Library and Terminology

Adjustable-Rate Loans: (ARM) The interest rate stays fixed for an initial interest rate period, which ranges from 1-7 years. Then the rate will adjust up or down annually for the life of the loan based on a specified index. An RM is a good option if you believe interest rates will go down over the next few years or if you plan on staying in your 5 to 7 years or less.

Amortization: The repayment of a loan through installment payments.

Amortization Schedule: A schedule of payments designed to liquidate a debt. May be over any agreed upon period of time. An example of this would be a standard 30-year mortgage amortization wherein a borrower would make 360 equal consecutive monthly payments at the end of which the original loan would be paid in full.

Amortization Term: The agreed upon number of months or years a borrower will be making payments to liquidate an original debt.

Annual Percentage Rate: Also known as A.P.R. the Annual Percentage Rate is the cost of your credit expressed in terms of an annual rate. The A.P.R. takes into account "points" or "closing costs" that may be included in your loan amount and is often higher than your interest rate for this reason.

Appraised Value: The value assigned to a property by a licensed professional to assess its fair market value.

Assets: We need to make sure you have enough money to cover the costs of buying a home

Balloon Payment: An inflated payment that comes due at an agreed upon time, usually at the end of the loan term.

Bankruptcy: A debtor that is judged legally insolvent and whose remaining property is then administered for the creditors or is distributed among them.

Cash Out Refinance: A type of loan wherein an existing loan is refinanced and the borrower is allowed to receive cash in addition to the amount of the home loan. The cash is considered part of the amount financed and is part of the lien against the property securing the loan.

Closing: The time at which all loan documents have been signed and a period wherein the borrower has the right to rescind has passed. A loan has closed when funds are disbursed to the appropriate parties and a lien against the property has been placed by the creditor for the amount of the "closed" loan.

Combination Loan: A loan where you receive a first mortgage combined at the same time with a second mortgage. This option may help you avoid the costs of mortgage insurance and/or the higher rate of a larger loan with as little as 10% down. The most popular combinations are 80-10-10 (80% first mortgage, 10% second mortgage, 10% down) or 75-15-10 (75% first mortgage, 15% second mortgage, 10% down)

Consumer Reporting Agency: Also known as a bureau, a Credit Reporting Agency tracks payment history, account activity and other relevant public records for the purposes of determining credit worthiness of individuals.

Credit: Whether you’ve met other financial obligations helps us predict whether you will repay your mortgage

Credit History: A history of an individual’s ability to pay their bills on time as well as any other relevant public records.

Credit Report: A report outlining an individual’s credit history, public records and credit worthiness.

Documents: Disclosures and written agreements that are required for the closing of a loan. Documents are the contract upon which the terms of a loan are outlined and agreed upon.

Equal Credit Opportunity Act: Federal Law aimed at protecting borrowers from being discriminated against based upon such things as ethnicity, sex, location of property and religious beliefs.

Equity: The difference between what is owed against a property and its fair market value is the properties Equity
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First Loan: This is what most people think of when someone says mortgage. It is a loan in first position against a property that is usually the balance of the loan used to purchase a property in the first place. All other loans against the property are subordinate to this loan.

Fixed-Rate Loans: You will pay the same interest rate and same monthly payment of principal and interest for the duration of the mortgage. The most common terms are 30, 20 & 15 years. Fixed-rate mortgages are best if you plan on being in your home for a while.

Foreclosure: Procedure whereby property pledged as security for a debt is sold to pay the debt in the event of default in payments or terms.

Housing Expense Ratio: Also known as Debt to Income Ratio, This number is calculated by dividing all of a borrowers monthly obligations by their monthly gross income. Example : Mark has a total of $1200 in monthly bills and his gross income is $2400 per month. Therefore: 1200/2400 = 50%. Mark's Debt to Income Ratio is 50%.

Income and Debt: How much money you make and what other bills you have to pay helps us determine whether you can afford to make mortgage payments.

Interest Rate: A charge for a loan usually a percentage of the amount loaned.
Joint Tenancy : Joint ownership by two or more persons with right of survivorship; all joint tenants own equal interest and have equal rights in the property.

