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Mortgage Glossary

2/1 Buy Down Mortgage
The 2/1 Buy Down Mortgage allows the borrower to qualify at below market rates so they can borrow more. The initial starting interest rate increases by 1% at the end of the first year and adjusts again by another 1% at the end of the second year. It then remains at a fixed interest rate for the remainder of the loan term. Borrowers often refinance at the end of the second year to obtain the best long term rates; however, even keeping the loan in place for three full years or more will keep their average interest rate in line with the original market conditions.

A&D Loan: Acquisition and development loan - a loan for the purchase of raw land for the purpose of development.

Abstract Title: A written history of the ownership of a parcel of land.

Acceleration Clause
Provision in a mortgage that allows the lender to demand payment of the entire principal balance if a monthly payment is missed or some other default occurs.

Acknowledgment: A declaration by a notary, certifying, by way of personal knowledge or written identification, the identity of the signer.

Additional Principal Payment
A way to reduce the remaining balance on the loan by paying more than the scheduled principal amount due.

Adjustable-Rate Mortgage (ARM)
A mortgage with an interest rate that changes during the life of the loan according to movements in an index rate. Sometimes called AMLs (adjustable mortgage loans) or VRMs (variable-rate mortgages).

Adjusted Basis
The cost of a property plus the value of any capital expenditures for improvements to the property minus any depreciation taken.

Adjustment Date
The date that the interest rate changes on an adjustable-rate mortgage (ARM).

Adjustment Interval: On an adjustable rate mortgage, the time between changes in the interest rate and/or monthly payment, typically one, three or five years, depending on the index.

Adjustment Period
The period elapsing between adjustment dates for an adjustable-rate mortgage (ARM).

Affidavit: A sworn statement in writing.

Affordability Analysis
An analysis of a buyers ability to afford the purchase of a home. Reviews income, liabilities, and available funds, and considers the type of mortgage you plan to use, the area where you want to purchase a home, and the closing costs that are likely.

ALTA American Land Title Association: An organization of title companies specializing in Real Property Law which has standardized forms and coverage on a national basis. This is standardized coverage.

Amortization
The gradual repayment of a mortgage loan, both principal and interest, by installments.

Amortization Term
The length of time required to amortize the mortgage loan expressed as a number of months. For example, 360 months is the amortization term for a 30-year fixed-rate mortgage.

Annual Percentage Rate (APR)
The cost of credit, expressed as a yearly rate including interest, mortgage insurance, and loan origination fees. This allows the buyer to compare loans, however APR should not be confused with the actual note rate.

Appraisal
A written analysis prepared by a qualified appraiser and estimating the value of a property.

Appraised Value
An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property.

ARM Adjustable Rate Mortgage: A mortgage loan where the interest rate is not fixed for the entire term of the loan, but changes during the life of the loan in line with movements in an index rate.

Asset
Anything owned of monetary value including real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, etc.).

Assignment
The transfer of a mortgage from one person to another.

Assumability
An assumable mortgage can be transferred from the seller to the new buyer. Generally requires a credit review of the new borrower and lenders may charge a fee for the assumption. If a mortgage contains a due-on-sale clause, it may not be assumed by a new buyer.

Assumption: The agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller. This must be approved by the lender and be allowed by the note, which was originally signed by the seller.

Assumption Fee
The fee paid to a lender (usually by the purchaser of real property) when an assumption takes place.

Back End Ratio: This refers to the debt-to-income ratio calculated using principal, interest, taxes, insurance and consumer credit obligations divided by gross monthly income. It is expressed as a percentage.

Balance Sheet
A financial statement that shows assets, liabilities, and net worth as of a specific date.

Balloon Mortgage
A mortgage with level monthly payments that amortizes over a stated term but also requires that a lump sum payment be paid at the end of an earlier specified term.

Balloon Payment
The final lump sum paid at the maturity date of a balloon mortgage.

Before-tax Income
Income before taxes are deducted.

Beneficiary: The entity funding the loan. This is the entity to which the loan is owed.

Biweekly Payment Mortgage
A plan to reduce the debt every two weeks (instead of the standard monthly payment schedule). The 26 (or possibly 27) biweekly payments are each equal to one-half of the monthly payment required if the loan were a standard 30-year fixed-rate mortgage. The result for the borrower is a substantial savings in interest.

BK / Bankruptcy: A reorganization or discharge of debts. Could also be referred to as Chapter 7, 11 or 13.

