Here at United Premier Funding LLC, we understand how confusing mortgage industry terms can be. Buying a home and taking out a mortgage is a big move, and we want to make sure you understand every aspect of every step you have to take.
Some common terms used while discussing home mortgage are appraisals, escrow, settlement cost, debt to income ratio, and equity; which can sound very puzzling to some people.
To help educate our customers, we have complied a list of commonly used terms and definitions in a mortgage process. We hope this list will be helpful for future homeowners:
Basic Mortgage Terminology
Adjustable Rate Mortgage
Also known as (variable-rate loans), an adjustable rate mortgage, known as an ARM, usually offer a lower initial interest rate than fixed-rate loans. The interest rate changes over the life of the loan based on market conditions, but the loan agreement generally sets maximum and minimum rates. When interest rates rise, generally so do your loan payments; and when interest rates fall, your monthly payments may be lowered.
Annual Percentage Rate
It is a finance charge expressed as an annual rate. The APR includes the interest rate, points, broker fees, and certain other credit changes that the borrower is required to pay.
A amortization is the process by which loan principal decreases over the life of a loan, typically an amortizing loan. With each mortgage payment that is made, a portion of the payment is applied towards reducing the principal, and another portion of the payment is applied towards paying the interest on the loan.
An appraisal is a written estimate of a property’s market value completed by an appraiser. The value is based upon a market analysis of recent sales prices for similar properties in the area, and the property’s physical condition. The appraisal is performed by an appraiser, an objective third party whose job is to give their professional opinion of the market value of a home. An appraisal is the appraiser’s opinion of the property’s value based on their knowledge and evaluation of the property.
Anything of monetary value that a person owns. Assets include real property, personal property, something valuable that an entity owns, benefits from, or has use of , in generating income.
Is a mortgage loan payment plan in which the borrower makes payments toward the principal and interest every two weeks instead of once monthly. The biweekly payment is exactly one half of the amount a monthly payment would be. Though it depends on other factors such as the interest rate of the loan, a biweekly mortgage payment plan often saves the consumer money over the life of the loan.
An individual who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan in full.
Is a form of check for which the bank verifies that sufficient funds exist in the account to cover the check, and so certifies, at the time the check is written. A check drawn on the issuer's account for funds that have been segregated by the bank, guaranteeing payment.
Chain of Title
A chain of title is the sequence of historical transfers of title to a property. The "chain" runs from the present owner back to the original owner of the property. In situations where documentation of ownership is important, it is often necessary to reconstruct the chain of title.
(also referred to as completion or settlement) is the final step in executing a real estate transaction.
October 3, 2015, is the day to start using the new TILA-RESPA integrated loan disclosures. The new disclosure represents a combination of the HUD-1 Settlement and the Final Truth-in-Lending (TIL) disclosure and is designed to provide disclosures that will be helpful to consumers in understanding all of the costs of the transaction.
A loan borrowed to finance the construction of a home and typically only interest is paid during the construction period. Once the construction is over, the loan amount becomes due and it becomes a normal mortgage.
A condition that must be satisfied before a contract is legally binding before a sale can close.
A fully amortized conventional loan is a mortgage in which the same principal and interest payment is paid every month, from the beginning of the loan to the end of the loan. The last payment pays off the loan in full. A mortgage not insured by the Federal Housing Administration (FHA) or guaranteed by the Veterans' Administration (VA).
A credit report contains information of your credit, and bills repayment history, status of credit accounts. The credit reporting company (also known as credit bureaus or consumer reporting agency. The information in your credit report is also used to generate credit scores such as your FICO® Scores.
Often abbreviated DTI; is the percentage of a consumer's monthly gross income that goes toward paying debts. Speaking precisely, DTIs often cover more than just debts; they can include principal, taxes, fees, and insurance premiums as well. During the calculation, the lender compares the monthly payments, including the new mortgage, and compares it to monthly income. The income figure is divided into the expense figure, and the result is displayed as a percentage. The higher the percentage, the more risky loan it is for the lender.
