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Glossary

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1003 form: this is what we call your loan application form.

203(k): an FHA mortgage program that allows you to finance both the purchase of a house and the cost of its rehabilitation through a single mortgage loan, with one set of closing costs.

A

Abstract of Title: documents recording the ownership of property throughout time.

Adjustable-rate mortgage (ARM): a mortgage loan that does not have a fixed interest rate. During the life of the loan the interest rate will change based on the index rate. Generally an ARM begins with an introductory or initial interest rate, which then may rise or fall, but monthly payments may not exceed the ARM loan cap. Also called a variable rate mortgage.

Amortization: paying down your debt by making payments on a regular schedule, generally monthly. The payments may be principal and interest, or interest-only. The monthly amount is calculated based on the term or length of the loan (e.g., 15, 30 or 45 years).

Annual percentage rate (APR): this is the actual interest rate you pay to borrow money. The APR includes the base interest rate, points, and any other add-on loan fees and costs. As a result the APR is higher than the interest rate you are quoted and gives a more accurate picture of the likely cost of the loan. Because all lenders, by federal law, must follow the same rules to ensure the accuracy of the APR, it provides consumers with a good basis for comparing the cost of loans from different lenders.

Application: an application triggers an obligation to provide a Loan Estimate (LE). The strict six bucket definition of an application is (PENCIL): P = Property Address, E = Estimated Value, N = Name, C = Social Security Number used to obtain a Credit Report, I = Income, L = Loan Amount. Once the broker received the six pieces of information listed above, there is an application as defined by TRID.

Appraisal: you’ll hire a professional house appraiser to inspect the home and give an estimate of its fair market value. The appraiser will also consider sales of comparable homes in the area (comps) and the features of a property. Lenders require an appraisal before loan approval to ensure that the home is worth the asking price (and consequently the loan amount).

Appreciation: when the value of a home increases over time, we say it appreciates. Market improvements and home renovations or updates often affect appreciation.

As-is Condition: the purchase or sale of a property in its existing condition without repairs.

Assessed value: a value determined by local government assessors, used to calculate annual property or real estate taxes.

Assumable mortgage: a type of mortgage that may be transferred, interest rate and all, from seller to buyer. Lenders generally require a credit review of the new borrower and may charge a fee for the assumption. An assumable mortgage can help you attract buyers if you sell your home. This is not a common type of loan.

Automated Underwriting: we run your loan application through a computer system that evaluates certain numbers and information to determine if a loan should be approved. Because this is an automated review there is no possibility of discrimination against the buyer.

B

Back-end Ratio (debt-to-income ratio): we compare the total of all your monthly debt payments (such as the proposed mortgage payment, real estate taxes and insurance, car loans and other consumer loans) to your gross monthly income. This tells us how much of your monthly income goes toward paying your debts.

Balloon mortgage: a mortgage that typically offers low rates for an initial period of time (usually 5, 7 or 10 years), after which the balance is due. The final, large payment due at the end of a balloon mortgage is called a Balloon payment.

Bankruptcy: if you owe more to your creditors than you have the ability to repay, you can file for bankruptcy. This can wipe out most if not all of your debt. Generally you will not be able to qualify for a new mortgage for at least two years after the discharge of a bankruptcy, and sometimes not for as long as 7 or 10 years.

Borrower: the person who has been approved to receive a loan and is then responsible for repaying it and any additional fees according to the loan terms.

Broker: a mortgage broker serves as an intermediary between the borrower and the lender. You can sometimes more easily compare loan offers by using a broker but brokers charge a fee for their services which is added on to the other costs of the loan, including those charged by the actual lender.

Business Day: the new TRID regulation imposes definitions of a business day. A business day excludes Sunday and Federal Holidays, and includes Saturday for initial three-day delivery and for seven day pre-consummation delivery (Broker is responsible).

Buydown: some mortgage programs allow the seller or the lender to pay a lump sum into a special account in order to lower the initial interest rate on a home loan, to make a sale more appealing for the buyer. Beware, the seller may increase the sales price to cover the cost of the buydown. Sometimes the lender will buy down the rate because the payments will be higher than the market rate when the payments adjust to the level they will remain at for the rest of the loan. It’s a way for you to qualify more easily for a loan and to be eligible for a higher loan amount. A buydown period usually lasts one to three years.

Buyer’s agent: this is the real estate agent that works on behalf of the homebuyer. The buyer’s agent has your best interest in mind and negotiates on your behalf to get you the best deal possible.

