A
Acceleration Clause
An acceleration clause in a mortgage allows the lender to be able to demand payment of the complete principle balance if any payment is missed or some fault occurs. An acceleration clause safeguards the interest of lender.
Additional Principle Payment
As the name suggests, this is a method of reducing the leftover balance on the loan by paying off more than the scheduled amount due in one go.
Adjustable-Rate Mortgage (ARM)
This is an adjustable mortgage that changes during the duration of the loan according to the movement in the index rate.
Adjusted Basis
This is calculated as the cost of a property plus the value of any capital expenditures spent on the improvements to the property minus any depreciation that occurred.
Adjustment Date
This is the date on which the interest rate changes according to an adjustable-rate mortgage.
Adjustment Period
The period of time between two successive adjustment dates for an adjustable-rate mortgage.
Affordability Analysis
An affordability analysis is a thorough analysis of a buyer’s capacity to afford the purchase of a home. This analysis reviews income, liabilities, available funds, and at the same time consider the type of mortgage a person is planning to use, the area where the purchase will happen and the closing costs that are likely.
Amortization
The gradual repayment of a mortgage loan, both principal and interest, by installments.
Annual Percentage Rate (APR)
The annual percentage rate is the cost of credit that has been expressed as an yearly rate including interest, mortgage insurance, and loan origination fee. Not to be confused with Actual Note Rate, the annual percentage rate allows a buyer to compare loans.
Appraisal
An appraisal is a written analysis prepared by a qualified appraiser that estimates the value of property.
Appraised Value
This is a property’s fair value in the eyes of a qualified appraiser, based on his evaluations using his knowledge, experience, and analysis of the property.
Asset
An asset is largely anything that is owned by a person to which a monetary value can be assigned. This includes real property, personal property, enforceable claims against others (including bank accounts, stocks, mutual funds, etc.)
Assignment
This refers to the transfer of mortgage from one person to another by prior and mutual consent.
B
Balance Sheet
A balance sheet is a financial statement that includes assets, liabilities, and net worth as of a specific date. This gives a clear estimate of a person’s net worth.
Before Tax Income
This is the total income before taxes are deducted.
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. It is also known as "swing loan."
Broker
A broker is a broad term that can be used for an individual as well as a company that brings borrowers and lender together for the purpose of loan generation.
C
Cap
This is defined as the limit beyond which the monthly interest rate or the monthly payment cannot increase.
Certificate of Eligibility
This is a document issued by the federal government certifying a veteran’s eligibility for a Department of Veterans Affairs (VA) mortgage.
Certificate of Reasonable Value (CRV)
This is a document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA mortgage.
Closing
This is generally a meeting held to finalize the sale of a property. The buyer signs the mortgage documents and pays closing costs.
Closing Costs
Closing costs 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.
Closing date
The date you will sign your new loan documents.
Closing Disclosure (CD)
A closing document which provides key information such as interest rate, monthly payments, and costs to close the loan. Consumers are required to receive this form no later than 3 business days before they close on the loan.
Closing statement
An accounting of funds given to both buyer and seller before real estate is sold.
Co-borrower
Co-borrower
COBRA (Consolidated Omnibus Budget Reconciliation Act)
Requires employers with more than 20 employees to make group health care coverage available for 18 months, at the employee’s expense, to employees who leave the employer for any reason other than gross misconduct.
Coinsurance
A sharing of insurance risk between the insurer and the insured. Coinsurance depends on the relationship between the amount of the policy and a specified percentage of the actual value of the property insured at the time of the loss.
Collateral
An asset, such as a car or a home, used for securing the repayment of a loan. The borrower risks losing the asset if the loan is not repaid.
Collection
The efforts used to bring a delinquent loan current and, if necessary, to file legal papers and notices to proceed with foreclosure.
Combination Loan
A combination loan pairs a conforming first mortgage with a home equity second mortgage for up to 80% of the property's value in a single application with 1 down payment. Combination loans may help you avoid the higher rates of a jumbo first mortgage. Combination loans are made up of 3 parts: 70% first mortgage, 10% home equity second mortgage and 20% down payment.
Combined liens
The outstanding balance of all mortgages held on a property. Used to determine the total available equity when considering the appraised value of the property less total combined or outstanding liens.
Combined loan-to-value ratio (CLTV)
The ratio between the unpaid principal amount of your first mortgage, plus your credit limit if you have a home equity line of credit, and the appraised value of your home. Expressed as a percentage.
Comparables (comps)
Properties similar to the property under consideration for a mortgage that have approximately the same size, location and amenities and have recently been sold. Comparables help an appraiser determine the fair market value of a property.
Compound interest
Interest paid on the principal balance and on the accrued and unpaid interest.
