan.

Prepaid Interest:

Interest due on the full amount of the principal for the period from the date of settlement to the beginning of the period covered by the first monthly payment.

Prepayment:

The payment of a mortgage loan before it is due.

Prepayment Penalty:

A penalty charged by a lender to a borrower for paying off a mortgage loan before maturity.

Prime Rate:

The interest rate that banks charge to their preferred customers.Changes in the prime rate influence changes in other rates, including mortgage interest rates.

Principal:

The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.

Principal Balance:

The outstanding balance of principal on a mortgage not including interest or any other charges.

Private Mortgage Insurance (PMI):

Mortgage insurance provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require MI for a loan with a loan-to-value (LTV) percentage in excess of 80 percent.

Purchase Agreement:

A written document in which the purchaser agrees to buy certain real estate and the seller agrees to sell under stated terms and conditions.

Purchase Price:

The amount of money paid to buy a property.

Qualifying Ratios:

Calculations used to determine if a borrower can qualify for a mortgage. They consist of two separate calculations: a housing expense as a percent of income ratio and total debt obligations as a percent of income ratio.

Rate Lock:

A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate and lender costs for a specified period of time.

Real Estate Agent:

A person licensed to negotiate and transact the sale of real estate on behalf of the property owner.

Real Estate Settlement Procedures Act (RESPA):

A federal law requiring lenders to send an estimate of settlement costs to the borrower within three business days after accepting a completed loan application. This act also places limits on the amount lenders may hold in an escrow account and further requires a disclosure of settlement costs to buyers and sellers within a reasonable period of time after settlement.

Realtor®:

A real estate broker or an associate who is an active member in a local real estate board that is affiliated with the National Association of Realtors.

Recording Fees:

The charges for recording documents with public agencies.

Recertification of Value:

Results when an appraisal is 4-6 months old. An appraiser is required to go back to the home to make sure it still exists and then does an addendum stating that the value is still the same or has reduced since the last appraisal.

Refinance:

Paying off one loan with the proceeds from a new loan using the same property as security.

Revolving Debt:

Payments will fluctuate each month and are based upon the balance of the account.

Revolving Liability:

A credit arrangement, such as a credit card, that allows a customer to borrow against a preapproved line of credit when purchasing goods and services.

Rural Property:

When the collateral being used on the loan is far from any large cities or in a remote area. The collateral becomes a higher risk since fewer people will want to live there (possibly). We will classify a property as rural if the appraiser has to use comparable properties that are greater than 4 miles.

Secondary Financing:

Financing provided by a second lender that will accept a second lien position. This includes seller financing or financing provided by communities or organizations to further community housing goals.

Secondary Mortgage Market:

Where existing mortgages are bought and sold. Security: The property that will be pledged as collateral for a loan.

Seller Carry-back:

An agreement in which the owner of a property provides financing, often in combination with an assumable mortgage. See "Owner Financing".

Seller Concessions:

Pertains to purchase money deals. When the seller is willing to pay some or all of the closing costs.

Servicer:

An organization that collects principal and interest payments from borrowers and manages borrowers’ escrow accounts. The servicer often services mortgages that have been purchased by an investor in the secondary mortgage market.

Settlement:

The final closing in which real property is transferred and proceeds are disbursed.

Settlement Statement:

The financial disclosure, often called the HUD-1 Settlement Statement, which includes an itemized list of the services provided to you and the fees charged to you. This form (developed by the U.S. Department of Housing and Urban Development) is filled out by the settlement agent who will conduct the settlement. In parts of the country where the settlement agent does not require a meeting, the statement will be mailed or delivered as soon as practical after settlement. No advance inspection is required.

Soft Equity:

When the value of a home appreciates excessively in a short amount of time with little to no reason. Underwriters consider this an "overinflated market value", and may reduce the value of the home or turn the deal down altogether.

