1003/Uniform Residential Loan Application
The 1003, also known as the Loan Application, is a form used by lenders to obtain financial and personal information from borrowers who apply for a mortgage loan. Also known as the Uniform Residential Loan Application.
1031 Exchange
A 1031 Exchange is a method used to “defer” paying capital gains taxes on an investment property when it is sold, as long another “like-kind property” is purchased with the profit gained by the sale of the first property.
Additional Principal Payment
A way to reduce the remaining balance on the loan by paying more than the scheduled principal amount due.
Adjustable-Rate Mortgage (ARM)
A mortgage with an interest rate that changes at specific intervals, during the life of the loan according to the loan’s Index rate.
Adjustment Date
The date that the interest rate changes on an adjustable-rate mortgage (ARM).
Adjustment Period
The period elapsing between adjustment dates for an adjustable-rate mortgage (ARM).
Amortization
The gradual repayment of a mortgage loan, with installment payments of principal and interest.
Amortization Term
The length of time required to amortize the mortgage loan expressed as a number of months. For example, 360 months is the amortization term for a 30-year fixed-rate mortgage.
Annual Percentage Rate (APR)
The cost of credit, expressed as a yearly rate including interest, mortgage insurance, and loan origination fees. This allows the buyer to compare loans, however APR should not be confused with the actual note/interest rate.
Appraisal
A written analysis prepared by a qualified and licensed appraiser, estimating the value of a property.
Appraised Value
An opinion of a property’s fair market value, based on an appraiser’s knowledge and experience, comparable sales, and analysis of the property.
Asset
Anything owned of monetary value, such as bank or brokerage accounts, stocks, mutual funds, retirement accounts and real property,.
Assumable Loan
An Assumable Loan is when the seller’s existing mortgage is transferred to the new buyer of the seller’s home. Assumable loans require a credit review of the new borrower. Assumable loans are not common in California.
Balloon Mortgage
A mortgage with level monthly payments that amortized over a stated term that requires that a lump sum payment be paid at the end of an earlier specified term.
Balloon Payment
The final lump sum paid at the maturity date of a balloon mortgage.
Bi-weekly Payments
A mortgage payment method, where 1/2 of the monthly mortgage payment is paid every two weeks, instead of once per month. On a standard 30 year fixed loan, there would be 26 bi-weekly payments instead of 12 monthly payments. The result for the borrower is a substantial savings in mortgage interest and a shorter loan term.
Bridge Loan
A second trust-deed that is collateralized by the borrower’s present home allowing the proceeds to be used to close on a new house before the present home is sold. Also known as “swing loan.”
Caps (specific to Adjustable Rate Mortgages/ARMs)
Caps limit how much the interest rate or the monthly payment can increase or decrease, either at the initial rate adjustment, subsequent rate adjustments periods or during the life of the mortgage.
Cash-Out Refinance
A cash-out refinance replaces an existing mortgage with a new mortgage that has a higher loan amount than is necessary to pay off the the existing loan balance. The difference goes to the borrower, in cash, and can be spent on home improvements, debt consolidation or other financial needs.
Certificate of Eligibility
A document issued by the federal government certifying a veteran’s eligibility for a Department of Veterans Affairs (VA) mortgage.
Certificate of Reasonable Value (CRV)
A document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA mortgage.
Change Frequency
The frequency (in months) of payment and/or interest rate changes in an adjustable-rate mortgage (ARM).
Clear To Close
“Clear to Close” is a term used by underwriters, to indicate that they have reviewed and approved all documentation required to fund the loan. When a file is clear to close, the loan documents will be ordered and the the final closing process begins.
Closing
Closing is a process to finalize the purchase/sale of a property or mortgage refinance. At closing, final loan documents are signed and notarized and closing funds are wired to escrow. Also called “Settlement.”
Closing Costs (Non-Recurring)
These are one-time costs that are incurred when buying or selling a home or when refinancing. Closing costs normally include escrow fees, title insurance, lender fees, appraisal fees, homeowners insurance, property taxes and pro-rated mortgage interest. Closing costs will vary according to the county, loan amount and lender.
Closing Disclosure (CD)
A Closing Disclosure, also known as a “CD”, is a five-page form, provided after the loan has been approved and is clear-to close. The Closing Disclosure specifies the final details about the selected mortgage loan. It includes the loan terms, the projected monthly payments, and a detailed breakdown of closing costs and funds required to close.
