Alicante Townhomes - Mortgage Glossary

Adjustable Rate Mortgage (ARM): A mortgage in which the interest rate is adjusted periodically according to a preselected index. Payments may go up or down accordingly.

Amortization: A loan payment by equal periodic payments calculated to pay off the debt at the end of a fixed period, including accrued interest on the outstanding balance.

Annual Percentage Rate (APR): The cost of credit expressed as an annual rate. This rate is likely to be higher than the stated note rate or advertised rate on mortgage because it takes into account points and other credit costs. The APR is the most meaningful measure for comparing the cost of mortgage loans offered by different lenders.

Application: A printed form used by a mortgage lender to record necessary information concerning a prospective mortgage.

Appraisal: A report made by a qualified person setting forth an opinion or estimate of property value. The term also refers to the process by which this estimate is obtained.

Approval Letter: A lender's written offer to grant a mortgage loan outlining the terms, the amount of the loan, the interest rate and any other conditions. It can also serve as a communication of the lender's decision to the borrower's application.

Balloon (Payment) Mortgage: Usually a short term fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a time specified in the contract.

Broker: An individual in the business of assisting in arranging funding or negotiating contracts for a client but who does not loan the money himself. Brokers usually charge a fee or receive a commission for their services.

Buy-down: When the lender and/or the home builder subsidizes the mortgage by lowering the interest rate during the first few years of the loan. While the payments are initially low, they will increase when the subsidizing expires.

Cash to Close: Liquid assets readily available to pay the down payment, closing costs, and prepaid items of a mortgage transaction.

Closing: The meeting during which the title to the property actually changes hands, documents are executed and the sale of the property and/or the loan is completed.

Closing Costs: Money paid by the borrower in connection with the closing of a mortgage loan. This generally involves an origination fee, discount points, appraisal, credit report, title insurance, attorney's fees, survey, and prepaid items such as tax and insurance escrow payments.

Closing Statement/HUD/Settlement Statement: A form used at closing that gives an account of the funds received and paid at the closing, including the escrow deposits for taxes, hazard insurance, and mortgage insurance.

CO-Borrower: Additional borrower(s) whose income contributes to qualifying for a loan and whose name(s) appears on documents with equal legal obligations.

Conventional Loan: A mortgage not insured by FHA or guaranteed by the VA or Farmers Home Administration (FmHA)

Credit Report: A report detailing an individual's credit history.

Debt to Income Ratio: The ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on long-term debts is divided by his or her net effective income (FHA/VA Loans) or gross monthly income (conventional loans).

Deed: A legal document conveying title (ownership) to real property from one individual to another.

Deed to 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.

Delinquency: A loan payment that is overdue but within the period allowed before actual default is declared.

Department of Veteran Affairs (VA): An independent agency of the federal government which guarantees long-term, low or no down payment mortgages to eligible veterans.

Discount Point(s): An amount payable to the lending institution by the borrower or seller to increase the lender's effective yield. One point is equal to one percent of the loan amount (e.g. two points on a $100,000 mortgage would cost $2,000).

Down Payment: The money the home buyer pays at the time of closing for the purchase of the home. It reduces the amount financed. Down payments usually are 10 percent to 20 percent of the sales price on conventional loans, and no money down up to 5 percent of FHA and VA loans.

Earnest Money: A portion of the down payment delivered to the seller or an escrow agency by the purchaser of real estate with a purchase offer as evidence of good faith.

Easement: A right created by grant, reservation, agreement, prescription or necessary implication which one has on another's land (such as a public utility easement).

Encroachment: Improvements, such as a wall, fence, building, etc., on the property of another.

Equal Credit Opportunity Act (ECOA): A Federal law requiring lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, sex, age, marital status, receipt of income from public assistance programs or past exercising of rights under the Consumer Credit Protection Act.

Equity: The difference between the fair market value and current indebtedness. Also referred as the owner's interest.

Escrow: Funds held by the lender, set aside for payment of taxes and possible property and mortgage insurance and other recurring charges against real property. (Monthly mortgage payments usually include principal, interest and escrow amounts.) Also a procedure whereby a disinterested third party handles legal documents and funds on behalf of a seller and buyer.

Fair Credit Reporting Act (FCRA): A Federal law that requires a lender who is declining a loan request because of adverse credit information to inform the borrower of the source of such information.

