Loan Glossary

 

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

A

Acceleration Clause: The acceleration clause is written into mortgage contracts in case you miss a payment and go into default with your loan. If this happens, the lender can demand full payment of the balance due on your mortgage.

Acceptance: After you make an offer on a home and the seller accepts, a Purchase Agreement which states the purchase price and other terms of the sale is drawn up and earnest money is put on the home.

Acreage: Acreage is the amount of land that is being purchased as an empty lot or with a pre-existing home on the property. One acre is equal to 43,560 square feet.

According to Value: According to value refers to the value of your home and property that your property taxes are based on. Also called Ad Valorem.

Adjustable Rate Mortgage (ARM): An ARM is a mortgage in which you have a specified amount of time (usually 2 or 3 years) at the beginning of the loan where the interest rate is fixed. After that time period is over, the interest rate fluctuates with the current market rates. This type of mortgage is usually only a good idea if you plan to sell the home or refinance before the fixed interest rate period of time ends.

Adjustment Date: The adjustment date is the date at which your adjustable rate mortgage interest rate can change. After the initial fixed rate period is over, the interest rate can usually be adjusted every 6 months.

Amortization: Amortization is the process of paying off your mortgage with payments due every month for a certain number of years.

Amortization Schedule: The amortization schedule is the statement from your mortgage lender which shows you exactly what your monthly mortgage payment is, how much is going towards your principal loan amount, how much is going towards interest, how much is going into your escrow account, your escrow account balance, if applicable, and the remaining balance of your loan.

APR (Annual Percentage Rate): APR is the percent you are paying for a full year which includes interest on your loan, mortgage insurance costs and other fees that may be applied depending on your mortgage loan agreement.

Appraisal: An appraisal is the fair market value of a property based on a professional evaluation of real estate trends in the area and amenities of the home.

Appreciation: Appreciation is the amount of increase in value that takes place on a property due to real estate trends in the area, home improvements and other influences that cause the market value of a home to increase.

Assessed Value or Assessment: The assessed value is the value a property is given by a tax assessor in order to determine the cost of property taxes for that parcel.

Assets: An asset is anything you own that has value.

Asset-to-Debt Ratio: The asset-to-debt ratio is the value of the assets you own minus the amount of debt you have.

Assumable Mortgage: An assumable mortgage is a mortgage loan that can be taken over by the buyer rather than a new mortgage contract being written to purchase the home. In most cases the seller of the home would still be liable to the mortgage company if the buyer missed a payment. In some cases the seller can allow the buyer to assume the mortgage without continuing to be liable.

Assumption: Assumption is when the seller officially transfers their mortgage to the buyer of their property.

Automated Certificate of Eligibility (ACE): This system is used by VA-approved lenders in order to help veterans get the Certificate of Eligibility they need to take part in the VA Home Loan Guarantee Program.

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B

Balloon Mortgage: When a buyer acquires a balloon mortgage they are required to make payments for a certain amount of time after which time they have to pay the mortgage loan in full. The time period is usually 5 to 10 years; this type of mortgage is good for buyers who do not plan to live in the home for the full term of the loan or who plan to refinance the loan before the balloon payment is due.

Balloon Payment: The balloon payment is the one final, large payment due at the end of a balloon mortgage that pays the balance of the loan in full.

Bankruptcy: Bankruptcy is the act of declaring you do not have the means or any way to acquire the means to pay off your current debt. This is a legal court proceeding in which you turn in all of your asset and debt information to the court and they rule whether they think you are capable of paying your creditors or not. In the case that you have no or very few assets Chapter 7 bankruptcy is usually filed. In the case that you have assets you want to keep, like a home, Chapter 13 bankruptcy is usually filed. In this case you are required to make payments to the court. The court will determine how much you can afford and will then distribute the money to your creditors. These payments last over the span of a few years and you usually end up repaying close to half of your debt before you are relieved from further payments.

Binder: Once earnest money is put down toward the purchase of a home, an agreement, called a binder, holds the home while the proper inspections and appraisals are conducted.

Bridge Loan: In the case that you find the home you want to purchase before you have sold your current home, you can take a bridge loan where the equity in your current property is used as the downpayment on the new property you are purchasing. Once your current home is sold, the lender on your bridge loan will take the downpayment money from the sale of your home, along with any fees they charge for their service.

Broker: A broker is a person who is in the business of shopping for mortgage loans. A broker is the middle-man who takes the information from people looking to borrow money and shops around to different lenders in order to find a loan for their clients. Brokers get paid a percentage of the loan as a commission for their services.