Conforming loan
A mortgage loan that has the standard features as defined by (and is eligible for sale to) Fannie Mae and Freddie Mac.
Construction loan
A short-term interim loan for financing the cost of home construction. The lender makes payments to the builder at periodic intervals as the work progresses.
Contingency
A specified condition in a sales contract that must be satisfied before the home sale can occur. When buying a home, the 2 most common contingencies are that the house must pass inspection and that the borrower must be approved for a loan.
Contractual Payment: First Mortgage
For a mortgage, the contractual payment is the required monthly payment amount for your home loan as described and determined by your loan contract. The contractual payment may include principal and interest due and may include a portion of funds due to cover homeowners insurance, mortgage insurance (if applicable), and property taxes associated with your home.
Here's how it works:
Principal + interest + mortgage insurance (if applicable) + homeowners insurance and tax (if applicable) = full contractual payment.
Contractual Payment: Home Equity Line of Credit
For a home equity line of credit, the contractual payment is the amount owed each month, which may fluctuate based on usage of the line and the terms of your loan agreement. At times, your Contractual Payment may consist of interest only or interest and principal payments.
Conventional loan
A home loan that is not insured or guaranteed by the federal government. A conventional loan can be for conforming or non-conforming loan amounts.
Convertibility clause
A home loan that is not insured or guaranteed by the federal government. A conventional loan can be for conforming or non-conforming loan amounts.
Convertible ARM
An adjustable-rate mortgage (ARM) that can be converted to a fixed-rate loan under specified conditions.
Convey
An adjustable-rate mortgage To transfer or deliver title to property from one to another by deed or contract. When an item becomes a part of the transfer of title, it is conveyed with the property.ARM) that can be converted to a fixed-rate loan under specified conditions.
Co-signer
A second person who signs your loan and assumes equal responsibility for payment of the loan but receives no benefit from the loan proceeds.
Cost of Funds Index (COFI)
An index that is used to determine interest rate changes for certain adjustable-rate mortgages (ARMs). It represents the weighted-average cost of savings, borrowings and advances of the 11th District members of the Federal Home Loan Bank of San Francisco. See also: Adjustable-rate mortgage (ARM)
Covenant
A promise in a mortgage or deed that requires or prevents certain uses of the property that, if violated, may result in loss or foreclosure of the property.
Credit bureau
An organization that gathers, records, updates and stores financial and public records of individuals who have been granted credit and provides this information to lenders and other authorized users for a fee. The 3 major credit bureaus are Equifax, Experian and TransUnion and you are legally entitled to receive 1 free report each year from each of these agencies.
Credit limit
The maximum amount you can borrow under a line of credit.
Credit monitoring service
A service that offers the benefit of early detection of unauthorized activity in order to limit the amount of financial damage that a person may suffer at the hands of an identity thief.
Credit report
A record of an individual’s debts and payment habits. It helps a lender determine whether or not a potential borrower is a good business risk. The 3 major credit bureaus that provide credit reports are Equifax, Experian and TransUnion and you are legally entitled to receive 1 free report each year from each of these agencies. Learn how to read a credit report
Credit risk
The likelihood that a borrower will pay their obligations as agreed. Borrowers who pay as agreed pose less credit risk to lenders.
Credit score
A number that rates the quality of an individual’s credit. The number helps predict the relative likelihood that a person will repay a credit obligation, such as a mortgage loan. In general, the higher your credit score, the more likely you are to be approved for and to pay a lower interest rate on a loan. See how Bank of America credit card holders can obtain a free monthly score
Creditworthiness
The likely ability of a borrower to repay debt.
D
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.
Deed (warranty or quit-claim)
A document that legally transfers ownership of real estate from a seller to a buyer and delivered to the buyer at closing. Before making a loan, a lender will usually require a title search or a title report to make sure the borrower legally owns the real estate tthat is being used to secure the loan.
Deed of trust
The document used in some states instead of a mortgage; title is vested in a trustee to secure repayment of the loan.
Default
Failure to make mortgage payments on time or to meet other terms of a loan. Default can lead to foreclosure.
Delinquency
Failure to make payments on time.
Down payment
The amount of cash you pay toward the purchase of your home to make up the difference between the purchase price and your mortgage loan. Down payments often range between 5% and 20% of the sales price depending on many factors, including your loan, your lender and your credit history. How much of a down payment should you make?
Draw period
The period during which a borrower can obtain advances (also called draws) from an available line of credit. At the end of the draw period, borrowers may be able to renew the credit line or be required to pay the outstanding balance in full or in monthly installments.
E
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.
Encumbrance
Any lien or liability attached to a property that affects or limits the title to that property, for example unpaid taxes, mortgages and leases.
Equal Credit Opportunity Act (ECOA)
A federal law that requires lenders and other creditors to make credit available without discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs. Learn more about the ECOA layer.
