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250 Cards in this Set
- Front
- Back
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Acceleration clause
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An acceleration clause is a clause contained in your mortgage which allows your lender to speed up the rate of your loan’s payment terms. The clause can also allow your lender to require immediate payment of your mortgage in full. Normally, this clause can only be activated if you were to default on your loan or if you were to otherwise violate your loan’s terms and conditions.
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acceptance
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Any contract you are involved in doesn’t become legally binding until your acceptance of that contract. Acceptance occurs when the offeree of the contract agrees to all of the terms and conditions of that contract. When applying for a mortgage or other loan and when you are buying a home, you are the offeree. When Selling your home, you are the offerer
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additional principal payment
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Whenever you make a monthly payment on your loan, a percentage of that payment goes towards principal and a percentage goes towards interest. If you want to reduce your balance and pay off your loan early, you can make an additional principal payment by sending additional money to be applied towards the principal of your loan when you make your monthly payment
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adjustable rate mortgage (ARM)
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A mortgage loan with an interest rate that moves higher or lower periodically depending on the terms of your loan. If you take out an adjustable rate mortgage, also known as an ARM, you will have a lower initial interest rate than a fixed rate mortgage, but that interest rate could increase. For example, when taking out a 5-year ARM, your initial interest rate will be fixed for a five-year period and then can adjust each year after that. Whether or not your interest rate will increase or decrease is determined by the index that your lender uses to base their interest rates on. Most ARMs have what is called a cap, which will protect you in the event that interest rates increase substantially beyond a pre-determined rate level.
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adjusted basis
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The adjusted basis is a part of the equation that is used to determine your gains or losses when your property is sold. This formula takes the original cost of your property, adds in the value of any capital expenditures of improvements to the property and subtracts the amount of any depreciation. After you calculate your adjusted basis, you subtract it from the sales price of your property to determine your gains or losses
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adjustment date
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The adjustment date is the date on which your interest rate changes if you hold an adjustable-rate mortgage (also known as an ARM). Adjustment dates will vary from lender to lender and will be determined by the terms of your individual loan. The term can also be used to refer to a day that is set shortly after you make your purchase, in which you make a payment of accumulated interest in order to have your subsequent payments due on the first day of each month.
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adjustment interval
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When you have an adjustable rate mortgage, your interest rate can change at each adjustment period. The amount of time between your adjustment periods is referred to as your adjustment interval. On the average, adjustment intervals are one-year, three-year or five-year periods depending on the index that your lender uses to determine changes to your interest rate.
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adjustment period
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The adjustment period of your mortgage refers to how often your mortgage’s interest rate can be changed. Most adjustable rate mortgages have one-year adjustment periods; however, it is possible for adjustment periods to be monthly or semi-annually. These shorter adjustment periods tend to have much lower interest rates, but homeowners should be aware that these "teaser rates" can increase substantially in a short period of time
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advanced lock
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An agreement by a lender to guarantee a loan's interest rate the day you apply for your loan. These locks are usually good for a maximum of 45 days and are sometimes as short as 12 days. The longer the lock period, the higher the loan interest rate.
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advertising fee
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An advertising fee is a fee that you may be charged by a car dealer when you purchase a vehicle. This fee is used to pay for the dealer’s advertising costs. Since many buyers feel as though these advertising costs should be the dealership’s responsibility, they opt to negotiate in order not to pay this fee
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affordability analysis
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A lender uses an affordability analysis in order to determine whether or not you are able to make payments on the home you want to purchase. This analysis takes a look at things like your income, your debts and liabilities, and the funds you have in reserve. The type of mortgage you will be applying for, the location of the home you are looking to purchase in and the potential closing costs of the transaction are also taken into consideration.
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amortization
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Amortization is the reduction of your debt through the monthly payments you make on your loan. Your payments are structured so that a part of each payment goes towards principal and the other part goes towards interest. At the beginning of your loan, more of your payment goes towards interest than towards principal. Towards the end of your loan, more of your payment amount is placed towards the principal balance of your loan. Once you make your final payment, your loan is fully amortized.
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amortization schedule
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Your amortization schedule is a table that creates a timeline of your mortgage loan payment plan. This table shows you how your monthly payments are broken down and how much of each payment is going towards interest and how much is being applied towards the principal of your loan. By looking at your amortization table, you will see approximately how much you will owe at a given time up until the point where your loan is paid off.
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amortization term
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Your amortization term is the amount of time it is going to take you to completely pay off the balance of your loan. This term is broken down into months. If you have a fifteen-year mortgage, your amortization term will be180 months and if you have a 30-year mortgage, your amortization term will be 360 months.
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annual mortgagor statement
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When you are paying off a mortgage loan, you will receive an annual mortgagor statement at the end of each year. This report outlines how much money you have paid towards principal, interest and taxes during that year. This report will also show you the balance that is owed on your mortgage at that time.
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annual percentage rate (APR)
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The annual percentage rate, also known as the APR, is a measurement used by lenders that allows you to see the total cost of your mortgage, including the closing fees and the lender points. Lenders are required by law to show you a loan’s APR, but not all lenders use the same formula to determine what their APR is quoted at. Because of this, an APR comparison between lenders can be misleading. Be sure that you’re comparing similar terms whenever you compare two different APR quotes.
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application
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A loan application is the form that you fill out when you are applying for a loan. Loan applications can be filled out using the traditional pen and paper method or you can fill out your loan application online via the Internet. When filling out a loan application, you’ll need to answer personal questions about things like your bank account information, work history, earnings history, residence history and other questions pertaining to your financial stability.
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appraisal
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An appraisal is a tool that is used to estimate the value of a property and is most often used in regards to real estate transactions. When applying for a mortgage, your lender will most likely require you to obtain an appraisal before they will approve your loan. When obtaining an appraisal for a property you are interested in purchasing, you should work with a certified, licensed professional who is familiar with the area you are purchasing a home in.
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appraised value
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The appraised value of a property is an appraiser’s estimation of a property’s fair market value. This appraised value is determined by the appraisal process, which factors in things like the condition of the property you are having appraised and comparable sales in the area of the home. In order to be approved for a mortgage, the appraised value of the home you are purchasing must come in at or above the amount of the mortgage you are applying for.
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appraiser
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An appraiser is a professional who can estimate a property’s fair market value. Good appraisers are qualified through extensive training and years of experience. When hiring an appraiser, make sure that the appraiser you are working with is licensed and certified in order to ensure that you will be working with a highly-qualified individual.
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appreciation
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The term “appreciation” refers to the increase in a property’s value over a period of time. This increase can be caused by changes in the market, inflation rates, area growth and development, and other various factors. Appreciation is what makes real estate a commonly sound investment. Different areas and regions will experience different rates of appreciation.
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assessed value
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When your tax assessor places a value on your property for the purpose of determining your property taxes, the value is referred to as your assessed value. It is not uncommon for a property’s assessed value to come in below the actual fair market value of the property. Because of this, a property’s assessed value cannot be treated as an accurate appraisal.
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assessment
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An assessment is a value that is placed on your property for the purpose of determining the amount of your property taxes. The county assessor is usually the governing agency that will determine your assessment. The term can also be used to refer to a charge that could be placed against your property for local improvements like sewer repair or street improvements
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assignment
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Assignment of a mortgage can mean one of two things. Assignment can be the transfer of a mortgage from a buyer to a seller, or it can be the transfer of a mortgage from one lender to another. If your mortgage is assumable, an assignment would allow the buyer of your home to take over your current payments and interest rate. A second definition of the term is if your current lender sells your mortgage to another lender, they would assign, or transfer, the mortgage to that lender.
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assumable mortgage
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An assumable mortgage is a mortgage that can be transferred from the current owner of a home to the buyer. For example, if you have an assumable mortgage and interest rates are currently significantly higher than when you had purchased your home, you can entice buyers with the fact that your low interest rate is assumable. When a buyer wants to assume a mortgage, they will need to meet the mortgage lender’s requirements in order to qualify
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assumption
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The term assumption is used when a buyer of a property agrees to take over the mortgage payments on that property. For example, if you were to purchase a property using this method, instead of taking out an entirely new mortgage, you would become responsible for the payments of the current mortgage and the mortgage would be put into your name.
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assumption clause
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The assumption clause is the provision of an assumable mortgage that allows a buyer to assume the mortgage of the seller when purchasing a home. If there is an assumption clause in your mortgage, you could have the buyer of your home take over the repayment of your existing mortgage rather than having to pay off your entire mortgage at closing.
