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Glossary of Terms

Adjustable Rate Mortgage.
A mortgage in which the interest rate changes at certain intervals during the term of the mortgage.
Adjusted Sales Price.
IRS term for the sales price of a home minus the costs of the sale. Used to calculate capital gains.
Adjustment Period.
The length of time that dictates interest rate adjustments on an adjustable rate mortgage. A six month ARM would have an adjustment every six months.
Adjustment Period Cap.
The amount that the interest rate is allowed to increase or decrease at the time of adjustment of an adjustable rate mortgage. A one-year adjustable would have an annual cap, since the adjustment period is every year.
Alternative Documentation.
Use of bank statements, W-2’s, and pay stubs to document an applicant’s income and assets instead of verification forms mailed by the lender.
Amortization Schedule.
A table that shows the principal changes of a mortgage balance on a monthly or annual basis.
Annual Percentage Rate (APR).
Calculation that standardizes rates, points and other costs of a financing instrument such as a mortgage loan. This figure is disclosed as part of the truth-in-lending statement that is required by the Federal Truth-in-Lending Act. The statement is required on all consumer loans but is required to be disclosed within three working days of application for residential owner-occupied mortgage loans pursuant to the Real Estate Settlement Procedures Act (RESPA).
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.
Appreciation.
The increase in value of property over time.
Assumption.
The act of taking over the previous borrower’s obligation of a mortgage note. Assumptions may be advantageous if the terms of the mortgage are advantageous and these terms are not changed by the lender when the mortgage is assumed.
Automated Underwriting Systems.
Technological systems that take into account credit scores and other characteristics of borrowers (such as job histories) to develop a rating upon which an underwriting decision can be based. These systems include Desktop Underwriter (Fannie Mae) and Loan Prospector (Freddie Mac).
Back-to-Back Settlement.
Transactions involving selling one home and purchasing another on the same day, usually within hours of one another. The seller typically moves from one settlement table to the next in order to accomplish the purchase transaction.
Balloon.
A mortgage that does not fully amortize over the term of the mortgage. The principal remaining at the end of the term is called a balloon payment.
Base Mortgage Amount.
The mortgage amount before mortgage insurance or VA funding fee is added.
Bi-weekly Mortgage.
A mortgage that requires one-half of one monthly payment every two weeks. The resulting extra monthly payment each year lowers the mortgage term to approximately 22-25 years.
Bridge Loan.
Short-term mortgage, usually interest only, utilized to help a purchaser settle on a home before his/her present home is sold.
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.
Capital Gains Income.
Income derived through the sale of assets such as real estate.
Capped Rate.
A rate commitment by a lender which locks-in a maximum rate but allows the borrower to relock if market rates decrease. Also referred to as cap and float.
Cash Out Refinance.
A refinance in which the borrower takes cash, or equity out of the property.
Certificate of Eligibility (COE).
Issued by VA to certify the amount of entitlement available to a veteran.
Certificate of Insurance.
Document which adds the mortgage holder on a particular unit to the master insurance policy for a condominium development.
Certificate of Reasonable Value (CRV).
Appraisal of a property for a VA mortgage. Appraisal of a subdivision would be a Master Certificate of Reasonable Value, or MCRV.
Certificate of Veteran Status.
FHA form filled out by the Department of Veteran Affairs in order to establish a borrower’s eligibility for an FHA Vet Mortgage.
Closing Costs.
The costs incurred in order to purchase real estate. May include points, taxes, fees and more.
Co-borrower.
Two or more borrowers obtaining the same mortgage. If a co-borrower is not living in the house he/she would be known as a non-owner occupant co-borrower.
Combined Loan-to-Value.
The principal balance of all mortgages on the property (including second and third trusts) divided by the value of the property.
Commitment.
An agreement for future action. A rate commitment would be an agreement to lend at a certain rate. A loan commitment would be an agreement to lend and represents another term for loan approval.
Comparables.
Properties utilized in an appraisal to determine the value of the property being appraised.
Compensating Factor.
A positive characteristic of a mortgage application that may offset a negative factor.
Conditional Commitment.
Term for an FHA appraisal. An FHA appraisal for a subdivision would be called a Master Conditional Commitment, or MCC.
Condominium.
