VA Loan Glossary of Mortgage Terms
Real Estate Glossary Index
Acceleration Clause: This is written into mortgage loan contracts in the case that you miss a mortgage payment and go into default with your loan then your lender can demand full payment of the balance due on your mortgage.
Acceptance: After you make an offer on a home and the seller accepts, you sign a purchase agreement that states the purchase price and other terms of the sale is drawn up and earnest money is put on the home.
ACE-Automated Certificate of Eligibility: This system is used by VA approved lenders in order to help veterans get the Certificate of Eligibility they need to take part in the VA Home Loan Guarantee Program.
Acreage: The amount of land that is being purchased as an empty lot or with a home pre-existing on the property. One acre is equal to $43,560 square feet.
According to Value: Also called 'Ad Valorem' which refers to the value of your home and property that your property taxes are based on.
ARM-Adjustable Rate Mortgage: A mortgage in which you have a specified amount of time at the beginning of the loan where the rate of interest is fixed, usually 2 or 3 years, and after that time period is over the interest rate fluctuates with the current. This type of mortgage is usually only a good idea if you plan to only live in the home during the fixed interest rate period of time.
Adjustment Date: The dates at which your adjustable rate mortgage interest rate can change. After the initial fixed rate period is over the interest rate can usually be adjusted every 6 months.
Amortization: The process of paying off your mortgage with payments due every month for a certain amount of years.
Amortization Schedule: The statement from your mortgage lender that shows you exactly what your monthly mortgage payment is, how much is going towards your principal loan amount, how much is going towards interest, how much is going into your escrow account and your escrow account balance if applicable, and the remaining balance of your loan.
APR-Annual Percentage Rate: The percent you are paying for a full year that includes interest on your loan, mortgage insurance costs, and other fees that may be applied depending on your mortgage loan agreement.
Appraisal: The fair market value of a property based on a professional evaluation of real estate trends in the area and amenities of the home.
Appreciation: The amount of increase in value that takes place on a property due to real estate trends in the area, home improvements, and other influences that cause the market value of a home to increase.
Assessed Value or Assessment: The value a property is given by a tax assessor in order to determine the cost of property taxes for that parcel.
Assets: Anything you own that has value.
Asset-to-Debt Ratio: The value of the assets you own minus the amount of debt you have.
Assumable Mortgage: A mortgage loan that can be taken over by the buyer rather than a new mortgage contract being written to purchase the home. In most cases the seller of the home would still be liable to the mortgage company in the case that the buyer missed a payment. In some cases the seller can allow the buyer to assume the mortgage without continuing to be liable.
Assumption: When the seller officially transfers their mortgage to the buyer of their property.
Balloon Mortgage: When a buyer acquires this type of mortgage they are required to make payments for a certain amount of time and then after this specified period of time they have to pay the mortgage loan in full. The time period is usually for 5 to 10 years and this type of mortgage is good for buyers who do not plan to live in the home for the full term of the loan or plan to refinance the loan before the balloon payment is due.
Balloon Payment: At the end of a balloon mortgage this is the balance of the entire loan amount that is due in one final large payment.
Bankruptcy: The act of claiming you do not have the means or any way to acquire the means to pay off your current debt. This is a legal court proceeding in which you turn in all of your asset and debt information to the court and they rule to the effect of if they think you are capable of paying your creditors or not. In the case that you have no or very few assets Chapter 7 is bankruptcy is usually filed. In the case you have assets you want to keep, like a home, Chapter 13 bankruptcy is usually filed. In this case you are required to make payments to the court, which the court determines how much you can afford, and the court will then distribute the money to your creditors. These payments last over the span of a few years, and you usually end up repaying close to half of your debt before you are relieved from further payments.
Binder: Once earnest money is put down toward the purchase of a home this agreement holds the home while the proper inspections and appraisals are conducted.
Bridge Loan: In the case that you find the home you want to purchase before you have sold your current home you can take this type of loan where the equity in your current property is used as the downpayment on the new property you are purchasing. Once your current home is sold the lender on your bridge loan will take the downpayment money from the sale of your home along with any fees they charge for their service.
Broker: A person who is in the business of shopping for mortgage loans. A broker is the middle-man who takes the information from people looking to borrow money and shops around to different lenders in order to find a loan for their clients. Brokers get a paid a percentage of the loan as a commission for their services.
Bundle Of Rights: Your rights as a property owner.
Buy Down: When someone makes a payment to a lender in order to obtain a lower interest rate.
Cap: With an adjustable rate mortgage this is the limit for how much the interest rate can rise.
Cash Reserve: In order to get a mortgage loan some lenders require that the borrower have money in savings or in easily liquefiable assets.
Certificate of Eligibility: You need this in order to prove your entitlement to participate in the VA Home Loan Guarantee Program. In order to get a Certificate of Eligibility you should contact a VA approved lender who in most cases can use the ACE system on the internet to prove eligibility in minutes.
