Mortgage Glossary

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For most people, mortgages can get confusing. Beyond trying to find the best mortgage rates, just understanding some of the mortgage jargon being thrown around can be a challenge.

That’s why Paragon Home Loans is here to help. Below you will find simple explanations for different mortgage terms.

When you need to find the best mortgage loan for you and your budget, the mortgage pros at Paragon Home Loans can help make it easy.

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Mortgage Glossary and Real Estate Terms

Abstract

An Original document (more so a packet) of the entire chain of Title. Should be a minimum of 70 years back to a Warranty Deed and/or Purchase Money Mortgage (PMM)

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Abstract Bring-down

A search on the new Buyers, typically done after closing when transfer documents are being recorded. This is how we date our Final Abstract Continuation Search page.

Abstract Continuation

A search on the current people on or related to the title, done prior to closing.

Acceleration Clause

A provision allowing a lender to demand the entire principal balance of the mortgage if a monthly payment is missed or another default occurs.

Adjusted Basis

Property cost + value of capital expenditures for improvements - depreciation taken.

Adjustable Rate Mortgage

May also be referred to as adjustable mortgage loans or variable-rate mortgages, these loans have an interest rate that fluctuates during the life of the loan in accordance with the index rate.

Amortization

Amortization is the breakdown of payments to include both principal and interest of the life of your mortgage loan. Typically, more principal is applied to the loan balance as the loan balance decreases over time.

Annual Percentage Rate (APR)

APR is the abbreviation for annual percentage rate. It is a measurement or benchmark to compare loans with different lenders which is calculated yearly and shown as a percentage. The APR calculation of a loan includes the interest rate, points, origination fees and other costs. APR estimates the rate of interest a borrower will pay on a loan. Most notice that the APR is usually higher than the interest rate as the APR includes the one time fees and other costs. Bottom Line is the APR gives the buyer the opportunity to compare loans.

Appraisal

An estimation of property value based on both the physical analysis of the property and a comparison of recent area home sales.

Appraised Value

A value given to a property by an appraiser. It is an opinion of the fair market value and is based on an analysis of the property, the appraiser’s knowledge and experience.

Arm Loan

See adjustable rate mortgage.

Arm Mortgage

See Adjustable Rate Mortgage.

Asset

Items or possessions owned by individuals which have monetary value such as real property, personal property, bank accounts, mutual funds, bonds, shares or stocks, enforceable debts or claims owed to the others.

Assignment

Moving the ownership of one's mortgage to either another person or another company.

Assignment of Mortgage

Transferring a mortgage from one person to another.

Assumable

See assumable mortgage.

Assumable Mortgage

Can be transferred from the seller to a new buyer. The transferring process generally requires the new borrowers credit to be reviewed and that a fee for the assumption to be charged. Not all mortgages are assumable.

Balance Sheet

A financial statement showing a specific period of time that represents assets, liabilities, and net worth.

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Balloon Payment

The final payment at the maturity date of a balloon mortgage. It is a lump sum of the remaining balance of the mortgage.

Bank Cleared

The Lender's commitment letter (loan approval) will be subject to certain conditions. Once those conditions have all been cleared by the bank's underwriter, the bank is then ready to close the loan. The loan must be Bank Cleared and Title Cleared in order to schedule the loan closing.

Bank’s Attorney

Sometimes referred to as “Settlement Agent” and not always an Attorney. It is the person or company that is reviewing and writing title on behalf of the Bank/Lender to be sure the title is “clean”. Often times the Buyer’s Attorney will represent the Bank as well.

Bi Weekly Mortgage Payments

Payments made every two weeks and are one half what the typical monthly payment would be on a standard mortgage. Borrowers enjoy a substantial savings in interest.

Bridge Loan

May also be called a swing loan, the borrower’s present home is used as collateral for a second trust that allows the proceeds of the sale to be used to purchase the new home before the current home is sold.

Confused by Mortgage and Real Estate Terms?

Our mortgage pros can guide you through the home loans process.

Call us at 800-343-8979

Buyer’s Attorney

Responsible for reviewing the title package once received from the Seller’s attorney, forwarding it onto their title company and then forwarding the title company’s policy onto the Bank/Lender. Between the Bank and the Title Company, the Buyer’s attorney has a specific list of what is needed to be taken care of before, during and after closing. Sometimes it is things they can take care of and sometimes they have to request it from the Seller’s Attorney.

