Pacor Mortgage Glossary
Please note that the following materials are not from HUD or FHA, and were not approved by HUD or a government agency. (ML2014-10)
NUM
203(b):
FHA's single family program which provides mortgage insurance to lenders to protect against the borrower defaulting; 203(b) is used to finance the purchase of new or existing one to four family housing; 203(b) insured loans are known for requiring a low down payment, flexible qualifying guidelines, limited fees, and a limit on maximum loan amount.
203(k):
This FHA mortgage insurance program enables homebuyers to finance both the purchase of a house and the cost of its rehabilitation through a single mortgage loan.
A
ARM:
Adjustable Rate Mortgage; a mortgage loan subject to changes in interest rates; when rates change, ARM monthly payments increase or decrease at intervals determined by the lender; the change in monthly payment amount, however, is usually subject to a cap.
Acceleration:
The right of the lender to demand payment on the outstanding balance of a loan.
Adjustable-Rate Mortgage (ARM):
A mortgage loan that does not have a fixed interest rate. During the life of the loan the interest rate will change based on the index rate. Also referred to as adjustable mortgage loans (AMLs) or variable-rate mortgages (VRMs).
Amortization:
A payment plan that enables you to reduce your debt gradually through monthly payments. The payments may be principal and interest, or interest-only. The monthly amount is based on the schedule for the entire term or length of the loan.
Application:
The first step in the official loan approval process; this form is used to record important information about the potential borrower necessary to the underwriting process.
Application Fee:
A fee charged by lenders to process a loan application.
Appraisal:
A document from a professional that gives an estimate of a property's fair market value based on the sales of comparable homes in the area and the features of a property; an appraisal is generally required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property.
Appraised Value:
An estimation of the current market value of a property.
Appraiser:
A qualified individual who uses his or her experience and knowledge to prepare the appraisal estimate. Assessments: the method of placing value on an asset for taxation purposes.
B
Biweekly Payment Mortgage:
A mortgage paid twice a month instead of once a month, reducing the amount of interest to be paid on the loan.
Borrower:
A person who has been approved to receive a loan and is then obligated to repay it and any additional fees according to the loan terms.
C
Cap:
A limit, such as one placed on an adjustable rate mortgage, on how much a monthly payment or interest rate can increase or decrease, either at each adjustment period or during the life of the mortgage. Payment caps do not limit the amount of interest the lender is earning, so they may cause negative amortization.
Cash-Out Refinance:
When a borrower refinances a mortgage at a higher principal amount to get additional money. Usually this occurs when the property has appreciated in value. For example, if a home has a current value of $100,000 and an outstanding mortgage of $60,000, the owner could refinance $80,000 and have additional $20,000 in cash.
Cash Reserves:
A cash amount sometimes required of the buyer to be held in reserve in addition to the down payment and closing costs; the amount is determined by the lender.
Clear Title:
A property title that has no defects. Properties with clear titles are marketable for sale.
Closing:
The final step in property purchase where the title is transferred from the seller to the buyer. Closing occurs at a meeting between the buyer, seller, settlement agent, and other agents. At the closing the seller receives payment for the property. Also known as settlement.
Closing Costs:
Fees for final property transfer not included in the price of the property. Typical closing costs include charges for the mortgage loan such as origination fees, discount points, appraisal fee, survey, title insurance, legal fees, real estate professional fees, prepayment of taxes and insurance, and real estate transfer taxes.
Co-Borrower:
An additional person that is responsible for loan repayment and is listed on the title.
Compensating Factors:
Factors that show the ability to repay a loan based on less traditional criteria, such as employment, rent, and utility payment history.
Conforming loan:
Is a loan that does not exceed Fannie Mae's and Freddie Mac's loan limits. Freddie Mac and Fannie Mae loans are referred to as conforming loans.
Conventional Loan:
A private sector loan, one that is not guaranteed or insured by the U.S. government.
Credit Bureau:
An agency that provides financial information and payment history to lenders about potential borrowers. Also known as a National Credit Repository.
Credit Counseling:
Education on how to improve bad credit and how to avoid having more debt than can be repaid.
Credit Report:
A report generated by the credit bureau that contains the borrower's credit history for the past seven years. Lenders use this information to determine if a loan will be granted.
Credit Risk:
A term used to describe the possibility of default on a loan by a borrower.