Certificate of Reasonable Value: Once the home is appraised this certifies the fair market value of the property.
Clear Title: The title or deed to a particular property that is completely free of all debts, liens, and encumbrances. The owner holds the title free and clear.
Closing: When the buyer officially signs all the mortgage paperwork and pays for the property they are purchasing. At this time the property is transferred to the buyer and the sale is final.
Closing Costs: Also called settlement costs, these are all of the costs associated with the buying and selling of property.
Commitment Letter: The letter given from a lender to a potential borrower that specifies the terms being offered for a mortgage loan.
Condominium: A type of home where you own the specific unit you buy that may be attached to other units owned by many different people. There may be specific associations involved that include monthly or annual fees, owner rules, and common areas in the community.
Consumer Credit Counseling: Where a consumer can get help in the case that they have over-extended or developed derogatory credit.
Contingency Clause: When associated with a mortgage this is when the seller can back out of the purchase contract in the case that the buyer can not obtain financing within a specified amount of time.
Convertible Adjustable Rate Mortgage: An ARM that can be converted into a fixed-rate mortgage under the terms of the loan agreement.
Co-operative: A type of housing arrangement where all of the owners in a housing complex own part of the unit and agree to occupancy arrangements, necessary improvements, maintenance, and more.
Counter Offer: When a potential buyer makes an offer for the purchase price and terms to the seller of a property the seller then may make a counter offer of a different price and new terms.
Covenant: Restrictions that are placed on the borrower about what can be done with the property they purchase. Mortgage lenders may do this in order to sustain the value of the home.
Credit Bureau: An agency that keeps track of individual's credit history and updates their payment history when borrowing money. The three largest bureaus are Equifax, TransUnion, and Experian.
Credit Report: A person's personal payment history of how they repaid borrowed money in the past.
Credit Score: The number that can fluctuate depending on your payment history. If you pay your creditors on time your score will rise, and if you pay late or are delinquent your score may fall.
Debt to Income Ratio: The monthly or annual amount of income compared to your monthly or annual debt owed.
Deed: Also called a Title, this document shows legal proof of ownership for a property.
Deed of Trust: This is when the deed is overseen by a trustee who works as a liason between the borrower and lender in some states.
Default: When you do not make a mortgage payment on time you are in default of your loan terms and agreement. At this time the lender can choose to make a payment plan available to you for repayment of the amount owed from your missed payment or they can request all of the balance due on the loan which you must pay or foreclosure may occur.
Delinquency: The period of time between when your mortgage payment is due and when you pay it, up to thirty days. If you are late with a mortgage payment you are considered delinquent until the payment is officially thirty days late at which time the loan goes into default.
Department of Housing and Urban Development: (HUD) A Department within the federal government which aids people with the purchase of property through guaranteed loans, energy efficient home improvement loans, general home improvement loans, refinancing options, loans for the disabled and elderly to renovate their housing, and much more. HUD also has a program where they sell homes for under market value to people who are looking to become home owners. Visit hud.us.com for more information and articles on HUD Homes.
Depreciation: When the value of a property gets lower due to the real estate market in the area or the property owner not keeping up with home repairs and allowing the property to fall into disrepair.
Discount Points: When you get a mortgage loan you may pay these discount points in order to get better terms on your long-term mortgage loan. A point is usually equal to 1% of the loan value, so if you were taking a loan for $200,000 one point would be $2,000. Points are paid out-of-pocket by the borrower in order for the lender to have an incentive to offer a lower overall interest rate.
Down Payment: The amount of money you put down on the purchase of a home. The amount of a down payment is usually a certain percentage of the price of a home which varies from lender to lender, but generally anywhere from 3-10% is required. Some lenders accept gift funds for down payment assistance from organizations such as Ameridream. For VA Home Loan Guaranteed mortgages no down payment is required because of the guarantee to the lender from the VA.
Due on Sale: When you sell a property which has a mortgage lien the remaining balance of the loan is paid to the lender at the time of the sale.
Earnest money. A deposit made by the potential home buyer to show that he or she is serious about buying the house.
Easement. A right of way giving persons other than the owner access to or over a property.
Hazard insurance. Insurance coverage that compensates for physical damage to a property from fire, wind, vandalism, or other hazards.
Homeowner's insurance. An insurance policy that combines personal liability coverage and hazard insurance coverage for a dwelling and its contents.
Homeowner's warranty. A type of insurance that covers repairs to specified parts of a house for a specific period of time. It is provided by the builder or property seller as a condition of the sale.
Interest. The fee charged for borrowing money.
Interest rate cap. A provision of an ARM limiting how much interest rates may increase or decrease per adjustment period or over the life of a mortgage. See also Lifetime cap.
Joint tenancy. A form of co-ownership giving each tenant equal interest and equal rights in the property, including the right of survivorship.
