Home Loan Tips
A B C D E F G H I J K L M
N O P Q R S T U V W X Y Z
Abstract of judgment
A court judgment summary that puts a lien against a property that is filed with the county recorder.
Abstract or title search
The process in which a title company reviews recorded transactions on a specific parcel or property to determine whether there are any existing title defects or liens that could interfere with the transfer of ownership or refinance.
A clause that gives a lender the right to collect the balance of a loan if the borrower defaults or misses a payment on the loan. This allows the lender to speed up the rate at which the loan becomes due or even to demand immediate payment of the entire balance of the loan if the borrower defaults.
A change or addition to a document or contract.
Adjustable-rate mortgage (ARM)
A mortgage that provides for a periodic adjustment of the interest rate based on current market conditions.
Adjustment period or interval
The time between interest rate changes in an adjustable rate mortgage, usually one, three, or five years.
A clause that establishes that if a loan is transferred or a property sold, the loan must be paid in full.
Any home loan that does not conform to a standard fixed-rate mortgage.
American with Disabilities Act
A law passed in 1990 that outlaws discrimination against disabled people in housing, public accommodations, employment, government services, transportation, and telecommunications.
The process of paying the principal and interest on a loan through regularly scheduled installments. Initially, most of each payment is applied toward interest owed. Later in the loan term, each payment is increasingly applied toward principal.
Annual Percentage Rate (APR)
A measure of interest rate that expresses the cost of a mortgage as a yearly rate on the loan balance. The APR assumes that the loan is held for its full term. For an adjustable-rate loan, the APR assumes the loan's index doesn't change from its initial value.
An estimate of the value of your property, made by a licensed appraiser according to a strictly defined set of guidelines and definitions.
See Annual Percentage Rate.
See Adjustable Rate Mortgage.
The value placed on your property by the County Assessor's office, as opposed to the appraised value. In California, due to Proposition 13, this value is set by formula and may have little bearing on the actual value of your property.
Items of value include cash, real estate, securities, and investments, which can be used to repay debt.
A person who transfers rights and interests of a property.
A mortgage that can be transferred from one borrower to another.
An agreement between a buyer and seller whereby the buyer takes over the payments on an existing mortgage from the seller. Assuming a loan can usually save the buyer money because this is an existing mortgage debt.
A statement that shows the assets, liabilities, and net worth of an individual.
A mortgage in which monthly installments are not large enough to repay the loan by the end of the term. As a result, the final payment due is the lump sum of the remaining principal.
The final lump sum due at the end of the balloon loan or mortgage.
A proceeding in which a court finds a debtor insolvent and relieves the debtor from payment of certain obligations. Bankruptcy remains on one's credit record for 7 to 10 years and can severely limit a person's ability to borrow.
A lender or mortgagee receiving funds from the borrower or mortgagor.
A report issued by a title insurance company that details the condition of a home's title and provides guidelines for a title insurance policy.
A mortgage that covers more than one property owned by the same borrower.
An individual in the business of helping to arrange funding or negotiating contracts for a client, but who does not loan the money himself.
A mortgage in which the lender receives a premium as an incentive to reduce the interest rate in early years of the mortgage. Loan payments start out relatively low and increase later.
The rules and regulations that a homeowners' association or corporation adopts to govern activities.
See Right to Rescission.
A consumer safeguard that limits the amount that monthly payments on an adjustable-rate mortgage may change.
A consumer safeguard that limits the amount the interest rate on an adjustable-rate mortgage may change per year and/or over the life of the loan.
Certificate of title
A certificate issued by a title company or a written opinion by an attorney that the seller has good marketable and insurable title to the property that he is offering. A certificate of title does not offer protection against hidden defects in the title that an examination of the records could not reveal. The issuer of a certificate of title is liable only for damages due to negligence.
Chain of title
The official record that details the ownership history of a piece of property.
A situation whereby a creditor writes off a defaulted loan because the amount is small enough; however, it will still show up on debtor's credit record for 7 to 10 years.
A lien on a personal property that is used as collateral for a loan.
The meeting between the buyer, seller, and lender where the property and funds legally change hands.
These include a loan origination fee, points, appraisal fee, title search and insurance, survey, taxes, deed-recording fee, credit report fee, and other costs assessed at settlement. The closing costs usually are about 2 to 6 percent of the amount of the mortgage.
A document provided by the escrow agent that details the final financial settlement between buyer and seller in a real estate transaction, or between borrower and lender in a refinance transaction. Also known as a settlement sheet.
COFI - Cost of Funds Index
An index that is used to determine interest rate changes for certain adjustable-rate mortgages (ARMs). It is based on the cost of savings, borrowings, and advances of the institutions that comprise the index.
