Ameristate Mortgage LLC.
Mortgage Glossary
Here is a list of words you may stumble across during the entire loan process. These will help answer a lot of questions and educate you on what type of contract you are entering into.
Adjustable Rate Mortgage (ARM) - A mortgage in which the interest rate is adjusted periodically based on an index. Also called a variable rate mortgage.
Amortization - Literally to "kill off" (root: mort) the outstanding balance of a loan by making equal payments on a regular schedule (usually monthly). The payments are structured so that the borrower pays both interest and principal with each equal payment.
Annual Percentage Rate (APR) - A figure that states the total yearly cost of a mortgage as expressed by the actual rate of interest paid. The APR includes the base interest rate, points, and any other add-on loan fees and costs. As a result the APR is invariably higher for the rate of interest that the lender quotes for the mortgage but gives a more accurate picture of the likely cost of the loan. Keep in mind, however, that most mortgages are not held for their full 15 or 30 year terms, so the effective annual percentage rate is higher than the quoted APR because the points and loan fees are spread out over fewer years.
Annuity - A series of income payments of receipts over a period of years.
Application - A mortgage application requires borrowers to submit information regarding their income, savings, assets, debts, and more.
Application Fee - The fee charged by the lender to the borrower for applying for a loan. Payment of this fee does not guarantee that a loan will be approved. Some lenders may apply the cost of the application fee to certain closing costs.Appraisal - The determination of property value based on recent sales information of similar properties.
Asset - Valuable items, encumbered or not, owned by a person, corporation, or entity.
Balloon Mortgage - Behaves like a fixed-rate mortgage for a set number of years (usually five or seven) and then must be paid off in full in a single "balloon" payment. Balloon loans are popular with those expecting to sell or refinance their property within a definite period of time.
Balloon Payment - The final lump sum that is paid at the end of the balloon mortgage.
Bankruptcy - A tactic that individuals use to relieve themselves of debts and/or liabilities when they are no longer able to repay. The most common form of individual bankruptcy is a Chapter 7, when an individual frees himself from most of his/her debts. Borrowers who have undergone bankruptcy usually cannot qualify for "A" paper loans until after two years after declaration and a re-establishment of credit.
Biweekly Mortgage - Mortgage loan payments that requires a payment twice monthly, yielding thirteen payments per year instead of twelve. This significantly reduces the time a principal is paid off.
Blanket Mortgage - A mortgage secured by the pledging of more than one property or collateral.Broker - An individual in the business of assisting in arranging funding or negotiating contracts for a client but who does not loan the money himself. Brokers usually charge a fee or receive a commission for their services.
Bridge Loan - An equity loan secured to solve short-term financing problem.
Certificate of Eligibility - A veteran's evidence of entitlement for a VA-guaranteed loan.
Clear Title - A title that is free of liens or any legal question as to the ownership of the property.
Closing - Final arrangements to transfer title of property as well as allocate charges and credits.Closing Costs - Closing costs are fees paid by the borrower when a property is purchased or refinanced. Costs incurred include a loan origination fee, discount points, appraisal fee, title search, title insurance, survey, taxes, deed recording fee, and credit report charges. All closing costs are separated into "non-recurring," and "pre-paid." Non-recurring charges are any items that are paid only once because a loan was obtained or a property bought, such as a loan origination fee. Pre-paid charges are those that recur over time, like insurance and property taxes. These are summarized in the Good Faith Estimate.
Conversion - The right of a borrower to convert an adjustable or balloon loan into a fixed loan.
Debt-to-Income Ratio (DTI) - The ratio of aggregate monthly debt to aggregate monthly income.
Deed - A legal document which affects the transfer of ownership of real estate from the seller to the buyer.Deed of Trust - Synonymous to a mortgage. A deed of trust or mortgage is obtained, depending on the state in which the borrower will reside.
Default - The failure to make payments on a loan.Delinquency - Late- or non-payments of principal, interest, taxes, or insurance.
