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Glossary A-Z
A
Acceleration Clause
In the loan documents, a clause that gives the bank the right to ask for immediate repayment of the entire loan balance if the conditions of the mortgage, including payments, are not met.
Adjustable Rate Mortgage
A mortgage with an interest rate that goes up or down, depending upon a pre-selected index. The payments on an ARM fluctuate with the market as well. (Subject to certain pre-determined limitations called CAPS.)
Adjustment Period
The time between rate adjustments in an ARM.
Amortize
In Latin, meaning to “kill off.” To repay a loan by equal payments made periodically during a fixed period of time, including interest.
Amortization
The paying off of such a loan
Amortization Schedule
A payment schedule showing the dollar amounts that represent interest paid, principal paid and loan balance over the life of the loan.
Amount Financed
The loan amount borrowed, less the prepaid finance charges. This is found on the Good Faith Estimate. This is the figure on which the Annual Percentage Rate is calculated.
Annual Percentage Rate (APR)
The actual cost of a loan expressed as a yearly rate and calculated over the life of the loan. This is shown on the Truth-In-Lending. The APR is a calculation required by the Federal Government. It is not to be confused with the Note Rate. Charges used to calculate the APR include but are not limited to prepaid interest, points and origination fee.
Application Fee
An “up-front” fee charged by some lenders which is sometimes refundable and other times, non-refundable. Be cautious! The best way to go is NOT to pay any type of “application fee.”
Appraisal
An analysis of the current estimated value of the property in question based upon recent sales of similar properties in the same neighborhood. These are done by licensed individuals.
Appraisal Fee
A fee paid to the appraiser for his or her work. This is normally paid for by the borrower at the time of the application. A borrower should not be concerned if the lender asks for this fee in advance.
Appraiser
The licensed professional who completes the appraisal.
Appreciation
The increase in value of a property.
APR
See Annual Percentage Rate.
ARM
See Adjustable Rate Mortgage
Assessment
A local tax levied upon a piece of property for a specific purpose, such as sewers, schools and roads.
Assumability
A loan clause allowing the current loan to be transferred or assumed by another party, usually the buyer of the property. The conditions of the loan remain the same. Assuming a loan is subject to the lender’s approval.
Assumption
The act of assuming, or taking over another person’s loan.
B
Balloon Loan
Also called a Balloon Mortgage. A short-term loan with a fixed rate with level payments but does not fully amortize the loan over the original term. A loan might be amortized over 30 years, but all due and payable in 10. This gives the buyer the advantage of a lower payment spread out over 30 years. The lender has an advantage in that they receive payment of the full balance in only 10 years. This used to be used primarily in owner-carried loans, but is not prevalent in the mortgage industry as well.
Balloon Payment
The large payment due at the end of a Balloon Loan.
Bankruptcy
A legal declaration by the Federal government stating that the person is unable to pay their debts.
Bankruptcy Discharge
At the end of the bankruptcy proceedings, the court discharges all debts. A Discharge is filed with the court showing the dates all debts were forgiven.
Bi-Weekly Mortgage
A payment plan with payments due every two weeks. The payment is 1/2 or more of the total monthly payment, including taxes and insurance. This constitutes 26 1/2 payments, or 13 full payments, thus paying down the mortgage faster.
Bond Program
A government program that assists certain buyers in purchasing homes.
Borrower
The person applying for and receiving a loan.
Broker
A licensed individual who assists a borrower in obtaining a mortgage from a third party.
Buy Down
A method of subsidizing the loan by the builder, lender or seller which results in a lower payment for the borrower for a certain length of time.
C
Cap
The limit an adjustable rate mortgage may adjust, either during a specific adjustment period or during the life of the loan. A cap protects the borrower from excessive increases in monthly payments. For instance, a loan might have a limit or cap of 1% during an adjustment period, with a total of 5% over the life of the loan. Look at the “worst-case” scenario to see if you are capable of making the highest payment allowed for an ARM.