Late charge. The penalty a borrower must pay when a payment is made after the due date.
Lease-Purchase Mortgage Loan. An alternative Fannie Mae financing option that allows low- and moderate-income home buyers to lease a home from a nonprofit organization with an option to buy. Each month's rent payments consists of PITI payments on the first mortgage, plus an extra amount that is earmarked for deposit to a savings account in which money for a down payment will accumulate.
Lien. A legal claim against a property that must be paid off when the property is sold.
Lifetime cap. A provision of an ARM that limits the highest rate that can occur over the life of the loan.
Loan commitment. See Commitment letter.
Loan servicing. The collection of mortgage payments from borrowers and related responsibilities of a loan servicer.
Loan-to-value percentage (LTV). The relationship between the unpaid principal balance of the mortgage and the appraised value (or sales price if it is lower) of the property.
Lock-in. A written agreement guaranteeing the homebuyer a specified interest rate provided the loan is closed within a set period of time. The lock-in also usually specifies the number of points to be paid at closing.
Mortgage. A legal document that pledges a property to the lender as security for payment of a debt.
Mortgage banker. A company that originates mortgages exclusively for resale in the secondary market.
Mortgage broker. An individual or company that for a fee acts as an intermediary between borrowers and lenders.
Mortgage insurance. See Private mortgage insurance.
Mortgage insurance premium (MIP). The fee paid by a borrower to FHA or a private insurer for mortgage insurance.
Mortgage margin. The set percentage the lender adds to the index value to determine the interest rate of an ARM.
Mortgage note. A legal document obligating a borrower to repay a loan at a stated interest rate during a specified period of time-, the mortgage note is secured by a mortgage.
Mortgage interest rate. The rate of interest in effect for the monthly payment due.
Mortgagee. The lender in a mortgage agreement.
Mortgagor. The borrower in a mortgage agreement.
Negative amortization. A gradual increase in the mortgage debt that occurs when the monthly payment is not large enough to cover the entire principal and interest due. The amount of the shortfall is added to the unpaid principal balance to create "negative" amortization.
Notice of default. A formal written notice to a borrower that a default has occurred and that legal action may be taken.
Origination fee. A fee paid to a lender for processing a loan application; it is stated as a percentage of the mortgage amount.
Owner financing. A property purchase transaction in which the property seller provides all or part of the financing.
Payment cap. A provision of some ARMs limiting the amount by which a borrower's payments may increase regardless of any interest rate increase; may result in negative amortization. See Adjustable-rate mortgage.
PITI. Stands for principal, interest, taxes, and insurance - the components of a monthly mortgage payment.
Planned unit developments (PUDs). A planned unit development is a project or subdivision that consists of common property that is owned and maintained by an owners' association for the benefit and use of the individual PUD unit owners.
Points. A one-time charge by the lender to increase the yield of the loan; a point is I percent of the amount of the mortgage.
Prepayment penalty. A fee that may be charged to a borrower who pays off a loan 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.
Principal. The amount borrowed or remaining unpaid; also, that part of the monthly payment that reduces the outstanding balance of a mortgage.
Private mortgage insurance (PMI). Insurance provided by non-government insurers that protect lenders against loss if a borrower defaults. Fannie Mae generally requires private mortgage insurance for loans with loan-to-value (LTV) percentages greater than 80 percent.
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. Guidelines applied by the lenders to determine how large a loan to grant a homebuyer.
Radon. A radioactive gas found in some homes that in sufficient concentrations can cause health problems.
Rate lock. See Lock-in.
Real estate sales professional. A person licensed to negotiate and transact the sale of real estate on behalf of the property owner.
Real Estate Settlement Procedures Act (RESPA). A consumer protection law that requires lenders to give borrowers advance notice of closing costs.
Refinancing. The process of paying off one loan with the proceeds from a new loan using the same property as security.
Rent with option to buy. See Lease-Purchase Mortgage Loan.
Second mortgage. A mortgage that has a lien position subordinate to the first mortgage.
Secondary mortgage market. The buying and selling of existing mortgages.
Seller-take-back. An agreement in which the owner of a property provides financing, often in combination with an assumed mortgage.
Settlement. See Closing.
Settlement sheet. The computation of costs payable at closing that determines the seller's net proceeds and the buyer's net payment.
Survey. A drawing or map showing the precise legal boundaries a property, the location of improvements, easements, rights of way encroachments, and other physical features.
Tenancy by entirety. A type of joint ownership of property that provides right of survivorship and is available only to a husband and wife.
Tenancy in common. A type of joint ownership in a property without right of survivorship.
Title. A legal document evidencing a person's right to or ownership of a property.
Title company. A company that specializes in examining and insuring titles to real estate.
Title insurance. Insurance to protect the lender lender's policy) or the buyer (owner's policy) against loss arising from disputes over ownership of 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.
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