Adjustable-rate mortgage – a mortgage that adjusts its interest rate periodically on the basis of movement in a specified index.
Amortization – gradual reduction of the mortgage debt through periodic payments scheduled over the mortgage term.
Appraisal – a report that sets forth an opinion of value of real estate. In a real estate transaction, an appraisal is the estimate of a home’s market value, conducted by a licensed or authorized appraiser, that is based on details of the home and comparable sales in the area.
Assets – Assets are anything of financial value that can be converted into cash (i.e., stocks and bonds, automobiles, real estate, retirement funds, and savings).
Bankruptcy – a proceeding in a court in which a debtor who owes more than his or her assets can relieve the debts by transferring the assets to a trustee. This affects the borrower’s personal liability for a mortgage debt but not the lien of the mortgage. It is the legal process in which a person declares their inability to pay off their debts. Bankruptcy does not mean you cannot get a loan, but the terms of your loan may not be as favorable.
Borrower – A loan applicant, who has an ownership interest in a security property, signs the security instrument and signs the mortgage or deed of trust note (if his or her credit is used for qualifying purposes). It is a person who has been approved to receive a loan and is then obligated to repay it and any additional fees according to the loan terms.
Buy-down – A permanent buy-down is the payment in exchange for a lower interest rate. It is a mortgage-financing technique with which the buyer obtains a lower interest rate for the mortgage by paying higher origination fee.
Buy-up – Paying a higher interest rate in exchange for a discount by the lender which reduces upfront costs. A buy-up is a receiving a rebate to origination fee in exchange fora higher interest rate. It can be economically advantageous to a borrower- if the borrower expects to hold the mortgage for a short period of time.
Closing costs – money paid by the borrower to affect the closing of a mortgage loan. This generally includes the origination fee, appraisal fee, attorney’s fees, land book fees and such prepaid item as property insurance payment.
Co-borrower – a term used to describe any borrower other than the first borrower whose name appears on the mortgage note.
Collateral – In real estate, property offered to secure (or offered as security for) repayment of a loan, though not with the intention of transferring property ownership.
Cost approach to value – a method of measuring the value of a property based on the cost of producing a substitute residence that has the same use as the property that is being appraised.
Credit Report – A detailed history of an individual’s credit worthiness. This is used by lenders to gauge a potential borrower’s ability to repay a loan.
Credit score – Credit score is a statistically derived number that lenders use to determine your creditworthiness. The number can range anywhere from 300-850. Your credit score is calculated based on a number of factors, including things like total debt, length of credit history, and payment history. Your credit score will influence the mortgage rate you receive.
Debt – borrowed money, the repayment of which may be secured or unsecured, with various possible repayment schedules.
– a ratio that is developed for use in determining which borrower can qualify for a mortgage. It is derived by dividing the borrower’s total monthly obligations (including housing expenses) by his or her stable monthly income.
Down Payment – A down payment is the initial payment made towards a real estate purchase, and is the difference between the home’s purchase price and the amount of the mortgage. Different loan types have different minimum down payment requirements, which are given as a percentage of the home’s purchase price. A higher the down payment can lower the monthly mortgage payment.
Escrow account – An escrow is a financial instrument held by a third party on behalf of the other two parties in a transaction. The funds are held by the escrow service until it receives the appropriate written or oral instructions or until obligations have been fulfilled. In this case, the buyer of the property will deposit the payment amount for the house in an escrow account held by a third party. Once all of the conditions to the sale are satisfied, the escrow transfers the payment to the seller, and title is transferred to the buyer.
First mortgage – a mortgage that is the primary lien against a property.
Fixed installment – that portion of a mortgage payment that is applied toward principal and interest.
Fixed-rate mortgage – a mortgage that provides for only one interest rate for the entire term of the mortgage.
Foreclosure – the legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgages property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.
Hazard insurance – insurance coverage that compensates for physical damage, by fire, wind or other natural disasters to the property.
Index – a number derived from a formula used to characterize a set of data, which serves as an indicator for determining interest rate changes on ARM’s.
Interest rate – Also known just as rate, it is usually expressed as a percentage and it is the amount of interest charged that determines a monthly loan payment.
Initial interest rate – the original interest rate of the mortgage when it is closed. This rate changes for adjustable-rate mortgages.
Interest rate change date – the date on which the mortgage interest rate changes for an ARM.
EURIBOR index – an index that is used to determine interest rate changes form certain ARM plans. EURIBOR is short for Euro Interbank Offered Rate. The Euribor rates are based on the average interest rates at which a large panel of European banks borrow funds from one another. There are different maturities, ranging from one week to one year.
– the relationship between the unpaid principal balance of a mortgage and the property’s appraised value (or sales price if lower). It also relates to Debt-to-Income Ratio
Margin – the amount that is added to an index value to create the mortgage interest rate for an ARM.
Mortgage – collectively, the security interest, the note, the title evidence and all other documents and papers that evidence the debt.
Mortgage note – the note of other evidence of indebtedness for a mortgage loan.
Origination – The process of preparing, submitting, and evaluating a loan application; generally includes a credit check, verification of employment, and a property appraisal.
Origination fee – the fee(s) charged by a lender for granting a mortgage loan. The fee(s) are typically computed as a percentage of the fact value of the mortgage.
Pre-Approval – A commitment in writing from a lender that a borrower would qualify for a particular loan amount based on income and credit information.
Principal – The amount of money borrowed from a lender, not including interest or additional fees.
Purchase price – the agreed upon price a borrower pays to a seller for the purchase of real estate as evidence by a sales contract.
Refinance transaction – the repayment of a debt from the proceeds of a new loan using the same property as security.
Rehabilitation mortgage – a mortgage created to cover the costs of repairing, improving and sometimes acquiring an existing property.
Second mortgage – a mortgage that has a lien position subordinate to the first mortgage.
Underwriting – The process of analyzing a loan application to determine the amount of risk involved in making the loan. It includes a review of the potential borrower’s credit history and a judgment of the property value.
Underwriting documents – all of the documentation used to support the lending decision for a mortgage, such as the loan application and other documents used to verify a borrower’s employment, income and credit history; as well as information regarding the subject property (real estate appraisal).