Cash-Out
During a refinance, a homeowner might borrow more than what is currently owed on the home. This is called “cash-out”. Most cash-out situations result from the borrower needing money for home improvements or to pay off consumer debt.
CCR’s
See Covenants, Conditions and Restrictions.
Certificate of Eligibility
A document from the Veteran’s Administration showing that the Veteran named is qualified for a VA insured home loan. A Certificate of Eligibility may be obtained from the VA by submitting a copy of the Veteran’s DD 214 and a “Request for Eligibility” (VA form 1880). Since about 2002, the VA has been allowing the lender to request eligibility via the Internet for Streamline or Rate Reduction Refinances.
Certificate of Reasonable Value
A form required by the Veteran’s Administration showing the appraised value of the property.
Certificate of Title
Not to be confused with Title Insurance, a Certificate of Title is an opinion of the status of the title to a certain property.
Certification and Authorization
A form the borrower signs at application for a loan, certifying that all the information on the application is true and correct. This form also serves as the lender’s authorization to verify the borrower’s credit, income, employment history, accounts and balances at financial institutions and copies of income tax returns.
Closing
The act of completing the loan process.
Closing Agent
An unbiased third party charged with holding the funds and documents during the loan process. This is usually an escrow company or lawyer.
Closing Costs
Fees paid for the purpose of refinancing or buying in a real estate transaction. (Points, Title Insurance, escrow fees, etc.)
Closing Meeting
In some parts of the country, all parties meet and exchange money and title to the property. (Takes the place of Escrow.)
Closing Statement
Also called a Settlement Statement or HUD 1. A form prepared by the closing agent itemizing all of the costs incurred during the transaction.
COFI
See Cost of Funds Index
Combined Loan-To-Value
After totaling all loans on a property, the ratio of that balance to the value of the property. For instance, if a home has a 1st mortgage for $200,000, a 2nd for $50,000 and a value of $750,000, the CLTV would be 33%. ($200,000 plus $50,000 divided by $750,000)
Commitment
A loan approval from the lender, offering to make the loan under certain conditions, including loan amount, interest rate and term. A commitment has an expiration date.
Conforming Loan
A loan which meets all the guidelines of the two federally sponsored housing agencies, Freddie Mac and Fannie Mae.
Conventional Mortgage
A mortgage that is not insured by the Federal Housing Administration (FHA) or guaranteed by the Veteran’s Administration. (VA)
Construction Loan
An interim loan for the purposes of building. The funds are paid to the contractor in increments as the work progresses.
Conversion Clause
Some adjustable rate mortgages have a clause whereby the borrower can convert the AMR into a fixed-rate loan.
Convertible ARM
An adjustable rate mortgage with a conversion clause.
Cost of Funds Index
An index used to price some adjustable rate mortgages. It is a calculation of the interest paid on deposits by members of the 11th Federal Home Loan Bank District. Also called the 11th District Cost of Funds.
Courier Fees
Overnight mail fees incurred by escrow on the borrower’s behalf.
Covenants, Conditions and Restrictions
Also called CC&R’s. A document that details what uses and restrictions are placed on a property, usually in a condominium or Planned Unit Development. Some older CC&R’s are now illegal due to discrimination.
Credit Report
A report, usually from information combined from the 3 major credit bureaus that detail a borrower’s credit history, including any public records such as bankruptcy and judgments. This is used to judge a borrower’s credit-worthiness.
Credit Report Fee
A fee, usually up-front, that a lender charges to run a borrower’s credit report. This fee is charged by the credit reporting company to the lender and then is passed on to the borrower. This is another fee that you should not feel funny about paying for “up-front.”
Credit Score
A score given by each credit reporting companies that is used to judge the credit-worthiness of a borrower. Scores are determined by various facts, such as past payment history, number of open accounts and the ratio of the balance of each account to its limit. For instance, two people have a credit card with a limit of $5,000. Borrower “A” has a balance of $500 and borrower “B” has a balance of $4,500. Borrower “A” would be making better use of his credit, and therefore have a slightly higher credit score.