CASH Deals

A Buyer is not going through a Lender and is paying with CASH. They will only receive a Fee Policy to cover their purchase price amount.

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Certificate of Eligibility

Certifies a veteran’s eligibility for a VA Mortgage.

Certificate of Reasonable Value (CRV)

Also known as Notice of Value (NOV).

See CRV.

Closed Mortgage

Also known as closed-end mortgage. This is a home loan that cannot be increased after the initial funding. The traditional first mortgage is closed-end, because the borrower is not able to borrow more under the same loan.

Commitment Letter

Letter issued stating that Lender will give a Mortgage to that Borrower but what else is required to “Bank Clear” the file.

Compound Interest

Interest paid on the original principal balance, the accrued and unpaid interest. Compound interest is calculated over the total amount owed, including interest that has accumulated. Borrowers usually notice this when their loan shows the principal amount increases because the monthly payments are lower than the full amount of interest owed this is called negative amortization.

Consumer Reporting Agency

Also known as a consumer reporting bureau, these organizations handle the preparation of credit reports. The data for the credit reports is obtained from a credit repository and additional sources.

Credit Report

A documented account of a one's credit history obtained from credit bureaus and used by lenders to determine one's current credit standing and ability to repay future financial obligations.

CRV

Certificate of Reasonable Value (CRV) A document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA mortgage.

Deed of Trust

Used in some states instead of a mortgage. Title is conveyed to a trustee rather than an individual.

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Default

Failure to comply with the requirements of a mortgage such as timely payments. Borrowers who are 90 days or more delinquent on their mortgage payment are considered to be in default.

Departs Search

Downstate New York requires certain searches for specific things such as: public vs. private streets, certificates of occupancy, permits etc.

Deposit

Sometimes called earnest money deposit. At the beginning of the home buying experience, the buyer gives the seller a sum of money to reassure the future of the home sale transaction.

Down Payment

A portion of the purchase price of a property paid in cash and not included in the mortgage.

Effective Gross Income

Borrowers annual income, with the principal source being a borrowers salary but can include overtime, if it is regular or guaranteed. If there is additional income that is significant and stable it may be factored in.

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Endorsements

Certain properties require certain endorsements in their title insurance. These endorsements provide coverage needed and also tie to the rates associated with insurance bill.

Equity

The value of one’s home, less any mortgage loan balances or liens on one’s home.

Escrow

The deposit of funds or documents into an escrow or impound account used by lenders for the purpose of collecting homeownership-related expenses such as ones property taxes and insurance before they’re actually due.

Escrow Disbursement

A withdrawal of funds from the escrow account for the payment of real property taxes, mortgage insurance, hazard insurance, and any other expenses that are due.

Escrow Payment

A part of the monthly payment held by the loan servicer in order to pay for taxes, hazard insurance, mortgage insurance, lease payments and other items as they occur.

Fannie Mae

A Federal agency that purchases and funds mortgage loans. Also known as FNMA.

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Fee Policy (Owner’s Policy)

Borrower pays an additional fee for the coverage of their Purchase Price amount.

FHA Loan

Also known as a government mortgage. FHA loans are insured by the Federal Housing Administration (FHA). These loans allow for affordable down payments and require the borrower to pay monthly mortgage insurance.

FHA Mortgage

See FHA Loan.

Final Abstract Continuation

The “update” we create and add to the existing abstract. When the new home owner’s have been searched and all the findings and pertinent documents that were recorded at closing are added to the existing original abstract.

Fixed Rate Mortgage

The interest rate of the mortgage remains the same throughout the duration of the loan.

Freddie Mac (FHLMC)

A Federal agency that purchases and funds mortgage loans. Also known as FHLMC.

Ginnie Mae

An issuer of mortgage-backed security allowing against pools of government mortgages, such as FHA and VA loans.

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GNMA

The Government National Mortgage association, also known as Ginnie Mae. See also Ginnie Mae.

Guaranteed Mortgage

A Home loan that is formally assured by the government or a third party.

Home Closing

Also known as closing. A meeting held to finalize the sale of a property. On a home purchase, the process of transferring ownership from the seller to the buyer. On a refinance, there is no transfer of ownership, but the closing includes repayment of the old lender. The buyer signs the mortgage documents and pays closing costs. Also called "settlement."

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Hud 1 Statement

Now known as a Closing Disclosure (CD) and Loan Estimate (LE). Also called a closing statement or a settlement sheet. The document a borrower receives at closing that details all the payments and receipts required at closing.

