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Services Common TermsPersonal Loans | Business Loans | Agricultural Loans | Real Estate
changes at certain intervals during the term of the loan.
Adjustment Period - The length of time which dictates interest rate adjustments on an adjustable rate mortgage. A six month ARM would have an adjustment every six months.
Amortization Schedule - A table which shows the principal changes of a mortgage balance on a monthly or annual basis.
Annual Percentage Rate (APR) - Calculation which standardizes rates, point, and other costs of a mortgage loan. This figure is disclosed as part of the truth-in-lending statement which is required by the Federal Truth-In-Lending Act.
Appraisal - An estimate of value -- in this case for real property. For residential properties the appraiser would utilize the Uniform Residential Appraisal Report or URAR.
Balloon - A mortgage which does not fully amortize over the term of the mortgage. The principal remaining at the end of the term is called a balloon payment.
Buydown - To lower the interest rate on a mortgage. A permanent buydown would lower the rate for the entire term of the mortgage. A temporary buydown would lower the rate for a certain portion of the mortgage term, usually the first few years.
Commitment - An agreement for future action. A loan commitment would be an agreement to lend and represent another term for loan approval.
Combined Loan -To-Value - The principal balance of all mortgages on the property (including second and third mortgages) divided by the value of the property.
Conforming Mortgage - A mortgage which can be purchased by Fannie Mae and Freddie Mac.
Construction Mortgage - A loan secured by real estate which is for the purpose of funding the construction of improvements or building(s) upon the property.
Construction-to-Permanent Mortgage - A loan secured by real estate which is for the purpose of replacing a construction mortgage soon after the improvements are completed. Conventional Mortgage - A mortgage not guaranteed by VA or insured by FHA, FmHA or State Bond Agencies.
Credit Report - A report run by an independent credit agency which verifies certain information concerning an applicant's credit history.
Deed of Trust - A legal document which enables the lender, or mortgagee, to hold legal claim or title to a property while the note is outstanding. The Deed of Trust transfers title to a trustee designated by the lender.
Default - The non-payment of a mortgage or other loan in accordance with the terms as specified in the note.
Department of Housing and Urban Development - A cabinet level Federal Agency which houses the Federal Housing Administration (FHA), Government National Mortgage Association (GNMA) and oversight to Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac).
Department of Veterans Affairs (VA) - Cabinet level Federal Agency whose chief purpose is to aid veterans through a variety of programs. Discount Point - A charge by a lender levied to buy down the interest rate.
Down Payment - Money given by the purchaser of a property to the seller to acquire the mortgage and hence the property. The difference between the sales price and the mortgage amount is the down payment.
Escrow - Money held by a third party on behalf of the first party to be utilized for requirements of a second party. A servicer is a third party which holds an escrow on behalf of the borrower to pay taxes and insurance payments to the applicable entities when they become due.
Farmers Home Administration (FmHA) - Federal agency which guarantees mortgages in rural areas.
Federal Home Loan Mortgage Corporation (Freddie Mac) - A quasi-governmental agency which is a publicly traded corporation. The purpose of the entity is to help facilitate the access of mortgage money by creating a secondary market for conventional mortgages. Conventional mortgages purchased by Freddie Mac are called conforming mortgages.
Federal National Mortgage Association (Fannie Mae) - A quasi-governmental agency which is a publicly traded corporation. It was originally chartered by Congress and oversight is located within the Department of Housing and Urban Development. Conventional mortgages purchased by Fannie Mae are called conforming mortgages.
Federal Housing Administration (FHA) - Government agency located within the Department of Housing and Urban Development.
First Mortgage - The primary or original loan secured upon real estate.
Fixed Rate Mortgage - A mortgage in which the interest rate (and usually the payment) does not change over the term of the mortgage.
Float - A loan application in which the lender has not committed to lend at a particular interest rate (the rate is not locked-in.)
Floor - The lowest interest rate of an adjustable rate mortgage Free and Clear - A property with no mortgage liability placed on it.
Fully Amortized - A mortgage which has a zero balance at the end of the mortgage term.
Fully Indexed Accrual Rate (FIAR) - The index plus the margin for an adjustable rate mortgage.
Gross Monthly Income - A person's income before deduction for taxes, medical insurance, etc. After deductions, the income is referred to as take home pay or net income.
