Florida Mortage Home Loan: Glossary & FAQs

Glossary

Acquisition cost - the total cost of acquiring a property, in addition to the purchase price, such as title, escrow, and lenders' fees.

Acceleration Clause - A provision in a mortgage wherein, the lender has the right to demand payment of the full principal balance, if a monthly payment is defaulted/missed out.

Additional Principal Payment - It is a payment made by the borrower of more than the scheduled principal amount due, in order to reduce the left out balance on the loan amount.

Adjustable-rate Mortgage - A mortgage or loan whose interest rate changes periodically on the basis of changes in a specified index.

Adjustment Date - It is the date on which the interest rate changes for an adjustable-rate mortgage.

Addendum rider - an addition to the standard contract (e.g., the lender attaches the alienation clause to the loan via an addendum)

Adjustable-rate mortgage (ARM) - A mortgage tied to an index that adjusts based on changes in the economy. Also called a variable rate mortgage.

Adjustable Rate Mortgage (ARM) - A mortgage whose rate of interest can change over time.

Adjustment period- the period in which an ARM adjusts (e.g., monthly, yearly, or five years).

Alienation clause (due-on-sale clause) - A type of acceleration clause in a loan, calling for payment of the entire principal balance in full, triggered by the sale or transfer of a property.

Amortization - Repayment of a mortgage loan by intstallment payments

Amortization Schedule - Time schedule for loan repayment of a home loan showing what amount of each payment is applied to principal and interest for the remaining balance of the loan.

Amortization - retiring a debt through periodic payments, including principal and interest.

Amortization - It is the gradual repayment of a mortgage loan amount by installments of equal periodic payments of principal and interest.

Annual Mortgagor Statement - Denotes the statement sent to the mortgagor on a yearly basis to show how much was paid in taxes and interest during that particular year, as well as the remaining mortgage loan at the year end.

Annual Percentage Rate (APR) - Total yearly cost of a mortgage stated as a percentage of the loan amount which includes the base interest rate, loan origination fee (points), and primary mortgage insurance (PMI).

Application Fee - The fee charged by the lender for applying for a loan. Payment of this fee does not guarantee that a loan will be approved. Some lenders may apply the cost of the application fee to the closing costs.

Appreciation - Increase of home or property value due to market changes or conditions.

Appraisal - An estimate of value usually obtained through sales comparables.

APR - APR stands for the Annual Percentage Rate. It refers to the yearly cost of a mortgage, which includes the fee, interest, etc., expressed as a percentage.

Appraiser - A professional with experience to evaluate the value of a real property and personal property.

ARM - see adjustable rate mortgage

Assignment - The transfer of rights to pay an obligation from one party to another, with the original party remaining liable for the debt, should the first party default.

Assumption - To take over one's obligation under an existing agreement. Usually done for a fee.

Assumable Home Loan - A home loan that can be assumed or taken over by the buyer when a home is sold.

Assumption - Transfer of the seller's mortgage to the buyer

Assessor - A public official who makes an official valuation of property for the purposes of taxation.

Balloon payment - a principal payment coming due before the loan is fully amortized.

Bankruptcy - Bankruptcy is a state when a person's actions by law entitle his creditors to have his property administered for the benefit of his creditors. In short, it is a condition when a person becomes insolvent, having liabilities in excess of assets held.

Betterment - An improvement that increases the value of property as distinguished from repairs or replacements.

Biweekly mortgage - A mortgage under which one-half of the monthly payment is payable every two weeks, giving the benefit of two extra payments a year; this allows a 30 year loan to be paid off in approximately 18 years.

Binder - An agreement secured by earnest money, which a buyer offers to purchase real estate.

Borrower - A person who receives something of value with the promise of giving something of usually greater value at a specified time in the future.

Broker - An individual in the business of assisting in arranging funding or negotiating contracts for a client but who does not loan the money himself. Brokers usually charge a fee or receive a commission for their services.

Broker - A person or a middleman who usually for a commission or a fee, brings parties together for negotiation of contracts. Example: mortgage broker, real estate broker, etc,...

