Adjustable rate mortgage (ARM)
The adjustable rate mortgage or ARM is a mortgage in which the interest rate is adjusted periodically based on a pre-selected index. The index could be for example the one year treasury, cd rates or even cost of funds as measured in a defined geographical area. Also referred to as the variable rate mortgage.

Alternative (ALT-A)
A loan that does not fit conforming and is supported by various documentaion types. The credit may have some "derogatories". Not as bad a submprime/non conforming, but not quite good enough to be “ A Paper”

Amortization
Equal periodic payments calculated to pay off a mortgage at the end of a fixed period including accrued interest on the outstanding mortgage balance.

"A" Paper
A conforming loan is within the amount set each year as conforming and is here supported by full documentation with near perfect credit.

Annual percentage rate (A. P. R.)
Is the interest rate reflecting the cost of a mortgage as a yearly rate? This measurement of rates is likely to be a little higher than the stated mortgage note rate or advertised rate on the mortgage. It takes into account points and other mortgage related origination costs. You can find the A.P.R. on the mortgage disclosure document.

Appraisal
An professional estimate of value. This is based on most recent sold comparable properties. It is necessary for the Mortgage Lender to determine the amount of money it will loan. This is performed by a qualified professional Appraiser.

Borrowers Authorization
A written authorization from the borrower in favor of the lender to gather the necessary informaition about them.

B/C Loan
See Non Conforming or subprime

Caps (interest)
Consumer safeguards put in place to limit the amount the interest rate on an adjustable rate mortgage may change per adjustment period. It is in effect for the life on the mortgage.

Caps (payment)
Consumer safeguards limiting the amount monthly payments on an adjustable rate mortgage may change during the life on the mortgage.

Closing
The meeting between all parties to the loan or their agents, where the property and mortgage funds change hands.

Closing Costs
Costs associated with applying and closing for a mortgage, these are the fees on the Good Faith Estimate ( GFE )

Commitment
A written promise made by a mortgage lender based on specific terms and conditions to the borrower.

Compensating Factor(s)
Included but are not limited to: number of years in residence, length of time on the job, timely mortgage payments, cash reserves and low loan to value (LTV).

Conforming Loan
See “A Paper” borrowers with good credit, job and income.

Credit scoring
Information about you and your credit experiences, such as your bill paying history, the number and type of accounts you have open, late payments, collection actions, outstanding debt, and the age of your accounts, is collected from your credit application and your credit report.

Debt to Income Ratio (referred to as "ratios") /DTI
The ratio is expressed as a percentage which results when a borrowers payment obligations on long term debts is divided by the borrowers effective income. This is calculated on a net income for FHA, VA mortgages and on a gross income basis for conventional mortgages. (also referred to as housing expenses to income ratios). DTI

Deed of Trust
Many states use this document in place of a mortgage to secure the note.

Default
Failure to live up the contractual obligation of a mortgage to make timely payments. Over 90 days delinquent may result in foreclosure on subject property.

Disclosures
Documents a borrower signs when sending out a loan application; such as Borrwer’s Certification & Authorization, Truth N’ Lending(T.I.L), Good Faith Estimate(GFE), Equal Credit Opportunity Act(ECOA), Transfer of Servicing, etc.

Equity
The difference between the fair market value of real-estate owned and current indebtedness (including liens other than a mortgage). May be referred to as an owners interest.

Equal Credit Opportunity Act (ECOA)
A Federal Law that requires lenders and other creditors to offer available credit without discrimination based on color, race, religion, country of origin, age sex, marital status or of income received from a public assistance program.

Escrow
A neutral third party to the mortgage transaction that sets aside funds held in trust for payment of taxes, insurance and deposits pending loan closing. Escrow disburses funds to the proper party. Escrow carries out the instructions of both buyer and seller.

FICO
(see Credit scoring)

Fixed Rate Mortgage
A mortgage rate is fixed to remain constant throughout the life of the mortgage. It can not change.

Good Faith Estimate ( GFE )
The GFE is a list of all the closing cost that are involved in the loan; such as discount points, processing fees, underwriting fees, title fees, taxes and insurance, and any other fee that might be associated with the loan. 800 section of fees- charges from the broker, 900 section –charges required by the lender(pre paid interest, mortgage insurance, etc) 1000 section- reserves required by the lender(taxes and insurance), 1100 section- fees charged by the title company(closing fee, title search, title insurance, etc) 1200 section- fees required by the local government( recording of the loan, etc)

Hazard Insurance (called homeowners insurance)
Insurance protects the named insured from specified losses. Mortgage Lender require to be named as "additional named insures or loss payee" to insure the mortgage is paid in case of total loss.

Index
A published interest rate against which lenders use in adjustable rate mortgages to be added to the margin. This determines the current rate for adjustment periods.