Is any legal instrument in writing which passes, affirms or confirms an interest, right, or property and that is signed, attested, delivered, and in some jurisdictions sealed. It is commonly associated with transferring title to property, witnessed and delivered to the buyer at closing.
Deed of Trust
In real estate in the United States, a deed of trust or trust deed is a deed wherein legal title in real property is transferred to a trustee, which holds it as security for a loan (debt) between a borrower and lender.
Sometimes also called "Points", are a form of pre-paid interest. One point equals one percent of the loan amount. By charging a borrower points, a lender effectively increases the yield on the loan above the amount of the stated interest rate. Borrowers can offer to pay a lender points as a method to reduce the interest rate on the loan, thus obtaining a lower monthly payment in exchange for this up-front payment.
A down payment is the amount of money you spend upfront to purchase a home and is typically combined with a mortgage to fulfill the total purchase price of a home. In addition to your down payment amount, your credit score, credit history, total debt and annual income will influence how much house you can qualify for.
Deposit made by a buyer in evidence of good faith when the purchase agreement is signed.
An equity is typically defined as the difference between the appraised value of your home and how much of your mortgage you have left to pay off. Is the market value of a homeowner's unencumbered interest in their real property that is, the difference between the home's fair market value and the outstanding balance of all liens on the property. The property's equity increases as the debtor makes payments against the mortgage balance, and/or as the property value appreciates. In economics, home equity is sometimes called real property value.
When you get a mortgage to purchase, build or refinance a home, most lenders prefer to set up an escrow account so they can pay your property taxes and insurance premiums for you. A monthly payment is added to your mortgage bill and analyzed once a year to cover any increases in taxes or insurance premiums.
Escrow Waiver is waiver of the requirement to fund an escrow account with lender and instead pay insurance and taxes separately. This waiver may require a fee and is not available with all loan programs.
Federal Home Loan Mortgage Corporation (FHA)
A government agency, division of the Department of Housing and Urban Development, that insures residential mortgage loans made by private lenders and sets standards for underwriting mortgage loans.
First Mortgage Lien
A mortgage that is in first lien position, taking priority over all other liens. In the case of foreclosure, the first mortgage will be repaid before any other mortgages.
Fixed Rate Mortgage
A fully amortizing mortgage loan where the interest rate on the note remains the same through the term of the loan, as opposed to loans where the interest rate may adjust or "float". As a result, payment amounts and the duration of the loan are fixed and the person who is responsible for paying back the loan benefits from a consistent, single payment and the ability to plan a budget based on this fixed cost.
A form of hazard insurance required by lenders to cover properties in flood zones.
A grace period is a period immediately after the deadline for an obligation during which a late fee, or other action that would have been taken as a result of failing to meet the deadline, is waived provided that the obligation is satisfied during the grace period.
Gross Monthly Income
The total revenue received before any deductions or allowances and taxes earned by a borrower each month.
Also commonly called hazard insurance or homeowner's insurance, is a type of property insurance that covers a private residence. It is an insurance policy that combines various personal insurance protections, which can include losses occurring to one's home, its contents, loss of use (additional living expenses), or loss of other personal possessions of the homeowner, as well as liability insurance for accidents that may happen at the home or at the hands of the homeowner within the policy territory.
Housing and Urban Development (HUD)
A U.S. government agency established to implement federal housing and community development programs; oversees the Federal Housing Administration.
If parties have joint liability, then they are each liable up to the full amount of the relevant obligation. So if a married couple takes a loan from a bank, the loan agreement will normally provide that they are to be "jointly liable" for the full amount.
A type of shared ownership of property, where each owner has an undivided interest in the property. This type of ownership creates a right of survivorship, which means that when one owner dies, the other owners absorb the deceased owner's interest.
A mortgage larger than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.
Penalty paid by a borrower when a payment is made after the due date.
A right to keep possession of property belonging to another person until a debt owed by that person is discharged.
Often referred to as a 1003, a document required by lenders prior to loan approval containing detailed information about the borrower and property.