Credit Score:
A score calculated by using a person's credit report to determine the likelihood of a loan being repaid on time. Scores range from about 360 - 840: a lower score meaning a person is a higher risk, while a higher score means that there is less risk.
D
Debtor:
The person or entity that borrows money. The term debtor may be used interchangeably with the term borrower.
Debt-to-Income Ratio:
A comparison or ratio of gross income to housing and non-housing expenses; With the FHA, the-monthly mortgage payment should be no more than 29% of monthly gross income (before taxes) and the mortgage payment combined with non-housing debts should not exceed 41% of income.
Deed:
A document that legally transfers ownership of property from one person to another. The deed is recorded on public record with the property description and the owner's signature. Also known as the title.
Disclosures:
The release of relevant information about a property that may influence the final sale, especially if it represents defects or problems. "Full disclosure" usually refers to the responsibility of the seller to voluntarily provide all known information about the property. Some disclosures may be required by law, such as the federal requirement to warn of potential lead-based paint hazards in pre-1978 housing. A seller found to have knowingly lied about a defect may face legal penalties.
Discount Point:
Normally paid at closing and generally calculated to be equivalent to 1% of the total loan amount, discount points are paid to reduce the interest rate on a loan. In an ARM with an initial rate discount, the lender gives up a number of percentage points in interest to give you a lower rate and lower payments for part of the mortgage term (usually for one year or less). After the discount period, the ARM rate will probably go up depending on the index rate.
Down Payment:
The portion of a home's purchase price that is paid in cash and is not part of the mortgage loan. This amount varies based on the loan type, but is determined by taking the difference of the sale price and the actual mortgage loan amount. Mortgage insurance is required when a down payment less than 20 percent is made.
Document Recording:
After closing on a loan, certain documents are filed and made public record. Discharges for the prior mortgage holder are filed first. Then the deed is filed with the new owner's and mortgage company's names.
E
Earnest Money (Deposit):
Money put down by a potential buyer to show that they are serious about purchasing the home; it becomes part of the down payment if the offer is accepted, is returned if the offer is rejected, or is forfeited if the buyer pulls out of the deal. During the contingency period the money may be returned to the buyer if the contingencies are not met to the buyer's satisfaction.
Easements:
The legal rights that give someone other than the owner access to use property for a specific purpose. Easements may affect property values and are sometimes a part of the deed.
Encroachments:
A structure that extends over the legal property line on to another individual's property. The property surveyor will note any encroachment on the lot survey done before property transfer. The person who owns the structure will be asked to remove it to prevent future problems.
Encumbrance:
Anything that affects title to a property, such as loans, leases, easements, or restrictions.
Equal Credit Opportunity Act (ECOA):
A federal law requiring lenders to make credit available equally without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.
Escrow Account:
A separate account into which the lender puts a portion of each monthly mortgage payment; an escrow account provides the funds needed for such expenses as property taxes, homeowners insurance, mortgage insurance, etc.
F
FICO Score:
FICO is an abbreviation for Fair Isaac Corporation and refers to a person's credit score based on credit history. Lenders and credit card companies use the number to decide if the person is likely to pay his or her bills. A credit score is evaluated using information from the three major credit bureaus and is usually between 300 and 850.
Fannie Mae:
Federal National Mortgage Association (FNMA); a federally-chartered enterprise owned by private stockholders that purchases residential mortgages and converts them into securities for sale to investors; by purchasing mortgages, Fannie Mae supplies funds that lenders may loan to potential homebuyers. Also known as a Government Sponsored Enterprise (GSE).
FHA:
Federal Housing Administration; established in 1934 to advance homeownership opportunities for all Americans; assists homebuyers by providing mortgage insurance to lenders to cover most losses that may occur when a borrower defaults; this encourages lenders to make loans to borrowers who might not qualify for conventional mortgages.
First Mortgage:
The mortgage with first priority if the loan is not paid.
Fixed-Rate Mortgage:
A mortgage with payments that remain the same throughout the life of the loan because the interest rate and other terms are fixed and do not change.
Float:
The act of allowing an interest rate and discount points to fluctuate with changes in the market.
Flood Insurance:
Insurance that protects homeowners against losses from a flood; if a home is located in a flood plain, the lender will require flood insurance before approving a loan.
Freddie Mac:
Federal Home Loan Mortgage Corporation (FHLM); a federally chartered corporation that purchases residential mortgages, securitizes them, and sells them to investors; this provides lenders with funds for new homebuyers. Also known as a Government Sponsored Enterprise (GSE).