Bundle Of Rights: The bundle of rights are your rights as a property owner.

Buy Down: A buy down is when someone makes a payment to a lender in order to obtain a lower interest rate.

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C

Cap: With an adjustable rate mortgage the cap is the limit for how much the interest rate can rise.

Cash Reserve: In order to get a mortgage loan, some lenders require that the borrower have money in savings or in other assets that are easily liquefied.

Certificate of Eligibility: You need a Certificate of Eligibility in order to prove your entitlement to participate in the VA Home Loan Guarantee Program. In order to get a Certificate of Eligibility you should contact a VA-approved lender who, in most cases, can use the ACE system on the internet to prove eligibility in minutes.

Certificate of Reasonable Value: Once the home has been appraised, the Certificate of Reasonable Value certifies the fair market value of the property.

Clear Title: The title or deed to a particular property that is completely free of all debts, liens and encumbrances is a clear title. The owner holds the title free and clear.

Closing: The closing is when the buyer officially signs all the mortgage paperwork and pays for the property they are purchasing. At this time the property is transferred to the buyer and the sale is final.

Closing Costs: Also called settlement costs, closing costs are all of the costs associated with the buying and selling of property.

Commitment Letter: The Commitment Letter is a letter given by a lender to a potential borrower which specifies the terms being offered for a mortgage loan. Related Article: VA Certificate of Commitment

Condominium: A condominium is a type of home where you own the specific unit you buy. It may be attached to other units which are owned by many different people. There may be specific associations involved that include monthly or annual fees, owner rules and common areas in the community.

Consumer Credit Counseling: Consumer Credit Counseling is where a consumer can get help if they have over-extended themselves or developed derogatory credit.

Contingency Clause: When associated with a mortgage, the contingency clause allows the seller to back out of the purchase contract if the buyer cannot obtain financing within a specified amount of time.

Convertible Adjustable Rate Mortgage: A Convertible Adjustable Rate Mortgage is an ARM that can be converted into a fixed-rate mortgage under the terms of the loan agreement.

Cooperative: A cooperative is a type of housing arrangement where all of the owners in a housing complex own part of the unit and agree to occupancy arrangements, necessary improvements, maintenance and more.

Counter Offer: When a potential buyer makes an offer for the purchase price and terms to the seller of a property, the seller may make a counter offer which suggests a different price and new terms.

Covenant: A covenant is a restriction that is placed on the borrower about what can be done with the property they purchase. Mortgage lenders may do this in order to sustain the value of the home.

Credit Bureau: A Credit Bureau is an agency that keeps track of an individual’s credit history and updates their payment history when borrowing money. The three largest bureaus are Equifax, TransUnion and Experian.

Credit Report: A Credit Report is a person’s personal payment history of how they repaid borrowed money in the past.

Credit Score: A Credit Score is a number that can fluctuate depending on your payment history. If you pay your creditors on time, your score will rise. If you pay late or are delinquent, your score may fall. Related Article: Learn More About Repairing Credit Before Obtaining a VA Loan

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D

Debt-to-Income Ratio: The debt-to-income ratio is the monthly or annual amount of income compared to your monthly or annual debt owed.

Deed: Also called a Title, a deed is a document which shows legal proof of ownership for a property.

Deed of Trust: A deed of trust is a deed which is overseen by a trustee who works as a liaison between the borrower and lender in some states.

Default: When you do not make a mortgage payment on time, you are in default of your loan terms and agreement. At this time the lender can choose to make a payment plan available to you for repayment of the amount owed from your missed payment or they can request all of the balance due on the loan which you must pay or foreclosure may occur.

Delinquency: Delinquency is the period of time between when your mortgage payment is due and when you pay it, up to thirty days. If you are late with a mortgage payment, you are considered delinquent until the payment is officially thirty days late at which time the loan goes into default.

Department of Housing and Urban Development (HUD): HUD is a department within the federal government which aids people with the purchase of property through guaranteed loans, energy efficient home improvement loans, general home improvement loans, refinancing options, loans for the disabled and elderly to renovate their housing and much more. HUD also has a program where they sell homes for under market value to people who are looking to become homeowners. Visit www.hud.gov for more information on the many services offered by the Department of Housing and Urban Development.

Depreciation: Depreciation is when the value of a property gets lower due to the real estate market in the area or the property owner not keeping up with home repairs and allowing the property to fall into disrepair.