Federal Home Loan Mortgage Corporation - FHLMC (Freddie Mac): A corporation authorized by Congress which purchases residential mortgages insured by the Federal Housing Administration (FHA) or guaranteed by the Veterans Administration (VA) as well as conventional home mortgages. It sells participation certificates whose principal and interest are guaranteed by FHLMC.

Federal National Mortgage Association - FNMA (Fannie Mae): A corporation authorized by Congress to support the secondary mortgage market. It purchases and sells residential mortgages insured by the Federal Housing Administration (FHA) or guaranteed by the Veterans Administration (VA) as well as conventional home mortgages.

Finance Charge: The total dollar amount your loan will cost you. It included all interest payments during the term of the loan, any interim interest paid at closing, your origination fee and any other charges paid to the lender or to a third party as a condition of the extension of credit. Certain charges like the appraisal, credit report and the title search charges are not included in the finance charge calculation.

FHA Loan: A loan insured by the Federal Housing Administration open to all qualified home purchasers. While there are limits to the size of FHA loans, they are generous enough to handle moderate priced homes almost anywhere in the country.

First Mortgage: A real estate loan that has priority over any subsequently recorded mortgages.

Fixed Interest Rate: An interest rate that does not change during the loan term.

Flood Insurance: Insurance protecting against loss by flood damage, required by lenders in areas designated (federally) as potential flood areas.

Foreclosure: A legal procedure in which property mortgaged as security for a loan is sold to pay the defaulting borrower's debt.

Gift Letter: A written explanation signed by the individual giving the gift stating, "This is a bona fide gift and there is no obligation expressed or implied to repay this sum at any time."

Good Faith Estimated: An estimate of charges that a borrower is likely to incur in connection with a settlement.

Gross Monthly Income: Total monthly income earned before tax and other deductions.

Guaranteed Loans: A loan guaranteed by Veteran's Administration or Rural Development. The guarantee protects the lender against loss incurred by a mortgage default.

Hazard Insurance: Insurance protecting against loss to real estate caused by fire, some natural causes, vandalism, etc., depending upon the terms of the policy.

Homeowners' Association Dues: The fees imposed by a condominium or homeowners' association for maintenance of common areas.

Index: A published interest rate not controlled by the lender to which the interest rate on an Adjustable Rate Mortgage (ARM) is tied. The index and the interest rate linked to it may increase or decrease.

Insured Loans: A loan insured by Federal Housing Authority (FHA) or a private mortgage insurance company. See Mortgage Insurance Premium or MIP.

Interest: A share or right in some property. Also, money charged for the use of money (principal).

Interest Rate Cap: A limit on how much the interest rate can change, either at each adjustment period or over the life of the loan.

Investment Property: Real estate owned with the intent of earning income and not intended for owner occupancy.

Joint Tenancy: Joint ownership by two or more persons with right or survivorship; all joint tenants own equal interest and have equal rights in the property.

Jumbo Loan: A loan which is larger (more than $207,000) than the limits set by the Federal National Mortgage Association and the Home Loan Mortgage Corporation. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.

Lien: An encumbrance against property for money due, either voluntary or involuntary.

Loan-To-Value Ratio (LVT): The ratio of the amount of your mortgage loan and the lower of sales price or appraised value.

Margin: The number of percentage points a lender adds to the index value to calculate the ARM interest rate at each adjustment period.

Maturity: The termination or due date on which final payment on a loan must be paid in full.

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.

Monthly Payment: Usually, the amount of PITI (principal, interest, taxed, and insurance) paid each month on a mortgage loan.

Mortgage: The conveyance of an interest in real property given as security for the payment of a loan.

Mortgage Insurance: Insurance protecting the mortgage lender against loss incurred by a mortgage default.

Mortgage Note: A written promise to pay a sum of money at a stated interest rate during a specified term. The note contains a complete description of the conditions under which the loan is to be repaid and when it is due.

Mortgagee: The lender in a mortgage transaction.

Mortgagor: The borrower in a mortgage transaction who pledges property as security for a debt.

Negative Amortization: Occur when the monthly payments cover only part of the interest then due. The interest cost that is not covered is added to the unpaid principal balance. This additional amount is additional principal.

Non-Conforming Loan: Conventional home mortgages not eligible for sale and delivery to either Fannie Mae (FNMA) or Freddie Mac (FHLMC) because of various reasons, including loan amount, loan characteristics or underwriting guidelines. Non-conforming loans usually incur a higher rate and origination fee.