Deposit - A lump sum given in advance as security. A deposit is always paid of a larger amount to be paid in the future. In mortgage and real estate terms, this is called the "earnest money deposit."Discount - Difference between the face amount of a note or mortgage and the price at which the instrument is sold in the secondary market.
Discount Points - A term used in government subsidized loans, such as FHA and VA loans. Refers to any "points" (one percent of the loan amount) paid in addition to the one percent loan origination fee.
Down Payment - Money paid by a buyer from his own funds, as opposed to that portion of the purchase price which is financed.Earnest Money Deposit - A deposit made by a potential home buyer to show that they are serious about purchasing the property.
Easement - Giving other persons, other than the owner, access to a property.Encumbrance - Any lien against a property or any restriction it its use, such as an easement; a right or interest in a property held by one who is not the legal owner.
Equal Credit Opportunity Act (ECOA) - The act declaring the elimination of discrimination on the basis of age, sex, and race in finance.
Equity - The difference between the current market value of a property and the principal balance of all outstanding loans.Escrow - A third party agent that receives, holds, and/or disburses certain funds or documents upon the performance of certain conditions. For example, an earnest money deposit is put into escrow until the transaction is closed. Only then can the seller receive the deposit.
Escrow Account (impound account) - An account that a borrower can hold with a lender once a purchase transaction is closed. This requires borrowers to pay more than the principal and interest each month. The overage is put into escrow, which the lender uses to pay items like property taxes and homeowner's insurance when they are due. This eliminates the actual number of payments that a homeowner has to worry about, but not the amount that has to actually be paid.
Escrow Analysis - An analysis performed by a lender each year to escrow account holders to ensure that the correct amount of money is being collected to cover anticipated payments.Escrow Fee - These costs cover the preparation and transmission of all home purchased-related documents and funds. Escrow fees range from several hundred to over a thousand dollars, based on the purchase price of your home. Not all states require funds to be put into escrow accounts for closing.
Fair Credit Reporting Act - A law that protects consumer that regulates the reporting of consumer credit by agencies and establishes procedures for correcting errors on an individual record.
Fannie Mae (FNMA) - The Federal National Mortgage Association is a congressionally chartered, shareholder-owned company. This organization is the nation's largest supplier of home mortgage funds.Federal Housing Administration (FHA) - An agency under the U.S. Department of Housing and Urban Development (HUD), it insures loans made by approved lenders to qualified borrowers, in accordance with its regulations.
Fees - Up-front costs associated with a loan. Clicking on the word VIEW shown under the "Fees Detail" column on the quotes results page will display detailed information about the financial institution's fees and requirements pertaining to that rate.FHA Loan - A government-backed mortgage loan supported by the US FHA and the Department of Housing and Urban Development (HUD).
Finance Charge - The total dollar amount your loan will cost you. It includes all interest payments for the life of the loan, any interest paid at closing, your origination fee and any other charges paid to the lender and/or broker. Appraisal, credit report and title search fees are not included in the finance charge calculation.First Mortgage - A mortgage that has priority over other mortgages.
Fixed-Rate Mortgage - A mortgage where the interest rate does not change for the life of the loan.
Float - Between the time of application and closing, a borrower may choose to bet on interest rates decreasing by electing to float. Floating is essentially choosing not to lock the interest rate. Since it is the borrower's responsibility to lock his or her rate before (or at) closing, choosing to float is considered risky and may result in a higher interest rate. Request information from your lender regarding lock procedures.Foreclosure - A legal procedure in which real estate is sold by the lender to pay a defaulting borrower's debt .
Good Faith Estimate - An estimate of charges which a borrower is likely to incur in connection with a loan closing.
Government Loan - A type of mortgage insured by the FHA (Federal Housing Authority), VA (Veteran's Administration), or RHS (Rural Housing Authority).Government National Mortgage Association (Ginny Mae) - Provides funds for government loans and takes over special assistance and liquidation functions of Fannie Mae.
Grace Period - A time allowed, usually 15 days, for making late payments without a penalty.Grantee - The person to whom an interest in real property is conveyed.
Grantor - The person conveying an interest in real property.Gross Monthly Income - The total amount the borrower earns per month, not counting any taxes or expenses. Often used in calculations to determine whether a borrower qualifies for a particular loan.