Comparable Sales – “Comps”
“Comps,” short for Comparable Sales, refer to prices paid for recently sold homes that are comparable in size, age, style and location. Appraisers and real estate agents will analyze recent comparable sales in the area, to determine the current market value of a property,
Conditional Loan Approval
A conditional loan approval means the lender has reviewed the application and supporting documentation and agrees to do the loan subject to certain conditions being met. Common approval conditions may include an appraisal, letters of explanation from the borrower, updated paystubs or bank statements.
Conditions
Conditions fall into two categories: “prior-to-document” conditions and “prior-to-funding conditions”. Prior-to-document conditions are stated in the conditional loan approval (see above) and are required to ensure the borrower qualifies for the loan. Prior-to-funding conditions are more procedural in nature, and tend to be taken care of by the escrow company, the insurance company and the lender’s funding department.
Conforming Loan Limit
The conforming loan limit is the maximum loan amount that Fannie Mae and Freddie Mac will purchase or insure. The conforming loan limit is adjusted every year to reflect the average home price in the U.S. For 2019, the conforming loan limit was increased to $484,350.00. In some “high cost” areas across the country, Fannie Mae and Freddie Mac have established a “High-Balance Conforming loan amount. (see High-Balance Conforming Loan Limit)
Consumer Reporting Agency (or Bureau)
An organization that handles the preparation of credit, used by lenders, to determine a potential borrower’s credit history. The agency gets data for these reports from a credit repository and from other sources. The most common Consumer Reporting Agencies are: TransUnion, Equifax and Experian.
Contingency
A contingency is a condition or action that must be met, within a specific time-frame, for a real estate purchase agreement to become binding. Most purchase contracts specify 17 days for Appraisal Contingency and 21 days for Loan Contingency (although the buyer and seller can agree to extend or shorten the contingency period). Contingency clauses are primarily put in place to protect the buyer, and their earnest money deposit, should something go wrong. For example, if, during the contingency period, a buyer is unable to obtain mortgage financing or if the appraisal does not support the purchase price, the buyer has the right to cancel the purchase contract will not risk losing their earnest money deposit.
Contingency Release/Removal
Contingency release is a buyer’s submission of a written contingency removal form, at which point, the purchase agreement becomes a binding contract. If a buyer has released contingencies but is unable to close the purchase, the seller has the right to keep the buyer’s earnest money deposit. If a contingency period has expired, but the buyer has not submitted a written contingency removal, the contingency period is still considered to be in effect. However, if the buyer fails to submit the form by the date outlined in the contract, the seller can give the buyer a Notice to Perform, which gives the buyer 72 hours to remove contingencies or the seller may be entitled to cancel the purchase contract.
Contingent Sale
A contingent sale is when a buyer makes an offer to purchase a property, contingent upon their ability to sell their existing home first.
Conventional Loan
A conventional loan is any type of mortgage that is not offered or secured by a government entity, such FHA, VA or USDA, but instead is available through private lenders (banks, credit unions, mortgage companies) or meets the guidelines of Fannie Mae and Freddie Mac.
Conversion Clause
A provision in an ARM allowing the loan to be converted to a fixed-rate at some point during the term. Usually conversion is allowed at the end of the first adjustment period. Some lenders may charge a conversion fee.
Credit Report
A report detailing an individual’s credit history that is prepared by a credit bureau and used by a lender to determine a loan applicant’s creditworthiness.
Credit Risk Score
A credit score measures a consumer’s credit risk relative to the rest of the U.S. population, based on the individual’s credit usage history. The credit score most widely used by lenders is the FICO® score, developed by Fair, Issac and Company. This 3-digit number, ranging from 300 to 850, is calculated by a mathematical equation that evaluates many types of information that are on your credit report. Higher FICO® scores represents lower credit risks, which typically equate to better loan terms. In general, credit scores are critical in the mortgage loan underwriting process.
Debt-To-Income (DTI) Ratio
A borrower’s total monthly debt liabilities, including monthly housing expenses, expressed as a percentage of the borrower’s gross monthly income.
Deed of Trust
A Deed of Trust is a recorded document, used to secure a loan/mortgage on real property.
Discount Points
Discount points, are fees paid directly to the lender, at closing, in exchange for a reduced interest rate. This is also called “buying down the rate,” which can lower your monthly mortgage payments. One point is equal to 1 percent of your loan amount (or $1,000 for every $100,000).