Cash-out Refinance - In the case of cash out refinance the borrower receives additional money that can be utilized for other purposes after having paid the existing mortgage loan amount. It is usually a refinance transaction in which the amount of money received from the new loan is more than the money required to repay the existing first mortgage loan, closing costs, points, and the amount required to satisfy any outstanding subordinate mortgage liens.

Cap - A provision limiting how much the interest rate or payments can increase on an ARM

Cap - a ceiling, usually found on ARM loans and can be expressed as per adjustment period.

Cash Reserve - Amount of money a buyer has left over after closing. Some lenders may require borrowers to have cash reserve equal to two mortgage payments.

Cash reserves - the amount of buyer's liquid cash remaining after making the down payment and paying closing costs.

Chattel - Personal property

Closing Costs - Fees paid by the borrower when property is purchased or refinanced. These typically include a loan origination fee, discount points, appraisal fee, title search, title insurance, survey, taxes, deed recording fee, and credit report charges. Since points are listed separately, they are not included in the Closing Costs column on the Monstermoving.com mortgage tables. PMI costs are also excluded from this figure.

Collateral agreement - a document that provides additional security for a debt

Commitment period - the period during which a loan approval is valid and binding on the lender if mortgagor meets all conditions.

Conforming Loan - A mortgage loan for up to ,700 in the continental United States.

Construction Loan - A short-term loan for funding the cost of construction. The lender advances funds to the builder as the work progresses.

Conventional Loan - A mortgage neither insured by the FHA nor guaranteed by the VA.

Convertible ARM - An ARM containing a clause allowing the rate to become fixed during the loan (e.g., one year, three years, or within five years of the loan)

Credit Rating - Borrowers are rated by lenders according to the borrower's credit-worthiness or risk profile. Credit ratings are expressed as letter grades such as A-, B, or C+. These ratings are based on various factors such as a borrower's payment history, foreclosures, bankruptcies and charge-offs. Different lenders may assign different grades to the same borrower.

Credit scoring - Mathematically giving a numerical weighting to various financial factors in the borrower's credit history in order to determine risk of lending. (Usually called a FICO score- named for the company Fair, Isaac, & Company)

Clear Title - A title that is free from liens and or legal questions as to who owns the property

Closing - Finalization of a mortgage.

Closing Costs - Expenses incurred by the buyer during transfer of ownership of a property.

Community Property - Property acquired during a marriage by husband and wife. Each spouse has equal rights to the property.

Contingency - Condition that must be met before a contract is legally binding.

Conventional Home Loan - A home loan that is not insured or guaranteed by the federal governement.

Convertible ARM - An adjustable rate mortgage (ARM) that may be converted to a fixed rate loan under specified conditions.

Covenant - Obligates or restricts the borrower and if violated can result in foreclosure.

Collateral - Collateral is the asset of a person which can be used as a guarantee for the repayment of loans. In case if the borrower fails to pay the loan amount within the specified time limit, then he risks losing his collateral. For example: Car, house, etc.

Contingency - It means a condition that needs to be met before a contract is legally materialized. May be a due payment on any pending loans for certain type of new loan sanction, etc.

Covenant - A clause in a mortgage deal that restricts the borrower, that violation can result in foreclosure.

Credit Report - A report generated by a credit bureau that shows an individuals credit or repayment history over time. Used by lenders to determine creditworthiness.

Credit - A contractual agreement wherein the borrower receives something of value with a promise to repay the lender at a specified period of time.

Credit History - History of a person's past borrowings, repayments and other credit details. It would also include information on late payments, bankruptcy, credit lines, etc.

Credit Report - Is a detailed factual report about an individual's past credit history. This would include – loans, credit accounts, late payments, etc,. Usually lenders look into the borrowers' credit reports for the purpose of lending.

Credit Rating - Credit ratings are done by credit bureaus. It denotes a person's credit history and helps to analyze whether the individual will be able to pay the debts due. Credit ratings are usually looked into by lenders for approval of loans.

Credit Score - Credit scores of individuals are calculated from the credit reports by means of a specific formula. Credit score is another factor looked into by loan lenders. According to the lenders, if a borrower has higher credit score, it means the risk associated with him/her is less.

