Glossary of Terms
The act of paying a debt over time. This includes payment of principal and interest. Most mortgages have a payment structure that includes equal monthly payments that will result in the loan being paid off by the end of the loan term. This is an example of an amortized loan. (An interest-only loan is not amortized since the monthly payments do not reduce the principal.)
Estimate of the value of a property done by a licensed appraiser.
Licensed professional who evaluates real estate to determine an estimate of the property value.
A payment that is larger than the normal monthly payment. It is commonly due at the end of the loan term when payments do not include anything to pay down the principal.
One who borrows money from another with the promise to pay it back by a certain time and under certain terms such as interest rate and regular payments.
Short-term loan that is used to buy one property before selling another. The loan can be secured by either one of the properties or both. It has a term of 12 months or less.
See Mortgage Broker.
A mortgage where a property that is already owned by the borrower is used as collateral for getting cash. The loan amount is larger than the total of loan being paid off plus any closing costs incurred.
On mortgages, this is the amount of the costs incurred to get the loan. It includes origination fees (also called “points”), appraisal fees, escrow fees, title company fees and can include additional charges.
Fees paid for a mortgage, including points, processing fee, underwriting fee, credit report fee, escrow fees, title insurance, appraisal fee, etc.
The ratio between a borrower’s monthly payments on debts and their monthly income, expressed as a percentage. (Debts include mortgage payments, property taxes, property insurance, credit card payments, car payments, student loan payments, child support, spousal support and anything else that may show up on their credit report. Debts do not include utilities, car insurance, cell phones, gym memberships, etc.) For example, if a person earns $5,000 per month and has total debts of $2,000 per month, his debt-to-income ratio would be 40% because $2,000 is 40% of $5,000.
Debt-to-Income Ratio for Housing
A variation of the debt-to-income ratio (DTI) that calculates how much of a person’s gross income is going towards housing costs. If a homeowner has a mortgage, the debt-to-income ratio is calculated as housing expenses (such as mortgage payments, mortgage insurance, etc.) divided by gross income, expressed as a percentage. For example, a person who makes $6,000 per month and has a total housing expense of $1,800 (mortgage payment, property taxes and homeowner’s insurance), he would have a housing debt-to-income ratio of 30%.
Deed of Trust
Document that is recorded against a property to secure a loan. It is used in conjunction with a Promissory Note (also called a Note, Fixed-rate Note or Adjustable-rate Note). In Deed of Trust states like California, if a borrower doesn’t make the payments, the trustee can begin the foreclosure process which does not require court approval.
Failure to comply with the terms of a mortgage or other loan. Most often, this involves not making payments but can also include a failure to maintain property insurance, keep a property in good repair or other terms that are included in the terms of the Note and Deed of Trust.
An increased interest rate in the event of default on a loan.
Department of Business Oversight: Governmental agency in California that oversees corporations and lenders that are licensed under it. It is separate from the Department of Real Estate
The amount paid in cash as part of the purchase of a property.
A clause that is included in a loan agreement that gives the lender the right to demand full payment of the loan if the property changes owners.
Earnest Money Deposit
The money paid into escrow in order to confirm or begin a contract. It is a portion of the down payment. Commonly, it is equal to 3% of the purchase price but not always.
Equal Credit Opportunity Act
Federal law that prohibits discrimination in a credit transaction on the basis of sex, marital status, race, color, religion, national origin, age, receipt of public assistance benefits and/or the borrower’s good faith exercise of the rights under the Consumer Credit Protection Act.
The difference between the property value and the amount owed on it. For example, a property worth $300,000 with a $100,000 loan against it would have $200,000 in equity.
Fair Housing Act
Prohibits discrimination in the sale, rental, and financing of dwellings, and in other housing-related transactions, based on race, color, national origin, religion, sex, familial status (including children under the age of 18 living with parents of legal custodians, pregnant women, and people securing custody of children under the age of 18), and handicap (disability).
Federal Home Loan Mortgage Corporation. This is a governmental agency that buys mortgages from lenders as long as the fit their guidelines. Also called Freddie Mac.