Note: A written agreement containing a promise of the signer to pay to a named person, or bearer, a definite sum of money at a specified date or on demand.

Occupancy: The use of a property as a full-time residence, either by the title holder (owner-occupancy) or by another party through a formal agreement (rental).

Origination Fee: The amount charged for services performed by the company handling the initial application and processing of the loan. Usually a percentage of the loan amount.

Point: One percent of the amount of the loan.

Preliminary Title Report: The results of a title search by a title company prior to issuing a title binder or commitment to insure clear title.

Prepaid Items: Those expenses of property which are paid in advance of their due date and will usually be prorated upon sale, such as taxed, insurance, rent, etc.

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. Prepayment penalties are allowed in some for (but not necessarily imposed) in 36 states.

Primary Residence: A residence that the borrower intends to occupy as a principal residence.

Principal: Amount of debt, not including interest. The face value of a note or mortgage.

Principal, Interest, Taxes and Insurance (PITI): The components that make up the total monthly loan payment on your mortgage loan.

Private Mortgage Insurance (PMI): In the event that you do not have a 20 percent down payment, lenders will allow a smaller down payment - as low as 3 percent in some cases. With the smaller down payment loans, however, borrowers are usually required to carry private mortgage insurance. Private mortgage insurance will require an initial premium payment of 1.0 percent to 5.0 percent of your mortgage amount and may require an additional monthly fee, depending on your loan's structure. On a $75,000 house with a 10 percent down payment, this would mean either an initial premium payment of $2,025 to $3,375, or an initial premium of $675 to $1,130 combined with a monthly payment of $25 to $30.

Processing: The preparation of a mortgage loan application and supporting documentation for consideration by a lender or insurer.

Purchase Contract: An agreement between a buyer and seller or real property, setting forth the price and terms of the sale. Also known as a sales contract.

Qualifying Ratios: The ratio of fixed monthly expenses to gross monthly income. Used to determine how much the home buyer can afford to borrow.

Rate Lock: An agreement guaranteeing the homebuyer a specified interest rate provided the loan is closed within a set period of time.

Real Estate Settlement Procedures Act (RESPA): A Federal law requiring lenders to provide home mortgage borrowers with information on known or estimated settlement costs. It also establishes guidelines for escrow account balances and servicing disclosure.

Real Property: Land and that which is affixed to it.

Refinancing: The repayment of a debt from the proceeds of a new loan using the same property as security.

Residential Mortgage Credit Report: A report requested by your lender that utilized information from at least two of the three national credit bureaus and information provided on your loan application.

Reverse Annuity Mortgage (RAM): A form of mortgage in which the lender makes periodic payments to the borrower using the borrower's equity in the home as security.

Second Home (Vacation Home, Weekend Home): A residence other than the borrower's primary residence, which the borrower intends to occupy for a portion of each year.

Secondary Mortgage Market: A market where existing mortgages are bought and sold. It contrasts with the primary mortgage market where mortgages are originated.

Security: In lending, the collateral given, deposited, or pledged to secure the payment of a debt.

Survey: A print showing the measurements of the boundaries of a parcel of land, together with the location of all improvements on the land and sometimes its area and topography.

Term Mortgage: See Balloon Payment Mortgage.

Title: A document that gives evidence of an individuals ownership of property.

Title Insurance: Insurance against loss resulting from defects of title to a specifically described parcel of real property.

Title Search: An examination of public records to disclose the past and current facts regarding the ownership and lien priority of a given piece of real estate.

Total Debt Ratio: Monthly debt and housing payments divided by gross monthly income. Also known as Obligations-to-Income Ratio or Back-End Ratio.

Truth-in-Lending Act: A Federal law requiring a disclosure of credit items using a standard format. This is intended to facilitate comparisons between the lending terms of different financial institutions.

Underwriting: The decision whether to make a loan to a potential homebuyer based on credit, employment, assets, and other factors and the matching of this risk to an appropriate rate and term or loan amount.

VA Funding Fee: A premium of up to 2 percent (depending on the size of the down payment) paid on a VA-backed loan. On a $75,000 30-year fixed-rate mortgage with no down payment, this would amount to $1,406 either paid at closing or added to the amount financed.

VA Loan: A long-term, low or no down payment loan guaranteed by the Department of Veterans Affairs. Restricted to individuals qualified by military service or other entitlements.