HomeStart Glossary

Interactive Real Estate & Mortgage Glossary

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$100 DOWN PAYMENT PURCHASE

A $100 Down Payment Purchase loan program (FHA loan) is available when someone is Purchasing a HUD-Repo and HUD has approved the Borrower (on the written Contract) to use $100 Down Payment Purchase financing. This loan program allows for almost a 100% loan (less $100) and the Seller, which is HUD, can still make Seller Concessions toward the Buyer’s Closing Costs. $100 Down Payment Purchase loans must be FHA 203B loans.

Related terms: HUD, HUD Repo.

1031 EXCHANGE

Tax deferred movement of Investment Property sale Proceeds into new a Investment Property or properties. 1031 Exchanges must be set-up using a 1031 Exchange Intermediary (usually a CPA) before the Investment Property sale (from which the sales Proceeds come) is completed. See the HomeStart Specialty Tutorials, “1031 Exchange”, “Properly Buying Investment Property,” and “Buying Multifamily Property - Becoming a Landlord in One Easy Step”.

Related terms: Investment Property, Rental Property, Non-Owner Occupied Property.

1031 EXCHANGE INTERMEDIARY

Tax professional who handles 1031 Exchange transactions for Sellers who wish to move sale Proceeds into another Investment Property or properties to temporarily avoid taxation of the proceeds. See the HomeStart Specialty Tutorials, “1031 Exchange”, “Properly Buying Investment Property”, and “Buying Multifamily Property - Becoming a Landlord in One Easy Step”.

Related terms: 1031 Exchange. Related terms: 1031 Exchange, Investment Property, Rental Property, Non-Owner Occupied Property.

1040

Personal tax form. The 1040 is a two-page form which is always the first two pages of the personal Income Tax Return and is a summary of all the Schedules, as well as a calculation of the tax due or the tax refund. The person filing must sign and date the second page of this form when submitting the return to the IRS.

Related terms: Income Tax Return, Income, Gross Income, Net Income, Qualifying Income, Analyzing Income.

1098

Interest Paid Tax form. This is the form that is mailed to the homeowner at the beginning of every year to show the Mortgage Interest paid on a loan in the prior year. This Mortgage Interest is tax deductible on Primary Residences and Second Homes from an aggregate loan amount(s) of up to $1 million. See the HomeStart Specialty Tutorial, “Tax Advantage Mortgaging”.

Related terms: Primary Residence, Second Home, Tax Advantage Mortgaging, Interest.

1099

Income Received tax form. This form is for independent contractors or Self-Employed individuals that do not have taxes withheld from his/her paychecks.

Related terms: Self-Employed, Analyzing Income, Gross Income.

203B

Normal (non-construction) FHA Purchase or FHA Refinance.

203K

FHA construction or rehabilitation loan (Purchase or Refinance).

2-1 BUYDOWN

FHA loan product. This product requires two additional Discount Points to be charged on the Front of the loan to permit the Borrower to have an Interest Rate two percent lower than the Rate sold for the first year, one percent lower than the Rate sold for the second year and equal to the Rate sold for the remainder of the loan’s term. For example, an FHA loan of $200,000 would have an additional $4,000 in Discount Points added to the Settlement Statement. If the Rate sold for this loan and this Borrower is 5.00%, then the Rate would be 3.00% for the first year, 4.00% for the second year and 5.00% for every year after that on a fixed Rate Mortgage. 2-1 Buydowns exist usually on FHA Purchase loans because Seller Concessions toward Closing Costs can be up to six percent of the Purchase Price. This would allow the Seller to pay for all Closing Costs, including the two additional Discount Points added in exchange for the 2-1 Buydown. 2-1 Buydowns are very popular among Tract Builder-owned Mortgage companies because the Tract Builder is trying to make the New Home appear artificially inexpensive as a monthly payment.

Related terms: Tract Builder, FHA, Discount, Points, New Home.

3PLEX

A three-family property. See the HomeStart Specialty Tutorial, “Buying Multifamily Housing - Becoming a Landlord in One Easy Step”.

Related terms: Single Family Residence, Duplex, Triplex, Fourplex

4000.1

Mortgage term for the FHA Handbook.

Related terms: FHA.

401K

Tax deferred savings plan established for employees by an employer and administered usually by a third party agent. In Mortgaging, only 60% of the vested dollar amount of the 401K can be used as a Liquid Asset. This is meant to mimic reality, in that if a 401K were cashed out, there would be taxes and penalties equal to approximately 40% of the vested value.

Related terms: 401K Loan, Liquid Assets.

401K LOAN

Loan taken out against the vested portion of a 401K (See 401K for Vested Balance). The greatest benefit of a 401K Loan is that the Interest that is paid on the loan is paid back into the 401K account itself, thus it is a loan from the Borrower to the Borrower, with Interest. When any Conventional or Government Mortgage loan is underwritten, the payments on a 401K Loan do not count in the Back Ratio of the Borrower who borrowered the 401K Loan. This fact (that the loan payments are not included in the Back Ratio) can be used to the Borrower’s advantage. Say, for example, the Borrower has a large number of debts and cannot qualify for a new Mortgage loan because his/her debts are too high for his/her Income. In this situation, the Borrower could take out a 401K loan (if they have 401K holdings) and pay off the debts that are preventing Mortgage loan Approval. This would literally change the debt from debt which affects the Back Ratio to debt that does not, while still having the Borrower owing the same amount of money.

Related terms: Back Ratio, 401K, Liquid Assets, Income.

4506-C

IRS tax form that allows a third party (not the IRS and not the consumer) to directly obtain transcripts of the data the IRS possesses for an individual, a couple or a business for a specified number of years. Usually the data requested are Income Taxes, but can also include the W2s, K-1s or any other form that the entity filed with the Federal Government. This form is also used for audits to be run by entities purchasing a loan from another Lender. This form does not give the third party rights to transcripts in perpetuity and only lasts for 120 days. The 4506-C used for mortgaging is signed both at loan application and closing. The 4506-C is signed at Loan Application so that the income on the income tax returns provided to the originator can be compared to the transcripts of the income tax returns on file with the IRS as an anti-fraud measure and a verification method. This is done because some borrowers will use one set of income tax returns to qualify for the mortgage loan and then will immediately amend those same income tax returns in order to lower their income and pay less tax. This is a crime. Even worse, some borrowers will supply the originator with income tax returns that were never filed or that contain data that were never filed. This is also an even greater crime.

Related terms: Income, Income Tax Return, Loan Application, Closing.

4PLEX

A four-family property. See the HomeStart Specialty Tutorial, “Buying Multifamily Housing - Becoming a Landlord in One Easy Step”.

80-10-10

Combo Loan (First Mortgage and Second Mortgage) where the Combined Loan To Value does not exceed 90%. An 80-10-10 usually consists of an 80% First Mortgage and a 10% Second Mortgage, with another 10% either as existing Equity (on a Refinance) or the Down Payment (on a Purchase). See the HomeStart Specialty Tutorials, “How and Why To Do a Combo Loan” and on of the six called, “Tailor the Mortgage Yourself and Save Thousands - ”.

Related terms: Combo Loan, First Mortgage, Second Mortgage, PMI, MI, Loan To Value, Combined Loan To Value.

80-15-5

Combo Loan (First Mortgage and Second Mortgage) where the Combined Loan To Value does not exceed 95%. An 80-15-5 usually consists of an 80% First Mortgage and a 15% Second Mortgage, with another 5% either as existing Equity (on a Refinance) or the Down Payment (on a Purchase). See the HomeStart Specialty Tutorials, “How and Why To Do a Combo Loan” and one of the six called, “Tailor the Mortgage Yourself and Save Thousands - ”.

Related terms: Combo Loan, First Mortgage, Second Mortgage, MI, Loan To Value, Combined Loan To Value.

80-20

Combo Loan (First Mortgage and Second Mortgage) where the Combined Loan To Value does not exceed 100%. An 80-20 usually consists of an 80% First Mortgage and a 20% Second Mortgage requiring no Down Payment (on a Purchase) or Equity (on a Refinance). See the HomeStart Specialty Tutorials, “How and Why To Do a Combo Loan” and one of the six called, “Tailor the Mortgage Yourself and Save Thousands - ”.

Related terms: Combo Loan, First Mortgage, Second Mortgage, PMI, MI, Loan To Value, Combined Loan To Value.

A

A- (A MINUS)

“Just Missed” area of Prime lending that allows for loans with “outside of preferred” credit or ratio profiles. A- loans can be Prime loans provided they receive an Expanded Approval level offering on Desktop Underwriter or an A-offering on Loan Product Advisor. These loans have slightly higher Interest Rates than regular Prime loans.

Related terms: Expanded, Expanded Approval, Fannie Mae, Desktop Underwriter, Freddie Mac, Prime, Loan Product Advisor.

ACCELERATION

When a loan becomes Due And Payable sooner than its Term due to non-payment or a violation of the Deed Of Trust or the Security Instrument. Acceleration is the same as “Calling the Note”. Accelleration (in the event of Default) is the Lender’s right, resulting from the written documents that were executed by the Borrower when he/she received the Mortgage. The majority of the time, Acceleration takes place due to a Default for non-payment of Mortgage Payments.

Related terms: Calling the Note, Default.

ACREAGE

Property not within a subdivision, defined by Metes & Bounds measurements. Usually rural properties and large tracts of unsubdivided land have these Legal Descriptions; however, some older parcels of land that appear to be subdivided properties can still be Metes & Bounds. Metes & Bounds are used to describe a tract of land using Due North as the “key” and using directions, degrees and distances to create boundaries defining the land. The boundaries are described using a point of beginning and working around the parcel of land in sequence then returning back to the point of beginning.

Related Terms: Subdivision, Survey, Metes & Bounds.

ACTUAL RATE

The Actual Rate on a Mortgage is the actual cost of the money being borrowed. This is not the same as the Interest Rate or the APR on the Mortgage. Instead, it is the Rate that is the result of considering the actual cash saved on your Income Taxes due to the tax deductability of Mortgage Interest. For more information on Actual Rate, see the HomeStart Specialty Tutorial, “Equity Investing”. For more information on Mortgage tax strategies, see the HomeStart Specialty Tutorial, “Tax Advantage Mortgaging”.

Related terms: Interest, Rate, Mortgage Tax Deduction.

ADJUSTABLE RATE MORTGAGE

A Mortgage with a Rate that changes over time. The acronym for this term is ARM. ARMs come in many different varieties, but most of them (with the exception of a 1 month ARM) have a period at the beginning of the Mortgage where the Rate is fixed (the Fixed Period). At the end of the Fixed Period, the Rate will adjust up or down, based on the market at that time according to the Period. These are the terms referred to in, for example, a 5/1 ARM has a Fixed Period of five years and a change Period of one year.

The amount by which the Interest Rate can adjust up or down is based on the Cap and the Floor respectively. In order to fully assess an ARM, you would need to know the Initial Rate, the Fixed Period, the Index upon which the ARM is based, the Period of adjustments, the Margin, the Initial Cap, the Periodic Cap, the Lifetime Cap and the Floor. All HomeStart-certifed Brokers and Bankers are able to teach this to their HomeStart clients.

Once the Borrower understands these terms, the Borrower can acticipate the Rate and payment that his/her ARM will adjust to. An adjustment to the Rate is calculated by the Index plus the Margin that is then compared to the current Rate plus the Cap (the new Rate would be the lower of the two) which is then compared to the Floor (the new Rate would then be the higher of the two). For example, a 5/1 T-Bill ARM has an Initial Rate of 6.000%, a Margin of 3.000% and a Floor of 3.000% with 2/6/6 Caps (Initial, Periodic and Lifetime). If, after the five year Fixed Period is over, the T-Bill Index is 2.500%, this would be added to the Margin (3.000%) which is 5.500%. Then, as compared to the Initial Rate (6.000%) plus the 2.000% Initial Cap (total of 8.00%), the 5.500% is lower (if higher then the 8.000% would stand). The 5.500% is then compared to the Floor of 3%. 5.500% is higher than the Floor (if lower, then the Floor would stand). Thus the new rate for the next year (the Period) would be 5.500%.

Related terms: Fixed Rate, Period, Index, Margin, Floor, Periodic Cap, Initial Cap, Lifetime Cap, Rate.

ADJUSTED ORIGINATION CHARGE

Origination Charge minus the Yield Spread Premium being made off of the Interest Rate sold to the Borrower. This allows the Borrower to “see” how much the Broker is making off of the Interest Rate sold, because the number exists by subtracting the Adjusted Origination Charge from the Origination Charge.

When the Mortgage professional originating the loan is a Wholesale or Retail Banker (using his/her own funds to make the loan), the law states that Yield Spread Premium does not have to be disclosed. In this case, the Adjusted Origination Charge and the Origination Charge would have the same value.

When Borrowers see this situation, they should demand to know how much Yield Spread Premium (in dollars) that the Wholesale or Retail Banker is making off of the Interest Rate of the loan. It is possible that they charged the Borrower too much, and signing the loan documents at the Closing is the Borrower’s last opportunity to negotiate a deal.

Related terms: Origination, Discount, Yield Spread Premium, Back, Service Release Premium, HUD-1 Settlement Statement (antiquated form, now only used for Reverse Mortgages).

ADJUSTMENT

An addition or a subtraction to the value of a Sales Comp in order to make the property more “similar” to the Subject Property being Appraised. For example, if the Subject Property is 3,400 square feet of heated and cooled living space and one of the Sales Comps is 3,100 square feet, the Appraiser will give the Sales Comp a positive Adjustment (an addition) to the value for which it sold. This is so that the Sales Comp can be valued as if it too had 3,400 square feet of living space. Thus, the Appraiser takes the sales price of the Sales Comp and increases the sales price as if the Sales Comp sold with 3,400 square feet in order to estimate the value of another house with the same square footage - the Subject Property.

Adjustment can also mean the time when an ARM adjusts to its new Rate. For example, you might say, “In its first Adjustment, my ARM went down one percent, but at the second Adjustment, the Rate rose two percent.”

Related terms: ARM, Period, Initial Cap, Lifetime Cap, Periodic Cap, Index, Margin, Appraiser, Appraisal.

AGENCY

Area of lending. This area is for good and excellent credit Borrowers that covers both Conforming and Jumbo Conventional loans. Agency is also the Interest Rate at which member banks borrow money from the Federal Reserve.

Related terms: Conforming, Jumbo, Conventional.

AGENT

Realtor® or the party appointed in a Power Of Attorney document.

