Glossary about lending and mortgage's - REQUIRED DOCUMENTS FOR SBA by liuqingyan

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                                                   Glossary

  Acceleration -

  The right of the mortgagee (lender) to demand the immediate repayment of the
  mortgage loan balance upon the default of the mortgagor (borrower), or by using the
  right vested in the Due-on-Sale Clause.

  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.

  Amortization -

  Means loan payment by equal periodic payment calculated to pay off the debt at the
  end of a fixed period, including accrued interest on the outstanding balance.

  Amortization Sche dule -

  A table which shows how much of each payment will be applied toward principal and
  how much toward interest over the life of the loan. It also sho ws the gradual
  decrease of the loan balance until it reaches zero.

  Annual pe rcentage rate (A.P.R.) -

  Is a 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 point and other credit cost. The APR allows home buyers to
  compare different types of mortgages based on the annual cost for each loan.

  Application -

  The form used to apply for a mortgage loan, containing information about a
  borrower’s income, savings, assets, debts, and more.

  Appraisal -

  An estimate of the value of property, made by a qualified professional called an
  "appraiser".

  Appraised Value -

  An opinion of a property's fair market value, based on an appraiser's know ledge,
  experience, and analysis of the property. Since an appraisal is based primarily on
  comparable sales, and the most recent sale is the one on the property in question,
  the appraisal usually comes out at the purchase price.

  Appraise r -




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  An individual qualif ied by education, training, and experience to estimate the value
  of real property and personal property. Although some appraisers work directly for
  mortgage lenders, most are independent.

  Appreciation -

  The increase in the value of a property due to changes in market conditions,
  inflation, or other causes.

  Assessed Value -

  The valuation placed on property by a public tax assessor for purposes of taxation.

  Assessment -

  A local tax levied against a property for a specific purpose, such as a sewer or street
  lights.

  Assessor -

  A public official who establishes the value of a property for taxation purposes

  Asset -

  Items of value owned by an individual - Assets that can be quickly converted into
  cash are considered "liquid assets." These include bank accounts, stocks, bonds,
  mutual funds, and so on. Other assets include real estate, personal property, and
  debts owed to an individual by others.

  Assignment -

  When ownership of your mortgage is transferred from one c ompany or individual to
  another, it is called an assignment.

  Assumable Mortgage -

  A mortgage that can be assumed by the buyer when a home is sold. Usually, the
  borrower must "qualify" in order to assume the loan.

  Assumption -

  The agreement between buyer and seller where the buyer takes over the payments
  on an existing mortgage from the seller. Assuming a loan can usually save the buyer
  money since this is an existing mortgage debt, unlike a new mortgage where closing
  cost and new, probably higher, market-rate interest charges will apply.

  Balloon mortgage

  A mortgage loan that requires the remaining principal balance be paid at a specific
  point in time. For example, a loan may be amortized as if it would be paid over a
  thirty year period, but requires that at the end of the tenth year the entire remaining
  balance must be paid.

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  Balloon Payment -

  The final lump sum payment that is due at the termination of a balloon mortgage.

  Bankruptcy -

  By f iling in federal bankruptcy court, an individual or individuals can restructure or
  relieve themselves of debts and liabilities. Bankruptcies are of various types, but the
  most common for an individual seem to be a "Chapter 7 No Asset" bankruptcy which
  relieves the borrower of most types of debts. A borrowe r cannot usually qualify for
  an "A" paper loan for a period of two years after the bankruptcy has been discharged
  and requires the re-establishment of an ability to repay debt.

  Bill of Sale -

  A written document that transfers title to personal property . For example, when
  selling an automobile to acquire funds which will be used as a source of down
  payment or for closing costs, the lender will usually require the bill of sale (in
  addition to other items) to help document this source of funds.

  Biweekly Mortgage -

  A mortgage in w hich you make payments every two weeks instead of once a month.
  The basic result is that instead of making twelve monthly payments during the year,
  you make thirteen. The extra payment reduces the principal, substantially reducing
  the time it takes to pay off a thirty year mortgage. Note: there are independent
  companies that encourage you to set up bi-weekly payment schedules w ith them on
  your thirty year mortgage. They charge a set -up fee and a transfer fee for every
  payment. Your funds are deposited into a trust account from w hich your monthly
  payment is then made, and the excess funds then remain in the trust account until
  enough has accrued to make the additional payment which will then be paid to
  reduce your principle. You could save money by doing the same thing yourself, plus
  you have to have faith that once you transfer money to them that they will actually
  transfer your funds to your lender.

