Important Terms To Know

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:

Some mortgage loan contracts have this clause to provide for situations where the borrower misses payments and goes into default. The clause allows the lender to demand full payment of the balance due on the mortgage under certain circumstances.

ACE:

This is an online system that allows a VA approved lender to order the veterans certificate of eligibility.

Acreage:

Acreage is a unit of measurement used to describe the size of a parcel of land. It applies to empty lots as well as to land with a home on the property. One acre is equal to 43,560 square feet.

Adjustable Rate:

This is where you have an interest rate that can adjust based on predetermined variables.

Appraiser:

A professional who prepares an estimated value of a property by using real estate trends and upgrades made to the property.

Appreciation:

The amount of increase on a property's value due to home improvements, real estate trends in the area and additional influences that can cause the market value of a home to increase.

APR-Annual Percentage Rate:

The APR is the total cost of credit expressed as an annual percentage.  This total cost includes fees to do the loan.  The APR would be the same as the interest rate if there was no cost to do a loan.

Assessed Value:

This is the value placed on a property for tax purposes.  This will typically be lower than the appraised value of the property.

AU:

Automated underwriting is performed through one of two systems. Lp- loan processor a FreddieMac system or DU- desktop underwriter a FannieMae approval system.

B

Balloon Mortgage:

This is a type of mortgage that requires you to make certain payments for a certain amount of time.  After this specified period of time you will have to pay the mortgage in full, thus make a balloon payment.

Balloon Payment:

A balloon mortgage will require a balloon payment.  The balloon payment is the balance of the entire loan that is due in one final large payment.

Broker:

A mortgage broker assists borrowers in finding financing.  They will typically receive a commission for their services.

C

Cash Reserve:

For some loan programs, lenders may require that a borrower has easily-liquifiable assets, such as money in savings, in order to make the loan more secure.

D

DD214:

The full name of this document is actually the Defense Department Form 214. We usually hear it in its shortened version as DD 214. It is most commonly known as, or referred to as, the "Discharge Papers" from military service.

Deed:

The deed or in some states mortgage is a recorded document that shows proof of ownership of a property.

Depreciation:

This is when market conditions in the area of the property or condition of the property cause a decrease in property value.

Disclosures:

Disclosures are documents that are provided to the borrower giving the details of their loan transaction.

Discount Point:

A fee paid by the borrower at closing to reduce the interest rate. A point equals 1 percent of the loan amount.

DTI:

DTI or debt to income ratio is the percentage of a consumer's monthly gross income that goes towards paying monthly debts.

E

Earnest Money:

This is a deposit paid to the seller with an offer to purchase.  The amount will vary from purchase to purchase.

ECOA:

This is an act created by the federal government to ensure all consumers have an equal chance to obtain credit.

Entitlement:

This is the amount that VA allows you to use for the VA Home Loan Guarantee Program.

Escrow Account:

The requirement of an escrow account is deteremined by the type of loan being acquired. Government loans such as VA and FHA require an escrow account.  An escrow account is where money is being held to be disbursed out periodically to pay the yearly taxes and insurance owed on the property.  This escrow amount is included in your monthly payment.

F

FHA Loan:

This is a mortgage that is insured by the Federal Housing Administration (FHA).

First Mortgage:

This is a mortgage on a property that has priority over all other voluntary liens on the property.   Therefore it is in the first position on the property or the first mortgage.

Fixed Rate:

A rate that will not change and will remain constant for the term of the loan.

Foreclosure:

This is when a borrower fails to repay the mortgage under the agreed terms and the lender repossesses the property to recoup all or a portion of the money that was lent to the borrower.

G

GFE- Good Faith Estimate:

This is a closing cost estimate provided to the borrower within 3 days of application.

H

HUD:

This is the acronym for the US Department of Housing and Urban Development.

I

Index:

An adjustable rate loan will have an index.  This index is used in addition to the margin to determine the adjusted interest rate, i.e. LIBOR, 1 year T-Bill, COFI etc.

Interest Rate:

The fee charged for borrowing money that is used in calculating your monthly payment.

L

Lifetime Cap:

The lifetime cap is the maximum interest rate that can be charged on the loan regardless of adjustment calculations.

Lifetime Floor:

The lifetime floor is the minimum interest rate charged on a loan regardless of the adjustment calculations.

Loan-To-Value Ratio:

Loan To Value Ratio is the relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage. For example, a Loan to Value Ratio (LTV) of 80% means that a borrower is borrowing 80% of the value of the property. For purchases, the value of the property is assumed to be the purchase price, for refinances the value is determined by an appraisal.

M

Margin:

The margin is the amount added to the index on an adjustable rate mortgage to determine the adjusted interest rate.

N

Note Rate:

The current annual rate of interest.  This rate will be on your note that you will sign when you close on your loan.

P

Payoff:

This is the amount of money that is required to pay your loan off in full.  Your payoff is always higher than the balance on your mortgage statement.

Per Diem Interest:

This is the daily amount of interest charged on a mortgage.  This is calculated by multiplying the loan amount by the interest rate and dividing by 365.

S

Second Mortgage:

A second mortgage ranks after a first mortgage in priority.  A property may have 1, 2, 3 or more mortgages, deeds of trusts or land contracts, as liens at the same time.  Legal priority determines whether they are called a first, second, third, etc.

Statement of Service:

Sometimes called the SOS, this form or request usually includes information on a veteran's enlistment and separation dates, dates of active duty, rank, lost time, and active duty for training (a.k.a. ACTUTRA).  It will typically be signed by the commander of the unit, the adjutant, or personnel officer.

T

Term:

The length of time or period of the mortgage expressed in years or months.  The term of the loan can vary the most common mortgage is a 30 year or 360 month mortgage.

V

VA Form 26-1880:

The Veterans Administration uses this form to determine your eligibility for participation in the VA Home Loan Program. This is the official Request form for the Certificate of Eligibility, which must be issued by the VA in order to obtain any VA Loan.

VA Funding Fee:

VA charges this fee when a veteran participates in the VA Home Loan Guarantee Program.  Many disabled veterans are exempt from paying a funding fee.  The funding fee can range from .5% for a rate and term refinance up to 3.3%.