Abstract of Title
- A concise summary of the title history of a property, which includes all documents and recorded events that affect the title. It is often required for real estate transactions and for acquiring title insurance.
Acceptance
- A buyer’s or seller’s agreement to enter into a contract and be bound by the terms of the offer.
Account termination fee
- A fee that may be charged if you pay in full and terminate your home equity line of credit during the first 5 years. Paying down to a zero balance does not count as termination.
Adjustable-rate mortgage (ARM)
- A mortgage in which your interest rate and monthly payments may change periodically during the life of the loan, based on the fluctuation of an index. Lenders may charge a lower interest rate for the initial period of the loan. Most ARMs have a rate cap that limits the amount the interest rate can change, both in an adjustment period and over the life of the loan. Also called a variable-rate mortgage.
Adjustment date
- The date on which the interest rate changes for an adjustable-rate mortgage (ARM).
Adjustment period
- The period of time between adjustment dates for an adjustable-rate mortgage (ARM).
Amortization
- The gradual reduction in the principal amount owed on a debt. During the earlier years of the loan, most of each payment is applied toward the interest owed. During the final years of the loan, payment amounts are applied almost exclusively to the remaining principal.
Annual percentage rate (APR)
- The annual cost of a loan to a borrower. Like an interest rate, the APR is expressed as a percentage. Unlike an interest rate, however, it includes other charges or fees (such as mortgage insurance, most closing costs, discounts points and loan origination fees) to reflect the total cost of the loan. The Federal Truth in Lending Act requires that every consumer loan agreement disclose the APR. Since all lenders must follow the same rules to ensure the accuracy of the APR, borrowers can use the APR as a good basis for comparing the costs of similar credit transactions.
As-is
- A property where “what you see is what you get.” Selling a home “as-is” means the seller is unwilling to make repairs or negotiate with a buyer based on the costs of needed repairs. Buyers should ensure that any home bought as-is is thoroughly inspected prior to closing.
Balloon loan
- A loan that provides you with lower-than-usual monthly payments for a set period of time followed by a payment larger than usual at the end of your loan repayment period. While a balloon loan may lower your monthly payments it can also mean you make higher interest payments over the life of the loan.
Base rate
- An interest rate that is used as a benchmark, or index, for pricing variable-rate loans such as adjustable-rate mortgages, auto loans and credit cards.
Basis point
- An amount equal to 1/100th of a percentage point.
Bridge loan
- A type of mortgage financing between the termination of one loan and the start of another loan. For example, a bridge loan might be taken out by a borrower and secured by that borrower’s present home so that the closing on a new house can take place before the present home is sold.
Buydown
- The lump-sum prepayment of all or a portion of your mortgage interest by a lender or homebuilder in order to lower your monthly mortgage payment, typically for a period of 1-3 years.
Cap
- A limit on how much a variable interest rate can increase. Many adjustable-rate mortgages have both annual (or semiannual) rate caps and lifetime caps. They limit the amount your payments can increase in an adjustment period and over the life of the loan.
Cash to close
- The amount a homebuyer needs in cash at the closing of the loan. This typically, this includes down payment and closing costs.
Cash-out refinance
- A refinance transaction in which the new loan amount exceeds the total of the principal balance of the existing first mortgage and any secondary mortgages or liens, together with closing costs and points for the new loan. This excess is usually given to the borrower in cash and can often be used for debt consolidation, home improvement or any other purpose.
Debt consolidation
- A single loan to pay off multiple debts, usually over a longer term. This is a popular use for a home equity line of credit.
Debt-to-income ratio
- Your total monthly debt payments (for example: loans, credit cards and court-ordered payments) divided by your gross monthly income before taxes and expressed as a percentage. Federal Housing Administration (FHA) guidelines layer in early 2017 recommend that your monthly mortgage payment should be no greater than 31% of your monthly income before taxes and your total monthly debt should be no greater than 43% of your monthly income before taxes.
Earnest money
- A deposit made toward a down payment as a sign of good faith. The deposit is typically made when a purchase agreement is signed.
Equity
- The difference between the fair market value (appraised value) of your home and your outstanding mortgage balances and other liens.
Fannie Mae
- Federal National Mortgage Association, a government-sponsored enterprise that buys and securitizes mortgages for resale in the secondary market.
Federal Housing Administration (FHA)
- An agency of the Department of Housing and Urban Development. The FHA provides mortgage insurance for certain residential mortgages. It also sets standards for underwriting these mortgages and for construction of homes secured by these mortgages.
FICO®
- An acronym for Fair Isaac Corporation, which develops the mathematical formulas used to produce credit scores for assessing credit risk. FICO scores fall between a low of 300 and a high of 850. The higher the FICO score, the lower credit risk a consumer presents.
Freddie Mac
- A government-sponsored enterprise that buys and securitizes mortgages for resale in the secondary market.
Good faith estimate (GFE)
- An itemized, detailed list of certain estimated costs associated with a home loan that the lender is required to provide to the borrower within 3 business days of the application.
Government National Mortgage Association (GNMA or Ginnie Mae)
- A government-owned corporation within the U.S. Department of Housing and Urban Development (HUD). Created by Congress on September 1, 1968, GNMA assumed responsibility for the special assistance loan programs formerly administered by Fannie Mae.
Home equity line of credit (HELOC)
- A line of credit secured by the borrower's residence. The typical HELOC term is 30 years: a 10-year draw period followed by a 20-year repayment period. A HELOC is often used for home improvements, debt consolidation or other major expenses.