D
DD 214
The “Separation” paper issued to each Veteran after the completion of their service. This shows the veterans dates of service. I advise veterans to record a copy of their DD 214 with the county recorder’s office. That way, if they lose their copy, they can get a new one right away without having to wait for the Veteran’s Administration to do the research and send one out to them.
Debt-To-Income Ratio
A calculation that is made in order to show the borrower’s ability to repay the loan. It is the ration of how much debt the borrower owes (including the new loan) compared to the total income of the borrower. If, with the new loan, the borrower’s monthly payments will be $2,400 and the total income is $5,200, the debt ratio would be 46%. ($2,400 divided by $5,200.) A debt ratio of 45 or less is best, although there are loan products that allow a slightly higher debt ratio, usually with an extra cost involved.
There are two ratios that are calculated. The top ratio (also called the front-end) is made by dividing the proposed total monthly mortgage payment (PITI) by the gross monthly income. The bottom ratio (also called the Back-end) is calculated by dividing the total monthly payments (including proposed PITI and all recurring debt) by the gross monthly income.
Deed
The legal document that is used to transfer ownership (title) of a property. This is recorded with the county in which the property is located.
Deed of Trust
A document signed by the borrowers that creates a lien against the property. This is used as security for the loan. It is also recorded with the county in which the property is located.
Default
When a borrower fails to meet the requirements of the loan, the person is in default. Usually a borrower is in default when they fail to make the payments on the loan.
Deferred Interest
Interest that is not paid when it normally would be paid. In a negative amortization loan, only a portion of the interest due each month is required to be paid. The part of the interest that is not paid is said to be “deferred” or agreed to be paid at a later date. Deferred interest is added onto the loan balance, so instead of decreasing each month, the balance increases instead.
Delinquent
Being 30 days or more behind in loan payments.
Demand
A statement by the current lender stating the unpaid principal balance of a loan and accrued interest. This is requested by escrow so that they will know what the exact pay off of the loan will be.
Demand Fee
The fee charged by the lender to prepare a demand.
Discount Points
Also called Points. Money paid to a lender either at close of escrow or added onto the loan amount that lowers the interest rate of the loan. One point equals 1% of the loan amount.
Document Prep Fee
A fee sometimes charged by a lender, ostensibly to “prepare” the loan documents.
Do Not Call Registry
A national list that consumers may place their phone numbers on to reduce unwanted telemarketing calls. The Federal Trade Commission and The Federal Communications Commission enforce the registry.
Downpayment
A portion of the sales price of a property paid by the borrower at close of escrow. It is the difference between the purchase price and the mortgage amount.
E
ECOA
See Equal Credit Opportunity Act.
Equal Credit Opportunity Act
For short, “ECOA.” A Federal law that prohibits lenders from discriminating against credit applicants on the basis of race, color, religion, national origin, sex, marital status, or age. People cannot be discriminated against because all or part of their income is from public assistance.
Equifax
One of the three largest Consumer Credit Reporting Agencies.
Equity
The difference between how much is owed on a property and the current market value. There could be no equity in a property, or there could be negative equity. (This is called being “upside down”…owing more than your home is worth.)
Equity Loan
A home loan based upon the borrower’s equity in his home.
Escrow
See Closing Agent
Escrow Account
Every homeowner has to pay property taxes and insurance, even if their home is free and clear. When you have a loan on the property, the lender will sometimes establish an escrow account for the borrower. The funds paid each month by the borrower for property taxes and insurance are held in this account until they become due. Escrow accounts are interest-bearing accounts. Also called an impound account. I prefer that over escrow account to eliminate the confusion between this account held by the lender and the closing agent, its fees and services.
Escrow Fee
The fee paid to the escrow company (closing agent) for services performed in order to close the loan.