Property, offered to support a loan, that can be seized if the debtor defaults.
Money paid to a real estate agent or broker by the seller as compensation for finding a buyer and completing the sale.
Property accumulated through the joint efforts of husband and wife. One way that title can be held.
A type of property that includes at least two units, with each unit owned by a different individual. These units share common areas and facilities, such as a parking garage.
A loan that meets the qualifications to be purchased by Fannie Mae or Freddie Mac. The current conforming loan limit is $275,000.
A short-term loan that a lender makes for the construction of homes and buildings. The funds are disbursed in the stages of the construction.
A mortgage that is not insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA) or Farmers Home Administration (FmHA).
Convertible adjustable-rate mortgages
A mortgage that allows the borrower to convert from an adjustable-rate mortgage to a fixed-rate mortgage in a specified period of time.
A person who signs a mortgage note along with the buyer and therefore assumes equal responsibility for the loan.
Cost of Funds Index
An index that is used to determine interest rate changes for certain adjustable-rate mortgages (ARMs). It is based on the cost of savings, borrowings, and advances of the institutions that comprise the index.
An agency that maintains your credit history.
A record of your debt and payment history.
The ratio, expressed as a percentage, that results when a borrower's monthly payment obligation on long-term debts is divided by the borrower's net income (for FHA/VA loans) or gross monthly income (for conventional loans). See also Expense-to-Income Ratio.
A statistical system that is used to rate credit applicants according to various characteristics relevant to creditworthiness.
An individual's past and future ability to repay debt.
The total amount of your monthly bills compared with the amount of your gross monthly income.
The legal document that transfers ownership of a piece of property. The deed should contain an accurate description of the property being conveyed, should be signed and witnessed according to the laws of the state where the property is located, and should be delivered to the buyer at closing. There are two parties to the deed: the grantor and the grantee. (See also Deed of Trust, Quitclaim Deed, General Warranty Deed, and Special Warranty Deed.)
Deed of trust
A document that gives a lender the right to foreclose on a piece of property if the borrower defaults on the loan.
The failure to make monthly mortgage payments, according to the mortgage agreement.
Fees that a borrower pays when a lender makes a loan to receive a lower interest rate. Borrowers pay points to adjust the interest rate to the market rate. One point equals 1 percent of the loan amount. For example, two points on a $200,000 loan would be $4,000.
Money paid to make up the difference between the purchase price and the mortgage amount. Down payments are usually 10 to 20 percent of the sales price on conventional loans, and no money down to 5 percent on FHA and VA loans.
Money given to a buyer as part of the purchase price to bind a transaction or assure payment.
The difference between the fair market value of your home and what you owe on your loan.
The process in which a neutral third party or trustee holds documents and funds and carries out instructions agreed to by all parties. Escrow can also refer to an account held by the lender into which the homebuyer pays money that is held for tax and insurance purposes. Escrow accounts must be managed in accordance with federal law and the U.S. Department of Housing and Urban Development (HUD) requirements.
The signing of all legal loan documents in escrow in the presence of an escrow officer who is also a notary to certify that all borrowers' signatures are correct and true.
See Federal National Mortgage Corporation.
Federal National Mortgage Corporation (FNMA)
Also known as Fannie Mae. A tax-paying corporation created by Congress that buys and sells conventional residential mortgages, as well as those insured by the FHA or guaranteed by the VA. This institution, which provides funds for one in seven mortgages, makes money for home loans more available and more affordable.
Federal Home Loan Mortgage Corporation (FHLMC)
Also known as Freddie Mac. A quasi-governmental agency that buys conventional mortgages from insured depository institutions and HUD-approve mortgage bankers.
Federal Housing Administration (FHA)
A division of the Department of Housing and Urban Development. Its main activity is to insure residential mortgage loans made by private lenders.
A loan insured by the Federal Housing Administration that is open to all qualified home buyers. While there are limits to the size of FHA loans, the limits usually accommodate moderately priced homes almost anywhere in the country.
FHA mortgage insurance
Mortgage insurance that requires up to 3 percent of the loan amount to be paid at closing, or a portion of this fee to be added to each monthly payment of an FHA loan to insure the loan with FHA.
The Fair, Isaac Corporation, which developed the formula for credit scoring. The terms also applies to the credit score itself. A FICO score can range from 200 to 900. In general, the higher the score, the more creditworthy a borrower is in the eyes of the lender. A score of at least 680 indicates the borrower is very creditworthy.
A home loan with an interest rate that will remain the same for the term of the loan.
When a borrower defaults on a loan and the lender sells the borrower's property, keeping the proceeds for mortgage and legal costs and any other liens recorded on the property.