Discount Points: When you get a mortgage loan you may pay discount points in order to get better terms on your long-term mortgage loan. A point is usually equal to 1% of the loan value. For example, if you were taking a loan for $200,000 one point would be $2,000. Points are paid out-of-pocket by the borrower in order for the lender to have an incentive to offer a lower overall interest rate.

Downpayment: A downpayment is the amount of money you put down on the purchase of a home. The amount of a downpayment is usually a certain percentage of the price of a home; this varies from lender to lender, but generally anywhere from 3-10% is required. Some lenders accept gift funds for downpayment assistance from third party organizations. For VA Home Loan Guaranteed mortgages no downpayment is required because of the guarantee to the lender from the VA.

Due on Sale: When you sell a property which has a mortgage lien, the remaining balance of the loan is paid to the lender at the time of the sale. This is called due on sale.

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E

Earnest Money: Earnest money is the money placed on a purchase agreement to show that a buyer wants to purchase a home. This money is given to the real estate or title agent. The seller holds the home until necessary appraisals and inspections can be completed and the closing of the loan takes place.

Easement: An easement is part of the property that is not the sole property of the owner but also must be made available to the local town, city, township or community. Usually this is for the local government to have access to portions of the property they need for utility lines, road extensions, sewer and water pipeline installations, hazardous tree removals and more.

Employment Verification: A lender requires employment verification of potential borrowers to verify their income and job security.

Entitlement: Entitlement is the amount you are allowed to use in a program depending on your status. In the case of the VA Home Loan Guarantee Program, once you receive a Certificate of Eligibility you are entitled to a flat guarantee amount of $36,000 for homes under $144,000 and for homes over this amount you can get up to 25% of the loan guaranteed on the purchase of a home with a maximum loan amount of $729,000. The VA does raise and change these limits and terms over time, so go to www.va.gov for the most current information. Related Article: Time Limits and VA Loans

Equal Credit Opportunity Act (ECOA): The ECOA is an act created by the federal government to forbid lenders to discriminate on any basis.

Escrow: Escrow is a middleman account, usually with a title agency, which holds money and distributes the funds in a manner that both parties agree upon. Earnest money is often held in an escrow account and some mortgage companies require borrowers to pay their property taxes and homeowners insurance as part of their mortgage payment which is also put into an escrow account for distribution when due.

Escrow Company: Also called a Title Company or Title Agency, an Escrow Company holds the money in an escrow account until funds need to be distributed correctly. Escrow Companies also help with the closing of a home purchase, the mortgage paperwork, the transfer of money from the lender to the seller and the title changes.

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F

Fair Housing Act: The Fair Housing Act is an act created by the federal government which makes it illegal for lenders, sellers, agents, brokers and anyone involved in the sale or purchase of a home to discriminate against a buyer for any reason.

Federal Housing Authority (FHA): In connection with the Department of Housing and Urban Development, the FHA is a department of the federal government that encourages homeownership by offering loan guarantees, home improvement loans, consumer counseling, information for purchasing and selling homes and much more. FHA Home Loans are perfect for first time homebuyers with less than perfect credit. Go to www.fha.gov for more information about the Federal Housing Authority and their programs. Related Article: Other Types of Government Insured Loans

Fees: Fees are the costs associated with getting a mortgage loan. These include servicing fees, loan origination fees, title fees, appraisal fees, home inspection fees and more. The VA also charges a fee for using their Home Loan Guarantee Program.

Foreclosure: When a borrower fails to meet the obligations agreed upon in the mortgage loan agreement and the lender repossesses the property in order to get the money back they loaned to the borrower, this is called foreclosure.

Funding Fee: Funding Fee is the name of the fee the VA charges when a veteran uses their Home Loan Guarantee Program. This fee is generally 2% to 3% depending on if it is your first VA loan or not. Disabled veterans may be exempt from this fee. Related Article: VA Loan Funding Fees

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G

Gift Funds: Free downpayment assistance given to a buyer in order to help them purchase a home is called a gift fund. VA loans allow the use of gift funds to make the downpayment on a home. There are also third party organizations that offer this service, although they have come under scrutiny recently.

Gift Letter: If you are given money for a downpayment from a friend, relative or employer, you must have a letter stating that the person giving you the money does not expect to be paid back. This is called a gift letter. You must have this because if you borrow money that is expected to be repaid, the mortgage lender will need to calculate this into your income-to-debt ratio.