Lock or Lock-in
Refers to a written agreement guaranteeing a home buyer a specific interest rate for a set period of time, usually between loan application and loan closing. This protects borrowers against rate increases during that time.
October 3, 2015, is the day to start using the new TILA-RESPA integrated loan disclosures. This document associated with a mortgage, including the interest rate, lender fees, title charges, pre-paid interest and insurance. You will receive it after applying for a mortgage. The Loan Estimate is a new form that make consumer borrowing for a home easier to understand. The government requires that your lender give you a loan Estimate within three days of receiving your loan application. The Loan Estimate which replaces the existing Good Faith Estimate (GFE) and early Truth-in-Lending (TILA) disclosure.
Is a financial term used by lenders to express the ratio of a loan to the value of an asset purchased. The term is commonly used by banks and building societies to represent the ratio of the first mortgage lien as a percentage of the total appraised value of real property.
Is a document signed by a borrower when a home loan is made that gives the lender a right to take possession of the property if the borrower fails to pay off the loan.
An individual who assists in arranging funding or negotiating contracts for a client, but does not loan money himself. Mortgage broker works with borrowers throughout the entire loan process until the deal is closed.
A legal document that obligates a borrower to repay a loan at a stated interest rate during a specified period of time. The agreement is secured by a mortgage.
Is entity that lend money to borrowers who want to purchase real property like a home. A lender that loans money to a borrower to purchase a home would expect a security interest in return. The security interest that lenders expect from borrowers is called a mortgage.
Is a payment associated with the establishment of an account with a bank, broker or other company providing services handling the processing associated with taking out a loan.
Also called "monthly housing expenses," principal, interest, taxes and insurance are the components of a monthly mortgage payment.
Is a process whereby a loan officer takes information from a borrower and makes a tentative assessment of how much the lending institution is willing to lend them.
Profit and Loss Statement
A financial statement showing revenue, expenses and profits over a period of time.
A government tax based on the market value of a property.
Is the amount due and owing to satisfy the payoff of the underlying obligation, less interest or other charges. Amortized mortgage loans automatically pay a portion of each monthly payment to the principal balance, with the rest being paid as interest.
Private Mortgage Insurance
Also known as (PMI) is a type of mortgage insurance used with conventional loans. An insurance payable to a lender or trustee for a pool of securities that may be required when taking out a mortgage loan. PMI is usually required when you have a conventional loan and make a down payment of less than 20 percent of the home’s purchase price. If you’re refinancing with a conventional loan and your equity is less than 20 percent of the value of your home, PMI is also usually required.
A purchase agreement is a type of legal document outlining the different conditions and terms that are related to the sale of goods. It creates a legally binding contract between the buyer and the seller.
When you refinance your mortgage, you are applying for a new loan. By refinancing, you are actually paying off the old loan by obtaining a new one. Because you will be obtaining a new loan with new terms, a lender will have to obtain key information and documentation in order to verify you qualify for a refinance.
Claim against a property for unpaid taxes.
A document that gives evidence of ownership of a property, as well as rights of ownership and possession.
Insures against financial loss from defects in title to real property and from the invalidity or unenforceability of mortgage loans. Title insurance is principally a product developed and sold in the United States as a result of an alleged comparative deficiency of land records in that country. It is meant to protect an owner's or a lender's financial interest in real property against loss due to title defects, liens or other matters.
An examination of municipal records to ensure that the seller is the legal owner of a property and that there are no liens other claims against the property.
A home loan available to veterans with a long term low-or-no down payment loan guaranteed by the Department of Veteran’s Administration.
Verification of Deposit
A verification of deposit is a document prepared by an individual's bank stating that he or she has a certain amount of funds in reserve in the bank, such as in a checking or savings account. These letters may be prepared after a potential borrower applies for a home loan. Mortgage lenders in particular will generally always require a verification of deposit before approving a mortgage.
Verification of Employment
Verification of Employment (VOE) is a process used by banks and mortgage lenders in the United States to review the employment history of a borrower, to determine the borrower's job stability and cross-reference income history with that stated on the Uniform Residential Loan Application (Form 1003).