1003 Uniform Residential Loan Application – this is an industry standard form that must be completed to begin any pre-approval or pre-qualification process. The 1003 contains information about the borrower, loan type, income, assets, debts, subject property, etc.
Acknowledgment A declaration by a notary, certifying, by way of personal knowledge or written identification, the identity of the signer.
Adjustable Rate Mortgage (ARM) A mortgage whose interest rate is fixed for a pre-determined amount of time and is adjusted periodically to reflect market conditions. ARMs have a cap that the interest rate cannot
Adjustment Interval On an adjustable rate mortgage, the time between changes in the interest rate and/or monthly payment, typically one, three or five years, depending on the index.
Advantage Mortgage Program (AMP) exclusive home loan program offered by Mountain West Financial to employers with 500 or more employees. Benefits include reduced lender fees, competitive pricing and more.
Affidavit A sworn statement in writing.
American Land Title Association (ALTA) An organization of title companies specializing in Real Property Law which has standardized forms and coverage on a national basis. This is standardized coverage.
Amortized / Amortization Amortization refers to the principal portion of the loan payment and is the loan payment by equal periodic payments calculated to pay off the debt at the end of a fixed period, including accrued interest on the outstanding balance. A fully amortized loan will be completely paid off at the end of the loan term.
AMP see Advantage Mortgage Program
Annual Percentage Rate (APR) An interest rate reflecting the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account points and other credit costs. The APR allows homebuyers to compare different types of mortgages based on the annual cost for each loan.
Appraisal An estimate of the value of real property, made by a qualified professional called an “appraiser.” An appraisal will be needed to determine the value of your property.
Assumption The agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller. This must be approved by the lender and be allowed by the note, which was originally signed by the seller.
Back End Ratio This refers to the debt-to-income (DTI) ratio calculated using principal, interest, taxes, insurance and consumer credit obligations divided by gross monthly income. It is expressed as a percentage.
Balloon Usually a short-term fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a time specified in the contract.
Beneficiary The entity funding the loan. This is the entity to which the loan is owed.
BK / Bankruptcy A reorganization or discharge of debts. Could also be referred to as Chapter 7, 11 or 13.
Buy Down When the lender and/or the home builder subsidizes the mortgage by lowering the interest rate during the first few years of the loan. While the payments are initially low, they will increase when the subsidy expires.
CalPATH also known as PATH in certain states is an exclusive home loan program offered by Mountain West Financial for state, county, and city employees. It benefits teachers, police, firefighters, EMTs and more. Benefits include competitive rates, reduced lender fees and a free float down option.
Cap The highest rate that an adjustable rate mortgage may reach. It can be expressed as the actual rate or as the amount of change allowed above the start rate. For example, a 3.99 % start rate with a 6% rate change cap would have a maximum interest rate cap of 9.99%.
Cash Out Any funds disbursed directly to the borrower.
Certificate of Occupancy A certificate issued by local city government to a builder, stating that the building is in proper condition to be occupied.
Certified Copy A true copy, attested to be true by the officer holding the original. It should have a stamp and signature stating that it is a true copy.
Clear-to-close Loan is ready to be closed with no additional conditions.
Closing The meeting between the buyer, seller and lender or their agents where the property and funds legally change hands. Also called settlement.
Closing Costs Any costs being charged to facilitate granting of the credit request. Usually include an underwriting fee, discount points for the selected interest rate, appraisal fee, title insurance, escrow fees, taxes,
deed recording fee, credit report charge and other costs assessed at settlement. .e costs of closing usually are about 3 percent to 6 percent of the total mortgage amount. Or any costs being charged to facilitate granting of the credit request.
Closing Disclosure (CD) a disclosure implemented with TRID to replace the HUD-1 and Final TIL. The CD will be issued to the borrower 3 days before loan documents can be drawn.
Commitment An agreement, often in writing, between a lender and a borrower to loan money at a future date subject to the completion of paperwork or compliance with stated conditions.