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assumption fee
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An assumption fee is the fee that is paid to the lender when a home buyer assumes the seller’s mortgage when purchasing a property. If you are purchasing a home and assuming the seller’s current mortgage, you will normally be required to pay this fee to the lender at the time of closing. The fee covers the processing costs incurred by the lender when they transfer the loan to the buyer
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average yearly cost
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The term “average yearly cost” is used frequently to refer to the costs of owning and operating a vehicle. The amount is determined by factoring in items like the amount the car depreciated in book value during that year, maintenance expenses, fuel costs and any unexpected repairs. If you’re financing your vehicle, the interest paid on your loan or lease will be figured in as well.
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balloon mortgage
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With a balloon mortgage, your payments are usually set based on a 30-year amortization period, but the loan actually becomes due much sooner than that, calling for a large, lump-sum payment at the end of the loan, which is referred to as the balloon payment. If you have a balloon mortgage, you will need to pay off your mortgage in full or refinance at the end of the balloon period.
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balloon payment
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The balloon payment is the last payment that is made at the end of a balloon mortgage. If your mortgage is amortized over a period of time that exceeds the actual term of your loan, the final payment on the loan will be a large lump-sum payment that will either need to be refinanced or paid in full.
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base price
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The base price of a car, also referred to as the MSRP or sticker price, is the price that reflects the cost of the car including the standard equipment and the basic warranty and freight charges. Optional features are not included in the base price of the car. The base price is printed on the Monroney sticker, which is a sticker that placed on all new cars and is required by federal law
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binder
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When you enter into a binder, you are entering into a preliminary agreement that is usually secured with a deposit of “good faith money” or “earnest money.” If you change your mind after entering into a binder, you will generally lose the money that you secured the agreement with, unless the binder has a refund provision
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biweekly payment mortgage
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A bi-weekly mortgage payment is the process of making your mortgage payments every two weeks rather than on a monthly basis in order to pay off your mortgage early and save money on interest. While there are companies who will charge you a fee to set you up on a bi-weekly mortgage program, you can effectively achieve the same results by making your payments bi-weekly yourself.
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blanket mortgage
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A blanket mortgage is a loan that covers more than one property under the same mortgage loan. Blanket mortgages cover all real estate properties of the borrower, including present and future properties. Land developers and real estate investors tend to use blanket mortgages when they are dividing and developing land.
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bona fide
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The term “bona fide” normally means something that is sincere, in good faith, and without fraud. For example, a bona fide offer is a sincere offer made at fair market value, in good faith with no intent of deceit.
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bridge loan
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If you wanted to purchase and close on a new property, but had not yet sold your previous residence and did not have cash reserves for a down payment, you would need to take out a bridge loan. The bridge loan would be the source of the funds needed for the down payment on your new property. These loans were more common when lenders were not willing to lend at a high loan-to-value ratio, but now that lenders are more lenient in regards to LTVs, these loans are no longer widely used.
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broker
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A broker is a professional that brings two parties together and negotiates and arranges contracts between them. These professionals usually charge a fee for their services or work on a commission basis. When you arrange a loan through a broker, the broker is not the one lending you the money; rather, they are working as an intermediary between you and the lender.
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buydown account
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A buydown account is a part of a buydown mortgage plan. The buydown account is where funds are held by the lender. These funds are then applied as a part of your mortgage payment for the term of the initial buydown period. This allows for you to have a lower mortgage payment at the beginning of your loan term.
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buydown mortgage
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When you take out a buydown mortgage, you are paying a lump sum at the beginning of your mortgage in order to pay a lower interest rate for a specified term at the beginning of your mortgage. The period that you will be paying a lower interest rate is usually from 1 to 3 years. For the remainder of the mortgage term, you would pay the full interest amount. Many times, the buydown can be funded by the seller or by the lender, so the expense would not come out of your pocket.
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call option
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If your mortgage has a call option, it means that your lender may demand full payment of the mortgage after the end of a specified period. There does not have to be a specific reason for the lender to call the loan due in full, and you will either need to pay the loan off or refinance the mortgage.
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capitalized cost
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The term capitalized cost is often used when you are leasing a vehicle. The term refers to the sale price of the vehicle and equates to the amount that you would pay for the vehicle if you were actually purchasing it. When you lease a vehicle, the capitalized cost is the price the dealer charges the leasing company for the vehicle
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capitalized cost reduction
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The capitalized cost reduction on a leased vehicle is the same as the down payment you would make when you purchase a vehicle. Either in the form of a cash down payment, a vehicle trade in or a combination of both, the value of the capitalized cost reduction lowers the amount of the lease’s capitalized cost.
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cash-out refinance
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When you take out a cash-out refinance, you are borrowing more money than the amount that you need to pay off your existing mortgage and to pay for all of the costs associated with the refinance. The excess funds of this refinance are paid to you at closing. These funds become part of your new loan agreement and the lien against your home.
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certificate of eligibility
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If you are a qualified veteran in need of a loan to buy a home or start a business, you can receive a certificate of eligibility. This document shows that you are entitled to a VA guaranteed loan. To obtain a certificate of eligibility, contact your local VA office and request a form 1880 which you will need to return to the office along with your DD-214.
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certificate of reasonable value (CRV)
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When you are applying for a VA loan, the Veteran Administration will send an appraiser to estimate the value of the home. Based on this professional’s appraisal, the VA will issue a certificate of reasonable value or a CRV. This document will state the maximum dollar amount that you can borrow to purchase the home
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certificate of title
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When you purchase a home, a title company or an attorney will be hired to research and ensure that the title to the property that you are purchasing is legally and rightfully held by the seller and that the title is free and clear of any liens and encumbrances (except, perhaps, any liens due to loans that will be paid at closing). Once the company verifies this information, they will issue a certificate of title
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chain of title
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A chain of title shows you, in chronological order, the history of all of the documents that are related to the transfer of ownership of a piece of property. The chain of title is used in order to establish that the current owner of the property holds rightful title and it can usually be traced back to when the United States received rights to the property.
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change frequency
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When you have an adjustable rate mortgage, or ARM, the term “change frequency” refers to the period of time that elapses between when your loan’s interest rate can be changed. Your change frequency is measured in months.
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clear title
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When you have been given a clear title, it means that you have been given title to a property that is free of any liens and disputed interests and that there are no questions as to the ownership of the property. This means that the seller that you are purchasing the property from is the only one who holds any legal claim to the property whatsoever.
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closed-end lease
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When you lease a vehicle with a closed-end lease, it means that all of the costs and residual value are determined up front and when the lease is over, you have no further obligations in regards to the lease. Any depreciation of the vehicle at the end of the lease becomes the responsibility of the lease company. This type of lease is also known as “walk away” lease.
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closing
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When you purchase or sell a home, you will need to attend a closing, also known as a settlement. The closing is the point at which the buyer, seller, lender and real estate agents meet and where the title to the property and the funds involved are legally exchanged. If you are purchasing a home and didn’t have possession of the property prior to closing, this is also the point in time where you’ll be given any keys and will gain possession of the property.
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closing costs
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When you buy or sell a home, certain expenses are incurred that are referred to as closing costs. These costs fall into one of two categories. Nonrecurring closing costs are those expenses that are incurred by the buyer in relation to purchasing the property and obtaining the loan. These are one-time costs that won’t need to be paid again. Pre-paid closing costs are items, like property taxes and insurance, that will be paid on a recurring basis. When you buy a home, you should receive a Good Faith Estimate of these closing costs within three days of submitting your loan application to your lender.
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closing statement
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A closing statement is a statement that is prepared by a lender, broker, escrow agent or attorney that you will receive either on the day of closing or shortly thereafter. This statement will give you a breakdown of the costs paid at closing. If your property is in escrow when it closes, you will normally receive the closing statement within 24 hours of recording of the deed of trust.
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cloud on title
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If you are purchasing a home and a title search is performed and there are any outstanding claims found on the property, there is said to be a “cloud on title” and for the cloud to be removed, a court action needs to be taken. Sometimes a quitclaim deed or release will be effective in having the cloud removed.
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co-borrower
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A second person on the title of a loan. If your credit rating isn’t good enough to qualify you for a loan, a co-borrower can help you get the loan you need by co-signing for you. The co-borrower, sometimes referred to as a co-signer, would sign the promissory note with you and if you were to default on the loan, the loan would then become their responsibility.