Graduated Payment Mortgage (GPM): A GPM is a type of mortgage loan where payments start out low and increase with time. This type of loan is good for people who expect their income to increase over time.

Grantee: Grantee is the legal term for a buyer in mortgage loan paperwork.

Growing Equity Mortgage (GEM): A type of mortgage where the payments increase overtime, but the extra money is applied to the principle of the loan in order to pay off the loan faster.

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H

Hazard Insurance: Hazard insurance pays to repair a property in the case of damage from fire, ice, floods, storms, acts of vandalism and more. This type of insurance is usually required by your mortgage lender and can be included in your homeowners insurance policy.

Home Loan Guarantee Program: The Home Loan Guarantee Program is a program within the Department of Veterans Affairs which guarantees a loan for veterans to purchase homes. Because the loans are partially guaranteed by the VA, veterans are able to get home loans easier and under better terms. This is one of many benefit programs offered to veterans. Related Article: Information on Your VA Benefits

Home Warranty: A home warranty is a warranty that covers any problems which occur with your home within a specified amount of time. Some real estate companies offer a one year home warranty when you purchase your home which covers main systems like the heating, ventilation, air conditioning, appliances and more. If you build a new home, the builder offers a limited warranty on the home.

Homeowners Insurance: Homeowners insurance covers damage to your property or home. This type of insurance also covers your personal belongings and the contents of your home. Homeowners insurance is required by your mortgage lender.

Department of Housing and Urban Development (HUD): HUD is a government agency which aids people with purchasing homes, getting financing for a home mortgage, counseling and education for the home buying process and much more.

HUD-1 Form: The HUD-1 form is a list of the purchases and transactions involved when you buy a home through The Department of Housing and Urban Development and The Federal Housing Authority.

Hybrid Mortgage Loan: A hybrid mortgage loan combines an adjustable rate mortgage with a fixed rate mortgage. Most hybrid mortgages have a fixed interest rate for the first ten years and then the interest rate becomes adjustable. This type of mortgage is good for people who are not planning to live in the home during the adjustable interest rate period or who plan to refinance the mortgage before the interest rate begins to rise.

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I

Income: Any money that you receive in a given period of time is called income. For the purposes of obtaining a mortgage you should consider your steady monthly income when determining your affordable mortgage payment amounts. You may not want to include income such as child support, interest on investments or other variable amount types of income.

Interest: Interest is the money that is paid to a lender for the use of their money. In the case of a mortgage, the interest is a percentage rate over a certain period of time paid to the mortgage company.

Interest-Only Loan: An interest-only loan is a mortgage loan that allows the borrower to pay only the interest on the mortgage for a set amount of time before they start paying towards the principal. People use this type of mortgage when they expect an increase in income in the future, do not plan to live in the home for a long period of time, or plan to refinance the mortgage on the home once their current mortgage begins requiring them to make larger payments. Often the mortgage converts to an adjustable interest rate once the interest-only period is over, which is undesirable if you plan to stay in the home for a long period of time.

Interest Rate Cap or Interest Rate Ceiling: The interest rate cap is the highest amount of interest that can be charged according to a legal agreement. With adjustable rate mortgages there is an interest rate cap which allows the mortgage lender to raise the interest rate to a certain point, but then they are not allowed to raise the rate any further.

Interest Rate Reduction Refinancing Loan (IRRRL): An IRRRL is a VA mortgage loan which takes mortgages in the VA Home Loan Guarantee Program and allows the owner to refinance the loan for a lower interest rate. The loan can be an adjustable rate mortgage refinanced to a fixed rate mortgage or a fixed rate mortgage refinanced to a fixed rate mortgage as long as the interest rate is lower and your monthly mortgage payment decreases. The VA does not allow you to take cash out of an IRRRL, but you may finance to pay for energy efficient home improvements or to take advantage of lower interest rate trends in the market.

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J

Joint Tenancy: When more than one person lives in a home and they both have equal rights to ownership of the property, this is called joint tenancy. Usually this is because of marriage or co-ownership; each of the entitled property owners has the right of survivorship.

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K

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L

Late Charge or Late Fee: A late charge is an extra amount of money you have to pay when you are late making your mortgage payment. This may also be called a penalty fee or penalty payment.

Lease-Purchase Agreement: A Lease-Purchase Agreement is a way to purchase a home by first leasing the home for a set amount of time, then purchasing the home. This is also called rent-to-own and is extremely useful to people who need time to repair their credit or want to wait for lower interest rates before obtaining a mortgage loan.