Debt ratios - the comparison of a buyer's housing costs to their gross income (housing ratio), and the comparison of a buyer's long-term debt, including housing and monthly debt (total debt ratio). This is a percentage calculation and varies based on loan programs.

Deed of trust (trust deed) - A document used to secure the collateral in financing the property; title is transferred to the trustee, with payments made to the beneficiary by the trust or.

Deed-in-lieu - It denotes a deed given by a mortgagor to the mortgagee to satisfy a debt and avoid foreclosure. It is also known as "voluntary conveyance."

Deed - A legal document conveying the title to a property. Shows ownership.

Deed of Trust - A document that is used in some states instead of a mortgage. The title is conveyed by a trustee instead of the borrower.

Default - Failure to complete payments to the lender under the original conditions of the loan.

Delinquency - Payment on a loan is overdue.

Depreciation - Decline in property value. Opposite of Appreciation

Due on Sale Clause - A loan provision which allows the lender to demand repayment of the loan in full if the property is sold.

Delinquency - A condition wherein mortgage payments are not paid when they are due.

Depreciation - A gradual fall in value of a property is referred to as depreciation.

Down Payment - Initial money put down as a deposit on a property.

Discount points (points) - A point is equal to one percent of the loan amount. Points are used to increase the lender's yield on the loan.

Down Payment - Money paid by a buyer from his own funds, as opposed to that portion of the purchase price which is financed.

Earnest Money - A deposit given by the buyer to the seller which shows that the prospective buyer is serious a purchasing a home or property.
Equal "Credit Opportunity Act (ECOA) - Federal law that prohibits lenders from denyinng a loan on the basis of race, color, religion, national origin, age, sex, marital status, or income derived from public assistance programs.

Equity - The difference between what a property is worth and the loan balance.

Equity loans - Using the equity in the property to borrow additional cash, usually secured by a second deed of trust.

Escrow - An impartial holding of monies and documents pertinent to the sale and transfer of real estate.

Equity - The difference btween the homeowner's outstanding mortgage balance and the fair market value of a property.

Equity Loans - A loan that is based on a borrower's equity in a home or property.

Equity - Equity is the difference between the value of the property and the excess of claims or liens against it.

Escrow - Usually refers to a bond or something in value held in trust by a third party to be returned to the grantee upon fulfillment of the terms and conditions.

FannieMae Foundation - a nonprofit affiliated with FNMA, designed to educate consumers on home affordability and home buying options.
Federal Home Loan Mortgage Corporation (FHLMC) - Called Freddie Mac; a part of the secondary market that provides liquidity for the originators of mortgages.

Fair Credit Reporting Act ( FCRA) - It is a law for consumers to analyze their credit history. It gives the right to consumers to check with credit reporting agencies about their credit information and dispute in case of misuse/misinterpretation of their information.

Fair Credit Reporting Act - Consumer protection laws that sets up a procedure for an individual to dispute or correct inaccuracies on ones credit report.

Federal Housing Administration (FHA) - The FHA is part of the federal government's Department of Housing and Urban Development. It underwrites insured loans made by lenders who loan to qualified borrowers.

Federal National Mortgage Association (FNMA) - Also called Fannie Mae, a private mortgage buyer that provides liquidity in the mortgage marketplace.

FHA Loan - A home loan that is insured by the Federal Housing Administration.

First Mortgage - A mortgage that has the first claim in the event the borrower defaults on the mortgage.

Fixed-rate mortgage - a loan with a single interest rate for the life of the loan.

FICO - The Fair, Isaac, & Company credit scoring system used by most of the lenders to determine a borrower's ability to repay a mortgage. The scoring ranges from 450-850, with the lower the score, the higher the risk.

First Mortgage - A mortgage that is the primary lien against a property. Especially a mortgage that has first claim in case of a default.

Fixed-rate Mortgage - A mortgage in which the interest rate is fixed and does not change during the entire term of the loan.

Fixed Rate Mortgages - A mortgage in which the interest rate will not change during the term of the loan.