A project in which each unit owner has title to a unit and has an undivided interest to the common areas.
Condominium Association Fee.
A fee paid by the homeowner to the association that governs a condominium complex for his/her part of the maintenance and management of the project.
Conforming Mortgage.
A mortgage that can be purchased by Fannie Mae or 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 that is for the purpose of replacing a construction mortgage soon after the improvements are completed.
Contingencies.
Conditions without which a transaction would be voided.
Contribution.
Cash or other concession by the seller of a property in order to induce a purchaser to buy that property.
Conventional Mortgage.
A mortgage not guaranteed by VA or insured by FHA, Rural Housing or State Bond Agencies.
Credit Package.
The portion of a loan application and documentation that is comprised of the information regarding the applicant’s credit, income and asset history. The additional aspect of a loan application concerns the property being financed (appraisal).
Credit Report.
A report run by an independent credit agency that verifies certain information concerning an applicant’s credit history.
Credit Score.
Automated systems that compile the credit characteristics of an individual into a single numeric rating. The rating would take into consideration the amount of open credit, credit payment history, number of credit inquiries, as well as other indications.
Deed in lieu of foreclosure.
A deed instrument in which a borrower conveys all interest in a property to the lender to satisfy a loan that is in default and avoid foreclosure proceedings.
Deed of Trust.
A legal document that 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) and Government National Mortgage Association (Ginnie Mae).
Department of Veterans Affairs (VA).
Cabinet level Federal Agency whose chief purpose is to aid veterans through a variety of programs.
Depreciation.
The decrease in value of an asset over a fixed period of time.
Desktop Underwriter (DU).
Fannie Mae’s automated underwriting system (Desktop Originator is used by mortgage brokers).
Discount Point.
A charge by a lender levied to buy down the interest rate (equals 1% of the loan amount).
Distributive Shares.
Increments of FHA insurance from a pool of mortgages insured during the same time period. In the past unused shares were distributed by FHA to the holders of the mortgages within that pool.
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 mortgage amount is the down payment.
Draws.
Money taken out of an escrow account to finance the rehabilitation or construction of a house.
Easement.
A right to utilize another property other than one’s own. For example, a utility company may be granted an easement for utility lines.
Encroachment.
The existence of a protrusion or infringement of a structure such as a fence on a property.
Equity.
The net value of an asset. In the case of real estate, it would be the difference between the present value of the property and the mortgage amount on that property.
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 that holds an escrow on behalf of a borrower to pay taxes and insurance payments to the applicable entities when they become due.
Extended Locks.
Mortgage rate commitments that are for longer than the typical 60-day lock-in term.
Farmers Home Administration (FmHA).
Federal agency that guarantees mortgages in rural areas. Renamed as the Rural Housing Authority or the Rural Housing Program.
Federal Bond Subsidy Act.
Federal legislation empowering state and local governments to issue tax free bonds to fund mortgages for lower and middle-income borrowers.
Federal Home Loan Mortgage Corporation (Freddie Mac) and Federal National Mortgage Association (Fannie Mae).
Government Sponsored Enterprises (GSEs) that are publicly traded corporations supervised by the Federal Government. The purpose of the entities are to help facilitate the access of mortgage money by creating a secondary market for conventional mortgages. Conventional mortgages purchased by Freddie Mac and Fannie Mae are called conforming mortgages.
Federal Housing Administration (FHA).
Government agency located within the Department of Housing and Urban Development. Administers the FHA mortgage program.
Fee Simple.
Unrestricted ownership of real property.
FHA Direct Endorsement.
FHA program in which lenders approve FHA mortgages directly as opposed to submitting the applications to the agency for approval.
Final Inspection.
Home inspection made by a lender, VA, FHA or the appraiser after a new home or repairs have been completed.
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.
Application in which the lender has not committed to lend at a particular interest rate (not locked-in).
Floor.
The lowest interest rate of an adjustable rate mortgage.
Free and Clear.
A property with no mortgage liability placed upon it.
Full Documentation.
Mortgage verification process that relies upon verification forms sent by the lender rather than alternative documentation (such as pay stubs) provided by the applicant.
Fully Amortized.
A mortgage that has a zero balance at the end of the mortgage term.
Green Card.