Related terms: Realtor®, Power Of Attorney, Attorney in Fact, Specific Power Of Attorney.

AGGREGATE ADJUSTMENT

Adjustment (credit) to Escrow Reserves collected at Closing when establishing an Escrow/Impounds account. Under the law, the Lender can only hold so much of the Borrower’s Prepaid funds (for Property Tax and Homeowner’s Insurance Reserves) before a limitation is hit. The Aggregate Adjustment brings the amount collected for Escrow Reserves down to the maximum (or limit) of what the Lender may hold. See the HomeStart Specialty Tutorial, “Pros and Cons of Waiving Escrows”.

Related terms: Closing Disclosure, Property Taxes, Homeowner’s Insurance, Escrows, Impounds.

ALL BILLS PAID AFFIDAVIT

Affidavit where the Builder assumes responsibility for any construction-related liens that may appear on Title after construction. An All Bills Paid Affidavit is signed by the Builder before the Builder receives his/her Final Draw so that the Builder assumes all responsibility for all debts owing to all Subcontractors who have worked on the constuction of the Subject Property. This affidavit is a powerful tool for the Borrower to protect him/herself should a Subcontractor lien show up on Title someday. The affidavit is enough to get the lien removed to clear Title. Whether a construction project is self-financed or financed through a Lender, an All Bills Paid Affidavit should be executed at the end of construction before the Builder gets his/her final draw. See the HomeStart Specialty Tutorial, “How to Do a Construction Project”.

Related terms: Custom Builder, Construction Loan, Draw, Final Draw.

ALTERNATIVE CREDIT

The placement of credit histories from non-traditional creditors on a Borrower’s Credit Report. This is part of Credit Development. See the HomeStart Specialty Tutorials, “How to Instantly Build Credit When You Have None”, “Understanding Credit and Credit Scores” and “How to Manipulate Your Credit Score Higher” for information as to exactly how you can help a HomeStart-certified Mortgage Broker or Wholesale Broker to do this.

Related terms: Credit Report, Line Item, Trade Line, Credit Development.

AMC

Appraisal Management Company. Since the passage of the HVCC federal law, Appraisals cannot be ordered directly as there is to be no communication between the loan originator and the Appraiser. Thus, AMCs act as middlemen, taking Appraisal orders and distributing them to their member Appraisers. This is intended to combat overvaluation and loan originator-Appraiser collusion on values.

Related terms: Appraiser, Appraisal, HVCC, Fair Market Value.

AMORTIZATION

Mathematical formula that divides a debt plus interest into uniform payments where the majority of the interest is paid first and the majority of principle is paid last. This means that if the Principle and Interest on a Mortgage is $1,000 a month, the first payment will be made up of 97% Interest and only 3% Principle. If it’s a 30 year Mortgage then the opposite will be true when the Borrower is in his/her 28th, 29th and 30th year of payments. The reason that Amortization is the standard mathematical formuly for Mortgages is because most Mortgages are paid off in the first five to seven years after they are originated. This ensures that the Lender will receive the majority of the Interest to be made off the loan before the property is sold, refinanced or otherwise paid off. Almost all loans are Amortized, with the exception of an Interest Only loan.

Related Terms: Principle, Interest, Term.

AMORTIZATION ACELLERATION

Early payoff strategy. Amortization Acceleration is what happens when you pay an additional amount of Principle at a lower rate. For example, if a Borrower currently has a $200,000, 30 year Mortgage at 7.000% with 28 years left to pay and only has Refinance options in the 6.000% range, the Refinance can still make financial sense due to Amortization Acceleration. This means that if the new payment (at 6%) is only $130 less than the old payment (at 7.000%) and the Borrower makes sure that the $130 savings is applied (using a separate check) to Principle of the new Mortgage every month, the Amortization of the new Mortgage loan will be accellerated from 30 years to 23.3 years , and the Borrower’s overall payment does not change. This 4.7 year reduction in the Mortgage’s Term through Amortization Acceleration, the Borrower will even save $56,400 in Interest over the next 23.3 years. Thus, the conventional wisdom of “only refinance if you can get a rate 2% lower than your current one” is proven wrong.

Related terms: Amortization, Interest Rate, Term.

AMORTIZED

Having a specific number of payments. An Amortized Mortgage loan is one that is paid off over a specifc Term, based on a complex mathematical formula. Mortgage Amortization is set up so that the portion of the payment that is Interest is extremely large at the beginning of the loan and decreases, very slowly and non-uniformly, over time. Conversely, the portion of the payment that is earmarked to Principle is extremely small at the beginning of the loan and increases, very slowly and non-uniformly, over time. The result is a payment schedule where the vast majority of the entire Term’s Interest charges are paid back in the first few years of the loan, a unique attribute that allows for the Mortgage industry to be as large and as lucrative as it is, despite the fact that the majority of Mortgages are only in existence for an average of only five to seven years.

In Mortgaging, Amortization is also an Interest accrual type and can apply to both fixed and Adjustable Rate Mortgages. On an Amortized Mortgage, Interest accrues daily, but only as unpaid Interest (Interest charges are not capitalized onto the Principle of the loan). One exception to this rule is the FHA loan. An FHA loan will assess Interest due for the entire month at the beginning of the month.

Amortization is also a tax term. Tax Amortization means that the expense is deducted over a specific period of time. For example, the Points on a Refinance can be deducted in parts equal to the Term of the loan. On a new 30 year Refinance, 1/30th of the Points on the HUD-1 Settlement Statement (old form) or Closing Disclosure (current form) can be deducted each year for 30 years.

Amortization should not be confused with the “Due And Payable” number. For example, a 360/360 (a 30 year standard Mortgage) is a loan that is Amortized over 360 months (first number) and due in 360 months (second number). On Balloon Notes, however, these numbers are not the same. If you see “360/180” that is a 15 year Balloon Note. In this case the payments are small, as if they will be Amortized over 30 years or 360 months (the first number), but the “Due And Payable” number is 180 months, meaning that after the end of the 15th year of the loan, all unpaid Principle becomes due.

Related terms: Interest, Rate, Term, Adjustable Rate Mortgage, Balloon.

ANNUITY

Financial asset that gives a Borrower fixed monthly Income for life. Annuity Income is considered Fixed Income, along with Social Security Income and a Pension.

Related terms: Fixed Income, Social Security Income, Grossed Up, Pension.

APPRAISAL

A value determination of a property (house and land) using either a Sales Comparison Approach or a Cost Approach. The Sales Comparison Approach compares the Subject Property to three to five (usually) recently sold properties in the Subject Property’s area. These Sales Comps (when compared to the Subject Property) have what are called “Adjustments” that are dollar value additions and subtractions to the Sales Comp as it compares to the Subject Property. The end result is the value of the Sales Comp as if the two properties (the Sales Comp and the Subject Property) were almost identical. This, in turn, gives an estimate of the value of the Subject Property. The Cost Approach is used on Construction Loans or when a Sales Comparison Approach is not feasible. The Cost Approach gives Site Value to the land, value to any improvements (like fences, irrigation systems, etc.) and dollar per square foot values to the house, the garage, any other structures resulting in the value of what it would cost to rebuild the property.

Related Terms: Loan To Value, Sales Comps, Adjustment, Sales Comparison Approach, Cost Approach, Site Value.

APPRAISAL WAIVER

Attribute of the Findings from an Automated Underwriting system, specific to the property requirements for the loan. For example, if a Borrower has a home worth $900,000 and only owes $200,000, that Borrower may wish to Refinance his/her property from a 30 year Fixed Rate to a 15 year Fixed Rate. Because the proposed loan amount is such a low percentage of the property’s value (a low Loan To Value), if the Borrower has other positive file characteristics (like great credit or large Liquid Assets), the Automated Underwriting Findings may state that there is no requirement for an Appraisal in that transaction. Then, an “Appraisal Waiver certificate” needs to be obtained at a cost of between $75 to $125 (which is considerably cheaper than the cost of an Appraisal).

Related terms: Appraiser, Appraisal, Loan To Value, Refinance, Liquid Assets.

APPRAISE

To give a current value to something. In Mortgaging properties are Appraised so that two things can occur:

1. A Fair Market Value can be determined to show the Lender the strength of the collateral; and

2. A Fair Maker Value can be determined in order to know the Loan To Value and size of the proposed Mortgage.

Related terms: Fair Market Value, Appraiser, Appraisal, Sales Comp, Sales Comparison Approach, Cost Approach, Adjustement, Loan To Value.

APPRAISED VALUE

The Fair Market Value of the property assigned by an Appraiser who has Appraised the Subject Property. This is usually based on three to five Sales Comps sold in the last six months in the closest proximity to the Subject Property.

Related terms: Appraiser, Appraisal, Appraise, Fair Market Value, Subject Property, Sales Comp.

APPROVAL

See Loan Approval.

APR

The APR is the first box from the left on the Truth In Lending Statement. The APR is what the Lender will actually yield from the loan each year, including the Closing Costs paid to obtain the loan (as if they were spread out over the Term of the loan). The APR is the Interest that will be paid during the first year (the Interest Rate), plus certain costs that were paid for by the Borrower (or Seller in a Purchase transaction) to acquire the Mortgage. This inclusion of fees paid to acquire the Mortgage (as represented as a percentage of the loan) is why the APR is slightly higher than the Interest Rate of the loan. If there were no Closing Costs, then the APR would be identical to the Interest Rate. The APR is an excellent way to compare loans (provided all attributes between the loans are the same (Term, Amortization, Prepayment Penalty, Balloon, etc.) because it is a more complete representation of the total cost of the loan, as opposed to simply comparing the Interest Rate. For example, a 3.875% Interest Rate with a 4.225% APR is actually more expensive than a 4.00% Interest Rate with a 4.082% APR, however, it is important to note that using the Breakeven and Recoup formulas are even more precise at determining the prudence of how much Closing Costs are best. For example, a No Point Loan may have a lower APR than a loan with two Discount Points, but both the Recoup and the Breakeven formulas may prove that it is the best loan for the Borrower’s short-term and/or long-term financial goals. The APR is an oversimplified, government number that does not take into account how long the Borrower intends on remaining connected to the loan. Therefore, it is HomeStart’s opinion that a complete analysis of the loan (using the Breakeven and/or Recoup formulas) is a better way to compare loans than the APR. If this is too painstaking for the Borrower, a HomeStart-certified Broker or Banker can certainly do it.

Related terms: Prepaid Finance Charges, Interest Rate, Origination, Discount.

ARM’S LENGTH

Documented, non-familial transaction. For example, obtaining a Down Payment for one property from a Cash Out transaction on a different property would be an Arm’s Length Transaction. A sale of a home from a brother to his sister, however, would be Non-Arm’s Length Purchase.

Related terms: Down Payment, Cash Out, Investment Property, Second Home, Primary Residence, 1031 Exchange.

ARTICLE 11

Article from the National Association of Realtors® Code of Ethics which reads, “The services which the REALTORS® provide their clients and customers shall conform to the standards of practice and competence which are reasonably expected in the specific real estate disciplines in which they engage; specifically, residential real estate brokerage, real property management, commercial and industrial real estate brokerage, real estate appraisal, real estate counseling, real estate syndication, real estate auction, and international real estate.

REALTORS® shall not undertake to provide specialized professional services concerning a type of property or service that is outside their field of competence unless they engage the assistance of one who is competent on such types of property or service, or unless the facts are fully disclosed to the client. Any persons engaged to provide such assistance shall be so identified to the client, and their contribution to the assignment should be set forth".”

Related Terms: Realtor®, Real Estate Agent

ARTICLE XVI, SECTION 50(A)(6)

While most of conventional, conforming (see QM) mortgaging is extremely uniform, there is one state that does cash out loans differently than all the rest. That state is Texas. For 158 years (since the formation of Texas as a state), citizens could not borrow against the equity of their homes. In 1998, the Texas State Legislature altered the constitution and finally provided for home equity lending in the state of Texas. This article of the constitution is Article XVI, Section 50, Subsections (a)(6) and (a)(4), the latter being added years later to allow HELOC second mortgages. Often this law is referred to as “A6” or the loans as “A6 loans”. The differences between Texas’s cash out rules and the rest of the nation’s include the following highlights:

• Both first and second lien Home Equity loans are allowed.

• Once a Home Equity loan in Texas, always a Home Equity loan, unless the property is no longer your homestead and that can be proven. This is true even if two loans are being paid off where only one is a prior Home Equity loan. This is also true even if the new loan is not releasing any cash or paying off any non-lien debts.

• Only one Home Equity loan may be attached to the property per year, whether or not a prior Home Equity loan has a balance. This mean one every 365 days, not calendar year.

• There is a two percent cap on fees charged in conjunction with a Home Equity loan, excluding a limited number of fees and YSP. This means that all fees either charged to the client or related to the client’s acquisition of a Home Equity loan cannot exceed two percent of the loan’s value (again, excluding the title policy, YSP and prepaid items such as reserves or interest to the end of the month). “In conjunction with” is used because a survey, for example, that the client “does on their own” that is actually shot (measured by the surveyor) after application for the loan has been made for the Home Equity loan would be considered a cost that was incurred by the client in conjunction with the Home Equity loan since surveys are required in 95% of all Home Equity loan originations.

• Acreage generally must be platted as ten acres or less (for urban and suburban properties), however investors may limit the FMV on the property to the value of the home plus only five of the acres. Rural properties can be secured with more than 10 acres.

• The limit for lending on a Home Equity loan in the State of Texas is defined as 80% of the FMV of the property less all liens on the property. For example, if a property has a lien for $50,000 on the title and the property is worth $100,000 there is only $30,000 of equity that may be accessed in the State of Texas, not $50,000.

• There is a 12 day “cooling off” period after the date of application. This portion of the constitution specifically states “The loan may not close before 12 days after you submit a written application to the lender or before 12 days after you receive this notice [the “12 Day Letter”], whichever date is later...” Some investors interpret this to mean that not only does the Loan Officer have to execute the Loan Application with the client but that the Loan Officer may also have to fax or otherwise deliver it, and the 12 day letter, to the investor before the 12 day cooling off period begins to tick. Sometimes this will also include the execution and delivery of other documents that are specific to the investor and/or their specific 12 day letter (see Tx C/O Specific Disclosures on the Company Intranet).

• There may not be an agricultural exemption on the property unless that agricultural exemption is specifically in conjunction with milk production (on the property).

• There may be no blanks whatsoever on the written loan application. Some investors take this to the extreme and do not permit any handwriting on the 1003, GFE and TIL and require that all portions of these three forms be typed.