Community Property Property owned in common by a husband and wife, which was not acquired as separate property. A classification of property peculiar to certain states. In community property states, assets may be owned in part by a spouse even if their name does not appear on the title.
Comp/Comparable A property with the same basic characteristics as the property you are attempting to find the value of (usually a real estate appraisal.) It should have been sold recently and be as similar as possible.
Condominium aka Condo A property owned as a group, with rights to occupy specific units of the structure. An overseeing board, often referred to as a Homeowners Association, governs the property.
Construction Loan A short term interim loan for financing the cost of construction. The lender advances funds to the builder at periodic intervals as the work progresses. Often times followed with a refinance into a long term fixed rate loan.
Consumer Credit Credit owed by the individual, not secured by real estate.
Conventional Loan A mortgage not insured by the federal government, and adheres to guidelines set by Fannie Mae or Freddie Mac. Many options available for purchase, refinance, high balance, jumbo, investor options, 2nd homes, Lender Paid MI, no MI and more.
Conversion Clause A provision in some ARMS, (Adjustable Rate Mortgage) that allows you to change the ARM to a fixed-rate loan at some point during the loan term.
Credit Ratio The ratio, expressed as a percentage, which results when a borrower’s monthly payment obligation on long-term debts is divided by his or her net effective income (FHA/VA loans) or gross monthly income (Conventional loans).
Credit Report History of buyers past credit performance. They reflect credit scores, tradelines, balances and more and can be run with information from a single bureau or from all 3 (known as a tri-merge credit report)
D.R. / Debt Ratio The customer’s monthly obligations divided by their monthly gross income. See also Back End Ratio.
Deed Legal document which conveys the title to a property.
Deed of Trust A document used which pledges real property to secure a debt. In some cases a deed of trust can replace a mortgage. The deed is typically recorded with the County Recorders Office in the county where the property is located in.
Default Failure to meet legal obligations in a contract, specifically, failure to make the monthly payments on a mortgage.
Deferred Interest See Negative Amortization
Delinquency Failure to make payments on time. This can lead to loan modifications and/or foreclosure.
Department of Veterans Affairs (VA) An independent agency of the federal government which guarantees long-term, low- or no-down payment mortgages to eligible veterans, current military and in cases surviving spouses.
Derog Letter A letter written by the borrower giving an explanation for any derogatory credit.
Derog This is short for derogatory and refers to negative credit items.
Discharge Following a completed bankruptcy proceeding, discharged debts are no longer owed or collectable. Lenders will require copies of the discharge papers on any prior bankruptcy filings.
Discount Points Prepaid interest assessed at closing by the lender. Each point is equal to 1 percent of the loan amount (e.g. two points on a $100,000 mortgage would cost $2,000).
Dismissal If a bankruptcy is dropped without being completed, a Bankruptcy Dismissal document will be needed to proceed with the loan. Either the court or the debtor can prompt the dismissal.
Down Payment Money paid at time of closing to make up the difference between the purchase price and mortgage amount. Down payments range from 0 percent to 20 percent depending on loan program, sales price, and borrower qualifications.
Earnest Money Money given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment.
Easements An interest in property, owned by another that entitles the holder to a specific limited use or privilege, such as the right to cross or to build adjoining structures on the property.
Encroachment A fixture of a piece of property which intrudes on another’s property.
Equal Credit Opportunity Act (ECOA) Is a federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs.
Equity The difference between the fair market value and current indebtedness, also referred to as the owner’s interest.
Escrow Instructions Instructions to the escrow agent giving the parameters and contingencies involved in the transaction and agreed upon by both parties.
Escrow Waiver Request for a borrower to pay their own taxes and insurance at closing. Escrow wavers are rarely granted with less than a 25% equity position.
Escrow or Closing Agent Refers to a neutral third party who carries out the instructions of both the buyer and seller to handle all the paperwork of settlement or “closing.” Escrow may also refer to an account held by
the lender into which the homebuyer pays money for tax or insurance payments.
