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Simple Online Mortgage Glossary Terms

A  B  C  D  E  F  G  H  I  J  K  L  M  N  O  P  Q  R  S  T  U  V  W  X  Y  Z

A

Abstract (of Title)
Historical summary of all recorded transactions that affect title to the property. Any outstanding issues or problems must be resolved before a buyer is issued a clear and insurable title.

Agreement of Sale
Written and signed document that goes by other names —Purchase Agreement, Sales Agreement, Sales Contract, Offer and Acceptance, Earnest Money Contract — and includes terms of sale of a given property between buyer and seller.

Adjustable-Rate Mortgage (ARM)
Also known as Variable-Rate Mortgage, one in which the interest rate changes periodically:

  • 3/1, 5/1, 7/1, 10/1 ARM are mortgages in which the rate is fixed for 3, 5, 7, or 10 years and can adjust annually (1) afterward
  • 3/6 or 5/6 ARM are mortgages in which the rate is fixed for 3 or 5 years and can adjust every six months (6) afterward
  • 1-month ARM adjusts each month after the initial payment
  • Option ARM enables borrowers to select a payment type each month; minimum payment, interest-only payment, or fixed amortized payment

Amortization
Payment of a debt through periodic installments of principal and interest.

Annual Percentage Rate (APR)
Effective rate of interest for a loan per year, APR is typically greater than the note rate because it includes closing costs.

Appraisal
Opinion or estimate of the value of a property at a given date based on comparabale home sales in the same general area.

B

Balloon (payment) Mortgage
Short-term, fixed-rate loan that includes small payments for a specified period of time and one final, large payment for the remaining amount of principal. Example: Balloon mortgage of $25,000 including interest-only payments for five years at 12% ($250 per month), with the full principal of $25,000 due and payable after five years.

Bankruptcy
Court procedure to relieve debts of an individual or business unable to pay creditors. Three chapters most commonly declared from the federal bankruptcy code include:

  • Chapter 7, a bankruptcy filing that gives a trustee power to distribute a debtor’s assets to creditors; also referred to as “liquidation”
  • Chapter 11, reorganization of a business that allows the debtor to maintain operational control while restructuring and repaying debt
  • Chapter 13, a repayment plan in which a debtor files a budget with the court and agrees to make partial payment to creditors

Borrower (Mortgagor)
One that applies for a loan secured by property and is responsible for repayment of the loan (mortgage).

Broker
The term "Broker" may be defined as:

  • Real Estate Broker is licensed to represent a buyer or seller in a real-estate transaction
  • Mortgage Broker arranges financing for a borrower by placing loans with lenders
  • Mortgage Bankers specialize in originating and servicing loans Back to Top

C

Covenants, Conditions & Restrictions (CC&R)
Rules establishing the rights and obligations of property owners within a condominium, Planned Unit Development (PUD), or subdivision. An organized association operates and maintains property common to the individual owners.

Certificate of Occupancy
Issued by the local government, this document verifies that a property meets building standards for occupancy and is compliant with public health and building codes. The certificate is a normal prerequisite to closing a property loan.

Certificate of Title
Opinion rendered by an attorney regarding the status of a property title, based upon public records. This certificate does not afford the same protections as title insurance.

Clear Title
Marketable property title, free of clouds and disputed interests. Most lenders require a clear title prior to closing a property loan.

Closing
Act of transferring ownership of a property from seller to buyer in accordance with a sales contract. Also the time when a closing takes place.

Closing Costs
Expenses incurred by the buyer and seller during a property or mortgage transaction. There are two types of closing costs:

  • Recurring costs are fees associated with specific property ownership that occur on a monthly basis; hazard insurance, interest, property taxes, mortgage insurance, association fees, etc.
  • Non-recurring costs are one-time transactional fees; discount and loan origination points, title insurance, inspection and appraisal, escrow, lender fees, attorney fees, closing agent fees, etc.

Cloud on Title
Outstanding claim or encumbrance that, if valid, affects or impairs the property owner’s title.

Collateral
Property pledged as security for a debt.