• Any debts that are intended, at application, to be paid (via a listing on the loan application) may be considered fair game by the investor. For example, the client could suggest that they wish to pay off two $10,000 credit cards with the proceeds of the loan. If the originator checks the “Will be paid off (*)” field for these two debts on the loan application, an investor may require that they be paid off from the loan proceeds, even if the appraisal comes in low and there is not enough room in the loan to accommodate them. This situation would require the client to bring funds to the closing of the “cash out” loan.

• All fees on the loan must be disclosed to all title owners on the property at least 24 hours before the closing may take place. Thus, closing instructions usually go out to the Title Company, the HUD is approved and executed by the Borrower(s) and the loan will actually close the next day, when rescission will begin.

• The lender cannot force the applicant to pay off other debts on which the investor is also the creditor.

• With some exceptions, title on the property before the loan must be identical to title after the loan closes. If, for example, a property that only has the husband in title will be the subject of a Texas cash out loan and the client wishes to add the wife to title as part of the transaction, this addition of the wife to title (via a warranty deed) must be done prior to taking the loan application, so that title before the transaction is identical to title after.

• All owners of the property must sign the loan application, Mortgage Loan Origination Agreement and the 12 Day Letter.

• It is constitutionally prohibited for there to be any penalty or charge for early payoff. Therefore, Tx C/O loans never have a prepayment penalty, a “fax charge” or any other fee.

• Stacking of a Home Equity loan on top of another Home Equity loan is not allowed.

• The lender cannot force the Borrower(s) to payoff any portion of the loan due to fair market value falling on the property after the loan has been originated.

• The broker is not legally responsible for the loan being done improperly (per the constitution) if the loan is brokered, the lender is. This one rule is the reason why many lenders will not do cash out loans in the state of Texas. This does not imply that mortgage brokers are doing the loans irresponsibly. It means that the lenders do not trust their compliance departments or understand the law well enough to take on that level of risk.

• Two additional title endorsements are required. These are the T-42 (10% of base title policy) and T-42.1 (15% of base title policy).

• If prior year’s property taxes are to be paid by a loan, then the loan must be considered a Texas cash out loan.

• There is no leniency to the cash released, debts paid or prior year’s property taxes being paid by the loan. If one cent of equity is taken from the property that does not pay off a prior, non-Texas cash out lien, then the loan is an “A6”.

Related terms: Cash Out, Discount Points, Prepaids, Title Insurance, T42, T42.1

ASSESSMENTS

Monthly dues including those for a Homeowners Association, and amenities. Parking is also sometimes included in Assessments.

Related terms: Homeowners Association.

AS IS

Current condition. A Contract can be executed as an As Is Contract meaning the Buyer accepts the Subject Property in its current condition and requires no repairs by the Seller in order for the transaction to be consummated. An Appraisal can be done As Is (as the majority of Appraisals are), meaning that the value assigned to the property is not Subject To any repairs or improvements of any kind and is therefore Appraised in its current condition.

Related terms: Contract, Subject Property, Seller, Buyer, Appraisal, Subject To.

ASSUMABILITY

The ability for a Mortgage loan to be Assumed; that is, whether or not a Mortgage loan was set up with the ability for another party to Assume it.

Related terms: Assumable, Assumption, Assume, Government, Mortgage.

ASSUMABLE

A loan that allows for another party to assume the Mortgage Payments and Mortgage (instead of going and getting his/her own Mortgage). Related terms: Assumption, Assumability, Assume, Government, Mortgage.

ASSUME

To take over the Mortgage Payments and the Mortgage of another person or persons.

Related terms: Assumability, Assumable, Assumption, Government, Mortgage.

ASSUMPTION

Taking over a person’s loan and Mortgage Payments without releasing that person of personal liability.

Related terms: Assumable, Assume, Assumability, Government, Mortgage.

ATTORNEY IN FACT

Appointed person or organization in a Power Of Attorney document. The Attorney in Fact is granted signing authority in a Specific Power Of Attorney in a Mortgage transaction.

Related terms: Agent, Specific Power Of Attorney, Power Of Attorney.

AUDITED

Certified that the financial document was prepared by a CPA. Many times a Profit & Loss statement, for example, can simply be signed by the owner(s) of the business to qualify for a Mortgage. But in some cases, the Underwriter may require that the Profit & Loss actually be Audited. This means a full audit of the business’s financials must be completed so that the CPA can certify that the Profit & Loss has been Audited. Audits cost a considerable amount of money, so it is HomeStart’s suggestion that if a Borrower is being asked to provided Audited financials, he/she should first request a free referral to a HomeStart-certified Broker or Banker who can quite possibly get past this Underwriting Condition without the Borrower having to incur a large expense. A HomeStart-certified Broker for example, could use an Underwriter at a particular Lender who would not require Audited Financials, since he/she has numerous Lenders in his network.

Related terms: CPA, Profit & Loss, Underwriter, Broker.

AUTOMATED UNDERWRITING

Computer program that assesses loan risk. There are two main Automated Underwriting engines - Fannie Mae’s Desktop Underwriter and Freddie Mac’s Loan Product Advisor. Mortgage “loan specialists” answering 800 numbers for companies that run national advertising and offer “immediate” or “10 minute” Loan Approval are simply typing the information the Borrower gives him/her into an Automated Underwriting engine. This simply assures the Lender that the information given to him/her by the Borrower conforms to either Fannie Mae or Freddie Mac’s guidelines (in the form of Findings). This does not, however, mean that you have a Loan Approval. The most important thing about Automated Underwriting engines is that the Findings are only as good as the data entry. If the Borrower incorrectly gives his/her Self-Employed income, for example, as Gross sales rather then Net Income, the Findings (perhaps a Loan Approval) will be meaningless, because the data entered could not be proven. Therefore, it is HomeStart’s intention that you take no action of substance (like putting in an Offer on a house) based on a “Loan Approval” given according to incorrect, verbal information. Instead, it is best to request a free referral to a HomeStart-certified Broker or Banker and then to apply for a Mortgage loan. Then supply the Broker or Mortgage Banker with all relevant financial data so that Automated Underwriting data entry is done based on verified facts rather than the Borrower’s guesses or estimates.

Related terms: Fannie Mae, Freddie Mac, Desktop Underwriter, Loan Product Advisor, Findings, Self-Employed, Gross Income, Net Income.

AWARD LETTER

Annual letter received by Social Security Income recipients, Pension recipients and Annuity recipients proving their annual and monthly benefit.

Related terms: Social Security Income, Pension, Annuity, Grossed Up, Fixed Income.

B

BACK

Compensation from the Lender to the Broker or Mortgage Banker. This is also referred to as Yield Spread Premium or Service Release Premium. Beginning on April 1, 2011 the Borrower is supposed to be able to choose whether they want the compensation on a loan to come entirely from the Front of the loan, or entirely from the Back of the loan. Whether the Borrower chooses the Back or it is chosen for them, all of the Broker’s or Banker’s Commission will come from the Interest Rate sold and the Borrower will not be able to obtain a wholesale Rate. If the Borrower chooses the Front (or if it is chosen for them), the Borrower will pay the compensation for the Broker or Banker in increased Closing Costs. While a Front-loaded loan gives the Borrower a Wholesale Par Rate it is only best if the Borrower plans on keeping the loan for a considerable amount of time. Front Loaded loans also keep the Mortgage Payment lower. Loans where compensation is derived solely from the Back of the loan should only be chosen if the Borower will only be keeping the loan for a very short period of time.

Related terms: Front, Yield Spread Premium, Service Release Premium, Interest Rate, Wholesale Par, Closing Costs.

BACK RATIO

Risk standard. The Back Ratio can be calculated by taking the entire Housing Expense plus all consumer debt minimum payments (credit cards, installment loans, student loans, lines of credit) that appear on the Borrower’s credit report, divided by Gross Income (W2) or Net Income (Self-Employed). Back Ratios generally should not exceed certain limits. However, strong Mortgage profiles (excellent credit, low Loan To Value, high Liquid Assets) can be run on an Automated Underwriting engine to see if the following general limits can be exceeded. These limits are:

• 45% for most Prime, Conventional Conforming loans;

• 38% for most Prime, Jumbo loans;

• 41% for most FHA and VA loans (Government loans);

• 43% for Prime (good credit), Conventional Borrowers with Non-Resident CoBorrowers;

• 43% for FHA and VA loans doing new construction (building a home);

• 45% for Construction Loans;

• Up to 60% for Conventional loans with compensating factors, run on an Automated Underwriting engine;

• Up to 49.99% for very good or excellent credit, Government loans with Compensating Factors, run on an Automated Underwriting engine;

• 45% for a Combo loan Second Mortgage (See the HomeStart Specialty Tutorial “How and Why To Do a Combo Loan”); and

• 45%, 50% or 55% for Non-QM loans (depending on Lender).

HomeStart verifies that all HomeStart-certified Brokers and Bankers have enough access to enough Lenders that some will not have Overlays limiting the Back Ratio. This can mean the difference between getting a Mortgage Denied and getting a Loan Approval.

Related terms: Debt To Income Ratio, Front Ratio, Overlay.

BALLOON

Loan Term (period of time). Balloon loans start out with an Amortized Term and a Due And Payable period that are different. Often this is when the Due And Payable period is shorter than the Term. For example, a 5 year Balloon is Amortized over 30 years (to determine the payments) which is a term of 360 months, but it is Due And Payable in five years. This Balloon Note loan product would be expressed as a 360/60. Another example would be a 15 year Balloon. These loans are usually Amortized over 30 years (or 360 months). Thus, this product would be expressed as a 360/180 (number of months corresponding to a 30 year Amortized loan that is Due And Payable in 15 years). The point at which the loan is Due And Payable is called the Maturity Date.

Related terms: Term, Due And Payable, Maturity Date.

BANKER

See Mortgage Banker or Retail Banker.

BANKRUPTCY

A filing for debt relief under federal Bankruptcy laws. A Bankruptcy (Chapter 7) must be fully discharged for at least two years before the Borrower can obtain a Government loan. Some Government loan files (using a HomeStart-certified Broker or Banker) can even be approved after only one year following a Chapter 7 Bankruptcy. Conventional loans immediately following a Bankruptcy are not possible. Conventional loans require a longer post-Bankruprtcy period and re-established positive credit.

For a Chapter 13 Bankruptcy, in order to obtain a Government loan, a Borrower’s Chapter 13 Bankruptcy must be in force (making payments) for at least one full year. All payments must have been made on-time and in-full, and the permission of the Trustee must be obtained before the Borrower can obtain a Government loan. Conventional loans sometimes require that the Borrower has completely finished the payment plan and has fully exited a Chapter 13 Bankrtupcy in order to obtain a Mortgage loan.

HomeStart understands how a Bankruptcy will affect a Borrower’s life, but sometimes it is unavoidable. In those cases, HomeStart verifies that all HomeStart-certified Brokers and Bankers have FHA Lenders who honor the guidelines regarding Bankruptcy so that Borrower can still achieve the American dream.

Related terms: Chapter 7, Chapter 13, Government, Conventional, FHA, 4000.1.

BANK STATEMENT LOAN

Documentation type in the Subprime market where Income is declared on the Uniform Residential Loan Application and bank statements are used to demonstrate Income. For a W2 employee this is done by adding up all deposits over a specified period of time then dividing that total by the number of months in the period. For a Self-Employed individual, this is done by taking the ending balances of the business bank statements and adding them all up over a specified period of time then dividing that total by the number of months in the period. Liquid Assets and employment are verified.

Related terms: W2, Self-Employed, Liquid Assets, Income, Analyzing Income.

BASE LOAN AMOUNT

Loan amount on an FHA loan prior to any addition of Mortgage Insurance Premium; Loan amount on a VA loan prior to any addition of the Funding Fee. FHA Base Loan Amounts are limited by U.S. county. VA Base Loan Amounts are limited by the Conforming loan amount limit. To find your county Base Loan Amount limit, go to: http://themortgagereports.com/loan-limits/.

Related terms: Mortgage Insurance Premium, Funding Fee, FHA, VA, Final Loan Amount.

BID

See Offer.

Related terms: Purchase, Offer, Contract, Sales Contract, Purchase Contract, Listing.

BLUEPRINTS

Original architectural drawings (architectural plans).

Related terms: Plans, Specs, Construction Loan.

BLUES

Original Surveys. When a Survey is ordered, the loan originator gets a copy and the original blues are sent to the Title/Escrow Company. At least one Blue goes to the Borrower.

Related terms: Survey, Title/Escrow Company.

BONUS

A financial incentive given to an owner or an employee of a company. Bonuses are Qualifying Income provided they are averaged over the past two years and that they are likely to continue. Bonuses paid in the current year or guaranteed (but not yet paid) do not count as Qualifying Income.

Related terms: Income, Gross Income, Net Income, Analyzing Income, Qualifying Income.

BORROWER

The main applicant on a Mortgage loan.

Related terms: Mortgagee, Buyer, Seller.

BORROWER-PAID (COMPENSATION)

Choice of Borrower to pay the compensation involved in a Mortgage on the Front of the loan (charged to the Borrower). This means that the loan originator’s commission will be paid entirely by the Borrower or the Seller. This lowers the Interest Rate since the Lender will not be paying any of the compensation involved in the Mortgage. The choice of Borrower-Paid Compensation is good when you plan on keeping the property for a very long time and not Refinancing it anytime soon. The only other option is to choose Lender-Paid Compensation and the Lender will pay the loan originator’s commission; however, the Borrower’s Rate will be higher and/or the loan will come with some amount of Discount Points. It is important to remember that an intelligent loan originator (all HomeStart-certified Brokers and Bankers are interviewed regarding the use of Borrower-Paid and Lender-Paid Compensation) will either roll Borrower-Paid Compensation into the new loan amount (on a Refinance) or get the Seller to pay for it (on a Purchase). Anyone buying a property should seriously consider doing a Borrower-Paid Compensation transaction and having the Seller pay the bill at Closing. This gets the Borrower the best of both worlds: A low Interest Rate for practically nothing and a large tax deduction because Discount Points were paid in order to acquire the Mortgage. See the HomeStart Specialty Tutorials, “Tax Advantage Mortgaging” and “Tailor the Mortgage Youself and Save Thousands - Front Loaded Purchase/Refinance.

Related terms: Front, Back, Lender-Paid Compensation, Discount, Points, Refinance, Purchase.

BORROWER PAID MORTGAGE INSURANCE

See Mortgage Insurance.

Related terms: Lender Paid Mortgage Insurance.

