The Florida Website for Nations Lending - Providing Home Mortgages throughout the State
Use this page to get a definition of the basic terms used in the mortgage business.
Abstract Title: A written history of the ownership of a parcel of land
Acceleration Clause: Allow the lender to speed up the rate at which your loan comes due or even to demand immediate payment of the entire outstanding balance of the loan if you default on your loan.
Acknowledgement: A declaration by a notary, certifying, by way of personal knowledge or written identification, the identity of the signer.
Adjustable Rate Mortgage: (ARM) A mortgage that changes interest rate periodically according to a pre-selected index. The most popular are based on the 1 Year Treasury Bill, the Cost of Funds index (COFI) and the London InterBank (LIBOR) There is a new index, the Cost of Savings Index (COSI) that is extremely stable and offers many benefits to the home owner. Another is the Monthly Treasury Average index (MTA) on which many of the Option ARMS are based..
Affidavit: A sworn statement in writing
Amortization: The systematic and continuous payment of a mortgage loan by installments to cover the principal and interest. The Amortization Term is expressed as a number of months. For example: A 30 year, fixed-rate mortgage amortization term is 360 months - so in 360 months the mortgage will be completely paid off.
Annual Percentage Rate (APR): An interest rate reflecting the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage because it takes into account points and other credit costs. The APR allows the homebuyer to compare different types of mortgages based on the annual cost for each loan.
Appraisal: An estimate of the value of real property, made by a qualified professional called an "appraiser". An appraisal will be needed to determine the value of your property.
Appreciation: An increase in the value of a property due to changes in market conditions or other causes such as home improvements.
Asset: Anything of monetary value that is owned by a person. Assets can include real property, personal property, bank accounts, stocks, bonds, mutual funds, etc.
Assessment: A charge against a property for the purpose of taxation. This may be in the form of a levy for a special purpose or a tax in which the property owner pays a share of the cost of community improvements according to the assessed value of the property.
Assumption: The agreement between buyer and eller where the buyer takes over the payments on an existing mortgage from the seller. This arrangement must be approved by the lender and be allowed by the note which was originally signed by the seller.
Back-End Ratio: This refers to the debt-to-income ratio. Calculated by using principal, interest, taxes, insurance and consumer credit obligations divided by montly gross income. It is expressed as a percentage.
Balloon Mortgage: Usually a short-term fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a time specified in the contract.
Beneficiary: The entity funding the loan. This is the entity to which the loan is owed.
BK / Bankruptcy: A reorganizationor discharge of debts. Could also be referred to as Chapter 7, 11 or 13.
Bi-Weekly Payment Mortgage: A mortgage that requires payments every two weeks ( instead of the standard monthly payment schedule. The benefit for the borrower is a substantial savings in interest.
Borrower's Authorization: This is a document signed by the borrower(s) that gives the mortgage broker / lender authorization to secure a credit report and verify other information that appears on the 1003 LAoan Application - such as bank accounts, employment, etc.
Bridge Loan (Swing Loan): A form of second trust that is collateralized by the borrower's present home (which is usually for sale) in a manner that allows the proceeds of that sale to be used for payment of the closing costs on a new house before the present home is sold. The mortgage payment on the present property typically is not counted when determining the ratios for your new home.
Broker: An individual (Licensed by the State of Florida) who arranges funding for a client but who does not loan the money himself. Brokers usually charge a fee or receive a commission for their services.
Buy Down: When the lender and/or the home builder subsidizes the mortgage by lowering the interest rate during the first few years of the loan. While the payments are initially low, they will increase when the subsidy expires.
Cap: The highest rate that an adjustable rate mortgage may reach. It can be expressed as the actual rate or as the amount of change allowed above the start rate. For example: A 5.0% start rate with a 6% cap could have a maximum interest rate cap of 11.0%.
Cash Out: Any funds disbursed directly to the borrower .. such as a "cash out refinance".
Certificate of Occupancy (C.O.): A certificate issued by a local city government to a builder, stating that the building is in proper condition to be occupied.
Certificate of Title: A statement provided by an abstract company, title company or attorney stating that the title to the real estate is legally held by the current owner.
Certified Copy: A true copy, attested to be true by the officer (Mortgage Broker) holding the original. It should have a stamp and signature stating that it is a true copy.
