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Glossary
Home >> Resources >> Glossary

Adjustable Rate Mortgage (ARM) - Is a mortgage in which the interest rate is adjusted periodically based on a pre-selected index. Also known as variable rate mortgage.

Amortization - A repayment method in which the amount you borrow is repaid gradually though regular monthly payments of principal and interest. During the first few years, most of each payment is applied toward the interest owed. During the final years of the loan, payment amounts are applied almost exclusively to the remaining principal.

Annual Percentage Rate (APR) - The cost of credit on a yearly basis, expressed as a percentage. Required to be disclosed by the lender under the federal Truth in Lending Act, Regulation Z. Includes up-front costs paid to obtain the loan, and is, therefore, usually a higher amount than the interest rate stipulated in the mortgage note. Does not include title insurance, appraisal, and credit report.

Application Fee - Fees that are paid upon application. This will not be charged by ReQuest Home Loans, Inc.

Assumability - A feature of a loan which permits you to transfer your mortgage and its specified terms to the person(s) purchasing your home. Having an assumable loan could make it easier to sell your home, since assumption of a loan usually involves lower fees and/or qualifying standards for the new borrower than a new loan.

Attorney-In-Fact - A person who is authorized by power of attorney to act for another.

Audited Financial Statement - A report on the financial position or operations of a company that has been reviewed by an independent auditor.

Balance Sheet - The balance sheet shows the financial condition of a company at a specific point in time. The balance sheet is broken down into the major sections: Assets, liabilities and net worth.

Balloon Payment - 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.

Bankruptcy - State of insolvency of an individual or organization - in other words, an inability to pay debts. There are two kinds of legal bankruptcy under U.S. law: involuntary, when one or more creditors petition to have a debtor judged insolvent by a court; and voluntary, when a debtor brings the petition. In both cases, the objective is an orderly and equitable settlement of obligations.

Bankruptcy Trustee - The person appointed by a bankruptcy court to oversee either the running of a business in a reorganization proceeding or the sale of assets and distribution of proceeds in a business liquidation.

Blanket Mortgage - A mortgage covering at least two pieces of real estate as security for the same mortgage.

Borrower (Mortgagor) - One who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan in full.

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.

Buy-down - When the lender and/or the home builder subsidized 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.

C.O.D. - Cash On Delivery. (Some people use it as Check On Delivery).

Cap - The maximum allowable increase, for either payment or interest rate, for a specified amount of time on an adjustable rate mortgage.

Cash Out - Receiving money back when refinancing your present mortgage.

Cashier's Check - A check whose payment is guaranteed because it is drawn on the bank's account rather than the customer's account. The customer pays in advance or has the funds withdrawn in advance from his or her account. Cashier's checks are also called bank checks.

Ceiling - The maximum allowable interest rate over the life of the loan of an adjustable rate mortgage.

Certificate of Eligibility - The document given to qualified veterans which entitles them to VA guaranteed loans for homes, business, and mobile homes.

Closing - The meeting between the buyer, seller and lender or their agents where the property and funds legally change hands. Also called settlement costs, closing costs usually include an origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. The cost of closing usually is about three to six percent of the mortgage amount.

Closing Costs - Any fees paid by the borrowers or sellers during the closing of the mortgage loan. This normally includes an origination fee, discount points, attorney's fees, title insurance, survey, and any items which must be prepaid, such as taxes and insurance escrow payments.

Collateral - Assets that back a mortgage loan or security.

Commitment Letter - A formal offer by a lender stating the terms under which it agrees to lend money to a home buyer.

Community Property - Property acquired by husband and wife during a marriage when not acquired as separate property by either spouse. Each spouse has equal rights, including the rights of survivorship.

Conditional Sale - An installment sale in which the goods are delivered to the buyer, but title remains with the seller until payment is made for the goods.

Conditions, Covenants, and Restrictions (CC and R) - The standards that define how a property may be used and the protections the developer makes for the benefit of all owners in a subdivision.

Condominium - A form of property ownership in which the homeowner holds title to an individual dwelling unit plus an interest in common areas of a multi-unit project.

Conforming Loan - Generally, a mortgage with a loan amount under the maximum limits set by FNMA and FHLMC.  Qualifying ratios and underwriting methods are standardized to a large degree.

Construction loan - A short term interim loan to pay for the construction of buildings or homes. These are usually designed to provide periodic disbursements to the builder as he progresses.