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collateral
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When you take out a loan, the collateral is the property that secures the loan. With a mortgage, the collateral is your home and with a car loan, the collateral is the car. If payments on a loan aren’t made, the collateral can be repossessed or foreclosed on by the lender according to the terms of the loan.
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collection
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The process when a lender attempts to bring an account current when loan payments becomes delinquent. If you do not bring your loan current when your account is in collection, your creditor may begin to process the paperwork required to gain possession of the loan’s collateral. In the case of a mortgage, this step of the collection process would mean filing notices to proceed with foreclosure and in the case of a car loan, it would mean repossessing the vehicle
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combined loan to value (CLTV)
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If you have more than one mortgage out on your property, the amount of the two mortgage principals combined and divided by the appraised value of your home (or sales price if the sales price is less than the appraisal amount) is your combined loan to value, or CLTV.
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commission
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The compensation that is paid to a professional, such as a mortgage broker or a real estate agent, for the sale of a product or service. Commission is usually based on a percentage of the loan amount or sales price. If you’re buying a home, you will pay your mortgage broker a commission and if you are selling a home, your real estate agent would be paid a commission.
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commitment
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When you receive a commitment from a lender, it means that they are agreeing to make a loan to you, subject to compliance with certain stated conditions. Usually this commitment will outline a specific timeframe and a specific interest rate. The term commitment is also used to refer to the promise an investor makes when agreeing to purchase a mortgage from a lender.
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comparable sales or properties
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When you have your home appraised, the appraiser will look for properties like yours that have been recently sold. These homes will be approximately the same size as your home, be in the same location, and have the same features and amenities. The sales price of these properties will help the appraiser determine the value of your property.
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compound interest
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The interest expense that is calcualted on the principal sum of a loan plus the accrued interest of that sum. When you begin a new interest period, all of the interest from the previous interest period is added to the principal balance and a new principal amount is calculated. Compound interest can be calculated daily, monthly, semiannually, or annually.
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comprehensive insurance
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If damage occurs to your car for reasons other than a collision, comprehensive insurance will pay for the damage your car sustains. Some things that comprehensive insurance covers include flood, hail, theft, fire, explosions, vandalism, malicious mischief and damage from animals
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construction loan
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An interim loan that is used to pay for the building of a home as it is constructed. Your lender will make payments to your builder as work on your home progresses. This is generally a short-term loan, but sometimes when the home is completed, the lender will convert the loan to a traditional mortgage. If the lender is not willing to convert the loan, you will either need to pay the loan in full or refinance the loan with another lender.
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consumer reporting agency (or Bureau)
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An organization that creates the reports that lenders use when determining your creditworthiness. These agencies keep detailed files in regards to your payment history. When you make payments to credit card companies, on installment loans and on revolving credit accounts, your lenders report your payment history to these companies
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contingency
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A stipulation that must be satisfied to render a contract legally binding. For example, when you purchase a home, the offer might be contingent upon financing approval or contingent upon the sale of your current home. The contract to purchase the home wouldn’t be binding until these conditions were met.
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contract of sale
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The written agreement that is made between a buyer and seller of property that outlines the terms and conditions and price of the sale
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conventional mortgage
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When you take out a mortgage from a commercial, non-governmental lender, it is usually referred to as a conventional mortgage. When you have a conventional mortgage it means that your mortgage is not insured by the federal government. Generally, conventional mortgage amounts cannot exceed 80 percent of your home’s appraised value.
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convertibility clause
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If your mortgage has a convertibility clause, it means that you are able to change your adjustable-rate mortgage, or ARM, to a fixed-rate mortgage at a pre-negotiated timeframe under certain conditions.
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convertible arm
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An adjustable-rate mortgage that will allow you to convert your loan into a fixed-rate mortgage within a specific timeframe. This timeframe is usually within the first five years of your loan. Your lender may require you to pay a fee for this conversion, so borrowers should ensure they are aware of any conditions prior to pursuing this option.
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cost of funds index (COFI)
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With adjustable rate mortgage, how and if that rate changes may be determined by what is called a “cost of funds index” or a COFI. This index tracks the weighted average cost of borrowings, savings, and advances of various financial institutions such as savings and Loans and banks.
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covenant
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A written agreement between two people where the parties agree to do or not to do certain things. In regards to your mortgage, a covenant is a clause that obligates you to certain conditions or restricts you from certain actions. If this covenant is violated, it may result in the foreclosure of your home.
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credit report
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A written report of your debt payment history that can be generated by one of the three credit reporting agencies, also known as credit bureaus. When you apply for credit, a lender will pull your credit report to review your creditworthiness and determine whether or not you can be approved for the loan.
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credit history
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A record of your debt payments that is generally maintained by three different credit reporting agencies. When you apply for a mortgage or any other type of loan or line of credit, the lender will pull your credit history to help determine whether or not you are likely to fulfill your obligations under the loan if you were to be approved.
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credit life insurance
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A type of insurance that would pay the balance of your mortgage if you were to die before the mortgage was paid off. Sometimes this type of policy offers a disability clause in addition to a death clause, allowing for payment of the mortgage if you were to become permanently disabled.
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credit score
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A number that is determined by a statistical analysis of your credit history. Items on your credit report, like payment history, collection accounts, judgments, and outstanding debt are all factored in when determining your credit score. Scores range from 365 to 840, with the lower scores reflecting a poorer credit history.
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dealer charges
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Fees that are charged for extra services or products provided to you by an auto dealer. Examples of dealer charges that you may incur include fabric Scotchgurading, pinstriping, paint sealnts or extended warranties.
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dealer holdback
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An allowance given to a dealer or money that is paid to a car dealer by the auto manufacturer. The amount of the dealer holdback is usually two to three percent of the car’s MSRP. This is how a dealer is able to sell you a car at or below invoice and still be able to make a profit.
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dealer incentives
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Program that is offered by an auto manufacturer to help increase car sales. Dealer incentives are usually offered on less popular models or to help move out older inventory when the new years are being released. If you know that a manufacturer is offering a dealer incentive, be sure to check with your local dealer as to whether or not they are offering the incentive to customers, as it is up to the individual dealers whether or not they pass the savings on to you
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dealer invoice
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The price that the auto manufacturers charge the car dealerships for a vehicle. It is important to remember that dealer invoice does not reflect the actual dealer cost. Dealers receive incentives and allowances from the manufacturers that reduce the amount they actual pay for a car. Because of this, it is important to try to negotiate below dealer invoice before sealing the deal on the car that you are purchasing.
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dealer sticker price
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The price that is listed on the Monroney sticker plus the costs of dealer-installed options on the vehicle such as DVD players, car alarms, and upgraded audio systems. The dealer sticker price reflects a significant markup and you should always negotiate with regards to the dealer invoice rather than the dealer sticker price
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debt-to-income ratio
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When you take your monthly expenses and obligations of your long-term debts and divide them by your gross monthly income, the result is your debt-to-income ratio. This equation is what lenders use to determine whether or not you can afford the loan you are applying for. Generally, lenders prefer that your debt-to-income ration be between 30 and 40 percent.
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deed of trust
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A legal document that gives a third party title of real property. Sometimes a deed of trust is used to secure your home loan. If you are purchasing a property and your lending situation requires a deed of trust, you will be transferring title of the property to a third-party, also known as a trustee. If you pay the loan as agreed, the trustee will issue you title to the property when the balance is paid off. If you do not pay the debt as agreed, the trustee can sell the property.
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default
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If your loan falls into default, it means that you have failed to make the payments on your loan as you had agreed or that you have failed to meet some other terms or obligations of your loan agreement. With your mortgage loan, if you fail to make your mortgage payment within 30 days of the date it is due, your mortgage will be in default
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deferred interest
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When you have a payment cap on a mortgage or if you have a graduated mortgage plan, your monthly payments on your mortgage may not be enough to cover the interest cost. If this happens, the remaining interest is deferred by adding the amount to the balance of the loan. In most cases, a lender will put a limit on the amount of interest that can be deferred and you will need to eventually increase your payments so that they are large enough to cover the interest that is due.
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delinquency
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Failing to remit a mortgage payment by it's due date. If your mortgage payment is due on the first of the month and your payment wasn’t received until the 2nd of the month, your payment would be delinquent, even if the lender doesn’t charge a late fee until the 15th.
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deposit
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When purchasing a home, paying an amount of money in order to bind the sale and show good faith. The term “deposit” can also refer to the payment that is made to ensure payment in regards to your loan processing. Sometimes a deposit is referred to as an earnest money deposit. Deposits are often nonrefundable.