Lender Fees: Included in these are appraisal fees, credit report fees, origination points and discount points.

Liability: Something for which one is liable; an obligation, responsibility, or debt. Examples of liability would include, a mortgage payment, a tax bill, an insurance bill, etc.

Lien: A form of encumbrance which usually makes property security for the payment of a debt or discharge of an obligation. Examples would include: judgements, taxes, mortgages, deeds of trust, etc.

Loan Modification: Changes in the terms of an existing mortgage or loan that are permanent. These can affect interest rates, principle, term, alternative payment, etc.

Loan Origination: The beginning of the loan process. Initial contact where the borrower and lender agree to work together to secure a loan. Usually an application is taken and an initial quote is given. The borrower is asked to supply documents supporting the information that is included in the application and upon which the quote is based.

Loan to Value (LTV): The Loan to Value is the percentage of what is owed against the property vs. what the properties fair market value is.

Lock: A commitment from a lender to guarantee an interest rate for a borrower for a period of time. Rate locks expire after an agreed upon time.

Mortgage: An instrument recognized by law by which property is hypothecated to secure the payment of a debt or obligation; procedure for foreclosure in event of default is established by statute.

Mortgage Banker: A direct mortgage lender. No middlemen here. A mortgage banker or lender funds loans in his or her own name and is usually more competitive than a broker in terms of "points" and "fees".

Mortgage Broker: A person who arranges mortgage loans through mortgage bankers. This person acts as a middleman and is not limited to the restrictions of having to go through only one lender. This person can "shop" your loan to get you the best rate and term available.

Mortgagee: One to whom a mortgagor gives a mortgage to secure a loan or performance of an obligation, a lender.

Mortgagor: One who gives a mortgage on his property to secure a loan or assure performance of an obligation, a borrower.

Negative Amortization: A loan in which the interest rate and payment may change independently from each other creating the potential for the principal balance of the loan to increase rather than decrease over the term of the loan. Several variations exist and all can create problems when attempting to put a second mortgage behind a neg-am loan.

Net Worth: Net worth is the difference between an individual’s assets and liabilities. Net worth takes into consideration all assets and liabilities liquid or not and can be a positive or negative number.

No Cash Out Refinance: Also known as a "Rate and Term" refinance, this is a loan in which a lender simply refinances the existing first mortgage and no other bills are paid off and the borrower receives no cash as part of the transaction. These loans are usually done to improve the borrower's interest rate and to lower their mortgage payment.

Origination Fee: This fee is the mortgage lender's yield and are also known as points.

Point(s): A point equals one percent of the mortgage loan amount. If you were charged one point on a $100,000 loan you would pay $1,000.

Prepayment: Provision made for loan payments to be larger than those specified in the note.

Principal: This term is used to mean the amount of money borrowed or the amount of the loan.

Principal Balance: The balance of the amount of the loan that is outstanding.

Processor: A liaison between the loan officer and the funder of a loan. The processor's responsibility is to meet all of the pre-funding conditions of a loan including, gathering all documentation and the clarification of information.

Property: The home you want to buy has to be worth enough to act as collateral for the mortgage.

Qualifying Ratio: **See "Housing Expense Ratio"

Rate Lock: ** See "Lock"

Remaining Term: The time that is left before a loan is paid in full.

Second Loan (mortgage): A second mortgage is another loan secured by the property much like a first mortgage. It is a loan which is subordinate to the first mortgage.

Sub-Prime or subprime: A sub-prime loan is any loan in which the borrower has challenges in obtaining mortgage financing because of poor credit, hard to document income or assets, or any unique situation that would prevent them from obtaining funding through "conforming" lenders.

Taxes: Levied on the property by the local government.

Tenancy in Common: Ownership by two or more persons who hold undivided interest, without right of survivorship; interests need not be equal.

Term: The agreed to amount of time for repayment of a loan.

Trust Deed: Just as with a mortgage, this is a legal document by which a borrower pledges certain real property or collateral as guarantee for the repayment of a loan.

Trustee: One who holds property in trust for another to secure the performance of an obligation.

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