Income Before Taxes or Gross Income

A borrower’s income before state and federal taxes are taken.

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Interest: For the borrower

A fee paid for borrowing money, For the lender: what they earn for lending money. For both the borrower and the lender: the interest is based on a calculation and shown as a percentage of the loan amount borrowed over a specific period of time.

Interest Rate Floor

The minimum rate possibly charged on a debt regardless of what the index is. Adjustable-rate loans use an interest rate floor.

Legal Cleared

When the Title work and proposed documents match what the Lender needs and address all exceptions that were raised in the title report. 

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Liability

One’s personal financial obligations.

Line of Credit

The extension of credit valued up to a certain amount for a certain time as agreed to by the financial institution and the borrower.

Confused by Mortgage and Real Estate Terms?

Our mortgage pros can guide you through the home loans process.

Call us at 800-343-8979

Liquid Assets

Cash on hand or an asset that can be readily converted into cash.

Loan Policy (Mortgage Policy)

The required insurance policy every Lender gets for their mortgage amount.

Loan Principal

The amount of borrowed funds. Paying this portion of the loan reduces the remaining balance.

Mortgage

A security interest in a note.

Mortgage Banker

An individual who controls the loan process for the applicant. A mortgage banker counsels applicants on loan choices, processes, underwrites and funds the loan.

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Mortgage Broker

An individual who counsels applicants on loan choices from loan wholesalers. Mortgage brokers take the application and process the loan. They do not underwrite or fund the loan.

Mortgage Default

See Default.

Mortgage Delinquency

A failure to pay monthly mortgage payments on due dates.

Mortgage Down Payment

See down payment.

Mortgagee

Bank/Lender

Mortgage Insurance (MI)

A policy protecting the lender against loss that is caused by a borrower defaulting on the mortgage. Premiums are usually paid by the borrower. Also known as Private Mortgage Insurance (PMI).

Mortgage Insurance Premium

The amount paid for mortgage insurance.

Mortgage Life Insurance

A term life insurance policy that automatically pays the mortgage balance if the borrower dies while the policy is in force.

Mortgage Points

A fee that the borrower pays at closing. They are part of the cost of credit and part of the lender's investment returned. Each point is equal to 1% of the loan amount.

Mortgage Pre Approval

A process that determines how much money a borrower will be able to receive from a lender before completing a mortgage application.

Mortgage Principal

See loan principal.

Mortgage Rate Lock

The guaranteed interest rate and lender costs for a specified period of time.

Mortgage Records

See Recording.

Mortgage Refi

See Refinance Mortgage.

Mortgage Services

This is the process of collecting principal and interest payments from borrowers and managing borrower's escrow accounts.

Mortgage Underwriter

An individual who underwrites a mortgage loan. See underwriting.

Confused by Mortgage and Real Estate Terms?

Our mortgage pros can guide you through the home loans process.

Call us at 800-343-8979

Mortgagor

Borrower/Buyer

Negative Amortization

Occurs when monthly payments do not cover all of interest. The interest that is not covered by the payment is added to the unpaid principal balance. After making many payments on the loan, one could still owe more than they did at the beginning of the loan term due to the accumulation of interest.

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Non Liquid Assets

A property or possession unable to be converted into cash easily.

Note

A legal document that promises the lender the borrower will repay the loan terms agreed upon.

Notice of Value (NOV)

A document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA mortgage.

Origination Fee

A fee for the processing of a loan application. See also mortgage points.

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PITI

These are the four components of a monthly mortgage payment. Principal- the portion of the payment that reduces the balance of the loan. Interest is the fee for taking out a mortgage. Taxes and Interest are the monthly cost of property taxes and homeowner’s insurance.

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Pre-Alta

Downstate New York term for the Final Title Policy, which they have at the table at closing.

Pre Approval

See Mortgage Pre-Approval.

Prepayment Penalty

A fee charged to the borrower if they pay off the loan before it is due.

Prime Rate

The interest rate is the base rate that a bank charges its most reliable customers. Changes in the prime rate influence changes in other rates, including mortgage interest rates.

Principal Balance

The remaining about of the loan principal.

Private Mortgage Insurance (PMI)

A policy provided by a private mortgage insurance company protecting the lender against loss that is caused by a borrower defaulting on the mortgage. Premiums are paid by the borrower and generally required for a loan with a loan to value greater than 80%.

Proofs

Are any signed documents that clear the exceptions in the Title Report.