Escrow Officer
See Closing Agent. Also, the person who works for the closing agent.
Escrow Payment
Also called Impounds. That portion of the monthly payment earmarked for property taxes and property insurance. The escrow payment goes into the Escrow account or the Impound Account. See where it gets confusing?
Escrow Balance
The balance in a borrower’s Escrow Account, held by the lender. This usually is shown on the monthly statements.
Estimated Settlement Statement
Also called an Estimated Closing Statement or Estimated HUD-1. An itemized list of all the costs incurred during the transaction. This is prepared by the closing agent and provided to the borrower several days prior to close of escrow. The statement will show how much the borrower will need to bring in or the amount of money the borrower will be receiving at close of escrow.
Expense-To-Income Ratio
See Debt-To-Income Ratio
Experian
One of the three largest Consumer Credit Reporting Agencies.
F
Fair Credit Reporting Act
After a credit check, this law requires the lender to furnish to the borrower the nature and scope of the credit investigation, should the borrower request a copy in writing. If you are denied credit, the lender must send you a denial letter, stating the identity of the Consumer Reporting Agency making the unfavorable reports and of your right to request within 60 days the reason for the adverse action.
Fair Housing Financial Discrimination Act of 1977
A federal law making it illegal to “discriminate in the provisions of or in the availability of financial assistance because of the consideration of: 1. Trends, characteristics or conditions in a neighborhood or geographic area surrounding a housing accommodation, unless the financial institution can demonstrate in the particular case that such consideration is required to avoid an unsafe and unsound business practice; or 2. Race, color, religion, sex, marital status, national origin or ancestry.” In other words, lenders can’t discriminate. Applies to one to four-family units occupied by the owner.
Fannie Mae
SeeFederal National Mortgage Association (FNMA)
Federal Home Loan Mortgage Corporation (FHLMC)
Also known as Freddie Mac. A government sponsored corporation that buys mortgages from lenders in the secondary market.
Federal Housing Administration (FHA)
A federal agency that insures first mortgages requiring a lower downpayment.
Federal National Mortgage Association (FNMA)
Also known as Fannie Mae. A corporation that buys and sells mortgages.
FHA
See Federal Housing Administration.
FHA Loan
A loan insured by the Federal Housing Administration.
FICO Score
A way of measuring the creditworthiness of a prospective borrower, based upon a numeric score. This system was developed by Fair, Isaac and Co. Scores range from 300 to over 800 in some cases.
Finance Charge
The cost of borrowing money, including points, origination fee, interest, etc.
First Mortgage
The primary lien against a property.
First Trust Deed
See Deed of Trust.
Fixed Rate
An interest rate that does not change over the life of the loan.
Fixed Rate Mortgage
A mortgage with a fixed interest rate and payment over the life of the loan.
Floating the Rate
Instead of locking in the interest rate at the time of application, some borrowers “float the rate”, meaning they let it go up and down according to the market, until such time as they decide to lock the loan.
Flood Certification
If the property is in a federally designated flood zone, the lender requires flood insurance. The Flood Certification is a document the lender obtains which shows if the property is in a flood zone. The fee for this is collected by the lender and paid to the company providing the Certification.
Flood Insurance
Extra insurance required by a lender if the property is in a flood zone.
Forbearance
If a borrower is behind on his payments, the lender might give the borrower extra time to catch up on the overdue payments. A grace period.
Foreclosure
In cases of default by the borrower, the legal process in which a mortgaged property is sold to pay the outstanding debt.
Freddie Mac
See Federal Home Loan Mortgage Corporation.
Fully Indexed Rate
The current index value plus the margin.
G
Ginnie Mae (GNMA)
See Government National Mortgage Association
Good Faith Estimate
A written estimate of the costs the borrower will incur in reference to the loan. By law, this must be given to the borrower within 3 days of application.
Government National Mortgage Association
A government agency that provides funds for VA and FHA Loans.