Federal Home Loan Mortgage Corporation (FHLMC) Also called Freddie Mac, is a quasi-governmental agency that purchases conventional mortgages from insured depository institutions and approved mortgage bankers. Freddie Mac is currently under conservatorship by the federal government.
Federal Housing Administration (FHA) A division of the Department of Housing and Urban Development. Its main activity is the insuring of residential mortgage loans made by private lenders. FHA also sets standards for underwriting mortgages.
Federal National Mortgage Association (FNMA) Also known as Fannie Mae. A tax-paying corporation created by Congress that purchases and sells conventional residential mortgages as well as those insured by FHA or guaranteed by VA. This institution, which provides funds for one in seven mortgages, makes mortgage money more available and more affordable. Currently under conservatorship by the Federal Government
Fee Simple The most common form of ownership where the vestee owns both the land and the structures.
FHA Loan A loan insured by the Federal Housing Administration open to all qualified home purchasers. While there are limits to the loan amount of FHA loans, they are generous enough to handle moderate-priced homes almost anywhere in the country. FHA’s loan amounts are released annually.
FHA Mortgage Insurance or Mortgage Insurance Premium (MIP) Provides security to lenders against losses that result from defaults on home loans. There are two types of mortgage insurance premiums upfront and annual, the premium is based on several different factors of the loan terms.
Fixed-Rate Mortgage A mortgage on which the interest rate is set for the term of the loan (ie 15 or 30 years).
Flood Insurance A mandatory insurance for some homeowners whose property is built in a designated flood zone.
Foreclosure A legal procedure in which property securing debt is sold by the lender to pay a defaulting borrower’s debt.
Free and Clear This means the property is completely paid for and has no liens attached.
Front End Ratio A ratio that indicates what portion of an individual’s income is used to make mortgage payments. It is calculated as individual’s monthly housing expenses divided by his or her monthly grow income and is expressed as a percentage. Lender’s use the front-end ratio in conjunction with the back end ratio to approve mortgages.
Functional Obsolescence A detraction from the property value due to the design or material being less functional than the norm.
GFE Good Faith Estimate of Buyers Loan Charges. Many transactions today require a Loan Estimate or LE in lieu of a GFE.
Government National Mortgage Association (GNMA) Also known as Ginnie Mae, guarantees investors timely payments on principle and interest on mortgage backed securities (MBS) backed by federally insured or guarenteed loans.
Grant Deed A Grant Deed is the most common form of title transfer deed. A Grant Deed contains warranties against prior conveyances or encumbrances.
Gross Monthly Income The total amount the borrower earns per month, before any expenses are deducted.
Guarantee A promise by one party to pay a debt or perform an obligation contracted by another if the original party fails to pay or perform according to a contract.
Guarantee Fee A upfront and monthly fee associated with USDA home Loans.
Hazard Insurance A form of insurance in which the insurance company protects the insured from specified losses, such as fire, windstorm and the like. It would not cover earthquake, riot, or flood damage and additional insurance can be purchased if the property is located in a high risk area.
Housing Expenses-to-Income Ratio The ratio, expressed as a percentage, which results when a borrower’s housing expenses are divided by his/her net effective income (FHA/VA loans) or gross monthly income (Conventional loans).
Impounds That portion of a borrower’s monthly payments held by the lender or servicer to pay for taxes, hazard insurance, mortgage insurance, and other items as they become due. Also known as reserves.
Index A published interest rate against which lenders measure the difference between the current interest rate on an adjustable rate mortgage and that earned by other investments (such as one- three-, and five-year U.S. Treasury Security yields, the monthly average interest rate on loans closed by savings and loan institutions, and the monthly average Costs-of-Funds incurred by savings and loans), which is then used to adjust the interest rate on an adjustable mortgage up or down.
Interest Bearing A form of interest calculation where the loan is charged at a daily or monthly rate (1/365 or 1/12 of the annual interest rate) on the current outstanding balance.