Lease-Purchase Mortgage Loan: A Lease-Purchase Mortgage Loan is a loan available to low income families in which they first lease then home, then purchase the home. This option is offered by Fannie Mae and the families lease the property from the not-for-profit organization with the opportunity to purchase the home later. Part of the monthly rental payments are saved to use as a downpayment at the end of their lease if they want to purchase the home.

Lender: A lender is the company that loans you the money to purchase a home.

Lender Appraisal Processing Program: The Lender Appraisal Processing Program is a program through which the Department of Veterans Affairs allows VA-approved lenders to conduct their own appraisals of value on a property. The VA may also require one of their own appraisers to appraise the property in order to determine value for the VA Home Loan Guarantee Program. Related Article: Lender Appraisal Processing Program

Lien: A lien is the legal right to ownership of a property or part ownership of a property. A mortgage is a lien because the lender has the legal right to the amount of money your home is worth up to what you still owe as your principal balance. Any lien on a home is paid when the home is sold.

Lifetime Cap: With an adjustable rate mortgage the lifetime cap is the highest interest rate that can be charged over the life of the loan.

Loan: When money is given to a second party with the legal stipulation that the second party pay back that money in accordance with the terms of the agreement, it is called a loan.

Loan Approval: When the lender agrees to loan money to a borrower based on information like income, debt, assets, employment, credit worthiness and more, it is called a loan approval.

Loan Servicing: Loan servicing is the maintenance required for any loan. In the case of a mortgage loan with an escrow account, the servicing is needed to take the monthly mortgage payment and split the money between the principal, interest and escrow account. When the time comes for the homeowners insurance and property taxes to be paid, the loan servicer is responsible for making those payments on time. This fee is usually added to your monthly mortgage payment.

Loan Guarantee Entitlement: The loan guarantee entitlement is the amount of money you can get from the VA for guaranteeing your home mortgage loan.

Loan to Value Percentage (LTV): LTV is the amount of home you own compared to the amount of home you still owe to a mortgage lender expressed as a percentage. For instance, if you put 25% down on a home, your Loan to Value Percentage is 75% because that is what you still owe to the mortgage lender.

Lock-In: A lock-in is an agreement with a mortgage lender that a specific interest rate will be guaranteed or locked-in as long as the borrower closes on the loan within a certain period of time.

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M

Market Value: Market value is the value your home will sell for, depending on the current real estate market trends in your area.

Mortgage: A mortgage is a loan which allows you to purchase a home in return for monthly payments over a set period of time; these monthly payments pay back the loan with interest.

Mortgage Banker: A mortgage banker is a company which makes mortgage loans to people in order to sell the mortgages for a profit. Once the mortgage is closed, they will sell it on the secondary loan market to another company who wants to invest in the mortgage in order to get the interest money.

Mortgage Broker: A mortgage broker is a person who takes the financial and credit information of people who are looking for a mortgage lender and facilitates the process by shopping for a mortgage loan for the borrower. You will usually pay a commission fee for the services of a mortgage broker, who in essence is the ‘middle man’ of a mortgage loan transaction.

Mortgagee: Mortgagee is a term used in mortgage loan paperwork which refers to the lender.

Mortgage Insurance Premium: A mortgage insurance premium is the amount of money you pay either monthly, included as part of your mortgage payment, or annually out of an escrow account. This premium insures your mortgage from default. The FHA requires mortgage insurance for any borrower financing a loan through them who puts down less than 20% of a downpayment on the home.

Mortgage Interest Rate: The mortgage interest rate is the percentage of interest you agreed to pay in your mortgage loan terms.

Mortgage Margin: The mortgage margin is the set amount your interest rate can increase at each adjustable period of time; this is only for adjustable rate mortgages. For instance, your loan agreement might state that your interest rate cannot increase more than 1/2% in any 6 month period of time; this is your mortgage margin.

Mortgage Note: The mortgage note is the legal paperwork of a mortgage loan which specifies the terms of the loan, including the monthly mortgage payment amount, the interest rate, the amount of the loan and the length of the term of the loan.

Mortgagor: Mortgagor is a term used in mortgage loan paperwork which refers to the borrower.