C

Cap: ARMs have interest rates that change periodically, but they generally have a limit to how much they can change. There are different kinds of caps, such as one for how much the payment can change within a year and how much the payment can change for the entire life of the loan.

Capital Gain: this is the profit earned on an asset, such as a home or property, when you sell it. Capital gain tax is the tax you pay on the profit.

Capital or Cash Reserves: your savings, investments or assets are your capital. Cash reserves may also refer to an amount of cash you may be required to have accessible, in addition to the down payment and closing costs.

Cash-out Refinance: a refinance where you borrow more than you need to pay off the original loan to get cash in hand. Many people will use a cash-out refinance to pay off debt or tuition. You can only qualify for a cash-out if your property has appreciated or you have already paid down a chunk of the principal on your original loan. It’s an alternative to a home equity loan.

Certificate of Title: a property title shows that the property legally belongs to the current owner. Before the title is transferred at closing, it must be free of all liens or other claims.

Changed Circumstance: lenders are generally bound by the Loan Estimate (LE), provided by the broker to the consumer within three business days underestimations of charges. Lenders may issue a revised LE only with a valid changed circumstance defined as: an extraordinary event beyond the control of any interested party or other unexpected event specific to the consumer or transaction, information specific to the consumer or transaction that the creditor relied upon when providing the LE and that was inaccurate or changed after the disclosures were provided, and/or new information specific to the consumer or transaction that the creditor did not rely on when providing the LE.

Charge-Off: the amount of a loan that is written off as a loss to the lender when the borrower defaults.

Closing: the meeting between buyer, seller, settlement agent and other agents where the title is transferred from the seller to the buyer. You will sign all necessary paperwork and pay your closing costs at this time. Also known as settlement.

Closing agent: often an attorney or a representative of the title company, the closing agent oversees the closing process and assures all necessary paperwork is completed.

Closing costs: these are fees that are not part of the actual mortgage, and include such costs as title search, attorney’s fees, origination fees, discount points, prepayment of taxes and insurance, and real estate transfer taxes.

Closing Disclosure (CD): the new closing document that replaces the final TIL and the HUD-1. Lender must provide to consumer at least three business days before closing.

Closing statement: an itemized list of closing costs.

Co-borrower: a person who is listed on the home’s title with you and who is also responsible for the repayment of the loan. Some people may require a co-borrower because of a low credit score or insufficient cash on hand to cover costs. Also called a co-signer.

Collateral: for a home loan, the home is the collateral. It’s the property you “put up” and risk losing if the loan is not repaid.

Commission: a percentage of the property sales price that is paid to a real estate agent as a fee for negotiating the transaction, usually by the seller. The amount of commission is determined by the agent and can be as much as 6% of the sales price. You can shop around for a lower commission among agents.

Comparable sales (comps): the sales price of homes similar to the home you are interested in purchasing and in the same general area, used as part of the calculation of the home’s appraised value.

Conforming loan: a loan that does not exceed Fannie Mae’s and Freddie Mac’s loan limits. Freddie Mac and Fannie Mae loans are referred to as conforming loans.

Contingency: a clause or requirement added to a contract that must be fulfilled before the contract can go through. Often a sale may be contingent on the seller’s ability to find a new home. Either party may request contingencies in a contract.

Conventional mortgage: non-government loans. That is, any loan that is not a VA or FHA loan.

Credit: your loan is credit that has been extended to you, with the understanding that you will repay it to the lender over time.

Credit Report: a report generated by one of the three credit bureaus that details your credit history — that is, how may loans and credit cards you have and how you have handled your payments. We use this information to determine if you are a good credit risk or if you are likely to default on your loan.

Credit Score: a number between 300 and 850 that is used to determine how likely you are to pay your bills. Your credit score is calculated from the personal financial information found in your credit report.

D

Debt-to-income ratio (back-end ratio): we compare your gross income to your expenses to determine how much of your monthly income goes toward paying your debts. As an example, for an FHA loan, the monthly mortgage payment should generally be no more than 29% of your monthly pre-tax income and the mortgage payment combined with non-housing debts should not exceed 41% of your income.

Deed: an official and public document that establishes property ownership. The deed is recorded on public record with the property description and the owner’s signature. Also known as the title.

Deed of reconveyance: when you finally pay off your mortgage in full, your lender will present you with the deed of reconveyance, stating you own the home outright. Also known as reconveyance deed or recon.

Deed of trust: some states, such as California, use this document instead of a mortgage. They are pretty much the same thing though.