Hazard Insurance - A form of insurance in which the insurance company protects the insured from certain losses, such as fire, vandalism, storms and certain other natural causes.
Home equity line of credit - A mortgage loan in second position that allows a borrower to obtain cash drawn against home equity, up to a certain amount.
Home Inspection - A thorough assessment by a professional regarding the structural and mechanical condition of a property.Homeowner's insurance - An insurance policy that combines personal liability insurance and hazard insurance for a home and its contents.
HUD - Department of Housing and Urban Development; regulates Fannie Mae and Ginny Mae.
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 - Consideration in the form of money paid for the use of money, usually expressed as an annual percentage. Also, a right, share, or title in property.Interest Only - A term loan arrangement calling for payments of interest only, not to include any amount for principal.
Interest Rate - The percentage of an amount of money that's paid for its use over a specified time period.Jumbo Loan - A loan for $417,001 or more in the continental United States (Alaska and Hawaii limits are higher). These limits are 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.
Lender - The bank, mortgage company, or mortgage broker offering the loan. Many institutions only "originate" loans and then resell the obligation to third parties.
Leverage - Using someone else's money for the purchase of property.Liability Insurance - Insurance that protects property owners against claims that alleges negligence or inappropriate action that resulted in bodily injury or property damage to another party.
LIBOR - The London Interbank Offered Rate Index (LIBOR) is an average of the interest rates that major international banks charge each other to borrow U.S. dollars in the London money market. Like the U.S. treasury the CD indexes, LIBOR tends to move and adjust quite rapidly to changes in interest rates.Lien - A legal claim by one party against the property of another as security for a debt. Must be paid off when property is sold. A mortgage or a first trust deed is a lien.
Loan - The principal, or amount of total borrowed money, that is repaid with interest.
Loan Amount - The amount of money that you intend on borrowing from a financial institution for the purchase of your home. Subtracting the down payment from the purchase price of the home will provide you with the loan amount.Loan Origination - What the process of obtaining new loans is called.
Loan Servicing - A service performed by a lender to protect a mortgage investment, including collecting monthly payments from borrowers and dealing with delinquencies.Loan-To-Value Ratio - The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage. A LTV ratio of 90 means that a borrower is borrowing 90% of the value of the property and paying 10% as a down payment. For purchases, the value of the property is assumed to be the purchase price, for refinances the value is determined by an appraisal.
Lock noun - The period, expressed in days, during which a lender will guarantee a rate. Some lenders will lock rates at the time of application while others will allow the borrower to lock the rate after the application is taken. Request information from your lender regarding lock procedures.Lock verb - The act of committing to a mortgage rate. This action, taken by a borrower some time between the application and the closing dates, is sometimes accompanied by a payment by the borrower to the lender.
Margin - The amount a lender adds to the quoted index rate for an adjustable rate loan to determine the new interest rate.
Maturity - The "Due Date" of a loan.Monthly Housing Expense - Total principal, interest, taxes, and insurance paid by the borrower on a monthly basis. Used with gross income to determine affordability.
Mortgage - A legal document that pledges property to a creditor for the repayment of the loan, and is the term used to describe the loan itself. Some states use the term First Trust Deeds to refer to mortgage loans.
Mortgagee - The lender in a mortgage agreement.Mortgage Banker - A financial intermediary that originates or funds loans, collects payments, inspects the property, and forecloses if necessary. The main difference between a mortgage banker and a loan officer is a banker funds their own loans and sell them on the secondary market, usually to Fannie Mae, Freddie Mac, or Ginny Mae.
Mortgage Broker - A mortgage company that originates loans, joining the borrower and lender for a real estate loan, earning a placement fee.Mortgage Constant - The factor used for rapid computation of the annual payment needed to amortize a loan.