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destination charge
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When purchasing a new car from a dealer, the cost the dealership passes on to the car buyer to have the car delivered to the dealer location from the manufacturer or the port of entry. Dealers are not allowed to place a markup on the destination charge
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discount point
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When you take out a mortgage, your lender may charge you points. Each point costs 1 percent of the loan amount and for each point you pay, you will normally receive an interest rate reduction of ¼ of a percent. For example, if you were to take out a mortgage for $150,000, three points would cost you $4,500 and your loan’s interest rate would be reduced by 0.75 percent. Sometimes when you’re negotiating the purchase of your home, you can get the seller to agree to pay some of your points.
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down payment
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When financing a car or a real estate purchase, you’ll need to give a cash deposit called a down payment. The money that you put down will become the equity in the property that you are financing. Typically, down payments on houses can be as low as 0 to 3 percent, but to avoid private mortgage insurance, you’ll need to have a down payment equal to at least 20 percent of the purchase price.
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due-on-sale clause
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If your home loan has a due-on-sale clause, it means that your loan is non-assumable and when you sell your home or transfer your interest in the property, the buyer will not be able to take over your existing mortgage payments and the loan will need to be paid in full at closing.
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earnest money deposit
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Money given to a seller by a buyer to show the seller that an offer to purchase real estate or other real property is a serious, binding offer. If the seller accepts your offer, this deposit will not be returned to you unless one of the contingencies of the offer has not been met. When you are buying a home and you are ready to make an offer, you’ll need to give the seller an earnest money deposit.
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effective rate or cost
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When you are quoted an APR, the total amount of that APR is calculated assuming that you will keep the loan for the entire term of the loan. There is a very good chance that you will sell your home before the mortgage is paid off, and the effective rate or effective cost reflects the total cost of the loan over the number of years that you actually intend to hold it.
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encumbrance
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If you are thinking of purchasing a property and you find out that there is an encumbrance on the property, it means that there is a legal right or interest in the land that would affect you gaining clear title to the property if you purchased it. The title search that is performed on the property will usually reveal any encumbrances.
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Equal Credit Opportunity Act (ECOA)
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The Equal Opportunity Act is a federal law that states that a lender cannot take your race, color, national origin, religion, sex, age, marital status or any public assistance participation into consideration when determining whether of not to approve you for a loan. The Equal Credit Opportunity Act was enacted in 1974 and creditors that don’t comply face severe penalties.
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equity
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The equity in your property represents the difference between what you owe to creditors for loans against the property and how much the property is worth. When you take out a new mortgage, the down payment that you put down is your equity in the home. As the home appreciates in value and as you pay down the principal balance of your mortgage, your equity goes up.
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equity line of credit
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When you take out an equity line of credit, a revolving line of credit is issued to you and you will be able to borrow against that line of credit as funds are needed. Your credit limit will be determined by a combination of your credit history and the equity in your home. The lender who holds your equity line of credit will have a lien against your home for the maximum of the loan amount.
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escrow
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The process of utilizing the services of a third party to oversee the exchange of funds and property between a buyer and seller. When purchasing a property, the escrow agent acts as a custodian of your funds and ensures that the appropriate funds are paid at the closing of the loan and that the property is appropriately conveyed.
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escrow account
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An account that is held by a lender or an escrow agent. Funds are placed into the account for a specific purpose. When the funds are needed for that purpose, they are paid out of the escrow account. When you have a mortgage, a certain amount of your payment normally goes into an escrow account, out of which your property taxes and insurance payments are made.
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escrow analysis
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When you have funds placed into an escrow account for the purpose of paying expenses like your property taxes and insurance, a periodic examination of the balance of the account is conducted to ensure that the monthly payments you are making will be enough to cover the expenses that are paid from the account when they become due.
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examination of title
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When you conduct an examination of title, you are searching the public records or the abstract of title to discover previous owners and any liens or encumbrances on the property.
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EZ Doc
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An ez doc loan is a trademarked name for a residential home loan program that is generally the same as a limited documentation or stated income loan. When you apply for this type of loan, you state your income on the loan application, but are not required to provide any verification or proof of your income to the lender.
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Fair Credit Reporting Act
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A consumer protection law that protects you from misuse or negligence on behalf of the credit reporting agencies. Under this Act, there are procedures in place that you can follow in order to help remove errors from your credit report. The act also regulates what information credit reporting agencies can disclose about you and who can access your credit report.
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fair market value
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The fair market value of a property is the price a buyer would be willing to pay and a seller would be willing to sell a property for if there were no extenuating circumstances related to the sale or purchase of the property. An appraiser can help you determine the fair market value of the property that you are interested in purchasing or selling.
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Fannie Mae (FNMA)
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When you purchase a home, chances are that you’re mortgage is being funded by Fannie Mae, the largest non-bank financial services company in the world. Fannie Mae (FNMA) is the Federal National Mortgage Corporation. They are a shareholder-owned company that purchases conventional mortgages and mortgages insured by the federal government so that lenders are able to free up funds to finance additional loans.
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FHA Mortgage
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If you take out an FHA mortgage, it means that the lender who gave you your mortgage is insured against loss by the Federal Housing Administration. You need to pay for this insurance through a combination of a monthly premium that is added to your monthly mortgage payment and a one-time upfront cost, although the upfront cost can be rolled into your mortgage loan so you can pay it off over time. This type of loan is popular because of the low down payment requirements and the lower interest rates offered, although the maximum loan amounts are also lower.
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FHLMC
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FHLMC is the Federal Home Loan Mortgage Corporation, also known as Freddie Mac. The company is a private corporation that was developed by congress in order to help support the secondary mortgage market. Like Fannie Mae, Freddie Mac purchases loans from lenders so lenders have additional funds that enable them to make more home loans to homebuyers.
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FICO
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Your FICO score is a type of credit score that was developed by the Fair Isaac Company. This type of credit scoring evaluates only the information contained in your credit file and helps a lender determine the risks associated with extending you credit.
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firm commitment
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When you receive a firm commitment from a lender, it means that the lender is agreeing to lend you a specific amount of money on a specific property at a specific interest rate.
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first mortgage
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For a home purchase, this is the primary lien against a home. If for some reason your home were to go into foreclosure, the first mortgage would be paid and satisfied prior to any other mortgages or liens, except those liens imposed by legal authorities.
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Fixed-rate loans
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When you have a fixed-rate loan, it means that the initial interest rate you agreed to when you took out the loan will remain the same over the life of the loan. With this type of loan, the payment amount of your principal and interest will never change. These loans are typically for 15 to 30 year terms.
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FNMA
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The Federal National Mortgage Association is the largest non-bank financial services company in the world. Also known as Fannie Mae, this federally-sponsored private company purchases conventional mortgages and mortgages that are insured by the federal government in order to allow lenders to clear up funds in order to make additional home loans to more homebuyers.
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Freddie Mac
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Freddie Mac is the Federal Home Loan Mortgage Corporation. This company is a private corporation that was developed by congress in order to help support the secondary mortgage market. Freddie Mac purchases loans from lenders so that these lenders will have additional funds to make home loans to a greater number of homebuyers.
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fully amortized arm
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When the monthly mortgage payment that you make to your lender each month on your adjustable rate mortgae is enough to cover the costs of the principal and interest and to fully amortize the remaining balance of your loan over the amortization term.
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gap protection
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If you terminate a car's lease agreement early, gap protection is the insurance that would cover the amount owed to the leasing company due to that early termination. If your car were stolen or in a serious accident, the gap insurance would pay the difference between the amount paid by your auto insurance company and the amount needed to pay off the lease balance and any early termination penalties.
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good faith estimate
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When you apply for a mortgage, the lender is required by law to provide you with a Good Faith Estimate which is a documnet outlining the costs that you will be expected to pay at closing. The Real Estate Settlement Procedures Act requires that this estimate be presented to you within three days of the lender receiving your loan application.
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graduated payment mortgage (GPM)
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When you have a graduated payment mortgage, or GPM, the amount of your monthly mortgage payment is initially lower than the amount needed to fully amortize the mortgage. The payments will then increase for a set period of time and level off at a point where the payments are enough for the mortgage to fully amortize.
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growing-equity mortgage (GEM)
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With a growing equity mortgage, your monthly payment amounts increase, but the interest rate of the loan remains the same. When your payment increases, the extra amount is applied towards the principal of your loan enabling you to pay off the balance more quickly. With this type of loan, your 30-year mortgage can be reduced to 20 years or less.