See Federal Home Loan Mortgage Corporation.
When your mortgage lender wires money to your title company for disbursement of all payments to all parties.
See Government National Mortgage Association.
An estimate from a lender showing all costs a borrower will incur in connection with the loan, including costs from title and escrow.
Government National Mortgage Association (GNMA).
Also known as Ginnie Mae. Provides sources of funds for residential mortgages, insured or guaranteed by the FHA or VA.
Graduated-payment mortgage (GPM)
A type of flexible-payment mortgage that starts out with low payments, which gradually become larger over the term of the loan and then level off. This type of mortgage has negative amortization built into it.
The home buyer.
The home seller.
Gross monthly income
The total amount that the borrower earns per month, before deductions.
A fixed-rate mortgage that increases payments over a specified period of time. The payment increases are applied to the mortgage principal.
A form of insurance in which the insurance company protects the insured from specified losses, such as fire and windstorm.
Home-equity conversion mortgage
Also known as a reverse mortgage, this type of loan is made to older borrowers who want to convert their home equity into available cash.
Home-equity line of credit
An open-ended line of credit based on a homeowner's equity, usually limited to 75 to 85 percent of a home's appraised value.
A loan that allows owners to borrow against the equity in their homes.
Always required by lenders in a mortgage transaction. Includes hazard insurance, and flood insurance if the property is located in a flood zone.
See U.S. Department of Housing and Urban Development.
HUD-1 Uniform Settlement Statement
A closing statement or settlement statement provided by the escrow company that outlines all costs associated with a loan transaction.
An account used by the mortgage company to pay homeowner's insurance, county taxes, and if needed, private mortgage insurance (PMI). Additional money for the impound account is collected with the monthly payment.
Property that is usually not owner-occupied and used as a rental for income purposes. Loans for these properties usually have higher interest rates.
A published interest rate against which lenders measure the difference between the current interest rate on an adjustable-rate mortgage and that earned by other investments. These investments include one-, three-, and five-year U.S. Treasury Security yields, the monthly average interest rate on loans closed by savings and loan institutions, and the monthly average cost-of-funds (CoF) incurred by savings and loans. The index is used to adjust the interest rate up or down on an adjustable mortgage.
A fee collected through escrow, and payable at close to a home inspector, to determine the present physical condition of a home. This is required by the lender and used as supplemental information found in the appraisal.
An adjustable-rate mortgage that has an adjustment period that doesn't start for 3 to 10 years. Because the interest rate period is longer than that for a 1-year ARM, the beginning interest rate will be higher.
The fee, expressed as a percentage, charged for a loan. Helps determine the monthly mortgage payment.
Equal shares of a piece of property owned by two or more people. Rights to the property pass to the surviving owner or owners.
Loans that exceed limits set by Fannie Mae and Freddie Mac. Any loan over $275,000 is considered a jumbo loan.
A loan that is subordinate to the primary loan.
A mortgage company, bank or savings institution that offers home loans.
The legal right to hold another's property or to have it sold or applied for payment of a claim to satisfy a debt.
Costs associated with the loan that has been selected by a borrower. These costs will be collected through escrow and subtracted from the total funded at the close of escrow.
The ratio of the loan amount divided by the purchase price of a home. The purchase price must be supported by an appraisal.
Lock expiration date
The date when the option to lock an interest rate expires. If a borrower allows the lock date to pass, the interest rate will no longer be valid and the borrower will have to lock in another interest rate.
When an interest rate is set before the loan documents are processed to ensure the borrower gets the best interest rate available.
The number added to the index to determine the new interest rate on an adjustable-rate mortgage.
A loan that is secured by real property.
A company or person who searches for a lender to fit a prospective borrower's criteria.
Also known as Private Mortgage Insurance (PMI). Money paid to insure a mortgage when the down payment is less than 20 percent. See also Private Mortgage Insurance.
When a borrower's monthly payment is too small to cover both the principal and interest of a loan. In this case, the unpaid interest is added to the outstanding balance of the loan. The danger of negative amortization is that it gradually increases the mortgage debt, and therefore the home buyer can end up owing more than the original amount of the loan.
Non-recurring closing costs
One-time fees charged through escrow.
No point-no fee loan
A loan program that a lender can offer if interest rates are currently down. These loans make it very attractive for a homeowner to refinance.
The legal document that holds a borrower liable to repay a mortgage at a certain interest rate and over a specific time period.
A fee charged by the mortgage broker or banker when the loan is originated. May also be called points or fees.
An adjustable-rate mortgage whose interest rate adjusts 2 percent once a year or 1 percent every 6 months. These loans usually have lower up-front costs and interest rates than fixed-rate loans.