Chain of Title: The history of all the documents that transfer title to a parcel of real property, starting with the earlienst existing document and ending with the most recent.
Clear Title: A title that is free and clear of liens or legal questions as to the ownership of the property.
Clear-to-Close: The loan is ready to be closed with no additional conditions required by the lender.
Closing: A meeting between the buyer, seller and lender - or their agents (such as a title company) where the property and funds legally change hands. Also called "Settlement".
Closing Costs: Usually include an origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge, processing fees and other costs assessed at settlement. The costs of closing usually are about 3 percent to 6 percent of the total mortgage amount.
Closing Statement: Also referred to as the HUD-1 Settlement Statement, this is the final statement of itemized costs incurred to close on a loan or to purchase a home.
Cloud on Title: Any conditions revealed by a title search that adversely affects the title to real estate. Usually, Clouds on Title cannot be removed except by a quitclaim deed, release or by court action.
Co-Borrower: Additional borrower(s) whose income and credit contribute to qualifying for the loan and whose name(s) appears on the loan documents and equal legal obligations.
Commitment: An agreement, often in writing, between a lender and a borrower to loan money at a future date subject to completion of paperwork or compliance with stated "conditions".
Comparables: An abreviation for "comparable properties" which are used for comparative purposes in the property appraisal process. "Comps" are properties that are similar to the property under consideration (the "subject" property) that have reasonable the same size, location and ammenities and have recently been sold - usually within the previous six months. Comps help the appraiser determine the approximate fair market value of the subject property.
Condominium: A real estate project in which each unit owner has title to a unit in a building, an undivided interest in the common areas of the project and sometimes the exclusive use of certain limited common areas. Each individual owner may sell or encumber his/her own unit.
Condominium Conversion: Changing the ownership of an exiting building (usually a rental project like an apartment building) to the condominium form of ownership.
Conforming Mortgage Loan: A mortgage loan that conforms to regulatory limits such as loan-to-value ratios, debt-to-income rations, terms and other characteristics. These mortgages are eligible for sale and delivery to Fannie Mae or Freddie Mac.
Construction Loan: A short-term, interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the construction work progresses. Upon completion of constructionm, the construction loan will convert to a permanent mortgage loan type - called a Construction-Perm loan.
Conventional Mortgage: A mortgage that is not obtained under a federal government insured program, such as FHA or VA..
Convertibility Clause: A provision in some Adjustable Rate Mortgages (ARM) that allows the borrower to change the ARM to fixed rate mortgage at a specified time frame after the loan origination.
Cost of Funds Index: (COFI): An index that is used to determine interest rate changes for certain Adjustable Rate Mortgages (ARM's). It represents the weighted average cost of savings, borrowings and advances of the 11th District members of the Federal Home Loan Bank of San Francisco.
Covenant: A clause in a mortgage that obligates or restricts the borrower on the use of land or promising certain acts if violated, can result in foreclosure. For example: Homeowner associations often enforce restrictive covenants governing the architectural controls (such as how the house is built and what the house can look like) and maintenance responsibilities. Land could be subject to restructive covenants even though there is no homeowner's association.
Credit History: A record of an individual's open and fully repaid debts. 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 report detailing an individual's credit history and current status of an individual's credit standing prepared by a credit bureau and used by a lender to determine a loan applican'ts creditworthiness.
Credit Repository: An organization that gathers, records, updates and stores financial and public records information about the payment records of individuals who are being considered for credit.
Debt-to-Income Ratio: The ratio, expressed as a percentage, which results when a borrower's total monthly payment obligations on long-term debt is divided by his/her net effective income (for FHA and VA loans) or gross monthly income (for conventional loans)
Deed: The legal document conveying title to a property.
Deed-in-Lieu: A deed given by the mortgagor (borrower) to the mortgagee (lender) tosatisfy a debt and avoid foreclosure.
Depreciation: A decline in the value of property brought about by age, physical deterioration, functional or economic obsolescence, etc.
Discount Point: An amount payable to the lending institution by the borrower or seller to increase the lender's effective yield. One point equals 1% of the loan amount.