GPM
See Graduated Payment Mortgage
Graduated Payment Mortgage (GPM)
A type of flexible-payment mortgage where the payments increase for a specific period of time and then level off. This type of loan has negative amortization built into it
Grace Period
The period of time in which a payment may be made after its due date before a late charge is added.
Gross Income
Total monthly or yearly income before taxes or expenses is deducted.
Growing Equity Mortgage
This is a fixed rate loan where the payments increase each year, thus paying down the mortgage faster.
H
Hazard Insurance
Insurance policy that provides compensation for damage or loss of the home. Required by lenders to protect their interest in the property.
Home Equity Line of Credit (HELOC)
A revolving line of credit, much like a credit card, secured by the equity in a home. This type of loan allows the flexibility of using only the amount of money needed at any particular time, with a corresponding monthly payment. Good for home improvement projects. The balance may be paid down and then money re-borrowed at a later date.
Home Equity Loan
An additional loan on a property, secured by the equity. Unlike a HELOC, at close of escrow all the funds are distributed to the borrower.
Homeowners Insurance
An insurance policy that includes not only the hazard insurance, but personal liability.
Housing and Urban Development (HUD
The government agency which oversees the Federal Housing Administration.
HUD-1
Settlement statement prepared by the closing agent that itemizes the costs incurred during the loan process. Also called a HUD-1 Settlement Statement.
I
Impound Account
See Escrow account.
Impounds
The money paid each month by the borrower to cover property taxes and insurance. This money is held by the lender in an interest-bearing account for the payment of that specific borrower’s property taxes and insurance as they become due.
Index
A published interest rate against which lenders measure the difference between the current interest rate on an adjustable mortgage and that earned by other investments. The difference is used to adjust the interest rate on an adjustable rate mortgage either up or down.
Initial Rate
The beginning interest rate of an adjustable rate mortgage
Interest
The cost of borrowing and using money.
Interest Only Mortgage
A mortgage that for a certain period of time the payments consist of interest only. The payment is lower because it does not include that portion of the payment that would normally go towards paying down the principal. At the end of the specified period of time, the payment increases to include the portion of the payment for the principal. At this time, the loan balance has not decreased since the beginning of the loan.
Interest Rate
The interest rate charged by a lender for the use of the money, expressed as a percentage.
Interest Rate Cap
The limit to which a rate can increase with an adjustable rate mortgage.
J
Jumbo Loan
A mortgage with a balance more than the maximum purchased by Fannie Mae or Freddie Mac.
K
.
L
Late Charge
Amount charged to the borrower if the payment is made after the grace period. Usually 15 days.
LIBOR
See London Interbank Offered Rate
Lien
A monetary claim against a property. Most liens must be satisfied (paid) prior to closing a refinance or a sale of a property.
Loan Application
The document that is completed at the beginning of the loan process. It contains all the vital information about the borrowers, i.e. name, address, employment history, income information, and a listing of assets and liabilities. Also called a 1003.
Loan Application Fee
A fee charged by some lenders upon application. I don not feel an application fee should be paid.
Loan Origination Fee
A fee charged by lenders, ostensibly to compensate them for processing the loan. Usually 1% of the loan amount. As you will see in the “Pricing” section of this site, it is really nothing more than another way to make money.
Loan-To-Value Ratio (LTV)
The ratio of the mortgage amount compared to the value of the property. If a home has a loan of $350,000, with a value of $600,000, the LTV would be 58%. ($350,000 divided by $600,000.) For conventional loans, a LTV of 80% or above will require Mortgage Insurance.
Lock
A lender can guarantee a certain interest rate and points by locking your loan. There are different lengths of time a loan can be locked for, i.e. 15 days, 30 days, etc. A lock will protect a borrower against rate increases during the time of the lock. Some people like the loan to be locked at the time of application. Others want to wait to see what the market will do. This can be risky as the market can change quickly. The lender locks the loan for the borrower.
London Interbank Offered Rate (LIBOR)
A common index for Adjustable rate mortgages.