Deed-in-lieu: in lieu of foreclosure, you give the deed of your home to the lender. The lender must agree to this arrangement. Unlike a foreclosure or a short sale, you cannot stay in the house while negotiations are ongoing. Cannot be used when there is a second mortgage or home equity loan.

Default: when the borrower ceases to make the regularly scheduled payments on a loan, they go into default. A loan is considered in default after 60 to 90 days of nonpayment. Once in default, the lender has the right to begin foreclosure proceedings.

Deposit (earnest money): money you put down on a home to show you are serious about purchasing it. If the offer is accepted, it becomes part of your down payment; if the offer is rejected it is returned; but if you back out of the deal you forfeit the funds.

Disclosures: within three days of my receiving your fully completed loan application, with all eight required elements provided, you will receive these legal documents that explain your rights as a borrower on a mortgage loan. Disclosures will also show you the details of your loan amount, costs, monthly payments and payback terms. There are also a few items that say your loan isn’t guaranteed until it is funded and recorded and that as a borrower you won’t lie on your loan application, alter documents, or in other ways commit loan fraud. We are federally mandated to provide disclosures to you within the prescribed time frame and to re-disclose to you any significant changes that may affect your costs.

Discount points: a way to reduce the interest rate on a loan. You can pay points at closing as a type of buydown in order to lower your overall interest rate and mortgage payment. One point equals 1% of the home loan value.

Down Payment: this is part of the cash you bring to closing. The required down payment amount varies based on your loan type; for example, an FHA loan only requires 3.5% down, but some programs require up to 20% down. You are always allowed to put more down if you want to reduce your monthly payments. Some programs allow gift funds to be used toward the down payment, which is very helpful for borrowers short on cash. Mortgage insurance is required when a down payment is less than 20 percent.

E

Earnest money: you can put down earnest money to show you are serious when you make an offer on a home.

Equal Credit Opportunity Act (ECOA): this is a federal nondiscrimination law that says lenders cannot discriminate based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs.

Equity: the value of your home or property above and beyond that owed on a loan. Home equity loans are based on the amount of equity you have in the home. Subtract the amount you owe on the home from the fair market value of the property to determine the amount of equity you have.

Escrow account: a funds account your lender can set up out of which bills such as property taxes and insurance can be paid. Escrow accounts are generally not required but some people find it easier to let their lender take care of these additional bills associated with homeownership. Sometimes called an impound account.

F

Fair market value: the price that a property is valued at.

Fannie Mae, Federal National Mortgage Association (FNMA): while the government subsidizes Fannie and the other government-sponsored enterprise (GSE), Freddie Mac, they are actually owned by private stockholders. Fannie was founded in the 1930s as a means to help more Americans become homeowners. Today Fannie Mae and Freddie Mac are responsible for setting annual conforming loan limits and help a wider range of people become homeowners by agreeing to purchase loans on the secondary market that may have lower credit score requirements or lower down payments. Fannie Mae purchases residential mortgages and converts them into securities for sale to investors; by purchasing mortgages, Fannie Mae supplies funds that lenders may loan to potential homebuyers. Fannie Mae loans are called conforming loans. Also known as a Government Sponsored Enterprise (GSE).

FHA loan: generally, FHA-approved lenders like Mortgage Master offer these loans to borrowers who may not qualify for conventional home loans. Recently FHA loans have become more popular as they require low down payments so many borrowers are opting for these loans even if they may qualify for other types of financing.

FHA, Federal Housing Administration: established in 1934, the FHA assists homebuyers by providing mortgage insurance to lenders to cover losses that may occur if a borrower defaults. In turn, lenders are more likely to make loans to borrowers who might not qualify for conventional mortgages. Like the GSEs, the FHA promotes homeownership by allowing borrowers with higher risk factors to still qualify for loans.

FICO score: FICO is an abbreviation for Fair Isaac Corporation and refers to your credit score, based on your credit history. Lenders and credit card companies use the number to decide if the person is likely to pay his or her bills. A credit score is evaluated using information from the three major credit bureaus and is usually between 300 and 850.

First-time buyer: a home loan borrower who has never taken out a mortgage before; often qualifies for various discounts and first-time buyer perks. A homebuyer who has previously owned a home can become a first-time buyer again if they have not held title to a home for three years. If you are married, however, you may not be eligible if your spouse has held title to a home in the past three years.

Fixed-rate mortgage: a mortgage with payments that remain the same throughout the life of the loan because the interest rate and other terms are fixed and do not change.

Float: when you choose a loan program but we don’t “lock in” your interest rate and discount points, we say they are floating and will fluctuate with changes in the market. If rates have been trending downward you might choose to float your interest rate and lock it in at a more favorable rate.