Down Payment
Part of the purchase price of a property that is paid in cash and not financed with a mortgage.
Earnest Money Deposit (EMD)
Earnest Money is a deposit made to a seller that represents a buyer’s good faith to buy a home. Typically equal to 1% -3% of the purchase price, the funds are held in an escrow account until closing, at which time the deposit is applied to the buyer’s down payment and closing costs.
Equity
The amount of financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on the mortgage.
Escrow (Settlement Service)
Escrow is a process where key parties to a real estate transaction (typically buyer and seller) deposit documents, funds and other items of value, with a neutral 3rd party, to be held in trust, until specific events or conditions take place. An escrow company (and the Escrow officer) act as the 3rd party liason, to protect the interests of both buyer and seller, during the real estate transaction.
Escrow/Impound Account
An escrow/impound account is an account that is set up with your mortgage loan. Your lender will collect 1/12th of your annual property taxes and annual homeowners insurance premium, along with your monthly mortgage payment, and pay your property taxes and homeowners insurance, on your behalf, when they are due. Escrow/impound accounts may be required on loans with high loan-to-value ratios, but for most conventional loans under 80% LTV, setting up an escrow/impound account is a matter of personal choice. Many borrowers who choose to have impound accounts do so for convenience. Instead of paying property taxes in two large installments each year, it’s easier to pay a smaller amount each month, much like an automatic savings account.
Escrow Disbursements
The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.
Escrow Payment
The part of a monthly mortgage payment, that is held by the loan servicer, to pay for property taxes, hazard insurance, mortgage insurance and other items as they become due.
FHA Mortgage
A mortgage that is insured by the Federal Housing Administration (FHA). Also known as a government mortgage.
First Trust Deed
The primary lien against a property.
Fixed Installment
The monthly payment due on a mortgage loan including payment of both principal and interest.
Fixed-Rate Mortgage (FRM)
A mortgage interest rate that is fixed throughout the entire term of the loan.
Fully Amortized ARM
An adjustable-rate mortgage (ARM) with a monthly principal and interest payment that is sufficient to amortize the remaining balance, over the loan amortization term.
Funding
The term “funding” refers to the process of wiring or releasing funds from a mortgage lender to title or escrow, prior to closing a real estate transaction. Funding occurs after final loan documents have been signed and all funding conditions have been met. Before funding a loan, expect the lender to conduct a final check of your credit report and employment status.
Gift Funds
A buyer purchasing a primary residence or second home may use funds received as a personal gift from an acceptable donor. The guidelines for “acceptable donors” vary, according to loan type. For conventional loans, an acceptable donor may be a family member, spouse, fiance, or domestic partner. FHA, VA and USDA loans allow for additional types of “acceptable donors”. Gift funds may be used to fund all or part of the down payment, closing costs, and/or financial reserves subject to the lender’s minimum borrower contribution requirements. The donor may be required to provide a “Gift Letter”. (see Gift Letter)
Gift Letter
If a borrower is using gift funds for part or all of the down payment, the donor of the gift funds may be required to provide a “gift letter” that makes it clear that the money is a gift and not a loan. The letter will typically include the donor’s name, address and phone number, the donor’s relationship to the borrower, the amount of the gift, a statement that no repayment is expected, the property address for use of the gift funds, and the donor’s signature.
High-Balance Conforming Loan Limit
A High-Balance Mortgage Loan is defined as a conventional mortgage where the original loan amount exceeds the conforming loan limits, but does not exceed the loan limit for the high-cost areas in which the mortgaged property is located. For 2019, the conforming loan limit is $484,350 and, depending on the County where the property is located, the maximum high-balance conforming loan limit is $726,525 for a single family or 1-unit property.
HOA Cert
An HOA Cert, or Homeowner’s Association Certificate, is a form required by a lender that provides information regarding the number of units that are owner and/or non‑owner occupied in the community, notices regarding pending litigation, and notices of pending and current assessments and reserves.
HOA Dues
Homeowners Association (HOA) dues are monthly fees that must be paid by homeowners of condominiums and other types of residential properties, that are governed by a Homeowners Association. HOA dues are used for maintaining and improving common areas, within the property complex HOA dues may also cover the cost of the master fire insurance policy for the property.
