Mortgage – The legal debt instrument used to collateralize the property.

Note – financial instrument that outlines the terms of the promise to pay another party a definite sum of money.

Deed – the legal description of the property.  Can include chain of ownership, street address, number of units and the year the property title transferred.

Purpose of Loan- Whether the proceeds of the loan will be used for purchase, refinance, construction or construction-to-permanent financing or other.

Occupancy- To show whether the property will be a primary residence, secondary residence or investment property.

Construction Loan- short term loan used to cover cost of land development and to finance construction of some kind.  Usually paid off with the proceeds of permanent financing.

Refinance Loan- Renegotiation of rate and/or term of a mortgage with a possible change in the amount of mortgage.

Subject property- The property that will be security for the loan.

Down Payment – The payment made during the onset of the purchase of property representing a percentage of the purchase price.

Closing Cost – fees associated with the closing of a mortgage.  Most mortgage related costs are paid at the time of closing.  Cost can be incurred by either the buyer or the seller in a transaction.  Buyer closing cost can include fees for points or origination fees, appraisals, credit reports, title insurance, and closing agents, escrow set up for taxes and insurances and recording fees.

Source of Down Payment- Source of funds to be used for the down payment on the purchase or settlement charges (closing costs).

Borrower / Co-borrower – Any borrower(s) whose name(s) appear on loan documents and whose income and credit history are used to qualify for the loan.

Gross Monthly Income- The base employment income derived from the applicant’s income verification documents. Income sources can be used if they are received on a consistent basis, can be verified and that income is expected to continue for at least three years.

Combined Monthly Housing Expense- Can be either Present or Proposed.  Present monthly housing expenses is the applicant’s current monthly rent or mortgage payment.    Proposed Monthly Housing Expense is the projected monthly housing expense, including new mortgage principle and interest payment, 1/12 annual taxes and 1/12 annual insurance payments.

Liquid Assets – funds available such as savings, checking, retirement accounts and stocks and bonds that can be verified and converted to cash in a short time with little or no loss in value.

Other Assets – life insurance, real estate owned, vested interest in retirement fund, net worth of businesses owned, automobiles, collections and other assets such as jewelry and collectibles.

Liabilities- Includes all liabilities listed on the applicant’s credit report and those disclosed that have more than ten payments left owing.

Underwriting- Process of review to decide whether to make a loan based on credit, employment, assets and other factors.

Collateral- Refers to the property used as security for the loan.

Debt ratios- The calculation of total monthly payments compared to income expressed as a ratio.

Credit History- The borrower’s record of use of credit.  The credit report provides a credit score with open and closed accounts and a record of past use of credit including foreclosure and bankruptcies, judgments and liens, collections, and applications for new credit in the past 12 months.

Standard Mortgage Credit Report- For a conforming loan, a credit report must be a standard factual data credit report issued by an independent credit reporting agency. It will contain personal information, credit information, and inquiries.

Credit Score – A credit score is based on payment history, amounts owed, amount of available credit, lengths of credit history, types of credit in use, and recent attempts to obtain new credit. Reported by three major credit bureaus: Experian, Equifax, and TransUnion.

Appraisal- A written report of an appraiser’s informed, objective opinion or estimate of the market value of the property that is security for the loan.

Home Inspection- A thorough structural review of the subject property usually conducted by a independent qualified contractor or licensed home inspector.  Can provide determinations of the condition and effective life of the major elements of the property, such as the roof and electrical system.

Title Insurance Policy – Required by most lender and is protection for the insured against loss resulting from a claim caused by defect in the title that had not been excluded in the policy.

Title Commitment – Title report containing the results of the title search (conveyances and encumbrances relating to the property, ensuring that no one except the current owner has a valid claim to the property, easements, and liens).

Easements - Rights to the use of the property of another for specific purpose such as a drainage, utility, or sewer easement, or a driveway or access easement giving a person a right to cross over a neighbor’s property to get to and from a road.

Lien – the right to keep possession of property belonging to another person until a debt owed by that person is discharged.

Closing- A scheduled event for the transfer of title.  Borrowers sign loan documents, funds are disbursed per the lender’s instructions and if a purchase transaction, the title will transfer to the new owner.

Loan Servicer- Company or agency that is set up for managing the payments made on loans.

Fixed Rate Mortgage – a loan in which the interest rate does not change for the life of the loam.

Adjustable Rate Mortgages (ARM)- A loan in which the interest rate changes periodically, usually in relation to an index. Payments decrease or increase accordingly.

Index Rate- Measure of interest rates based on an index, published rate or yield. Changes periodically.

Margin- The “spread” between the index rate and the interest rate to be charged. To establish the actual interest rate on an ARM, the lender adds the margin to the index rate. Usually expressed as a fixed percentage and is set by the lender to cover the lender’s operating costs and profit. Usually does not change during the loan term, so an ARM rate is adjusted only to reflect the changes in the index rate.

Adjustment Period- The period between rate changes. May change every month, year, three years of five years, or some other term.