Flood certification: a lender will generally require a flood certification before making a loan on a home. If your property is determined to be in a flood zone, you may have to purchase flood insurance before you can secure a loan.

Foreclosure: when a lender takes possession of a home because the borrower has defaulted, or ceased paying on the mortgage. Foreclosure laws vary from state to state.

Freddie Mac, Federal Home Loan Mortgage Corporation (FHLM): along with Fannie Mae, Freddie Mac is a government-sponsored enterprise (GSE). Freddie Mac is a secondary mortgage market, meaning it lends to lenders, which in turn offer mortgage products directly to borrowers. Freddie Mac loans are called conforming loans.

Front-end ratio: we compare the total monthly cost to buy your new house — principal and interest, insurance, and real estate taxes — to your monthly income before deductions. This number, along with the back-end ratio, helps us see if you can reasonably afford to repay your loan.

FSBO (For Sale by Owner): sometimes sellers choose to bypass using a real estate professional and want to sell the home on their own. There can be some pitfalls associated with buying a FSBO so be sure to discuss the process with your agent.

G

Good Faith Estimate: this is a federally regulated estimate of all the fees associated with your closing coats, including pre-paids, escrow items and lender charges. The Real Estate Settlement Procedures Act mandates that we provide this estimate to you within three days of receipt of your application for a home loan.

H

Hazard insurance: see homeowner’s insurance.

High-risk loan: these are the loans that got the industry in trouble just a few years ago! Sub-prime loans are a perfect example of a high-risk loan, which means that the borrower or the property do not meet general lending guidelines.

Home Equity Loan: you can borrow money against the equity you have built in your house. If you default or don’t pay on loan, the lender has some rights to your property. You can usually claim a home equity loan as a tax deduction.

Home inspection: often required as part of the process for acquiring a loan, the home inspection is performed by a licensed inspector who examines the house from roof to foundation to look for any structural or feature flaws, from broken roof tiles to rusted pipes to broken appliances. The inspector will let you know in a detailed report the condition of many of the home’s features and recommendations for repairs. The homebuyer pays the inspection fees.

Home inspection contingency clause: you could add a clause to the purchase contract that requires the seller to repair any damages the inspector finds, or even to release you from your contract if flaws are considered too great. Be sure to discuss these options with your real estate agent.

Home loan: this is not your mortgage, but rather the actual amount of money you owe to your lender when you purchase a new home.

Home price index: this is an industry tool that provides historical data on residential home prices in various regions.

Home warranty: sometimes sellers offer a home warranty free with the purchase of their home. A warranty may cover items that your homeowners insurance does not. Warranties are for a limited time frame and don’t cover the actual building itself.

Homeowner’s Association (HOA): some neighborhoods, apartment buildings, condos or townhome complexes have these committees that establish certain rules of ownership. Residents usually pay an annual fee and the HOA arranges for things such as upkeep of common areas and landscaping.

Homeowners insurance: insurance that protects both you and your lender in the event of damage to your home. You can insure the structure and all the contents. Most mortgage lenders require borrowers to carry homeowners insurance. Also called hazard insurance. There are several types of homeowners insurance so be sure you understand the differences and choose the type that best fits your needs. I can refer you to a resource to help you choose an insurer; just let me know if you need assistance.

House flipping: if you purchase a home cheaply and then turn around and quickly resell it at a profit, you have “flipped” the house. Generally the property will need some renovation in order to resell. There are restrictions on certain loans regarding flipping so be sure you ask me about requirements if you are planning to flip your purchase.

Housing co-op: a group of people who own a share of a residential building or property and may live in a co-op unit. You don’t actually pay a mortgage or own the unit but rather you are a shareholder in the legal entity that actually owns the property. You earn equity on the share price of the property.

HUD loan: a type of loan available to homebuyers who are purchasing HUD-owned homes that assists with home repairs and renovations. A HUD loan is not the same as an FHA loan.

HUD-1 statement: this document itemizes all of your closing costs. You will receive it at or before closing. The statement will show the fees you paid, such as real estate commissions, loan fees, points and escrow amounts. Also known as the settlement sheet or closing statement.

HUD, U.S. Department of Housing and Urban Development: established in 1965, HUD’s mandate is to promote quality, affordable homeownership for all. HUD offers programs, establishes housing laws and regulations and addresses housing needs across the country.

I

Index: this is a measure of interest rates used to calculate the interest rate of an ARM loan [LINK to ARM product page]. The most common indices are the one-year Treasury bill and the LIBOR index. It is impossible to predict the movement of an index rate.