Home Equity Line Of Credit (HELOC)
A Home Equity Line of Credit, also known as a HELOC, is a line of credit secured by your home that gives you a revolving credit line to use, as needed. A HELOC may be used for large purchases or to consolidate higher-interest rate debt from other loans or credit cards. A HELOC typically has a 10 year “draw” period with “interest-only” payments, where you can borrow as much or as little as needed. As you repay the outstanding balance, the amount of your available credit is replenished, much like a credit card. At the end of the 10th year, the draw period ends and the remaining loan balance is amortized over the remaining 20 years, with principal and interest payments.
Home Equity Loan
A Home Equity Loan is a second mortgage, secured by your home, that allows you to receive the total loan proceeds in a lump-sum payment. A Home Equity Loan typically has a fixed interest rate and monthly payment that is repaid over a 5 – 15 year loan term.
Home Inspection
A home inspection is a report on the overall condition of a home. A thorough home inspection gives the buyer details about a home’s structure, foundation, electrical, plumbing, and more. A home inspector checks the areas of a home beyond what a buyer can see on the surface. Getting a home inspection is important because it helps the buyer know if a home may need costly repairs. What is uncovered during an inspection can become part of a sales negotiation between buyer and seller, and their respective real estate agents.
Homeowners Insurance
Homeowners insurance, provides financial protection in the event that the homeowner’s house or its contents are damaged by fire, theft or other covered events. It may also provide liability protection for injuries to other people or damage to their possessions while they are on the property. Lenders will require a homeowners (fire) insurance policy be in effect, when issuing a mortgage. Standard homeowners insurance policies do not include earthquake coverage, but a homeowner may elect to purchase a separate earthquake insurance policy. Earthquake insurance is not required, to obtain a mortgage.
HO6 Insurance
HO6 Insurance, also known as “condo contents” or “walls-in” insurance is insurance condominium owners. It typically provides owners with personal property coverage, liability coverage and coverage for interior damage to the unit, improvements, additions, alterations and personal property. It may also cover additional living expenses if the unit is uninhabitable. Lenders require HO6 insurance, when you are obtaining a mortgage for a condominium. Most Homeowners Associations carry a master fire insurance policy, which typically provides coverage only to the common areas and the building structures, up to the exterior walls of the condominium units.
Index
The index is the measure of interest rate changes a lender uses to decide the amount an interest rate on an ARM will change over time.The index is generally a published number or percentage, such as the average interest rate or yield on Treasury bills. Some index rates tend to be higher than others and some more volatile.
Initial Interest Rate
This refers to the initial interest rate of an adjustable-rate mortgage, at the time of closing. Also known as “start rate”.
Installment Payment
The regular periodic payment that a borrower agrees to make to a lender.
Insured Mortgage
A mortgage that is protected by the Federal Housing Administration (FHA) or by private mortgage insurance (PMI).
Interest
Interest is the fee or cost, charged by a lender, for borrowing money.
Interest-Only Loan
An interest-only loan is a loan in which the borrower pays only interest, for a specified period of time. If a borrower makes interest-only payments, (without additional principal reduction) the principal balance will remain unchanged during the interest-only period. At the end of the interest-only term, the principal balance will convert to a fully-amortized loan, requiring principal and interest payments, for the remainder of the loan term.
Interest Rate Ceiling
For an adjustable-rate mortgage (ARM), the interest rate ceiling is the maximum interest rate, as specified in the mortgage note.
Interest Rate Floor
For an adjustable-rate mortgage (ARM), the interest rate floor is the minimum interest rate, as specified in the mortgage note.
Jumbo Loan
A jumbo loan, or jumbo mortgage, is a type of financing that exceeds the conforming and high-balance conforming loan limits set by the Federal Housing Finance Agency (FHFA). Unlike conventional mortgages, a jumbo loan is not eligible to be purchased, guaranteed or securitized by Fannie Mae or Freddie Mac. Jumbo loans generally refer to loans above $726,525 up to $5 million or more. Fixed rate, adjustable-rate mortgages or interest-only loans are available on jumbo loans. Also referred to as a “non-conforming” loan.
Late Charge
The penalty a borrower must pay when a payment is made a stated number of days (usually 15) after the due date.
Letter of Explanation (LOE)
Letters of Explanation (LOEs) are commonly requested by lenders, during the underwriting process. As the name implies, a Letter of Explanation is simply a written letter, signed by a borrower, to explain something that needs further clarification. Explanations may be requested for name variations or derogatory item appearing on a credit report, address discrepancies, large deposits made to a bank account, to name a few.
Liabilities
A person’s financial obligations. Liabilities include long-term and short-term debt.