Due-on-Sale Clause: A provision in a mortgage that allows the lender to demand immediate payment in full of the remaining mortgage balance if the borrower sells the property that serves as security for the mortgage.
Earnest Money Deposit (EMD): Money given by a buyer to a neutral third party (i.e. Title company) as part of the purchase price to show that he or she is serious about buying the house.
Easement: A right of way giving persons, other than the owner, access to or over a property for a specific limited purpose.
Effective Gross Income: Normal annual income (before taxes are deducted) including overtime that is regular or guaranteed. The income may be from more than one soure.
Encumbrance: Anything that affects or limits the fee simple title to a property such as mortgages, leases, easements or restrictions.
Equal Credit Opportunity Act (ECOA): A federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, receipt of income from public assistance programs or past exercising of rights under the Consumer Credit Protection Act.
Equity: The difference between the fair market value of the property and the amount still owed on its mortgage.
Escrow: Funds and documents that are set aside and held in trust by a third party, usually for the payment of taxes and insurance on real property. For example: The deposit by a borrower with the lender offunds 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 Payment: The portion of the monthly mortgage payment that is held by the servicer of the mortgage to pay for taxes, hazard insurance, mortgage insurance and other items as they become due. Sometimes referred to as "impounds" or "reserves".
Examintion of Title: The report on the title of a property from the public records or an abstract of title.
Fair Credit Reporting Act: A consumer protection law that regulates the disclosure of consumer credit reports by credit reporting agencies and establishes procedures for correcting mistakes on one's credit record. Also, if a lender is rejecting a loan request because of adverse credit information, the lender is required to inform the borrower of the source of that information.
Fannie Mae (Federal National Mortgage Association)(FNMA): Acongressionally chartered, shareholder-owned company that isthe nation's largest supplier of home mortgage funds. It was created by Congress to support the secondary mortgage market. It purchases and sells residential mortgages insured by FHA or guaranteed by the VA as well as conventional home mortgages.
FNMA Community Home Buyer's Program: An income-based community lending model under which mortgage insurers and Fannie Mae offer flexible underwriting guidelines to increase a low or moderate inome family's buying power and to decrease the totall amount of cash needed for a down payment to purchase a home.
Federal Housing Administration (FHA): An agency of the US Department of Housing and Urban Development (HUD). Its main activity is the insuring of residential mortgage loans made by private lenders. The FHA sets the standars for construction and underwriting but does not lend money.
Fee Simple: The greatest possible interest a person can have in real estate.
Firm Commitment: A promise from a lender to make a mortgage loan.
First Mortgage: A mortgage that is the primary lien against a property and has priority over any subsequently recorded mortgages. Sometimes referred to as a First Deed of Trust.
Fixed Rate Mortgage: A mortgage in which the interest rate remains the same during the entire term of the loan.
Foreclosure: The legal process by which a borrower in default under a mortgage is deprived of his/her interest in the mortgaged property. This usually involves a forced sale of property at public auction with the proceeds of the sale being applied to the mortgage debt.
Gift Letter: A written explanation signed by the individual giving the gift stating that it is a bona fide gift of money and there is no obligation to repay the money at any time.
Good Faith Estimate: An estimate of charges which a borrower can reasonable expect to incur during settlement.
Graduated Payment Mortgage: A type of mortgage where the payments increase for a specified periodof time and then level off to consistent payments. This type of mortgage involves negative amortization.
Gross Monthly Income: Your total monthly income earned before taxes and various withholdings are deducted.
Hazard Insurance: Insurance protecting against loss to real estate caused by fire, some natural causes, vandalism, etc. - depending on the terms of the policy.
Housing Debt-to-Income Ratio: The ratio of the monthly housing payment in total (PITI - Principal, Interest, Taxes and Insurance) divided by the gross monthly income (for Conventional loans) or net effective income (for FHA/VA loans). This is also referred to as the "Front End Ratio".
HUD: The U.S. Department of Housing and Urban Development
Index: A published interest rate to which the interest rate on an Adjustable Rate Mortgage (ARM) is tied. Some commonly used indices include the 1 Year Treasury Bill, 6 month LIBOR, the 11th Distric Cost of Funds and the Monthy Treasury Average index and they are used to determine the adjustment to the interst rate.