Bridge Loan
A second trust that is collateralized by the borrower's present home allowing the proceeds to be used to close on a new house before the present home is sold. Also known as "swing loan."

Broker
An individual or company that brings borrowers and lenders together for the purpose of loan origination.

Buydown
When the seller, builder or buyer pays an amount of money up front to the lender to reduce monthly payments during the first few years of a mortgage. Buydowns can occur in both fixed and adjustable rate mortgages.

Cap
Limits how much the interest rate or the monthly payment can increase, either at each adjustment or during the life of the mortgage. Payment caps don't limit the amount of interest the lender is earning and may cause negative amortization.

Cash Out: Any funds disbursed directly to the borrower.

Certificate of Eligibility
A document issued by the federal government certifying a veteran’s eligibility for a Department of Veterans Affairs (VA) mortgage.

Certificate of Occupancy: A certificate issued by local city government to a builder, stating that the building is in proper condition to be occupied.

Certificate of Reasonable Value (CRV)
A document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA mortgage.

Certified Copy: A true copy, attested to be true by the officer holding the original. It should have a stamp and signature stating that it is a true copy.

Change Frequency
The frequency (in months) of payment and/or interest rate changes in an adjustable-rate mortgage (ARM).

Clear-to-Close: Loan is ready to be closed with no additional conditions.

Closing
A meeting held to finalize the sale of a property. The buyer signs the mortgage documents and pays closing costs. Also called "settlement."

Closing Costs
These are expenses - over and above the price of the property- that are incurred by buyers and sellers when transferring ownership of a property. Closing costs normally include an origination fee, property taxes, charges for title insurance and escrow costs, appraisal fees, etc. Closing costs will vary according to the area country and the lenders used.

Commitment: An agreement, often in writing, between a lender and a borrower to loan money at a future date subject to the completion of paperwork or compliance with stated conditions.

Community Property: Property owned in common by a husband and wife, which was not acquired as separate property. A classification of property peculiar to certain states. In community property states, assets may be owned in part by a spouse even if their name does not appear on the title.

Comp. / Comparable: A property with the same basic characteristics as the property you are attempting to find the value of (usually a real estate appraisal.) It should have been sold recently and be as similar as possible.

Compound Interest
Interest paid on the original principal balance and on the accrued and unpaid interest.

Condominium: A property owned as a group, with rights to occupy specific units of the structure. An overseeing board, often referred to as a Homeowners Association, governs the property.

Construction Loan: A short term interim loan for financing the cost of construction. The lender advances funds to the builder at periodic intervals as the work progresses.

Consumer Credit: Credit owed by the individual, not secured by real estate.

Consumer Reporting Agency (or Bureau)
An organization that handles the preparation of reports used by lenders to determine a potential borrower's credit history. The agency gets data for these reports from a credit repository and from other sources.

Conventional Loan: A mortgage not insured by FHA or guarantee by the VA or Farmers Home Administration (FMHA).

Conversion Clause
A provision in an ARM allowing the loan to be converted to a fixed-rate at some point during the term. Usually conversion is allowed at the end of the first adjustment period. The conversion feature may cost extra.

Credit 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).

Credit Report
A report detailing an individual's credit history that is prepared by a credit bureau and used by a lender to determine a loan applicant's creditworthiness.

Credit Risk Score
A credit score measures a consumer's credit risk relative to the rest of the U.S. population, based on the individual's credit usage history. The credit score most widely used by lenders is the FICO® score, developed by Fair, Issac and Company. This 3-digit number, ranging from 300 to 850, is calculated by a mathematical equation that evaluates many types of information that are on your credit report. Higher FICO® scores represents lower credit risks, which typically equate to better loan terms. In general, credit scores are critical in the mortgage loan underwriting process.

D.R. / Debt Ratio: The customer’s monthly obligations divided by their monthly gross income. See also Back End.

Deed: Legal document which conveys the title to a property.

Deed of Trust
The document used in some states instead of a mortgage. Title is conveyed to a trustee.

Default
Failure to make mortgage payments on a timely basis or to comply with other requirements of a mortgage.

Deferred Interest: See Negative Amortization.

Delinquency
Failure to make mortgage payments on time.

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

Deposit
This is a sum of money given to bind the sale of real estate, or a sum of money given to ensure payment or an advance of funds in the processing of a loan.