Contingency - A condition that must be met before a contract is legally binding.
Contract of Sale - The agreement between the buyer and seller on the purchase price, terms, and conditions necessary to both parties to convey the title to the buyer.

Conventional Loan - A mortgage not insured by FHA or guaranteed by the VA.

Cost of Funds Index (COFI) - An index of the weighted-average interest rate paid by savings institutions for sources of funds, usually by members of the 11th Federal Home Loan Bank District.

Credit Limit - The maximum amount that you can borrow under a home equity plan.

Credit Report - A report documenting the credit history and current status of a borrower's credit standing.

Credit Risk - The possibility that there may be a default by the issuer or other party in its financial obligations to the investor.

Debt Service - The total amount of credit card, auto, mortgage or other debt upon which you must pay.
Debt-to-Income Ratio - The ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on long-term debts is divided by his or her gross monthly income.

Deed - The legal document conveying title to a property.

Deed of Trust - Used in many western states, the agreement used to pledge your home or other real estate as security for a loan. Similar to a mortgage.

Delinquency - Failure to make payments on time. this can lead to foreclosure.

Deposit - Cash paid to the seller when a formal sales contract is signed.

Depreciation - A decline in the value of property; the opposite of appreciation.

Discharge - The bankruptcy discharge extinguishes the debtor's liability on a debt and acts as an injunction against any further efforts to collect a discharged debt from the debtor or the debtor's assets.

Discount Points (or Points) - A one-time charge imposed by the lender to lower the rate at which the lender would otherwise offer the loan to you. Each point is equal to one percent (1%) of the mortgage amount. For example, if a lender charges two points on a $90,000 loan this amounts to a charge of $1,800.

Down Payment - The difference between the purchase price and that portion of the purchase price being financed. Most lenders require the down payment to be paid from the buyer's own funds. Gifts from related parties are sometimes acceptable, and must be disclosed to the lender.

Due on Sale - A clause in a mortgage agreement providing that, if the mortgagor (the borrower) sells, transfers, or, in some instances, encumbers the property, the mortgagee (the lender) has the right to demand the outstanding balance in full.

Earnest money - Good faith money provided to seller by the potential buyer to show he is serious about purchasing the home. This amount may be applied to the down payment, but if the deal does not go through it may be forfeited, although in some cases it's returned.

Easement - The right-of-way granted to a person or company authorizing access to the owner's land; for example, a utility company may be granted an easement to install pipes or wires. An owner may voluntarily grant an easement or can be ordered to grant one by a local jurisdiction.

Effective Interest Rate - The cost of credit on a yearly basis expressed as a percentage. Includes up-front costs paid to obtain the loan, and is, therefore, usually a higher amount than the interest rate stipulated in the mortgage note. Useful in comparing loan programs with different rates and points.

Encumbrance - A claim against a property by another party which usually affects the ability to transfer ownership of the property.

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 fair market value (appraised value) of your home and your outstanding mortgage balance.

Equity loan - A loan based on the borrower's equity in his or her home.

Escrow - A fee charged by the escrow as a neutral third party to carry out the procedures necessary to transfer ownership of property.

FHA Loan - More appropriately termed "FHA Insured Loan." A loan for which the Federal Housing Administration insures the lender against losses the lender may incur due to your default.

FHLMC - Federal Home Loan Mortgage Corporation, also called "Freddie Mac", is a quasi-governmental agency that purchases conventional mortgages from insured depository institutions and HUD-approved mortgage bankers.

FNMA - The Federal National Mortgage Association is a major secondary market investor that purchases mortgage loans from mortgage bankers and other financial institutions. Also known as "Fannie Mae."

Federal Reserve - The Federal Reserve is the central bank of the United States and a major regulator agency for many commercial banks.

Fee Simple - Absolute ownership of real property.

Floor - The minimum rate of interest payable on an adjustable-rate class or mortgage.

Forbearance - The lender's postponement of foreclosure to give the borrower time to catch up on overdue payments.

Foreclosure - The legal act by which the owner of a mortgage cuts off the rights or interest of the mortgagor in the mortgaged property.

Good Faith Estimate - A written estimate of closing costs which a lender must provide you within three days of submitting an application.

Grace Period - A period of 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.