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N

Negative Amortization: If the monthly mortgage payment is not enough to cover the interest and principal amount due on the loan, the negative difference will be added to the loan. This means that the amount you owe will increase instead of decrease. This is negative amortization. A good example is a graduated payment mortgage in which the monthly payments start out low and grow over time, so in the beginning the payments may not be high enough to cover the principal and mortgage payments. The difference is added to the total principal of the loan; you will pay this off in time as the monthly mortgage payments gradually increase.

Notice of Default: If a borrower goes into default, the mortgage lender will send them a Notice of Default to inform them that they have broken the mortgage contract agreement. At this time the borrower should contact the mortgage lender to work out either a forbearance or terms of repayment for the missed mortgage amount.

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O

Origination Fee: The origination fee is the fee the lender charges the borrower for the services required to create a mortgage loan agreement. This usually includes underwriter costs, legal fees and other fees associated with originating the mortgage loan.

Owner Financing: If the buyer cannot get a mortgage loan due to lack of downpayment or derogatory credit, the seller may make arrangements to finance the loan for the buyer. In this case the buyer would sign an agreement with the seller as to the loan terms. This is called owner financing.

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P

Payment Cap: In some adjustable rate mortgages there is a limit as to how high a monthly mortgage payment can increase, even when the interest rate is increased. This is called a payment cap. For example, there may be a payment cap that does not allow the monthly payment to go over $800, but the mortgage company has increased the interest rate to where the payments should be $855 per month. In these cases the additional money owed would be added to the principal of the loan, which creates negative amortization.

Principal, Interest, Taxes and Insurance (PITI): PITI are the four monthly costs that are combined into a mortgage payment. Some mortgage loan agreements do not include these additional housing costs, so make sure you know what your monthly mortgage payments include before you choose a loan.

Planned Unit Development (PUD): A PUD is an association in a neighborhood of homes which shares some common property in exchange for the monthly or annual fees for the association to maintain the common property. An example of a PUD is a condominium development where each homeowner pays a monthly maintenance fee which is used for the upkeep of the property (i.e. grass mowing and snow removal) and the upkeep of any shared facilities such as playgrounds, tennis courts or pools.

Points: Usually a point is 1% of the mortgage loan amount that is paid as an upfront finance charge. Points are paid in order to negotiate lower interest rates on a loan. Sometimes if you pay more points at the beginning of your mortgage when you originate the agreement you can save a lot of money overtime in unpaid interest.

Power of Attorney: A power of attorney is a legal document giving one person the full legal right and authority to act for another person.

Prepayment Penalty: A prepayment penalty is a fee paid to a lender if you pay off your mortgage loan before a certain amount of time has gone by. This penalty may or may not be written into a mortgage loan agreement. It is designed to deter the borrower from refinancing the loan so the lender is guaranteed a certain return on their investment. If you are financing through the VA Home Loan Guarantee Program, you cannot have a prepayment penalty written into your mortgage contract.

Pre-purchase counseling: First time buyers should obtain counseling on the process of purchasing a home and obtaining a mortgage prior to beginning the process. This is done in an attempt to give the borrower the knowledge to make informed decisions throughout the purchasing process. In the case of FHA loans, you are required to obtain pre-purchasing counseling before you can get a loan.

Prequalification: A borrower can give all of their financial and credit information to a lender who will use this information to inform the borrower what types of loans they qualify for and how much of a monthly payment they can afford based on their personal situation. This is called prequalification. This way the borrower knows exactly what price range they can shop for and is assured they can get a mortgage loan.

Principal: Principal is the amount of money loaned to a borrower. For most types of mortgage the principal loan amount decreases every time a mortgage payment is made.

Private Mortgage Insurance (PMI): If the borrower puts less than 20% of a downpayment when purchasing a home, the lender usually requires mortgage insurance until the amount of equity is built up to or surpasses 20%. Related Article: A Lesson for Vets: Use the VA Loan Program

Promissory Note: A promissory note is the legal document a borrower and his or her spouse must sign which agrees to pay the mortgage loan back to the lender.

Property Taxes: Property taxes are the amount of money you pay to the local government depending on the assessed value of your home and the local cost of levies and tax rates. This payment may be part of your mortgage payments.

Purchase and Sale Agreement: A purchase and sale agreement is an agreement between the seller and buyer of a property which states the terms of the sale of the home. Related Article: Purchase Agreement Information

Purchase Contract: A purchase contract is the contract that is signed once the buyer and seller finish negotiating the terms of the sale of the home.