Initial or introductory interest rate: the interest rate with which an ARM starts, for a set amount of time, before the rate begins to fluctuate.

Intent to Proceed: the borrower must sign an Intent to Proceed. The receipt of this intent provides the lender the ability to collect payment for fees, other than a credit report fee, from the consumer.

Interest rate: a percentage that tells how much it costs to borrow money. Interest rates may be fixed or variable.

Investment property: real estate that you don’t intend to occupy. Rental property is investment property because you don’t live in it and the intent is to make a profit from ownership of the property.

J

Joint ownership: a type of property ownership in which two people share equally in a home and/or property. A married couple generally has this kind of ownership.

Joint tenancy: a type of property ownership in which two or more people share. If a joint owner dies, his or her share of the property passes to the other owners automatically. Ownership cannot be willed to someone who is not a joint owner.

Jumbo mortgage: jumbos have a higher loan limit than a conventional loan. Also known as non-conforming loans, they exceed Fannie Mae’s and Freddie Mac’s loan limits.

L

Late Payment Charges: the additional fee you’ll have to pay when you make a mortgage payment after the due date grace period.

Lender (mortgage lender): the finance company that lends home loan or mortgage money to a borrower or homebuyer. The legal term is mortgagee.

Lender fees: these are the costs associated with processing your loan through the lender’s system. These costs are disclosed on the GFE document you receive once your loan application is completed.

Lien: a claim of money against a property. The property is considered security against repayment of the money owed. A mortgage is a type of lien. A lien on the title of a home is considered a problem that must be settled before transfer of ownership can take place, whether it is simply the former owner paying off the mortgage loan or a tax lien for unpaid property taxes.

Life cap: the limit on the range interest rates can increase or decrease over the term of an ARM.

Loan: money borrowed that is usually repaid with interest.

Loan Estimate (LE): the new initial disclosure that replaces the GFE and the TIL. Broker must deliver the LE to the consumer within three business days of application and at least seven business days before closing.

Loan fraud: a prosecutable crime in which a person supplies incorrect information on a loan application.

Loan modification: if you are having difficulty making your mortgage payments, your lender may be able to modify the terms of your loan to make it easier for you to continue making payments and avoid foreclosure, without refinancing the loan. Generally a loan modification involves reducing the interest rate and thus the amount of your monthly payment for a fixed period of time.

Loan Officer: a representative of a mortgage company – like me – who is responsible for assisting homebuyers with completing a loan application and qualifying for a home loan. Also called a mortgage loan originator, account representative, lender or MLO.

Loan origination fee: the fee you pay for the lender’s services in administering your loan. This charge is paid at the closing and varies with the lender and type of loan. A loan origination fee of 1 to 2 percent of the mortgage amount is common.

Loan servicer: not necessarily the same as your mortgage company. The servicer is the company to which you pay your monthly mortgage payment. They may also disburse your escrow funds and will contact you if you are late on your payments.

Loan-to-value (LTV) ratio: your lender will divide the amount of the loan by the asking price of the home and come up with a percentage. A high LTV, such as 90%, means you only have to come up with 10% cash as a down payment, while a lower LTV, such as 70%, means you need to come up with more cash to put down, but you may avoid the need for private mortgage insurance.

Lock-in: setting your interest rate for the loan, as opposed to letting it float. Your locked-in rate is guaranteed as long as the loan closes in a certain amount of time. You may be offered a chance to re-lock if rates go down after you lock in but that may incur a fee.

Lock-in period: the length of time that your rate is guaranteed.

M

Mailbox Rule: this regulation assumes that a lender has provided the necessary disclosures to the borrower via U.S. Mail unless the file is otherwise documented. The mailbox rule implies that a document is received by the borrower on the third business day after mailing.

Margin: the number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment. If the index rate is 5 percent and the margin is 3 percent, then the fully indexed rate is 8 percent and this is your new interest rate.

Market value: the amount a home is worth to a reasonable buyer and that a reasonable seller would accept for purchase. An appraised value is an estimate of the current fair market value.

Maturity: your loan is due upon maturity. A 15-year loan matures in 15 years and is then due in full.

Mortgage: a legal document between a mortgagor (you) and a mortgagee (me) that sets up a home loan and sets the home as collateral for that loan. The mortgage gives the lender the right to collect payment on the loan and to foreclose if the loan obligations are not met.

Mortgage broker: a broker is a middleman between the buyer and the lender. A broker does not actually make the loan to you; they gather several loan options for which you may qualify from different companies. A broker is paid a fee in addition to the actual lender.