Equity
A federal law that requires lenders and other creditors to make credit available without discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs. Learn more about the ECOA layer.
Escrow
Funds deposited with a third party, to be held until a specific date is reached and/or a specific condition is met.
Escrow account
Funds deposited with a third party, to be held until a specific date is reached and/or a specific condition is met.
Escrow impound account
Typically refers to an account set up by a lender in which funds to pay for real estate taxes and homeowners insurance are deposited as part of the borrower's monthly mortgage payment, then disbursed as tax and insurance payments come due.
Escrow analysis
An escrow analysis is performed periodically (generally once per year or more often due to specific events, such as a loan modification) and compares the amounts collected and paid into the escrow account with the actual charges paid out of the escrow account for taxes and insurance billed.
The analysis also projects what will be paid out of escrow over the next year and calculates the escrow payment amounts that will be needed to fund your escrow account for the upcoming year.
Escrow overage
An escrow overage will occur when your escrow account balance exceeds the required minimum balance for the account. These escrow overages typically happen when there is a decrease in your property taxes or insurance premiums. When this happens, you may receive an escrow overage refund check or funds may be applied towards a future escrow balance.
The analysis also projects what will be paid out of escrow over the next year and calculates the escrow payment amounts that will be needed to fund your escrow account for the upcoming year.
Escrow shortage
An escrow shortage will occur when the balance in your escrow account drops below the required minimum balance. These escrow shortages typically happen when there is an increase in your property taxes or insurance premiums. When this happens, you may need to make up the shortage through an increase in your contractual payment or you may elect to make a separate payment into the escrow account.
Extra Payment/Payment Overage
When you pay more than your contractual payment, the additional amount that is paid, can either pay your next month's contractual payment or reduce the unpaid principal balance of your mortgage after satisfying any other amounts that are due (for example, outstanding fees, etc.). This may reduce the interest assessed in the future.
F
Fair Credit Reporting Act (FCRA)
Law passed by Congress to give borrowers certain rights when dealing with consumer reporting agencies, or credit bureaus. All credit bureaus are required to provide accurate credit histories to authorized businesses for use in evaluating applications for insurance, employment, credit or loans. Learn more about the FCRA layer
Fair market value
The likely selling price of a home. The fair market value is usually determined by an appraisal.
Fannie Mae
Federal National Mortgage Association, a government-sponsored enterprise that buys and securitizes mortgages for resale in the secondary market. Visit the Fannie Mae website layer
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. Visit the FHA website layer
Fee Simple
Clear and absolute ownership of a piece of property. The fee simple owner of a property has the right to use the land in any way desired, for example: build on it, sell it or lease it.
FHA home loan
A mortgage that is insured by the Federal Housing Administration (FHA). Also known as a government loan. FHA mortgage insurance protects the lender (not the borrower) if a borrower defaults on the FHA loan. This insurance enables a lender to provide loan options and benefits often not available through conventional financing.
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.
Finance charge
The cost of consumer credit expressed as a dollar amount. It includes the amount of interest you will pay during the terms of the loan, origination points and certain other items. Some closing costs are not treated as finance charges.
First mortgage
A mortgage that is the senior lien against a property.
Fixed-rate mortgage
A home loan with a predetermined fixed interest rate for the entire term of the loan.
Fixed-rate option (Fixed-Rate Loan Option)
An option available on certain home equity lines of credit allowing borrowers to fix the payments and interest rate on a portion of their outstanding principal balance for a specific term. Customers may be charged a fee for this privilege.
Floating rate
A loan rate for which the lender has not "locked" or committed to lend at a particular interest rate. The floating interest rate and any discount points are not guaranteed. Your actual interest rate and discount points will be based on the market price available for your loan product at the time your interest rate is locked.
Flood certification
A determination by a reputable source about whether property is located within a special flood hazard zone.
Flood insurance
Insurance that protects against loss due to floods. When available, this type of insurance is required by law when a property is located within a special flood hazard zone.
Forbearance
A period during which your monthly loan payments are temporarily suspended or reduced. You may qualify for forbearance if you are willing but unable to make loan payments due to certain types of financial hardships. During forbearance, principal payments are postponed but interest continues to accrue.
Foreclosure
A legal procedure in which property securing a defaulted loan is sold by the lender in order to repay a borrower’s loan. The amount paid by a buyer at the foreclosure may not be enough to fully repay the loan and the borrower may continue to owe the lender the difference.
Forfeiture
The loss of money, property, rights or privileges due to a breach of legal obligation.
Form 1098
A legal tax form that reports the amount of interest and points paid during the previous year.
Freddie Mac
A government-sponsored enterprise that buys and securitizes mortgages for resale in the secondary market. Visit the Freddie Mac website layer
Funding date
The date on which the proceeds from a loan are available to or disbursed for the benefit of the borrowers.