Immigration status which permits the holder to work in the United States, obtain a social security number and become an apprentice to attain citizenship (the permit is no longer green in color).
Gross Monthly Income.
A person’s income before deductions for taxes, medical insurance, etc. After deductions, the income is referred to as take home pay or net income.
Government Mortgages.
Mortgages insured or guaranteed by the government (FHA, VA, Rural Housing, or State Bond Agencies).
Government National Mortgage Association (Ginnie Mae).
Government agency located within the Department of Housing and Urban Development. Created in 1968, its purpose is to facilitate the access of mortgages through creation of a secondary market for government mortgages (FHA and VA).
Guaranty.
Amount of money VA will reimburse a lender upon default of a VA mortgage. Also referred to as the amount of entitlement or eligibility.
Home Equity Line of Credit (HELOC).
An open line of credit against the equity in a home (typically a second mortgage).
Homeowners Association Fees (HOA Fees).
A fee typically paid monthly by a homeowner to a homeowners association in order for the association to take care of areas owned in common by all homeowners within a planned unit development.
Homeowners Insurance.
Insurance carried by the homeowner to protect the dwelling against fire and other hazards. Also known as “fire insurance.”
Index.
An indicator that is typically measured by an average of a variable over a certain period of time. Adjustable rate mortgage indices are measures of the movement of interest rates.
Investor Purchase.
The purchase of a home for the purpose of generating income by renting the property.
IRS 4506/Request for Copy of Tax Form.
IRS Form required that allows the lender to pull tax returns on the borrower directly from the IRS, usually accomplished as a quality control check on a certain number of cases after closing. More recently has been replaced by the IRS 8801.
Jumbo Mortgage.
A mortgage that is larger than the purchase limits of Fannie Mae and Freddie Mac.
K-1.
Federal tax form that reports the income of an individual from a Partnership or Subchapter S Corporation. Other important information on this form includes the percentage of ownership by the individual as well as capital contributed to the entity.
Land-to-Value.
The value of the land divided by the total value of the property, including both the land and the home.
LIBOR Index.
London Interbank Offered Rates, which is the average rate of interest that major world banks are willing to pay each other for U.S. dollar deposits for various terms on the London market.
Lien.
A claim against a property. A mortgage is one form of a lien.
Loan-to-Value (LTV).
The principal amount of a mortgage on a property divided by the value of that property.
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 that 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 that is secured by real estate.
Mortgagor.
The borrower of money that is secured by real estate.
Mortgagee Clause.
Verbiage in the homeowners and title insurance policies which identifies the mortgage holder and its successors and/or assigns.
Mortgage Insurance.
Insurance that protects the lender against default. Insurance can be issued by private sources (private mortgage insurance) or the Federal Housing Administration (MIP).
Mortgage Insurance Premium (MIP).
Mortgage insurance charged by FHA to insure a mortgage.
Moving Treasury Average (MTA).
The 12-month average of the monthly yields of U.S. Treasury securities adjusted to a constant maturity of one year.
Negatively Amortized Mortgage (Negative Amortization).
A mortgage whose balance may increase with all (scheduled negative) or certain (potential negative) payments.
Net Proceeds.
Amount of cash that accrues to the seller after expenses are deducted from a home sale.
Non-conforming Mortgage.
A mortgage that cannot be sold to Fannie Mae or Freddie Mac.
Note.
A legal instrument that specifies the terms of any debt. When someone borrows money secured against real estate, a note will be signed.
Open Equity Line.
A second trust mortgage that is an open line of credit. That is, the balance can be increased by future draws up to a set amount. Also known as a Home Equity Line of Credit (HELOC).
Operating Income Statement.
Form that determines the probable cash flow on a property which is to be used for rental purposes.
Origination Fee.
A charge by a lender for the costs of originating a mortgage. Usually equal to one point, or 1% of the mortgage amount.
Owner-Occupied Purchase.
The purchase of a property for the purpose of the primary residence of the owner.
Partial Entitlement.
The entitlement remaining after the veteran has used part of his/her full entitlement in obtaining a VA mortgage. The partial entitlement may result from a legislated increase in entitlement that occurs after the veteran has purchased a home.
Personal Property.
All other property besides real estate (for example, furnishings).