  Blanket Mortgage

  A mortgage covering at least two pieces of real estate as sec urity for the same
  mortgage.

  Borrower (Mortgagor)

  One who applies for and receives a loan in the form of a mortgage w ith the intention
  of repaying the loan in full.

  Bridge Loan -

  Not used much anymore, bridge loans are obtained by those who have no t yet sold
  their previous property, but must close on a purchase property. The bridge loan
  becomes the source of their funds for the dow n payment. One reason for their fall
  from favor is that there are more and more second mortgage lenders now that will

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  lend at a high loan to value. In addition, sellers often prefer to accept offers from
  buyers who have already sold their property.

  Broker -

  An individual in the business of assisting in arranging funding or negotiating
  contracts for a client buy who does not loan the money himself. Brokers usually
  charge a fee or receive a commission for their services.

  Buy-down -

  When the lender and/or the home builder subsidized 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.

  Cash Flow -

  The amount of cash derived over a certain period of time from an income -producing
  property. The cash flow should be large enough to pay the expenses of the income
  producing property (mortgage payment, maintenance, utilities, etc).

  Caps (interest) -

  Consumer safeguards which limit the amount the interest rate on an adjustable rate
  mortgage may change per year and/or the life of the loan.

  Caps (payment) -

  Consumer safeguards w hich limit the amount monthly payments on an adjustable
  rate mortgage may change.

  Cash-out Re finance -

  When a borrower ref inances his mortgage at a higher amount than the current loan
  balance with the intention of pulling out money fo r personal use, it is referred to
  as”cash out refinance."

  Certificate of Eligibility -

  The document given to qualified veterans which entitles them to VA guaranteed
  loans for homes, business, and mobile homes. Certificates of eligibility may be
  obtained by sending DD-214 (Separation Paper) to the local VA office with VA form
  1880 (request for Certificate of Eligibility).

  Certificate of Reasonable Value (C RV) -

  An appraisal issued by the Veterans Administration showing the property's current
  market value.

  Certificate of veteran status -




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  The document given to veterans or reservists who have served 90 days of
  continuous active duty (including training time) It may be obtained by sending DD
  214 to the local VA office with form 26-8261a (request for c ertificate of veteran
  status). This document enables veterans to obtain lower down payments on certain
  FHA insured loans.

  Chain of Title -

  An analysis of the transfers of title to a piece of property over the years.

  Clear Title -

  A title that is free of liens or legal questions as to ownership of the property.

  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 usually include
  an origination fee, discount points, appraisal fee, title search and insurance, survey,
  taxes, deed recording fee, credit report charge and other costs assessed at
  settlement. The costs of closing usually are about 3 percent to 6 percent of the
  mortgage amount.

  Closing Costs -

  Closing costs are separated into what are called "non-recurring closing costs" and
  "pre-paid items." Non-recurring closing costs are any items which are paid just once
  as a result of buying the property or obtaining a loan. "Pre -paid" are items which
  recur over time, such as property taxes and homeowners insurance. A lender makes
  an attempt to estimate the amount of non-recurring closing costs and prepaid items
  on the Good Faith Estimate which they must issue to the borrower within three d ays
  of receiving a home loan application.

  Cloud on Title -

  Any conditions revealed by a title search that adversely affect the title to real estate.
  Usually, clouds on title cannot be removed except by deed, release, or court action.

  Co-borrowe r -

  An additional individual who is both obligated on the loan and is on title to the
  property.

  Collateral -

  In a home loan, the property is the collateral. The borrower risks losing the property
  if the
  loan is not repaid according to the terms of the mort gage or deed of trust.

  Collection -




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  When a borrower falls behind, the lender contacts them in an effort to bring the loan
  current. The loan goes to "collection." As part of the collection effort, the lender must
  mail and record certain documents in case they are eventually required to foreclose
  on the property.

  Commission -

  Most salespeople earn commissions for the work that they do and there are many
  sales professionals involved in each transaction, including Realtors, loan officers, title
  representatives, attorneys, escrow representative, and representatives for pest
  companies, home warranty companies, home inspection companies, insurance
  agents, and more. The commissions are paid out of the charges paid by the seller or
  buyer in the purchase transaction. Realtors generally earn the largest commissions,
  followed by lenders, then the others.

  Commitment -

  A promise by a lender to make a loan on specific terms or conditions to a borrower
  or builder. A promise by an investor to purchase mortgages f rom a lender w ith
  specific terms or conditions. An agreement, often in w riting, between a lender and a
  borrower to loan money at a future date subject to the completion of paper work or
  compliance with stated conditions.

