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Borrower
The person who receives a loan and who is obligated to repay the loan in full with interest.
Broker
One who receives a commission or fee for bringing buyer and seller together and assisting in the negotiation of contracts between them.
Closing
The conclusion of a transaction. Depending on the state in which you live, closing a real estate loan may take place with all parties to the transaction present or the parties may sign all papers at different times. The closing includes the transfer of loan proceeds.
Closing Costs
All of the costs to the buyer and seller individually which are associated with the purchase, sale or financing of real property. Closing costs may include points, costs of the appraisal and other fees.
Closing Statement
A financial disclosure statement giving an account of all funds related to the transaction.
Contingency
A condition that must be met before a contract is binding. For example, if you sign a contract to purchase a home, subject to repairs being made first, the seller must meet that requirement before the purchase is made.
Contract of Sale
A contract between a purchaser and a seller of real property to convey a title after certain conditions have been met and payments have been made.
Credit Rating
A rating given to a person to establish willingness to pay obligations based upon one's past history of timely payment.
Credit Report
A report to a prospective lender on the credit standing of a prospective borrower, used to help determine credit worthiness.
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Debt-to-Income Ratio
Long-term debt expenses shown as a percentage of monthly income. Long term debt includes outstanding monthly obligations that must be paid over time. Lenders use this ratio to qualify borrowers for mortgage loans.
Deed of Trust
In many states, this document is used in place of a mortgage to secure the payment of a note.
Default
A default occurs when a borrower no longer makes payments on the mortgage under the terms of the mortgage contract. When a buyer defaults on a loan, the lender has the right to seize the property and sell it to recover its loss.
Discount Fee
In an ARM with an initial rate discount, the lender gives up a number of percentage points in interest to give the borrower a lower rate and lower payments for part of the mortgage term (usually for one year or less). After the discount period, the ARM rate will probably go up.
Discount Points
Sometimes simply called "points," these are prepaid finance charges imposed by the lender at closing to increase the lender's yield beyond the stated interest rate on the mortgage note. One point equals one percent of the loan amount. In some cases, adding them to the loan amount can finance the points you pay. The total number of points a lender charges will depend on market conditions and the interest rate to be charged
Down Payment
This is the amount of money the home buyer pays toward the cost of the home up front.
Earnest Money
A sum of money given to bind a sale of real estate. It is a deposit; however, it is not always refundable.
Equity
The difference between fair market value and the current amount the owner owes on the property.
Escrow
Funds given to a third partfy which will be held to cover payments such as tax or insurance payments and earnest money deposits.
Fair Market Value
The price at which property is transferred between a willing buyer and a willing seller, each of whom has reasonable knowledge of all pertinent facts and neither being under and compulsion to buy or sell.
FHA (Federal Housing Administration)
A division of the Department of Housing and Urban Development whose main activity is insuring of residential mortgage loans made by private lenders.
FHA Loan
A loan insured by the Federal Housing Administration open to all qualified home purchasers.
FICO Score
A FICO score is a credit rating score developed by Fair Isaac & Company. This score determines a home buyer's credit worthiness and can affect the type of loan for which the buyer can qualify.
Foreclosure
The right of a lender to put the home on the market for sale to recover money owed to the lender in the event that the borrower fails to pay back the loan through mortgage payments.
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Good Faith Estimate
An estimate of all the costs associated with a purchase or with refinancing. This estimate is provided by the mortgage banker in advance of the final approval of the loan.
Gross Monthly Income
The amount of consistent and stable income that an individual receives each month, averaged over a period of time.
Home Inspection
A standard inspection that is required before a mortgage loan is granted. The licensed home inspector checks the physical condition of the property, including the construction and condition of the dwelling. Other types of inspections that may be required or desired include inspections for insect damage and environmental hazards.
Impound Money
That portion of a borrower's monthly payments held by the lender to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due (also known as reserves). Not every home loan requires this money to be held in impound.
