BWCU | Mortgage Loans

Additional Principal Payment — A payment by a borrower of more than the scheduled principal amount due, in order to reduce the remaining balance of the loan.

Adjustable Rate Mortgage (ARM) — A mortgage having an interest rate that can change at designated intervals, based on a financial index.

Amortization — The systematic and continuous repayment of an obligation through periodic installments until the debt has been paid off in full.

Amortization Schedule — A schedule that shows the portions of each payment that are applied to interest and to principal. It also shows the loan balance remaining after each payment.

Annual Percentage Rate (APR) — The actual interest rate the borrower pays when all the costs of obtaining credit are included (interest rate, private mortgage insurance, points, and fees).

Application Fee — The amount a lender charges for processing a loan application; usually nonrefundable.

Appraisal — A report made by a qualified individual setting forth an opinion or estimate of value. The term also refers to the process by which this estimate is obtained.

Assessed Value — The value placed on a property by local officials for taxation purposes (may or may not equal appraised value).

Assumable Mortgage — A mortgage that a buyer can take over from the seller of a property.

Binder — A preliminary agreement, secured by the payment of earnest money, under which a buyer offers to purchase real estate. Or, in insurance, an agreement confirming temporary coverage pending issuance of a formal policy.

Biweekly Mortgage — A mortgage in which payments are made every two weeks instead of monthly, thus making the equivalent of 13 monthly payments a year (there are 26 two-week periods) instead of 12. Allows more rapid payment of mortgage and thus less interest paid over life of the loan.

Broker — A real estate broker can collect commissions from the public for work performed. Not all people who sell real estate are brokers, but those who are not associate with a broker. The latter provides supervision, the office structure, and other resources and splits the commission with the salesperson, or agent.

Cap — A limit set on an ARM as to how much the interest rate or monthly payments may increase.

Cash Reserve — A requirement of some lenders that the buyer have enough cash left after closing to make the first two mortgage payments.

Chattel Lien — A document indicating that personal property in addition to the real estate itself is serving as security for the loan.

Clear Title — A title to property that is free of liens and legal questions as to ownership.

Closing — The process that brings a loan into legal existence, including the signing of all loan documents, their delivery to the appropriate parties, and the disbursing of at least some of the loan funds. Also called settlement.

Closing Costs — Costs incurred by the buyer and seller in transferring ownership of a property.

Closing Statement — A statement showing the various closing costs and recording which party paid these costs. Also called settlement statement.

Collateral — An asset, such as a car or home that is pledged as security for repayment of a loan. The borrower risks losing the asset if the loan is not repaid according to the terms of the loan contract or promissory note.

Commitment — An agreement, often in writing, between a lender and a borrower to loan money at a future date subject to compliance with stated conditions.

Community Home Buyer's Program — An alternative financing option that allows moderate-income households to qualify for loans. It allows 33% housing-to-income and 38% debt-to-income ratios, as well as nontraditional credit histories and waiver of cash reserve requirements at closing.

Condominium — A form of property ownership in which the owner holds title to an individual dwelling, plus interest in common areas of a multiunit project.

Condo Fee (or Homeowners Association Dues) — The monthly maintenance fee condominium unit (or planned unit development) owners must pay to cover common-area expenses.

Contingency — A condition that must be met before a contract is legally binding.

Conventional Mortgage — Any mortgage that is not insured or guaranteed by the federal government.

Convertible ARM — An adjustable-rate mortgage that can be converted to a fixed-rate mortgage under specified conditions.

Cooperative — A form of common property ownership in which the residents of an apartment building do not own their own units, but rather own shares in the corporation that owns the property.

Credit Report — A document that provides information about the buyer's credit cards, previous mortgage history, bank loans and public records dealing with financial matters.

Co-Signer — A person who signs and assumes joint liability with another person for repayment of a debt.

Covenant — A clause in a mortgage that obligates or restricts the borrower and which, if violated, can result in foreclosure.

Credit Report — A report of an individual's credit history prepared by a credit bureau and used by a lender to determine a loan applicant's creditworthiness.

Credit Score — A three-digit number that lenders use to objectively measure your creditworthiness - how likely you are to pay back a loan on time.

Deed — The formal written document that transfers the right of ownership and possession (the title) from the seller to the buyer.