BORROWER’S CERTIFICATION & AUTHORIZATION

Loan Application Disclosure that certifies that the Borrower has indeed applied for a Mortgage loan and that the Borrower gives the loan originator the right to gather information on the Borrower in order to process the Mortgage Loan Application.

Related terms: Loan Application, Credit Report, Verification of Rent, Verification of Deposit, Verification of Loan, Verification of Mortgage, Verification of Employment.

BPC

See Borrower Paid Compensation.

Related terms: Front, Back, Lender-Paid Compensation, Discount, Points, Refinance, Purchase.

BREAKEVEN

Calculation to determine when the Refinance will “pay for itself”. This is the number of months that it will take for the Borrower to “save back” all of the costs of the Refinance when the Refinance lowers the monthly payment. One of the most important aspects of doing a Refinance is calculating the Breakeven. This calculation is performed as follows:

This number, once derived, is then compared to the number of years (or months) that the Borrower intends to keep the new loan. If the Breakeven occurs sooner than that time period of expected connection to the loan, it is ethical and financially wise to do the loan. The use of a Breakeven calculation, of course, assumes that the Borrower’s payment will be lowered.

There is always the possibility that the Borrower does not know how long he or she will be connected to the new loan. In this case, the Borrower should consider his/her residential history. For example, if a Borrower has lived in the Subject Property for two years and lived in the prior home for ten years. It might be safe to assume that the Borrower will keep the new loan for the next eight years. If the Borrower also turned the prior home (of eight years) into an Investment Property, then it is even safer to assume that the Borrower will keep the new loan for ten or more years. Such a residential history suggests that despite uncertainties, the Borrower’s overall tendency is to both live in a property for long periods of time and to keep loans for a long time (by turning the last house into an Investment property). This would indicate that a new loan, with a reasonable Breakeven, would be ethical and most probably be in the best financial interests of the Borrower as the Breakeven will occur while the loan is still held by the Borrower.

A Breakeven can also be performed on a Cash Out loan where the overall monthly costs after the transaction are lower that they were before. For example, if a Borrower (before the transaction) is paying a $700/month Mortgage Payment (PI only), and $1,500/month in car loans and credit card minimum payments and the new Mortgage Payment (which is paying off the old Mortgage, the cars and the credit cards) will be $1,650 (PI) , this $550 in monthly savings can be considered the reduction in payment.

Related terms: Closing Costs, Points, Cash Out, Refinance, Subject Property, Investment Property.

BRIDGE LOAN

Temporary loan on a current property for the purchase of another property. Basically, a Bridge Loan lets one borrow the Equity from one house to put in the Down Payment on another house. There is no prepayment penalty on a Bridge Loan because it is intended to only be for a short period of time.

Related terms: Equity, Prepayment Penalty.

BROKER

Mortgage professional with access to more than one Lender, acting on behalf of the Borrower. A Broker can access loan programs from the Wholesale departments of retail banks (like Wells Fargo, Bank of America, etc.), private investors, Wholesale Lenders and other sources. A Broker must disclose the Yield Spread Premium he or she makes on the Back of the loan (from the Lender).

Related terms: Yield Spread Premium, Front, Back.

BUILDER

See General Contractor.

Related terms: Construction Loan, Custom Builder, General Contractor.

BUILDER BUILD

When the Borrower of construction funds is also the General Contractor. This can mean either that a Borrower of a Construction Loan will be the person who hires, supervises and pays all of the Subcontractors or that a professional Builder will be building his/her own home. See the HomeStart Specialty Tutorial, “How to Do a Construction Project”.

Related terms: General Contractor, Construction Loan, Subcontractor.

BUILDER’S RISK INSURANCE

Insurance policy held by the Custom Builder’s insurance company that covers all of the materials that will be on the property during a construction project. This policy is required when doing a Construction Loan. See the HomeStart Specialty Tutorial, “How to Do a Construction Project”.

Related terms: Custom Build, Custom Builder, Builder Build, General Contractor, Construction Loan, Subcontractor.

BUILDING LINES

Invisible lines on a property that determine the area on various portions of a property where structures may and may not be built. Building Lines are visable through a Survey. See the HomeStart Specialty Tutorial, “How to Do a Construction Project”.

Related terms: Survey, Public Utility Easement, Setback, Land Survey, Form Survey, Final Survey.

BUREAU

Credit Repository. See Credit Bureau and the HomeStart Specialty Tutorials “Understanding Credit and Credit Scores”, “How to Instantly Build Credit when You Have None” and “Manipulating Your Credit Scores Higher”.

Related terms: Credit Report, Credit Scores, Credit Development, Repository.

BUY DOWN

The addition of Discount in order to acquire a particular Rate. Buydown Points are paid to the Lender. How far a Borrower should Buydown the Rate is a mathematical question with a mathematical answer. The choices between Interest Rates will have respective costs and monthly savings. These variables are used to mathematically decide how low to Buydown the Rate, based on how long the Borrower intends to keep the loan. To figure out these variables, the HomeStart Mortgage Calculator should be used, along with the Recoup formula. If, for example, a Borrower plans on keeping a home for seven years following the origination of the loan, then it is possible that a Buydown could benefit the Borrower, provided the number of months it would take to Recoup the cost of the Buydown is less than 84 months (seven years). This situation is examined as follows:

Assume the loan in question is a $100,000 loan with a Term of 15 years. On the left side of the Recoup formula, the monthly payment differences of various Rates are compared against a 7.75% standard (in the preceding graphic, the difference in red between a 7.75% payment and a 6.75% payment would be $55.28/mo). To arrive at these monthly payment differences, establish the payment for 7.75% (or whatever your standard will be), determine the payments for other available Rates, then subtract each payment from the payment for the standard. This is illustrated on the left side of the preceding graphic. These calculations can be done using the HomeStart Mortgage Calculator. You only need to enter the loan amount ($100,000), the Term (15) and the Interest Rate to get each payment. Subtracting each payment from the payment for the standard is simple subtraction.

On the right side of the preceding graphic the costs of the Rate choices are compared against the standard of $0 (the black line of 7.75%). The goal then is to divide the difference in cost by the differnce in monthly payment to arrive at the number of months it would take to Recoup the costs. This is done through simple division.

For example, the $500 cost (in blue) of the lowering of the Rate from 7.75% to 7.50% is divided by the $13.99 monthly savings (in blue) to equal 35.74 months to Recoup. Lowering to 7.25% (in pink) divides the $1,000 difference by the $27.86 monthly savings and would Recoup in 35.89 months; 7.00% (in green) would Recoup in 48.05 months; 6.75% (in red) would Recoup in 49.75 months.

This comparison of Rates and associated costs shows clearly that the quickest period of Recoup is the period corresponding to lowering the Rate from 7.75% to 7.5%; however, it also demonstrates that the longest period of Recoup is the period corresponding to lowering the Rate to 6.75%, which is 49.75 months, which is only slightly longer than four years. If the Borrower plans on keeping the new loan for at least seven years, then all Rate choices would be appropriate. Actually, lower Rate choices would even be appropriate, provided the Recoup period did not approach the seven year mark. See the HomeStart Specialty Tutorials, “Do-It-Yourself Mortgage”, and “Tailor the Mortgage Yourself and Save Thousands - Front Loaded Purchase/Refinance“.

Related terms: Purchase, Refinance, Rate, Interest, Discount, Points.

BUYER

The purchaser of a property, to whom Title will convey, in a Purchase transaction. See the HomeStart Specialty Tutorial, “Looking for Real Estate without a Realtor®”.

Related terms: Borrower, Seller, Purchase, Title.

BUYER’S AGENT

Real estate agent representing the Buyer or purchaser. This is also referred to as the Selling Agent.

Related terms: Realtor®, Selling Agent, Listing Agent, Purchase.

BUYER’S AGREEMENT

Legal document binding the Buyer to a specific Real Estate Agent for a specific period of time. HomeStart encourages Buyers not to sign Buyer’s Agreements with Real Estate Agents. See the HomeStart Specialty Tutorial, “Looking for Real Estate without a Real Estate Agent”.

Related terms: Realtor, Buyer’s Agent, Selling Agent, Purchase.

BUYER’S MARKET

When housing inventory is high and Seller’s are under pressure to make favorable concessions (Purchase Price, Seller Contributions, etc.) in order to achieve sales.

Related terms: Purchase Price, Seller Concessions, Seller Contributions.

C

CALCULATING INCOME

See Income Analysis.

Related terms: Income, Gross Income, Net Income.

CALLING THE NOTE

Accelerating the Mortgage so that all payments are immediately Due And Payable. Usually Calling The Note is a result of the Borrower’s Default on the Mortgage.

Related terms: Note, Balloon, Acceleration, Default.

CAP

Periodic increase/decrease limit. The periodic limit for increases and decreases to the Interest Rate on an Adjustable Rate Mortgage product. Caps can be an Initial Cap, a Periodic Cap or a Lifetime Cap.

Related terms: Adjustable Rate Mortgage, Initial Cap, Periodic Cap, Lifetime Cap, Margin, Index, Floor.

CASE NUMBER

A unique identified given my FHA Connection for every FHA loan registered at any Retail Originator, Retail Bank, Mortgage Banker or Mortgage Broker. The date that the Case Number is issued is extremely important as new Mortgagee Letters can effect the financial paramenters of both Upfront MIP and Monthly MI.

Related terms: FHA, Streamline Refinance, Upfront MIP, Monthly MI, CAIVERS, GSA, LDP, FHA Connection.

CASH FLOW

Calculation for the evaluation of whether or not an Investment Property Purchase is recommended. See the HomeStart Specialty Tutorials, “Properly Buying Investment Property” and “Buying Multifamily Housing - Becoming a Landlord in One Easy Step”.

Related terms: Rental Property, Investor Property, Non-Owner Occupied Property, PITI.

CASHIER’S CHECK

A method of payment that is immediately negotiable funds. Cashier’s Checks can be acquired at a bank or credit union. Also known as a Certified Check. However, due to the speed at which Title/Escrow Companies are increasingly required to operate and to the growing threat of money laundering, most Title/Escrow Company policies are to take bank wires for Closing funds from Borrowers.

Related terms: Closing.

CASH OUT

A transaction in which Equity is extracted from the Subject Property. This can present itself as releasing cash to the Borrower, paying off credit card or other debts, paying a contractor or home improver, etc. In most states, this refers to a loan where the Borrower is receiving more than 2% of the loan’s value in cash (less than 2% would still be considered a Rate/Term Refinance) or where debts are being paid off. In one state, Texas, this refers to a Refinance where cash is received by the Borrowers (even a penny), where any debts are paid off (other than Liens), where any back taxes are being paid off or where contracts that are not Liens against the property are being paid with the loan. Keep in mind that a Cash Out Refinance can also contain a change in the Rate, the Term or both.

Related terms: Equity, Refinance.

CASH SAVED AT HOME

Funds that can be used in a Government Mortgage transaction. The Borrower would have to show a written budget proving that over a specified period of time, the Borrower was able to save a specified dollar amount without having a checking, savings or other Liquid Assets account. This budget is a Cash Saved At Home letter.

Related terms: Government, FHA, VA, USDA, Down Payment, Liquid Assets.

CASH VALUE

Surrender value of a Whole Life Insurance policy. The majority of the Cash Value is considered a Liquid Asset because it can be accessed with a phone call.

Related terms: Liquid Assets, Whole Life Insurance.

C-CORPORATION

A business entity. C-Corporations can be private or public and are businesses that sell themselves in pieces or in stock. Stock is simply the shares you own in a C-Corporation. Interest & Dividends from stock ownership in a C-Corporation belong on Schedule B of an Income Tax Return.

Related terms: LLC, S-Corporation, Sole Proprietorship, Partnership.

CERTIFICATE OF ELIGIBILITY

VA certificate that proves that the Borrower is eligible to participate in the VA program. A Certificate of Eligibility will be required before the loan can be Closed. Additionally, the Certificate of Eligibility indicates to the Mortgage originator if it is the first time or a subsequent time that the Borrower has exercised his/her VA housing benefit.

Related terms: VA, DD-214, Funding Fee.

CERTIFICATE OF OCCUPANCY

Certification from the municipality in which the Subject Property is located that gives the owner the right to inhabit the property. Some municipalities require Certificates Of Occupancy only for Owner Occupied properties. Other municipalities require them for all properties. Some have no Certificates Of Occupancy and still others only require them when the property has been under construction. Some states (like New York, for example) require Certificates Of Occupancy every time the property changes hands. See the HomeStart Specialty Tutorial, “How to Do a Construction Project”.

Related terms: Subject Property, Owner Occupied.

CHANGE IN CIRCUMSTANCE

This is any change that takes place to the characteristics of a loan (Rate, loan amount, Term, addition or removal of a Prepayment Penalty, etc.). When a Change In Circumstance occurs, the Borrower must receive a new Loan Estimate. The acronym for this term is CIC.

Related terms: Rate, Closing Costs, Term.

CHANGE OF CIRCUMSTANCE

This is any change that takes place to the characteristics of a loan (Rate, loan amount, Term, addition or removal of a Prepayment Penalty, etc.). When a Change In Circumstance occurs, the Borrower must receive a new Loan Estimate. The acronym for this term is COC.

Related terms: Rate, Closing Costs, Term.

CHARM BOOKLET

Consumer Handbook on Adjustable Rate Mortgages. This handbook offers detailed information about Adjustable Rate Mortgages and is required to be given to any Borrower applying for a Mortgage loan that will be an Adjustable Rate Mortgage. This handbook can be found at: http://www.federalreserve.gov/pubs/arms/arms_english.htm.

CHATTLE

Property that can be moved, like an automobile or a Manufactured Home that still has its axles, wheels and tongue.

Related terms: Manufactured Home, Chattle-Land Conversion, VIN.

CHATTLE-LAND CONVERSION

Transaction in which Chattle (a non-attached Manufactured Home), and the land upon which it sits, is converted to Real Estate by surrenduring the VIN and permanently attaching (physically and through Title) the home to the land.

Related terms: VIN, Chattle, Real Estate, Title, Manufactured Home.

CIC

See Change In Circumstance.

CLEAR TO CLOSE

Final Underwriting Approval where a loan has cleared all Conditions and may now close between the date of Loan Approval and the date the first Credit document expires. If, however, the loan does not close in a timely manner, the Clear To Close will switch back to a Conditional Approval and updated documents (such as bank statement, most recent paystub, etc.) can be required for a new Clear To Close.

Related terms: Loan Approval, Conditional Approval.