PITI.
Total mortgage payment assuming an escrow fund is set up by the lender for real estate taxes (T) and insurance (I). The PI is the principal and interest, or loan payment.
Planned Unit Development.
A project in which there is land and/or facilities owned in common by owners within the development. Typical common areas might be recreational facilities, wooded areas or parking lots.
Plans and Specs.
The plans and specifications upon which the construction of a home is based. An appraiser will typically appraise a new property conditionally upon completion of plans and specs. A final inspection is then performed after the house is completed.
POC.
A charge that 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.
Post Closing Reserves.
The liquid assets of an applicant required by a lender after closing on the mortgage.
Potential Negative Amortization.
An adjustable rate mortgage that may have principal balance increases at some time during the mortgage term, depending upon the future direction of the index upon which rate adjustments are based and whether a payment cap is invoked.
Positively Amortized Mortgage.
A mortgage that has a balance decrease with each payment.
Prepaids.
Closing costs that are actually paid at closing for charges that will occur in the future. One example would be prepaid interest that will accrue after the closing date until the starting date of the note.
Pre-qualification.
The process of determining one’s qualifications for a mortgage and home purchase before the actual home is identified.
Principal Reduction.
The reduction in loan balance that occurs with each payment of a positively amortized mortgage.
Processing.
The procedure in which a lender takes a loan application and brings it to the point to underwriting for loan approval.
Profit and Loss Statement (P&L).
A financial statement provided by the applicant that reports the income and expenses for a business during a certain time period. The statement would typically be required of self-employed applicants if the tax returns are not current within 90 days.
Purchase Money Mortgage.
A mortgage obtained to finance the purchase of real estate.
Qualification.
The process that determines whether an applicant can be approved for a mortgage loan.
Rate Reduction Refinance.
The refinance of an existing mortgage balance solely to lower the interest rate.
Ratio Method.
Method of qualifying which divides the monthly mortgage payment by the gross monthly income of the borrower (housing or first ratio) and then divides the monthly mortgage payment and monthly debt payments by the gross monthly income (debt or second ratio).
Real Estate Taxes.
Local taxes levied on the ownership of real estate. Also known as property taxes.
Real Property.
The ownership of real estate.
Recapture Tax.
A federal tax required on the gain of sale of certain properties financed under the Federal Bond Subsidy Act which are sold within 10 years of purchase. This tax is in effect for homes purchased after December 31, 1990.
Recordation Fees.
Fees charged by a local government to record the documents of a real estate transaction.
Reduced Closing Cost Mortgage.
A mortgage that carries a higher interest rate in exchange for no points and/or a credit towards other closing costs from the lender.
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.
Rehabilitate.
The process of reconstructing or improving property that is in the state of disrepair. A mortgage for such purpose would be referred to as a rehab mortgage.
Rental Equivalency.
A mortgage payment (PITI) after the tax deductions are taken into consideration.
Rental Negative.
The monthly cash flow loss on an investment property.
Residential Mortgage.
A loan that is secured by residential real estate.
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. Larger rental properties are considered commercial real estate (such as apartment complexes).
Residual Method.
Method of qualifying that subtracts all expenses from a borrower’s income to determine whether there remains a positive residual.
Revolving Credit.
Open lines of credit that are subject to variable payments in accordance with the balance. Credit cards are examples of revolving credit.
Right of Rescission.
Period of three full days after closing in which the consumer is allowed to negate an owner occupied refinance transaction. Loan funding does not occur until this period expires.
Right to Financial Privacy Act.
Places restrictions upon governmental authorities having access to copies of the financial records of any mortgage applicant.
Rolled-in.
To include the closing costs of a refinance transaction in the balance of the new mortgage — i.e., to finance the closing costs of the refinance so that they are not paid in cash by the borrower, or out-of-pocket.
Sales Concession.
Cash a seller pays on behalf of a purchaser in order to entice the purchaser to buy the home. Another term for seller contribution. For example, the seller may pay a certain number of dollars towards a purchaser’s closing costs.
Second Home Purchase.
A property purchased for occupancy by the owner but is not the primary residence. Usually recreational or vacation properties.
Second Mortgage.
A loan that is secured by real estate that is already secured by another loan that is the first mortgage.
