1453 New Haven Road (Rt. 63), Naugatuck, CT 06770 Phone: (203) 729-9050 info@egfllc.com
Glossary of Terms
Adjustment Date
The date on which the interest rate changes for an adjustable-rate mortgage (ARM).
Adjustment Period
For an adjustable-rate mortgage, the time period between interest rate change dates, as stated in the mortgage note.
Amortization
The gradual reduction of the mortgage debt through regularly scheduled payments over the term of the loan.
Amortization Schedule
A timetable for payment of a mortgage loan. An amortization schedule shows: the amount of each payment; the amount to be applied to principal and interest; and the remaining principal balance after each payment is made.
Annual Percentage Rate (APR)
The measure of the cost of credit stated as a yearly rate; includes such items as the stated interest rate, plus certain charges.
Appraisal
A written estimate or opinion of a property's value prepared by a qualified appraiser.
Appreciation
An increase in the value of an item (e.g., the increase in the market value of real estate).
Asset
Anything of monetary value that is owned by a person or company. Assets include real property, personal property, stocks, mutual funds, etc.
Balloon Mortgage
A mortgage in which the borrower's monthly payments are amortized over a longer period than the actual term of the mortgage. As a result, at the end of the loan term, the borrower must pay off the remaining balance with a single lump sum payment or refinance the loan.
Balloon Payment
The final lump sum payment that is made at the maturity date of a balloon mortgage
Bankruptcy
A legal proceeding that allows debtors to eliminate or restructure debts when they have financial difficulties.
Bridge Loan
A short-term loan secured by the borrower's current home (which is usually for sale) that allows the proceeds to be used for building or closing on a new house before the current home is sold. Also known as a "swing loan."
Broker
An individual or firm that acts as an agent between providers and users of products or services, such as a mortgage broker or real estate broker.
Buydown
An arrangement whereby the property developer or another third party provides an interest subsidy to reduce the borrower's monthly payments typically in the early years of the loan.
Cap
For an adjustable-rate mortgage (ARM), a limitation on the amount the interest rate or mortgage payments may increase or decrease.
Cash-out Refinance
A refinance transaction in which the borrower receives additional funds over and above the amount needed to repay the existing mortgage, closing costs, points, and any subordinate liens.
Certificate of Deposit
A document issued by a bank or other financial institution that is evidence of a deposit, with the issuer's promise to return the deposit plus earnings at a specified interest rate within a specified time period.
Chain of Title
The history of all of the documents that have transferred title to a parcel of real property, starting with the earliest existing document and ending with the most recent.
Closing
The process of completing a financial transaction. For mortgage loans, the process of signing mortgage documents, disbursing funds, and, if applicable, transferring ownership of the property. In some jurisdictions, closing is referred to as "escrow," a process by which a buyer and seller deliver legal documents to a third party who completes the transaction in accordance with their instructions.
Closing Agent
The person or entity that coordinates the various closing activities, including the preparation and recordation of closing documents and the disbursement of funds. (May be referred to as an escrow agent or settlement agent in some jurisdictions.) Typically the closing is conducted by title companies, escrow companies or attorneys.
Closing Costs
The fees charged in connection with a mortgage loan transaction. Money paid by a buyer (and/or seller or other third party, if applicable) to effect the closing of a mortgage loan, generally including, but not limited to a loan origination fee, title examination and insurance, survey, attorney's fee, and prepaid items, such as escrow deposits for taxes and insurance.
Co-borrower
Any borrower other than the first borrower whose name appears on the application and mortgage note, even when that person owns the property jointly with the first borrower and shares liability for the note.
Collateral
An asset that is pledged as security for a loan. The borrower risks losing the asset if the loan is not repaid according to the terms of the loan agreement.
Collection
The efforts a lender takes to collect past due payments
Commission
The fee charged for services performed, usually based on a percentage of the price of the items sold (such as the fee a real estate agent earns on the sale of a house).
Commitment Letter
A binding offer by a lender to loan money at a future date subject to the borrower's compliance with stated conditions.
Comparables
An abbreviation for "comparable properties," which are used as a comparison in determining the current value of a property that is being appraised.
Construction Loan
A loan for financing the cost of construction or improvements to a property; the lender disburses payments to the builder at periodic intervals during construction.
Contingency
A condition that must be met before a contract is legally binding. For example, home purchasers often include a home inspection contingency; the sales contract is not binding unless and until the purchaser has the home inspected.
Conventional Mortgage
A mortgage loan that is not insured or guaranteed by the federal government or one of its agencies, such as FHA, VA or RHS. Contrast with "Government Mortgage."