Derog: This is short for derogatory and refers to negative credit items.

Discharge: Following a completed bankruptcy proceeding, discharged debts are no longer owed or collectable. We will require copies of the discharge papers on any prior bankruptcy filings.

Discount
In an ARM with an initial rate discount, the lender gives up a number of percentage points in interest to reduce the rate and lower the payments for part of the mortgage term (usually for one year or less). After the discount period, the ARM rate usually increases according to its index rate.

Discount Points: Prepaid interest assessed at closing by the lender. Each point is equal to 1 percent of the loan amount (e.g. two points on a $100,000 mortgage would cost $2,000).

Dismissal: If a bankruptcy is dropped without being completed, a Bankruptcy Dismissal document will be needed to proceed with the loan. Either the court or the debtor can prompt the dismissal.

Down Payment
Part of the purchase price of a property that is paid in cash and not financed with a mortgage.

Due-On-Sale Clause: A provision in a mortgage or deed of trust that allows the lender to demand immediate payment of the balance of the mortgage if the mortgage holder sells the home.

Earnest Money: Money given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment.

Easements: An interest in property, owned by another that entitles the holder to a specific limited use or privilege, such as the right to cross or to build adjoining structures on the property.

Effective Gross Income
A borrowers normal annual income, including overtime that is regular or guaranteed. Salary is usually the principal source, but other income may qualify if it is significant and stable.

Encroachment: A fixture of a piece of property which intrudes on another’s property.

Equal Credit Opportunity Act: Is a federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs. (ECOA).

Equity
The amount of financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on the mortgage.

Escrow
An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the deposit of funds or documents into an escrow account to be disbursed upon the closing of a sale of real estate.

Escrow Disbursements
The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.

Escrow Instructions: Instructions to the escrow agent giving the parameters and contingencies involved in the transaction and agreed upon by both parties.

Escrow Payment
The part of a mortgagor’s monthly payment that is held by the servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due.

Escrow Waiver: The Request for a borrower to pay their own taxes and insurance. Escrow wavers are rarely granted with less than a 25% equity position (<75 LTV).

Fannie Mae
A congressionally chartered, shareholder-owned company that is the nation's largest supplier of home mortgage funds.

Farmers Home Administration: Provides financing to farmers and other qualified borrowers who are unable to obtain loans elsewhere. (FMHA).

Federal Home Loan Mortgage Corporation: Also called Freddie Mac, is a quasi-governmental agency that purchases conventional mortgages from insured depository institutions and HUD-approved mortgage bankers. (FHLMC).

Federal Housing Administration: A division of the Department of Housing and Urban Development. Its main activity is the insuring of residential mortgage loans made by private lenders. FHA also sets standard for underwriting mortgages. (FHA).

Federal National Mortgage Association: Also known as Fannie Mae. A tax-paying corporation created by Congress that purchases and sells conventional residential mortgages as well as those insured by FHA or guaranteed by VA. This institution, which provides funds for one in seven mortgages, makes mortgage money more available and more affordable. (FNMA).

Fee Simple: The most common form of ownership where the vestee owns both the land and the structures

FHA Mortgage
A mortgage that is insured by the Federal Housing Administration (FHA). Also known as a government mortgage.

FHA Mortgage Insurance: Requires a small fee (up to 3 percent of the loan amount) paid at closing or a portion of this fee added to each monthly payment of an FHA loan to insure the loan with FHA. On a 9.5 percent $75,000 30-year fixed-rate FHA loan, this fee would amount t o either $2,250 at closing or an extra $31 a month for the life of the loan. In addition, FHA mortgage insurance requires an annual fee of 0.5 percent of the current loan amount, the more years the fee must be paid.

FHLMC (FREDDIE-MAC): Federal Home Loan Mortgage Corporation

FICO Score
FICO® scores are the most widely used credit score in U.S. mortgage loan underwriting. This 3-digit number, ranging from 300 to 850, is calculated by a mathematical equation that evaluates many types of information that are on your credit report. Higher FICO® scores represent lower credit risks, which typically equate to better loan terms.

First Mortgage
The primary lien against a property.

Fixed Installment
The monthly payment due on a mortgage loan including payment of both principal and interest.

Fixed-Rate Mortgage (FRM)
A mortgage interest that are fixed throughout the entire term of the loan.

Flood Insurance: A mandatory insurance for some homeowners whose property is built in a designated flood zone.

