Mortgage Glossary Terms

  • Abstract of Title     A written record of the historical ownership of the property that helps to determine whether the property can in fact be transferred from one party to another without any previous claims. An abstract of title is used in certain parts of the country when determining if there are any previous claims on the subject property in question.

  • Acceleration     A loan accelerates when it is paid off early, usually at the request or demand of the lender. An acceleration clause within a loan document states what must happen when a loan must be paid immediately, but usually it applies to nonpayment, late payments, or the transfer of the property without the lender’s permission.

  • Adjustable Rate Mortgage     A loan program where the interest rate may change throughout the life of the loan. An ARM adjusts based on terms agreed to between the lender and the borrower, but typically it may only change once or twice a year.

  • Alternate Credit     Items you must pay each month but that won’t appear on your credit report. Alternate credit accounts might include your telephone bill. In relation to mortgage loans, while such items aren’t reported as installment or revolving credit, they can establish your ability and willingness to make consistent payments in a responsible manner. Sometimes called nonstandard credit.

  • Alt Loans     Alternative loans, so-called because they’re not conventional or government loans but step outside the lending box and establish their own lending criteria.

  • Amortization     Amortization is the length of time it takes for a loan to be fully paid off, by predetermined agreement. These payments are at regular intervals. Sometimes called a fully amortized loan. Amortization terms can vary, but generally accepted terms run in five-year increments, from 10 to 40 years.

  • Annual Percentage Rate     The cost of money borrowed, expressed as an annual rate. The APR is a useful consumer tool to compare different lenders, but unfortunately it is often not used correctly. The APR can only work when comparing the same exact loan type from one lender to another.

  • Appraisable Asset     Any item whose value can be determined by a third-party expert. That car you want to sell is an appraisable asset. If the item can be appraised, then you can use those funds to buy a house.

  • Appraisal     A report that helps to determine the market value of a property. An appraisal can be done in various ways, as required by a lender, from simply driving by the property to ordering a full-blown inspection, complete with full-color photographs of the real estate. Appraisals compare similar homes in the area to substantiate the value of the property in question.

  • APR     See Annual Percentage Rate.

  • ARM     See Adjustable Rate Mortgage.

  • Assumable Mortgage     Homes sold with assumable mortgages let buyers take over the terms of the loan along with the house being sold. Assumable loans may be fully or nonqualifying assumable, meaning buyers take over the loan without being qualified or otherwise evaluated by the original lender. Qualifying assumable loans mean that while buyers may assume terms of the existing note, they must qualify all over again as if they were applying for a brand-new loan.

  • AUS     See Automated Underwriting System.

  • Automated Underwriting System     A software application that electronically issues a preliminary loan approval. An AUS uses a complex approval matrix that reviews credit reports, debt ratios, and other factors that go into a mortgage loan approval.

  • Automated Valuation Model     An electronic method of evaluating a property’s appraised value, done by scanning public records for recent home sales and other data in the subject property’s neighborhood. Although not yet widely accepted as a replacement for full-blown appraisals, many in the industry expect AVMs to eventually replace traditional appraisals altogether.

  • AVM     See Automated Valuation Model.

  • Balloon Mortgage     A type of mortgage where the remaining balance must be paid in full at the end of a preset term. A five-year balloon mortgage might be amortized over a 30-year period, but the remaining balance is due, in full, at the end of five years.

  • Basis Point     A basis point is a 1/100 percent change in rate. A move of 50 basis points would cause a 30-year fixed mortgage rate to change by 1/8 percent.

  • Bridge Loan     A short-term loan primarily used to pull equity out of one property for a down payment on another. This loan is paid off when the original property sells. Since they are short-term loans, sometimes lasting just a few weeks, usually only retail banks offer them. Usually the borrower doesn’t make any monthly payments and only pays off the loan when the property sells.

  • Bundling     Bundling is the act of putting together several real estate or mortgage services in one package. Instead of paying for an appraisal here or an inspection there, some or all of the buyer’s services are packaged together. Usually a bundle offers discounts on all services, although when they’re bundled it’s hard to parse all the services to see whether you’re getting a good deal.

