Here are some helpful terms used in the mortgage industry to assist you in understanding the entire mortgage process.

A B C D E F H I L M N O P Q S T U

ADJUSTABLE RATE MORTGAGE (ARM) - A mortgage in which the interest rate is adjusted periodically based on a pre-selected index. back

AMORTIZATION - The period of time during which you will owe principal and interest to a lender.  The calculation of over a period of time is referred to as Amortization. back

ANNUAL PERCENTAGE RATE (APR) – This interest rate reflects the costs 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 home buyers to compare different types of mortgages based on the annual cost for each loan. back

APPLICATION - A form used to apply for a loan, on which you'll put relevant information about yourself. back

APPRAISAL - An estimate of the value of the property, made by a qualified professional called an "appraiser". An appraisal is usually required by your lender to determine the value of the property for lending purposes. back

BACKEND or DEBT RATIO - The amount you pay in monthly debt (housing expense, credit cards, student loans, etc.) divided by your gross monthly income. back

CLOSING - The meeting between the buyer, seller and lender or their agents at which the property and funds legally change hands. This is also referred to as “Settlement”. back

CLOSING COSTS – Expenses, over and above the price of the property, incurred by buyers and sellers. The following are closing costs that are common in Real Estate transactions: credit reports, appraisals, processing fees, underwriting fees, tax service contract fee, escrow fees, title policy fees, recording fees and other such charges. back

CONFORMING LOAN – A non-government insured loan that is $333,700 or less. These are commonly referred to as Fannie Mae or Freddie Mac loan limits. back

CONDOMINIUM - A building or group of buildings in which each unit owner has title to a specific unit. They may also have the exclusive use of certain common areas. back

CONVENTIONAL LOAN – A loan that is not insured or guaranteed by the Federal Government. back

CREDIT REPORT – A report documenting your current and past credit history usually obtained through a credit reporting service. back

DEED OF TRUST – A legal contract or document that is recorded against the title of a property in order to guarantee that a loan will be repaid. back

DOWN PAYMENT – The amount of money that is paid to make up the difference between the sales price and the mortgage amount in a Real Estate purchase transaction. back

ESCROW – The holding of documents and money by a neutral third party prior to closing. In Southern California an Escrow company typically handles the closing of a transaction. back

EQUITY - The value an owner has in real estate over and above the obligation against the property.  If a homeowner owns a house valued at $200,000.00 and has a mortgage of $50,000.00, the homeowner's equity is $150,000.00 (the value less the mortgage). As the value of the house increases or decreases, the homeowner's equity increases or decreases accordingly. The lender's equity is always equal to the value of the outstanding loan. back

FANNIE MAE – The Federal National Mortgage Association.  A tax-paying corporation created by Congress which 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. This is a publicly traded company on the New York Stock Exchange. back

FHA LOAN – A loan insured by the Federal Housing Administration, open to all qualified home purchasers. While there are limits to the size of FHA loans, they are generous enough to handle moderately priced homes almost anywhere in the country.  FHA loans are required to have the applicant pay a Mortgage Insurance Premium (MIP). back

FIRST MORTGAGE - The lien or loan which is recorded against the property and is the first document against the property. back

FIXED RATE LOAN – A loan where the interest rate does not change during the entire term of the loan. back

FRONT END RATIO - Your prospective monthly mortgage payments divided by your gross monthly income. This comes out to a percentage, and a lender uses this percentage to get an idea of how much of your income will be going to pay your loan. back

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

HOME EQUITY LINE OF CREDIT - A loan against the amount of equity you may have in a property. This is typically a second mortgage where a homeowner can have access to the equity in their property through a line of credit. back

HOMEOWNER’S INSURANCE - An insurance policy, required when you take ownership, that combines personal liability insurance and hazard insurance for the home as well as its contents. back

HUD 1 STATEMENT - A document which sets forth an itemized listing of whatever costs must be paid at closing, such as real estate commissions, loan fees, points, and initial escrow amounts. It's also known as the "closing statement" or "settlement sheet."  This is standard document that is used in every state. back

IMPOUND ACCOUNT - 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. back

INITIAL INTEREST – When the closing (the date on which the buyer takes possession of the property) occurs at a time of the month other than the date on which the mortgage payment is due, the borrower will pay an amount to cover interest from the closing date to 1 month prior to the first payment date.  This is also known as prepaid interest. back

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. back

LOCK or RATE LOCK - A written agreement from the lender to offer a specified interest rate if the mortgage goes to closing within a set period of time. back

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. back

NON-CONFORMING LOAN – A non-government insured loan greater than $333,700.  This is also commonly referred to as a Jumbo loan. back

NOTE or DEED OF TRUST NOTE - The signed obligation or document to pay a debt, as a mortgage note. back

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. back

PREPAYMENT PENALTY - Money charged for an early repayment of debt. back

PREQUALIFICATION – The process of determining how much money a prospective home buyer will be eligible to borrow before applying for a loan. back

PRIVATE MORTGAGE INSURANCE (PMI) – Insurance that is required on conventional loans that have a loan-to-value greater than 80%. The insurance premium insures the lender against potential loss in a case of default or foreclosure. Typically is paid monthly by borrower as part of mortgage payment. back

PURCHASE AND SALE AGREEMENT – A written contract signed by the buyer and seller stating the terms and conditions under which a property is sold. back

QUALIFYING RATIOS – Guidelines used by lenders to determine the loan amount a prospective home buyer will be eligible to borrower. back

SOFT PREPAYMENT PENALTY – Money charged for an early repayment of debt ONLY if the property is refinanced but not charged if the loan is sold to another party. back

TITLE POLICY – A report issued as the result of an examination of municipal records to determine the legal ownership of property. Usually is performed by a title company. back

UNDERWRITING - The decision whether 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. back