FNMA – (FANNIE-MAE): Federal National Mortgage Association.

Foreclosure: A legal procedure in which property securing debt is sold by the lender to pay a defaulting borrower’s debt.

Free and Clear: This means the property is completely paid for and has no liens attached.

Functional Obsolescence: A detraction from the property value due to the design or material being less functional than the norm.

Fully Amortized ARM
An adjustable-rate mortgage (ARM) with a monthly payment that is sufficient to amortize the remaining balance, at the interest accrual rate, over the amortization term.

GFE: Good Faith Estimate of Buyers Loan Charges.

Ginnie Mae: See Government National Mortgage Association.

GNMA
A government-owned corporation that assumed responsibility for the special assistance loan program formerly administered by Fannie Mae. Popularly known as Ginnie Mae.

Government National Mortgage Association (GNMA): Also known as Ginnie Mae, provides sources of funds for residential mortgages, insured or guaranteed by FHA or VA.

Graduated Payment Mortgage (GPM): A type of flexible-payment mortgage where the payments increase for a specified period of time and then level off. This type of mortgage has negative amortization built into it.

Grant Deed: A Grant Deed is the most common form of title transfer deed. A Grant Deed contains warranties against prior conveyances or encumbrances.

Gross Monthly Income: The total amount the borrower earns per month, before any expenses are deducted.

Growing-Equity Mortgage (GEM)
A fixed-rate mortgage that provides scheduled payment increases over an established period of time. The increased amount of the monthly payment is applied directly toward reducing the remaining balance of the mortgage.

Guarantee: A promise by one party to pay a debt or perform an obligation contracted by another if the original party fails to pay or perform according to a contract.

Hazard Insurance: A form of insurance in which the insurance company protects the insured from specified losses, such as fire, windstorm and the like, it would not cover earthquake, riot, or flood damage.

Homestead: The dwelling (house and contiguous land) of the head of the family. Some states grant statutory exemptions, protecting homestead property (usually to a set maximum amount) against the rights of the creditors. Property tax exemptions are also available in some states.

Housing Expenses-to-Income Ratio: The ratio, expressed as a percentage, which results when a borrower’s housing expenses are divided by his/her net effective income (FHA/VA loans) or gross monthly income (Conventional loans).

HUD-1 statement
A document that provides an itemized listing of the funds that are payable at closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow amounts. Each item on the statement is represented by a separate number within a standardized numbering system. The totals at the bottom of the HUD-1 statement define the seller's net proceeds and the buyer's net payment at closing.

Hybrid ARM (3/1 ARM, 5/1 ARM, 7/1 ARM)
A combination fixed rate and adjustable rate loan - also called 3/1,5/1,7/1 - can offer the best of both worlds: lower interest rates (like ARMs) and a fixed payment for a longer period of time than most adjustable rate loans. For example, a "5/1 loan" has a fixed monthly payment and interest for the first five years and then turns into a traditional adjustable rate loan, based on then-current rates for the remaining 25 years. It's a good choice for people who expect to move or refinance, before or shortly after, the adjustment occurs.

Index
The index is the measure of interest rate changes a lender uses to decide the amount an interest rate on an ARM will change over time.The index is generally a published number or percentage, such as the average interest rate or yield on Treasury bills. Some index rates tend to be higher than others and some more volatile.

Initial Interest Rate
This refers to the original interest rate of the mortgage at the time of closing. This rate changes for an adjustable-rate mortgage (ARM). It's also known as "start rate" or "teaser."

Installment
The regular periodic payment that a borrower agrees to make to a lender.

Insured Mortgage
A mortgage that is protected by the Federal Housing Administration (FHA) or by private mortgage insurance (MI).

Interest
The fee charged for borrowing money.

Interest Accrual Rate
The percentage rate at which interest accrues on the mortgage. In most cases, it is also the rate used to calculate the monthly payments.

Interest Bearing: A form of interest calculation where the loan is charged at a daily or monthly rate (1/365 or 1/12 of the annual interest rate) on the current outstanding balance.

Interest Rate Buydown Plan
An arrangement that allows the property seller to deposit money to an account. That money is then released each month to reduce the mortgagor's monthly payments during the early years of a mortgage.

Interest Rate Ceiling
For an adjustable-rate mortgage (ARM), the maximum interest rate, as specified in the mortgage note.