Combined Loan-to-Value (CLTV)
Principal balance of all mortgages on the property, including second mortgages, divided by the value of the property.

Comparables
Properties used for comparative purposes during the appraisal process that have similar characteristics to the subject property. Also referred to as “comps”.

Contingency
Conditions that must be satisfied before the buyer can close the purchase of a property, contingencies are typically outlined in the purchase contract between buyer and seller.

Contract
Agreement between competent parties to do (or not do) specific things for consideration. A valid contract for the sale of property must include: Back to Top

  • An offer and an acceptance
  • Description of the property and supporting documentation
  • Signatures by principals or their attorneys-in-fact

Conventional Loan
Any mortgage other than FHA or VA loan. A conventional loan can be conforming or non-conforming.

Credit Report
Details a borrower’s credit, including payment histories of revolving accounts (credit card) and installment accounts (car loan). Also includes public-record information (tax liens, judgments).

D

Debt-to-Income (DTI) Ratio
Borrower’s monthly payment obligations divided by gross monthly income; expressed as a percentage.

Deed
Document by which title to real property is transferred from one owner to another. The deed includes an accurate description of the property being conveyed, is signed and witnessed in accordance with laws of the State in which the property is located, and is delivered to the buyer at closing.

Default
Non-compliance with legal obligations of a contract, such as failure to make monthly mortgage payments.

Defective Title
Any recorded instrument that would prevent a grantor/seller from providing a clear title. Example: Seller has a contractor lien on the property that was filed when he/she failed to pay the contractor for remodeling. The seller may obtain clear title by paying the contractor and removing the lien.

Depreciation
Decline in the value of real property due to wear and tear, obsolescence, or adverse change in the neighborhood.

Down Payment
Amount paid for the purchase of a property in addition to the mortgage, but not including any closing costs. Example: Borrower purchases a home for $100,000 and obtains a loan of $80,000; down payment is $20,000.Back to Top

E

Earnest Money
Deposit made by property buyer toward down payment, as evidence of good faith.

Easement
Temporary or permanent right to use the land of another for a specific purpose.

Eminent Domain
Right of government or public utility to acquire property for necessary use, with proper compensation to the property owner.

Equity
Property Loans/Liens subtracted from Property Value yields Equity; typically expressed as a percentage of the property value.

Escrow
Neutral third party that handles all funds in a real-estate transaction. Buyer puts deposit into escrow; lender funds the loan into escrow. Escrow pays broker(s), pays off any loans/liens against the property, pays taxes and fees, and sends the remainder of the money to the seller.

F

Fannie Mae (Federal National Mortgage Association, FNMA)
Purchases loans from lenders and securitizes them, then sells FNMA-mortgage-backed securities to investors.

Federal Housing Administration (FHA)
Agency of the U.S. Department of Housing and Urban Development (HUD) that administers loan programs and issues loan guarantees. Back to Top

First Mortgage
Property loan with lien priority over all other mortgages. In the event of foreclosure, payment of the first mortgage is satisfied prior to other outstanding mortgages.

Fixed-Rate Mortgage
Interest rate and payments remain identical for the duration of the loan.

Flood Insurance
Policy covering property damage as a result of natural flooding; may be required on properties in a designated flood zone.

Foreclosure (Repossession)
Legal process by which lender forces sale of a property because the borrower has not met the terms of the mortgage.

Freddie Mac (Federal Home Loan Mortgage Corporation, FHLMC)
Purchases loans from Federal Reserve and Federal Home Loan Bank Systems and securitizes them, then sells FHMLC-mortgage-backed securities to investors.

FSBO
For Sale By Owner; a property for sale that is not listed with real-estate brokerages.

G

Good Faith Estimate
Summary of approximate payments incurred by borrowers at closing.

Gross Income
Total income before expenses are deducted.Back to Top

H

Hazard Insurance (Fire Insurance, Homeowner’s Insurance)
Policy on a property against fire and other risks. A homeowner’s policy may have additional coverage for theft, liability, etc. not covered by a fire insurance policy.