Homeowners insurance
- Insurance to protect your home against damage from fire, hurricanes and other catastrophes. Usually, homeowners insurance also covers you against theft and vandalism, as well as personal liability in case someone is hurt or injured on your property. A lender will likely require you to name it as a payee under the insurance if you need to make a claim.
Inflation rate
- The increase in price of consumer goods, usually expressed as a percentage over a specific period of time.
Insurance
- A contract that provides compensation for specific losses in exchange for a periodic payment. An individual contract is known as an insurance policy, and the periodic payment is known as an insurance premium.
Home equity line of credit (HELOC)
- A line of credit secured by the borrower's residence. The typical HELOC term is 30 years: a 10-year draw period followed by a 20-year repayment period. A HELOC is often used for home improvements, debt consolidation or other major expenses.
Homeowners insurance
- Insurance to protect your home against damage from fire, hurricanes and other catastrophes. Usually, homeowners insurance also covers you against theft and vandalism, as well as personal liability in case someone is hurt or injured on your property. A lender will likely require you to name it as a payee under the insurance if you need to make a claim.
Judgment
- A decree by a court of law that one person is indebted to another for a specified amount. In some states, the court may place a lien against the debtor’s real property as collateral for payment of the judgment to the creditor.
Jumbo loan
- Also known as a nonconforming loan. The amount of the loan exceeds standards that would make it eligible for sale to Fannie Mae and Freddie Mac. Certain geographical areas have temporary conforming loan limits higher than typical conforming limits. Lenders may charge additional fees and place certain restrictions due to the large loan amounts.
Lien
- The legal claim of a creditor on a borrower’s property, to be used as security for a debt.
Loan Estimate (LE)
- Disclosure to help consumers understand the key loan terms and estimated costs of a mortgage before they make a complete application. After a consumer submits 6 key elements: name, income, social security number, property address, estimated property value and desired loan amount, the lender is required to provide this form. All lenders are required to use the same standard loan estimate form to make it easier for consumers to compare and shop for a mortgage.
Margin
- The number of percentage points the lender adds to or subtracts from the index rate to determine the interest rate adjustments. The margin is constant throughout the life of the mortgage and is specified in the promissory note.
Mortgage
- A legal document giving a lender a lien on real estate to secure repayment of a loan. Mortgage loans generally run from 10 to 30 years, after which the loan is required to be paid off. Also called deed of trust and/or security deed.
No closing cost loan
- A loan in which the borrower is not required to pay cash out-of-pocket at closing for the normal closing costs. The lender typically includes the closing costs in the principal balance or charges a higher interest rate than for a loan with closing costs to cover the advance of closing costs.
Note
- A written agreement in which the signer promises to pay to a named person or company a specific sum of money at a specified date or on demand.
Origination fee
- A fee imposed by a lender to cover certain processing expenses in connection with making a mortgage loan. Usually a percentage of the amount loaned (often 1%). The origination fee is stated in the form of points.
Owner-occupied
- A property that the owner occupies as a principal residence.
Points
- An amount paid to the lender, typically at closing, to lower (or buy down) the interest rate. One discount point equals one percentage point of the loan amount. For example, 2 points on a $100,000 mortgage would cost $2,000. Negative points indicate the amount to be credited at closing to reduce closing costs. Also called discount points or mortgage points.
Prepayment penalty
- A penalty assessed by some lenders if a loan is paid off before the specified term. This is a lump-sum amount due and payable in addition to the loan balance, and is usually limited to the early years of a mortgage.
Rate
- The amount of interest on a loan, expressed as a percentage.
Rate lock
- A commitment issued by a lender to a borrower guaranteeing a specific interest rate for a specified period of time. Rate lock periods are for a fixed number of days, and rate lock expiration occurs when that period has passed, subjecting the interest rate on the loan to market fluctuations since the date of the initial rate lock. When a rate lock expires, you will need to contact your lending specialist to establish a new rate lock prior to closing your loan.
Settlement agent
- A person or entity that conducts the settlement to transfer title of the property and to close on the mortgage loan. May be an attorney, a title insurer, a title agent or an escrow agent.
Short sale
- A commonly used alternative to a foreclosure. If a homeowner can no longer afford to make mortgage payments and their home is worth less than they owe, a short sale allows them to sell the home to pay off the mortgage. In a short sale, the lender agrees to accept an amount less than is actually owed on the loan, based on a showing of financial hardship.
Term
- The number of years it will take to pay off a loan. The loan term is used to determine the payment amount, repayment schedule and total interest paid over the life of the loan.
Title company
- The agency that will investigate a property’s title (or deed) for discrepancies or undiscovered liens and that will issue title insurance to the lender after the title is deemed clear.
Title insurance
- Insurance that protects an interested party, either the owner or the lender, against issues that would affect legal ownership of the property.
Underwriting
- The lender’s process of deciding whether to make a loan to a potential borrower based on credit, employment, assets and other factors, and the matching of this risk to an appropriate rate, term and loan amount.
Uniform Residential Loan Application (1003)
- The standard loan application form published by the Federal National Mortgage Association (Fannie Mae) and used by most lenders.
VA loan
- A mortgage that is guaranteed by the Department of Veterans Affairs (VA) for qualified veterans of U.S. military forces.
Variable rate
- An interest rate that may fluctuate or change periodically, often in relation to an index such as the prime rate or other criteria. Payments may increase or decrease accordingly.
W-2
- A wage and tax statement provided by your employer annually. The W-2 form details your income and the various local and federal taxes withheld from your income. It is provided to the IRS along with your tax return.
Wire transfer
- A transfer of money from one person’s bank to another person’s bank account, either domestically or internationally.