Interest Rate Floor
For an adjustable-rate mortgage (ARM), the minimum interest rate, as specified in the mortgage note.

Investor: Money source for a lender.

Joint Tenants: A form of holding title where the owners have 100% rights of survivorship unless redirected by a will.

Jumbo Loan: A loan which is larger (more than $417,000) than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.

Land Contract: An agreement between the seller and the buyer where the title is withheld until a time where the required payments have been completed

Late Charge
The penalty a borrower must pay when a payment is made a stated number of days (usually 15) after the due date.

Leasehold Estate: A kind of real estate ownership where the lessor does not hold title to the property but has use of the property subject to the terms of the lease.

Lease-Purchase Mortgage Loan
An alternative financing option that allows low- and moderate-income home buyers to lease a home with an option to buy. Each month's rent payment consists of principal, interest, taxes and insurance (PITI) payments on the first mortgage plus an extra amount that accumulates in a savings account for a downpayment.

Legal Description: A method of geographically locating a piece or parcel of land, which is acceptable in a court of law.

Liabilities
A person's financial obligations. Liabilities include long-term and short-term debt.

LIBOR: London InterBank Offered Rate. LIBOR is the base interest rate paid on deposits between banks in the Eurodollar market.

Lien: A claim upon a piece of property for the payment or satisfaction of a debt or obligation.

Lifetime Payment Cap
For an adjustable-rate mortgage (ARM), a limit on the amount that payments can increase or decrease over the life of the mortgage.

Lifetime Rate Cap
For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can increase or decrease over the life of the loan. See cap.

Line of Credit
An agreement by a commercial bank or other financial institution to extend credit up to a certain amount for a certain time.

Liquid Asset
A cash asset or an asset that is easily converted into cash.

Loan
A sum of borrowed money (principal) that is generally repaid with interest.

Loan Committee: Generally the Underwriting process.

Loan Risk: The rate category assigned to the loan, which estimates the probable risk of delinquency and loss in the future.

Loan-to-Value (LTV) Percentage
The relationship between the principal balance of the mortgage and the appraised value (or sales price if it is lower) of the property. For example, a $100,000 home with an $80,000 mortgage has an LTV of 80 percent.

Lock-In Period
The guarantee of an interest rate for a specified period of time by a lender, including loan term and points, if any, to be paid at closing. Short term locks (under 21 days), are usually available after lender loan approval only. However, many lenders may permit a borrower to lock a loan for 30 days or more prior to submission of the loan application.

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

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.

Maturity
The date on which the principal balance of a loan becomes due and payable.

Monthly Fixed Installment
That portion of the total monthly payment that is applied toward principal and interest. When a mortgage negatively amortizes, the monthly fixed installment does not include any amount for principal reduction and doesn't cover all of the interest. The loan balance therefore increases instead of decreasing.

Mortgage
A legal document that pledges a property to the lender as security for payment of a debt.

Mortgage Banker
A company that originates mortgages exclusively for resale in the secondary mortgage market.

Mortgage Broker
An individual or company that brings borrowers and lenders together for the purpose of loan origination.

Mortgage Escrow Accounts: The account set by the Lender to pay Taxes and Insurance on behalf of the Borrower.

Mortgage Insurance
A contract that insures the lender against loss caused by a mortgagor's default on a government mortgage or conventional mortgage. Mortgage insurance can be issued by a private company or by a government agency.

Mortgage Insurance Premium (MIP)
The amount paid by a mortgagor for mortgage insurance.

Mortgage Life Insurance
A type of term life insurance In the event that the borrower dies while the policy is in force, the debt is automatically paid by insurance proceeds.

Mortgagee: The lender.

Mortgagor
The borrower in a mortgage agreement.

Negative Amortization
Amortization means that monthly payments are large enough to pay the interest and reduce the principal on your mortgage. Negative amortization occurs when the monthly payments do not cover all of the interest cost. The interest cost that isn't covered is added to the unpaid principal balance. This means that even after making many payments, you could owe more than you did at the beginning of the loan. Negative amortization can occur when an ARM has a payment cap that results in monthly payments not high enough to cover the interest due.

Negative amortizaton is not a mortgage program that First Hpoe Bank recommends, offers or endorses.

Net Effective Income: The borrower’s gross income minus federal income tax.

Net Worth
The value of all of a person's assets, including cash.

Non-Assumption Clause: Statements in the mortgage contract forbidding the assumption of the mortgage without the prior approval of the lender.

