Glossary

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Adjustable Rate Mortgage (ARMs):
Mortgage loans in which the interest rate and monthly payments may be adjusted periodically to correspond with changes in the cost of funds

Alternative Documentation:
Also referred to as “Time Saver” documentation, whereby lenders use certified copies of documents from the borrower in lieu of mailing our written verifications, i.e. copies of three months bank statements instead of a verification of deposit

Amortization:
Payment of debt in regular, periodic installments of principal and interest, as opposed to interest only payments

Amortization Schedule:
A schedule showing each payment of a loan to be amortized and breaking down the payment into the amount applied to principal and the amount applied to interest

Annual Percentage Rate (APR):
This is the cost of your credit expressed in terms of an annual rate. Because you may be paying “points” and other closing costs, the APR disclosed is often higher than the interest rate on your loan. The APR can be compared to the APR for other loans for which you may have applied to give you a fair method of comparing price

Application (Uniform Residential Loan Application)
: Loan application

Appraisal:
Estimation of the current market value of the property by a certified appraiser. The appraiser determines the value by comparing at least three different properties which are similar in regards to location, construction type, and price that are located within a one mile radius and have been sold within the last 12 months

Assumption of Mortgage:
Some types of mortgages allow for the transfer of mortgage on the property during real estate purchase transaction to the new homeowner. Although most banks reserve the right to call (or demand payment of) the loan when the property is sold which means that the buyer must look for a new mortgage

Assumption Fee:
Lender’s charge for paperwork involved in processing records for a new buyer assuming an existing loan

Auto-debit:
Direct debit is an automatic payment which is directly withdrawn from a personal checking account

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Balloon (Call) Mortgage:
Mortgage requiring a repayment of the outstanding principle balance prior to full amortization

Balloon Payment:
When the final installment payment on a note is greater than the preceding installment payments and it pays the note in full

Bridge loan:
Interim Financing where a lender may offer a loan on a current property and new property together in which they require the current property to be sold within a certain amount of time and the equity is used to pay off the loan.

Buydown:
Funds paid at closing to reduce the interest rate for 2 to 3 years. A “2-1 Buydown” reduces note rate 2% in the first year and 1% in second year. Loan qualifies at first year rate.

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Cap:

(1) Change Cap - an interest rate cap which limits the increase on the interest rate from one adjustment period to the next. (2) Life Cap - an interest rate cap which limits the increase rate over the life of the loan.

Cash to close:
Equity/Funds required for the closing

Cashier’s check:
A bank-guaranteed check which is drawn directly from the issuing personal account at a financial institution

Closing:
This is the final step in executing a real estate transaction and precedes the entry in the land register as we know it. On the closing date the seller is paid, the loan amount is paid out and the ownership is officially transferred

Closing Costs:
Cost associated with transfer of title and mortgage loan creation. Examples of closing costs are origination fee, attorney fee, title, insurance fee, intangible tax fee, tax service fee, recording fee, etc.

Closing Date:
This date is set up in the contract and agreed upon for the closing of the real estate transaction; it is binding for both parties.

Closing Statement (HUD 1):
The statement which lists the financial settlement between buyer and seller, and also the costs each must pay

Combined Loan-to-Value (CLTV):
The combination of all mortgages (first and second(s)) being placed on the property at closing and determining the actual equity being created by borrower in relation to the lesser of sales price or appraised value

Condominium:
A system of individual fee ownership of units in a multi-family structure, combined with joint ownership of common areas of structure and land

Construction Loan:
Loans offered to assist in the building of a new home but require to be paid in full by completion or will be offered to do a second closing for a permanent end loan. During construction, only partial or interest only payments are made to the lender and the lender makes payments called disbursements to the construction company according to the phase of the construction

Construction Perm Loan:
Loans offered to assist in the building of a new home and automatically covert to permanent end loan with a one time closing. Typically loans are partial or interest only, payments are made to the lender and the lender makes payments called disbursements to the construction company according to the phase of the construction

Contingency:
The dependence upon a stated event which must occur before a contract is binding. For example: the sale of a house is contingent upon the buyer obtaining financing

Conversion Option:
Option given on certain Adjustable Rate Loans to convert to a Fixed Rate Loan. Option is typically offered during a predetermined and limited period of time with fixed rate being determined by a specified index plus margin

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Deed of Trust:
An instrument used in many states in place of a mortgage. Property is transferred to a trustee by the borrower (trustor) in favor of the lender (beneficiary), and reconveyed upon payment in full

 

Disclosures:
Documentation that refers to certain terms and conditions and which, for example, complies with the banks’ disclosure requirements (for example potential closing costs, insurances, interest rates, etc.)