CLOSING COSTS

Costs on the Front of the loan from the Lender, the Broker (or Wholesale/Retail Banker) to pay for the costs and sometimes the compensation on the loan. Additionally Title charges, recording, Survey, Appraisal, Closing documents, etc. are all considered Closing Costs. To assist the Borrower with a breakdown of all fees that are part of his/her Mortgage can be found on the Loan Estimate and the Closing Disclosure to ensure that all loan attributes are the same between the loans being compared).

Related terms: Origination, Discount, Points, Loan Estimate, Closing Disclosure.

CLOSE

Execute the Mortgage documents. Also, ending Escrow (in Escrow states).

Related terms: Closing, Closer, Title/Escrow Company.

CLOSED END

With a definite Term, that is, with an ending point.

Related items: Open End, Second Mortgage.

CLOSER

Either the Title/Escrow Company agent who is notarizing the Borrower signatures, the Closing Attorney who is supervising the Closing or the person who prepares the file for Closing at the Lender’s offices.

Related terms: Close, Closing, Title/Escrow Company.

CLOSING

Appointment at either a Title/Escrow Company or a Closing Attorney’s office to execute the Mortgage and/or Seller documents.

Related terms: Purchase, Refinance, Close, Closer.

CLOSING ATTORNEY

Attorney who specialized in Real Estate transactions and Closings.

Related terms: Close, Closing, Earnest Money, Deposit.

CLOSING DATE

Contract date by which the Mortgage documents must be executed.

Related terms: Close, Closing, Closer, Title/Escrow Company, Purchase.

CLOSING DISCLOSURE

Final summary of the transaction details for a Mortgage Closing required on all Real Estate transactions that are 1-4 Family dwellings secured by a federally related mortgage loan. A Closing Disclosure is required under the TILA-RESPA Intergrated Disclosures (TRID) set forth in 2015 as an enhancement to the Wall Street Reform & Consumer Protection Act. This applies to both Purchase and Refinance transactions.

Related terms: TRID, Loan Estimate, Change In Circumstance, Change Of Circumstance, CIC, COC.

CMA

Comparative Market Analysis. The research a Real Estate Agent conducts when trying to arrive at a Listing Price for a property or when preparing an Offer on a property. You should always ask for a copy of the CMA that was performed.

Related terms: Realtor, Buyer’s Agent, Seller’s Agent, Selling Agent, Listing Agent.

COBORROWER

The co-Applicant on a Mortgage loan, whether a spouse or a non-spouse.

Related terms: Borrower, Non-Resident CoBorrower.

COC

See Change Of Circumstance.

COFI

Cost of Funds Index. Mortgage loans exist that are based on the COFI index. These Mortgages are Adjustable Rate Mortgages. These are like regular Adjustable Rate Mortgages except that after the Fixed Period they usually adjust monthly and adjust based on the COFI, or an average of the COFI plus a Margin of profit. The current COFI index can be found at: http://mortgage-x.com/general/indexes/wells_fargo_cofi.asp.

Related terms: Adjustable Rate Mortgage, Index, COSI.

COLLATERAL

Property being used to secure a Mortgage loan. Collateral is a large part of the Mortgage transaction. For example, a Borrower with strong credit, great Income and plentiful Liquid Assets can still be declined for a Mortgage because the Collateral is insufficient or unsuitable for a Mortgage loan. Reasons for a property being unsuitable could be value, Deferred Maintenance, Functional Obsolesence, uniquity or land to value ratio (when the land is more than, for example, 30% of the Subject Property’s entire value). Usually the Site Value on the Appraisal (Cost Approach) is used to termine the percentage of value attributed to the land.

Related terms: Mortgage, Deferred Maintenance, Functional Obsolesence, Loan To Value, Appraisal, Cost Approach.

COLLATERAL PROTECTION LETTER

Document that demands that Homeowner’s Insurance be active on the mortgaged property. Collateral is such a large part of the Mortgage transaction, that if a property were destroyed by fire and there was no insurance for such an event, the only asset the Lender holds (being the property itself) would be lost. Therefore, if at any time the Homeowner’s Insurance is discontinued, the Lender will send the Borrower a Collateral Protection Letter as soon as the Lender learns of the collateral threat created by not having Homeowner’s Insurance. If the Borrower ignores the Collateral Protection Letter and does not re-establish the Homeowner’s Insurance on the property, the Lender will Force Place a very expensive Homowner’s Insurance premium and the Borrower will pay for it in an increased monthly payment. For those Borrowers who have Waived Escrows, it is important to note that the Homeowner’s Insurance company still sends an annual Declarations Page to the Lender and notifies the Lender if the Homeowner’s Insurance policy is out of force.

Related terms: Mortgage, Collateral, Hazard Insurance, Force Place.

COMBINATION MORTGAGE

See Combo Loan.

COMBINED LOAN TO VALUE

The sum of all Mortgages (or proposed Mortgages) on the Subject Property divided by the Appraised Value of the Subject Property on a Refinance or the lower of the Purchase Price or the Appraised Value on a Purchase. This is also referred to as Total Loan To Value. A property being Refinanced has a First Mortgage of $200,000 and a Second Mortgage of $50,000. This house Appraises for $300,000. The Loan To Value is 67% and the Combined Loan To Value is a little higher than 83%. See the HomeStart Specialty Tutorials, “How and Why To Do a Combo Loan”, “Do-It-Yourself Mortgage”, and one of the six called, “Tailor the Mortgage Yourself and Save Thousands - “.

Related terms: Mortgage, Loan To Value, Combo Loan, Appraised Value, Purchase Price, First Mortgage, Second Mortgage.

COMBO LOAN

The origination of two Mortgages, instead of one, to achieve the same amount of loan as a single Lien. See the HomeStart Specialty Tutorials, “How and Why To Do a Combo Loan”, “Do-It-Yourself Mortgage” and “Tailor the Mortgage Yourself and Save Thousands - “.

Related terms: First Mortgage, Second Mortgage, Combined Loan To Value, Loan To Value, Appraised Value, Refinance, Purchase.

COMMERCIAL REAL ESTATE

Commercial properties are where people work or businesses do business.

Related terms: Residential Real Estate, Industrial Real Estate, Farm & Land, Zoning.

COMMISSION

A financial incentive given to an owner or an employee of a company usually based directly upon sales or performance. Commissions are Qualifying Income provided they are averaged over the past two years and that they are likely to continue. Commissions paid in the current year or guaranteed (but not yet paid) do not count as Qualifying Income.

Related terms: Income, Gross Income, Net Income, Income Analysis, W2, 1099, Qualifying Income.

COMMISSION/SALARY

Compensation type. This type of compensation is when an employee receives a “base” Salary in addition to Commission compensation.

Related terms: Bonus, Salary, W2, 1099, Income, Gross Income, Net Income, Qualifying Income, Income Analysis.

COMP

Comparable property. A Comp used to determine Fair Market Value must generally have been sold in the last six months and must be of similar size and quality. Additionally, it should be within a mile of the subject property, preferably in the same subdivision. In situations where Comps are difficult to locate, one parameter can be stretched in exchange for the betterment of another. For example, if there are suitable properties two miles away that closed in the last two months, it is generally acceptable to increase distance in order to get a Comp of similar size and quality. In the case of rural properties, the distance of a Comp is generally the most flexible attribute of the Appraisal. The Sales Comparison Approach to an Appraisal uses Comps (or Sales Comps) to determine the Fair Market Value of the Subject Property.

Related terms: Appraisal, Appraise, Sales Comparison Approach, Sales Comps.

COMPENSATING FACTORS

Positive Mortgage file characteristics that can be used to offset negative Mortgage file characteristics. For example, a Borrower who will be experiencing high Payment Shock (a negative loan characteristic) might also have a larger than normal Down Payment. In this example the Down Payment would be a Compensating Factor. Compensating Factors include, but are not limited to: Down Payment size, low Debt To Income Ratios, low Loan To Value, large number of Liquid Assets, Negative Payment Shock, years on the job, a pending raise, or good Credit Scores.

Related terms: Payment Shock, Negative Payment Shock, Down Payment, Debt To Income Ratios, Loan To Value, Liquid Assets.

CONCESSION PLACEMENT

The placement of Seller Concessions on pg. 1 of the HUD-1 Settlement Statement or pg. 3 of the Closing Disclosure (received at Closing) instead of breaking Seller paid Closing Costs out into the Seller column.

Related terms: Closing Disclosure, HUD-1 Settlement Statement, Seller Contributions, Seller Concessions, Seller, Buyer, Purchase, Purchase Price.

CONDO

Condominium. A Condo is one unit of a complex of units that make up a building. Condos do not have ownership of the land beneath them. Usually, Condos have monthly Homeowner’s Association (HOA) dues to collectively perform maintenance, upkeep and other requirements of the complex. Condos generally do not have Homeowner’s Insurance except for policies covering the personal contents of the owner.

Condominiums (in the Conventional side of lending) are either Warrantable or Non-Warrantable. Warrantable Condos have preferred Interest Rates while Non-Warrantable Condos have higher Rates and fewer Lenders that will lend on them.

There are two processes by which Warrantability is determined: Full Review or Limited Review. These two types of reviews are determined by an Automated Underwriting engine (either Freddie Mac’s Loan Product Advisor or Fannie Mae’s Desktop Underwriter). The difference between the two Findings is the number of questions on the Condo Questionnaire that the Homeowner’s Association must complete. The Full Review questionnaire has approximately 42 questions and the Limited Review questionnaire has approximately 20 questions.

Whether a Condo receives a Full Review or a Limited Review, the following must be true:

For new Condo complexes:

• At least 90% of the units must be sold;

• All phases of construction must be completed;

• The Homeowners Association must have been under the control of the homeowners; and

• Owner Occupied and Second Home units must make up at least 70% of the units sold in the complex (not per building or per phase but for the entire complex). If any of these three items is not met, then the Condo complex is Non-Warrantable.

For established Condo complexes:

• At least 90% of the units must be sold;

• All phases of construction must be completed;

• The Homeowners Association must have been under the control of the homeowners for at least one year;

• Owner Occupied and Second Home units must make up at least 51% of the units sold in the complex (not per building or per phase but for the entire complex);

• Homeowner’s Association dues cannot be delinquent by more than 15% of the number of sold units; and

• The Homeowner’s Association must have at least 10% of its annual budget in reserves.

If any of these requirements is not met, then the Condo and the Condo complex are Non-Warrantable. The reason that a Non-Warrantable Condo complex has increased risk is because the unit is not free standing. Instead, the unit is connected to all the other units. If the Condo complex has a low Owner Occupied and Second Home percentage, that means that the majority of the units in the complex are Investment Properties. When recessions hit, people tend to pay their Owner Occupied and Second Home Mortgages first, which means that Investment properties tend to go into Default. If units in a Condominium complex are in Default, then the Homeowners Association dues on those units are also not being paid. Thus, the coffers that keep the entire Condominium complex maintained will be bare and the complex itself may fall into disrepair, damaging the value of all the units.

On FHA and VA loans, Warrantability is not determined. Instead, a Condo complex must be “FHA Approved” or “VA Approved” prior to the transaction in order to do a Mortgage on the unit. Condos, regardless of their Loan To Value ratio, do not have monthly Mortgage Insurance on FHA or VA loans.

Related terms: Homeowners Association, Warrantable, Non-Warrantable, Owner Occupied, Second Home, Investment Property, Default, VA, FHA.

CONDOMINIUM

See Condo.

Related terms: Single Family Residence, Duplex, Triplex, Fourplex, Townhome, Townhouse.

CONDITIONAL APPROVAL

Underwriting Approval of a loan, Subject To the successful production of Conditions or Stipulations (“Stips”). An example of a Conditional Approval might be the Approval of a Mortgage loan Subject To the Borrower submitting his/her most recent bank statement.

Related terms: Loan Approval, Suspension, Denial, Conditions, Stipulations, Clear To Close.

CONDITIONS

Items that must be produced on a Mortgage loan to turn a Conditional Approval into a Clear To Close. Examples of Conditions are bank statements, Letters of Explanation, updated paystubs, Gift Documentation, a cleared Earnest Money/Deposit check, etc. These are also referred to as Stipulations (Stips).

Related terms: Mortgage, Conditional Approval, Loan Approval, Letter of Explanation, Stipulations, Earnest Money, Deposit.

CONFORMING

A Mortgage loan whose amount is at or below the Conforming Loan Limit for that county and property type. In 2024 (for the majority of the nation) this limit is $766,550 for a Single Family Residence (higher for duplexes, 3plexes and 4plexes). In some counties (middle of coastal CA, middle of TN, middle of CO, Monroe county, FL and coastal MA & NH, this limit is between $766,551 and $950,000 for a Single Family Residence. In other middle coastal counties of CA, as well as in WA, UT and southwestern CO this limit is between $950,001 and $1,149,824 for a Single Family Residence and in all of AK, HI, Guam & the U.S. Virgin Islands, this limit is $1,149,825 for a Single Family Residence. The map, with legend below, shows these counties with higher than normal conforming mortgage limits (© Federal Housing Finance Authority). Generally, the best conventional interest rates can be found with conforming conventional loans.

Related terms: Conventional, Loan To Value.

Conforming Loan Limits by County

CONFORMING LOAN LIMIT

See Conforming. The break point between a Conforming loan and a Jumbo loan.

Related terms: Jumbo, Conforming, Interest Rate, Loan To Value.

CONSTRUCTION ACQUISITION DEDUCTION MAXIMIZATION

The placement of all Points related to the construction portion of the a Construction Loan onto the Closing Disclosure of the acquisition portion of the loan. This is usually done following a Conversion of charges into Origination or Discount Points. See the HomeStart Specialty Tutorials, “Tax Advantage Mortgaging” and “How to Do a Construction Project”.

Related terms: Closing Disclosure, Origination, Discount, Points, Construction Loan.

CONSTRUCTION CONTRACT

A Contract between the Borrower and the Custom Builder for the construction of the Subject Property.

Related terms: Construction Loan, One-Time Close, Two-Time Close, Interim Financing.

CONSTRUCTION INSPECTION

When a town, city or municipality actually halts construction in order to “approve” a construction stage before the next one can be begun. Usually this is done when the Custom Builder requests a Draw.

Building a house is done is stages, where each stage must be done well and correctly in order to support the next stage. For example, the forms must be laid correctly with fundamental connections to plumbing and electricity before the foundation can be poured. The foundation must be poured correctly to support the subflooring and framing. The framing must be done correctly to support windows, plumbing pipes and electrical wires. Depending on the size and complexity of the house, there are generally between ten (10) and twenty (20) Construction Inspections. See the HomeStart Specialty Tutorial, “How to Do a Construction Project”.