Second Trust.
Another term for a second mortgage. More common term in Trust states.
Secondary Market.
A market that exists for the purchase and sale of mortgages and servicing rights as commodities.
Self-Employment.
A person who owns at least 25% of the entity (such as a corporation or partnership) that generates income for that person. There may be no separate legal entity, such as the case of a sole proprietor.
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. Servicing rights are the right to service these mortgages. These rights are commodities that can be sold via the secondary markets.
Settlement Agent.
A person or entity that coordinates or conducts a closing or settlement.
Settlement.
Another term for closing of a real estate transaction.
Short Sale.
To sell a home for less than the amount of the present mortgage outstanding on the property.
Sole Proprietorship.
A form of self-employment in which the individual that is self-employed has formed no separate legal entity such as a corporation.
Streamline.
A rate reduction refinance requiring less documentation than a full package mortgage application.
Subsidize.
A term referring to some type of aid. Federally subsidize mortgages typically have an interest rate lower than market because of government assistance. Temporary buydowns are considered subsidized mortgages, because there is money placed in an escrow fund to supplement the regular payment for a certain period of time.
Survey.
The measurement of the boundaries of a parcel of land, including any improvements, easements or encroachments within the boundaries of the property. A staked survey is a higher costs but marks the boundaries via wooden or metal stakes.
Take Home Pay.
One’s paycheck after taxes and other deductions have been subtracted.
Tax Deduction.
An expense that the government allows you to subtract from your income before the tax liability is computed. The Federal Government allows you to subtract certain itemized deductions such as mortgage interest in lieu of utilizing the standard deduction.
Tax Service Contract.
A service performed by a tax service company which identifies the payment due date of local taxes for the servicer of the mortgage.
Term.
The full period or life over which a mortgage is scheduled to exist.
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 no clear title, it is said that the title has clouds or defects. Title Insurance is typically required to cover the lender against such defects.
Transfer Taxes.
Taxes levied by a state or local government upon the transfer of real property. Also may be known as tax stamps.
Uniform Residential Loan Application Form (Fannie Mae/Freddie Mac 1003/FHA 2900/VA 1802).
The form that is accepted by all major mortgage sources for application of residential mortgages.
Uniform Residential Appraisal Report (URAR).
The appraisal form that is utilized by appraisers of residential properties to estimate the value of properties to be financed with FHA, VA and conventional mortgages.
Underwrite.
The process by which a lender analyzes risk in order to determine whether a loan application should be approved and under what conditions that loan should be funded. Automated underwriting does so through automated systems utilizing, among other things, credit scores.
VA Automatic.
A Department of Veterans Affairs program that allows the lender to approve VA mortgage applications directly instead of sending the applications to the Department for approval.
VA IRRL Refinance.
Another term for a VA interest rate reduction refinance which is a VA-to-VA refinance accomplished solely to lower the interest rate.
VA Funding Fee.
Fee charged on VA mortgages to cover the administrative costs of the program.
Variable Income.
Income that will vary from year to year. Examples of income that will vary include: self-employment, commission, bonus, overtime, part-time employment, and investment income.
Verification of Deposit.
Form that verifies an applicant’s liquid assets held with a particular financial institution. Not needed if alternative documentation (bank statements) is provided.
Verification of Employment.
Form that verifies an applicant’s job history, including employment date, salary, year-to-date income, income for the past year, and probability of continued employment.
Verification of Mortgage.
Form that verifies an applicant’s mortgage history, including the date of the mortgage, present balance, 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).
W-2.
IRS form that reports income paid and taxes withheld for an employee during a calendar year.
W-4.
IRS form that determines the amount of Federal taxes the employer will withhold from a person’s paycheck each pay period.

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(top left) Anna- Marie Collis USDA Guaranteed Rural Housing Specialist, David L. Cain (USDA Housing Program Director), Patrick Ramey (MLO), Quintez McDonald-Gibson (MLO), Byron Reed Branch Manager (MLO), Dave Smith (MLO) (bottom left) Kara Cochran (Underwriter), Evangeline (Eve) Howard (Underwriter). Not photographed Melissa Conner (MLO), Mike Goode (MLO), Travella Cook (MLO), Kelcie Springer (MLO)

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