An official piece of land that is described by the county in which it resides.
Per diem interest
Interest charged or accrued daily.
See Principal, Interest, Taxes, and Insurance.
See Private Mortgage Insurance.
A fee that the borrower pays to a lender to receive a lower interest rate on a loan.
Power of Attorney
A document that authorizes one individual to act on behalf of another.
A confirmation from a lender that it has done a complete assessment of your ability to pay for a home, based on your credit report and other factors.
A preliminary assessment of a buyer's ability to pay for a home.
A financial penalty for paying the balance of a mortgage before it is due.
The amount of debt, not counting interest, owed on a loan.
Principal, interest, taxes and insurance (PITI)
The four components of a monthly mortgage payment. Principal is the portion of the payment that actually reduces the balance of the loan.
Private Mortgage Insurance (PMI)
Insurance that protects lenders if a borrower defaults on his loan. It is required when a borrower puts less than a 20 percent down payment on a home.
Ratios used to determine whether a borrower can qualify for a mortgage. They are based on a borrower's housing expense as a percentage of income and his total debt as a percentage of income.
A document that releases a party from any interest in a piece of property.
Rate lock in
Real estate broker
A middleman or agent who buys and sells real estate for a company or individual on a commission basis.
Real estate taxes
Taxes that are paid semi-annually, or monthly if you have an impound account. The amount is based on local tax rates and assessed property value.
Land and any permanent fixtures on it, including buildings, trees and minerals.
A real estate broker or an associate who is an active member of a local real estate board affiliated with the National Association of Realtors.
The cancellation of a contract. In the case of refinancing, this gives the buyer three days to cancel a transaction after it has closed.
A document that is recorded when a borrower completely pays off a mortgage.
Money paid to the lender for recording a home sale with the local authorities, making it a part of public records.
To replace an existing mortgage with a new mortgage in order to reduce the interest rate or take cash out of home equity.
Requires that a borrower be advised in writing of all costs associated with the credit portion of a financial transaction. Also known as a truth-in-lending disclosure.
A mortgage for the purpose of repairing and improving a resale home or building.
Renegotiable rate mortgage (RRM)
A loan in which the interest rate is adjusted periodically. See also Adjustable-Rate Mortgage.
See Real Estate Settlement Procedures Act
A form of mortgage in which the lender makes periodic payments to the borrower, using the borrower's equity in the home as security. For older owners who have a lot of equity in their home, this can be used as income. The loan does not need to be repaid until the borrower sells the property or moves into a retirement community.
Any loan backed by collateral.
A document disclosing who will service the loan if there is a mortgage broker involved.
See Closing Costs.
See HUD1 Uniform Settlement statement.
Shared-appreciation mortgage (SAM)
A loan that allows a lender or other party to share the borrower's profits when the house is sold.
A loan that is a second or third lien against a property.
Back taxes owed on a property that will show up on a title search.
A low, short-term rate offered on a mortgage to entice a borrower.
Tenants in common
One of the ways that title can be held. Two or more owners hold an undivided interest in the property, with no right of survivorship.
Three-day right of rescission
A document that is evidence that an individual owns a piece of property.
The neutral third party that insures a piece of property after it has been searched and cleared of any liens or judgments. A title insurance policy or binder will be issued when a parcel is clear of liens or judgments.
A policy, usually issued by a title insurance company that insures a homebuyer against errors in the title search. The cost of the policy is usually based on the value of the property and can be paid by the buyer or seller.
An examination of municipal records to determine the legal ownership of property. It is usually performed by a title company.
A tax paid when a home is sold to transfer it from one owner to another.
A legally empowered person who holds or controls a piece of property for another person.
See Regulation Z.
An adjustable mortgage with two interest rates: one for the first 5 or 7 years of the loan, and the other for the remainder of the loan.
U.S. Department of Housing and Urban Development (HUD)
A federal agency that oversees the Federal Housing Administration and a variety of housing and community development programs.
A person who works for the lender and who is assigned to evaluate and prepare all loan documents necessary for the borrower to sign, then follows up to close the loan.
The process lenders go through to evaluate the borrower and set appropriate conditions for the loan.
Any fees that are to be paid by the borrower before starting the loan process. Usually the up-front costs are for the appraisal and credit report.
A low-cost loan guaranteed by the Department of Veterans Affairs. Restricted to those who qualify based on military service or other factors.
See Adjustable-Rate Mortgage.
Results when an existing assumable loan is combined with a new loan, resulting in an interest rate somewhere between the old rate and the current market rate. Payments on both mortgages are made to the second lender, who then forwards the appropriate payments to the first lender.