Home Owners Association (HOA)
Organized group of property owners in a condominium, Planned Unit Development (PUD), or subdivision, assigned to manage common areas and enforce association rules and regulations.

I

Impound Account
Also known as Reserves, this portion of a borrower’s monthly payment is held by the lender or loan servicer to pay taxes, hazard or mortgage insurance, lease payments, and other items as they become due.

Income Property
Real estate that generates rental income; apartment buildings, office buildings, shopping centers.

IRS 4506T
An Internal Revenue Service form that permits a lender direct access to a borrower’s tax returns through the IRS by submitting the form IRS 4506T. Back to Top

J

Jumbo Loan
Any mortgage amount that surpasses limits established by FNMA or FHLMC.

K

L

Lease with Option to Purchase
Lease under which the lessee has the right to purchase the property; the option may run for a portion or for the duration of the lease.

Legal Description
Legally acceptable identification of real property by Survey or Metes and Bounds.

LIBOR (London InterBank Offered Rate)
Indexed rate at which banks in foreign markets lend currency to each other.

Lien
Claim against a property for the payment of debt, judgment, mortgage, or taxes.

Loan Application
Required by a lender prior to loan approval, this document includes detailed information about the borrower and property. Find out how the loan application process works here.

Loan Origination Fee or Points
Charged by a lender or broker involved with originating a loan, this fee is different from Discount Points used to buy-down an interest rate. Back to Top

Loan-to-Value Ratio (LTV)
Loan amount divided by the value of the property; typically expressed as a percentage.

Loan Servicing
Act of collecting loan payments, disbursing property taxes and insurance from escrow, foreclosing on defaulted loans, and remitting payments to investors.

M

Market Value
Highest price a buyer should pay, and the lowest price a seller should accept on a property; market value can differ from sales price depending on circumstance.

Mortgage
Written instrument that creates a lien upon real estate as security for the payment of a specified debt.

Mortgagee and Mortgagor
Mortgage lender and mortgage borrower, respectively.

Mortgage Insurance, Private Mortgage Insurance (PMI)
Employed on mortgages with less than 20% down payment. Borrowers choosing a small (or no) amount down are typically required to carry mortgage insurance; payments are made monthly or annually, and an impound account may also be required. Back to Top

Mortgage Note
Written agreement to repay a loan. The note is secured by a mortgage, serves as proof of indebtedness, and states the manner in which it shall be paid. The note also states the actual amount of the debt secured by the mortgage and renders the mortgagor personally responsible for repayment.

N

Negative Amortization
Increase in principal balance that occurs when monthly payments do not cover total interest costs; the unpaid interest costs is then added to the unpaid principal balance.

Non-conforming Loan
Loans that do not comply with FNMA or FHLMC guidelines.

O

Oral Contract
Verbal agreement for sale or use of real estate that is typically unenforceable.

Owner of Record
Individual named on a deed recorded and archived at the county government office.

Owner Occupant
Tenant of residence that also owns the property. Back to Top

P

PITI
Abbreviation for Principal, Interest, Taxes and Insurance, which are typically combined into a single monthly mortgage payment.

Planned Unit Development (PUD)
Zoning classification that allows flexibility in the design of a subdivision. PUDs include individually-owned units and common space that is jointly owned.

Plat
Plan or map of a specific land area.

Points
Fees paid to lenders. 1 point equals 1% of the loan amount; on a $100,000 loan, 1 point equals $1000. Points are differentiated as “origination points” (transaction fees) and “discount points” (interest rate buy-down).

Prepayment
Full or partial payment of the principal before the due date, prepayment can occur if the borrower makes extra payments, sells the property, or refinances the existing loan.

Prepayment Penalty
Fees paid by the borrower if the loan is paid prior to its due date. Back to Top

Principal
Outstanding balance on a loan.