Credit Bureau
An independent agency that gathers and maintains information on the debts and repayment records of individuals and businesses.
Credit History
A record of an individual's debts and repayment record. A credit history helps a lender to determine whether a potential borrower has a history of repaying debts in a timely manner.
Credit Report
A document provided by a credit reporting agency containing information about an individual's previous mortgage history, bank loans, credit cards, and public records dealing with financial matters.
Credit Score
A numerical value that ranks a borrower's credit risk at a given point in time based on a statistical evaluation of information in the individual's credit file that has been proven to be predictive of loan performance.
Creditor
A person to whom money is owed
Debt
An amount owed to another.
Debt-to-Income Ratio
The relationship between a borrower's total monthly debt payments (including proposed housing expenses) and his or her gross monthly income; this calculation is used in determining the mortgage amount that a borrower qualifies for.
Deed
The legal document conveying title to a property (i.e., transferring the ownership of real property from one party to another.)
Default
The failure to make a scheduled payment or otherwise comply with the terms of a mortgage loan or other contract.
Delinquency
Failure to make a payment when it is due. The condition of a loan when a scheduled payment has not been received by the due date, but generally used to refer to a loan for which payment is 30 or more days past due.
Discount Point
A fee paid by the borrower at closing to reduce the interest rate. A point equals 1 percent of the loan amount.
Down Payment
The amount of cash a buyer puts toward a purchase
Earnest Money Deposit
A deposit submitted with a purchase offer to show that the buyer's offer is being made in "good faith."
Equal Credit Opportunity Act (ECOA)
A federal law that requires lenders to make credit equally available without regard to the applicant's race, color, religion, national origin, age, sex, or marital status; the fact that all or part of the applicant's income is derived from a public assistance program; or the fact that the applicant has in good faith exercised any right under the Consumer Credit Protection Act.
Equity
The owner's interest in a property, calculated as the current fair market value of the property less the amount of existing liens.
Escrow
An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the deposit by a borrower with the lender of funds to pay taxes and insurance premiums when they become due, or the deposit of funds or documents with an attorney or escrow agent to be disbursed upon the closing of a sale of real estate.
Escrow Account
An account that a mortgage servicer establishes on behalf of a borrower to pay taxes, insurance premiums, or other charges when they are due. Sometimes referred to as an "impound" or "reserve" account.
Fair Credit Reporting Act
A consumer protection law that regulates the disclosure of consumer credit reports by credit reporting agencies and specifies procedures for challenging errors on a credit record.
Fannie Mae
A New York stock exchange company. It is a public company that operates under a federal charter and is the nation's largest source of financing for home mortgages. Fannie Mae does not lend money directly to consumers, but instead works to ensure that mortgage funds are available and affordable, by purchasing mortgage loans from institutions that lend directly to consumers.
Federal Housing Administration (FHA) / FHA Loan
An agency within the U.S. Department of Housing and Urban Development (HUD) that insures mortgages and loans made by private lenders. An FHA loan is insured by the Federal Housing Administration (FHA) of the U.S. Department of Housing and Urban Development (HUD).
First Mortgage
A mortgage that is the primary lien against a property.
First Time Home Buyer
A person with no ownership interest in a principal residence during the three-year period preceding the purchase of the security property.
Fixed-Period Adjustable-Rate Mortgage
An adjustable-rate mortgage (ARM) that offers a fixed rate for an initial period, typically three to ten years, and then adjusts every six months, annually, or at another specified period, for the remainder of the term.
Fixed-Rate Mortgage (FRM)
A mortgage loan in which the interest rate does not change during the entire term.
Flood Certification Fee
A fee charged by independent mapping firms to identify properties located in areas designated as flood zones.
Flood Insurance
Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood hazard zones.
Foreclosure
The legal process by which a property that is mortgaged as security for a loan may be sold and the proceeds of the sale applied to the mortgage debt. A foreclosure occurs when the loan becomes delinquent because payments have not been made or when the borrower is in default for a reason other than the failure to make timely mortgage payments.
Good Faith Estimate (GFE)
A form required by the Real Estate Settlement and Procedures Act (RESPA) that discloses an estimate of the amount or range of charges, for specific settlement services the borrower is likely to incur in connection with the mortgage transaction.
Hazard Insurance
Insurance coverage that compensates for physical damage to a property from fire, wind, vandalism, or other covered hazards or natural disasters.
Home Equity Line of Credit
A type of revolving loan, that enables a home owner to obtain multiple advances of the loan proceeds at his or her own discretion, up to an amount that represents a specified percentage of the borrower's equity in the property.