Federal National Mortgage Agency. This is a governmental agency that buys mortgages from lenders as long as the fit their guidelines. Also called Fannie Mae.
Credit score generated using formulas created by Fair Isaac Company, often referred to as credit scores.
Fixed Rate Mortgage
A mortgage that has an interest rate that does not change during the term of the loan.
Insurance coverage that is required in designated areas to protect the borrower and lender against loss due to flooding.
The process of selling a property that was pledged as security for a mortgage in order to recover the money that was lent. This is only done when the mortgage is in default.
Freddie Mac: See FHLMC.
Gross Monthly Income
The borrower’s total earnings per month before expenses and income taxes are deducted but after business expenses are deducted.
A type of mortgage where the money comes from individuals or groups of individuals instead of coming from banks. Hard money lenders are generally more lenient regarding credit history, property condition and proof of income. They typically charge higher rates and require more equity in the property than a bank would require.
Insurance coverage that insures against damage to a property from fire, wind, or other hazards. Also referred to as homeowner’s insurance or fire insurance. It is separate from flood insurance.
Any loan that only requires the payment of the interest being charged and not requiring any of the principal to be paid with the monthly payments.
The bank, person, group or other entity that lends money to others.
The ratio between the loan amount and the value of the property being used as collateral for the loan. (Abbreviation: LTV)
Loan that is secured by a lien against real estate. Normally, it must be paid in full before title to the property can be transferred.
One who arranges a loan, matching a borrower with a lender, and acting as a fiduciary to the borrower and lender.
A mortgage payment that is more than 30 days late. Technically, a person can be late after the grace period if they have not made their payment but will not be considered to have a mortgage late until the payment is at least 30 days late.
Mortgage Loan Disclosure Statement
Disclosure required on all mortgage loans done in California. It contains the terms of the loan, all fees and charges on the loan and, in the case of non-traditional types of loans, other loan products given as a comparison.
Mortgages that make financing available to those who cannot qualify for a traditional mortgage due to credit issues, needing to prove income through unconventional means or having too many mortgages. Terms for these loans are generally better than hard money and worse than traditional mortgages. Replacement for flawed sub-prime mortgages. (See Sub-Prime Mortgages.)
A promise to pay a loan. It contains the terms of the loan, such as the loan amount (amount being borrowed), interest rate, payment amount, late fees and where to make payments.
Notice of Default
An official document that is recorded in public record stating that the borrower is in default on the loan against real estate.
A fee charged to a borrower in exchange for arranging a loan for them. It is usually charged as a percentage of the loan amount but in some cases is charged as a flat fee instead. This is usually done on smaller loans (under $100,000).
Fees charged on a loan and calculated as a percentage of the loan amount. One point is equal to 1% of the loan amount. For example, one point on a loan of $150,000 would be $1,500. This is a type of origination fee.
A letter indicating that a borrower has completed an application and supplied sufficient information to a mortgage broker or lender who has determined that is it likely that they can get approved for a mortgage. Most pre-approval letters will include a purchase price and loan amount for which the borrower has been pre-approved.
Any penalty for paying a loan off before a certain date or length of time. (Also called prepay penalty.)
The amount owed on a loan. It does not include interest charged, late fees or any other fees, only the amount borrowed.
A person who lends money to others with real estate being used as security for the loan.
Private Money Loan: See Hard Money Loan.
The act of putting together a loan file. This can include entering data, pulling credit, opening escrow, obtaining proof of assets and/or income, ordering appraisals and following up on anything needed for the file.
Promissory Note: See Note.
Flawed mortgage loans that were designed to provide loans to people who could not qualify for a traditional mortgage due to credit issues or problems proving income. Major problems with these loans were common terms including the rate being fixed only for the first two years of the loan along with a prepayment penalty for the first two years and a rate that increased significantly at the end of the two years. If a borrower was not able to refinance at the end of two years, their payment increased, often to a point where they couldn’t afford it.
The process of analyzing a loan application as well as the supporting documentation (including credit report, proof of income, proof of assets, appraisal, etc.) to determine whether the loan should be approved and if any additional documentation is needed.Often, these are either the things the website owner thinks are important or they are just filler.