Interest Rate Rate of interest charged on a mortgage. Mortgage rates are determined by the lender or secondary market in most cases, and can be either fixed (stay the same for the term of the mortgage), or variable (fluctuate with a benchmark interest rate)
Investor Money source for a lender or those who purchase Mortgage Backed Securities (MBS) on the secondary market. In some cases the investor may also be the loan servicer.
Joint Tenants A form of holding title where the owners have 100% rights of survivorship unless redirected by a will.
Jumbo Loan A loan which is larger than the high balance or max county loan limits set by the Federal National Mortgage Association, Fannie Mae, and the Federal Home Loan Mortgage Corporation, Freddie Mac. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.
- key lot
- Real estate deemed highly valuable because of its location.
Legal Description A method of geographically locating a piece or parcel of land, which is acceptable in a court of law.
LIBOR London InterBank Offered Rate. LIBOR is the base interest rate paid on deposits between banks in the Eurodollar market.
Lien A claim upon a piece of property for the payment or satisfaction of a debt or obligation.
Loan Committee a team of Senior Management at Mountain West Financial that reviews all loans that the underwriter will be denying to discuss other options available to the clients and make the loan work before they are denied.
Loan Estimate (LE) the implementation of TRID required a new upfront disclosure be issued by the lender. the LE replaces the initial GFE and Initial TIL and must be issued to a borrower within 3 days of having a full application. The LE may be re-issued upon certain circumstances such as a loan being locked.
Loan Risk The rate category assigned to the loan, which estimates the probable risk of delinquency and loss in the future.
Loan-To-Value Ratio (LTV) The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.
Margin The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.
Market Value The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.
Mortgage Escrow Accounts (see also Impounds) The account set by the Lender to pay Taxes and Insurance on behalf of the Borrower.
Mortgage Insurance (MI) Money paid to insure the mortgage when the down payment is less than 20 percent on a conventional loan. See Private Mortgage Insurance or FHA Mortgage Insurance.
Mortgagee The lender.
Mortgagor The borrower or homeowner.
Negative Amortization (NegAm) Amortization means that monthly payments are large enough to pay the interest and reduce the principal on a mortgage. Negative amortization occurs when the monthly payments do not cover all of the interest cost. The interest cost that isn’t covered is added to the unpaid principal balance. This means that even after making many payments, a borrower may owe more than was owed at the beginning of the loan.
Net Effective Income The borrower’s gross income minus federal income tax.
Non-Assumption Clause Statements in the mortgage contract forbidding the assumption of the mortgage without the prior approval of the lender.
Non-Owner Occupied A property not used as a residence by the owner of the property.
Notary Public A person, designated by the state, which can certify the identity of a person when signing various documents.
Note Short for promissory note. This document gives the parameters of the loan and legally obligates the borrower to pay back the debt. A note is recorded along with the deed of trust, with the County Recorders Office in the county the property is located in.
Owner Occupied Designation given to property used as the owner’s primary residence.
Owners Policy A policy of the title insurance which protects the buyer against problems with the title.
P & I Principal and Interest. This refers to the principal and interest portions of the monthly mortgage payment.
P & L / Profit and Loss A statement of a businesses gross income, cost of goods, operating costs and net profit or loss.
P.I.T.I. Principal, interest, taxes and insurance. The complete monthly cost associated with financing a property.
P.U.D. Planned Unit Development. Property owned as a group, where individuals own the specific piece of land and structure they occupy, but also have a divided interest in a common area. A board, often referred to as a Homeowners Association, will govern the development.
PATH also known as CalPATH in certain states is an exclusive home loan program offered by Mountain West Financial for state, county, and city employees. It benefits teachers, police, firefighters, EMTs and more. Benefits include competitive rates, reduced lender fees and a free float down option.
Piggy Back Loan Financing obtained, subordinate to the first mortgage, to facilitate closing the first mortgage. Also known as a Secondary Financing.