Home Inspection
An examination of the construction, condition and internal systems of a home prior to purchase; satisfactory home inspection may be a condition of purchase.
Homeowner's Insurance
A broad form of insurance coverage that combines hazard insurance with personal liability protection and other coverage.
Housing Expense Ratio
The percentage of a borrower's gross monthly income that is devoted to housing costs.
HUD-1 Settlement Statement
A document that lists all closing costs on a real estate purchase or refinance transaction. Also known as the "closing statement" or "settlement sheet."
Judgment Lien
A lien on the property of a debtor resulting from the decree of a court.
Income Property
Real estate developed or purchased to produce income, such as a rental unit.
Initial Interest Rate
The original interest rate for an adjustable-rate mortgage (ARM). Sometimes known as the "start rate."
Installment
The regular periodic payment that a borrower agrees to make to a lender.
Interest
The fee charged for borrowing money, usually expressed as an annual percentage of the principal.
Interest Rate Cap
For an adjustable-rate mortgage, a limitation on the amount the interest rate can change per adjustment or over the lifetime of the loan, as stated in the note.
Interest Rate Ceiling
For an adjustable-rate mortgage (ARM), the maximum interest rate, as specified in the mortgage note.
Interest Rate Floor
For an adjustable-rate mortgage (ARM), the minimum interest rate, as specified in the mortgage note.
Jumbo Loan
A loan that exceeds the mortgage amount eligible for purchase by Fannie Mae or Freddie Mac. Also called "nonconforming loan."
Late Charge
A penalty imposed by the lender when a borrower fails to make a scheduled payment on time.
Liabilities
A person's debts and other financial obligations.
Liability Insurance
Insurance coverage that protects property owners against claims of negligence, personal injury or property damage to another party.
Lien
A legal encumbrance or claim on property as security for a debt.
Liquid Asset
A cash asset or an asset that is easily converted into cash.
Loan Origination
The process by which a lender makes a loan which may include taking a loan application, processing and underwriting the application, and closing the loan.
Loan Origination Fee
A fee to cover some of the administrative costs of processing a loan. It is often expressed in points. One point is equal to 1 percent of the loan amount.
Loan-To-Value (LTV) Ratio
The relationship between the loan amount and the value of the property (the lower of appraised value or sales price), expressed as a percentage of the property's value. For example, a $100,000 home with an $80,000 mortgage has an LTV of 80 percent.
Lock-in
An agreement in which the lender agrees to "lock-in" the borrower's interest rate for a set period of time before closing.
Merged Credit Report
A credit report issued by a credit reporting company that combines information from the three major credit repositories.
Mortgage
A loan to finance the purchase of real estate, for which the borrower pledges the real property as security for the repayment of the loan. The borrower gives the lender a lien on the property as collateral for the loan.
Mortgage Banker
A company that specializes in originating real estate loans, and typically uses its own funds or warehouse line of credit to close loans.
Mortgage Broker
An individual or firm that brings borrowers and lenders together for the purpose of loan origination. A mortgage broker typically takes loan applications and may process loans, but generally does not use its own funds to close the loan. Mortgage brokers often act as independent contractors and not as an agent of the borrower or lender.
Mortgage Insurance (MI)
Insurance that protects lenders against losses caused by a borrower's default on a mortgage loan. MI typically is required if the borrower's down payment is less than 20% of the purchase price.
Mortgage Insurance Premium (MIP)
The amount paid by a borrower for mortgage insurance, either to a government agency such as the Federal Housing Administration (FHA) or to a private mortgage insurance (PMI) company.
Mortgagee
The institution or individual to whom a mortgage is given; the lender.
Negative Amortization
An increase in the balance of a loan caused by adding unpaid interest to the loan balance; this occurs when the payment does not cover the interest due.
Net Worth
The value of a company or individual's assets, including cash, less total liabilities.
Note
A written promise to pay a specified amount under the agreed upon conditions.
Note Rate
The interest rate stated on a mortgage note, or other loan agreement.
Original Principal Balance
The total amount of principal owed on a mortgage before any payments are made
Origination Fee
A fee paid to a lender to cover the administrative costs of processing a loan application. The origination fee typically is stated in the form of points. One point is 1 percent of the mortgage amount.
Payment Cap
For an adjustable-rate mortgage (ARM) or other variable rate loan, a limit on the amount that payments can increase or decrease during any one adjustment period.
PITI
An acronym for the four primary components of a monthly mortgage payment: principle, interest, taxes, and insurance (PITI).