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Q

Qualifying Ratios: Lenders look at asset-to-debt and other qualifying ratios in order to determine exactly how much the borrower can financially afford as a maximum mortgage amount. The more you owe in debt, the less you will be able to borrow because the lender considers your total monthly expenses when determining how high of a mortgage payment you can afford. This is why it is important to rid yourself of as much unnecessary debt, like unsecured credit card debt, as possible before you apply for a mortgage loan to purchase a home.

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R

Rate Lock: A rate lock is a specific fixed interest rate for a specified amount of time that is guaranteed by the mortgage lender.

Real Estate Agent: A real estate agent is a licensed professional who can help with the procedures involved in the purchase or sale of real property. Real estate agents accept a percentage of the sale price of a home as the commission payment for their services.

Real Estate Settlement Procedures Act (RESPA): The Real Estate Settlement Procedures Act states that borrowers must be informed in advance of all of closing costs of the loan. There is usually a meeting where the borrower sits down with the lending agent while the agent reviews all associated costs and fees of the mortgage loan.

Real Property: Any land, improvements to land or structures and physical structures or buildings which is entitled to by ownership of a title or deed is considered real property.

Refinancing: Refinancing is getting a new mortgage loan which replaces and pays your existing mortgage loan in full. This is like getting an entirely new mortgage loan and is usually done in order to lower interest rates on a current mortgage loan or to take cash out of the equity in a home. If you have a VA home loan you can refinance with the VA through their Cash-Out Refinance option or their Interest Rate Reduction Refinancing Loans, IRRRLs, which allow veterans to refinance their current VA mortgage to a lower interest rate in order to save them money and lower their monthly payments. Related Article: Refinancing an Existing Loan

Rent and Mortgage Payment History: A lender will look into the rent and mortgage payment history of other dwellings you have inhabited in order to see if you make your payments on time and are credible in the area of housing payments. They will contact past landlords and look at your credit history from any previous mortgages to make sure you were never delinquent.

Rescission Agreement: A rescission agreement is a legal document that both parties sign in order to cancel a previously signed legal contract. In the case of real estate transactions, there may have been a purchase agreement signed and then the buyer or seller changed their minds about the home; in this case a rescission agreement would have to be signed.

Residual Income: What is left of your earnings after you have paid you fixed expenses, variable expenses and a future mortgage payment is called residual income. Lenders look at this in order to determine how much of a monthly mortgage payment you can afford.

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S

Second Mortgage: A second mortgage is an additional loan on the equity of a home. The second mortgage takes secondary authority to the first mortgage on the lien to the home. When the home is sold or if there is a default or a foreclosure, the first mortgage lienholder is paid first and the second mortgage lienholder is paid later. Second mortgages usually have higher interest rates because they are higher risks; in the case of a foreclosure, the lender may not be able to fully redeem their investment.

Secondary Mortgage Market: The secondary mortgage market is where mortgages are purchased and sold by companies.

Seller Concessions: The seller may put a valuable asset, or concession, into the purchase agreement for the buyer. An example of a seller concession is leaving all appliances in the home as an additional benefit to the buyer.

Seller Take Back: When the seller agrees to finance the property for the buyer, which could  include assuming a mortgage contract, this is called a seller take back.

Settlement: Also known as the closing of the loan, the settlement is when the title of the home is transferred to the new owner and the sale of the property is finalized.

Settlement Sheet: The settlement sheet is a document which lists all details of the sale of the home. A real estate agent will normally go over this document with the buyer and seller and explain the fees or costs, including previous year property taxes, points, insurance, title insurance, commission fees, loan and financing fees and more.

Survey: A survey is the land layout of a property which shows the exact legal boundaries of the property. This is done so the buyer will know their legal property boundaries and to make sure there are no legal property boundary disputes with adjacent property owners.

Statement of Service: The statement of service is a document which shows your service record, including when you entered the service, how long you served and with what branch you served. It is usually provided by the military unit you served with.

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Tenancy by Entirety: Tenancy by entirety is the legal entitlement to a property by a spouse in the event the other spouse dies.

Tenancy in Common: Tenancy in common is the legal entitlement to only your portion of the property if the other property owner dies.

Title: Also called a deed a title is the legal document which specifies who owns a particular property.

Title Company: A title company is a company which researches titles, the history of titles, liens and encumbrances in order to make sure all entitlement to a property are fulfilled before the tile is transferred to a new owner.

Title Insurance: Title insurance is a protection you pay for when you purchase a home which protects both the buyer and the lender if there are disputes over the ownership rights to a property.