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guarantee mortgage
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If you have a guarantee mortgage, it means that your mortgage is being guaranteed by a third party, such as a government institution. These loans are also known as government mortgages.
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guaranty
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If you guaranty a loan, you are obligating yourself to pay the debt if the original party to the loan is unable to pay the loan according to the original agreement. On the other hand, if someone makes a guaranty on your loan, they will be responsible for paying the loan if you do not meet the obligations of the loan
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half buy down
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With a half buy down mortgage, also known as a 2/1 buy down, you are able to get a lower initial interest rate, similar to that of an adjustable-rate mortgage, but with the stability of a fixed-rate mortgage. After the first year, the interest rate will increase by one percent and then will increase by one percent again at the end of the second year of your mortgage. After that, your interest rate will remain at a fixed rate for the remainder of the loan. This type of loan will allow you to qualify for a higher loan amount and is ideal if you plan to be making more money a few years from the time that you purchase your home.
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home equity conversion mortgage (HECM)
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Also known as a reverse annuity mortgage, this is a loan where the lender pays you, usually in monthly installments, and you do not need to make monthly payments to repay the loan. A reverse annuity mortgage is the only type of reverse mortgage that is insured by the FHA. Instead of being approved based on your income, you’re approved based on the equity in your home and the loan does not need to be repaid until you no longer live in the home.
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home equity line of credit
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A revolving loan secured by a home's value that allows you to borrow money as you need it. Like a credit card, you will need to make minimum monthly payments and as you pay the loan off, your credit limit increases again
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home equity loan
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A home equity loan is a fixed or adjustable rate mortgage that allows you to borrow against the equity in your home. The amount of equity in your home is determined by how much your home is worth versus how much money you still owe on the home. In certain circumstances, the interest on your home equity loan may be tax deductible.
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home owner's insurance
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A policy that protects you from the losses to your home's value that you would incur due to theft, fire, storms, and vandalism. If your home were to be destroyed, this insurance would cover the costs to have your home rebuilt. These policies also often cover any liability you might incur if someone were to be injured on your property due to the actions of you or your family
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housing expenses to income ratio
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A percentage ratio that is determined by taking the amount of your monthly housing expenses and dividing it by your gross monthly income.
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HUD-1 settlement statement
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Also referred to as a closing statement or settlement sheet, this is the itemized statement that you will receive that outlines the costs of obtaining a home loan, payable by you at closing. These costs include line items such as loan fees, agent commissions, and points. The totals at the bottom of the statement will show the net payment that you will need to make at closing and the net proceeds that the seller will receive. This form is avaliable through the Department of Housing and Urban Development (HUD)
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impound account
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An impound account, also called an escrow account, is an account that is set up for you by your home loan lender and is used to pay expenses like hazard insurance, mortgage insurance and property taxes. The money that you put into this account goes to pay for these expenses. While it is possible to opt out of an impound account, it may result in additional charges.
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index
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An index is a measurement that is used to determine the interest rate of your adjustable rate mortgage. This measurement is usually based on the current rates of U.S. Treasury Securities. At the time of your mortgage adjustment, the index will be used in combination with a margin to determine what your new interest rate will be.
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initial interest rate
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Sometimes referred to as a teaser rate, this is the beginning interest rate that your adjustable-rate mortgage starts with the day your loan is approved. This rate will be fixed for a certain period of time, but your rate will then adjust according to the index and margin that your lender uses
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installment loan
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A loan that has predetermined, equal payments due until the loan has been paid in full
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insurable title
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A property title in which a title insurance company is willing to insure against certain legal disputes, claims and liens.
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insured mortgage
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A mortgage that is insured to protect the lender against loss if you were to default on your loan. Loans are insured by the FHA, VA or a private mortgage insurance policy (PMI).
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interest cap
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When your adjustable-rate mortgage has an interest cap, it means there is a limit as to the amount that your interest rate can go up or down. Interest caps usually fall into one of two categories. A lifetime cap is a limit on the amount that the interest rate can change over the life of the loan and periodic caps are limits to the amount that your interest rate can change at each adjustment period. Sometimes there is a third category of caps, called payment caps. These caps limit the amount that your mortgage payment can go up, but they are not common and should be avoided since they can result in a negative amortization of your mortgage.
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interest rate
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The percentage yearly cost to borrow money. When you invest money, the interest rate is the money that you make from your investment. The interest rates on loans can be fixed or adjustable, meaning that the interest can stay the same throughout the term of the loan or can go up or down according to an index.
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interest rate adjustments
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The amount of basis points that your variable-rate loan changes on your adjustment date. Each percentage point equals 100 basis points. Generally, your interest rate will only be adjusted once each year and the change will usually be based on the index and margin that are used by your lender
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interest rate buydown plan
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A loan instrument where money is deposited into an account so that it can be used to reduce a monthly mortgage payment during the buydown period of a mortgage. While the buydown is normally funded by the seller, it can also be funded by a lender or even the buyer.
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interest rate cap
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The limit as to how much the interest rate of an adjustable rate mortgage can go up or down. You will encounter two types of interest rate caps. A lifetime cap, also referred to as a ceiling or a floor, is required by law and is the limit that is applied to the amount that your interest rate can go up or down over the life of your mortgage. Periodic caps are the limits that are applied to the amount your interest rate can change from one adjustment period to the next.
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interest rate ceiling
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An interest rate ceiling, also called a lifetime cap, is the maximum interest that you can be charged on your adjustable rate mortgage. The interest rate ceiling will be specified in the terms of your mortgage.
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interest rate floor
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The maximum amount that an adjustable-rate mortgage (ARM) can decrease over the life of a loan.
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interest rate lock
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When a lender guarantees to loan you money at a set interest rate, protecting you from potential rate increases. Rate locks are for a set period of time, usually not longer than 30 days, so you will want to make sure to close on your loan before the rate lock expires. A lender will normally charge you a fee to lock in an interest rate.
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introductory rate
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Also called a teaser rate, this is the interest rate that you will pay at the beginning of your adjustable-rate mortgage. This rate will stay fixed for a set period of time, usually for one year, and will then adjust according to the index that your lender uses in addition to the margin that they add.
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invoice price
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Also known as the dealer invoice, this is the base price that a dealer is charged for a vehicle. It is important to remember that the invoice price does not always reflect the actual cost of the vehicle to the dealer and that it is possible to purchase a car below dealer invoice.
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jumbo loan
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A mortgage that is of a greater amount than the limits set by Freddie Mac or Fannie Mae. You will usually pay a higher interest rate with a jumbo loan since they are harder to fund than conforming loans. Also known as a nonconforming loan.
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Lease-Purchase Mortgage Loan
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A loan type that allows you to lease a home with the option of purchasing it at the end of the lease period. A portion of each month’s rent payment will be put into a savings account which will later be used as your down payment on the home. This option is generally used by people with a low income or with credit problems.
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liabilities
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Your liabilities are any amounts that you owe to others, including your short-term and long-term debts. Liabilities include financial obligations such as car payments, credit card debts, student loans, judgments, collection accounts, alimony and child support. A lender will look at your liabilities to help them determine whether or not to approve you for a loan
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liability insurance
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Usually a part of your homeowner’s insurance policy, liability insurance is insurance coverage that would protect you against any potential claims involving your negligence on your home's property or an action that caused bodily harm or property damage to someone else. The insurance policy will pay for claims against you and the legal costs you incur in relation to the claims
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lien
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If a property has a lien on it, it means that the property is being used to guarantee or secure a debt. The lien holder does not necessarily have a right to the actual property, but if you want to buy or sell the property, the lien must be paid off in order to receive a clear title
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lifetime rate cap
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When you have an adjustable rate mortgage, the lifetime rate cap is the maximum amount that your interest rate can go up or down over the life of the loan. For example, if your interest rate is 5 percent and the lifetime cap of your loan is 5 points, your interest rate will never exceed 10 percent.
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limited doc
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When you apply for a limited doc loan, you will need to state your income and employment information on the loan application, but will not need to provide the lender with proof of your income or employment. This type of loan is beneficial if you are self-employed or if you would otherwise have a hard time providing proof of your income
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line of credit
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An agreement between you and a financial institution that allows you to withdraw funds as you need them, up to the amount of the credit limit that was set by the financial institution. The terms of repayment and the interest rate are outlined in the agreement between you and the lender. Lines of credit can be either secured or unsecured, with secured lines of credit offering lower interest rates than their unsecured counterparts
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loan
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An amount of money that you borrow and then repay with interest. The money borrowed is referred to as the principal of the loan. You will usually need to make equal, monthly installments to pay the loan back. The payments will include a combination of principal and interest. Your payment amounts may change if the interest rate of your loan is adjustable
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loan application
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A form that you fill out in order to obtain a loan from a lender. The information on this form lets the lender know how much money you want to borrow, what you need the loan for, and outlines your personal information such as your finances and employment history. The application also allows the lender to request a copy of your credit report in order to determine your creditworthiness and to assist in their decision whether or not to approve your loan.