Points A point is equal to one percent of the principal amount of a mortgage, see also Discount Points.
Power of Attorney (POA) An authority by which one person enables another to act on his or her behalf. Power of attorney can be limited to specific areas or be general in some cases.
Pre-Approval The buyer has actually begun the application process and a processor and Mortgage Loan Originator has verified the income, funds, debt, and credit. Many times the use of an Automated Underwriting System (AUS) will be used to make a decision.
Prelim / Preliminary Title Report The title report generated at the beginning of the application process. It tells the mortgage company what liens are on the property and gives advice as to what will need to be done to gain clear title prior to recording the trust deed.
Prepaid Interest The portion of interest, collected at loan closing, which covers the time period between funding and the beginning of the first 30-day period covered by the first payment. For example, if the loan closed on 2/15, the first payment due on 4/1 would pay interest from 3/1 to 4/1. The prepaid interest would cover the period from 2/15 to 2/28.
Prepaids Recurring charges that will be paid again and again. They can include such fees as Property Taxes, Homeowners Insurance, and Private Mortgage Insurance.
Prepayment Penalty Money charged for an early repayment of debt. Prepayment penalties are allowed in some form (but not necessarily imposed) in 36 states and the District of Columbia. The terms of your loan and loan documents will indicate whether there is a prepayment penalty.
Prepayment A privilege in a mortgage permitting the borrower to make payments in advance of their due date.
Pre-Qualified Buyer has discussed their financial situation with a loan expert. No attempt has been made to verify the validity of any of the borrowers information. PRE-Qualification is only an indication of what the buyer should qualify for. A mortgage broker will be able to offer a pre-qualification only unless they submit a credit package to a Mortgage Lender for full approval. A Mortgage Banker will be able to issue a full pre-approval.
Principal The amount of debt, not counting interest, left on a loan.
Private Mortgage Insurance (PMI) A risk-management product that protects lenders against loss if a borrower defaults. Most lenders require private mortgage insurance (PMI) for loans with loan-to-value (LTV) percentages in excess of 80% (the buyer put down less than 20% of the home’s value upon purchase).
Purchase Agreement The agreement made between the buyer and seller of a property, containing the purchase price and contingencies of the sale.
Qualified Mortgage (QM) A mortgage in which the lender has analyzed the borrower’s ability to repay based on income, assets and debts; has not allowed the borrower to make on monthly debt payments in excess of 43% of pre-tax income; has not charged more than 3% in points and origination fees; and has not issued a risky or overpriced loan like negative-amortization, balloon, 40-year or interest-only mortgage.
Quit Claim A deed operating as a release; intended to pass any title, interest or claim, which the grantor may have in the property, but not containing any warranty of a valid interest or title in the grantor.
Rate Float Assuming market risk on an interest rate in the hopes that it will go lower prior to closing.
Rate Lock Choosing to have no change to a rate for a specific length of time, typically 15, 30, 45 or 60 days.
Ratios How a buyers housing expense and debt picture relates to their income expressed as a percentage.
Real Estate Settlement Procedures Act (RESPA) RESPA is a federal law that allows consumers to review information on known or estimated settlement costs once after application and once prior to or at settlement. The law requires lenders to furnish information after application only.
Realtor A real estate broker or an associate holding active membership in a local real estate board affiliated with the National Association of Realtors and all required licenses.
Rescission The cancellation of a contract. With respect to mortgage refinancing, the law that gives the homeowner three days to cancel a contract in some cases once it is signed if the transaction uses equity in the home as security.
Recon / Reconveyance A release of lien filed with the county recorder by the trustee.
Recording Fees Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records.
REFI Slang for refinance, or a new mortgage on a property that does not change ownership.
Request for Reconveyance Verification given by the beneficiary to the trustee that the conditions of the lien have been fulfilled and request that the lien be canceled.
Reverse Mortgage or home equity conversion mortgage (HECM) is a special type of home loan for older homeowners (62 years or older) that requires no monthly mortgage payments. Borrowers are still responsible for property taxes and homeowner’s insurance.
