GLOSSARY OF TERMS

1003 Form(s) - Uniform Residential Loan Application Form(s).

4506 Form(s) - A relatively standard form required by Lenders - mostly on "Stated Income" loans. A signed 4506 Form gives the Lender permission to access the Federal Income Tax files on file with the IRS.

Adjusted Gross Income - The amount of income (or loss) on a Federal Tax return, after all deductions, on which the payment of income tax is based.

Advance Fees - Monies paid at application for Appraisal, Credit and related fees the Lender / Broker may incur before the closing.

APR (Annual Percentage Rate) - 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 home buyers to compare different types of mortgages based on the annual cost for each loan. The APR is listed on the TIL. (see TIL below)

Appraised Value - an estimate of the value of property, made by a qualified professional called an "Appraiser".

Appraisals (Ownership) - ordered in the name of the Mortgage Company, or Lender, Appraisals remain the property of the Mortgage Company or Lender. "Rights" to the Appraisal may or may not be transferred to another Mortgage Company or Lender, at the sole discretion of the Mortgage Company or Lender who ordered the Appraisal from the Appraiser. Applicant(s) may request a copy for their records. 

Cap - A limit on how much the interest rate (Rate Cap) or the monthly payment (Payment Cap) can change, either at each adjustment or during the life of the mortgage. Payment caps don't limit the amount of interest the lender is earning, so they may cause negative amortization.

Closing - the meeting between the buyer, seller and lender or their agents where the property and funds and real property change hands, and a new deed is made ready for recording.

Closing Costs - usually include an origination fee, points, appraisal fee, title search and insurance, survey, taxes, recording fee, credit report charge and other costs assessed at closing. The costs of closing usually are about 4 - 7% of the mortgage amount.

Commitment - an approval of a mortgage application in writing, stating term and conditions, delivered to the Applicant(s) for signing. If acceptable, it must be signed and returned to the lender within a specific time period.

Down Payment - The upfront cash you will pay toward the purchase of your home. The down payment reduces the amount that will need to be financed.

Equity - The difference between the fair market value and current mortgage amount.

Escrow - Refers to a neutral third party who carries out the instructions of both the buyer and seller to handle all the paperwork of settlement or "closing." Escrow may also refer to an account held by the lender into which the home buyer pays money for tax or insurance payments.

Fully-Indexed Rate - In an Adjustable Rate Mortgage (ARM) - the fully indexed rate is calculated simply by adding the "margin" which is constant to "index" which is variable at the appropriate time of rate adjustment. A 1-Year ARM will adjust each year on the anniversary of the original closing date. A 5/1-Year ARM will adjust at the end of five years and every year thereafter on the anniversary of the original closing date.

GFE (Good Faith Estimate) - an list of " approximate " fees and monies that will exchange hands at the closing. 

Gross Monthly Income - The total amount the borrower earns, before any expenses are deducted.

Index - A published interest rate against which lenders measure the difference between the current interest rate on an adjustable rate mortgage (and that earned by other investments) which is then used to adjust the interest rate on an adjustable mortgage up or down.

Interest Rate Cap - A Consumer safeguard which limits how much the interest rate on an adjustable rate mortgage may change per year and/or the life of the loan.

Investor - A residential property who does not or will not reside in the property.

Lien - A claim upon a piece of property for the payment or satisfaction of a debt or obligation.

LTV (Loan To Value) - The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.

Margin - The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.

Market Value - True value is set by an agreement between the seller and the buyer. Appraised value may differ from market value.

Mortgage - A valid enforceable deed of trust or other instrument pledging real property as security for payment of a note.

Mortgagee - The lender.

Mortgagor - The borrower or homeowner.

Note - A valid and enforceable promissory note or other instrument which evidences a Borrower's obligation to repay a Mortgage Loan.

Payment Cap - Used instead of a "rate" cap. Payment caps can prevent the monthly payment from rising out of control, however the interest rate is not limited. The difference if the rate exceeding what the payment cap limits, the result will incur negative amortization, which increases, rather than decreases, conventional amortization values. 

PMI - (Private Mortgage Insurance) - Required on a mortgage loan where there is a down payment or equity of less than 20% of the purchase price or appraised value, whichever is lower. PMI is releasable if the property equity increases to a level acceptable to the Mortgagor - typically 70 to 80% LTV. Other factors may apply, so consult with your Lender's mortgage servicing department.

Points - Also called Discount Points. A point is equal to one percent of the principal amount of your mortgage, and are usually a one-time fee collected at closing. The number of points you pay may vary, depending on the type of loan and interest rate option. Points may be paid by the borrower or the home seller, or may be split between them.

POC - (Paid Outside of Closing) Advance Fees, such as they are called, are typically paid at or as part of the application process. (See Advance Fees)

Principal - The amount of debt, not counting interest, remaining to be repaid on a loan.

Rate Lock Fee - Money given in advance by applicant to hold a specific interest rate on a specific mortgage product. A Rate Lock Fee can be refunded at closing or applied toward the buy-down of a lower (than zero point) interest rate.

Recording Fees - Money paid for recording a home sale with the local authorities, thereby making it part of the public records.

Residential Property - Land and improvements consisting of 1 to 4 unit homes.

Survey - A measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to known points, its dimensions, and the location and dimensions of any building.

TIL (Truth in Lending) - Contains the APR and other important loan related information. 

Variable Rate - An interest rate that changes periodically in relation to an index. Loan payments increase or decrease, accordingly.

YSP (Yield Spread Premium) - Commission paid to Broker by the Lender - not the Client.

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