M
Margin
The amount the lender adds to the index on an adjustable rate mortgage. This total establishes the adjusted interest rate and determines the new monthly payment. The margin added to the index is called the fully indexed rate. For example, if the current index is 5% and your loan has a margin of 2%, the fully indexed rate would be 7%.
Market Value
The current value of a property based upon a willing seller and a willing buyer
MIP
See Mortgage Insurance Premium
Mortgage Banker
A lender that originates and funds their own loans. After the loan closes, it is sold on the secondary market.
Mortgage Broker
A company who does not fund their own loans. A broker arranges financing for their borrowers with lenders. Usually a broker has a wide range of lenders they use, each wit a variety of products to choose from.
Mortgage Insurance
See PMI
Mortgage Insurance Premium
Insurance from FHA that protects the lender should the borrower default on the loan payments. Also called MIP.
N
National Do Not Call Registry
See Do Not Call Registry.
Negative Amortization
Occurs when the monthly payments are not enough to pay all of the interest due on a loan. This unpaid interest is added to the unpaid principal balance of the loan. Instead of going down each month, the principal balance goes up.
No-Cost Loan
This is a deliberate misnomer. There is no such thing as a “no-cost loan.” All loans have costs associated with them. Whether the borrower pays cash at close for points, finances the points into the loan, or takes a loan that shows zero points on the Good Faith Estimate, the borrower still bears the cost of the loan!
Non-Conforming Loan
A loan that for one or more reasons cannot be purchased by Fannie Mae or Freddie Mac.
Notary
A person licensed by the state to verify signatures and the person’s identity when they sign legal documents, such as loan documents.
Notary Fee
The fee charged by a notary for their services.
Note
The legal document signed by the borrowers that states the terms of the loan and the borrower’s promise to repay it.
Note Rate
The interest rate stated on the note. This is the rate interest on a loan is calculated and which determines the monthly payment. The note rate is different than the annual percentage rate.
Notice of Default
A legal notice sent to the borrower stating that since the payments on a loan haven’t been met, legal action will follow which can include foreclosure.
O
Origination Fee
See Loan Origination fee.
P
Payoff
The amount of money owed to the lender to completely pay off the loan. This includes, but is not limited to the principal balance, per diem interest, escrow shortages, outstanding late charges and legal fees.
Payoff Statement
See Demand.
Per Diem Interest
Interest calculated on a daily basis. At close of escrow, a borrower will be charged a certain number of days of per diem interest. If the loan is a purchase, they will pay from the closing date to the first day of the following month. If it is a refinance, the borrower will pay two sets of per diem interest: one amount for the days on the new loan as explained above, and the second, for the number of days from the last payment on the old loan to the closing date of the new loan. In other words, the last bit of interest on the old loan and the first bit of interest on the new loan. This is not double dipping on the part of the lenders. Every day you have a loan, you pay interest. And because of the way payments are paid and interest calculated, the ONLY way the old lender can obtain that last bit of interest owed to them is to include it in the new loan.
PITI
The 4 components of a mortgage payment: Principal, Interest, Taxes, and Insurance.
PMI
See Private Mortgage Insurance
Point
1% of the loan amount. Buyers pay points to lower the interest rate on a loan.
Pre-Approval
When purchasing a home, it’s wise to get pre-approved before even beginning the search. A pre-approval means you’ve applied for a loan and had it approved, subject to finding a property that qualifies. Your credit, income and employment have all been verified. Contrary to all of the advertising out there, you cannot get pre-approved over the telephone in minutes. You cannot get pre-approved without filling out an application, having your credit checked and your employment and income verified. Yes, there are some loans where your employment and income are not verified. But these “stated income” loans, or “no doc” loans still require a credit check and all the application paperwork signed.
Preliminary Title Report
After the title company researches the history, liens, etc on a property, they issue a Preliminary Title Report, stating the results of their research. This is issued to the lender, escrow and borrower for their review and approval.