Title Search: A title company will perform a title search to make sure there are no legal rights to a property that have not been settled before a title is transferred to a new owner.

Transfer Tax: When a title is transferred to a new owner there are state and local taxes, called transfer tax, that need to be paid.

Truth in Lending Act: The Truth in Lending Act is a government act which insures all lenders fully disclose the costs associated with the money being borrowed.

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Underwriter: An underwriter is a person employed by a lending company who evaluates a borrower’s loan application and all of the paperwork involved to determine if the borrower can receive the loan or not.

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V

Variable (v): The word variable is the same as a variable interest rate on your loan. The APR on your loan is your annual percentage rate and if it has the letter V next to it, your interest rate is subject to change in the future.

Variable Interest Rate: A variable interest rate is the type of interest rate on a mortgage loan which usually starts out fixed, but after a set period of time, usually 3-5 years, can begin to increase and fluctuate with market trends.

Variable Rate: Also called an adjustable rate, a variable rate is an interest rate that can change over time. Usually variable rates can only change a specified amount within a specified length of time. Variable rates usually have a cap to prevent the interest rate from going too high and a floor to prevent the interest rate from going too low. The changes in interest rates usually occur with fluctuation in the current market and can be found in the mortgage loan contract.

Variable Rate Mortgage: A variable rate mortgage is like a variable interest rate mortgage because the interest rate changes based on the current market standards in real estate.

VA Eligibility Center: Veterans submit their requests for a Certificate of Eligibility to the VA Eligibility Center. Once a VA Form 26-1880 and a Form DD 214 have been completed, a veteran can either contact a VA-approved lender and submit this information electronically through the ACE system or send the completed forms to the VA Eligibility Center at:

VA Loan Eligibility Center
PO Box 20729
Winston-Salem, NC 27120M

Related Article: Are You Eligible for a VA Loan?

VA Form 26-1880: VA Form 26-1880 is the request for a Certificate of Eligibility form. Veterans must complete this form in order to be eligible for many VA benefits, including the VA Home Loan Guarantee Program. You can find a copy of  VA Form 26-1880 by going to http://www.vba.va.gov/pubs/forms/vba-26-1880.pdf

VA Home Loan Program: The VA Home Loan Program is a benefit to veterans which allows them to take a home loan mortgage with a guarantee from the VA. The VA guarantees that a certain percentage of the loan will be paid back to the lender, even if the borrower defaults.

Verification of Deposit: The verification of deposit is a financial document the borrower gives to the lender which verifies the amount of money they have in reserve in the bank. Sometimes lenders want to see a certain amount of money in reserves in order to approve a mortgage loan.

Verification of Employment: Verification of employment is when a mortgage lender contacts the potential borrower’s place of employment in order to verify the information on the loan application.

Veterans Administration (VA): The VA is the government agency that offers benefits to military veterans and, in the case of home loans, offers a guarantee that a portion of the loan will be repaid if the borrower defaults.

Voluntary Claim: When the owner of a property contends that a legal claim for payment can be placed against the property, this is a voluntary claim.

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W

Waiver: A waiver is when a person signs a contract which gives up their rights or claims to an asset or liability.

Walk Away Lease: Some lease-to-own agreements may be walk away leases. This means that the at the end of the lease agreement, the lessee can decide to walk away without purchasing if they want.

Walk Through: The walk through is the final step before moving into a home. After the sellers have moved out of the home, the buyers get to walk through the home with the selling agent to make sure it is in the condition it was when they agreed to purchase the property.

Wall Street Journal Prime Rate: The Wall Street Journal Prime Rate is the rate that banks set on interest for mortgage loans, which is posted in the Wall Street Journal. The rate is based on various banks in order to get an average current market interest rate.

Wrap Around Mortgage: A warp around mortgage is when you take all of the mortgage loans you own (for example if you are buying before you sell) and consolidate all of the outstanding balances into one loan.

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Y

Yield Curve: A yield curve is a graph that helps people see interest rates and when they occurred at different periods in time.

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Z

Zero Balance: A zero balance is when there is nothing left to repay on your mortgage loan; the remaining balance is zero.

Zero Lot Line: A zero lot line is when a house is constructed on the boundary line of the property.

Zoning: There are certain zones in the community that allow for residential construction, commercial construction and industrial construction. These zones are determined by the local government.

Zoning Ordinances: Zoning ordinances are laws regarding zoning. They dictate what is allowed to be built where, as well as the codes that must be followed for safe construction practices.

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