  Comparable Sales -

  Recent sales of similar properties in nearby areas and used to help determine the
  market
  value of a property. Also referred to as "comps."

  Condominium -

  A type of ownership in real property where all of the owners ow n the property,
  common areas and buildings toget her, with the exception of the interior of the unit
  to which they have title. Often mistakenly referred to as a type of construction or
  development, it actually refers to the type of ownership.

  Construction loan -

  A short term interim loan to pay for t he construction of buildings or homes. These
  are usually designed to provide periodic disbursements to the builder as he
  progresses.

  Contingency -

  A condition that must be met before a contract is legally binding. For example, home
  purchasers often inc lude a contingency that specifies that the contract is not binding
  until the purchaser obtains a satisfactory home inspection report f rom a qualified
  home inspector.

  Contract sale or deed -

  A contract between purchaser and a seller of real estate to convey title after certain

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  conditions have been met. It is a form of installment sale.

  Conventional loan -

  A mortgage not insured by FHA or guaranteed by the VA.

  Conventional Mortgage -

  Refers to home loans other than government loans (VA and F HA).

  Credit -

  An agreement in w hich a borrower receives something of value in exchange for a
  promise to repay the lender at a later date.

  Credit History -

  A record of an individual's repayment of debt. Credit histories are reviewed my
  mortgage lenders as one of the underw riting criteria in determining credit risk.

  Credit Report -

  A report documenting the credit history and current status of a borrower's credit
  standing.

  Credit Repository -

  An organization that gathers, records, updates, and stores financial and public
  records information about the payment records of individuals w ho are being
  considered for credit.

  Creditor -

  A person to whom money is owed.

  Debt -

  An amount owed to another.

  Debt-to- Income 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 gross monthly
  income. See housing expenses-to-income ratio.

  Deed of trust -

  In many states, this document is used in place of a mortgage to secure the payment
  of a note.

  De fault -


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  Failure to meet legal obligations in a contract, specifically, failure to make the
  monthly payments on a mortgage.

  De ferred interest -

  When a mortgage is written with a monthly payment that is less than required to
  satisfy the note rate, the unpaid interest is deferred by adding it to the loan balance.
  See negative amortization.

  Delinque ncy -

  Failure to make payments on time. This can lead to 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.

  Deposit -

  A sum of money given in advance of a larger amount being expected in the future.
  Often called in real estate as an "earnest money deposit."

  Depreciation -

  A decline in the value of property; the opposite of appreciation. Depreciation is also
  an accounting term which shows the declining monetary value of an asset and is
  used as an expense to reduce taxable income. S ince this is not a true expense where
  money is actually paid, lenders w ill add back depreciation expense for self -employed
  borrowers and count it as income.

  Discount Points -

  In the mortgage industry, this term is usually used in only in reference to
  government loans, meaning FHA and VA loans. Discount points refer to any "points"
  paid in addition to the one percent loan origination fee. A "point" is one percent of
  the loan amount.

  Down Payment -

  Money paid to make up the difference between the purc hase price and the mortgage
  amount.

  Due-on-Sale-Clause -

  A provision in a mortgage or deed of trust that allows the lender to demand
  immediate payment of the balance of the mortgage if the mortgage holder sells the
  home.

  Earnest Money -




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  Money given by a buyer to a seller as part of the purchase price to bind a transaction
  or
  assure payment.

  Easement -

  A right of way giving persons other than the owner access to or over a property.

  Effective Age -

  An appraiser’s estimate of the physical condition of a building. The actual age of a
  building may be shorter or longer than its effective age.

  Entitlement -

  The VA home loan benefit is called entitlement. Entitlement for a VA guaranteed
  home loan. This is also known as eligibility.

  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. The value an owner has in real estate over and above the
  obligation against the property.

  Escrow -

  An account held by the lender into which the home buyer pays money for tax or
  insurance payments. Also earnest deposits held pending loan closing.

  Escrow Account -

  Once you close your purchase transaction, you may have an escrow account or
  impound account with your lender. This means the amount you pay each month
  includes an amount above what would be required if you were only paying your
  principal and interest. The extra money is held in your impound account (escrow
  account) for the payment of items like property taxes and homeow ner’s insurance
  when they come due. The lender pays them with your money instead of you paying
  them yourself.

  Escrow Analysis -

  Once each year your lender will perform an "escrow analysis" to make sure they are
  collecting the correct amount of money for the anticipated expenditures.

  Escrow Disburseme nts -


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  The use of escrow funds to pay real estate taxes, hazard insurance, mortgage
  insurance, and other property expenses as they become due.

  Estate -

  The ownership interest of an individual in real property. The sum total of all the real
  property and personal property owned by an individual at time of death.