G
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 loan
A loan that is insured by the Federal Housing Administration (FHA), guaranteed by the Department of Veterans Affairs (VA) or guaranteed by the Rural Housing Service (RHS). The insurance protects the lender (not the borrower) if a borrower defaults on the loan. This insurance enables a lender to provide loan options and benefits often not available through conventional financing.
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. Visit the Ginnie Mae website layer
H
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. In most cases, you can withdraw funds up to your available credit limit for the first 10 years (your draw period) using convenience checks, debit cards or money transfer via Online Banking. Learn more about HELOCs
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. Also called hazard insurance.
HUD
An acronym for the U.S. Department of Housing and Urban Development. HUD is a government agency responsible for the implementation and administration of housing and urban development programs. Among other things, HUD administers the Federal Housing Administration, enforces RESPA regulations and oversees Fannie Mae and Freddie Mac. Visit the HUD website layer
I
Impounding
The collection and placement of monies by a lender into an account in order to pay the borrower’s property taxes and insurance premiums when they become due.
Income
Regular income from earnings, commissions, investments, rental payments or other sources.
Income property
Real estate developed or improved to produce income.
Index
When used in a mortgage note or credit agreement, a financial index is the measurement used to decide how much the annual percentage rate will change at the beginning of each adjustment period. Generally, the index plus or minus margin equals the new rate that will be charged, subject to any caps. Lenders use various financial index rates: Secured Overnight Financing Rate[(SOFR) and Treasury-Indexed ARMs (T-Bills)]
Inflation rate
The increase in price of consumer goods, usually expressed as a percentage over a specific period of time.
Initial advance
The process of obtaining an advance against available credit under your line of credit.
Initial advance at closing
You have chosen our funds transfer option to reduce your interest rate. Please verify that the account information is correct. If you maintain at least this $25,000 balance for the first three consecutive billing cycles the account is open, you will receive .25% off your approved rate for the life of the line.
Initial advance of $25,000 or more
The initial advance of $25,000 or more discount applies for drawing an initial advance of $25,000 or more, and maintaining at least that minimum balance for the first 3 full consecutive billing cycles.
Initial draw amount
The proceeds of the home equity line of credit or construction loan up to an amount the borrower is allowed to request at closing.
Initial rate
The starting interest rate. Some people call this the “teaser rate,” because it gives you low interest and low monthly payments at the beginning, but may adjust up at the next adjustment period (it will usually adjust even if the index doesn’t go up, since it’s lower than index plus margin for the initial period).
Inquiry
A request for your credit report, made by you or a company considering you for an offer of credit.
Installment loan
A loan that is repaid in equal payments, known as installments.
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.
Insurance binder
A document that states that insurance is temporarily in effect. Because the coverage will expire by a specified date, a permanent policy must be obtained before the expiration date.
Insured mortgage
A mortgage that is protected by an insurer in case of default. The insurance protects the lender (not the borrower) if a borrower defaults on the loan.
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-only loan
A loan for which you pay only the interest due for a portion of the loan term. This lowers your periodic payment but does not decrease your principal balance on the loan. Making interest-only payments will result in larger payments being due at the end of the interest-only payment period. See also: Balloon loan
Interest rate
The annual cost of a loan to a borrower, usually expressed as a percentage. The interest rate does not include fees charged for the loan. See also: Annual percentage rate (APR)
Interest rate cap
A limit on how much the variable interest rate can increase at any one time. Many home loans have both annual (or semiannual) caps and lifetime caps, which limit the amount your payments can increase in an adjustment period and over the life of the loan. Many caps allow a rate increase of 2-5% over the starting interest rate in an adjustment period (for example, a starting rate of 5% could increase to 7% or, depending on the loan guidelines, to as much as 10%). A lender’s lifetime interest rate cap is typically 6% over the life of the loan.
Investment property
Property that is purchased to generate rental income, or to be sold once it has appreciated in value.
J
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
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.
L
Liabilities
A person’s debts or financial obligations. Liabilities include long-term and short-term debt, as well as potential losses from legal claims.
Lien
The legal claim of a creditor on a borrower’s property, to be used as security for a debt.
Lien holder
An individual or entity that has placed a lien on real property.
Lifetime adjustment cap
A limit on how much the variable interest rate can increase during the term of a loan.
Line of credit
An agreement by a lender to extend credit up to a maximum amount for a specified time. In a home equity line of credit, the line of credit is secured by the borrower’s home. Learn more about a home equity line of credit
Loan commitment
A formal notification from a lender stating that the borrower’s loan has been conditionally approved and specifying the terms under which the lender agrees to make the loan.
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.
Loan modification
Changes to one or more of the terms of a loan.