G
Ginnie Mae:
Government National Mortgage Association (GNMA); a government-owned corporation overseen by the U.S. Department of Housing and Urban Development, Ginnie Mae pools FHA-insured and VA-guaranteed loans to back securities for private investment; as With Fannie Mae and Freddie Mac, the investment income provides funding that may then be lent to eligible borrowers by lenders.
Good Faith Estimate:
An estimate of all closing fees including pre-paid and escrow items as well as lender charges; must be given to the borrower within three days after submission of a loan application.
Grantee:
An individual to whom an interest in real property is conveyed.
Grantor:
An individual conveying an interest in real property.
H
HECM (Reverse Mortgage):
The reverse mortgage is used by senior homeowners age 62 and older to convert the equity in their home into monthly streams of income and/or a line of credit to be repaid when they no longer occupy the home. A lending institution such as a mortgage lender, bank, credit union or savings and loan association funds the FHA insured loan, commonly known as HECM.
Hazard Insurance:
Protection against a specific loss, such as fire, wind etc., over a period of time that is secured by the payment of a regularly scheduled premium.
Homeowner's Insurance:
An insurance policy, also called hazard insurance, that combines protection against damage to a dwelling and its contents including fire, storms or other damages with protection against claims of negligence or inappropriate action that result in someone's injury or property damage. Most lenders require homeowners insurance and may escrow the cost. Flood insurance is generally not included in standard policies and must be purchased separately.
Homestead Credit:
Property tax credit program, offered by some state governments, that provides reductions in property taxes to eligible households.
Housing Counseling Agency:
Provides counseling and assistance to individuals on a variety of issues, including loan default, fair housing, and home buying.
HUD:
The U.S. Department of Housing and Urban Development; established in 1965, HUD works to create a decent home and suitable living environment for all Americans; it does this by addressing housing needs, improving and developing American communities, and enforcing fair housing laws.
HUD1 Statement:
Also known as the "settlement sheet," or "closing statement" it itemizes all closing costs; must be given to the borrower at or before closing. Items that appear on the statement include real estate commissions, loan fees, points, and escrow amounts.
I
Index:
The measure of interest rate changes that the lender uses to decide how much the interest rate of an ARM will change over time. No one can be sure when an index rate will go up or down. If a lender bases interest rate adjustments on the average value of an index over time, your interest rate would not be as volatile. You should ask your lender how the index for any ARM you are considering has changed in recent years, and where it is reported.
Interest:
A fee charged for the use of borrowing money.
Interest Rate:
The amount of interest charged on a monthly loan payment, expressed as a percentage.
J
Joint Tenancy (with Rights of Survivorship):
Two or more owners share equal ownership and rights to the property. If a joint owner dies, his or her share of the property passes to the other owners, without probate. In joint tenancy, ownership of the property cannot be willed to someone who is not a joint owner.
Judgment:
A legal decision; when requiring debt repayment, a judgment may include a property lien that secures the creditor's claim by providing a collateral source.
Jumbo Loan:
Or non-conforming loan, is a loan that exceeds Fannie Mae's and Freddie Mac's loan limits. Freddie Mac and Fannie Mae loans are referred to as conforming loans.
L
Late Payment Charges:
The penalty the homeowner must pay when a mortgage payment is made after the due date grace period.
Lender:
A term referring to an person or company that makes loans for real estate purchases. Sometimes referred to as a loan officer or lender.
Liabilities:
A person's financial obligations such as long-term / short-term debt, and other financial obligations to be paid.
Liability Insurance:
Insurance coverage that protects against claims alleging a property owner's negligence or action resulted in bodily injury or damage to another person. It is normally included in homeowner's insurance policies.
Lien:
A legal claim against property that must be satisfied when the property is sold. A claim of money against a property, wherein the value of the property is used as security in repayment of a debt. Examples include a mechanic's lien, which might be for the unpaid cost of building supplies, or a tax lien for unpaid property taxes. A lien is a defect on the title and needs to be settled before transfer of ownership. A lien release is a written report of the settlement of a lien and is recorded in the public record as evidence of payment.
Liquid Asset:
A cash asset or an asset that is easily converted into cash.
Loan to Value (LTV) Ratio:
A percentage calculated by dividing the amount borrowed by the price or appraised value of the home to be purchased; the higher the LTV, the less cash a borrower is required to pay as down payment.