PUD (Planned Unit Development)

This is found on the Assessment. If the assessor shows it is a PUD, that property required additional endorsements for their title insurance.

Real Estate Settlement Procedures Act

See RESPA.

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Recording

Is a way the general public has access to the sale or ownership of real property. Recording is the noting (usually by a County Recorder) of a document into public records taken place at the registrar’s office. Recordings include transactions affecting property titles, such as ownership changes, liens, and leases.

Refinance Mortgage

A new home loan used by the owner(s) to pay off an existing home loan on the same property.

Re-Issue Rate

Different discounts are given for different reasons when refinancing, such as: in a certain time frame, through same companies, etc. We usually see these on Paragon’s Refi’s, when they have an existing mortgage through Paragon, done within the last 10 years and are now refinancing with Paragon.

RESPA

Real Estate Settlement Procedures Act (RESPA), requires that lenders provide borrowers advance notice of closing costs.

Secondary Mortgage Market

The market where mortgages or mortgage-backed securities are sold and purchased.

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Seller’s Attorney

Responsible for updating the Abstract, getting the recent tax bills, drafting the purposed transfer documents, getting any information regarding mortgage/judgment payoffs or any other things needed to be done to have “clean title” to transfer to the buyer.

Seller Carry Back

An agreement where the property owner provides funding along with an assumed mortgage.

SIMO Bill

We must offer a second bill to the borrower that shows how much it would be to have a Fee Policy along with the Loan Policy. *Only Exceptions are Manufactured Homes, Refinances and CASH, they will never need a SIMO Bill.

Title Company

We receive the title package from the Buyer’s Attorney or Bank Attorney and review and write title and send it all back to them. If they send anything that clears a title exception prior to closing we will save the document in OTS and “clear” that exception, so when it comes time to do the Final Policy, we know what has already been taken care of.

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Title Documents/Transfer Documents/Title Package

Term used to described the package we received from the Buyer’s attorney which should including the commitment letter, contract, purposed deed, survey, tax bills, updated Abstract and any other documents pertaining to the people in title and any the property.

Title Policy

This is what we create in OTS by reviewing the title package to show the chain of title, raising what items need to be addressed, what will be needed for closing and any notes regarding the transaction.

Treasury Index

An index based on the auctions of U.S. Treasury bills used to determine interest rate changes on certain adjustable rate mortgages (ARM).

Truth In Lending (TILA)

A federal law where, prior to loan funding, lenders must provide loan applicants disclosure such as terms and conditions of loan to include annual percentage rate (APR), minimum payment, annual fees, credit insurance fees, etc.

Underwriting

The examination of the borrower’s credit, finances, and the property that the mortgage is being applied for. The examination determines whether or not a mortgage should be extended to the borrower for the desired property.

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VA Certificate of Eligibility

See Certificate of Eligibility.

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VA Home Loan

A mortgage available solely to United States active duty service members and veterans. There is no down payment required and the loan is insured by the Veterans Administration.

VA Mortgage

see VA Loan.

What Is A Balloon Mortgage

A home loan with equal monthly payments over a stated term that requires either a payoff or refinance at the end of an earlier, specified term.

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What is a Broker

See Mortgage Broker.

What is a FICO Score

A number ranging from 300 to 850 that is used in to determine one’s credit risks. The number is derived from the information on one’s credit report. Higher scores represent lowers credit risks, generally leading to better loan terms.

What Is A Mortgage Note

See Note.

What Is A Real Estate Agent

A licensed who’s licensed to negotiate real estate transactions on behalf of property owners and prospective buyers.

What Is A Wrap Around Mortgage

The mortgage is inclusive of the remaining balance of the existing first mortgage and an additional amount requested. The full payments on both mortgages are paid to the “wrap around” mortgagee, who forwards the payments for the first mortgage to the first mortgagee. May be subject to a demand for the full payment by the first mortgage holder.

What Are Closing Costs

Additional expenses, including origination fees, taxes, title insurance charges, escrow cost and appraisal fees, that go above the purchase price of the property. The amount varies with the location of the property and the lender used.

What Is Net Worth

The total value of one’s cash and assets.

Making Real Estate Terms and Mortgages Make Sense for You

The mortgage pros at Paragon Home Loans are here to help you get the right mortgage for your life and budget.

Beyond finding the best mortgage rates, a Paragon Home Loans mortgage pro will explain all of the important details in a way that makes sense.

For a free consultation…

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