Graduated Payment Mortgage (GPM) - A type of flexible-payment mortgage where the payments increase for a specified period of time and then level off. This type of mortgage has negative amortization built into it.

Gross Income - For qualifying purposes, the income of the borrower before taxes or expenses are deducted.

HUD - Housing and Urban Development is a federal agency that oversees the Federal Housing Administration.

HUD-I Settlement Statement - A form utilized at loan closing to itemize the costs associated with purchasing the home. Used universally by mandate of HUD, the Department of Housing and Urban Development.

Hazard Insurance - A contract between purchaser and an insurer, to compensate the insured for loss of property due to hazards (fire, hail damage, etc.), for a premium.

Home Equity Line of Credit - A loan providing you with the ability to borrow funds at the time and in the amount you choose, up to a maximum credit limit for which you have qualified. Repayment is secured by the equity in your home. Simple interest (interest-only payments on the outstanding balance) is usually tax-deductible. Often used for home improvements, major purchases or expenses, and debt consolidation.

Home Equity Loan - A fixed or adjustable rate loan obtained for a variety of purposes, secured by the equity in your home. Interest paid is usually tax-deductible. Often used for home improvement or freeing of equity for other real estate or investments. Recommended by many to replace or substitute for consumer loans whose interest is not tax-deductible, such as auto or boat loans, credit card debt, medical debt, and education loans.

Home Inspection - A home inspection is performed by a qualified home inspector to determine the structural soundness and condition of the home, at the request of a purchaser, seller or lender. The inspector will provide a report outlining the condition of the home and what repairs, if any, are necessary before the loan may be closed.

Homeowners Warranty - A type of insurance that covers repairs to specified parts of a house for a specific period of time.

Housing Expenses-to-Income Ratio - The ratio, expressed as a percentage, which results when a borrower's housing expenses are divided by his/her gross monthly income.

Impound Account - A savings account for accumulating that portion of a borrower's monthly payments designated for future payments of taxes and/or insurance. Required by certain lenders or with certain types of financing.

Index - A number, usually a percentage, upon which future interest rates for adjustable rate mortgages are based. Common indexes include the Cost of Funds for the Eleventh Federal District of Banks or the average rate of a one year Government Treasury Security.

Interest Rate - The periodic charge, expressed as a percentage, for use of credit.

Interest Rate Cap - A safeguard built into a variable rate loan to protect the consumer in the rate of interest movements at time of adjustment.

Interim Financing - A construction loan made during completion of a building or a project. A permanent loan usually replaces this loan after completion.

Intestate - A person who dies without a will.

Joint Liability - Liability imposed upon two or more persons.

Joint Tenancy - The ownership of property by two or more persons with the survivor taking the interest of the deceased.

Joint Venture - A legal entity consisting of several persons jointly undertaking a commercial enterprise for profit.

Jumbo Loan - Mortgage loans over the conforming loan limit. Terms and underwriting requirements may vary from conforming loans.

LIBOR (London Interbank Offered Rate) - The interest rate charged among banks for short-term Eurodollar loans. A common index for adjustable-rate mortgages and securities.

Late charge - The penalty a borrower must pay when a payment is made after the due date.

Lien - The right to satisfy a debt out of certain property owned by the debtor.

Liquidity - The capability of ready conversion of an asset or investment to cash.

Loan to Value Ratio (LTV) - A ratio determined by dividing the sales price or appraised value into the loan amount, expressed as a percentage. For example, with a sales price of $100,000 and a mortgage loan of $80,000, your loan to value ratio would be 80%. Loans with an LTV over 80% may require Private Mortgage Insurance.

Lock or Lock In - A commitment you obtain from a lender assuring you a particular interest rate or feature for a definite time period. Provides protection should interest rates rise between the time you apply for a loan, acquire loan approval, and, subsequently, close the loan and receive the funds you have borrowed.

MIP - Mortgage Insurance purchased by the borrower to insure the lender or the government against loss should you default. MIP, or Mortgage Insurance Premium, is paid on government-insured loans (FHA or VA loans) regardless of your LTV (loan-to-value). Should you pay off a government-insured loan in advance of maturity, you may be entitled to a small refund of MIP. PMI, or Private Mortgage Insurance, is paid on those loans which are not government-insured and whose LTV is greater than 80%. When you have accumulated 20% of your home's value as equity, your lender may waive PMI at your request. Please note that such insurance does not constitute a form of life insurance which pays off the loan in case of death.