  Eviction -

  The lawful expulsion of an occupant from real property.

  Examination of Title -

  The report on the title of a property from the public records or an abstract of the
  title.

  Exclusive listing -

  A written contract that gives a licensed real estate agent the exclusive right to sell a
  property for a specified time.

  Executor -

  A person named in a w ill to administer an estate. The court will appoint an
  administrator if no executor is named. "Executrix" is the feminine form.

  Fair C redit Re porting Act -

  A consumer protection law that regulates the disclosure of consumer credit reports
  by consumer/credit reporting agencies and establishes procedures for correcting
  mistakes on one's credit record.

  Fair Market Value -

  The highest price that a buyer, w illing but not compelled to buy, would pay, and the
  lowest a seller, willing but not compelled to sell, would accept.

  Fannie Mae (F NMA) -

  The Federal National Mortgage Association, which is a congressionally chartered,
  shareholder-owned company that is the nation's largest supplier of home mortgage
  funds. For a discussion of the roles of Fannie Mae, Freddie Mac (FHLMC), and Ginnie
  Mae (GNMA), see the Library.

  Farmers Home Administration (FmHA) -

  Provides financing to farmers and other qualified borrowers who are unable to obtain
  loans elsew here.

  Federal Home Loan Bank Board (FHLBB) -


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  The former namefor the regulatory and supervisory agency forfederally chartered
  savings institutions. Agency is now called the Office of Thrift Supervision

  Federal Home Loan Mortgage Corporation (FHLMC) also calle d "Fre ddie
  Mac" -

  Is a quasi-governmental agency that purchases conventional mortgage from insured
  depository institutions and HUD-approved mortgage bankers.

  Federal Housing Administration (FHA) -

  A division of the Depart ment 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 (F NMA) also know as "Fannie Mae" -

  A tax-paying corporation created by Congress that purchases and sells conventional
  residential mortgages as well as those insured by F HA or guaranteed by VA. This
  institution, w hich provides funds for one in seven mortgages, makes mortgage
  money more available and more affordable.

  Fee Simple -

  The greatest possible interest a person can have in real estate.

  Fee Simple Estate -

  An unconditional, unlimited estate of inheritance that represents the greatest estate
  and most extensive interest in land that can be enjoyed. It is of perpetual duration.
  When the real estate is in a condominium project, the unit owner is the exclusive
  owner only of the air space within his or her portion of the building (the unit) and is
  an owner in common w ith respect to the land and other common portions of the
  property.

  FHA Loan -

  A loan insured by the Federal Housing Administration open to all qualif ied home
  purchasers. While there are limits to the size of FHA loans ($155,250 as of 1/1/96),
  they are generous enough to handle moderately-priced homes almost anywhere in
  the country.

  FHA Mortgage Insurance -

  Requires a fee (up to 2.25 percent of the loan amount) paid at closing to insure the
  loan with F HA. In addition, FHA mortgage insurance requires an annual fee of up to
  0.5 percent of the current loan amount, paid in monthly installments. The lower the
  down payment, the more years the fee must be paid.

  FHLMC -




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  The Federal Home Loan Mortgage Corporation provides a secondary market for
  savings and loans by purchasing their conventional loans. Also known as "Freddie
  Mac."

  Firm Commitme nt -

  A promise by FHA to insure a mortgage loan for a specified property and borrower. A
  promise from a lender to make a mortgage loan.

  First Mortgage -

  The mortgage that is in first place among any loans recorded against a property.
  Usually refers to the date in which loans are recorded, but there are exceptions.

  Fixture -

  Personal property that becomes real property when attached in a permanent manner
  to real estate.

  Fixed Rate Mortgage -

  The mortgage interest rate will remain the same on these mortgages throughout the
  term of the mortgage for the original borrower.

  FNMA -

  The Federal National Mortgage Association is a secondary mortgage institution which
  is the largest single holder of home mortgages in the United States. FNMA buys VA,
  FHA, and conventional mortgages from primary lenders. Also known as "Fannie
  Mae."

  Flood Insurance -

  Insurance that compensates for physical property damage resulting f rom flooding. It
  is required for properties located in federally designated flood areas.

  Foreclosure -

  A legal process by which the lender or the seller forces a sale of a mortgaged
  property because the borrower has not met the terms of the mortgage. Also known
  as a repossession of property.

  Graduated Payment Mortgage (GPM) -

  A type of flexible-pay ment mortgage w here the payments increase for a specified
  period of time and then level off. This type of mortgage has negative amortization
  built into it.

