At the Shore Mortgage Team, we want you to feel comfortable making the decisions that get you into the home of your dreams. A big part of that is speaking the language. Below is a brief overview of mortgage vocabulary, including major loan types and other terms you will run into. A basic understanding of these terms will make you feel right at home working with a Greenway Mortgage loan officer.
AMORTIZATION
The gradual reduction of the mortgage debt through regularly scheduled payments over the term of the loan.
ANNUAL PERCENTAGE RATE (APR)
The measure of the cost of borrowing money expressed as a yearly rate. In general, the APR includes the interest rate plus certain costs such as discount points and some closing costs.
APPRAISAL
A written estimate or opinion of a property's value prepared by a qualified third-party appraiser.
BANKRUPTCY
Occurs when a debtor is declared through legal a proceeding to be unable to pay outstanding debts. The debtor yields assets to the court and is, in turn, relieved of remaining unsecured debts. Not all debts may be discharged.
BROKER
A person who coordinates funding or negotiates contracts for a client but does not loan the money himself. Greenway is not a broker, we are a FannieMae approved mortgage banker.
CAP
For an Adjustable-Rate Mortgage (ARM), a limitation on the amount the interest rate or mortgage payments may increase or decrease.
CLOSING
Also called settlement, a meeting between the buyer, seller and lender and/or their agents during which the property and funds legally transfer.
CLOSING COSTS
Expenses that fall above the price of the property that are incurred by buyers and sellers in the process of transferring ownership of a property. Closing costs usually include an origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. The cost of closing typically is about 3% - 6% of the mortgage amount.
CLOSING DISCLOSURE
Document that details the costs related to a mortgage transaction. It is provided in advance of and signed during closing. The CD replaced the Final TIL and HUD Settlement Statement.
COLLATERAL
Asset pledged by a borrower to a lender, usually in return for a loan. The lender has the right to seize the collateral if the borrower defaults on the obligation.
COMMITMENT
A pledge by a lender to provide a loan on specific terms or conditions to a borrower.
CREDIT REPORT
A report with documentation of the borrower's credit history and current status of credit.
DEBT-TO-INCOME RATIO (DTI)
The relationship between a borrower's total monthly debt payments (including proposed housing expenses) and his or her gross monthly income; this calculation is used in determining the mortgage amount that a borrower qualifies for.
DEED
The written document conveying real property. The original piece of paper is not needed to convey title in the future once recorded at the county recorder's office.
DEFAULT
The failure to make a scheduled payment or otherwise comply with the terms of a mortgage loan or other contract.
DELINQUENCY
Failure to make payments in a timely fashion. Foreclosure is a possible result.
DEPRECIATION
A decline in property value.
DISCOUNT POINT (or POINT)
A fee paid by the borrower at closing to reduce the interest rate. A point equals 1 percent of the loan amount.
DOWN PAYMENT
Money paid up front by the borrower to make up the difference between the purchase price and the mortgage amount. Down payments typically range from 0% to 20% of the sales price.
EARNEST MONEY
Money paid by a buyer to a seller to cement a transaction. This amount becomes a part of the down payment if the offer is accepted. The money is returned to the borrower if the offer is rejected. Based on the terms of the contract the entire amount may be forfeited if the buyer cancels the contract.
EASEMENT
The right to use the land of another for a specific limited purpose.
ENCROACHMENT
The physical intrusion of a structure or improvement (such as a fence) on the land of another.
EQUITY
The owner's interest in a property, calculated as the current fair market value of the property less the amount of existing liens.
ESCROW
With respect to a mortgage, money deposited with the mortgage company as part of the monthly mortgage payment used to pay homeowners insurance and property taxes when they become due. Also, when a buyer pays a deposit for the purchase of a property, those funds are held in escrow by an attorney or settlement agent until the closing occurs.
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC)
Also known as "Freddie Mac," the Federal Home Loan Mortgage Corporation provides a secondary market for mortgage financing by purchasing conventional loans. Along with Fannie Mae, it is one of the GSEs (government sponsored entities) both of which set standards for underwriting mortgages.
FEDERAL HOUSING ADMINISTRATION (FHA)
A division of the Department of Housing and Urban Development. Its main purpose is the insuring of residential mortgage loans made by private lenders. FHA also sets standards for underwriting mortgages.