Mortgage calculators: online financial tools available on many websites that allow potential buyers to plug in various personal financial figures to calculate different mortgage scenarios. Our calculators can be very useful when you are beginning to look into how much home you can afford.

Mortgage insurance: when buyers take out a mortgage with less than 20% in cash to put down on the loan, lenders require them to pay mortgage insurance, a monthly premium that is added to the mortgage. This protects the lender should a buyer default on the home loan. The cost of mortgage insurance is usually wrapped into the monthly mortgage payment. Mortgage insurance is available through the Federal Housing Administration (FHA) or through private companies (private mortgage insurance or PMI).

Mortgage note: sometimes just called the note, this is a legal document acknowledging a debt and your obligation to repay it.

Mortgage originator: the company that lends the mortgage, or the Loan Officer with whom you work (me).

Mortgage Qualifying Ratio: these are the front-end and back-end ratios, which we use to calculate how much of your income is spent on your bills and how much will go toward your mortgage. This is part of the risk assessment all lenders perform when considering a loan application for approval.

Mortgagee: the lender in a mortgage agreement.

Mortgagor: the borrower in a mortgage agreement.

Multiple Listing Service (MLS): a database of home listings where real estate agents post their available properties. Only licensed agents can post to the MLS.

N

Negative amortization: although most loans these days do not allow for negative amortization, many subprime loans did allow borrowers to pay less than the minimum amount of interest due each month on their home loans. The unpaid interest was then added to the principal balance, causing the mortgage to balloon and ultimately leading to borrowers owing more than the original loan. Many homeowners went underwater because of these types of loans, which were also called Option ARMs.

Net income: your take-home pay after taxes and deductions.

NMLS: National Mortgage Licensing Service. All licensed loan officers or mortgage loan originators have an NMLS number and are required to display it on all advertising, websites, business cards, etc.

No cash-out refinance: when you refinance a loan only for the amount remaining on the mortgage, you aren’t getting any cash out against the equity of the home. Also called a rate-and-term refinance.

Non-conforming loan: a jumbo loan is an example of a non-conforming loan, as it exceeds Fannie Mae’s and Freddie Mac’s loan limits. Freddie Mac and Fannie Mae loans are conforming loans.

Note rate: the interest rate stated on a mortgage note.

Notice of Incomplete Application (NOIA): if your loan application is missing information, you’ll get this form in the mail.

O

Offer: when you say you want to buy a home, you make an offer on it to the seller through your agent. Usually it’s made in writing and is for a specific dollar amount.

Origination: when I accept, review, evaluate and submit your loan application into the system, I have originated your loan.

Origination fee: the fee we charge for originating your loan. The amount is fully disclosed on your Good Faith Estimate document and is calculated as a percentage of the overall loan amount, stated as points. One point equals one percent of the loan amount. On a conventional loan, the loan origination fee is the number of points a borrower pays.

P

Payment cap: for an adjustable rate mortgage, this is the maximum payment your payment can increase at each adjustment period.

Payment change date: the date when a new monthly payment amount takes effect on an ARM.

Payment due date: the date your mortgage payment is due. It will always be printed on your statement. While you generally have a grace period before your lender will impose a late fee, the payment should still be made on the due date.

Piggyback loan: a second mortgage that you get in addition to your first mortgage, usually as a means of avoiding mortgage insurance. For example, your first loan could be an 80% LTV, which is under the threshold requiring mortgage insurance, and you could get a second mortgage of 15% LTV, so you only put down 5% in cash. Let’s talk about whether this option will save you money, as it really depends on the state of the current market.

PITI: principal, interest, taxes and insurance: the four elements of a monthly mortgage payment. Payments of principal and interest go toward repaying the loan, while the payment for taxes and insurance (homeowners and mortgage, if applicable) goes into an escrow account to cover those fees when they are due.

PITI reserves: some loans require that you have cash in hand equal to your PITI fees for a certain number of months.

Planned unit development (PUD): usually a large developed area that is designed as a self-contained neighborhood featuring residential areas, schools and shopping and parks and recreation areas. Usually homes in a PUD are subject to covenants dictating restrictions and requirements on the appearance and upkeep of the homes. Homeowners in a PUD pay annual dues to a homeowners association that takes care of common areas.

Points: a point is the measure of your payment to the lender for originating your loan. Each point is equal to one percent of the principal amount of your mortgage. For example, if you get a mortgage for $150,000, one point means you pay $1500 to the lender. Occasionally the seller may pay the points for the buyer.

