Mortgage loans terms glossary | American National

Online Mortgage home loan, refinance and debt consolidation terms, definitions and glossary.

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

Annual Percentage Rate (APR)
APR is a measurement of the full cost of a loan including interest and loan fees expressed as a yearly percentage rate. Because all lenders apply the same rules in calculating the annual percentage rate, it provides consumers with a good basis for comparing the cost of loans.

Appraisal
An estimate of the value of property, made by a qualified professional called an "appraiser". 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
Mortgage in which the interest rate is adjusted periodically based on a pre-selected index. Also known as the renegotiable rate mortgage or the variable rate mortgage.

Borrower (Mortgagor)
One who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan.

Buy-down
When the lender and/or the home builder subsidized 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 subsidy expires.

Closing
The meeting between the buyer, seller and lender or their agents where the property and funds legally change hands, also called settlement. 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 usually are about 3 percent to 6 percent of the mortgage amount.

Closing Costs
The 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.

Contract sale or deed
A contract between purchaser and a seller of real estate to convey title after certain conditions have been met. It is a form of installment sale.

Conventional loan
A mortgage not insured by FHA or guaranteed by the VA.

Credit Report
A report documenting the credit history and current status of a borrower's credit standing.

Credit Risk Score
A credit risk score is a statistical summary of the information contained in a consumer's credit report. The most well known type of credit risk score is the Fair Isaac or FICO score. This form of credit scoring is a mathematical summary calculation that assigns numerical values to various pieces of information in the credit report. The overall credit risk score is highly relative in the credit underwriting process for a mortgage loan.

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Debt-to-Income Ratio (DTI)
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 gross monthly income. See housing expenses-to-income ratio.

Deed of trust
In many states, this document is used in place of a mortgage to secure the payment of a note.

Default
Failure to meet legal obligations in a contract, specifically, failure to make the monthly payments on a mortgage.

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

Down Payment
Money paid to make up the difference between the purchase price and the mortgage amount.

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

Equal Credit Opportunity Act (ECOA)
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.

Equity
The difference between the fair market value and current indebtedness, also referred to as the owner's interest. The value an owner has in real estate over and above the obligation against the property.

Escrow
An account held by the lender into which the home buyer pays money for tax or insurance payments. Also earnest deposits held pending loan closing.

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.

Federal National Mortgage Association (FNMA) also know 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.

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

Fixed Rate Mortgage
The mortgage interest rate will remain the same on these mortgages throughout the term of the mortgage for the original borrower.

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.

Foreclosure
A legal process by which the lender or the seller forces a sale of a mortgaged property because the borrower has not met the terms of the mortgage. Also known as a repossession of property.

Guarantee Mortgage
A mortgage that is guaranteed by a third party.

Hazard Insurance
A form of insurance in which the insurance company protects the insured from specified losses, such as fire, windstorm and the like.

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.

Impound
That portion of a borrower's monthly payments held by the lender to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Also known as reserves.

Interest
The fee charged for borrowing money.

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.

Investor
A money source for a lender.

Jumbo Loan
A loan which is larger (more than $240,000 as of 1/1/99) 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.

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

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 down payment.

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

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

Loan-to-Value Ratio
The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.

Lock
Lender's guarantee that the mortgage rate quoted will be good for a specific number of days from day of application.

MIP (Mortgage Insurance Premium)
It is insurance from FHA to the lender against incurring a loss on account of the borrower's default.

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

Mortgage Broker
An individual or company that charges a service fee to bring borrowers and lenders together for the purpose of loan origination.

Mortgagee
The lender.

Mortgage Insurance
Money paid to insure the mortgage when the down payment is less than 20 percent. See private mortgage insurance, FHA 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.

Negative Amortization
Occurs when your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan. The danger of negative amortization is that the home buyer ends up owing more than the original amount of the loan.

Note
A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.

Origination Fee
The fee charged by a lender to prepare loan documents, make credit checks, inspect and sometimes appraise a property; usually computed as a percentage of the face value of the loan.

PITI
Principal, Interest, Taxes and Insurance. Also called monthly housing expense.

Points (loan 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).

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

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 form (but not necessarily imposed) in many states.

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 (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 usually require an initial premium payment and may require an additional monthly fee depending on your loan's structure.

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.

Realtor®
A real estate broker or an associate holding active membership in a local real estate board affiliated with the National Association of Realtors.

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

Recission
The cancellation of a contract. With respect to mortgage refinancing, the law that gives the homeowner three days to cancel a contract in some cases once it is signed if the transaction uses
equity in the home as security.

Refinance
Obtaining a new mortgage loan on a property already owned. Often to replace existing loans on the property.

RESPA
Short for the Real Estate Settlement Procedures Act. RESPA is a federal law that allows consumers to review information on known or estimated settlement cost once after application and once prior to or at a settlement. The law requires lenders to furnish the information after application only.

Second Mortgage
A mortgage made subsequent to another mortgage and subordinate to the first one.

Secondary Mortgage Market
The place where primary mortgage lenders sell the mortgages they make to obtain more funds to originate more new loans. It provides liquidity for the lenders.

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

Settlement/Settlement Costs
see closing/closing costs

Title
A document that gives evidence of an individual's ownership of property.

Title Insurance
A policy, usually issued by a title insurance company, which insures a home buyer against errors in the title search. The cost of the policy is usually a function of the value of the property, and is often borne by the purchaser and/or seller. Policies are also available to protect the lender's interests.

Title Search
An examination of municipal records to determine the legal ownership of property. Usually is performed by a title company.

Truth-In-Lending
A federal law requiring disclosure of the Annual Percentage Rate to home buyers shortly after they apply for the loan. Also known as Regulation Z.

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

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.

Warehouse Fee
Many mortgage firms must borrow funds on a short term basis in order to originate loans which are to be sold later in the secondary mortgage market (or to investors). When the prime rate of interest is higher on short term loans than on mortgage loans, the mortgage firm has an economic loss which is offset by charging a warehouse fee.

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