Non Liquid Asset
An asset that cannot easily be converted into cash.

Non-Owner Occupied: A property not used as a residence by the owner of the property.

Notary Public: A person, designated by the state, which can certify the identity of a person when signing various documents.

Note: Short for promissory note. This document gives the parameters of the loan and legally obligates the borrower to pay back the debt.

Obligations: Any debt, or recurring payment the borrower is obligated to pay, including mortgage payments.

Origination Fee
A fee paid to a lender for processing a loan application. The origination fee is stated in the form of points. One point is 1 percent of the mortgage amount.

Owner Financing
A property purchase transaction in which the party selling the property provides all or part of the financing.

Owner Occupied: Designation given to property used as the owner’s residence.

Owners Policy: A policy of the title insurance which protects the buyer against problems with the title.

P & I: Principal and Interest. This refers to the principal and interest portions of the monthly mortgage payment.

P & L / Profit and Loss: A statement of a businesses gross income, cost of goods, operating costs and net profit or loss.

P.U.D.: Planned Unit Development. Property owned as a group, where individuals own the specific piece of land and structure they occupy, but also have a divided interest in a common area. A board, often referred to as a Homeowners Association, will govern the development.

Payment Change Date
The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM) or a graduated-payment mortgage (GPM). Generally, the payment change date occurs in the month immediately after the adjustment date.

Periodic Payment Cap
A limit on the amount that payments can increase or decrease during any one adjustment period.

Periodic Rate Cap
A limit on the amount that the interest rate can increase or decrease during any one adjustment period, regardless of how high or low the index might be.

P.I.T.I.: Principal, interest, taxes and insurance. The complete monthly cost associated with financing a property.

PITI Reserves
A cash amount that a borrower must have on hand after making a down payment and paying all closing costs for the purchase of a home. The principal, interest, taxes, and insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a predefined number of months (usually three).

Piggy Back Loan: Financing obtained, subordinate to the first mortgage, to facilitate closing the first mortgage. Also known as a Secondary Financing.

PMI Private Mortgage Insurance: A way for lenders and the buyers to insure their exposure on the loan to no less than 20% equity in a property.

Points
A point is equal to one percent of the principal amount of your mortgage. For example, if you get a mortgage for $165,000 one point means $1,650 to the lender.Points usually are collected at closing and may be paid by the borrower or the home seller, or may be split between them.

Power of Attorney: An authority by which one person enables another to act on his or her behalf. Power of attorney can be limited to specific areas or be general in some cases.

Prepayment Penalty
A fee that may be charged to a borrower who pays off a loan before it is due.

Pre-Approval
The process of determining how much money you will be eligible to borrow before you apply for a loan.

Prelim. / Preliminary Title Report: The title report generated at the beginning of the application process. It tells the mortgage company what liens are on the property and gives advice as to what will need to be done to gain clear title prior to recording the trust deed.

Prepaid Interest: Charge The portion of interest, collected at loan closing, which covers the time period between funding and the beginning of the first 30-day period covered by the first payment. For example, if the loan closed on 2/15, the first payment due on 4/1 would pay interest from 3/1 to 4/1. The prepaid interest would cover the period from 2/15 to 2/28.

Prepaids: Expenses necessary to create an escrow account or to adjust the seller’s existing escrow account. Can include taxes, hazard insurance, private mortgage insurance and special assessments.

Prepayment Penalty: Money charged for an early repayment of debt. Prepayment penalties are allowed in some form (but not necessarily imposed) in 36 states and the District of Columbia.

Prepayment: A privilege in a mortgage permitting the borrower to make payments in advance of their due date.

PRE-Qualified: Buyer has discussed their financial situation with a loan expert. No attempt has been made to verify the validity of any of the borrowers information. PRE-Qualification is only an indication of what the buyer should qualify for.

Prime Rate
The interest rate that banks charge to their preferred customers. Changes in the prime rate influence changes in other rates, including mortgage interest rates.

Principal
The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.

Principal Balance
The outstanding balance of principal on a mortgage not including interest or any other charges.

Principal, Interest, Taxes, and Insurance (PITI)
The four components of a monthly mortgage payment. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the monthly cost of property taxes and homeowners insurance, whether these amounts that are paid into an escrow account each month or not.