Margin - An amount, usually a percentage, which is added to the index to determine the interest rate for adjustable rate mortgages.

Market Value - The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.

Minimum Payment - The minimum amount that you must pay, usually monthly, on a home equity loan or line of credit. In some plans, the minimum payment may be "interest only," (simple interest). In other plans, the minimum payment may include principal and interest (amortized).

Mortgage Banker - Originates mortgage loans, loaning you their funds and closing the loan in their name.

Mortgage Broker - As do mortgage bankers, takes loan application and processes the necessary paperwork. Unlike a mortgage banker, brokers do not fund the loan with their own money, but work on behalf of several investors, such as mortgage bankers, Savings and Loan's, banks, or investment bankers.

Mortgage Loan - A loan which utilizes real estate as security or collateral to provide for repayment should you default on the terms of your loan. The mortgage or Deed of Trust is your agreement to pledge your home or other real estate as security.

Mortgage Note - A legal document obligating a borrower to repay a loan at a stated interest rate during a specified period of time; the agreement is secured by a mortgage.

Mortgagee - The lender in a mortgage loan transaction.

Mortgagor - The borrower in a mortgage loan transaction.

Multiple Listing Service (MLS) - A networking system, frequently on computer, in which a number of real estate firms share information about their client's homes that are for sale.

Negative Amortization - A situation which may occur on variable rate loans which have the payment cap feature. Because your monthly payment is capped, your adjusted payment amount may, at times, be insufficient to pay the actual amount of interest due. The unpaid deferred interest will then be added to your loan balance. This increase in your loan balance is known as negative amortization. A borrower usually has the option of increasing the monthly payment in any given month to avoid negative amortization.

Nondischargeable Debt - Debt, such as taxes, that cannot be forgiven in a bankruptcy liquidation.

Note - A formal document showing the existence of a debt and stating the terms of repayment.

Notice of Default - A formal written notice to a borrower that a default has occurred and that legal action may be taken.

Offer to Purchase - Also known as a purchase offer, earnest money agreement, contract of purchase, or deposit receipt.  A document that lists the price conditions, and terms under which the buyer is willing to purchase a property.

Origination Points - Points charged by the Broker for their services 

Owner Financing - A purchase in which the seller provides all or part of the financing.

Owner's Title Policy - An insurance premium charged by the title company to insure the buyer that the title is free from defects up to the date the conveying instrument is recorded. Buyer is the beneficiary. (Frequently paid by the seller. $300 and up). 

PITI - Principal, interest, taxes and insurance, which comprise your monthly mortgage payment.

Payment Cap - Provision of some ARMs limiting how much a borrower's payments may increase regardless of how much the interest rate increases; may result in negative amortization.

Payoff Statement - A fee charged by the lender or collection company for payoff information on a loan which you are paying in full.

Per Diem Interest - Depending on the day of the month you close, you will have to pay interest from the date of closing to the end of the month. Then, usually, the first mortgage payment will be due the first of the following month.

Personal Property Right - All rights and interest owned in goods or chattels as distinguished from an interest in real property.

Points (or Discount Points) - A one-time charge imposed by the lender to lower the rate at which the lender would otherwise offer the loan to you. Each point is equal to one percent (1%) of the mortgage amount. For example, if a lender charges two points on a $90,000 loan this amounts to a charge of $1,800.

Pool - A group of mortgages backing an individual MBS issue.

Power of Attorney - A legal document authorizing one person to act on behalf of another. 

Prepaid Expenses - Necessary to create an escrow account or to adjust the seller's existing escrow account. Can include taxes, hazard insurance, private mortgage insurance and special assessments.

Prepaid Interest - The amount of interest to cover the period from close of escrow until the beginning of the first payment.

Pre-payment - The unscheduled payment of all or part of the outstanding principal of a mortgage loan, including payments by the borrower as well as liquidations from foreclosures, condemnations, or casualty.

Prepayment Penalty - A penalty found in a Promissory Note imposed by the lender when the loan is paid before it is due. 

Prequalification - The process of determining how much money a prospective homebuyer will be eligible to borrow before a loan is applied for. 

Processing Fee - This fee is paid at closing. The Processor is the person who handles all paperwork requirements in getting your loan approved. He/She obtains verifications from your bank, employer, and other sources.