Mortgage Insurance - Insurance that covers the lender against losses incurred as a result of a default on a home loan. This is usually required on all loans that have a loan-to-value higher than eighty percent. Mortgages that have an 80% LTV that do not require mortgage insurance have higher interest rates. The lenders then pay the mortgage insurance themselves. In addition, FHA loans and some first-time homebuyer programs require mortgage insurance regardless of the loan-to-value.Mortgagor - The borrower in a mortgage agreement.
Multidwelling Units - Properties that provide separate housing units for more than one family, although only a single mortgage is secured.Negative Amortization - Essentially occurs when a borrower makes a minimum payment that may not cover the interest that is due. Loan balance then increases as a result.
No Cash-out Refinance - A refinance transaction that is not intended to put cash in the hand of the borrower, but instead calculates a new balance to cover the balance due on a current loan and any costs with obtaining a new mortgage.
No-Cost Loan - A no-cost loan can either be: 1) a loan that has no "lender costs" associated with it or, 2) a loan that also covers purchases or refinancing costs, which may be incurred in buying a home, obtaining and/or refinancing a loan, but are not directly charged by the lender. The interest rate on this type of loan is higher.Note - A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.
Note Rate - The stated interest rate on a mortgage note.Origination Fee - The fee imposed by a lender to cover certain processing expenses in connection with making a loan. Usually a percentage of the amount loaned.
Owner Financing - A property purchase that is partly or wholly financed by the seller.Owner's Title Policy - A policy protecting the buyer for the amount of the purchase price in the event of a future title dispute.
PITI - PITI stands for principal, interest, taxes, and insurance. An "impounded" loan means that the monthly payment covers all of these, and perhaps mortgage insurance, if your loan so calls for it. If one does not have an "impounded" account, then the lender still calculates these amounts separately and uses it as part of determining one's debt-to-income ratio.
Pre-Approval - A term used to mean that a borrower has completed a loan application and provided debt, income, and savings information that has been reviewed and pre-approved by an underwriter.
Pre-Paids - Expenses such as taxes, insurance, and assessments, which are paid in advance of their due date, and on a prorated basis at closing.
Pre-Payment - Any amount paid so as to reduce the principal before the due date.
Prepayment Penalty - Lenders who impose prepayment penalties will charge borrowers a fee if they wish to repay part or all of their loan in advance of the regular schedule.Pre-Qualification - After a loan officer has made inquiries about a borrower's debt, income, and savings, he or she can write a written statement (pre-qualification) about the borrower's chances for qualifying for a home loan.
Prime Rate - Interest charged by financial institutions to top-rate borrowers.Principal - The amount of debt, not counting interest, left on a loan.
Private Mortgage Insurance (PMI) - Paid by a borrower to protect the lender in case of default. PMI is typically charged to the borrower when the Loan-to-Value Ratio is greater than 80%.Prorations - The allocation of charges and credits to the appropriate parties at a real estate sale and/or loan closing at a real-estate sale and/or loan closing.
Promissory Note - A written promise to repay a specified amount over a specified period of time.
Purchase Agreement - A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.Purchase-Money Mortgage - Mortgage given by a borrower to the seller as part of the purchase price of the property.
Purchase-Money Transaction - The acquisition of property through the payment of money or its equivalent.Qualifying Ratio - The ratio of the borrower's fixed monthly expenses to his gross monthly income. Ratios are expressed as two numbers like 28/36 where 28 would be the Front-End Ratio and 36 would be the Back-End Ratio>.
The Front-End Ratio is the percentage of a borrower's gross monthly income (before income taxes) that would cover the cost of PITI (Mortgage Principal Payment + Mortgage Interest Payment + Property Taxes + Homeowners Insurance). In the case of a 28% Front-End Ratio a borrower could qualify if the proposed monthly PITI payments were 28% or less than the borrower's gross monthly income.
The Back-End Ratio is the percentage of a borrower's gross monthly income that would cover the cost of PITI plus any other monthly debt payments like car or personal loans and credit card debt.
Please note that qualifying ratios are only a rough guideline in determining a potential borrower's credit-worthiness. Many factors such as excellent or poor credit history, amount of down payment, and size of loan will influence the decision to approve or disapprove a particular loan. Moving.com urges all borrowers to discuss their particular situation with a qualified lender regardless of the outcome of any self-qualification exercise.