Lock-In:
Since interest rates can change frequently, many lenders offer an interest rate lock-in that guarantees a specific interest rate if the loan is closed within a specific time.
M
Margin:
The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.
Market Value:
The amount a willing buyer would pay a willing seller for a home. An appraised value is an estimate of the current fair market value.
Merged Credit Report:
Raw data pulled from two or more of the major credit-reporting firms.
Mortgage:
A lien on the property that secures the Promise to repay a loan. A security agreement between the lender and the buyer in which the property is collateral for the loan. The mortgage gives the lender the right to collect payment on the loan and to foreclose if the loan obligations are not met.
Mortgage Banker:
A company that originates loans and resells them to secondary mortgage lenders like Fannie Mae or Freddie Mac.
Mortgage Broker:
A firm that originates and processes loans for a number of lenders.
Mortgage Insurance:
A policy that protects lenders against some or most of the losses that can occur when a borrower defaults on a mortgage loan; mortgage insurance is required primarily for borrowers with a down payment of less than 20% of the home's purchase price. Insurance purchased by the buyer to protect the lender in the event of default. Typically purchased for loans with less than 20 percent down payment. The cost of mortgage insurance is usually added to the monthly payment. Mortgage insurance is maintained on conventional loans until the outstanding amount of the loan is less than 80 percent of the value of the house or for a set period of time (7 years is common). Mortgage insurance also is available through a government agency, such as the Federal Housing Administration (FHA) or through companies (Private Mortgage Insurance or PMI).
Mortgagee:
The lender in a mortgage agreement. Mortgagor - The borrower in a mortgage agreement.
Mortgagor:
The borrower in a mortgage agreement
N
Net Income:
Your take-home pay, the amount of money that you receive in your paycheck after taxes and deductions.
Note:
A legal document obligating a borrower to repay a mortgage loan at a stated interest rate over a specified period of time.
Note Rate:
The interest rate stated on a mortgage note.
O
Original Principal Balance:
The total principal owed on a mortgage prior to any payments being made.
Origination Fee:
The charge for originating a loan; is usually calculated in the form of points and paid at closing. One point equals one percent of the loan amount. On a conventional loan, the loan origination fee is the number of points a borrower pays.
Owner's Policy:
The insurance policy that protects the buyer from title defects.
P
PITI:
Principal, Interest, Taxes, and Insurance: the four elements of a monthly mortgage payment; payments of principal and interest go directly towards repaying the loan while the portion that covers taxes and insurance (homeowner's and mortgage, if applicable) goes into an escrow account to cover the fees when they are due.
PITI 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.
Planned Unit Development (PUD):
A development that is planned, and constructed as one entity. Generally, there are common features in the homes or lots governed by covenants attached to the deed. Most planned developments have common land and facilities owned and managed by the owner's or neighborhood association. Homeowners usually are required to participate in the association via a payment of annual dues.
Points:
A point is equal to one percent of the principal amount of your mortgage. For example, if you get a mortgage for $95,000, one point means you pay $950 to the lender. Lenders frequently charge points in both fixed-rate and adjustable-rate mortgages in order to increase the yield on the mortgage and to cover loan closing costs. These points usually are collected at closing and may be paid by the borrower or the home seller, or may be split between them.
Pre-Approval:
A lender commits to lend to a potential borrower a fixed loan amount based on a completed loan application, credit reports, debt, savings and has been reviewed by an underwriter. The commitment remains as long as the borrower still meets the qualification requirements at the time of purchase. This does not guaranty a loan until the property has passed inspections underwriting guidelines.
Prepayment:
Any amount paid to reduce the principal balance of a loan before the due date or payment in full of a mortgage. This can occur with the sale of the property, the pay off the loan in full, or a foreclosure. In each case, full payment occurs before the loan has been fully amortized.
Pre-Qualify:
A lender informally determines the maximum amount an individual is eligible to borrow. This is not a guaranty of a loan.
Prepayment Penalty:
A fee charged to a homeowner who pays one or more monthly payments before the due date. It can also apply to principal reduction payments.
Prime Rate:
The interest rate that banks charge to preferred customers. Changes in the prime rate are publicized in the business media. Prime rate can be used as the basis for adjustable rate mortgages (ARMs) or home equity lines of credit. The prime rate also affects the current interest rates being offered at a particular point in time on fixed mortgages. Changes in the prime rate do not affect the interest on a fixed mortgage.