Related terms: Construction Loan, Interim Financing, Draw, Custom Builder.

CONSTRUCTION LOAN

A loan that finances the construction of a house in three circumstances: 1) When the Borrower already owns the land upon which the house will be built; 2) When the Borrower is buying the land simultaneous to the financing of the construction; and 3) When a builder is building on land he/she owns (see Spec Home). A Construction Loan is not a Home Equity Loan or a Home Equity Line Of Credit (HELOC). Often times the funds from Home Equity Loans and HELOCs are used to perform construction (additions, remodeling, etc.) on a home, but that does not make it a construction loan. A construction loan (sometimes called Interim Financing) is a Mortgage where the Lender holds the construction funds and releases them in pieces (or Draws) as each piece of the construction process on the project is completed. It is possible to get a Construction Loan as a Refinance too. In this case, the first Draw of the construction loan would go to pay off the current First Mortgage on the Subject Property, then the rest of the Draws would work like those on a “from the ground up” construction project. See the HomeStart Specialty Tutorial, “How to Do a Construction Project”.

Related terms: Interim Financing, One-Time Close, Two-Time Close, Custom Builder, Steps in Construction.

CONSTRUCTION-PERM

A loan that incorporates Interim Financing for construction and permanent financing together into one loan. See the HomeStart Specialty Tutorial,”How to Do a Construction Project”.

Related terms: Interim Financing, Construction Loan, One-Time Close and Two-Time Close.

CONTRACT

Agreement of conveyance where a Purchase Price and other terms are agreed to in exchange for ownership of a property. Also referred to as a Contract of Sale or a Purchase Agreement.

Related terms: Realtor, Purchase, Offer.

CONTRACT FOR DEED (CFD)

Agreement that allows a Buyer to make payments over a specified period of time in order to gain Title to a property. A Contract For Deed sets down all of the terms of the purchase: Down Payment, monthly payment, when those payments are due, and the final amount that has to be paid in order for the property to become the Buyer’s (renter’s). The advantage of doing a Contract For Deed instead of a Purchase Contract is that the Buyer can Refinance the final amount due against the Fair Market Value of the home. Provided there is enough Equity in the property at the end of the Contract For Deed, this can result in little to no Down Payment and Closing Costs that can be rolled into the new loan. A Contract For Deed must not only be executed, but must be Recorded in the Real Estate records of the county in which the Subject Property exists in order for the Contract For Deed to become eligible for a Refinance. See the HomeStart Specialty Tutorial, “Lease to Own Using a Refinance”.

Related terms: Down Payment, Closing Costs, Refinance.

CONTRACT OF SALE

Agreement of conveyance where a Purchase Price and other terms are agreed to in exchange for ownership of a property. Also referred to as a Contract or a Purchase Agreement.

Related terms: Purchase, Realtor, Listing Agent, Selling Agent, Seller’s Agent, Buyer’s Agent, Offer, Contract.

CONVENTIONAL

Loan type that is non-Government.

Related terms: Government, Prime.

CONVERSION

The adding up of numerous charges on the Front of the loan and expressing them in as Discount Points or Origination Points so that they are tax deductible (either in a Purchase or a Refinance transaction). This term also means the time when a Convertible Adustable Rate Mortgage is changed to a Fixed Rate. See the HomeStart Specialty Tutorial, “Tax Advantage Mortgaging”.

Related terms: Closing Costs, Discount, Origination, Points, Purchase, Refinance, Adjustable Rate Mortgage, Convertible.

CONVERTIBLE

An Adjustable Rate Mortgage that can (in the future and for a charge) be converted to a Fixed Rate. Most often this is performed just as the Fixed Period of the ARM is ending. For example, a 6.250% Adjustable Rate Mortgage that is fixed for the first five years can be converted on the sixth anniversary of the Closing of the loan to a Fixed Rate for, say, $250 paid to the Lender. The new Fixed Rate might be determined based on the Fannie Mae 30 year published Rate plus a Margin of profit.

Related terms: Adjustable Rate Mortgage, Fixed Rate, Fixed Period, Closing.

CONVEY

To transfer ownership. The property, the built-in appliances, the Title, etc. are all Conveyed to the Buyer from the Seller at a Purchase Closing.

Related terms: Buyer, Seller, Offer, Contract, Escrow, Title, Closing.

COSI

Cost of Savings Index. Mortgage loans exist that are based on the COSI index. These Mortgages are Adjustable Rate Mortgages. These are like regular Adjustable Rate Mortgages except that after the Fixed Period they usually adjust monthly and adjust based on the movement of the COSI, or an average of the COSI plus a margin of profit. The current COSI index can be found at: http://mortgage-x.com/general/indexes/wells_fargo_cosi.asp.

Related terms: Adjustable Rate Mortgage, Index, COFI.

CO-SIGNER

An Applicant on a Mortgage loan who will not occupy the Subject Property in the same manner as the Borrower. This is not the same as a CoBorrower, since a CoBorrower occupies the Subject Property in the same manner as the Borrower. Usually a Co-Signer is a Non-Resident CoBorrower. Non-Resident CoBorrowers are allowed on both Conventional (more rules) and Government (less rules) loans.

Related terms: CoBorrower, Government, FHA, Non-Resident CoBorrower.

COST APPROACH

A method or approach of determining an estimate of value of a property on an Appraisal. The Cost Approach is used on Construction Loans and when a Sales Comparison Approach is not feasible. The Cost Approach gives Site Value to the land, value to any improvements (like fences, irrigation systems, etc.) and dollar per square foot values to the house, the garage and any other structures resulting in the value of what it would cost to completely rebuild the property. See the HomeStart Specialty Tutorial, “How to Do a Construction Project”.

Related terms: Appraisal, Sales Comparison Approach, Site Value, Construction.

COUNTY LOAN LIMIT

This is the county-by-county limit for Base Loan Amounts on FHA loans. For example, a $400,000 loan in a county in Texas may qualify as a Conventional loan, but it may be too high to be an FHA loan.

Related terms: Base Loan Amount, FHA, Final Loan Amount, Conventional, Government.

COURTESY CLOSING

Closing that takes place at a satellite office of the Title/Escrow Company branch that is Closing the loan.

A Courtesy Closing is usually done to accommodate the general location of parties to the transaction.

Related terms: Closing, Title/Escrow Company.

COVENANTS, CONDITIONS & RESTRICTIONS (CC&RS)

Legislation or bylaws within a neighborhood or municipality. Covenants, Conditions & Restrictions lay down what may or may not be done with a property as well as set forth the penalties (fines) for non-adherence to the Covenants, Conditions & Restrictions. Often times the Lender of a Construction Loan will require a copy of the Coventant, Conditions & Restrictions for the municipality in which the Subject Property is located in order to make certain that the proposed home is not going to violate any terms within the document. See the HomeStart Specialty Tutorial, “How to Do a Construction Project”.

Related terms: Construction Loan, Condo, Planned Unit Development, Subject Property.

CREDIT BUREAU

Company that collects credit data from creditor clients. This is also referred to as a Repository. There are three Credit Bureaus or Repositories in the United States: Experian, Equifax and Trans Union. See the HomeStart Specialty Tutorials, “Understanding Credit and Credit Scores”, “Manipulating Your Credit Score Higher” and “How to Instantly Build Credit when You Have None”.

Related terms: Credit Report, Credit Score, Rapid Rescore.

CREDIT CARD COUNSELING SERVICES (CCCS)

Services that pool all of a Borrower’s credit card debts and require one payment per month against the total amount. That total amount is usually less than the Borrower really owes because the Credit Card Counseling Service (often owned by a credit card company) negotiates a settlement for less than the amount really owed and negotiates a lower Interest Rate so that the debts can all be paid off as quickly as possible. A Borrower’s involvement in a Credit Card Counseling Service is viewed like a Chapter 13 Bankruptcy. Conventional Lenders will only consider the Borrower for a Mortgage after all the payments have been made and the Borrower is “out” of Credit Card Counseling Services (and the Bankruptcy being either Chapter 13 or Chapter 7 has been discharged). Government loans, however, permit Borrowers to be in Credit Card Counseling Services, but they have to have made at least 12 payments on-time and in-full and they must secure the Credit Card Counseling Service’s written authorization to buy or Refinance the property. Generally, from a Mortgage point of view, it is better to file a Chapter 7 Bankruptcy than to enter into Credit Card Counseling Services. This is because you still must wait a year following discharge to be considered for a Government-insured Mortgage loan (like an FHA, VA or USDA loan) but only the presence of newly established, clean credit is required. Thus, there are no 12 payments to make and this money could be saved to make a Down Payment.

Related terms: Bankruptcy, Government, FHA, VA, USDA, Down Payment.

CREDIT DEVELOPMENT

The process of manipulating data on a Credit Report to improve Credit Scores. This includes the process of transferring documentation collected and developed by the Borrower to the credit reporting agency and/or the individual Credit Bureaus (Repositories) to improve the Borrower’s Credit Scores.

If there is damage on a Credit Report, the Borrower can purchase Credit Development from HomeStart or through the HomeStart mobile App. After Credit Development takes place, one can also pay to see the effect that the Credit Report changes have had on the Credit Report. This is achieved by asking the HomeStart representative to follow the Credit Development with a Rapid Rescore.

Credit Development includes but is not limited to:

• Having an incorrect Trade Line corrected;

• Having a Trade Line added;

• Updating a current balance;

• Having a Line Item updated if it has not been reported in a long period of time (obviously only if the line item is positive);

• Paying off and provide a Zero Balance Letter for a Trade Line; and

• Removing or improve bylines.

See the HomeStart Specialty Tutorials, “Understanding Credit and Credit Scores”, “Manipulating Your Credit Score Higher” and “How to Instantly Build Credit when You Have None”.

Related terms: Credit Report, Credit Scores, Bureau, Repository.

CREDIT REPORT

A merged list from the three national credit Repositories based on Social Security Number that includes:

• Each creditor (account). This is sometimes referred to as a “Line Item”;

• The date each account was opened;

• The account number for each account (credit cards only show part of the account number);

• The total number of months each account has been in existence;

• The kind of credit each creditor has extended (Revolving, Installment, Mortgage, Open, Collection);

• The last 24 months of credit history (payment history) on each account;

• The most recent balances of each account;

• The high credit limits on each account;

• The payment amount of each account;

• The overall rating on each account;

• The number of months each account has been reviewed;

• The last activity date on each account;

• The last month and year each creditor reported the account;

• The month and year of the last late payment (if any);

• The amount each account is past due (if any);

• The Repository or Repositories that are reporting each account (Experian, Trans Union or Equifax);

• The number of times the account has been 30 days, 60 days or 90 days delinquent;

• Designation of account owner (Applicant, spouse or authorized signer);

• Any inquiries in the last 90 days;

• Current and previous addresses;

• Current and previous employer;

• Public records (Liens, Judgments, Bankruptcies);

• Account type totals (for all Revolving, Installment and Mortgage accounts);

• Creditor contact information (phone numbers and/or addresses); and

• Repository contact information.

HomeStart offers Credit Development assistance and three HomeStart Specialty Tutorials, “Understanding Credit and Credit Scores”, “Manipulating Your Credit Score Higher” and “How to Instantly Build Credit when You Have None”. When applying for a Mortgage, it is very important that the loan originator pulls a Credit Report only once. Borrowers should ask the originator the protocols used to ensure that the Credit Report is only pulled one time in order to obtain the Mortgage. If this question can not be promptly and plainly answered, the Borrower has chosen a questionable loan originator. HomeStart-certified Brokers and Bankers are all able to do some Credit Development, however, complete Credit Development services are provided by HomeStart directly.

Related terms: Credit Score, Credit Development, Revolving Account, Installment Account, Mortgage Account, Open Account.

CREDIT SCORE

The numeric “snapshot” of credit worthiness assigned to each Borrower by the three national Credit Bureaus. Credit Scores are generated by complex mathematical formulas that are slightly different for each of the three Repositories (or Credit Bureaus). HomeStart offers Credit Development services to HomeStart members. See the HomeStart Specialty Tutorials, “Understanding Credit and Credit Scores”, “Manipulating Your Credit Score Higher” and “How to Instantly Build Credit when You Have None”.

Related terms: Credit Report, Bureau, Credit Bureau, Repository.

CREDIT SCORE DISCLOSURE

Subtitle for this Disclosure is “Your Credit Score and the Price You Pay for Credit”. The Credit Score Disclosure is a Loan Application Disclosure that informs the Borrower of all the Credit Scores that showed up on the Borrower’s Credit Report. Additionally, this Disclosure informs the Borrower about:

• What the Borrower should know about Credit Scores;

• How a Credit Score is used;

• The ranges of Credit Scores for each Repository;

• How the Borrower’s Credit Score compares with other consumers’ Credit Scores;

• Key factors that adversely affected the Borrower’s Credit Score (some of these are standard and non-applicable, that is, the same factors may show up for a Borrower with an incredibly high Credit Score and for a Borrower with a very low Credit Score);

• What to do if there are errors on the Borrower’s Credit Report;

• How the Borrower can obtain a copy of his/her Credit Report; and

• How to acquire even more information about Credit Reports and Credit Scores (besides HomeStart).

See the HomeStart Specialty Tutorials, “Understanding Credit and Credit Scores”, “Manipulating Your Credit Score Higher” and “How to Instantly Build Credit when You Have None”.

Related terms: Credit Report, Credit Score, Loan Application, Repository.

CURE LETTER

Letter of demand from the Lender for the amount by which the Mortgage account is past due. This letter gives the recipient the exact amount due in order to “cure” the loan Default by getting the payments current. While it differs from state to state, a Cure Letter generally gives the recipient 30 days to cure the account. If the amount due is not paid within 30 days of the date of the Cure Letter, Foreclosure proceedings can begin.

Related terms: Mortgage, Foreclosure.

CUSTOM BUILD

The construction of a home by a Custom Builder, per the specifications of and for the benefit of the Borrower. Once specifications are complete, the Custom Builder bids the project and the Borrower may increase or decrease construction materials quality in order to keep the bid in line with expectations or a budget. A Custom Build can be performed on an existing property (remodel, addition, etc.) or on a new property (land or Tear Down). The difference between a Custom Build and a New Home is that New Homes are houses built by Tract Builders and they are not Custom Built. New Home or To Be Builts from Tract Builders are almost identical to the rest of the houses in the Subdivision. A Custom Build is when the Borrower designs the improvements or the new house with an architect, develops construction Specs (Specifications) and hires a Custom Builder to build the house or to do the remodeling, renovation or addition. See the HomeStart Specialty Tutorial, “How to Do a Construction Project”.