Interest Rate: The percentage of a loan amount which is paid for being allowed to use the loan amount for a specified time.
Investment Property: Real estate owned with the intent of supplementing one's income and isnot intended for owner occupancy or as a second / vacation home.
Joint Tennacy: Two or more personsown a property.Joint Tenants with common law right of survivorship means that the survivor inherits the property without reference to the deceased's will. Creditors may sue to have the property divided to settle claims against one ofthe owners.
Jumbo Mortgage: A loan which is larger than the limits set by Fannie Mae and Freddie Mac Because Jumbo loans cannot be funded by these two agencies, they may carry a higher interest rate. Check with your Loan Officer for the current loan limit for a Jumbo loan.
Lien: A legal claim or attachment against property as security for payment of an obligation Liens may be either voluntary or involuntary, but all liens must be removed in order to clear the title,
Lifetime Cap: A provision of an Adjustable Rate Mortgage (ARM) that limits the highest rate that can occur over the life of the lien.
Loan-To-Value Ratio (LTV): The ratio of the amount of your loan to the appraised value of the home. The LTV will affect loan programs available to the borrower and generally, the lower the LTV the more favorable the terms of the loan programs offered by lenders. LTV example: If the value of the home is $100,000 and the mortgage amount is going to be $80,000, the LTV will be 80%.
Lock In: (Rate Lock Option): A written agreement guaranteeing the home buyer a specified interest rate provided the loan is closed within a set period of time, usually 30 days. The lock in also usually specifies the number of points to be paid at closing. Rate locks can be anywhere from 15 days to 90 days or more, however, the longer the rate lock period, the higher the interest rate or points cost will be.
Margin: The number of percentage points to a lender adds to the index value to calculate the Adjustable Rate Mortgage (ARM) interest rate at each adjustment period.
Mortgage: A legal document that pledges a property to the lender as sedcurity for payment of the loan for that property.
Mortgage Broker: An individual who is licensed by the State of Florida to assist in the arranging of funding for clients with lenders. The broker does not loan the money.
Mortgage Insurance (MI): Insurance written by an indeendent mortgage insurance company protecting the mortgage lender against loss incurred by a mortgage default. MI is usually required for loans with a Loan-to-Value (LTV) ratio greater than 80%
Mortgagee: The mortgage lender.
Mortgagor: The mortgage borrower.
Negative Amortization: This type of amortization occurs when your monthly payments are not large enough to pay the interest due on the loan. The unpaid interest is added to the unpaid balance of the loan, which may cause the home buyer to owe more than the original amount of the loan.
No Income Verification Loan (NIV): A loan that does not require verifiction of income.
Non-Conforming Loans: These are loans (such as Jumbo loans) that are not eligible for sale to either Fannie Mae or Freddie Mac because of various reasons including loan amount size, loan characteristics or underwriting guidelines. Non-conforming loans usually incur a rate and origination fee premium.
Note: A written agreement containing a promise of the signer to pay to a named person a definite sum of money at a specified date or on demand
Origination Fee: A fee imposed by a lender to cover certain processing expenses in connection with making a real estate loan. It is usually stated as a percentage of the loan amount, such as one percent - or one point.
Owner Financing: A property purchase transaction in which the property seller provides all or part of the financing.
PITI: Principal, Interest, Taxes and Insurance which are the components of a monthly mortgage payment.
Points: Charges levied by the mortgage lender and usually payable at closing. 1 point = 1% of the amount of the mortgage loan.
Prepaid Expenses: Those expenses of a purchase which are paid in advance (and placed in an escrow account) of their due date and will usually be prorated upon sale, such as taxes.
Prepayment Penalty: A charge imposede by a mortgage lender on a borrower who pays off part or all of a mortgage loan in advance of schedule.
Primary Residence: A residence which the borrower intends to occupy as the principle residence where they will live most of the time.
Principal: The amount of debt, not including interest. The face value of a note or mortgage.
Private Mortgage Insurance (PMI): Insurance provided by non-government insurers that protects lenders against loss if a borrower defaults. Fannie Mae generally requires private mortgage insurance for loans with a loan-to-value (LTV) ratio greater than 80%.
Processing: The preparation of a mortgage loan application and supporting documents to be delivered to a lender for their consideration.