 

Discount Points:
Up front fee charged by the lender to determine mortgage yield. (Sometimes referred to as a “Permanent Buydown”)

 

Documentary stamps:
A tax levied on the transfer of a property calculated by a percentage. In Florida are charges on the mortgage and on the deed. Each state and county may vary.

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Earnest Money:
Down payment made by a purchaser of real estate as evidence of good faith

Encumbrance:
Land charge, easement, life estate or other right of use

Escrows:
That portion of borrower's monthly payment held by lender to pay real estate taxes, homeowner's insurance and mortgage insurance

Escrow Accounts:
The term "ESCROW" will be used often during the process of your loan. The first time you encounter it will be the Realtor's escrow account that holds your earnest money check until closing

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Foreclosure (REO):
The Bank that financed the property for the previous owner has taken the property back due to non-payment of debt. Bank owned property

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Good Faith Estimate (GFE):
List to the best of one's knowledge of the anticipated potential final costs of financing. The GFE also includes the amount of the estimated monthly payments and all other fees which can accumulate in connection with the transaction

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Home Owners' insurance:
This insurance covers your home and its contents against damage and theft, as well as you, the owner, against personal liability if someone is injured while on your property

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Intangible Tax:
Tax on intangible assets calculated as a percentage

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Legal Description:
Lot description which is registered, as we know it, in the Land Register

Loan Origination Fee:
A one time set up fee charged by the lender

Loan-to Value Ratio (LTV):
The amount of the mortgage in relation to the lesser of the sales price or appraised value of the property

Lock-in:
Lender's guarantee of rate, discount and program for specified term. Lock-in typically runs 15 to 60 days from borrower application

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Mortgage:
A security interest on real property granted to a lender

Mortgage Note:
Records the terms and conditions of the mortgage contract

Mortgagee:
Lender

Mortgagor:
Borrower

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Origination Fee:
One-time fee which is charged by the lender or mortgage broker and is usually calculated as a percentage of the loan amount (points)

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PITI:
Established abbreviation for principal, interest, taxes, insurance. When financing the regular monthly payment usually include PITI

Prepaid Items:
Charges on a mortgage loan that must be prepaid at closing by purchaser

1) Per diem interest is interest from date of closing to end of month

2) Homeowner's insurance must be prepaid for a minimum of 14 months (escrowed)

3) Property taxes prepayment varies from 2 months to 12 months, depending on when taxes are due (escrowed)

Prepayment Penalty:
Prepayment compensation. Most loans in the U.S. do not have a prepayment penalty which means that the borrower can pay off his loan at any time without any penalty interest

Principal:
The total amount of money borrowed

Processing:
The action of taking the loan thru the loan process with the lender

Promissory Note:
The borrower makes an unconditional promise in writing to pay back the funds borrowed to the lending bank

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Qualifying Rate:
An interest rate used to calculate the borrower's ability to qualify, which may differ from the actual interest rate charge

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Recording:
The storing the transfer of ownership and/or debts and restrictions of a property in public and official records

REO:
Real Estate Owned by the Bank. See Foreclosure

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Satisfaction of Mortgage:
Issued and recorded once the full payment of mortgage loan is satisfied

Servicing:
Repayment of current loan; conducted by the bank which among other things collects the monthly debits used for the repayment of the loan

Survey:
A map of the property and building boundaries

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Title Insurance:
Title insurance insures that the person who is selling the property owns it free and clear of any encumbrances. This includes liens, easements and rights of others in and to the property. The lender is protected by mortgage insurance and the purchaser is protected by owners' insurance. They can be purchased simultaneously at the closing

Truth in Lending (TIL):
Document which must be delivered to the borrower by the mortgage broker and lender. It includes the "Annual Percentage Rate", potential overall costs of the financing, potential monthly payments, prepayment penalty, penalty interest and further conditions

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Underwriting:
Assessment or approval of loan

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Variable Interest Rate:
An interest rate which fluctuates as the prevailing rate moves up or down. In mortgages there are usually maximums as to frequency and amount of fluctuation. Also called "flexible interest rate"

Verification of Assets (VOA):
Proof of available assets

Verification of Deposit (VOD):
Verification of available funds in a bank account

Verification of Employment (VOE):
Employer's confirmation of borrower's employment

Verification of Income (VOI):
Income verification from a third party

Verification of Mortgage (VOM):
Proof of current mortgage (shows amounts, payments and payment history)

Verification of Rent (VOR):
Verification of lease payments and if payments were made on time

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Warranty Deed:
A deed in which the seller conveys clear title and ownership of the real estate to the buyer

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