Related terms: Custom Builder, Tear Down, New Home, To Be Built, Tract Builder.

CUSTOM BUILDER

A Builder who builds to suit, on land either self-owned or owned by the Borrower. This kind of Builder is usually involved in the creation of architectural Plans, uses the Borrower’s Specs (construction Spedifications) in order to give a bid, is the General Contractor on the construction and takes Draws from either the Borrower or the Lender. The other kind of Builder is a Tract Builder who builds almost identical houses on parceled, large Tracts of land. See the HomeStart Specialty Tutorial, “How to Do a Construction Project”.

Related terms: Builder, General Contractor, Plans, Specs, Draw.

D

DAILY ACCRUAL

Loan interest accrual type. Daily Accrual Interest loans add Interest to the Borrower’s Mortgage on a daily basis, with no grace period associated with when the payment is received. Therefore, if the payment for the Mortgage is not received on or before the precise day of the month on which it is due, more Interest is added to the Principle Owing on the loan. As a result, Borrowers with Daily Accrual Interest Mortgages can pay on the loan for years and, if they are often late in making their payment, may find they have not reduced the amount of the Principle at all. These Daily Accrual Interest Mortgages are generally considered extremely low-end and are usually sold to consumers with challenged credit: however, in some circumstances, a difficult Second Mortgage can be found in the Daily Accrual market. All HomeStart-certified Brokers and Bankers are able to do Daily Accrual Interest Second Mortgages but understand that it should only be a last resort.

Related terms: Mortgage, Principle Owing, Principle, Second Mortgage.

DD-214

Honorable discharge document. The DD-214, given to each veteran when he/she is honorably discharged from the armed forces, demonstrates that when discharged, the discharge was honorable, making the Borrower eligible to participate in the VA program.

Related terms: Certificate of Eligibility, VA, FHA.

DEBT TO INCOME RATIO

Housing Expense (PITI) plus all consumer debt minimum payments (credit cards, installment loans, student loans, lines of credit) that appear on the Credit Report, divided by Gross Income (W2) or Net Income (Self-Employed). This is another way to refer to the Back Ratio of the loan. Subprime Lenders use only this ratio (that is, they do not use a Front Ratio). Debt To Income Ratios generally should not exceed the following limits; however, strong Mortgage files (excellent credit, low Loan To Value, plentiful Liquid Assets) can be run on an Automated Underwriting engine to see if the following general limits can be exceeded:

• 45% for most Prime, Conventional Conforming loans;

• 38% for most Prime, Jumbo loans;

• 41% for most FHA, USDA and VA loans (Government loans);

• 43% for Prime (good credit), Conventional Borrowers with Non-Resident CoBorrowers;

• 43% for FHA and VA loans doing new construction (building a home);

• 45% for Construction Loans;

• Up to 60% for Conventional loans with Compensating Factors, run on an Automated Underwriting engine;

• Up to 49.99% for very good or excellent credit, Government loans with Compensating Factors, run on an Automated Underwriting engine;

• 45% for a Combo loan Second Mortgage (See the HomeStart Specialty Tutorial “How and Why To Do a Combo Loan”); and

• 45%, 50% or 55% for Subprime loans (depending on Lender).

Debt To Income Ratios are one of the biggest reasons why Mortgage loans get declined; however, there are several strategies to get around a high Debt To Income Ratio. These strategies are well-known and properly executed by all HomeStart-certified Brokers and Bankers.

Related terms: PITI, Housing Expense, W2, 1099, Gross Income, Net Income, Income, Qualifying Income, Income Analysis, Back Ratio, Automated Underwriting, Loan To Value, Liquid Assets, Prime, Conventional, Conforming, Jumbo, FHA, VA, USDA, Compensating Factors, Government, Construction Loan, Combo Loan, Second Mortgage, Rural.

DECLARATIONS PAGE

Summary page of a Homeowner’s Insurance policy that shows the amount of coverage, the deductible, the beginning and end dates of coverage paid for, etc. This is also referred to as the “Dec Page”.

Related terms: Hazard Insurance, Forced Placed Insurance, Collateral Protection Letter.

DECLINE (DECLINATION)

Underwriter action that means the Mortgage file either has no merit or does not meet investor, Fannie Mae or Freddie Mac guidelines. Few Mortgage professionals can overturn a Declination; however, Brokers and Mortgage Bankers who have numerous Lenders in their networks have the ability to submit the Mortgage file to another investor in order to achieve a Conditional Approval.

Related terms: Mortgage, Underwriter, Fannie Mae, Freddie Mac, Mortgage Broker, Wholesale Mortgage Banker.

DECLINING INCOME

When a Borrower’s Income:

• Is lower in the most recently file Tax Return than in the previous Tax Return when the prior year’s Tax Return has not yet been filed and a W2 and/or a 1099 for the previous calendar year has not yet been issued; or

• Is lower on both of the two most recently filed Tax Return and the prior year’s W2 and/or 1099 has been issued and it/they show more income that they two prior years but the prior year’s Tax Return has not yet been filed; or

• Is currently lower than the most recently filed Tax Return whether or not a W2 and/or 1099 has been issued and whether or not a Tax Return has been filed for the previous calendar year.

Related terms: Qualifying Income, Income Analysis, W2, 1099, Tax Return.

DEC PAGE

See Declarations Page.

Related terms: Hazard Insurance, Forced Placed Insurance, Collateral, Collateral Protection Letter.

DEDUCTION

A dollar value reduction on a Paystub, on Income Taxes or when calculating Mortgage Qualifying Income.

Related terms: Paystub, Income Taxes, Schedules A, B, C, D, E and F.

DEED

Instrument conveying Title ownership.

Related terms: Title, Title Commitment, Warranty Deed.

DEED OF TRUST

A document wherein legal title on real property is transferred to a trustee, who holds it as security for a loan between a Borrower and Lender. The Borrower is referred to as the trustor, while the Lender is referred to as the beneficiary of the Deed of Trust.

A Deed Of Trust is normally Recorded with the municipal recorder or county clerk for the county where the property is located as evidence of and security for the debt. The act of recording provides constructive notice that the property has been encumbered. When the debt is fully paid, the beneficiary is required by law to promptly direct the trustee to transfer the property back to the trustor by reconveyance thus releasing the security for the debt.

If the Borrower defaults on the loan, the trustee has the power to foreclose on the property on behalf of the beneficiary. In most U.S. states, a Deed of Trust (but not a Mortgage) can contain a special "power of sale" clause that permits the trustee to exercise these powers.

Related terms: Note, Closing.

DEFAULT

Failure to abide by the terms of the Deed of Trust or Security Instrument for a Mortage loan. Examples can be not paying the Note as set down in that document, transferring ownership of a property without informing the Lender, not paying Property Taxes, housing hazardous materials on the property, turning the property into a Bread ‘n Breakfast or using it for some other customer (physical) traffic-heavy commercial purpose, leaving the property uninhabited, tearing the property down in part or in full, etc.

Related terms: Calling The Note, Acceleration.

DEFERRED MAINTENANCE

Appraisal term for any part of the Subject Property that should have been repaired but was not. For example, the roof could have hail damage on it and could be mentioned as Deferred Maintenance in the Appraisal report.

Related terms: Appraiser, Appraise, Appraisal, Functional Obsolecense.

DEMO

See Demolish. This is also referred to as Raze. See the HomeStart Specialty Tutorial “How to Do a Construction Project”.

Related terms: Construction Loan, Builder, Custom Builder.

DEMOLISH

To destroy a home or structure, completely or down to the foundation. This is also referred to as Razing the house. See the HomeStart Specialty Tutorial “How to Do a Construction Project”.

Related terms: Construction Loan, Builder, Custom Builder.

DEPLETION

An accounting and tax term referring to deductions made to account for land becoming less valuable because of the removal of natural resources, including timber and geothermal deposits of hot water or hot rocks. Eligible items include but are not limited to the removal of marble, granite, shale, slate, gravel, etc.

Related terms: Depreciation, Income Analysis.

DEPOSIT

The good faith funds that are tendered from the Borrower to either the Title/Escrow Company, a Closing Attorney, the Real Estate Agency involved in the Listing or the builder in order to secure a Contract on a home. This is also referred to as Earnest Money.

Related terms: Purchase, Offer, Contract, Option Period, Option Fee, Inspection.

DEPRECIATION

A non-cash expense that reduces the value of an asset as a result of wear and tear, age, or obsolescence. Most assets lose value over time (depreciate), and must be replaced once the end of their useful life is reached. The amount of Depreciation claimed on the Borrower’s Income Tax Returns from Schedule C, Schedule E, and from any Corporate, S-Corp, or Partnership Returns can be added to Qualifying Income because it is a non-cash or “paper” deduction.

Related terms: Qualifying Income, Income Analysis, Income Tax Return, Depletion.

DESK REVIEW

Review of the Appraisal by the Lender’s in-house Appraiser.

Related terms: Enhanced Desk Review, Drive By, Field Review.

DIRECT ENDORSEMENT (DE)

Certification held by an Underwriter allowing him/her to grant Loan Approvals on Government loans.

DIVIDEND

A gain from investments released from a business in which someone owns stock. A Dividend is based on Earnings Per Share and is released for every share of stock owned. Interest & Divident Income is reported on Schedule B of one’s personal Income Tax Return. Related terms: Income Tax Return, Schedule B, Interest & Dividend, Earnings Per Share.

DESKTOP UNDERWRITER (DU)

Fannie Mae’s Automated Underwriting engine. This comes in two forms: DU for the Lender used internally or offered on its website, and DO (Desktop Originator) the Broker or Mortgage Banker version. Mortgage “loan specialists” who answer 800 numbers for companies that run national advertising and who offer “immediate” Loan Approval are simply typing the information the Borrower gives them into an Automated Underwriting engine like DU. This does not necessarily mean, however, that one has a Loan Approval. The most important thing about Automated Underwriting engines is that the Findings are only as good as the data entry. If the Borrower incorrectly gives his/her Self-Employed income, for example, as gross sales rather then Net Income, the Findings will be meaningless. The best way to get a preliminary Loan Approval is to get a free referral to a HomeStart-certified Mortgage Broker or Banker and then to supply the HomeStart Broker or Banker with proof of all relevant financial data so that Automated Underwriting data entry is done based on verified facts rather than guesses or estimates.

Related terms: Automated Underwriting, Fannie Mae, Loan Approval, Self-Employed, Findings.

DISABLED VETERAN EXEMPTION

Tax Appraisal District tax break. This Exemption all but eliminates any Property Taxes on a property in most states.

Related terms: Exemption, Homestead Exemption, Over 65 Exemption, Tax Appraisal District, Property Taxes.

DISCLOSURE

Document required by the state or federal government during Loan Application or within three business days after Loan Application.

Related terms: Loan Application.

DISCOUNT

Discount Points on the Front of the loan; or the Yield Spread Premium (or Premium, Rebate, the Back) associated with a particular Rate on a Rate Sheet sold to the Borrower. If a Broker or Banker is charging Discount on the Front of the loan (as a charge) it would be for a Buydown. If the Broker or Banker is making all his/her compensation for the loan off of the Interest Rate sold, then there is Yield Spread Premium (or Premium, Rebate, etc.) associated with the loan on the Back of the loan.

Related items: Breakeven, Recoup, Front, Rate, Yield Spread Premium, Service Release Premium, Back.

DIVIDEND & INTEREST

Income found on Schedule B of a personal Income Tax Return.

Related terms: Income Tax Return, Income, Qualifying Income, Gross Income, Net Income, Income Analysis.

DIVORCE DECREE

Document showing the final assignment and ownership of Real Estate, other assets, custody, debts and obligations to finalize a divorce. A Divorce Decree awards and/or obligates the parties so that the division of property, assets, obligations (such as credit card balances and payments), debts, child support and visitation are clearly defined. In Mortgaging, a Divorce Decree is often used to uncover hidden liabilities such as child support or alimony payments, as well as to establish who is the sole owner of the Real Estate involved in the transaction.

Related terms: Separation Agreement, Back Ratio.

DOCUMENTING 401K LOANS

The following documentation is necessary when a Borrower borrows fund from his/her 401K in order to consummate a Mortgage transaction:

• A photocopy of the original 401K loan application;

• A photocopy of the approval for the loan;

• A photocopy of the check or the wire disbursing the funds; and

• A photocopy of the deposit slip showing the funds going into another Liquid Asset account.

Documentation is very important in this situation because how the Borrower raised the cash to Close is fundamental in Mortgaging guidelines. Funds that are not Sourced or Seasoned may not be used in a Mortgage transaction.

Related terms: Sourcing, Seasoning, 401K, 401K Loan.

DOCUMENTING GIFTS

Process of gathering all documentation required to prove all required parts of a Gift in a transaction. These parts include:

• A photocopy of the donor’s bank statement or asset statement proving the donor has the ability to give the Gift;

• A photocopy of the Gift Letter (stating the Gift Funds are actually a gift and do not need to be repaid);

• A photocopy of the actual check (made out to the Borrower or made out to the Title/Escrow Company Closing the transaction); and

• A photocopy of the deposit slip into the Borrower’s account if the Gift Check was made out to the Borrower.

Related terms: Down Payment, Purchase, FHA, VA, Gift Letter, Donor.

DOWN DATE ENDORSEMENT

Endorsement from a Title Insurance Company that Title has not changed in any way since the last Title Commitment was made on the Subject Property. Down Date Endorsements are most often used during construction projects and are usually ordered by the construction Lender; however, there are times when the Borrower must order this endorsement. See the HomeStart Specialty Tutorial, “How to Do a Construction Project” for more information.

Related terms: Construction Loan, Title, Title Insurance Company.

DOWN PAYMENT

Dollar amount or percentage of Purchase Price that the Borrower will pay upon purchasing a property.

Related terms: Purchase, Buyer, Offer, Contract, Loan To Value.

DOWN PAYMENT ASSISTANCE

Funds made available to Borrowers to assist them in producing the funds for a Down Payment and Closing Costs on a Purchase transaction. Down Payment Assistance must be allowed by the loan program (FHA and a few Conventional loans). Down Payment Assistance can mean a Gift from a municipality, but usually means a city, county or state loan that offers Borrowers attractive features, such as zero percent interest or no payments followed by eventual Forgiveness. Muncipalities that offer Down Payment Assistance require that the property be located within a specified area of the town, city or county and that the Borrower does not make more than a specified Income based on the number of people in the household. See the HomeStart Specialty Tutorial, “Responsible Zero Down Payment Financing”.

