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| Glossary |
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L
| late charge/fee |
The penalty a borrower must pay when a payment is made after the due date.
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| lender’s title policy |
Title insurance that protects the lender from any claims of prior interest in the property.
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| liabilities |
A person's debts or financial obligations. Liabilities include long-term and short-term debt, as well as potential losses from legal claims.
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| lien |
A legal claim against a property that must be paid off when the property is sold.
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| lifetime cap |
A provision of an ARM that limits the total increase in interest rates over the life of loans.
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| liquid asset |
A cash asset or an asset that is easily converted into cash.
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| listing agent |
The agent who represents the seller in the real estate transaction.
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| listing contract |
A written agreement between the seller and the listing agent.
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| loan |
A sum of borrowed money (principal) that is generally repaid over time with interest.
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| loan consultant |
A person who advises a prospective homebuyer regarding the process of purchasing a property and obtaining a mortgage loan.
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| loan modification |
Changes to one or more of the terms of a loan.
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| loan term |
The period of time over which a loan is paid.
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| loan to value (LTV) ratio |
The relationship between the value of property and the loan amount.
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| lock-in |
A written agreement guaranteeing the homebuyer a specified interest rate provided the loan is closed within a set period of time.
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| LIBOR |
London Interbank Offering Rate; an index commonly used for some ARM loans.
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loss assessment
insurance |
Insurance that protects a condominium owner in case that condominium association suffers a major financial liability that exceeds the association’s insurance.
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M
| margin |
The amount that is added to the index to establish the interest rate for an adjustable rate mortgage (ARM) or home equity line of credit, subject to any limitations on the interest rate change. |
| market value |
The likely sale price of an item or property based on the highest price that a buyer would pay and the lowest price a seller would accept in a competitive and open market.
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| matched saving programs |
Special savings programs where funds you deposit are matched by the sponsor of the program, typically up to a certain amount.
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| matricula consular identification |
An identification card granted by the Government of Mexico to Mexicans living in the United States. Similar consulate identification cards are issued to citizens of Argentina, Colombia, El Salvador, and Honduras.
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| minimum balance |
The smallest amount of money required to be kept in a deposit account to avoid fees.
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| minimum payment |
The minimum amount that must be paid monthly on an account.
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| money market account |
A savings account that provides bank depositors with many of the advantages of a money market fund. Certain regulatory restrictions apply to the withdrawal of funds from a money market account.
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| mortgage |
A legal document that pledges a property to the lender as security for payment of a debt.
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| mortgage bank |
A company that originates, sells and services mortgages exclusively for resale in the secondary mortgage market.
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| mortgage broker |
An individual or company that for a fee acts as intermediary between borrowers and lenders.
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| mortgage credit certificate (MCC) |
A tax credit, available in some areas for first-time homebuyers, that permits the borrower to apply a specific percentage of the annual interest paid on their mortgage as a credit against tax liability.
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| mortgage insurance |
Insures the lender against loss caused by the borrower’s failure to make the payments.
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| mortgage insurance premium (MIP) |
The amount paid by a borrower for mortgage insurance, either to a government agency such as the Federal Housing Administration (FHA) or to a private mortgage insurance (MI) company.
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| mortgage interest |
Monies charged by the lender for the use of the amount provided in a mortgage loan.
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| mortgage life insurance |
An insurance policy that pays off your mortgage balance in case of your death.
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| MTA |
Monthly Treasury Average; an index used on some ARM loans.
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| multiple listing service (MLS) |
A service used by real estate brokers to distribute information on properties for sale to other brokers in the community.
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N
| National Credit Union Administration |
An independent federal agency that supervises and insures federal credit unions and insures state-chartered credit unions. |
| National Flood Insurance Program (NFIP) |
A federal program that makes flood insurance available in communities in pre-defined flood areas.
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| negative amortization |
An increase in the outstanding balance of a mortgage that occurs when the monthly payment is not large enough to cover the interest due. The amount of the shortfall is added to the remaining balance to create "negative" amortization.
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| net monthly income |
Income minus taxes and any payroll deductions; usually the amount out of a paycheck that a person can actually spend.
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| net worth |
The value of all of a person's assets, including cash, minus all liabilities.
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| non-conforming loan |
Any home loan that does not conform to the guidelines established by Fannie Mae and Freddie Mac.
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| non-prime loans |
Home loans available for borrowers with credit problems or lack of documentation, usually offered at higher interest rates. Also called “specialty loans” or “subprime.”
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non-traditional credit
history |
Any established credit source, not typically shown on a credit report, which can be documented to show you have made regular monthly payments. Examples include, past or present apartment rental payments, utility payments, telephone payments, etc.