Float - Between the time of application and closing, a borrower may choose to bet on interest rates decreasing by electing to float. Floating is essentially choosing not to lock the interest rate. Since it is the borrower's responsibility to lock his or her rate before (or at) closing, choosing to float is considered risky and may result in a higher interest rate. Request information from your LoanHound lender regarding lock procedures.

Flood insurance - Insurance that may be required by the lender if a property is in a federally designated flood area.

Foreclosure - Process in which a property may be sold when the borrower is in default of the contract.

Foreclosure - A legal procedure in which real estate is sold by the lender to pay a defaulting borrower's debt.

Foreclosure - The legal process by which a borrower in case of a default under a mortgage is deprived of his or her rights in the mortgaged property. This kind of a condition results in forced sale of the mortgaged property and the income so obtained is used for the mortgage debt.

Graduated Payment Mortgage - A loan that starts with small monthly payments which increase at a predetermined rate over a period of time.

Growing-equity Mortgage - A fixed-rate mortgage that provides scheduled payment increases over an established period of time, with the increased monthly payable amount applied directly toward reducing the remaining balance of the mortgage.

Guarantee Mortgage - A mortgage that is guaranteed by a third party.

Good Faith Estimate - An estimate of charges which a borrower is likely to incur with a loan closing.

Gross Monthly Income - The total amount the borrower earns per month, not counting any taxes or expenses. Often used in calculations to determine whether a borrower qualifies for a particular loan. (It can also be calculated on an annual basis-called Gross Annual Income).

Hazard Insurance - Insurance that protects the homeowner and lnder aginst damage to home or property due to fire, wind, vandalism or other hazards.

Hazard Insurance - A form of insurance in which the insurance company protects the insured from certain losses, such as fire, vandalism, storms and other natural causes.

Housing Ratio - The ratio of the monthly housing payment to total gross monthly income. Also called Payment-to-Income Ratio or Front-End Ratio.

Homeowners Insurance - Insurance that combines liability coverage and hazard insurance.

Home Equity Conversion Mortgage - It is also known as the reverse mortgage. It is a type of mortgage that enables older home owners to convert the equity they have in their homes into cash, using a variety of payment options to address their specific financial needs.

Home Equity Line of Credit - It is also a kind of mortgage loan. It allows the borrower to obtain several advances of the loan proceeds up to an amount that represents a specified percentage of the borrower's equity in a property.

Income qualifications - the amount of gross income required by the lender.

Index - A published interest rate not controlled by the lender to which the interest rate on an Adjustable Rate Mortgage (ARM) is tied. The index and the interest rate linked may increase or decrease.

Interest only - Payments received are applied to accrued interest only and not to a principal reduction.

Interest Rate - The percentage of an amount of money which is paid for its use for a specified time.

Interest rate cap - the maximum amount of interest that can be charged on an ARM loan.

Interest - The amount that is charged for borrowing money.

Inquiry - An information check or a request for information by credit grantors/lenders about the borrower on a timely basis is referred to as inquiry.

Installment - The regular periodic payment agreed upon by the borrower to the lender. Installments not paid on the specified date go to be recorded as late payments and get reflected in the credit report.

Interest -Refers to the charge paid for the money borrowed from a lender. It is expressed as a percentage rate over a period of time.

Insured Mortgage - Refers to a mortgage protected by an insurance company. In such cases when the borrower defaults on the loan, the insurer is expected to pay the lender the lesser of the loss incurred or the insured amount.

Jumbo Loan - A loan for ,700 or more in the continental United States. These limits are set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.

Late Charge - A penalty that a borrower must pay when payment is made after the date it is due.

Lease option - a lease with an option to buy usually the decision rests with lessor.

Lease-purchase Mortgage Loan - Facilitates low- and moderate-income home buyers to lease a home from a nonprofit organization with an option to buy. Each month's rent payment consists of the principal, interest, taxes and insurance payments on the first mortgage, plus an extra amount is to be deposited to a savings account in which money for a down payment will accumulate.

Lease Purchase Loan - The buyer leases a home with the option to buy. Each month's rent payments consists of PITI payments on the first mortgage, plus an extra amount is used for a savings account that accumulates for a downpayment.