Index
The measure of interest rate changes that the lender uses to decide how much the interest rate on an ARM will change over time.
Inflation Risk
The risk that our money will not be worth as much in the future. That's because the cost of the things we need to buy, such as like housing, clothing and medical care all increase. Guaranteed investments like bank accounts do not keep pace with inflation.
Interest
Money paid for the use of the lender's money.
Interest
is a percentage of the amount borrowed.
Lender
Any person or institution that provides money to a borrower.
Lien
A claim on the property of another as security against the payment of a just debt.
Loan
An amount of money a home buyer will borrow from a lender to pay for a home purchase or refinancing.
Loan-to-Value Ratio
The relationship between the amount of a home loan and the total value of the property. For example, if you receive a loan of $90,000 on a home that costs $100,000, the loan-to value ratio is 90%.
Lock-In Rate
A commitment from a lender to make a loan at a pre-set interest rate at some future date. Most locked-in rates are good for 30 to 60 days, to allow time for the loan to close before the lock-in rate expires.
Mortgage
An interest in real property given as security for the repayment of a loan.
Mortgage Insurance
A policy that allows mortgage lenders to recover part of their financial losses if a borrower fails to repay a loan in full.
Mortgage insurance makes it possible to buy a home with a much smaller down payment than provided by conventional loans.
Mortgagee
A lender to whom property is conveyed as security for a loan.
Mortgagor
One who borrows money, giving as security a mortgage or deed of trust on real property.
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Negative Amortization
Occurs when the monthly payments on the mortgage do not cover all of the interest cost. The interest cost that isn't covered is added to the unpaid principal balance.
Origination Fee
The fee charged by a lender to prepare loan documents, process, underwrite, make credit checks, inspect and sometimes appraise a property.
PITI
Principal, Interest, Taxes and Insurance are the components of a mortgage payment if the loan requires that those costs be impounded.
Point
A dollar amount paid to a lender for making a loan. A point is one percent of the loan amount. See also "Discount Points" above.
Power of Attorney
A legal document authorizing one person to act on behalf of another.
Prepayment
A privilege in a mortgage permitting the borrower to make payments in advance of their due date.
Prepayment penalty
Money charged for an early repayment of debt.
Prequalification
The process of qualifying a borrower for a loan amount before the buyer looks for a home. This process is based on the borrower's stated income and liabilities in a preliminary loan application.
Principal
The amount of money loaned, excluding interest, or the remaining balance of a loan, excluding interest.
Rate
A percentage of the monthly mortgage payment paid to the lender.
Realtor
A member of the National Association of Realtors.
Refinancing
Obtaining a new mortgage loan on a property already owned. Often to replace existing loans on the property.
Reverse Mortgage
A mortgage available to home owners age 62 ½ or older, which allows them to obtain a loan against the value of their property without making payments during their lifetime or for as long as the property remains their principal place of residence
Servicer
After a mortgage loan closes, the loan servicer collects the payments, manages escrow accounts, pays escrowed taxes and insurance, and manages delinquent payments.
Settlement
The closing of a mortgage loan.
Title
The evidence of the right to or ownership in property. In the case of real estate, the documentary evidence of ownership is the title deed. Title may be acquired through purchase, inheritance, gift, or through foreclosure of a mortgage.
Title Insurance
A policy that insures a home buyer against errors in the title search. The cost of the policy is normally based on the value of the property, and may be split between the purchaser and seller.
Underwriter
Someone who performs the analysis of the risk involved in making a loan to a potential home buyer based on credit, employment, assets, and other factors; and the matching of this risk to an appropriate rate and term or loan amount.
VA Loan
A loan insured by the Department of Veterans Affairs, an independent agency of the federal government created in 1930. The VA home loan guaranty program is designed to encourage lenders to offer long-term, low down payment mortgages to eligible veterans by guaranteeing that the lender will not suffer a loss if the borrower defaults.
Verification of Employment (VOE)
A document signed by the borrower's employer verifying his/her position and salary.
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