  Government Loan (Mortgage) -




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  A mortgage that is insured by the Federal Housing Administration (F HA) or
  guaranteed by the Depart ment of Veterans Affairs (VA) or the Rural Housing Service
  (RHS). Mortgages that are not government loans are classified as conventional loans.

  Government National Mortgage Assoc iation (Ginnie Mae) -

  A government-owned corporation within the U.S. Depart ment of Housing and Urban
  Development (HUD). Created by Congress on September 1, 1968, GNMA performs
  the same role as Fannie Mae and F reddie Mac in providing funds to lenders for
  making home loans. The difference is that Ginnie Mae provides funds for government
  loans (F HA and VA)

  Guaranty -

  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.

  Hazard Insurance -

  A form of insurance in which the insurance company protects the insured from
  specified losses, such as fire, windstorm and the like.

  Home Equity Conversion Mortgage (HECM) -

  Usually referred to as a reverse annuity mortgage, what makes this type of
  mortgage unique is that instead of making payments to a lender, the lender makes
  payments to you. It enables older home owners to convert the equity they have in
  their homes into cash, usually in the form of monthly payments. Unlike traditional
  home equity loans, a borrower does not qualify on the basis of income but on the
  value of his or her home. In addition, the loan does not have to be repaid until the
  borrower no longer occupies the property.

  Home Equity Line of Credit -

  A mortgage loan, usually in second position, that allows the borrower to obtain cash
  drawn against the equity of his home, up to a predetermined amount.

  Home Inspection -

  A thorough inspection by a professional that evaluates the structural and mechanical
  condition of a property. A satisfactory home inspection is often included as a
  contingency by the purchaser.

  Homeowne rs' Association -

  A nonprofit association that manages the common areas of a planned unit
  development (PUD) or condominium project. In a condominium project, it has no
  ownership interest in the common elements. In a PUD project, it holds title to the
  common elements.

  Homeowne r's Insurance -


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  An insurance policy that combines personal liability insurance and hazard insurance
  coverage for a dwelling and its contents.

  Homeowne r's Warranty -

  A type of insurance often purchased by homebuyers that will cover repairs to certain
  items, such as heating or air conditioning, should they break dow n within the
  coverage period. The buyer often requests the seller to pay for this coverage as a
  condition of the sale, but either party can pay.

  Home Equity Loan –

  A great way to use the value of your home as cash. With much lower interest rates
  than other forms of consumer credit, home equity loans can be useful for paying off
  outstanding debt, buying a new car, RV or Boat, paying medical expenses, financing
  a business startup, home improvements or furnishing a new home. Soma Financial
  offers a wide variety of programs to suit your needs, from small to large. Our HELOC
  (Home Equity Line of Credit) programs allow to use your home equity just like a
  credit card, and in certain cases, the interest you pay can even be w ritten off your
  tax return!

  Housing Expenses-to-Income Ratio -

  The ratio, expressed as a percentage, which results when a borrower's housing
  expenses are divided by his/her gross monthly income. See debt -to-income ratio.

  HUD Median Income -

  Median family income for a particular county or metropolitan statistical area (MSA),
  as estimated by the Depart ment of Housing and Urban Development (HUD).

  HUD-1 Settlement Statement -

  A document that provides an itemized listing of the funds that were paid at closing.
  Items that appear on the statement include real estate commissions, loan fees,
  points, and initial escrow (impound) amounts. Each type of expense goes on a
  specific numbered line on the sheet. The totals at the bottom of the HUD-1
  statement define the seller's net proceeds and the buyer's net payment at closing. It
  is called a HUD1 because the form is printed by the Depart ment of Housing and
  Urban Development (HUD). The HUD1 statement is also known as the "closing
  statement" or "settlement sheet."

  Impound -

  That portion of a borrower's monthly payments held by the lender or servicer to pay
  for taxes, hazard insurance, mortgage insurance, lease payments, 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

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  invest ments (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.

  Interim Financing -

  A construction loan made during completion of a building or a project. A permanent
  loan usually replaces this loan after completion.

  Judgment -

  A decision made by a court of law. In judgments that require the repayment of a
  debt, the court may place a lien against the debtor's real property as collateral for
  the judgment's creditor.

  Judicial Foreclosure -

  A type of foreclosure proceeding used in some states that is handled as a civil lawsuit
  and conducted entirely under the auspices of a court. Other states use non-judicial
  foreclosure.

  Jumbo Loan -

  A loan which is larger (more than $322,700 as of 1/1/2003) 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.

  Late Charge -

  The penalty a borrower must pay when a payment is made a stated number of days.
  On a first trust deed or mortgage, this is usually fifteen days.