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loan officer
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A loan officer is a representative of the lending institution and will represent you when you are applying for a loan. It is the person that will help you select the loan that is right for you and will help you through the loan process and closing. Loan officers are also referred to as loan representatives and account executives
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loan origination
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Loan origination is the process of creating a new loan that is secured by real estate. At this point, your application will be reviewed and you will be provided with an interest quote. Most lenders will charge you an origination fee that goes towards processing all of the papers that are involved with your loan.
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loan origination fee
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A lender will charge you a loan origination fee to cover the costs involved with processing the paperwork of your loan. The origination fee is usually charged as a percentage of the loan amount and is referred to in points, with one point equaling one percent of the loan amount.
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loan servicing
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When you make your mortgage payments each month, the company you pay is the company that services your loan. This company will process your monthly payments, send you your monthly mortgage statements and will handle your escrow account and pay the expenses out of the account. If your loan is sold, the company servicing your loan may change and you will start sending your payments to a different company.
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loan-to-value ratio
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The amount of your mortgage divided by the fair market value of your home expressed as a percentage. For example, if your mortgage is $200,000 and your home is worth $250,000, your loan-to-value ratio is 80 percent. If your loan-to-value ratio were to exceed 80 percent, your lender would require you to have private mortgage insurance.
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lock
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When a lender guarantees that the interest rate they have quoted you will remain the same for a specific period of time. If your rate is locked and interest rates were to rise from the time you applied for your loan to the time of closing, you would still pay the interest rate that you were initially quoted.
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lock-in period
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The length of time a mortage lender will honor an agreed upon loan interest rate. Once a lender locks in your interest rate, that rate lock is good for a specific period of time. In order to finance your mortgage at the locked-in rate, you’ll need to close the loan within the rate-lock period. For example, if you have a 45-day lock-in period, you’ll need to close within 45 days of receiving the rate lock. Lenders usually charge a fee to lock in an interest rate, and the longer the lock-in period, the higher that fee will be.
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lock-in rate
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The interest rate for a home loan that is guaranteed by a lender not to change for an agreed upon period of time if your loan closes within the lock-in period. It is not uncommon for a lender to charge you to lock in your rate.
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manufacturer's rebate
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When a car manufacturer refunds money for purchasing their vehicle. Manufacturers will often offer rebates in order to help sell slow moving cars and to reduce excess inventory
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margin
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With adjustable-rate mortgages, the interest rate percentage points a lender will add to an indexed interest rate which is used to determine your total adjusted interest rate. For example, if the index your lender uses is a rate of 5 percent and they use a 2 percent margin, the loan's total interest rate would be 7 percent. The margin is what allows your lender to cover their costs and make a profit.
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merged credit report
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There are three main credit reporting agencies (Equifax, Experian, and TransUnion) that maintain credit reports containing the individual credit histories of consumers. A merged credit report is created by combining all three of these bureaus’ reports. Any duplicates between the reports are combined and the final report shows an accurate reflection of your complete credit history
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monroney sticker price
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A federally mandated label affixed to the window of new cars at car dealers, that disclose the base price of the car, any installed options, the MSRP, the freight costs and the gas mileage of the vehicle. This price is not the price you have to pay for the car and should only be used as a point of reference.
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monthly arm
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An adjustable-rate mortgage that recalculates a loan holders interest rate on a monthly basis. Since you are the one taking most of the risk with this type of loan and the lender only has to commit to the interest rate on a monthly basis, the interest rate is usually lower than the interest rates offered on other ARM rates and fixed-rate mortgages.
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monthly fixed installment
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The part of your mortgage payment that is put towards the principal and interest of your loan. If your monthly fixed installment is not high enough to cover all of the interest and a reduction in the principal of your mortgage, it will result in a negative amortization and your loan balance will go up instead of down
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mortgage
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The legal document that pledges to a lender your real property to secure your home loan. If you do not pay the loan as agreed, the lender can foreclose on your home. Certain states will use a First Trust Deed in lieu of a mortgage
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mortgage banker
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A mortgage originating company that originates loans and sells them on the secondary market shortly after writing the loan. Although these companies do not keep any of the loans that they originate and sell all of their mortgages on the secondary market, it is not uncommon for these companies to service your loan after they sell it
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mortgage broker
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An independent contractor that offers loan products from a variety of lenders. The broker will act as an agent of both you and the lender in order to originate your loan. When dealing with a mortgage broker, you will generally need to pay them either a fee or commission for the services they provide you with.
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mortgage insurance
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A policy that protects your lender from loss if you were to default on the obligations of your loan. Mortgage insurance is provided by the FHA, the VA, or through private mortgage insurance. If the loan-to-value ratio on your home is higher than 80 percent, you will need to have mortgage insurance
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mortgage life insurance
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If you take out a mortgage life insurance policy, the balance of your mortgage would be paid off in the event of your death. This type of insurance protects your family from losing their home if you were to die. As the balance owed on your mortgage goes down, the amount of coverage on the policy also decreases
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mortgagee
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When your mortgage agreement refers to the mortgagee, it is referring to your mortgage lender.
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mortgagor
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When your mortgage agreement refers to the mortgagor, it is referring to you, the borrower
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MSRP
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MSRP is the acronym that stands for Manufacturer's Suggested Retail Price, also known as the sticker price or list price. This price normally does not include additional options, destination charges or taxes, title and license fees. The MSRP is not necessarily the price you will pay for the car and should be used as a starting point for negotiations.
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negative amortization
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This occurs when your mortgage balance is going up instead of down due to the fact that the monthly payments you're making on your home are not enough to cover all of the interest and any of the principal of your loan. When you make a payment and you don't pay enough money to cover the interest on the loan, the excess interest is added to your loan's balance. This is likely to happen with loans that have payment caps.
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no-cost loan
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A loan that you can obtain at no out-of-pocket cost to you is referred to as a no-cost loan. There are different types of no-cost loans. Some no-cost loans do have costs associated with them, but none of the normal lender costs that you regularly incur with home loans. Other no-cost loans are genuine no-cost loans where you will not incur any expenses. The interest rates on these loans are typically higher than loans where you would pay the costs
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non assumption clause
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If your loan has a non assumption clause, it means that you cannot transfer your mortgage to a buyer without the lender's prior approval. If you were to transfer the mortgage without the lender's prior approval, the lender may be able to demand full payment of your loan and you would be considered to be in default of your loan agreement.
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note
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When you take out a home loan, your note is the legal document that serves as your written promise to repay your lender the money you have borrowed. The note outlines and specifies the terms of your agreement, such as the interest rate and the length of your loan. It is also referred to as a promissory note
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note rate
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The interest rate that is outlined in your mortgage note and is the interest rate that you will pay on your home loan.
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original principal balance
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The total amount that you owe on your mortgage when you first obtain it, prior to making any payments on it, is referred to as your original principal balance
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origination fee
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The fee you will pay to your lender to cover the costs of processing your loan. The origination fee may be expressed as points. Each point equates to one percent of your loan amount, so if your origination fee were one point and the amount of your mortgage were $150,000, your origination fee would be $1,500
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payment cap
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The maximum amount that your monthly loan payments can reach is referred to as your payment cap. This is intended to protect you from skyrocketing monthly mortgage payments if you have an adjustable rate mortgage. It is important to remember that loans with a payment cap may face a negative amortization if interest rates rise high enough that your monthly payment does not cover the cost of the loan's interest. In general, a rate cap is a better option than a payment cap.