Lender - The bank, mortgage company, or mortgage broker offering the loan. Many institutions only "originate" loans and then resell the obligation to third parties.

Lien - Legal claim against a property. Once the property is sold the lien holder is then paid the amount that is owed.

Loan-To-Value Ratio - The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage. A LTV ratio of 90 means that a borrower is borrowing 90% of the value of the property and paying 10% as a down payment. For purchases, the value of the property is assumed to be the purchase price, for refinances the value is determined by an appraisal.

Lock noun - The period, expressed in days, during which a lender will guarantee a rate. Some lenders will lock rates at the time of application while others will allow the borrower to lock the rate after the application is taken. Request information from your LoanHound lender regarding lock procedures.

Lock verb - The act of committing to a mortgage rate. This action, taken by a borrower some time between the application and the closing dates, is sometimes accompanied by a payment by the borrower to the lender. Opposite of float.

Loan to Value Ratio (LTV) - Relationship between the amount of a home loan and the total value of the the property.

Lock in - Written agreement which guarantees the homebuyer a specific interest rate providing the loan is closed within a certain time frame. The number of points due at closing are usually predetermined.

Loan - A certain amount of money borrowed which is generally repaid with interest.

Margin - The amount a lender adds to the quoted index rate for an adjustable rate loan to determine the new interest rate.

Mortgagee - The lender.

Mortgagor - The borrower.

Mortgage - The pledge of a property to the lender as security for payment of a debt.

Mortgage Broker - A company that matches borrower with lenders for a fee.

Mortgage Insurance Premium (MIP) - The fee paid by a borrower for mortgage insurance. Fee's are generally paid to the FHA or private insurer.

Mortgagee - The lender of money for a mortgage.

Mortgagor - The borrower of money for a mortgage.

Mortgage - It is a kind of loan. It is a legal document that pledges a property to the lender/creditor as security for the payment of the loan.

Mortgage Account - An account initiated for the purpose of a mortgage transaction.

Mortgage Banker - A company that originates mortgages exclusively for resale in the secondary mortgage market.

Mortgage Broker - An individual or company that brings borrowers and lenders together for the purpose of a loan transaction for which they charge a fee or commission for their services.

Mortgagee - Is referred to the lender in a mortgage agreement.

Mortgagor - Is referred to the borrower in a mortgage agreement.

Multidwelling Units - Though a property secures a single mortgage, it provides separate housing units for more than one family. This is called multidwelling units.

Multifamily Mortgage - A residential mortgage on a dwelling that is designed for more than four families, such as a high-rise apartment complex.

Negative amortization - an interest payment shortfall, which is added back into the principal of the loan.

Negative Amortization - When monthly payments are not enough to cover the interest due each month therefore the loan balance increases.

Notice of Default - Written notice to a borrower that a default of the contract has occured and that legal action may be taken.

Note rate - the rate of interest shown on the face of the promissory note; the rate of interest charged on an obligation.

Origination Fee - The fee imposed by a lender to cover certain processing expenses in connection with making a loan. Usually a percentage of the amount loaned.

Origination Fee - Fee for processing a loan application; generally stated as a percentage of the mortgage amount or points.

Owner occupancy - Occupied by the buyer of the property; the best rates are offered on this type of loan, as the risk is less on a primary residence.

Payment cap - the maximum amount the payment can adjust at any one time, as to avoid payment shock.

Points - Prepaid interest paid by the borrower to the lender at closing. A point is equal to 1 percent of the loan amount (e.g. 1.5 points on a ,000 mortgage would cost the borrower ,500). Generally, by paying more points at closing, the borrower reduces the interest rate of his loan and thus future monthly payments.

Portfolio lending - the lender keeps the loan in-house instead of selling the loan in the secondary market. Usually the guidelines are less stringent and the lender will take into account compensating factors.

Prepayment - The ability to pay off the remaining balance of a loan.

Prepayment Penalty - Lenders who impose prepayment penalties will charge borrowers a fee if they repay part or their entire loan in advance of the regular schedule.