  Lease -

  A written agreement between the property owner and a tenant that stipulates the
  payment and conditions under which the tenant may possess the real es tate for a
  specified period of time.

  Leasehold Estate -

  A way of holding title to a property wherein the mortgagor does not actually own the
  property but rather has a recorded long-term lease on it.

  Lease Option -

  An alternative financing option that allows home buyers to lease a home w ith an
  option to buy. Each month's rent payment may consist of not only the rent, but an
  additional amount which can be applied toward the down payment on an already
  specified price.


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  Lende r -

  A term w hich can refer to the institution making the loan or to the individual
  representing the firm. For example, loan officers are often referred to as "lenders."

  Liabilities -

  A person's financial obligations. Liabilities include long-term and short-term debt, as
  well as any other amounts that are owed to others.

  Liability Insurance -

  Insurance coverage that offers protection against claims alleging that a property
  owner's negligence or inappropriate action resulted in bodily injury or property
  damage to another party. It is usually part of a homeowner’s insurance policy.

  Lien -

  A claim upon a piece of property for the payment or satisfaction of a debt or
  obligation.

  Life Cap -

  For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rat e
  can increase or decrease over the life of the mortgage.

  Line of C redit -

  An agreement by a commercial bank or other f inancial institution to extend credit up
  to a certain amount for a certain time to a specified borrower.

  Liquid Asset -

  A cash asset or an asset that is easily converted into cash.

  Loan -

  A sum of borrowed money (principal) that is generally repaid with interest.

  Loan Officer -

  Also referred to by a variety of other terms, such as lender, loan representative, loan
  "rep," acc ount executive, and others. The loan officer serves several functions and
  has various responsibilities: they solicit loans, they are the representative of the
  lending institution, and they represent the borrower to the lending institution.

  Loan Origination -

  How a lender refers to the process of obtaining new loans.

  Loan Se rvicing -


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  After you obtain a loan, the company you make the payments to is "servicing" your
  loan. They process payments, send statements, manage the escrow/impound
  account, provide collection efforts on delinquent loans, ensure that insurance and
  property taxes are made on the property, handle pay -offs and assumptions, and
  provide a variety of other services.

  Loan-to-Value Ratio -

  The relationship between the amount of the mort gage loan and the appraised value
  of the property expressed as a percentage.

  Lock- In -

  An agreement in which the lender guarantees a specified interest rate for a certain
  amount of time at a certain cost.

  Lock- In Period -

  The time period during which the lender has guaranteed an interest rate to a
  borrower.


  Margin -

  The amount a lender adds to the index on an adjustable rate mortgage to establish
  the
  adjusted interest rate.

  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.

  Maturity -

  The date on which the principal balance of a loan, bond, or other financial instrument
  becomes due and payable

  Merge d Cre dit Report -

  A credit report which reports the raw data pulled f rom two or more of the major
  credit
  repositories. Contrast with a Residential Mortgage Credit Report (RMCR) or a
  standard factual credit report.

  MIP (Mortgage Insurance Premium) -

  It is insurance from F HA to the lender against incurring a loss on account of the
  borrower's
  default.


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  Modification -

  Occasionally, a lender w ill agree to modify the terms of your mortgage w ithout
  requiring you to refinance. If any changes are made, it is called a modification.

  Mortgage -

  A legal document that pledges a property to the lender as security for payment of a
  debt. Instead of mortgages, some states use First Trust Deeds

  Mortgage Banke r -

  For a more complete discussion of mortgage banker, see "Types of Lenders." A
  mortgage
  banker is generally assumed to originate and fund their ow n loans, w hich are then
  sold on the secondary market, usually to Fannie Mae, Freddie Mac, or Ginnie Mae.
  However, firms rather loosely apply this term to themselves, whether they are true
  mortgage bankers or simply mortgage brokers or correspondents.

  Mortgage Broke r -

  A mortgage company that originates loans, then places those loans with a variety of
  other lending institutions with whom they usually have pre-established relationships.

  Mortgagee -

  The lender in a mortgage agreement.


  Mortgage Insurance -

  Money paid to insure the mortgage when the dow n payment is less than 20 percent.
  See
  private mortgage insurance, FHA mortgage insurance.

  Mortgage Insurance Premium (MIP) -

  The amount paid by a mortgagor for mortgage insurance, either to a government
  agency such as the Federal Housing Administration (FHA) or to a private mortgage
  insurance (MI) company.