Property Types

  • Single-Family Detached Housing (SFD): residential structure designed to include one dwelling
  • Town House (single-family): residence typically of two or more stories and attached to similar units; town houses are commonly designed as part of condominiums and PUDs
  • Condominium: individual ownership of a dwelling unit with individual interest in common areas and facilities that serve the multi-unit development
  • Duplex: single structure designed with two separate housing units (triplex = 3 units, fourplex = 4 units, 4+ units = commercial property)
  • Manufactured Home: factory-built or prefabricated housing, including mobile homes
  • Mobile Home: factory-assembled residence consisting of one or more modules, in which a chassis and wheels are integral to the structure
  • Modular Home: factory-assembled residence built in units or sections, transported to a permanent site and erected on a foundation

Purchase Money Mortgage
Loan used to finance the purchase of a property.

Property Tax
Government levy based on the market value (as assessed by a local tax assessor) of the property.

Q

Quit Claim Deed
Often given to clear a property title when the grantor’s interest in a property is questionable, the quit claim transfers whatever interest the maker of the deed may have in a particular parcel of land. By accepting such a deed, a buyer assumes all risk, since the quit claim makes no warranties as to the title. Back to Top

R

Real Estate Settlement Procedure Act (RESPA)
Legislation that defines how mortgage lenders must treat borrowers that apply for loans on property of 1-4 units.

Realtor©
Real estate professional licensed to sell and/or lease real property by a national association.

Refinancing
Repayment of an existing mortgage from the proceeds of a new mortgage on the same property.

Rescission
Cancellation of a transaction or contract by law or mutual consent. Mortgage refinances are required to have a three-day right of rescission.

Regulation Z
Federal regulation requiring creditors to provide full disclosure of the terms of a loan and annual percentage rate (APR).

S

Security
Property that serves as collateral for a debt.

Seller Concession
Something of value that a seller offers a buyer as enticement to purchase the property.

Second Home / Vacation Home
Typically recreational property, a second home is purchased for occupancy but not as primary residence.

Servicing
Act of collecting loan payments, disbursing property taxes and insurance from escrow, foreclosing on defaulted loans, and remitting payments to investors. Back to Top

Settlement Statement (HUD-1)
Closing document required by U.S. Department of Housing and Urban Development that outlines all settlement costs relating to a loan. The closing agent prepares the HUD-1 and sends it to the buyer at closing.

Standard Uniform Loan Application (Form 1003)
Generic form used throughout the mortgage industry to begin the borrower qualification process.

Subdivision
Tract of land divided into lots suitable for home construction.

Survey
Map created by a licensed surveyor who measures land and charts boundaries, improvements, and relationship to surrounding property.

T

Title
Evidence of rightful property ownership.

Title Insurance
Policy protecting the insured against loss arising from title defects. Title insurance is typically obtained for the buyer and lender.

Title Report
Document indicating the current state of title, including ownership, outstanding deeds of trust or mortgage, liens, easements, covenants, restrictions, and defects.

Title Search
Examination of public records to determine ownership and encumbrances affecting a property.

U

Underwriting
Decision process to determine whether or not to make a loan to a potential borrower based on credit, income, assets, employment history, and other factors. Back to Top

Unencumbered Property
Real estate that is free and clear of debts and liens.

Uniform Residential Loan Application (Form 1003)
Generic form used throughout the mortgage industry to begin the borrower qualification process.

V

VA Loan
Home loan guaranteed by the U.S. Veterans Administration, enabling a military veteran to purchase a home with no money down.

Verification of Deposit (VOD)
Document signed by the borrower’s bank or other financial institution to confirm account balance and history.

Verification of Employment (VOE)
Document signed by the borrower’s employer confirming job start date, title, salary, and probability of continued employment.

Verification of Mortgage (VOM)
Document signed by the borrower’s mortgage company or other financial institution confirming account balance and history.

Verification of Rental (VOR)
Document signed by the borrower’s landlord confirming rental residence and payment history.

W

W-2
Internal Revenue Service form that identifies income paid and taxes withheld by an employer for an individual employee during a calendar year. Back to Top

X

Y

Z

Zero Lot Line
Dwelling considered an individual unit with separate lot, but attached by common wall (townhouse, PUD).

Zoning
Local government ordinance used to designate and authorize specific use of real property; residential, commercial, agricultural, etc.

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