Principal - The amount of debt, not counting interest, left on a loan.

Private Mortgage Insurance (PMI) - Paid by a borrower to protect the lender in case of default. PMI is typically charged to the borrower when the Loan-to-Value Ratio is greater than 80%.

Prepayment Penalty - The borrower is charged a fee for paying off a loan before it is due.

Principal - Remaining unpaid balance of a loan.

Private Mortgage Insurance (PMI) - Insurance that protects lenders against loss if a borrower defaults.

Private Mortgage Insurance - Mortgage insurance that is provided by a private mortgage insurance company to protect lenders against loss, if a borrower defaults.

PITI - Principal, interest, taxes and insurance.

Points - One time charge by the lender in order to increase the yield of the loan, one point is one percent of the amount of the loan.

Purchase Agreement - A contract between the borrower and the lender that discloses the terms and conditions under which a property will be sold.

Qualifying Ratio - The ratio of the borrower's fixed monthly expenses to his gross monthly income.

Rate cap - the maximum amount of interest that can be charged on an ARM loan.

Ratio - A percentage; used in qualifying a borrower.

Release clause - a clause allowing a portion of the real estate to be released as security from the loan.

Rate-improvement Mortgage - It is a fixed-rate mortgage that gives the borrower a one-time option to reduce the interest rate (without refinancing) during the initial years of the mortgage term.

Rate Lock - It is a specified rate of interest for a certain period of time at a specific cost committed by a lender to the borrower.

Refinancing - Refinancing is the process of going in for a new mortgage, and using the money to pay off the older mortgage loan. This is usually beneficial to many homeowners, because they will be able to find a mortgage loan at a better interest rate.

Refinancing - Paying off a loan with the money from a new loan which is secured by the same property.

Refinance Transaction - It is the process of paying off one loan with the proceeds from a new loan, using the same property as security.

Rehabilitation Mortgage - A mortgage to cover the costs of repairs, improvement, and sometimes acquisition of an existing property.

Secondary market - Comprised of FNMA, GNMA, and FHLMC, which provide liquidity for the primary market of mortgage loans.

Security document - a legal document that creates a lien against a property as security for repayment of a debt.

Seller financing - the borrower uses a portion of the seller's equity in the property in exchange for an interest payment.

Second Mortgage - A mortgage that has already a lien position subordinate to the first mortgage. The second mortgage carries the rights which are subordinate to those of the first.

Second Mortgage - A mortgage that has rights which are subordinate to the rights of the first mortgage holder.

Secondary Mortgage Market - Buying - Selling of existing mortgages

Seller Carryback - Current property owner provides financing to the buyer, at times in combination with an assumed mortgaged.

Step-rate Mortgage - A mortgage wherein, the interest rate increases according to a specified schedule (i.e., seven years), resulting in increased payments as well. At the end of the specified period, the rate and payments will remain constant for the remaining part of the loan.

Tax Lien - A claim against real estate for the amount of its unpaid taxes.

Teaser rate - Am unusually low introductory rate for an ARM used to entice borrowers into a loan and allow them to quality at the lower rate.

Title - A document that gives evidence of an individual's ownership of property.

Title Insurance - Insurance against loss resulting from defects of title to a specifically described parcel of real estate.

Title company - Company that specializes in insuring titles to properties

Title Insurance - Insurance which protects the lender (Lenders Policy) or the buyer (Owners Policy) against loss from disputes of ownership.

Title Search - A search of the the title records to ensure the seller is the legal owner of the said property. Also ensures that there are no liens or claims against the property.

Transfer Tax - Taxes that may be payable when the title passes from one owner to the next.

Truth in Lending Act - Federal law that requires for lendeers to fully disclose, in writing, the terms and conditions of a mortgage to the borrower, including the APR and other charges.

Unsecured Loan - A loan that is not backed by collateral.

Underwriting Process - The process of evaluating a loan application to determine risks involved for the lender.

VA Loan - Loans that are guaranteed by the Veterans Administration.

Variable Rate Mortgage - See Adjustable Rate Mortgage.

Yield - Return on an investment usually in the form of points and interest rate.