Investor
The source of money for a mortgagee lender. Usually the lender sells the loan to the investor.

Jumbo Loan
This amount changes the beginning of each year. All loan amounts under this amount are consider conforming loan amounts. Large loan amounts usually over 359k

Letter of Explanation
Letter explaining a specific situation, document, or service. Usually from a borrowers employer, family member if the borrower is living with them, or from the borrwer.

Lien
A claim against a piece of property held in place until the obligation is paid in full. Most mortgage loans are in the form of a first lien.

Loan to Value
The relationship between the appraised value of the property and the amount of the mortgage against it expressed as a percentage. Loan to value is also known as LTV.

Margin
The amount a mortgage lender applies to the index on an adjustable rate mortgage to establish the adjusted rate of interest. This adjustment occurs periodically as agreed in the mortgage contract.

Market Value
The highest amount a buyer is willing to pay and the lowest price a seller is willing to accept.

Mortgage Insurance
Monies paid to insure the mortgage when the loan to value is over 80% or 75% in case of a "cash out" mortgage.

Mortgagee
The Mortgage Lender

Mortgagor
The homeowner

Negative Amortization (called "Neg-Am")
Occurs when your monthly mortgage payments submitted are not sufficient to pay all interest and principal due on the loan. The unpaid interest is added to the unpaid balance of the mortgage. It could be considered borrowing equity from yourself. The period of time the neg-am is applicable is usually limited on each mortgage.

Non-Conforming
A loan with many different possible disqualifying charactaristics. These may include larger loan amounts, property type (such as number of units or zoning), or credit problems, etc..

Origination Fee
Origiantion fee is a fee charged by the lender to prepare all the documents and closing associated with your mortgage. Loan
origination fees will vary from lender to lender. 1-3% is the most common.

PITI
Principal, Interest, Taxes and Insurance.

Points (Loan Discount Points)
Loan discount points are a fee charged to buy down a lower interest rate. The fee charged is a percentage of the loan amount requested. Paying points may be a good thing if you plan to keep your mortgage over a long period of time. Paying points on an ARM Mortgage is usually not recommended.

Power of Attorney
A legal document authorizing one person to act on behalf of another. The most common type POW is a "specific" power of attorney delegated when one spouse can not be present at the document signing.

Prepayment penalty
Money charged by the mortgage lender for early prepayment of the mortgage. The amount of prepayment penalty allowable varies from state to state.

Principal
The amount of debt, NOT including interest, remaining on a mortgage or the amount of each payment that lowers the balance of the mortgage loan.

Rate Lock
A Rate Lock is a period of time in which you rate is locked in. The rate can not change during this lock period. The time period can be between 15, 30, 45, & 60 days, 30 days is the most common. Some locks can go up to 180 days or longer for contrustion type loans. If you loan does not close in the set lock period, you may lose your rate and have to pay the current rate, or you may have a lock extension fee to keep you locked in rate.

RESPA (Real Estate Settlement Procedures Act)
A Federal law that allows consumers to review information as to actual or estimated settlement costs of the mortgage.

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

Secondary Market
Allows primary mortgage lenders to sell mortgages they have funded and closed. It is not unusual for a mortgage to be sold several time during the term.

Simple Interest
Interest computed on the principal balance of a mortgage.

Subprime Loan
See Non Conforming; borrows have impaired credit, low income, or need alternate financing

Title
A document which supplies evidence of ownership of property.

Title Insurance
A policy, usually issued by a title insurance company insuring the home buyer against errors in the title search.

Truth N Lending ( TIL )
Disclosure document, that goes over APR and total fees packaged into the loan. The TIL, allows the borrowers to compare “apples to apples” with different mortgage loans. APR has no effect on the payment amount just the amount of fees financed into the loan.

Underwriting
A decision process used by mortgage lenders to determine the qualifications of a potential borrower. The process takes into consideration credit, employment, assets and other factors.

Variable rate Mortgage
Please see adjustable rate mortgage

Verification of Deposit (VOD)
Mortgage Lenders require proof that funds are in the account that was stated by the Borrower. This is accomplished by the broker sending a written request for verification. However, a copy of your most recent bank statement of the account will also work.

Verification of Mortgage (VOM)
Most mortgages are rated on the credit report. Some Lenders do not report to the credit bureaus. If that is the case, the Lender will need a VOM from the existing Mortgagor/Lender requesting the payment history. Some cases may require 12 months cancelled checks from the borrower to support the Mortgage history.

Verification of Rent (VOR)
If the borrower has not owned a home and has instead been renting, the payment history may be requested from a property management company or 12 months cancelled checks will be needed. Some VOR’s are from a private party landlord(someone who owns a home and is renting it out) Other VOR’s are from management companies( a company that manages the property that is being rented.

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