Principal:
The amount of money borrowed to buy a house or the amount of the loan that has not been paid back to the lender. This does not include the interest paid to borrow that money. The principal balance is the amount owed on a loan at any given time. It is the original loan amount minus the total repayments of principal made.
Property Tax:
A tax charged by local government and used to fund municipal services such as schools, police, or street maintenance. The amount of property tax is determined locally by a formula, usually based on a percent per $1,000 of assessed value of the property.
Q
Qualifying Ratios:
Guidelines utilized by lenders to determine how much money a homebuyer is qualified to borrow. Lending guidelines typically include a maximum housing expense to income ratio and a maximum monthly expense to income ratio.
Quitclaim Deed:
A deed transferring ownership of a property but does not make any guarantee of clear title.
R
RESPA:
Real Estate Settlement Procedures Act; a law protecting consumers from abuses during the residential real estate purchase and loan process by requiring lenders to disclose all settlement costs, practices, and relationships.
Radon:
A radioactive gas found in some homes that, if occurring in strong enough concentrations, can cause health problems.
Rate Lock:
A commitment by a lender to a borrower guaranteeing a specific interest rate over a period of time at a set cost.
Real Estate Settlement Procedures Act (RESPA):
A law protecting consumers from abuses during the residential real estate purchase and loan process by requiring lenders to disclose all settlement costs, practices, and relationships.
Reverse Mortgage (HECM):
The reverse mortgage is used by senior homeowners age 62 and older to convert the equity in their home into monthly streams of income and/or a line of credit to be repaid when they no longer occupy the home. A lending institution such as a mortgage lender, bank, credit union or savings and loan association funds the FHA insured loan, commonly known as HECM.
Right of First Refusal:
A provision in an agreement that requires the owner of a property to give one party an opportunity to purchase or lease a property before it is offered for sale or lease to others.
S
Second Mortgage:
An additional mortgage on property. In case of a default the first mortgage must be paid before the second mortgage. Second loans are more risky for the lender and usually carry a higher interest rate.
Security:
The property that will be pledged as collateral for a loan.
Setback:
The distance between a property line and the area where building can take place. Setbacks are used to assure space between buildings and from roads for a many of purposes including drainage and utilities.
Subordinate:
To place in a rank of lesser importance or to make one claim secondary to another.
Survey:
A property diagram that indicates legal boundaries, easements, encroachments, rights of way, improvement locations, etc. Surveys are conducted by licensed surveyors and are normally required by the lender in order to confirm that the property boundaries and features such as buildings, and easements are correctly described in the legal description of the property.
T
Terms:
The period of time and the interest rate agreed upon by the lender and the borrower to repay a loan.
Title:
A legal document establishing the right of ownership and is recorded to make it part of the public record. Also known as a Deed.
Title Company:
A company that specializes in examining and insuring titles to real estate.
Title Defect:
An outstanding claim on a property that limits the ability to sell the property. Also referred to as a cloud on the title.
Title Insurance:
Insurance that protects the lender against any claims that arise from arguments about ownership of the property; also available for homebuyers. An insurance policy guaranteeing the accuracy of a title search protecting against errors. Most lenders require the buyer to purchase title insurance protecting the lender against loss in the event of a title defect. This charge is included in the closing costs. A policy that protects the buyer from title defects is known as an owner's policy and requires an additional charge.
Transfer Taxes:
State and local taxes charged for the transfer of real estate. Usually equal to a percentage of the sales price.
Truth-in-Lending:
A federal law obligating a lender to give full written disclosure of all fees, terms, and conditions associated with the loan initial period and then adjusts to another rate that lasts for the term of the loan.
U
Underwriting:
The process of analyzing a loan application to determine the amount of risk involved in making the loan; it includes a review of the potential borrower's credit history and a judgment of the property value.
Up Front Charges:
The fees charged to homeowners by the lender at the time of closing a mortgage loan. This includes points, broker's fees, insurance, and other charges.
V
VA Mortgage:
A mortgage guaranteed by the Department of Veterans Affairs (VA).
W
Warranty Deed:
A legal document that includes the guarantee the seller is the true owner of the property, has the right to sell the property and there are no claims against the property.
Z
Zoning:
Local laws established to control the uses of land within a particular area. Zoning laws are used to separate residential land from areas of non-residential use, such as industry or businesses. Zoning ordinances include many provisions governing such things as type of structure, setbacks, lot size, and uses of a building.