  Mortgagor -

  The borrower in a mortgage agreement

  Negative Amortization -

  Occurs when your monthly payments are not large enough to pay all the interest due
  on the loan. This unpaid interest is added to the unpaid balance of the loan. The
  danger of negative amortization is that the home buyer ends up owing more than the
  original amount of the loan.


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  Net Effective Income -

  The borrower's gross income minus federal income tax.

  No Cash-Out Re finance -

  A refinance transaction which is not intended to put cash in the ha nd of the
  borrower. Instead, the new balance is caculated to cover the balance due on the
  current loan and any costs associated with obtaining the new mortgage. Often
  referred to as a "rate and term ref inance."

  No-Cost Loan -

  Many lenders offer loans t hat you can obtain at "no cost." You should inquire
  whether this means there are no "lender" costs associated with the loan, or if it also
  covers the other costs you would normally have in a purchase or refinance
  transactions, such as title insurance, escrow fees, settlement fees, appraisal,
  recording fees, notary fees, and others. These are fees and costs which may be
  associated with buying a home or obtaining a loan, but not charged directly by the
  lender. Keep in mind that, like a "no-point " loan, the interest rate will be higher than
  if you obtain a loan that has costs associated with it.

  Non Assumption Clause -

  A statement in a mortgage contract forbidding the assumption of the mortgage
  without the prior approval of the lender. Note: The signed obligation to pay a debt,
  as a mortgage note.

  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 interest rate stated on a mortgage note.

  No-Cost Loan -

  Almost all lenders offer loans at "no points." You will f ind the interest rate on a "no
  points" loan is approximately a quarter percent higher than on a loan w here you pay
  one point.

  Notice of Default -

  A formal written notice to a borrower that a default has occurred and that legal
  action may be taken.

  Office of Thrift Supe rvision (OTS) -

  The regulatory and supervisory agency for federally chartered savings institutions.
  Formally known as Federal Home Loan Bank Board.

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  Original Princ ipal Balance -

  The total amount of principal owed on a mortgage before any payments are made.

  Origination Fee -

  The fee charged by a lender to prepare loan documents, make credit checks, inspect
  and sometimes appraise a property; usually computed as a percentage of the face
  value of the loan.

  Owner Financ ing -

  A property purchase transaction in which the property seller provides all or part of
  the financing.

  Partial Payment -

  A payment that is not sufficient to cover the scheduled monthly payment on a
  mortgage loan. Normally, a lender will not accept a partial payment, but in times of
  hardship you can make this request of the loan servicing collection depart ment.

  Payment C hange Date -

  The date when a new monthly payment amount takes effect on an ad justable-rate
  mortgage (ARM) or a graduated-payment mortgage (GPM). Generally, the payment
  change date occurs in the month immediately after the interest rate adjust ment
  date.

  Periodic Payment Cap -

  For an adjustable-rate mortgage where the interest rate and the minimu m payment
  amount fluctuate independently of one another, this is a limit on the amount that
  payments can increase or decrease during any one adjust ment period.

  Periodic Rate Cap -

  For an adjustable-rate mortgage, a limit on the amount that the interest rate can
  increase or decrease during any one adjust ment period, regardless of how high or
  low the index might be.

  Personal Property -

  Any property that is not real property.

  Permanent Loan -

  A long term mortgage, usually ten years or more. Also called an "end loan."

  PITI -

  Principal, Interest, Taxes and Insurance. Also called monthly housing expense.

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  Ple dged account Mortgage (PAM) -

  Money is placed in a pledged savings account and this f und plus earned interest is
  gradually used to reduce mortgage payments.

  Points (loan 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).

  Power of Attorney -

  A legal document authorizing one person to act on behalf of another.

  Pre paid Expe nses -

  Necessary to create an escrow account or to adjust the seller's existing escrow
  account. Can include taxes, hazard insurance, private mortgage insurance and
  special assessments.

  Pre payment -

  A privilege in a mortgage permitting the borrower to make payments in advance of
  their due date.

  Pre payment Penalty -

  Money charged for an early repayment of debt. Prepayment penalties are allowed in
  some form (but not necessarily imposed) in many states.

  Primary Mortgage Market -

  Lenders making mortgage loans directly to borrower's such as savings and loan
  associations, commercial banks, and mortgage companies. These lenders sometimes
  sell their mortgages into the secondary mortgage markets such as to FNMA or
  GNMA, etc.

  Princ ipal -

  The amount of debt, not counting interest, left on a loan.

  Private Mortgage Insurance (PMI) -

  In the event that you do not have a 20 percent down payment, lenders will allow a
  smaller dow n payment - as low as 5 percent in some cases. With the smaller down
  payment loans, however, borrowers are usually required to carry private mortgage
  insurance. Private mortgage insurance will usually require an initial premium
  payment and may require an additional monthly fee depending on you loan's
  structure.