Lifetime Rate Cap
For an adjustable-rate mortgage (ARM), the lifetime cap is the maximum number of percentage points an interest rate can increase, over the initial interest rate, during the life of the loan.
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 Estimate (LE)
Lenders are required to provide borrowers with a Loan Estimate (LE), within three business days of receiving a loan application. The Loan Estimate is a disclosure that provides a borrower with important information regarding the terms of the loan, including the estimated interest rate, monthly payment, and total closing costs for the loan.
Loan-to-Value (LTV)
A loan-to-value (LTV) ratio is calculated by dividing the outstanding loan balance by the property’s appraised value. For example, a property with an appraised value of $400,000, that has a loan amount of $300,000, will have a 75% LTV ratio. When it comes to mortgage financing, the lower the LTV, the lower the risk to a lender, which typically results in lower better terms and interest rates.
Lock-In Period
A lock-in period refers to the specific period that an interest rate has been locked for. A lock period typically ranges from 10 to 60 days. A loan must close during the lock-in period, in order to keep the locked interest rate.
Margin
A Margin is a fixed percentage rate assigned to an adjustable rate mortgage (ARM). When the interest rate on the ARM is scheduled to adjust, the intere rate will be calculated by adding the fixed Margin to the loan’s variable Index rate.
Maturity
The date on which the principal balance of a loan becomes due and payable.
Mortgage
A legal document that pledges a property to the lender as security for payment of a debt.
Mortgage Insurance (MI or PMI)
Mortgage Insurance, commonly known as MI or PMI is the monthly mortgage insurance premium paid, on conventional (non-government) loans where the down payment is less than 20%. MI/PMI is cancelled automatically when the original loan balance reaches 78% of the home’s original value. A homeowner may also request that MI/PMI be canceled when the equity in the home reaches 20 percent of the purchase price or appraised value.
Mortgage Insurance Premium (MIP)
MIP is the monthly mortgage insurance premium paid on FHA loans. For FHA loans issued after June 3, 2013, if the down payment was less than 10%, MIP is required to be paid for the life of the loan.
Mortgage Interest
The amount paid by a mortgagor for mortgage insurance.
Mortgage Life Insurance
A type of term life insurance In the event that the borrower dies while the policy is in force, the debt is automatically paid by insurance proceeds.
Mortgagor
The borrower in a mortgage agreement.
Negative Amortization
Negative amortization occurs when monthly mortgage payments are not enough to pay the interest and reduce the principal on your mortgage. The interest cost that isn’t covered is added to the unpaid principal balance. This means that even after making many payments, you could owe more than you did at the beginning of the loan. Negative amortization loans have, for good reason, become extremely uncommon.
Net Worth
The value of all of a person’s assets, including cash and equity in real property.
Non Liquid Asset
An asset that cannot easily be converted into cash.
Note
A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.
Occupancy
Occupancy refers to a how a homeowner will occupy a property. A homeowner may occupy the property as their primary residence, which is considered “owner-occupied”. A homeowner may have a second home which is also considered “owner-occupied”, but implies that the homeowner has another principal residence. A rental or investment property is considered a “non-owner-occupied” property, as the owner will not live in the property. Owner-occupied loans offer better interest rates and require smaller down payments.
Payment Change Date
The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM) or a graduated-payment mortgage (GPM). Generally, the payment change date occurs in the month immediately after the adjustment date.
Payoff/Demand Statement
A payoff, or demand, is a statement prepared by a lender, detailing exactly how much is required to pay off a loan. The payoff amount is different from the loan balance shown on a mortgage statement, because the payoff will include fees charged by the lender to prepare the payoff statement as well as pro-rated, per-diem mortgage interest that must be collected through day the loan is paid off. If a loan has a prepayment penalty and is paid off early, the prepayment penalty will appear on the payoff statement.
Periodic Payment Cap
A limit on the amount that payments can increase or decrease during any one adjustment period.
Periodic Rate Cap
A limit on the amount that the interest rate can increase or decrease during any one adjustment period, regardless of how high or low the index might be.
Points/Origination Fee
A point is equal to one percent of the principal amount of your mortgage. For example, for a mortgage of $350,000 one point is equal to $3,500. Points, also known as an Origination Fee, are paid to a lender, as compensation for putting the loan in place. Not all lenders charge Origination Fee/Points. Origination Fee/Points should not be confused with Discount Points, which are paid to buy-down the interest rate.