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payment change date
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When date when the interest rate of your adjustable rate mortgage or your graduated-payment adjustable-rate mortgage changes and the new payment amount takes effect. This date normally falls in the month immediately following your loan's adjustment date
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periodic payment rate cap
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When you have an adjustable rate mortgage, the maximum amount that your monthly payments can go up or down during a single adjustment period is referred to as your periodic payment rate cap. A periodic payment rate cap may result in a negative amortization of your mortgage if interest rates were to rise to the point where your monthly mortgage payment were not enough to pay both the principal and interest required to fully amortize your loan
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permanent loan
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This is a long-term loan of ten years or more that is often used for home construction financing. Permanent loans can cover the costs of construction and associated home-building costs. This type of loan is often referred to a "permanent financing" or an "end loan" and is generally between 10 to 30 years on residential properties
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piggy back loan
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When purchasing a home, you may opt to take out a second loan in order to pay a lower down payment and still avoid paying private mortgage insurance. This type of loan is referred to as a piggy back loan. Your first loan would be for 80 percent of the purchase price and the second loan would be for 10 to 15 percent of the purchase price, requiring you to only come up with a 5 to 10-percent down payment. The interest rate on the smaller, second loan is likely to be higher than the larger loan
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PITI reserves
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The amount of cash that you must have available after you make your down payment and pay all of the closing costs associated with your home purchase. PITI stands for principal, interest, taxes and insurance, and you will need cash reserves that are equal to the amount you would have to pay for these things for a set number of months (usually three months)
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pledged account mortgage (PAM)
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With this type of mortgage, some of the funds that you bring to closing are put into an interest-bearing savings account. Money from this account will be gradually withdrawn and applied towards your mortgage, lowering your monthly mortgage payment.
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points (discount points)
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The fee you pay up front to the lender at the time of closing. Each point you pay will equal one percent of your mortgage amount and for each point paid, your interest will normally drop by one-quarter of a percentage point. For example, if you are taking out a mortgage of $200,000 and were to pay 2 points at closing to get an interest reduction of ½ of a percent, you would need to pay $4,000 for those points. Costs like origination fees can also be expressed in points
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pre-approved loan
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A commitment from a lender that you are approved to purchase a home within the price range specified. If you want to be approved for a loan prior to choosing the home you would like to purchase, you will want to obtain a pre-approval. The lender will take down your employment, income and credit information and may provide you with a pre-approval based on that information. If you are pre-approved and you find the home that you would like to purchase, the home that you choose must also meet the lender's underwriting guidelines.
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prearranged refinancing agreement
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When you have an agreement with your lender to refinance in the future according to special terms, it is referred to as a prearranged refinancing agreement. This type of arrangement is used by the lender as an incentive for you to arrange your current and future financing through them instead of going to one of their competitors
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preliminary title report
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A status document confirming ownership of a property and the existence or absence of liens or claims against the property. Prior to the closing on a sale of a house, a title search must be performed on the property that is being sold.
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prepaid expense items
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At the time of the closing of the sale of a house or property, certain expenses and fees will need to be paid to cover the future cost of items like property taxes, mortgage insurance and hazard insurance. These items are referred to as prepaid expense items. The money to pay for these items will generally go into an escrow account and the escrow agent will pay the recurring costs out of this account as they become due.
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preparation charges
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When you purchase a vehicle from a dealership, the dealer incurs costs related to preparing the vehicle for delivery to you. These costs may be passed on to you in the form of preparation charges. These charges normally include items like adding fuel to the gas tank, servicing the vehicle, vacuuming the interior, washing and polishing the car, and other cosmetic changes that are made prior to the sale
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prepayment
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Money that is paid to your lender prior to the due date in order to reduce the balance of your loan is considered a prepayment. If your payment is made prior to the loan being fully amortized, it is considered prepayment, whether payment is from the sale of your home, prepayment in cash, or a foreclosure of your home
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prepayment penalty
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A fee charged to a loan holder for paying off a loan prior to it being due. Not all loans will impose a prepayment penalty for paying off your loan early. If you are thinking of paying off your loan early, you will want to check with your lender as to whether or not this penalty would apply to you as the fee can be quite substantial
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pre-qualification
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A non-binding opinion by a loan officer to help you determine how much money you can afford to spend on a home by analyzing your income, debt and savings information. Unlike a pre-approval, a pre-qualification does not indicate that your credit is good enough to be approved for a loan, it just means that your income is substantial enough and the amount of debt that you disclosed to the loan officer is low enough that you are able to afford a home within a specific price range
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prime rate
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The interest rate that is charged by banks to A-credit clientele is referred to as the prime rate. Many financial institutions will use the prime rate as a guideline for determining what rates they assess to their credit cards and home equity loans. The prime rate usually changes according to the changes that the Federal Reserve makes in monetary policy.
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principal balance
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The amount of money that you still owe on your loan is referred to as your principal balance. A portion of your monthly mortgage payments will go towards reducing this balance.
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principal, interest, taxes, and insurance (PITI)
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If there is an escrow account associated with your mortgage, your mortgage payment is divided into four separate parts when you make your payment each month. One portion of your payment goes towards interest, one towards principal, one towards taxes, and another part towards insurance. This is referred to as PITI. If you have an interest only loan or your loan does not have an escrow or impound account associated with it, this term does not apply to your loan.
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private mortgage insurance (PMI)
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Insurance meant to protect a lender from financial loss if a loan holder were to default on a home loan. If you do not put a down payment of at least 20 percent towards your home purchase, your lender will require you to purchase private mortgage insurance. Loans like FHA and VA loans will not require you to take out a loan from a private insurance company since these loans are insured by the government.
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promissory note
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A written agreement promising to pay back money back over a certain period of time and at a specific interest rate. This written agreement is referred to as your promissory note. This document secures your lender's interest in your property and guarantees your repayment of the loan
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purchase and sale agreement
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A document that outlines the terms and conditions of the sale of the property, including the sales price and any contingences. When you purchase or sell a property, you will need to sign a purchase and sale agreement. If you're purchasing a home, you will normally need to supply the seller with a deposit when signing this agreement.
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qualifying ratios
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A ratio that compares a borrowers total anticipated housing expenses and current financial obligations to ensure that they will be able to meet the total amount of their expenses if approved for a loan. A lender will use qualifying ratios when determining whether or not you will qualify for a mortgage amount. The ratio is expressed with two numbers, a "front" number and a "back" number. The front number represents your monthly housing costs and the back number shows the housing costs in addition to your other monthly debts
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rate improvement mortgage
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A fixed-rate mortgage that allows the borrower to reduce the interest rate of their mortgage without refinancing. You will only be allowed to adjust your rate to a lower interest rate one time during the term of your loan and you will need to do this within the period specified within the terms of your mortgage agreement (generally during the early years of your mortgage)
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rate lock
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When a lender commits to issuing a specific interest rate to a borrower and guarantees to hold it for a specified period of time. Rate locks are only temporary, and to take advantage of the locked-in rate, you will need to close your loan prior to the expiration of the lock-in period (normally 30-60 days)
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real estate agent
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A licensed professional who negotiates real estate transactions. Unless retained as a buyer's agent, real estate agents will almost always represent the seller, leaving the buyer without representation.
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real estate settlement procedures act (Respa)
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A consumer protection law implemented in 1974 by the federal government that covers one to four-family properties. The law demands that lenders provide you with advance notice of all of your closing costs prior to closing and establishes guidelines for escrow account balances. The law also prohibits "kickbacks" to third parties for referring business associated with the loan.
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realtor
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A real estate agent or broker that is affiliated with the National Association of Realtors or with the National Association of Real Estate Boards. Realtor is a trademarked term and not all real estate agents can refer to themselves as Realtors. All Realtors must abide by the Realtors Code of Ethics.
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rebate point
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If you're willing to pay a higher rate of interest on your mortgage, you can get a credit, referred to as a rebate point, to put towards your closing costs. How much your interest increases will depend on how many rebate points you receive. Each rebate point will equal one percent of your loan amount and will make your interest rate rise by approximately one-quarter of a percentage point. The rebates received cannot be received in cash and must be applied towards the non-recurring closing costs of your loan, such as appraisals and title insurance.
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recording
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When County registrars document legal papers to make them a part of public record. When you purchase a home or vacant land, satisfy your mortgage or execute a number of other legal documents, the document needs to be sent to the registrar's office for recording. These documents are recorded in order to protect the interests of the parties involved in the transaction.
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recording fees
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The costs associated with having a document recorded by a registrar's office in order to make it a part of public record. Different counties have different recording fees for different document types
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refinancing
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Repaying one debt with the funds from a new loan. Many homeowners decide to refinance when interest rates drop so that they can save money and lower their monthly payments. There are numerous refinancing programs available to homeowners, including cash-out refinance options where you can refinance your home and get extra cash for various purposes
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regulation z
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A federally mandated law that requires lenders to provide borrowers with the Annual Percentage Rate (APR) of a loan. The APR calculates all fees and closing costs associated with a loan, but not all lenders use the same model when determining their APRs, so precise analysis must be done when comparing two rates
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rehabilitation mortgage
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A loan that covers the costs of purchasing and repairing of a property that is in need of improvements
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rescission
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The cancellation or termination of a contract is referred to as rescission. Contracts may be rescinded by law or by the consent of the parties involved. If you're involved with certain types of loan contracts, you normally have three business days from the signing of the contract to change your mind and cancel the contract without incurring any penalties.