Prepaid Interest
The first bit of interest on the new loan. The only way the lender can collect this interest is to include it in the new loan amount.
Prepaids
Property taxes, insurance and interest included in the loan and paid in advance at close of escrow.
Prepayment
Full or partial payment of the principal balance of a loan before its due date.
Prepayment Penalty
A fee charged by a lender if the loan is paid off earlier than the specified term of the loan.
Pre-qualification
Loan pre-qualification is the very first step in the home-buying process. This is nothing more than looking at your income and expenses and determining the amount of mortgage you are qualified to get. There is usually no credit check or verifications of income done at the pre-qualification stage. A lender or a Realtor can pre-qualify you. When purchasing a home, it is silly to even look at a home unless you know you would be qualified to purchase it.
Prime Rate
Interest rate charged by a bank on short term loans to its best commercial customers.
Principal
The balance of the loan, not counting any interest or fees.
Private Mortgage Insurance
Money paid to insure the mortgage when the downpayment is less than 20 percent of the appraised value. This protects the lender against loss should the borrower default on the loan.
Processing
The act of opening escrow, sending out verifications for employment, income and deposits and then compliing all of the required information into a file. The file is then sent to the underwriter for approval or denial.
Processing Fee
The fee a lender charges to process a loan.
Processor
The person hired by the lender to do the processing of loans.
Profit and Loss
A statement showing the income, expenses and profits of a business. A profit and loss is usually required for the self-employed borrower.
Q
R
Ratios
See Debt-To-Income Ratio
Rebate
The money a lender receives from the bank when they deliver a loan with an interest rate higher than “par.” (That costs zero points).
Reconveyance
When a mortgage is paid in full, a reconveyance is recorded with the county. This reconveyance transfers the title of the property back to the owner and shows everyone that the particular loan has been paid in full.
Reconveyance Fee
A fee charged by the lender to prepare the reconveyance.
Recording
Entering a legal document into the public records
Recording Fee
The county recorder charges a fee for every page that is recorded.
Rescission
When a borrower exercises his right to cancel.
Reserves
The money required by the lender to be verified in the borrower’s possession at close of escrow. The amount will be stated in number of months of PITI payments. The lender is expecting this money to be used for emergencies.
Right to Cancel
Federal law requires that a borrower is given notice in the loan documents that he has three days in which to cancel the loan. This pertains to a refinance of a primary residence. It does not apply to a loan used to purchase a property.
S
Second Mortgage
A loan on a property obtained after the first loan.
Second Trust Deed
See Second Mortgage and Deed of Trust
Secondary Market
After a loan is closed, most lenders sell the loan to investors so they can get money to fund more new loans. These investors, grouped together, are what make up the secondary market. Secondary market investors include Fannie Mae and Freddie Mac.
Service Release Premium
Extra income a bank pays to the lender for a FHA or VA loan. The amount of the SRP is based upon the type of loan and the loan amount. They range from .75% to 1.25% of the loan amount, with the average being 1%.
Servicing
The receipt of payments, customer service, collections and foreclosure are actions a lender does when servicing an account.
Servicing Disclosure Statement
A document provided by the lender which states whether the new loan will be serviced by the lender originating the loan.
Settlement
See Closing.
Settlement Costs
See Closing Costs.
Settlement Statement
See Closing Statement
SRP
See Service Release Premium.
Stated Assets
In some loans, instead verifying the assets listed on a loan application, the underwriter may use the amount stated by the borrower.
Stated Income
In some loans, instead verifying the income listed on a loan application, the underwriter may use the amount stated by the borrower.
Stated Value
In some loans, instead of requiring an appraisal, the underwriter may use the value of the property as stated by the borrower. On the loan application.