Rate Lock - A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate for a specified period of time at a specific cost.
Real Estate - A portion of the earth's surface extending downward to the center to the earth and upward into space, including all things permanently attached thereto by nature or man and all legal rights therein.Real Estate Agent - A person licensed to negotiate and transact the sale of real estate.
Real Estate Settlement Procedures Act (RESPA) - An act requiring the revelation of all costs involved in a real estate closing to all participants.Reconciliation - Determining the final estimate of value by weighing the results of the various approaches in an appraisal.
Reconveyance Clause - The clause in a trust deed that gives the title back to the borrower when the loan is paid in full.Regulation Z - A truth-in-lending provision that requires lenders to reveal the actual costs of borrowing.
Refinancing - The process of paying off one loan with the proceeds from a new loan, using the same property as security.Rent-Loss Insurance - Insurance that protects a landlord against loss of rent or rental value due to fire or other casualty, resulting in the tenant being excused from paying rent.Repayment Plan - An agreement between a lender and a delinquent borrower regarding mortgage payments, in which the borrower agrees to make additional payments to pay down past due amounts while still making scheduled payments.
Residual Qualifying - Under a VA loan, using specified housing expenses to qualify for a loan payment.Revolving Debt - A credit arrangement that allows a customer to borrow against a pre-approved line of credit used to purchase goods and services. The borrower is responsible for the actual amount borrowed plus any interest due.
Rollover Loan - A loan that /includes a call date earlier than its normal amortization period.
Rule of 78 - Calculates proportionate amount of interest due on a loan being paid in full before its maturity.Secondary Mortgage Market - A market where mortgage originators may sell them, freeing up funds for continued lending and distributes mortgage funds nationally from money-rich to money poor areas.
Secured Loan - A loan that is backed by collateral.
Security - Something given, deposited, or pledged to make secure the fulfillment of an obligation, usually the repayment of a debt.Seller Carry-Back - An agreement in which the owner of a property provides financing, often in combination with an assumable mortgage.
Senior Loan - A real estate loan in first priority position.Servicer - An organization that collects principal and interest payments from borrowers and manages borrowers' escrow accounts. The servicer often services mortgages that have been purchased by an investor in the secondary mortgage market.
Servicing - The collection of mortgage payments from borrowers and related responsibilities of a loan servicer.Tax Lien - A claim against real estate for the amount of its unpaid taxes.
Third-Party Origination - A process by which a lender uses another party to completely or partially originate, process, underwrite, close, fund, or package the mortgages it plans to deliver to the secondary mortgage market.Title - A legal document showing a person's right to or ownership of a property.
Title Company - A company that specializes in examining and insuring titles to real estate.Title Insurance - Title Insurance policies typically insure a homebuyer against any title-search errors or mistakes, and against loss due to disputes over property ownership. Title Insurance can additionally offer protection to the lender under similar circumstances. The cost of title insurance is usually a set value per thousand of dollars of the total loan amount.
Title Search - A check of the title records to make sure that the seller is the actual legal owner of the property, and that there are no liens or other claims outstanding.Total Debt Ratio - Monthly debt and housing payments divided by gross monthly income. Also known as Back-End Ratio.
Transfer of Ownership - The means by which the ownership of a property changes hands. Examples of such include the purchase of a property "subject to" the mortgage, the assumption of the mortgage debt by the property purchases, and any exchange of possession of the property under a land sales contract or any other land trust device.
Transfer Tax - State or local tax payable when the title passes from one owner to another.Truth-in-Lending Law - Provision that requires lenders to reveal the actual costs of borrowing.
VA Loan - A government-backed mortgage loan supported by the US Veterans Administration.
Variable Rate Mortgage - See Adjustable Rate Mortgage.Vested - Means that one has a right to use a portion of a fund, such as an individual's retirement fund.
Zero Percent Financing - A loan with no interest in the contract. The IRS imputes 10 percent for both borrower and lender.
Zoning - The right of a community, under its police power, to dictate the use of property within its boundaries.