Portable mortgage: a type of mortgage that may be transferred from the current owner to the buyer. VA loans are often portable.

Pre-Approval: during pre-approval, an underwriter will examine and verify your debt, income, savings, assets and credit report to ensure you can repay the loan amount. You’ll get a letter that says you’ve been pre-approved for a specific loan amount, which is like gold when you’re house-hunting and can be used to show buyers that you’re not only serious but also capable of completing a home purchase. Our commitment to lend you the specified amount is contingent on your still meeting the qualification requirements at the time of purchase. A pre-approval does not guarantee a loan until the property has passed inspections and underwriting guidelines.

Pre-foreclosure sale: to avoid foreclosure, a borrower is allowed to sell a property for an amount less than what is owed. This sale fully satisfies the borrower’s debt. Not the same as a short sale.

Pre-paid costs or fees: fees that must be paid at closing, such as origination fees, underwriting fees, attorney fees, etc.

Pre-qualification: essentially, when you are pre-qualified, the lender is saying it would “most likely” approve you for a specified amount. Getting prequalified is the first step in home shopping so you know the price range you should be looking within. I’ll perform a basic review of your income, the balances and payments on current debts and how much money has been saved for a down payment. Qualifying ratios are applied to those figures to determine what percentage of your gross monthly income can be used to pay for the home loan and attached expenses. At the end of the day, pre-qualification is an approximation, a sort of educated guess at what the borrower can afford. It is not a guarantee of a loan. Pre-qualification is not the same as pre-approval.

Predatory lending: can refer to a lender charging high interest and fees to a borrower or to actually making a loan to someone who is incapable of repaying it.

Preferred lender: a mortgage lender that is recommended by another real estate professional.

Prepayment: paying off a loan in full before its due date.

Prepayment penalty: some loans charge a fee if you pay off your loan before it is due. We will discuss whether your chosen loan program carries a prepayment penalty.

Primary mortgage market: direct lenders, like Peoples Home Equity, rather than brokers.

Processing fees: lender fees associated with creating the loan or mortgage, usually part of closing costs.

Property address: the physical street address of a home or property, required to get pre-approved or to complete a mortgage application.

Property appraisal (or valuation): a licensed appraiser will calculate the fair market value of a property based on a review of the home itself as well as the value of similar local properties or comparable sales.

Property taxes: a tax charged by local government based on the value of your property. The U.S. tax code allows homeowners to deduct the amount they have paid in property taxes from their total income.

Q

Qualifying ratios: lenders look at the percentage of your income that goes to pay your bills and determine the loan amount you qualify for partially based on a formula involving the ratios of income to expenses. See back-end ratio and front-end ratio.

R

Rate cap: a limit on how much the interest rate or mortgage payment may change on an ARM. There are periodic caps and lifetime caps. If you select an ARM loan to purchase your home, we will go over the different caps in depth.

Rate lock (or rate commitment option, RCO): when we lock in your rate, I am guaranteeing that it will be your interest rate for a set period of time while you complete the purchase of your home. Rates locks do expire if closing takes longer than anticipated but they can be extended, generally for an additional fee.

Real estate agent: a person who is licensed to negotiate and arrange real estate sales. Not all agents are REALTORS®.

Real Estate Settlement Procedures Act (RESPA): passed in 1974, this federal act mandates that all fees and costs must be disclosed to both buyers and sellers. RESPA is intended to protect consumers from illegal and unethical practices by real estate professionals.

REALTOR®: a real estate agent or broker who is a member of the National Association of REALTORS®. This designation usually implies that the agent takes continuing education classes and is highly trained. Not all agents are REALTORS®.

Recorder: the public official who keeps records of property transactions. Also known as a Registrar of Deeds or County Clerk.

Recording: the registering of a legal document, like a deed or mortgage, with the appropriate government official, such as the Recorder.

Recording Fees: charges for recording a deed with the appropriate government agency.

Refinance: when you refinance your mortgage, you take out another mortgage, generally at a lower interest rate, in order to pay off your current mortgage, thereby lowering your monthly payments. A cash-out refinance may be an option when refinancing.

Rehabilitation Mortgage: if you find a home you want to purchase but it needs some repairs or upgrades, you should ask about these loans, which roil your mortgage together with a loan for rehabbing. One set of closing costs, one monthly payment! The FHA 203(k) program is generally the most well-known. Some refinance programs are also available.

Remaining balance: the amount of principal that has not yet been repaid on your loan.

Remaining term: the amount of time left on your loan.