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)
Also known as "Fannie Mae," this secondary mortgage institution is the largest single holder of home mortgages in the United States. FNMA purchases conventional mortgages from primary lenders and sets underwriting guidelines.
FIXED RATE MORTGAGE
Throughout the term of the loan, this mortgage interest rate will remain the same for the original borrower.
FORECLOSURE
Occurs when the lender legally forces a sale of a property because the borrower has not met the terms of the mortgage.
GUARANTY
The pledge of one party to pay a debt or fulfill a responsibility contracted by another if the original party neglects to pay or perform according to terms of the contract.
HAZARD INSURANCE
When an insurance company covers the insured from loss or damage to the property resulting from issues, such as fire, windstorm and the like.
HUD
The U.S. Department of Housing and Urban Development. Established in 1965, HUD develops national policies and programs to address housing needs in the U.S. One of the main missions of HUD is to create a suitable living environment for all Americans by developing and improving the country's communities and enforcing fair housing laws.
INDEX
A published interest rate against which lenders measure the difference between the current interest rate on an adjustable rate mortgage and that earned by other investments (such as one- three-, and five-year U.S. Treasury security yields, the monthly average interest rate on loans closed by savings and loan institutions, and the monthly average costs-of-funds incurred by savings and loans), which is then used to adjust the interest rate on an adjustable mortgage up or down.
INTERIM FINANCING
A construction loan made during the completion of a building project. After completion of the project, a permanent loan typically takes the place of this loan.
LIEN
A claim against property. Property is said to be encumbered by a lien and the lien must be removed to clear title.
LIFETIME CAP
For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate or monthly payment can increase or decrease over the life of the loan.
LOAN ESTIMATE (LE)
The loan estimate replaced the Good Faith Estimate (GFE) and initial Truth in Lending (TIL) disclosures. The LE is designed to provide disclosures that will be helpful to consumers in understanding the key features, costs, and risks of the mortgage loan for which they are applying. It retains most of the information provided in the previous forms, however contains new additional information not previously provided such as a cash to close and a detailed escrow breakdown, among others.
LOAN ORIGINATION FEE
Fee paid by the borrower to the mortgage company to cover administrative costs of processing the loan.
LOAN-TO-VALUE RATIO (or LTV RATIO)
The relationship between the loan amount and the value of the property (the lower of appraised value or sales price), expressed as a percentage of the property's value. For example, a $100,000 home with an $80,000 mortgage has an LTV of 80 percent.
LOCK-IN
The lender guarantees a specified interest rate if a mortgage goes to closing within a set period of time through this written agreement. This typically specifies the number of points to be paid at closing as well.
LOCK-IN PERIOD
The time period during which the borrower is guaranteed an interest rate by the lender.
MARGIN
For an adjustable-rate mortgage (ARM), the amount that is added to the index to determine the interest rate on each adjustment date, as stated in the note.
MARKET VALUE
As it pertains to real estate, the amount a property can be sold for in the current market.
MORTGAGE
A lien filed against a property to secure a debt, usually a loan.
MORTGAGE BANKER
A company that originates and services mortgages exclusively for resale in the secondary mortgage market (to other lenders and investors). Certain mortgage bankers are subsidiaries of depository institutions or their holding companies but do not receive money from individual depositors. Greenway is a mortgage banker.
MORTGAGE BROKER
An independent professional or company that brings together borrowers and lenders for loan origination purposes, both in residential and commercial circumstances. Mortgage brokers typically charge a fee or require a commission for their services. Greenway is not a mortgage broker.
MORTGAGE INSURANCE (MI)
Insurance that protects lenders against losses caused by a borrower's default on a mortgage loan. MI typically is required if the borrower's down payment is less than 20% of the purchase price.
MORTGAGE INSURANCE PREMIUM (MIP)
Payment to the lender for an insurance premium to cover a borrower's mortgage default.
NON-ASSUMPTION CLAUSE
A portion of a mortgage contract prohibiting the assumption of the mortgage without the approval of the lender beforehand.