S.I. / Statement of Information The form the customer fills out for the title company giving further identification of the customer. This allows the title company to eliminate debts and liens owed by people with similar names.
Second Mortgage A mortgage which is entered after the primary loan. Called a second due to it being in second lien position to the first mortgage. See also Secondary Financing.
Secondary Financing Financing obtained, subordinate to the first mortgage, to facilitate closing the first mortgage. Also known as a “piggyback” loan.
Servicing All the steps and operations a lender perform to keep a loan in good standing, such as collection of payments, payment of taxes, insurance, property inspections and the like.
Settlement Costs See Closing Costs.
Settlement See Closing.
Submission This refers to a complete loan application package submitted for approval to the underwriting department.
Subordination Agreement The agreement detailing the contingencies of subordination, filed with the county recorder. If a lien holder agrees to accept a lien position after that of a later recorded lien.
Substitution of Trustee A document, filed by the beneficiary, which changes the trustee on a particular trust deed.
Surety Bond A bond which insures against harm to a party (usually the lender or owner) by a lien still attached to the property. This is usually used when the original deed was lost or the beneficiary cannot be located.
Survey A measurement of land prepared by a registered land surveyor showing the location of the land with reference to known points, its dimensions, and the location and dimensions of any building.
Suspended The underwriter cannot yet approve or deny the loan. More information is required, but the loan has not been denied.
Tenants in Common A percentage interest in a property by two or more individuals without rights of survivorship.
Term Mortgage See Balloon Payment Mortgage.
Title Insurance The insurance policy insuring the lender and/or the buyer that the liens are as stated in the title report. Any claim arising from a lien other than that disclosed is payable by the title insurance company.
Title Search An examination of municipal records to determine the legal ownership of property. Usually is performed by a title company.
Title A document that gives evidence of an individual’s ownership of property.
TRID (TILA RESPA INTEGRATED DISCLOSURE) The implementation of TRID in 2015 affected and changed the disclosures and timing of both upfront and closing disclosures. Upfront the Loan Estimate or LE will be issued, before loan documents are issued the Closing Disclosure or CD will be issued.
Trust Deed The Trust Deed attaches the note as a lien on the property. This is the document which conveys the ability to collect from the proceeds of the property.
Truth-in-Lending A federal law requiring disclosure of the Annual Percentage Rate to homebuyers shortly after they apply for the loan. Also known as a TIL.
Underwriting The decision whether to make a loan to a potential homebuyers based on credit, employment, assets, ability to repay, and other factors and the matching of this risk to an appropriate rate and term or loan amount.
VA VETERANS ADMINISTRATION
VA Loan A low-or no-down payment loan guaranteed by the Department of Veterans Affairs. Restricted to individuals qualified by military service or other entitlements.
VA Mortgage Funding Fee A premium of up to 2 percent (depending on the size of the down payment) paid on a VA-backed loan. On a $75,000, 30-year fixed-rate mortgage with no down payment, this would amount to $1,406 either paid at closing or added to the amount financed. There is no monthly VA Funding Fee.
Variable Rate Mortgage (VRM) See Adjustable Rate Mortgage.
Verification of Deposit (VOD) A document signed by the borrower’s financial institution verifying the status and balance of his/her financial accounts.
Verification of Employment (VOE) A document signed by the borrower’s employer verifying his/her position and salary.
Wet Funding A wet funding results in funds being wired from the Lender to Escrow or the Closing Agent before final loan conditions are signed off and the loan is funded. The Closing date will be determined earlier in the transaction.
Wraparound Results when an existing assumable loan is combined with a new loan, resulting in an interest rate somewhere between the old rate and the current market rate. The payments are made to a second lender or the previous homeowner, who then forwards the payments to the first lender after taking the additional amount off the top.
Zoning The division of a city or county into areas (zones) specifying the uses allowable for the real property in these areas.