Repayment schedule (or plan): this can refer to a current loan, although it is a term often used regarding a loan that is behind on payments. The schedule can refer to your mortgage payments over the life of the loan, or an agreement between borrower and lender where additional payments are made to ‘catch up’ when regular payments have been late. See also amortization.

Reverse mortgage: homeowners aged 62 or older may be eligible for this type of loan, which converts the equity in your home into a monthly payment to you. There are no income or credit requirements for a reverse mortgage, and you can never owe more than your home is worth. Reverse mortgages are insured by the government, making them a secure choice for your financial planning. Also known as a Home Equity Conversion Mortgage or HECM.

S

Sales contract: the formal written document for the purchase of your new home. It will include such information as the property address, condition, purchase price, inspections performed and date of closing.

Second mortgage: an additional mortgage on property. You may take out a second piggyback mortgage in order to avoid mortgage insurance. A home equity loan is also a second mortgage. Because second loans are more risky for the lender, they usually carry a higher interest rate.

Secondary mortgage market: when we originate loans, we often sell them on the secondary market in order to raise more capital for more loans. Investors purchase our residential mortgages as a financial tool.

Seller’s agent: a real estate agent that works on behalf of the home seller.

Settlement: another name for closing.

Settlement statement: this document is an itemized listing of all the charges related to your new loan. You should get a copy of the settlement statement one day before the closing. Also called the HUD-1 statement.

Short sale: if you are unable to make your mortgage payments, you can apply for a short sale, where the lender agrees to a discount on the home in order to sell it quickly, avoiding a foreclosure. Short sales involve a lot of paperwork and may impact your credit negatively. If you are considering a short sale, please call me for more information.

Speculative home market: investors may speculate on the chance of the housing market improving and purchase low-cost homes for quick resale. Often considered a high-risk investment strategy.

Sub-prime loan: a high-risk loan with loosened lending and underwriting terms and conditions. Commonly considered the cause of the housing market collapse, it is almost impossible to secure a sub-prime mortgage these days, which means people with low credit scores are less likely to qualify for a home loan. Because they are associated with such high risk, sub-prime loans incurred high interest rates and fees.

Survey: a review of your property to establish official boundary lines and find any easements, encroachments, rights of way, improvement locations, etc. A diagram is drawn up to indicate the shape, size and other features of your property. Surveys are conducted by licensed surveyors and are normally required by the lender in order to secure your mortgage.

T

Tenancy in common: when one or more persons share the property title.

Third-party fees: see closing costs.

Third-party origination: when a lender uses another real estate professional to complete part of the loan, such as origination, processing, underwriting or preparing the loan for sale on the secondary mortgage market.

Title: the official document that declares the legal owner of a property. Also known as a deed.

Title Company: this company typically handles all tasks associated with the property title, including providing insurance and completing the title search.

Title insurance: you are required to take out title insurance on a property in order to protect both yourself and the lender in case a question of ownership ever arises. It also guarantees the title company made a thorough search on your behalf. The fee is included in the closing costs.

Tolerances: there are three types of fee tolerances - zero tolerance, 10% tolerance, and those fees that are allowed to change.

Transfer taxes: some states and cities charge a fee to record the transfer of real estate into the public record.

Treasury index: this is one of the more usual indices that the interest rates for an ARM can be based on.

Truth-in-lending disclosure (TIL): federal law mandates that we provide you with this document, which discloses your interest rate, loan amount, the amount you will have paid upon the loan’s maturity and other relative financial information.

U

Underwriting: this is where your loan application is analyzed to ensure you will be able to repay the loan. Our Underwriters can request additional information in order to complete your loan package.

Up-front Charges: these are the fees you pay at closing, including points, broker’s fees and insurance.

V

VA (Department of Veterans Affairs): this federal agency guarantees loans made to veterans and their spouses, without requiring mortgage insurance.

VA loans: retired and active military service personnel may qualify for this special home loan program which offers up to 100% financing. There is no limit to the number of times a veteran can use the VA loan for a purchase or refinance.

W

Waiting Periods: there is a seven-day waiting period from receipt of initial LE to closing. There is a three-business-day waiting period from borrower's receipt of CD to closing.

Walk-through: just before closing, you’ll take a walk through your new property to make sure any contingencies specified in the purchase agreement such as repairs have been completed, fixture and non-fixture property is in place and everything is in working order.

Warranty deed: this document states that you own the property free and clear with no liens or issues related to ownership and that you have the right to sell it at will.

Z

Zoning: local laws regulating how land and buildings may be used in certain areas. They govern the establishment of commercial and residential areas, permitted types of structures, lot sizes and other related features of land and building uses.

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