Index - An indicator which is typically measured by an average of a variable over a certain period of time.
Interest Rate Cap - A limit on interest rate increases and/or decreases during each interest rate adjustment (adjustment period cap) or over the term (life cap) of the mortgage.
Jumbo Mortgage - A mortgage which is larger than the legislated purchase limits of Fannie Mae and Freddie Mac (currently over $214,600).
Life Cap - The amount the interest rate is allowed to increase during the term of the mortgage.
Lock-In - The process by which a lender commits to lend at a particular rate as long as the mortgage transaction closes within a specified time period. The document which specifies the terms of the lock-in is called a rate commitment or lock-in agreement.
Margin - The amount added to the index on an adjustable rate mortgage to determine the interest rate at each adjustment.
Mortgage - A loan secured against real estate as opposed to personal property. States which are not Trust States utilize a mortgage as the legal instrument to secure the lien against the real estate which means that the owner holds title rather than a trustee.
Mortgagee - The lender of money which is secured by real estate
Mortgagor - The borrower of money which is secured by real estate.
Mortgage Insurance - Insurance which protects the lender against default. Insurance can be issued by private sources (private mortgage insurance) or the Federal Housing Administration.
Note - A legal instrument which specifies the terms of any debt. When someone borrows money secured against real estate, a note will be signed.
PITI - Total mortgage payment assuming an escrow fund is set up by the lender for real estate taxes (T) and Insurance. The PI is the principal and interest, or loan payment.
POC - A charge which is paid outside of closing. This would include closing costs such as the appraisal and credit report which an applicant pays up-front to the lender.
Point - A charge by a lender. One point is equal to 1% of the mortgage amount.
Prepaids - Closing costs which are actually paid at closing for charges which will occur in the future. One example would be prepaid interest which is for interest which will accrue after the closing date until the starting date of the note.
Processing - The procedure in which a lender takes a loan application and brings it to the point to underwriting for loan approval.
Qualification - The process which determines whether an applicant can be approved for a mortgage loan. Real Estate Settlement Procedures Act (RESPA) Federal law which regulates the settlement practices within the real estate industry. This law requires the provision of Good Faith Estimates of Closing Costs, prohibits kickbacks for referrals of related services, and standardizes the closing with a required form and format (HUD-1).
Refinance Mortgage - Money borrowed by the present owner of real estate to replace an existing loan secured by the same real estate or to place a mortgage on free and clear property.
Residential Real Estate - Housing built and owned for the purpose of a person(s) making the property his/her home or a property to be rented to tenants. For purposes of classification, residential real estate contains one to four units.
Second Mortgage - A loan which is secured by real estate which is already secured by another loan referred to as the first mortgage.
Secondary Market - A market which exists for the purchase and sale of mortgages and servicing rights as commodities.
Servicing - The process by which a lender collects monthly mortgage payments and forwards applicable portions of the payments to the investor, local government and insurance agencies.
Settlement Agent - A person or entity which coordinates or conducts a closing or settlement.
Survey - The measurement of the boundaries of a parcel of land, including any improvements, easements or encroachments within the boundaries of the property.
Term - The period or life over which a mortgage exists.
Title - Ownership record of the property. A settlement agent will conduct a title search to make sure the seller has clear title to the property before conducting settlement. If there is not clear title, it is said that the title has defects. Title Insurance is typically required to cover the lender against such defects.
Uniform Residential Loan Application Form - Form which is accepted by all major mortgage sources for application of residential mortgages.
Uniform Residential Appraisal Report - The appraisal form which is utilized by appraisers of residential properties to estimate the value of properties to be financed with FHA, VA and conventional mortgages. Uniform Settlement Statement (HUD-1) - Settlement summary form required by RESPA to be used by closing agents.
Underwriting - The process by which lenders analyze risk.
Verification of Deposit - Form which verifies an applicant's liquid assets held with a particular financial institution.
Verification of Employment - Form which verifies an applicant's job history, including employment date, salary, year-to-date income, income for the past year, and probability of continued employment. This form is sent directly from the lender to the applicant's employer.
Verification of Mortgage - Form which verifies an applicant's mortgage history with a financial institution, including the date of the mortgage, present balance, present payment, and history of late payments. The Verification of Loan and Verification of Rental History would garner similar information for personal loans and the applicant's landlord (if renting).
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