Lending Dictionary

A

Adjustable Rate

An interest rate that periodically changes in relation to an index. Payments may go up or down as the rate is adjusted.

Amortization

A repayment method in which the amount borrowed is repaid through regular monthly payments of principal and interest.

Annual Percentage Rate (APR)

The cost of credit on an annual basis, expressed as a percentage.

Application Fee

The fees that are paid when making an application. An application fee may include charges for property appraisal ($200-$400) and a credit report ($30-50).

Appraisal Fee

A fee charged by an appraiser to estimate the market value of a specific property on a specific date. Required by most lenders to obtain a loan.

Appraisal Report

A written report by an appraiser containing an opinion as to the value of a property and the reasoning leading to that opinion.

B

Balloon (Payment) Mortgage

Usually a short-term fixed-rate loan which involves smaller payments for a certain period of time and one large payment for the remaining unpaid balance when loan is matured.

Basis Points

1/100th of 1% expressed as margin over index rate. For example, .25% equals 25 basis points. An index of 5% plus 275 basis points would equal an interest rate of 7.75%.

C

Cap

The maximum an adjustable-rate mortgage may increase, regardless of index changes.

Cash Out

Receiving money back when refinancing a present mortgage.

Certificate of Title

A statement provided by an abstract company, title company or attorney stating that the title of real estate is legally held by the current owner.

Clear Title

A title which has no liens on a specific piece of property.

Closing

The meeting between the buyer, lender, and seller (if applicable) at which all documents for a loan are signed, dated and (if applicable) notarized. Also referred to as settlement.

Closing Costs

The fees assessed at the closing or settlement which are associated with the purchase of a piece of property. This generally includes an origination fee, discount points, attorneys fees, title insurance, survey, and any items which must be prepaid, such as taxes and insurance escrow payments.

Comparative Market Analysis

An estimate of the value of a property based on an analysis of recent sales of similar properties.

Credit History

A record of a person’s unpaid and fully repaid debts. A credit history helps to determine if a borrower has a history of repaying their debts in a timely manner.

Credit Report

A report of a person’s credit history (including legal history on bankruptcy) prepared by a credit reporting agency and used by a lender in determining a loan applicant’s creditworthiness.

D

Debt Service

The periodic payments made on loans such as credit card, auto, mortgage or other debts.

Debt-to-Income Ratio

The ratio of a borrower’s monthly payment obligation on long-term debts (including housing expense) divided by their gross monthly income. For example, if your monthly payment obligations on long-term debts total $1,400 and your gross monthly income is $4,500, then you debt-to-income ratio would be 31%.

Default

The failure to make timely payments or comply with other requirements of a loan.

Delinquency

The failure to make payments when they are due.

Discount Points (or Points)

The amount paid either to maintain or lower the interest rate charged. Each point is equal to one percent of the loan amount. Three points charged on a loan in the amount of $150,000, would be $4,500.

Down Payment

The difference between the purchase price and that portion of the purchase price being financed.

E

Engineering Report

A report generated by an engineer describing the current physical condition of the property and its major building systems.

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 or receipt of income from public assistance programs.

Equity

The difference between the appraised value of a property and the outstanding loan balance.

Escrow

An account set up by the lender in which money is held to pay for taxes and insurance.

F

Fair Credit Reporting Act

A consumer protection law that regulates the disclosure of consumer credit reports by consumer credit reporting agencies. It establishes procedures for correcting mistakes on one’s credit report.

Fair Market Value

The price which a property would bring in a competitive market.

Fixed Rate Loan

A loan on which the same rate of interest is charged for the life of the loan.

Foreclosure

The process by which a lender takes back a property on which the mortgagee has defaulted—usually the process of foreclosure occurs if payments are more than 90 days past due.

G

Good Faith Estimate

A written estimate of closing fees, which a lender must provide to the borrower within three days of submitting an application.

Grace Period

The time during which a loan payment may be paid after its due date but not incur a late penalty. Such late payments may be reported on your credit report.

Gross Income

Total income of the borrower before deducting taxes or expenses.

H

HUD I Settlement Statement

A form utilized at loan closing to itemize the costs associated with purchasing a home. Used universally as required by the Department of Housing and Urban Development (HUD).

I

Index

A published interest rate. An index which determines changes in the interest rate of an adjustable-rate loan. Examples of an index are Wall Street Journal prime, U. S. Treasury Rates, etc.

Interest Rate

The sum charged for borrowing money, expressed as a percentage.

J

No current terms for J

K

No current terms for K

L

Lender

The financial institution offering the loan.

Lien

The right to take and hold or sell the property of a debtor as a security or payment for a debt.

Loan Origination Fee

The fee charged by a lender, to prepare all the documents associated with a loan.

Loan-To-Value Ratio (LTV)

The ratio of the principal amount of the mortgage balance, at origination or thereafter, to the current value of the underlying real estate collateral. For example, if the current value of your home is $200,000, and the balance of your first mortgage is $120,000, then your loan-to-value ratio is 60%.

M

Margin

An amount added to the index to determine the interest rate for adjustable rate loans.

Minimum Payment

The minimum amount that must be paid on a loan.

Maturity

The date the loan becomes due.

N

Negative Amortization

When interest accrued during a payment period is greater than the scheduled payment and that excess amount is added to the outstanding loan balance.

Note

A written agreement containing a promise of the signer to pay a definite sum of money at a specified date or on demand.

O

No current terms for O

P

Principal

The amount of debt (excluding interest) that remains on a loan.

Q

No current terms for Q

R

Rate

The annual rate of interest on a loan, expressed as a percentage.

Right to Rescission

The legal right to void or cancel a loan agreement in such a way as to regard the contract as if it never happened. This right is given to you for the three days following closing on the refinance of your first mortgage or the taking of a second, third, etc. mortgage on your primary residence.

Refinance

The renewal of an existing loan by the same borrower.

S

Servicing a Loan

The ongoing process by the lender of collecting payments, including accounting for and payment of annual taxes and/or insurance.

T

Term

The borrowing length of the loan.

Title

The written, legal document establishing the right of ownership of a specific piece of property.

Title Insurance

An insurance policy that insures against legal errors in the title search so as to financially guarantee the borrower and lender in the property.

Title Search

An investigation 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 payments, divided by gross monthly income.

Truth-In-Lending Act

A federal law requiring a disclosure of credit terms using a standard format to facilitate comparisons between the lending terms of different financial institutions.