Prepayment Penalty
A penalty fee that may be charged to a borrower who pays off a loan within a certain time-frame.
Pre-Approval
The process of determining how much money you will be eligible to borrow before you apply for a loan.
Prime Rate
The interest rate that banks charge to their preferred customers. Changes in the prime rate influence changes in other rates, including mortgage interest rates.
Principal
The part of the monthly mortgage payment that reduces the remaining balance of a mortgage.
Principal Balance
The outstanding balance of principal on a mortgage not including interest or any other charges.
Principal, Interest, Taxes, and Insurance (PITI)
The four components of a monthly mortgage payment. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the monthly cost of property taxes and homeowners insurance, whether these amounts that are paid into an escrow account each month or not. If a property requires the payment of Homeowners Association Dues, the dues will be an additional component of the monthly mortgage payment.
Private Mortgage Insurance (PMI)
Mortgage insurance provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require MI for a loan with a loan-to-value (LTV) percentage in excess of 80 percent.
Property Taxes
Property taxes, paid annually by homeowners, are annual taxes, based upon the assessed value of a property. Property taxes are paid annually, in two installments (due in November and February). For the purpose of qualifying for home purchase, most lenders will estimate the property taxes to be 1.250% of the purchase price.
Qualifying Ratios
Qualifying ratios are calculations used to determine if a borrower can qualify for a mortgage. They consist of two separate calculations: a total housing expense as a percent of income ratio (front-end ratio) and total debt obligations as a percent of income ratio (back-end ratio).
Rate and Term Refianance
A rate-and-term refinance is the refinancing of an existing mortgage for the purpose of changing the interest and/or term of a mortgage without taking “cash-out” on the new loan. Rate-and-term refinances typically offer lower interest rates than cash-out refinances.
Rate Lock
A rate lock is a commitment, issued by a lender to a borrower, that guarantees a specific interest rate and cost or credit, for a specified period of time.
Real Estate Agent
A person licensed to negotiate and transact the sale of real estate on behalf of the property owner.
Realtor®
A real estate broker or an associate who is an active member in a local real estate board that is affiliated with the National Association of Realtors.
Recasting
Recasting is a feature in some types of mortgages where the remaining payments are recalculated based on a new amortization schedule. During a mortgage recasting, an individual pays a large sum toward their principal, and their mortgage is then recalculated based on the new balance. Some lenders offer payment recasting on fixed rate or adjustable rate mortgages, for a fee. With an interest-only loan, any principal reduction will automatically recast the payment, during the interest-only period of the loan.
Recording
The noting in the County Registrar’s office of the details of a properly executed legal document, such as a deed, a mortgage note, a satisfaction of mortgage, or an extension of mortgage, thereby making it a part of the public record.
Refinance
Paying off one loan with the proceeds from a new loan using the same property as security.
Rent-Back
A rent-back is an agreement, between buyers and sellers, that allows the sellers to stay in their home until a specified date, after the sale/closing date. After closing, the sellers pay rent to the buyer who now owns the home. The rental amount is typically equal to the new homeowners housing expense.
Reserves
A cash amount that a borrower must have on hand after making a down payment and paying all closing costs for the purchase of a home. The principal, interest, taxes, and insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a predefined number of months (usually three).
Purchase Agreement
A Purchase Agreement is a legally binding contract between buyer and seller that outlines the purchase price and other conditions both parties have agreed to, as related to the sale or transfer of real property. Also known as a sales contract, purchase contract or residential purchase agreement.
Reverse Mortgage
A reverse mortgage is a loan available to homeowners, 62 years or older, that allows them to convert part of the equity in their homes into cash. Instead of making monthly mortgage payments to a lender, the lender makes payments to the borrower or allows the borrower to draw funds, up to a specified amount, as needed. The borrower is not required to pay back the loan until the home is sold or vacated.
Right of Rescission
A right of rescission is a right, set forth by the Truth in Lending Act (TILA) under U.S. federal law, that allows a borrower to cancel a refinance or Home Equity Line/Loan, with a new lender, within three days of closing (even after final loan documents have already been signed). The new lender is not permitted to fund a refinance or Home Equity Line/Loan, until the three day rescission period has lapsed. The three day right of rescission may only be waived in the event of a “bona-fide personal financial emergency”. The three day right of rescission does not apply to purchase loans.