PUD (Planned Unit Development): A planned combination of diverse land uses such as housing, recreation and shopping all in one contained development or subdivision.
Purchase Contract: An agreement between the buyer and the seller of the property which sets forth the price and terms of the sale. Also know as a sales contract.
Qualifying Ratios: The ratio of your fixed monthly expenses to your gross income - used to determine how much you can afford to borrow. The fixed monthly expenses would include PITI along with other obligations such as student loans, car loans and credit card payments.
Quitclaim Deed: A deed releasing whatever interest one may hold in a property but making no warranty whatsoever.
Rate Cap: A limit on how much the interest rate can change over the life of the loan on an ARM.
Rate Lock-in Option: A written agreement in which the lender guaranteees the borrower a specified interest rate, provided the loan closes within a set period of time, usually 30 days.
Real Estate Settlement Procedures Act (RESPA): A Federal law requiring lenders to provide home mortgage borrowers with information on known or estimated settlement costs. It also establishes guidelines on escrow account balances and the disclosure of settlement costs.
Recision: With respect to mortgage refinancing, the law gives the homeowner 3 days to cancel a contract in some cases once it is signed if the transaction uses equity in the home as security.
Recording Fees: Money paid to the lender for recording a home sale with thelocal authorities, thereby making it part of the public records.
Refinancing: The process of paying off one loan with the proceeds from a new loan using the same property as security.
Satisfaction of Mortgage: The recordable instrument issued by the lender verifying full payment of a mortgage debt.
Secondary Residence (Second Home): A residence other than the borrower's primary residence which the borrower intends to occupy for a portion of each year and it must be suitable for year-round occupancy.
Second Mortgage: A mortgage made subsequent to the first mortgage and is always subordinate to the first mortgage.
Seller Carry Back: An agreement in which the owner of a property provides financing, often in combination with an assumed mortgage.
Simple Interest: Interest which is computed only on the principal balance.
Survey: A print, prepared by a registered surveyor, showing the measurements of the boundaries of a parcel of land, together with the location of all improvemets on the land and sometimes its area and topography.
Tenants -by-the-Entirety: A husband and wfie own the property with the common law right of survivorship (ROS), so that if one dies, the other automatically inherits the prooperty.
Tenants-in-Common: An undivided interest in property taken by two or more persons. The interest need not be equal and upon the death of one or more persons, there is no right of survivorship. So, if one dies, then his/her interest passes to his/her heirs and not necessarily to the co-owner(s).
Term: The time limit within which a loan must be repaid.
Title: The document that provides legal evidence that the person has the to the possession of the land.
Title Insurance: Insurance against the loss resulting from defects of title to a specificaly described parcel of real property.
Title Search: An investigation of public records into the history of ownership of a property to check for liens, unpaid claims, restrictions or problems, to prove that the seller can transfer free and clear ownership.
Total Debt Ratio: Monthly debt and housing payments divided by gross monthly income. Also known as the "Back End" ratio.
Truth-in-Lending Act: A federal law requiring a disclosure of credit terms using a standard format. This is intended to faciliatate comparisons between the lending terms of different financial institutions.
Underwriting: Analysis of risk and settingof an appropriate rate and term on a mortgage for borrowers.
Uniform Residential Loan Application (URLA): The standard loan application filled out by borrowers that is used by most lending institutions and which is approved by Fannie Mae and Freddie Mac. This form is also referred to as the FNMA 1003 application.
Usury: Interest chatrged in excess of the legal rate established by law.
Veterans Administration (VA): A government agency guaranteeing mortgage loans (VA Loans) with no down payment to qualified veterans.
VA Mortgage Funding Fee: A premium of up to 3.0% (depends on the down payment amount) which is paid on a VA backed loan.
Verification of Deposits (VOD): A document signed by the borrower's financial institution verifying the status and balance of his/her financial accounts.
Verification of Employment (VOE): A document signed by the borrower's employer verifying his/her position, length of employment and salary.
Verification of Rent (VOR): A document signed by the borrower's landlord verifying his/her rent status, rent payments and length of rental.
Zero Point Option: An option which allows the borrower not to pay the points associated with the loan origination fee, but this savings is offset by a slightly higher loan interest rte.