  • Buydown     Paying more money to get a lower interest rate is called a permanent buydown, and it is used in conjunction with discount points. The more points, the lower the rate. A temporary buydown is a fixed-rate mortgage that starts at a reduced rate for the first period, and then gradually increases to its final note rate. A temporary buydown for two years is called a 2-1 buydown. For three years it’s called a 3-2-1 buydown.

  • Cash-Out     A refinance mortgage that involves taking equity out of a home in the form of cash during a refinance. Instead of just reducing your interest rate during a refinance and financing your closing costs, you finance even more, putting the additional money in your pocket.

  • Closer     The person who helps prepare the lender’s closing documents. The closer forwards those documents to your settlement agent’s office, where you will be signing closing papers. In some states, a closer can be the person who holds your loan closing.

  • Closing Costs     The various fees involved when buying a home or obtaining a mortgage. The fees, required to issue a good loan, can come directly from the lender or may come from others in the transactions.

  • Collateral     Collateral is property owned by the borrower that’s pledged to the lender as security in case the loan goes bad. A lender makes a mortgage with the house as collateral.

  • Commercial Loan   As opposed to a residential property, one that is used to finance revenue producing properties.

  • Comparable Sales     Comparable sales are that part of an appraisal report that lists recent transfers of similar properties in the immediate vicinity of the house being bought. Also called “comps.”

  • Conforming Loan     A conventional conforming loan is a Fannie Mae or Freddie Mac loan that is equal to or less than the maximum allowable loan limits established by Fannie and Freddie. These limits are changed annually.

  • Conventional Loan     A loan mortgage that uses guidelines established by Fannie Mae or Freddie Mac and is issued and guaranteed by lenders.

  • Correspondent Banker     A mortgage banker that doesn’t intend to keep your mortgage loan, but instead sells your loan to another preselected mortgage banker. Correspondent bankers are smaller mortgage bankers, those perhaps with a regional presence but not a national one. They can shop various rates from other correspondent mortgage bankers that have set up an established relationship to buy and sell loans from one another. They operate much like a broker, except correspondent bankers use their own money to fund loans.

  • Credit Report     A report that shows the payment histories of a consumer, along with the individual’s property addresses and any public records.

  • Credit Repository     A place where credit histories are stored. Merchants and banks agree to store consumers’ credit patterns in a central place that other merchants and banks can access.

  • Credit Score     A number derived from a consumer’s credit history and based upon various credit details in a consumer’s past and upon the likelihood of default. Different credit patterns are assigned different numbers and different credit activity may have a greater or lesser impact on the score. The higher the credit score, the better the credit.

  • Debt Consolidation     Paying off all or part of one’s consumer debt with equity from a home. Debt consolidation can be part of a refinanced mortgage or a separate equity loan.

  • Debt Ratio     Gross monthly payments divided by gross monthly income, expressed as a percentage. There are typically two debt ratios to be considered: The housing ratio—sometimes called the front-end or front ratio—is the total monthly house payment, plus any monthly tax, insurance, private mortgage insurance, or homeowners association dues, divided by gross monthly income. The total debt ratio—also called the back-end or back ratio—is the total housing payment plus other monthly consumer installment or revolving debt, also expressed as a percentage. Loan debt ratio guidelines are usually denoted as 32/38, with 32 being the front ratio and 38 being the back ratio. Ratio guidelines can vary from loan to loan and lender to lender.

  • Debt Service Coverage Ratio (DSCR)        A ratio arrived at by dividing Net Operating Income by Debt Service. The higher the ratio, the better the cash flow.

  • Deed     A written document evidencing each transfer of ownership in a property.

  • Deed of Trust     A written document giving an interest in the home being bought to a third party, usually the lender, as security to the lender.

  • Delinquent     Being behind on a mortgage payment. Delinquencies typically begin to be recognized as 30+ days delinquent, 60+ days delinquent, and 90+ days delinquent.

  • Discount Points     Also called “points,” they are represented as a percentage of a loan amount. One point equals 1 percent of a loan balance. Borrowers pay discount points to reduce the interest rate for a mortgage. Typically each discount point paid reduces the interest rate by 1/4 percent. It is a form of prepaid interest to a lender.

  • Document Stamp     Evidence—usually with an ink stamp—of how much tax was paid upon transfer of ownership of property. Certain states call it a doc stamp. Doc stamp tax rates can vary based upon locale, and not all states have doc stamps.

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