Deed of Trust — The document used in some states instead of a mortgage; title is conveyed to a trustee instead of the borrower.

Default — To fail to make mortgage payments on a timely basis or to comply with other mortgage conditions.

Delinquency — Failure to make a loan payment; the loan is not yet in default.

Deposit — Sums of money given to either bind a sale of real estate or assure payment or an advance of funds in the processing of a loan. Also known as "earnest money."

Down Payment — The difference between the sales price of real estate and the amount of the mortgage loan; the part of the purchase price of a home which the buyer pays in cash up front; not included in the loan.

Earnest Money — A deposit given to the seller by the buyer when submitting an offer to show serious intent about buying a property.

Equal Credit Opportunity Act (ECOA) — A federal law prohibiting lenders from denying loans on the basis of the borrower's race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.

Equity — The difference between the market value of a property and the owner's outstanding mortgage balance; measures the degree of ownership.

Escrow — The holding of documents and money (such as a deposit) by a neutral third party prior to closing. Also an account held by the lender into which a homeowner pays money for taxes and insurance.

Escrow Payment — The portion of a borrower's monthly payment that is set aside by the lender in an account to pay the taxes, hazard insurance, mortgage insurance, and other items as they come due.

Fanny Mae (FNMA) — An acronym for the Federal National Mortgage Association. Fannie Mae purchases mortgage loans originated by local lenders and sets guidelines that lenders must follow to qualify prospective borrowers.

Fee Simple — The best possible title that one can obtain; unqualified and conveys the highest bundle of rights.

FHA Loan — A mortgage insured by the Federal Housing Administration. Down payment may be as little as 3%, but purchase price is limited.

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.

Fixed-Rate — A mortgage in which the interest rate does not change during the entire life of the loan.

Flood Insurance — Insurance that will be required if a property is in a federally designated flood hazard area.

Foreclosure — The legal process by which a mortgaged property may be sold when a mortgage is in default.

Freddie Mac (FHLMC) — An acronym for the Federal Home Loan Mortgage Corporation. Another of the major purchasers of mortgages from local lenders. See also Fannie Mae.

Good Faith Estimate — Provides a breakdown of the estimated closing charges.

Graduated Payment Mortgage (GPM) — A mortgage that starts with lower monthly payments that increase at a predetermined rate over time.

Hazard Insurance — Insurance to protect the homeowner and lender against physical damage to property from fire, wind, vandalism, and other hazards.

Home Equity Loan — A loan based on and secured by the borrower's equity in his or her home.

Homeowners Insurance — An insurance policy that combines hazard insurance and liability coverage.

Interest Rate Cap — A provision of an ARM that limits how much the interest rate can increase per adjustment period.

Lien — A legal claim against a property that must be paid off when the property is sold. A lien is created when you borrow money to purchase or refinance a home.

Lifetime Cap — A provision of an ARM limiting the total increase in the interest rate over the life of the loan.

Loan-To-Value Ratio (LTV) — The ratio, expressed as a percentage, of the amount of a loan (numerator) to the value or selling price of real property or land for a custom-built home (denominator).

Lock-in Rate — An interest rate the lender guarantees to the borrower provided the mortgage is closed within a certain time period. The borrower pays a fee for this guarantee.

Lot/Land Loans — Short-term adjustable rate mortgages for the purchase of land for a custom-built home.

Manufactured Housing — The home must be legally classified as real property, must be permanently affixed to a foundation and must assume characteristics of site-built housing. Wheels, axles and trailer hitches must be removed and, if state law requires anchors, anchors must be provided.

Margin — The percentage the lender adds to the index rate to determine the interest rate on an ARM (adjustable-rate mortgage).

Modular Housing — Modular housing includes prefabricated and panelized housing. The structure must assume characteristics of site-built housing and must meet local zoning and building codes.

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.

Mortgage Insurance (MI or PMI) — The insurance written by an independent mortgage guaranty insurance company that protects the mortgage lender against loss incurred by a mortgage default, thus enabling the lender to lend a higher percentage of the sales price. The federal government writes this form of insurance through the Federal Housing Administration (FHA) and the Veterans Administration (VA).

Mortgage Note — A written promise to pay a sum of money at a stated interest rate during a specified term. A mortgage or deed of trust secures it.

Negative Amortization — TPayment terms under which the borrower's monthly payments are insufficient to cover interest due, thus increasing the loan balance.

