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Rate Zip - Mortgage and loan glossary
Category: Economy and Finance > Mortgages and loans
Date & country: 01/01/2011, US
Words: 148

Jumbo Loan
A loan that is larger than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.

Any licensed person or entity advancing funds that are to be repaid. Also known as a mortgagee.

A claim upon a piece of property for the payment or satisfaction of a debt or obligation.

Liquid Assets
Cash or assets that can be immediately converted to cash.

Loan Amount
The amount of debt, not including interest.

Loan Modification
A process where a lender and borrower agreee to modify some of the terms of an existing mortgage. The mortgage not is not cancelled or paid off, rather it is modified. Typically this can include extending the term of a loan, changing the the interest rate, in order to reduce the monthly payment and avoid a foreclosure.

Loan Officer
Your loan officer is your personal guide throughout the mortgage process. He or she will help you to identify your needs, select a loan program, complete the application process, offer advice and answer any questions you may have.

Loan-to-Value Ratio
The relationship between the amount of the mortgage loan and the appraisal value of the property, expressed as a percentage.

Lock Period
A lock period refers to the amount of time prior to closing that you can secure an interest rate for your loan. Generally, lock periods range from 30 days to over 90 days.

The amount a lender adds to the index on an ARM to establish the adjusted interest rate.

Market Value
The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.

Marketable Title
A title that is free and clear of objectionable liens, clouds or other title defects. A title that enables an owner to sell his property freely to others and that others will accept without objection.

Minimum Down Payment
Minimum down payment is the amount of money you are required to put down at closing. If the minimum is 10%, you must make a down payment of at least $10,000 on a $100,000 house.

Monthly Payment
The amount paid each month towards the principal and interest amount of a loan. The monthly payment may or may not include taxes and insurance.

A loan for a house. Also referred to as a lien or claim against real property.

Mortgage Broker
A person, or entity, that specializes in loan originations and receives a commission for matching borrowers with lenders. The mortgage broker performs some or most of the loan processing functions such as taking loan applications, ordering credit reports, appraisals and title reports. Typically, the mortgage broker does not underwrite the loan and generally does not use its own funds for closing.

Mortgage Commitment Letter
A formal offer from a bank, or other lending institution, which states the terms under which it agrees to advance mortgage funds to a homebuyer.

Mortgage Insurance
Money paid to insure the mortgage when the down payment is less than 20 percent.

Mortgage Insurance Premium
The payment made by a borrower to the lender for transmittal to HUD. These payments help defray the cost of the FHA mortgage insurance program and provide a reserve fund to protect lenders against loss in insured mortgage transactions. In FHA insured mortgages, this represents an annual rate of one-half of 1 percent paid by the borrower on a monthly basis.

Negative Amortization
Occurs when your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan. The danger of negative amortization is that the buyer ends up owing more than the original amount of the loan.

No Documentation Mortgage
A no-documentation, or "no-doc", mortgage is a specialty loan product that generally requires a down payment of at least 5% to 30% of the home purchase price. No-doc mortgages are generally a wise choice for self-employed people, those who do not wish to verify their income and those with a brief or blemished credit history, or no credit at all. The benefits of a no-doc mortgage include a shorte...

Non-conforming Loan
A conventional home mortgage that does not meet the criteria of Fannie Mae or Freddie Mac for various reasons including loan amount, loan characteristics or underwriting guidelines. Non-conforming loans usually incur a higher rate and/or points.

Origination Fee
The fee charged by a lender to prepare loan documents, make credit checks, inspect and sometimes appraise a property; usually computed as a percentage of face value of the loan.

Piggyback Loan
An alternative to private mortgage insurance, also known as a second trust loan. The most common type is an 80/10/10 where a first mortgage is taken out for 80% of the home's value, a down payment of 10% is made and another 10% is financed in a second trust at a higher interest rate. In some cases, you may even qualify for a piggyback loan with as little as a 5% down payment.

Principal, interest, taxes and insurance. Also called monthly housing expense.

The amount of prepaid interest you will be assessed at closing. Each point is equal to 1 percent of the loan amount (i.e. two points on a $100,000 mortgage would cost $2,000).

A privilege in a mortgage permitting the borrower to make payments in advance of their due date. Allows the borrower to pay the loan off sooner and save on interest. Not all mortgage agreements allow for prepayment, and some lenders will charge a fee for early repayment of debt, see Prepayment Premium.

Prepayment Premium
Money charged for early repayment of debt if the original mortgage commitment does not allow for prepayment. Prepayment premiums are allowed in some form (but not necessarily imposed) in 36 states and the District of Columbia.

The amount of debt, not counting interest, left on a loan.

Private Mortgage Insurance (PMI)
In the event that a borrower does not have at least a 20% down payment lenders will allow a smaller down payment - sometimes as low as 5%. With these loans, borrowers are required to carry private mortgage insurance. PMI usually requires an initial premium payment, and may require an additional monthly fee, depending on your loan structure.

Processing is the steps a lender takes to gather borrower information for underwriting. Processing includes getting the credit report, appraisal, verification of employment, assets, etc.

Qualification is the initial process to verify that a borrower has enough cash and sufficient income to purchase a home. Qualification is not an approval because it does not include a credit check. Qualified borrowers can be turned down if they have poor credit history.

In lending, the amount of interest on the loan expressed as an interest rate or annual percentage rate (APR) of the principal.

Rate/Point Options
These options are all the combinations of interest rate and points that are offered on a particular loan. Usually, paying more points lowers interest rates.

Real Estate Broker
A middleman or agent who buys and sells real estate for a company, firm, or individual on a commission basis. The broker does not have title to the property but generally represents the owner.

A real estate broker or an associate holding active membership in a local real estate board affiliated with the National Association of Realtors.

Recording Fees
Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records.

The process of the same borrower paying off one loan with the proceeds from another loan.

To cancel a contract. With respect to mortgage refinancing, the law that gives the homeowner three days to cancel a contract once it is signed if the transaction uses equity in the home as security.

The Real Estate Settlement Procedures Act is a federal law that allows consumers to review information on known or estimated settlement costs once after application and once prior to or at settlement. The law requires lenders to furnish information after application only.

The life of the loan. The period of time between the beginning loan date on the legal documents and the date the entire balance of the loan is due.

A document that gives evidence of an individual's ownership of property.

Title Insurance
A policy, usually issued by a title insurance company, which insures a homebuyer against errors in the title search. The cost of the policy is usually a percentage of the value of the property, and is often purchased by the buyer and/or seller.

Title Search
An examination of municipal records to determine the legal ownership of property. Usually is performed by a title company.

A federal law requiring disclosure of the Annual Percentage Rate, finance charge and several other pieces of information related to the loan. This disclosure allows you to compare the total cost of a loan from lender to lender. The disclosure is provided shortly after an application is received and again at closing.

Your underwriter is the liaison between you and the credit officer. The underwriter is responsible for reviewing and verifying all your documents and information and submitting it to a credit officer.

The analysis of risk involved in granting a mortgage loan to a particular borrower and the process by which a lender determines whether the risk is acceptable. Underwriting involves the evaluation of the property as outlined in the appraisal report, and of the borrower's ability and willingness to repay the loan.

Veteran Affairs (VA) Loan
A mortgage loan made by an approved lender and guaranteed by the Department of Veterans Affairs. All veterans, and those currently serving in the military, are eligible for a VA loan, which is commonly characterized by a lower down payment than other types of loans.