PITI Reserves
A cash amount that a borrower has available after making a down payment and paying 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.
Point
An amount equal to 1 percent of the loan amount.
Power of Attorney
A legal document that authorizes another person to act on one's behalf. A power of attorney can grant complete authority or can be limited to certain acts and/or certain periods of time.
Pre-Approval
A process by which a lender provides a prospective borrower with an indication of how much money he or she will be eligible to borrow when applying for a mortgage loan. This process typically includes a review of the applicant???s credit history and may involve the review and verification of income and assets to close.
Pre-Qualification
A preliminary assessment by a lender of the amount it will lend to a potential homebuyer. The process of determining how much money a prospective home buyer may be eligible to borrow before he or she applies for a loan.
Prepayment
Any amount paid to reduce the principal balance of a loan before the scheduled due date
Prepayment Penalty
A fee that a borrower may be required to pay to the lender, in the early years of a mortgage loan, for repaying the loan in full or prepaying a substantial amount to reduce the unpaid principal balance.
Principal
The amount if money owed on a loan, excluding interest. Also, the part of the monthly payment that reduces the remaining balance of a mortgage.
Private Mortgage Insurance (PMI)
Insurance for conventional mortgage loans that protects the lender from loss in the event of default by the borrower.
Purchase and Sale Agreement
A document that details the price and conditions for a transaction. In connection with the sale of a residential property, the agreement typically would include: information about the property to be sold, sale price, down payment, earnest money deposit, financing, closing date, occupancy date, length of time the offer is valid, and any special contingencies.
Qualifying Ratios
Calculations that are used in determining the loan amount that a borrower qualifies for, typically a comparison of the borrower's total monthly income to monthly debt payments and other recurring monthly obligations.
Quality Control
A system of safeguards to ensure that loans are originated, underwritten and serviced according to the lender's standards and, if applicable, the standards of the investor, governmental agency, or mortgage insurer.
Rate Lock
An agreement in which a lender "locks in" or guarantees an interest rate for a specified period of time prior to closing.
Real Estate Settlement Procedures Act (RESPA)
A federal law that requires lenders to provide home mortgage borrowers with information about transaction-related costs prior to settlement, as well as information during the life of the loan regarding servicing and escrow accounts. RESPA also prohibits kickbacks and unearned fees in the mortgage loan business.
Recording
The filing of a lien or other legal documents in the appropriate public record.
Refinance Transaction
The process of paying off one loan with the proceeds from a new loan using the same property as security.
Rescission
The cancellation or annulment of a transaction or contract by operation of law or by mutual consent. Borrowers may have a right to cancel certain mortgage refinance transactions within three business days after closing, or for up to three years in certain instances.
Revolving Debt
Credit that is extended by a creditor under a plan in which (1) the creditor contemplates repeated transactions; (2) the creditor may impose a finance charge from time to time on an outstanding unpaid balance; and (3) the amount of credit that may be extended to the consumer during the term of the plan is generally made available to the extent that any outstanding balance is repaid.
Second Mortgage / Subordinate Financing
A mortgage that has a lien position subordinate to the first mortgage.
Seller Take-Back/ Seller Concession
An agreement in which the seller of a property provides financing to the buyer for the home purchase.
Survey
A precise measurement of a property by a licensed surveyor, showing legal boundaries of a property and the dimensions and location of improvements.
Taxes and Insurance
Funds collected as part of the borrower's monthly payment and held in escrow for the payment of the borrower's state and local property taxes and insurance premiums.
Termite Inspection
An inspection to determine whether a property has termite infestation or termite damage. In many parts of the country, a home must be inspected for termites before it can be sold.
Title
A legal document evidencing a person's right to or ownership of a property
Title Insurance
Insurance that protects the lender (lender's policy) or the buyer (owner's policy) against losses arising from defects in the title not listed in the title report or abstract.
Title Search
A check of the public records to ensure that the seller is the legal owner of the property and to identify any liens or claims against the property.
Truth-in-Lending
A federal law intended to promote the informed use of consumer credit by requiring disclosure about its terms and costs. Creditors are required to disclose the cost of credit as a dollar amount (the finance charge) and as an annual percentage rate (APR).
Underwriting
In mortgage lending, the process of evaluating a loan application to determine the risk involved for the lender. Underwriting involves an analysis of the borrower's creditworthiness, ability to repay the loan, and the value of the property securing the loan.
1453 New Haven Road (Rt. 63), Naugatuck, CT 06770 Phone: (203) 729-9050 info@egfllc.com