Statement of Identity
See Statement of Information
Statement of Information
A form a borrower must fill out and return to the title company during the escrow process. This seems like an intrusion to some borrowers, but it is actually for their benefit. In searching title, the title company will inevitably encounter judgments, liens, bankruptcies, etc. against persons with names similar to the borrower’s. The title company uses the Statement of Information to show the borrower is not the person involved in those difficulties.
Subordination Agreement
A lender in second position agrees to stay in second position, thereby allowing the loan in first position to be refinanced. (Paid off and replaced by a new first mortgage.) If there is no agreement to subordinate, the second mortgage would become the first mortgage and the new mortgage would be in second position. For instance, suppose you had a first mortgage of $300,000 and a second mortgage of only $15,000. You wanted to refinance the first mortgage with a new one with a loan balance of $400,000. The minute the $300,000 mortgage is paid off, the $15,000 mortgage would move into first position. The new loan of $400,000 would be in second position. This would be unacceptable to the lender of the $400,000. A subordination agreement would need to be signed by the holder of the $15,000 mortgage, saying they would stay in second position. If the lender does not agree to the subordination, the refinance would not be completed.
Subprime Mortgage
A mortgage designed for people with credit problems. These loans are riskier for the lender and therefore cost more.
T
Tax Lien
A claim against a property for unpaid taxes.
Tax Sale
The sale of a property by the government to cover unpaid taxes.
Tax Service
A service required by the lender and paid for by the borrower. This assures that the property taxes are being paid on time.
Tax Service Fee
The fee paid by the borrower to pay for the tax service.
Term
The life of the loan
Title
Evidence of ownership in real property.
Title Company
A company that researches the ownership of a property issues a Preliminary Title Report reflecting the research and then issues title insurance.
Title Insurance
An insurance policy, issued by a title company that insures a home buyer against errors in the title search. The policy compensates the buyer for any losses caused by defects in the title to the property. The lender also requires a policy to be bought protecting their interest in the property.
Title Search
The checking of all records pertaining to the ownership of a property and the liens against it.
TransUnion
One of the three largest Consumer Credit Reporting Agencies.
Truth-In-Lending
The document given to the borrower within 3 days of application that satisfies the Truth-In-Lending Act. The Annual Percentage Rate can be found on the Truth-In-Lending. Also called a Reg Z.
Truth-In-Lending Act
A federal law that requires lenders to disclose in writing the terms and conditions of a mortgage, including the APR.
U
Underwriter
A person working for the lender who verifies all the data on the borrower’s application and evaluates the loan for either approval or denial.
Underwriting
The act of verifying all the information on the borrower’s application and evaluating the loan for either approval or denial.
V
VA
Department of Veteran’s Affairs
VA Funding Fee
The fee paid to the Department of Veteran’s Affairs with each mortgage. This insures the VA should the borrower default on the loan. (Conventional loans have PMI, FHA loans have MIP and VA loans have a Funding Fee.) The funding fee for purchases is 1% of the loan amount. The funding fee for Streamline (Rate Reduction) Refinances is .5%. (One half of one percent.)
VA Loan
A loan insured by the Department of Veteran’s Affairs.
Variable Rate Mortgage
See Adjustable Rate Mortgage
Verification of Deposit
A document signed by the borrower’s bank verifying the status and balance of the accounts held there. This is sent out by the underwriter.
Verification of Employment
A document signed by the borrower’s employer verifying his salary and position. This is sent out by the underwriter.
Verification of Loan
A document signed by the holder of a loan, verifying the balance, interest rate, term and payment history of the loan. Generally used when a loan doe not appear on the credit report.
Verification of Mortgage
A document signed by the holder of a mortgage, verifying the balance, interest rate, term and payment history of the mortgage. Generally used when a mortgage, such as an Owner Carry-Back, does not appear on the credit report.
Vesting
The names and manner in which the title to a property is held.
VOD
See Verification of Deposit
VOE
See Verification of Employment
VOL
See Verification of Loan
VOM
See Verification of Mortgage
W
X
Y
Yield Spread Premium
See Rebate.
Z
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Letter A