Profit and Loss Statement - Part of the financial statement that shows sales, expenses and profits for a specific period of time. Also known as Income Statement .

Purchase and Sale Agreement - A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

Qualifying Ratios - Comparisons of a borrower's debts and gross monthly income.

RESPA - Short for the Real Estate Settlement Procedures Act. RESPA is a federal law that allows consumers to review information on known or estimated settlement costs once after application and once prior to or at a settlement. The law requires lenders to furnish the information after application only.
ROI - Return on Investment

Rate Lock - See Lock-in.

Real Estate Agent - A person licensed to negotiate and transact the sale of real estate on behalf of the owner.

Real Property - Land and everything that is permanently affixed to it.

Realtor - A collective membership mark that may be used only by real estate professionals who are members of the National Association of Realtors and subscribe to its strict code of ethics.

Receiver - A person appointed by the court to take custody over property in litigation or insolvency.

Refinancing - The process of paying off one loan with the proceeds from a new loan secured by the same property.

Right of Rescission - The legal right to void or cancel your mortgage contract in such a way as to treat the contract as if it never existed. Right of rescission is not applicable to mortgages made to purchase a home, but may be applicable to other mortgages, such as home equity loans.

Second Mortgage - A mortgage made subsequent to another mortgage and subordinate to the first one.

Secondary Mortgage Market - The place where primary mortgage lenders sell the mortgages they make to obtain more funds to originate more new loans. It provides liquidity for the lenders.

Seller Carryback - An agreement in which the owner of a property provides financing, often in combination with an assumed mortgage.

Servicing - All the steps and operations a lender performs to keep a loan in good standing, such as collection of payments, payment of taxes, insurance, property inspections and the like.  Also known as Loan Administration.

Simple Interest - Interest which is computed only on the principal balance.

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

Sweat Equity - Equity created by a purchaser performing work on a property being purchased.

Tenancy in Common - A form of ownership on which the tenants own separate but equal parts. To inherit the property, a surviving tenant should either have to be mentioned in the will or, in the absence of a will, be eligible through state inheritance laws.

Testator - A person who makes a will.

Title - The written evidence that proves the right of ownership of a specific piece of property.

Title Company - A company that specialized in insuring title to property. 

Title Insurance - Insurance to protect the lender (lender's policy) or the buyer (owner's policy) against loss arising from disputes over ownership of a property.

Title Search - A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding. 

Transfer Tax - State or local tax payable when title passes from one owner to another. 

Truth-in-Lending Act - A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the APR and other charges. 

Underwriting - The process of verifying data and approving a loan.

Underwriting Fee - This fee is paid at closing. This charge is for the review of your file to insure your ability to meet your mortgage payment obligations. 

VA Loan - More appropriately termed "VA Insured Loan." A loan for which the Veteran's Administration insures the lender against losses the lender may incur due to your default. Available only to veterans possessing a Certificate of Eligibility.

VA Mortgage Funding Fee - A premium of up to 1-7/8 percent (depending on the size of the down payment) paid on a VA-backed loan. On a $75,000 fixed-rate mortgage with no down payment, this would amount to $1,406 either paid at closing or added to the amount financed.

VOD (Verification of Deposit) - A document signed by the borrower's financial institution verifying the status and balance of his/her financial accounts.

VOE (Verification of Employment) - A document signed by the borrower's employer verifying his/her position and salary.

Waiver - The relinquishment of or refusal to accept some right or benefit.

Walk-through - A final inspection of a home before settlement to search for problems that need to be corrected before ownership changes hands.

Warehouse Fee - Many mortgage firms must borrow funds on a short term basis in order to originate loans which are to be sold later in the secondary mortgage market (or to investors). When the prime rate of interest is higher on short term loans than on mortgage loans, the mortgage firm has an economic loss which is offset by charging a warehouse fee.

Yield - The rate of return on an investment over a given time, expressed as an annual percentage rate. Yield is affected by the price paid for the investment as well as the timing of the principal repayments.

Yield to Maturity - The annual percentage rate of return on an investment, assuming it is held to maturity.

Zoning Regulations - established by local governments regarding the location, height, and use for any given piece of property within a specific area. 

ReQuest Home Loans- We are your home town loan agent. Serving the areas of Rancho Santa Margarita, Coto de Caza, Dove Canyon, Ladera Ranch, Mission Viejo and all of Orange County.