Private Mortgage Insurance: In the event that you do not have a 20 percent down payments, lenders will allow a smaller down payment-as low as 5 percent in some cases. With the smaller down payments 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 payments, 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. (PMI).

Purchase Agreement: The agreement made between the buyer and seller of a property, containing the purchase price and contingencies of the sale

Qualifying Ratios
Calculations used to determine if a borrower can qualify for a mortgage. They consist of two separate calculations: a housing expense as a percent of income ratio and total debt obligations as a percent of income ratio.

Quit Claim: A deed operating as a release; intended to pass any title, interest or claim, which the grantor may have in the property, but not containing any warranty of a valid interest or title in the grantor.

Rate Float: Assuming market risk on an interest rate in the hopes that it will go lower prior to closing.

Rate Lock
A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate and lender costs for a specified period of time.

Ratios: How a buyers housing expense and debt picture relates to their income.

Real Estate Agent
A person licensed to negotiate and transact the sale of real estate on behalf of the property owner.

Real Estate Settlement Procedures Act (RESPA)
A consumer protection law that requires lenders to give borrowers advance notice of closing costs.

Real Estate Agent®
A real estate broker or an associate who is an active member in a local real estate board that is affiliated with the National Association of Real Estate Agents.

Recording
The noting in the registrar’s office of the details of a properly executed legal document, such as a deed, a mortgage note, a satisfaction of mortgage, or an extension of mortgage, thereby making it a part of the public record.

Refinance
Paying off one loan with the proceeds from a new loan using the same property as security.

Revolving Liability
A credit arrangement, such as a credit card, that allows a customer to borrow against a pre-approved line of credit when purchasing goods and services.

Secondary Mortgage Market
Where existing mortgages are bought and sold.

Security
The property that will be pledged as collateral for a loan.

Seller Carry-back
An agreement in which the owner of a property provides financing, often in combination with an assumable mortgage. See Owner Financing.

Servicer
An organization that collects principal and interest payments from borrowers and manages borrowers’ escrow accounts. The servicer often services mortgages that have been purchased by an investor in the secondary mortgage market.

Standard Payment Calculation
The method used to determine the monthly payment required to repay the remaining balance of a mortgage in substantially equal installments over the remaining term of the mortgage at the current interest rate.

Step-Rate Mortgage
A mortgage that allows for the interest rate to increase according to a specified schedule (i.e., seven years), resulting in increased payments as well. At the end of the specified period, the rate and payments will remain constant for the remainder of the loan.

Submission: This refers to a complete loan application package submitted for approval to the underwriting department.

Third-party Origination
When a lender uses another party to completely or partially originate, process, underwrite, close, fund, or package the mortgages it plans to deliver to the secondary mortgage market.

Total Expense Ratio
Total obligations as a percentage of gross monthly income including monthly housing expenses plus other monthly debts.

Treasury Index
An index used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. Based on the results of auctions that the U.S. Treasury holds for its Treasury bills and securities or derived from the U.S. Treasury's daily yield curve, which is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market.

Truth-in-Lending
A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the annual percentage rate (APR) and other charges.

Two-step Mortgage
An adjustable-rate mortgage (ARM) with one interest rate for the first five or seven years of its mortgage term and a different interest rate for the remainder of the amortization term.

Underwriting
The process of evaluating a loan application to determine the risk involved for the lender. Underwriting involves an analysis of the borrower's creditworthiness and the quality of the property itself.

VA: Veterans Administration

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.

VA Mortgage 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.

Variable Rate Mortgage (VRM): See Adjustable Rate Mortgage.

Verification of Deposit (VOD): A document signed by the borrower’s financial institution verifying the status and balance of his/her financial accounts.

Verification of Employment (VOE): A document signed by the borrower’s employer verifying his/her position and salary.

"Wrap Around" Mortgage
A mortgage that includes the remaining balance on an existing first mortgage plus an additional amount requested by the mortgagor. Full payments on both mortgages are made to the "Wrap Around" mortgagee, who then forwards the payments on the first mortgage to the first mortgagee. These mortgages may not be allowed by the first mortgage holder, and if discovered, could be subject to a demand for full payment.

Zoning: The division of a city or county by legislative regulations into areas (zones) specifying the uses allowable for the real property in these areas

First Hope Bank, N.A.
201 Route 94, Second Floor, Columbia, NJ  07832
Toll Free:  (866) 319-1214
Office:  (908) 459-4121
residentialmtg@firsthope.com
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