Stack Loan:

Normally, when you need to use 100% of the value of a property, and the initial rate for the one loan 100% is too high to offer the customer. The loan amount is split into two separate loans (usually 80% LTV and 20% LTV).

Standard Payment Calculation:

The method used to determine the monthly payment required to repay the remaining balance of a mortgage in substantially equal installments over the remaining term of the mortgage at the current interest rate.

Step-Rate Mortgage:

A mortgage that allows for the interest rate to increase according to a specified schedule (i.e., seven years), resulting in increased payments as well. At the end of the specified period, the rate and payments will remain constant for the remainder of the loan.

Subject Property:

The home being used as collateral for the loan.

Subordinations:

When a current lienholder that appears on title will go behind or after the new loan, allowing First Option to be listed as the first lien holder. This is important when a loan defaults and goes thru the foreclosure process. Lien holders are paid off based upon their position on the title.

Survey:

A lot drawing performed by a surveyor which locates the house and other buildings on the lot described in the legal description of the property. It shows the location of the land, its dimensions and any improvements on the land. It also checks for easements of record, encroachments and building line violations.

Tax Proration:

The distribution of seller’s proceeds to the buyer to cover county taxes which are owed but not payable at the time of the title transfer.

Tax Reserves:

Funds, collected as part of the monthly mortgage payment, which are held by the lender on behalf of the borrower. These funds are used by the lender to pay the borrower’s semi-annual real estate taxes.

Term:

The amount of time between the start date and the termination date of a note, mortgage or other legal document.

Third-party Origination:

When a lender uses another party to completely or partially originate, process, underwrite, close, fund, or package the mortgages it plans to deliver to the secondary mortgage market.

Title:

The right of ownership, control and possession of property.

Title Guarantee:

The guarantee to a purchaser by an independent title company performing a title search that there are no liens of record which would cloud the title to a newly acquired real property.

Title Insurance:

A policy that protects the purchaser, mortgagee or other party against losses due to defects in title.

Title Search:

A search by an independent title company for liens or encumbrances which could affect passing clear title from the seller to the buyer.

Total Expense Ratio:

Total obligations as a percentage of gross monthly income including monthly housing expenses plus other monthly debts.

Trade Lines:

Active accounts that appear on your credit report.

Treasury Index:

An index used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. Based on the results of auctions that the U.S. Treasury holds for its Treasury bills and securities or derived from the U.S. Treasury's daily yield curve, which is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market.

Truth-in-Lending:

A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the annual percentage rate (APR) and other charges.

Two-step Mortgage:

An adjustable-rate mortgage (ARM) with one interest rate for the first five or seven years of its mortgage term and a different interest rate for the remainder of the amortization term.

Underwriting:

The process of evaluating a loan application to determine the risk involved for the lender. Underwriting involves an analysis of the borrower's creditworthiness and the quality of the property itself.

VA Mortgage:

A mortgage that is guaranteed by the Department of Veterans Affairs (VA). Also known as a government mortgage.

Vesting:

Relates to title searches. Shows who the legal owners of a home are.

VERIFICATION OF EMPLOYMENT (VOE):

This form is completed by an employee if your current or former employer. The VOE supplies First Option with important information of you which would include but not limited to: hire date, salary, hourly income, position, likelihood of continued employment.

VERIFICATION OF LOAN (VOL):

This form is completed by a banking individual if you on a specific loan that may not appear on a credit report or requires further information.

VERIFICATION OF MORTGAGE VOM):

This form is completed by your current or former mortgage holder. The VOM supplies important information of you which would include but not limited to: the mortgage balance, monthly payments, pay habits/history, and next due date.

VERIFICATION OF RENT (VOR):

This form is completed by your current or former landlord. The VOR supplies First Option with important information from you which would include but not limited to: monthly rent payments, pay habits/history, and next due date.

Note: This glossary is provided specifically to assist the home buyer in understanding mortgage loan terms. These terms may vary in definition from one financial institution to another.