Seasoning
Seasoning refers to a specific length of time, required by a lender, for a specified event to take place. For example, a lender may require that bank account funds be “seasoned” (in the account) for 60 days, in order for the funds to be used for reserves. Or, a lender may require that a borrower be “seasoned” on title for 6 months, before they will issue a new mortgage.
Seller Carry-Back
A Seller Carry-Back refers a home financing method in which the seller of a property can assist a home-buyer, by personally financing a portion (or all) of the purchase price. The seller will typically carry a trust deed and note against the property, which the home-buyer will repay in addition to other financing, if applicable. Also known as Owner-Will-Carry (OWC) or Seller Financing.
Seller Credit
A seller may agree to offer a buyer a “seller-credit” (an agreed upon dollar amount) which is applied to the buyers closing costs, at the close of escrow. A seller credit may not exceed a buyer’s actual closing costs.
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. When a loan is transferred to a new servicer, the original terms of the loan remain the same.
Subordination Agreement
A mortgage subordination agreement is a document frequently used when there are two mortgages on a home, and the homeowner is looking to refinance the first mortgage. The mortgage subordination agreement specifies which mortgage takes lien precedence over the other.
Title Insurance – Lender’s Policy
A Lender’s Title insurance policy is required if you are obtaining a mortgage. Typically paid for by the Buyer, a Lender’s Title Policy protects the lender (not the homeowner) against problems with the title to the property, such as a legal claim against the property.
Title Insurance – Owner’s Policy
An Owner’s Title Policy is a title insurance policy which protects the homeowner, in the event there was a claim against the title of property, prior to the homeowner purchasing the property. It is customary, in California, that the seller pays for the buyer’s Owner’s Title Policy.
Transfer Tax
The County Transfer Tax is a standard of $1.10 per $1,000 of the sales price throughout the state of California. However, there are certain cities that also collect their own City Transfer Tax and those differ. The Transfer Tax is paid by either buyer or seller. In Southern California, it’s typically paid by the seller. In Northern California, it’s typically paid by the buyer.
Trust Deed
A Deed of Trust is a recorded document that represents an agreement between the borrower and a lender to have the property held in trust by a neutral and independent third party until the loan is paid off. During the period of repayment, the borrower keeps the actual or equitable title to the property and maintains full responsibility for the premises. The trustee, however, holds the legal title to the property.
Underwriting
The process of evaluating a loan application to determine the risk involved for the lender. Underwriting involves an analysis of the borrower’s creditworthiness and the quality of the property itself.
Up-Front Mortgage Insurance Premium (UFMIP)
With FHA loans, borrowers are required to pay for mortgage insurance. That includes both a monthly mortgage insurance premium (MIP) and an one-time Up Front Mortgage Insurance Payment (UFMIP). The Up Front Mortgage Insurance Premium funds are used to protect the government in case the borrower defaults on the FHA loan. Currently the Up Front Mortgage Insurance Premium is equal to 1.75 percent on the base loan amount.
VA Mortgage
A mortgage that is guaranteed by the Department of Veterans Affairs (VA). VA loans are available to eligible members of the military, veterans, reservists and National Guard. Spouses of military members who died while on active duty or as a result of a service-connected disability also can apply.
Vesting
Vesting is a method of holding title to real estate. Common types of vesting may include: Sole Ownership, Joint Tenants, Community Property, Tenants-In-Common or in Trust. There may be legal and tax consequences associated with each type of vesting. Consult with your Estate Planner or Attorney, to determine which vesting option is best for you.
VOD – Verification of Deposit
A Verification of Deposit (VOD) is a form, sent from a lender, directly to a borrower’s bank or financial institution. The bank or financial institution will be asked to complete the form, to verify the borrower’s account type, account number, balance and other financial information.
VOE – Verification of Employment
A Verification of Employment (VOE) is a form, sent from a lender, directly to a borrower’s employer. The employer will be asked to complete the form, verifying the borrower’s date of employment, position, monthly income, frequency of pay, likelihood of continued employment and other information.
VOM – Verification of Mortgage
A Verification of Mortgage (VOM) is a form, sent from a lender, directly to a borrower’s mortgage company. The mortgage company will be asked to complete the form, to verify the terms of the borrower’s mortgage and payment history.
VOR – Verification of Rent
A Verification of Rent (VOR) is a form, sent from a lender, directly to a borrower’s landlord or property management company. The landlord or property management company will be asked to complete the form, to verify the borrower’s rental amount and payment history.