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| note |
A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.
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O
| open account |
A credit account in which the entire balance is due in full each month. |
| option ARM |
A type of adjustable rate mortgage that offers the borrower a choice of four monthly payment options to help provide financial flexibility to manage payments in rising rate markets and take advantage of falling interest rates.
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| origination |
The preparation of all documents required in order to obtain financing for a home loan.
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| origination fee/point |
A fee charged by a lender to cover the cost of the process of making a mortgage loan. The origination fee is stated in the form of points. One point is 1% of the mortgage amount (e.g., 1,000 on a $100,000 loan).
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| overdraft |
When the amount of money withdrawn from a bank account is greater than the amount actually available in the account.
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| overdraft protection |
A line of credit associated with a checking account that pays your checks even when you don't have enough money in your checking account to cover them.
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| owner financing |
A property purchase transaction in which the property seller provides all or part of the financing.
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| owner’s title policy |
A title insurance policy that protects the owner from anyone making a claim of prior interest in the property.
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P
| payday lenders |
Companies that offer loans or cash advances that are secured by a postdated personal check or by a direct deposited benefits check or paycheck. The price for these services is typically very high. |
| payment cap |
A provision of some ARMs limiting the amount by which a borrower’s payment may increase regardless of any interest rate increase; may result in negative amortization. See “adjustable rate mortgage.”
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| payment history |
History of making payments to creditors.
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| PayOption ARM |
Countrywide’s Option ARM product.
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| permanently attached |
Fixtures or appliances that are part of a home, and are included as part of the real estate property.
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| personal liability umbrella policy |
Additional liability protection above and beyond a basic insurance policy. This protection is designed to “kick-in” when the liability on other current policies has been exhausted.
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| personal property that conveys |
Any items of personal property (which can be easily removed) that are to remain in the property when sold, such as a refrigerator, draperies, washer/dryer, swing set, etc.
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| PIN (personal identification number) |
The special password or set of numbers required to use your debit or ATM card. The PIN is used for security purposes, so no one else can access your account.
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| pharming |
A common identity theft scam where thieves redirect traffic from a legitimate Web site to a fake site in order to gather your account login name, password or other personal information.
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| phishing |
A common identity theft scam where someone posing as a representative from a trustworthy company with whom you are doing business e-mails you a request for your user name, password, PIN or credit card number.
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| piggy-back |
A combination of two loans. Example: A loan is made for 90% of the home price. 80% of the purchase price is supplied by a 1st mortgage and 10% by a 2nd mortgage. The 2nd mortgage is piggybacked on the 1st.
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| PITI |
Principal, Interest, Taxes and Insurance; usually the four parts of a monthly mortgage payment.
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| point |
A one-time charge by the lender for originating a loan. A point is 1% of the amount of the mortgage (e.g., 1,000 on a $100,000 loan).
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| pre-approval |
A lender's conditional agreement to lend a specific amount on specific terms to a homebuyer.
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| predatory lending |
Abusive lending practices including: excessive or hidden fees, refinancing of loans at no benefit to the borrower, offering a loan knowing the borrower lacks the means to repay it, and using high-pressure sales tactics to sell a loan.
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| prepaid interest |
Mortgage interest that is paid from the date the loan closes to the end of the month.
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| prepayment |
Any amount paid to reduce the principal balance of a loan before the loan has been fully amortized.
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| prepayment penalty |
A fee that may be charged to a borrower who pays off a loan before it is due. Generally, a prepayment penalty is added to a loan in exchange for a discounted rate.
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| pre-qualification |
The process of determining how much money a prospective homebuyer will be eligible to borrow before a loan is applied for.
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| pretexting |
A common identity theft scam where someone falsely representing a company with whom you do business calls you, asking you to “update” their records by requesting your Social Security number or other personal information over the phone.
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| prime rate |
The interest rate that banks charge on short-term loans to its most creditworthy customers. Changes in the prime rate influence changes in other rates, including mortgage interest rates.
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| principal |
The part of the monthly payment that reduces the remaining balance of a mortgage.
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private mortgage
insurance (PMI) |
Mortgage insurance that is provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require PMI for a loan with a loan to value (LTV) percentage in excess of 80%.
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| processor |
The person who requests your credit report and collects and verifies all your personal information during the loan approval process.
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| property tax |
The tax an owner of a property pays to the government, based on the value of the property.
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| purchase contract |
A written document by which a buyer agrees to buy and a seller agrees to sell a property.
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| purchase price |
The total amount paid for a home.
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