ORIGINATION FEE
See LOAN ORIGINATION FEE
PAPER TRAIL
Documentation provided to the lender by the borrower to validate the source and destination of funds for a particular transaction. Also, documentation such as statements, checks, bills, etc. used to determine a borrower's financial standing.
PITI
An acronym for the four primary components of a monthly mortgage payment: principal, interest, taxes, and insurance (PITI).
PRE-APPROVAL
A more formal and in-depth preliminary assessment by a lender of the amount it will lend to a potential homebuyer. The process of determining how much money a prospective home buyer may be eligible to borrow before he or she applies for a loan by reviewing actual borrower documents such as credit report, W2's, tax returns and bank statemnts. Also see PRE-QUALIFICATION.
PRE-PAYMENT
The ability established in the mortgage agreement for a borrower to make advanced payments before their due date.
PRE-PAYMENT PENALTY
A fee that a borrower may be required to pay to the lender, in the early years of a mortgage loan, for repaying the loan in full or prepaying a substantial amount to reduce the unpaid principle balance.
PREPAID EXPENSES
Needed to create an escrow account or to adjust the seller's existing escrow account; taxes, hazard insurance, private mortgage insurance and special assessments can be included in the prepaid expenses.
PRE-QUALIFICATION
An informal, preliminary assessment by a lender of the amount it will lend to a potential homebuyer. The process of determining how much money a prospective home buyer may be eligible to borrow before he or she applies for a loan. Also see PRE-APPROVAL.
PRINCIPAL
The amount of money owed on a loan, excluding interest. Also, the part of the monthly payment that reduces the remaining balance of a mortgage.
PRIVATE MORTGAGE INSURANCE (PMI)
Insurance coverage required for expenses incurred if the borrower defaults on the loan. Borrowers are typically required to carry private mortgage insurance when they have less than 20% equity in a property.
RECORDING FEES
Paid to the title company for recording a home sale with local authorities as required by law.
REFINANCE
Acquiring a new mortgage loan on a property already owned. Typically to replace an existing loan on the property, to benefit from a lower interest rate or withdraw equity.
RESCISSION
In regard to mortgage refinancing, the homeowner has three days to cancel the new loan if the agreement uses the equity in the home as security.
RESPA
Real Estate Settlement Procedures Act. Federal law regulating lenders that mandates disclosure of information to borrowers throughout the mortgage process. RESPA requires lenders to fully inform borrowers about all closing costs, lender servicing, escrow account practices, and business relationships between closing service providers and other parties to the transaction.
SECOND MORTGAGE
A mortgage that has a lien position subordinate to the first mortgage.
SETTLEMENT AGENT
The party involved in completing a transaction between a buyer and seller.
SIMPLE INTEREST
Interest calculated only on the principle balance.
SURVEY
Conducted by a registered land surveyor, this measurement of land shows the location of the land with reference to known points, its dimensions, and the location and dimensions of any buildings.
TITLE
Indicates ownership of property. A property owner is said to be "in title."
TITLE INSURANCE
Coverage against loss or damage resulting from an error in title ownership to a particular piece of property. Title insurance protects against inaccuracies made during a title search as well as issues that could not be known or discovered through the public records such as missing heirs, mistakes, fraud and forgery.
TITLE SEARCH
When a title company or title attorney researches municipal records to verify the legal ownership of a property.
UNDERWRITING
A step in the loan process where it is decided if a loan will be provided to a potential homebuyer; this decision is based on credit, employment, assets, and other factors and the matching of this risk to an appropriate rate and term or loan amount.
VA (or U.S. DEPARTMENT OF VETERANS AFFAIRS)
A federal government agency that provides benefits to veterans and their dependents, including health care, educational assistance, financial assistance, and guaranteed home loans.
VERIFICATION OF DEPOSITS (VOD)
The borrower's financial institution signs this document to verify the status and balance of his/her financial accounts.
VERIFICATION OF EMPLOYMENT (VOE)
The borrower's employer signs this document to verify his/her position and salary.
WRITTEN VERIFICATION OF EMPLOYMENT (WVOE)
A written verification of employment (WVOE) is a typical mortgage requirement whereby the lender requests a form be completed by the borrower's current and/or previous employers to ascertain and verify specific details about their employment such as dates of hire and termination as well as compensation structure (salary, bonus, commissions) and year to date earnings.