  Realtor -

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  A real estate broker or an associate holding active membership in a local real estate
  board affiliated with the National Association of Realtors.

  Rec ision -

  The cancellation of a contract. With respect to mortgage refinancing, the law that
  gives the homeow ner three days to cancel a contract in some cases once it is signed
  if the transaction uses equity in the home as security.

  Recording Fees -

  Money paid to the lender for recording a home sale with the local authorities, thereby
  making it part of the public records.

  Re finance -

  Obtaining a new mortgage loan on a property already owned. Often to replace
  existing loans on the property.

  Re negotiable Rate Mortgage -

  A loan in which the interest rate is adjusted periodically. See adjustable rate
  mortgage.

  RESPA -

  Short for the Real Estate Settlement Procedures Act. RESPA is a federal law that
  allows consumers to review information on know n or estimated settlement co st once
  after application and once prior to or at a settlement. The law requires lenders to
  furnish the information after application only.

  Reverse Annuity Mortgage (RAM) -

  A form of mortgage in which the lender makes periodic payments to the borrower
  using the borrower's equity in the home as Satisfaction of Mortgage: The document
  issued by the mortgagee when the mortgage loan is paid in full. Also called a
  "release of mortgage."

  Second Mortgage -

  A mortgage made subsequent to another mortgage and subordinate to the first one.

  Secondary Mortgage Market -

  The place where primary mortgage lenders sell the mortgages they make to obtain
  more funds to originate more new loans. It provides liquidity for the lenders.
  Security.

  Servic ing -




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  All the steps and operations a lender performs to keep a loan in good standing, such
  as collection of payments, payment of taxes, insurance, property inspections and the
  like.

  Shared Appreciation Mortgage (SAM) -

  A mortgage in which a borrower receives a below-market interest rate in return for
  which the lender (or another investor such as a family member or other partner)
  receives a portion of the future appreciation in the value of the property. May also
  apply to mortgage where the borrowers shares the monthly principal and interest
  payments with another party in exchange for part of the appreciation.

  Simple Inte rest -

  Interest which is computed only on the principal balance.

  Survey -

  A measurement of land, prepared by a registered land surveyor, show ing the
  location of the land with reference to know points, its dimensions, and the location
  and dimensions of any buildings.

  Sweat Equity -

  Equity created by a purchaser performing work on a property being purchased.

  Title -

  A document that gives evidence of an individual's ownership of property.

  Title Insurance -

  A policy, usually issued by a title insurance company, w hich insures a home buyer
  against errors in the title search. The cost of the policy is usually a function of the
  value of the property, and is often borne by the purchaser and/or seller. Policies are
  also available to protect the lender's interests.

  Title Search -

  An examination of municipal records to determine the legal ownership of property.
  Usually is performed by a title c ompany.

  Truth-In-Lending -

  A federal law requiring disclosure of the Annual Percentage Rate to home buyers
  shortly after they apply for the loan. Also know n as Regulation Z.

  Two-Step Mortgage -

  A mortgage in w hich the borrower receives a below - market interest rate for a
  specified number of years (most often seven or 10), and then receives a new interest
  rate adjusted (w ithin certain limits) to market conditions at that time. The lender

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  sometimes has the option to call the loan due with 30 days notic e at the end of
  seven or 10 years. Also called "Super Seven" or "Premier" mortgage.

  Underwriting -

  The decision w hether to make a loan to a potential home buyer based on credit,
  employment, assets, and other factors and the matching of this risk to an
  appropriate rate and term or loan amount.

  USURY -

  Interest charged in excess of the legal rate established by law.

  VA Loan -

  A long-term, low-or no-down payment loan guaranteed by the Depart ment of
  Veterans Affairs. Restricted to individuals qualif ied by military service or other
  entitlements.

  VA Mortgage Funding Fee -

  A premium of up to 1-7/8 percent (depending on the size of the down payment) paid
  on a VA-backed loan. On a $75,000 f ixed-rate mortgage with no down payment, this
  would amount to $1,406 either paid at closing or added to the amount financed.

  Verification of De posit (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.

  Warehouse Fee -

  Many mortgage firms must borrow funds on a short term basis in order to originate
  loans w hich are to be sold later in the secondary mortgage market (or to investors).
  When the prime rate of interest is higher on short term loans than on mortgage
  loans, the mortgage firm has an economic loss which is offset by charging a
  warehouse fee.

  Wraparound mortgage -

  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.




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