Non-Owner Occupied — A non-owner occupied purchase is also known as an investment property. An investment property is a 1-4 unit property that is owned but not occupied by the same individual. Rather than being purchased to use as the buyer's primary residence, the property is purchased as an investment with the intent of generating rental income, tax benefits and profitable resale.

Offer to Purchase — A formal document in which a buyer proposes to buy a property for a specified amount and under certain conditions. Acceptance by the seller creates a contract binding on both parties, subject to any contingencies.

Origination Fee — A fee paid to a lender for processing a loan application, stated as a percentage of the mortgage amount, or points. Due at closing.

Owner Financing — A purchase in which the seller provides all or part of the financing for the buyer.

Owner Occupied — An owner occupied purchase is a 1-4 unit property owned by an individual who will also live in the property as a primary residence.

Payment Cap — A provision of some ARMs limiting how much the borrower's payments may increase, regardless of how much the interest rate increases. May result in negative amortization.

PITI — Stands for Principal, Interest, Taxes, and Insurance - the components of a monthly mortgage payment.

Points — A one-time charge by the lender to increase the yield of a loan. Equal to 1% of the loan amount and paid at closing.

Preapproval — The process of formally applying for the mortgage and paying the application fee. The lender determines that you are eligible for a mortgage of a certain amount.

Prepayment Penalty — A fee some lenders charge to a borrower who pays off a loan before its due date.

Prequalification — The process of determining how large a loan a prospective home buyer can qualify for; this procedure is done before actually applying for the loan.

Principal — The amount originally borrowed. Also that amount of the monthly mortgage payment that reduces the outstanding balance of a mortgage.

PITI — The total mortgage payment which includes principal, interest, taxes and insurance.

Private Mortgage Insurance (PMI) — Insurance provided by a nongovernment insurer to protect a lender against loss if a borrower defaults. Usually required if down payment is less than 20% of the purchase price.

Purchase and Sale Agreement — A legal document requiring the buyer to buy and the seller to sell, under specified terms and conditions.

Real Estate Agent — A person licensed to negotiate and transact the sale of real estate; works on behalf of the seller, unless designated as a buyer's broker.

Real Estate Settlement Procedures Act (RESPA) — A federal consumer protection law that requires lenders to give borrowers advance notice of closing costs.

Realtor — This term designates a member of the National Association of REALTORS® (NAR). Consumers tend to uset his term much in the way they use Kleenex for all brands of tissues. But, in fact, only those who belong to NAR are allowed to call themselves REALTORS®. Members of NAR must follow a code of ethics that often goes beyond state regulations.

Refinancing — The process of obtaining a new mortgage, usually at a lower rate and sometimes at a shorter term, to repay and replace an existing mortgage.

Right of First Refusal — An owner's promise to let someone make the first offer on a property, or to match the amount offered by another party.

Second Mortgage — An additional mortgage behind the first mortgage on a property

Seller Take-Back — An agreement in which a property owner provides financing to a buyer.

Settlement Statement — The complete breakdown of cost involved in the real estate transaction for both the seller and buyer.

Survey — A drawing showing the legal boundaries of a property and the location of structures on it.

Termite Certification — A document certifying a property has no termites; may be required by a lender.

Three/Two (3/2) Option® — An alternative Fannie Mae financing plan that enables households with earnings at a certain percentage of the median income in their area to make a 3% down payment with their own funds, coupled with a 2% gift from a relative, or a 2% grant or unsecured loan from a non-profit organization or government program.

Title — The evidence of the right to or ownership in property. In the case of real estate, the documentation evidence of ownership in the title deed, which specifies in whom the legal state is vested and the history of ownership and transfers.

Title Insurance — Title insurance is a contract guaranteeing the purchaser of real estate against loss from undiscovered defects in the title to property that has been purchased. Such loss may stem from unmarketability of the property because of defective title or from costs incurred to cure defects of the title.

Title Search — A detailed examination of the title records to ensure that the seller of a property is the legal owner and that there are no liens or other claims outstanding.

Transfer Tax — State or local tax payable when the title passes from one owner to another.

Truth in Lending — A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the APR and other charges.

Underwriting — The process of evaluating a loan application to determine the lender's risk.

VA Loan — A loan guaranteed by the Department of Veterans Affairs, requiring low or no down payment.