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residential loan application form (1003)
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When you purchase a home and apply for a mortgage, a residential loan application, also known as a form (1003) will need to be filled out. This four-page form will ask you questions about your employment history, your current income, your residence history, your savings and asset information and will ask questions about the home that you are purchasing.
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RESPA
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This is the acronym that stands for the Real Estate Settlement Procedures Act. This federal law is a consumer protection law that was implemented in 1974. The law covers one to four-family properties and demands that lenders provide you with advance notice of all of your closing costs prior to closing. The law also establishes guidelines for escrow account balances and prohibits "kickbacks" to parties for referring business associated with the loan.
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second mortgage
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A mortgage that puts a lien on a home that is second in position to the lien placed by a first mortgage. If for some reason your home were to be foreclosed on, the lender who holds your first lien would need to be satisfied prior to the satisfaction of the second lien. The second lien is sometimes referred to as a "junior" lien
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secured loan
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Whenever you borrow money and the loan is backed by collateral, it is referred to as a secured loan. If you default on the loan, the lender can take possession of the collateral in order to avoid loss. With a mortgage, your home is the collateral and with a car loan, your automobile would be the collateral of the loan
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security
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The collateral or property that you pledge to secure a loan. When you borrow money to purchase a car, the auto is often used as the security of the loan. With a home loan, you usually pledge your home as security.
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servicer
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The company that sends you your monthly statement and collects your monthly mortgage payment. Some loans are serviced by the lenders that created them, while others are serviced by companies that act on behalf of the lenders. The mortgages these companies usually service are mortgages that have been purchased in the secondary mortgage market.
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servicing
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The process of collecting monthly mortgage payments, mailing of statements, the payment of expenses out of an escrow account, and all other operational procedures related to the handling of a mortgage.
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settlement
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When you purchase a property, the time at which you pay for the home and you and the seller sign the final documents is referred to as closing or settlement. At this time, the deed will be prepared for recording and the mortgage period will officially begin. Different states have different procedures regarding settlement. Your settlement will be either face to face with a seller at a meeting or will be handled in escrow. If your settlement is face-to-face, you'll normally have your real estate agent and attorney with you as well as a representative for your lender
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shared appreciation mortgage (SAM)
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A mortgage program where the lender receives a percentage of a home's future appreciation in return for receiving a lower interest rate or interest deferral. While the shared appreciation mortgage (SAM), does assign the lender a right to part of the property's appreciation, it does not create a shared title interest or a joint tenancy.
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simple interest
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When the interest on your loan is computed solely on the principal balance of your loan, it is referred to as simple interest. When the simple interest of a loan is calculated, no compounding or accrual of interest occurs. For example, on a $1,000 loan with an interest rate of 10 percent, the simple interest would be $100 per year.
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standard payment calculation
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The calculation that is used to figure out the monthly payment that is required for a loan holder to repay the balance of a mortgage in equal monthly installments over the time that remains on a mortgage at a current rate of interest.
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step rate mortgage
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A mortgage, in which the interest rate gradually increases over the first few years of the loan. This allows you to have a lower monthly mortgage payment at the beginning of the loan term. The initial interest rates of these loans are generally lower than the interest rates of a 30-year fixed loan, but higher than the interest rate of a 1-year ARM
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subordinate financing
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A loan that places a secondary or "junior" lien on property. In the event of foreclosure, the lender holding the primary lien on your property would be paid prior to the lender holding the secondary or "junior" lien.
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third-party origination
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When a lender uses a third party to process, originate, underwriter, fund, close, or package a mortgage. Oftentimes, a lender will use third-party origination when they plan to sell the mortgage on the secondary mortgage market.
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title
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The document that grants and proves ownership of an asset. The title will include any liens, encumbrances and other claims on the property
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title company
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An company that confirms ownership to a property and verifies if any liens exist against the property. When you purchase a property, you will need to use the services of a title company to research the title on the property you are purchasing and issue a title policy. The insurance policy issued by the title company will guarantee the ownership of the property that you are purchasing and will guarantee the quality of the title.
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title insurance
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Insurance that protects a borrower and lender against any defects in a property's title such as title-search errors and against any losses a borrower or lender would incur as a result of property disputes. Title insurance is usually charged at a set amount per $1000 of insurance. This cost can be paid for by the buyer, the seller, or a combination of both.
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title report
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A document that provides the results of a title search. This report will ensure that the property you are purchasing has no outstanding claims against it and that the seller of the property is the legal owner. If claims are found on the title report, they must be satisfied prior to your purchase of the property.
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title search
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For the purchase of a property, the process of confirming the legal ownership of the property to ensure that there are no liens or encumbrances on the property and that the seller is the legal owner of the property. This is accomplished by a title company researching all of the public records related to the property that you are purchasing.
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total expense ratio
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The percentage of a potential loan borrowers total monthly expenses to their gross monthly income. Expenses factored include your housing expenses and all of your monthly debts. Your lender will look at your total expense ratio to determine whether or not you will qualify for the loan you are applying for
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transfer tax
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When you purchase or sell a property, the tax paid to the state or local government as a percentage of the property's value. It is generally the seller's responsibility to pay the transfer tax at the time of closing. The amount of the tax is usually based on a percentage of the property's selling price, but the exact amount charged varies from state to state and from city to city.
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treasury index
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Index that lenders use to establish the interest rates of some of their adjustable rate mortgage products. This index is based on the results of the auctions that the U.S. Treasury holds for its Treasury Bills and securities or is based on the closing market bid yields of the over-the-counter Treasury securities.
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Truth in Lending Act
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A federally mandated law that requires lenders to provide borrowers with a written disclosure of the costs associated with a mortgage including items such as finance charges, the Annual Percentage Rate (APR), the size of the credit line, any annual fees and the length of the grace period. The Truth in Lending Act is a federal law and it includes the Fair Credit Billing Act.
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Two-step mortgage
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A mortgage program that allows a borrower to have a set interest rate for the first few years of the mortgage (usually five to seven years), then adjust upward to a set rate for the duration of the loan. During the first part of the mortgage term, the interest rate is a below-market rate
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underwriting
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The procedure when a loan application is evaluated to assess a lenders' risk involved with making a loan to a borrower. The underwriting process includes analyzing your application, your credit history, and the quality of the property that you are purchasing to determine whether or not to approve you for a loan.
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unsecured loan
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The loan a lender makes to a borrower that is not backed by collateral.
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upfront costs
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The expenses a borrower incurs when closing a home loan. These costs include a down payment amount, any prepaid taxes, insurance and interest, the underwriting fees of the loan, and fees for the title search, appraisal, credit report and deed recording.
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upside-down
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When you take out a car loan, there is normally a period of time where you owe more on the car than what the car is worth. This is referred to as being "upside-down" on your auto loan. This happens because your car depreciates in value due to age and wear and tear and during the early years of your auto loan, you're mostly paying interest so the balance on your car loan is remains the same while the value of the car is going down.
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VA mortgage loans
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Home loans that are guaranteed by the U.S. Department of Veteran Affairs are referred to as VA mortgage loans. U.S. veterans, reservists, active-duty personnel and the surviving spouses of veterans are eligible to receive these loans. If you are eligible, this program will allow you to purchase a home with little to no down payment, no cash reserves and lower associated closing costs
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verification of deposit (VOD)
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A bank document that provides a lender with written proof that a loan applicant has the money available in a checking or savings account that was stated on a loan application.
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wraparound mortgage
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A type of refinancing that allows you to borrow more money from a second loan while still retaining your original mortgage. Your entire mortgage payment is made to the lender of your wraparound mortgage, and they will in turn send the payments for your first mortgage to your primary mortgage lender. If interest rates have increased since the time of your first mortgage, this allows you to obtain extra cash without refinancing your entire first mortgage at a higher interest rate.
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zero cost loan
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Also called a no-cost loan, with a zero-cost loan a borrower will not be required to pay any points or closing costs. Any non-recurring closing costs will be rebated to you at closing, although you will be required to pay your recurring closing costs such as your property taxes and homeowner's insurance. This type of loan typically has a higher interest rate attached to it.
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