Related terms: Work Assistance, Purchase, Down Payment, Closing Costs, FHA, Conventional.

DPA

See Down Payment Assistance. See the HomeStart Specialty Tutorial, “Responsible Zero Down Payment Financing”.

Related terms: Purchase, Down Payment, Closing Costs, FHA, Conventional.

DRAW

Request for funds from a (usually Custom) Builder either from the Borrower or from the Borrower’s Lender. See the HomeStart Specialty Tutorial, “How to Do a Construction Project”.

Related terms: Construction Loan, Interim Financing, Final Draw, Custom Builder, Builder.

DRIVE-BY

Appraisal where only the verification of the property’s existence is required.

Related terms: Appraisal, Appraise, Desk Review, Enhanced Desk Review, Field Review.

DUAL AGENCY

The act of a Real Estate Agent representing both the Buyer and the Seller. HomeStart does not endorse Real Estate Agents acting in a capacity of Dual Agency and feels it is impossible for a Real Estate Agent to ethically represent both parties in a transaction. See the HomeStart Specialty Tutorial, “Looking for Real Estate without a Real Estate Agent”.

Related terms: Realtor, Selling Agent, Buyer’s Agent, Offer, Contract.

DUE AND PAYABLE

The number of months after which a Mortgage loan matures and becomes due in full. A 15 year Balloon Note is expressed as a 360/180 (months). The first number is the Term of the Amortization or the Term upon which the payments are based. The second number (the 180) is the Due And Payable number, or, the number of months that must pass before the loan matures and becomes due in full. In this case, the Borrower will make 15 years of payments, based on a 30 year amortization and will experience a Balloon payment when the loan becomes Due And Payable (at the end of the initial 15 year period).

Related terms: Balloon, Amortization, Maturity Date.

DUE IN 30

First payment due 30 days following loan Closing or Funding. Usually Due In 30 loans are Subprime First Mortgages or Prime/Agency Second Mortgages. When a Borrower closes a First Mortgage, the loan is closed either as a Short Pay or with Odd Day’s Interest added to the Prepaid section of the Closing Disclosure. Either way, the First Mortgage begins on the 1st of the month. Subprime First Mortgages, however, generally schedule the first payment Due In 30, (30 days after the closing). Generally, all Second Mortgages are Due In 30, but, there is nothing that prevents a Second Mortgage Lender from closing a Second Mortgage with Odd Day’s Interest so that it begins on the 1st of the month.

Related terms: Prime, Agency, Prepaid, Odd Day’s Interest, First Mortgage, Second Mortgage, Subprime.

DUPLEX

A two-family property. Sometimes, Duplexes, Triplexes and Fourplexes are just as easy to Purchase as a Single Family Residence. See how in the HomeStart Specialty Tutorial, “Buying Multifamily Housing - Becoming a Landlord in One Easy Step”.

Related terms: Purchase, Single Family Residence, MultiFamily Housing, Triplex, Fourplex.

DURABILITY

Land characteristic. Because no mater what is done to land, it is still land, it is durable.

Related terms: Heterogeniety, Non-homogeneous, Immobility, Indestrubitble

DU REFI PLUS

A Fannie Mae program that, during the height of the Deep Recession, allowed an existing Fannie Mae loan to be refinanced above 80% Loan To Value either without Mortgage Insurance, or without re-qualifying for Mortgage Insurance.

Additionally, this product allowed for higher than normal Loan To Values and Combined Loan To Values than most Mortgage products. This product was intended to make it easier for Borrowers to Refinance and take advantage of lower Rates even if the value of their home had decreased since they bought the home or last Refinanced. Depending upon the Lender, DU Refi Plus loans could be up to 125% of the property’s actual value.

Borrowers whose current loan did not have Mortgage Insurance benefited from a DU Refi Plus loan by refinancing with any Lender who offered the program (sold to Fannie Mae). The new loan, even if above 80% LTV, had no Mortgage Insurance and did not require an escrow account since the 80% LTV of the original loan was respected. This term is taught only because during the Obama administration, faced with a collapsing housing market, GSEs became not only government sponsored buy government owned in order to keep them solvent. Since the Department of Housing & Urban Development now had outright ownership of Fannie Mae, it sought to use a series of Mortgage products to keep the housing market afloat and to inject liquidity into the consumer spending portion of the economy by lowering the mortgage payments of hundreds of thousands of American homeowners whose home values had collapsed. DU Refi Plus as a mortgage product demonstrates the power of mortgaging and the use of mortgage product creativity in literally saving many homeowners from being unable to Refinance due to forces beyond their control, struggling to make Mortgage Payments and increasing the likelihood of foreclosure or going into Foreclosure altogether.

Related terms: Conventional, Mortgage Insurance, Loan To Value, Combined Loan To Value, FNMA, GSE.

E

EARNEST MONEY

The good faith funds that are tendered from the Borrower to either the Title/Escrow Company, a Closing Attorney, the Real Estate Agency selling the home or the builder in order to secure a Contract on a property. These funds are credited toward the Down Payment at Closing. This is also referred to as the Deposit.

Related terms: Title/Escrow Company, New Home, Down Payment.

EASEMENT

A right held by a party that is not the property owner for a limited purpose. Examples would be a power company having a Public Utility Easement across the corner of a lot, or a neighbor having a right of ingress/egress in a shared driveway, or a municipality setting forth Building Lines.

Related terms: Public Utility Easement, Survey, Building Lines, Setback.

EARNINGS PER SHARE

The Net Income of a business divided by the number of shares outstanding. Earnings Per Share is calculated on a fiscal annual basis.

Related terms: C-Corporation.

EDUCATION STANDARDS ADVISORY COMMITTEE (ESAE)

Committee established by a state real estate commission to ensure that real estate agents are well-trained, complying with the law, continuing their education and have an understanding of their limitations and responsibilities in their real estate practice. This committee is made up of real estate agents practicing for a minimum number of years, real estate education professionals and members of the public. The composition of this committee differs from state to state.

Related terms: Real Estate Agent, Real Estate Commission

EGRESS

Right and ability to leave or exit something, such as an egress window or egress out of one lot by passing over another.

Related terms: Ingress, Survey.

EIGHTH

Mortgage Rate/price increment. In Mortgaging, most Interest Rates are done in 1/8 increments. Therefore,

1 percent is broken down into eight pieces. One Eighth is 0.125%, Two Eighths is a quarter (0.25%), Three Eighths is 0.375%, Four Eighths is a half (0.5%), Five Eighths is 0.625%, Six Eighths is three quarters (0.75%), Seven Eighths is 0.875%, and Eight Eighths is 1.

Related terms: Rate, Pricing.

EIGHTY-FIFTEEN-FIVE

Combo Loan (First Mortgage and Second Mortgage) where the Combined Loan To Value does not exceed 95%. An 80-15-5 usually consists of an 80% First Mortgage and a 15% Second Mortgage, with another 5% either as existing Equity (on a Refinance) or the Down Payment (on a Purchase). See the HomeStart Specialty Tutorials, ”How and Why To Do a Combo Loan”, “Do-It-Yourself Mortgage” and “Tailor the Mortgage Yourself and Save Thousands - ”.

Related terms: Combo Loan, First Mortgage, Second Mortgage, PMI, MI, Loan To Value, Combined Loan To Value.

EIGHTY-TEN-TEN

Combo Loan (First Mortgage and Second Mortgage) where the Combined Loan To Value does not exceed 90%. An 80-10-10 usually consists of an 80% First Mortgage and a 10% Second Mortgage, with another 10% either as existing Equity (on a Refinance) or the Down Payment (on a Purchase). See the HomeStart Specialty Tutorials, “How and Why To Do a Combo Loan”, “Do-It-Yourself Mortgage” and “Tailor the Mortgage Yourself and Save Thousands - ”.

Related terms: Combo Loan, First Mortgage, Second Mortgage, PMI, MI, Loan To Value, Combined Loan To Value.

EIGHTY-TWENTY

Combo Loan (First Mortgage and Second Mortgage) where the Combined Loan To Value does not exceed 100%. An Eighty-Twenty usually consists of an 80% First Mortgage and a 20% Second Mortgage requiring no Down Payment (on a Purchase) or Equity (on a Refinance). See the HomeStart Specialty Tutorials, “How and Why To Do a Combo Loan”, “Do-It-Yourself Mortgage” and “Tailor the Mortgage Yourself and Save Thousands - ”.

Related terms: Combo Loan, First Mortgage, Second Mortgage, PMI, MI, Loan To Value, Combined Loan To Value.

ELEVATION CERTIFICATE

Certificate of altitude measurements that states how high above sea level a property is. Generally, only properties found to be in Federal Emergency Management Administration (FEMA) Flood Zones get Elevation Certificates. The elevation of a property in a Flood Zone is important because it affects the cost of the Flood Insurance required on the property (the higher the altitude the lower the Flood Insurance premium).

Related terms: Flood Zone, Flood Certificate.

ENHANCED DESK REVIEW

Review of an Appraisal by an independent Appraiser who verifies the strength of the Appraisal, including reseaching Sales Comps and either agreeing or disagreeing on the value of the property.

Related terms: Appraiser, Appraise, Appraisal, Sales Comp.

EQUAL CREDIT OPPORTUNITY ACT (ECOA) DISCLOSURE

Loan Application Disclosure that states that Mortgage Lenders do not discriminate against a Borrower based on any criteria other than the ability to repay the loan. This includes race, color, religion, national origin, sex, marital status, age (provided the Applicant has the capacity to enter into a binding contract), use of public assistance and if the Applicant has exercised any right under the Consumer Credit Protection Act. Regrettably, sexual orientation, gender expression and gender identification are not protected with regard to the extension of credit under the ECOA.

Related terms: Housing Financial Discrimination Act of 1977 Fair Lending Notice.

EQUIFAX

One of the three largest Credit Bureaus (or Repositories) in the United States. Experian gives Credit Reports a Credit Score called a FICO. See the HomeStart Specialty Tutorials, “Understanding Credit and Credit Scores”, “How to Manipulate Your Credit Score Higher” and “How to Instantly Build Credit when You Have None”.

Related terms: Credit Report, Credit Score, Experian, Trans Union.

EQUITY

The amount of value in real property that is not encumbered. For example, if a property is worth $400,000 and there is a Mortgage Lien on the property of $300,000 then the owner has $100,000 in Equity. See the HomeStart Specialty Tutorial, 'Equity Investing” for more information.

Related terms: Lien, Mortgage.

EQUITY INVESTING

Taking Equity out of a home to use it as Principle in another investment. See the HomeStart Specialty Tutorial, “Equity Investing” for more information.

Related terms: Equity, Refinance, Cash Out.

ESCROW

The period of time in which a Contract of Sale (in Escrow states) waits until the financial side of the transaction can be Signed, Funded, Recorded and Closed. The terms “opening Escrow” and “closing Escrow” are used to signify the beginning and end of this process.

Related terms: Title/Escrow Company, Deposit, Earnest Money, Option Period, Option Fee, Closing, Funding.

ESCROW COMPANY

Company that handles Real Estate transactions in states that require Escrow supervision. An Escrow Company will then rely on a Title Company to provide them with a Title Commitment in order to Close. Many states do not have the Escrow requirement and in those states, Title Companies both supervise the Real Estate transactions and provide the Title Commitments.

Related terms: Real Estate, Escrow, Title.

ESCROW ACCOUNT (ESCROWS/IMPOUNDS)

Property Tax and Homeowner’s Insurance reserves kept in a non-interest bearing account. Also referred to as Impounds. Loans made up of First Mortgage Liens with a Loan To Value of more than 80% of the Appraised Value (on Refinances) or the lower of the Purchase Price or the Appraised Value (on Purchases) require Escrows. All FHA and VA loans require Escrows. Escrows (or Escrow accounts) are established at the Closing when Reserves are collected to be placed into the account. Then, monthly, the Borrower adds to the Escrow account by making his/her payment (since 1/12th of the Property Taxes and 1/12th of the Homeowner’s Insurance premium are included in each payment). When Property Taxes then become due, the Lender will receive a notice from the Subject Property’s Tax Appraisal District and the bill will be paid by the Escrow account. Similarly, on the anniversary of the Closing, a bill for the Homeowner’s Insurance premium will be sent to the Lender by the Homeowner’s Insurance company and the Escrow account will pay it.

Some loans (80% or lower Loan To Value loans and Combo Loan First Mortgages) afford the Borrower the option as to whether or not the loan will have Escrows. If the Borrower still wants an Escrow account, the appropriate Reserves will be required from the Borrower at Closing (if a Refinance, these can be rolled into the loan, just like Closing Costs); however, if the Borrower does not want an Escrow account (and wishes to pay the Homeowner’s Insurance premium and the Property Tax bill separately when they come due), the Borrower is asking to Waive Escrows. See the HomeStart Specialty Tutorials “Pros and Cons of Waiving Escrows” and “How and Why To Do a Combo Loan”.

Related terms: Property Taxes, Homeowner’s Insurance, Tax Appraisal District, Loan To Value, First Mortgage, Second Mortgage, Purchase Price, Reserves, Closing, Closing Costs, Waive Escrows.

ESCROW WAIVER

Paying your own Property Taxes and Homeowner’s Insurance. Some loans (80% or lower Loan To Value loans and Combo Loan First Mortgages) afford the Borrower the option as to whether or not the loan will have Escrows. If the Borrower still wants an Escrow account, the appropriate Reserves will be required from the Borrower at Closing (if a Refinance, these can be rolled into the loan, just like Closing Costs). If the Borrower does not want an Escrow account (and wishes to pay the Homeowner’s Insurance premium and the Property Tax bill separately when they come due), the Borrower is asking to Waive Escrows. Often, Escrow Waiver is not permitted on Section 34 and Section 35 loans.

Provided a Borrower demonstrates reasonable responsibility in handling finances, especially Open Ended Accounts and/or paying Property Taxes appropriately with a prior Mortgage with Escrow Waiver, then having an Escrow Waiver on a new Mortgage is often a wise financial decision. See the HomeStart Specialty Tutorials, “Pros and Cons of Waiving Escrows” and “How and Why To Do a Combo Loan”.

Related terms: Property Tax, Homeowner’s Insurance, Tax Appraisal District, Tax Appraised Value, Loan To Value, First Mortgage, Second Mortgage, Reserves, Closing, Closing Costs.

EXEMPTION

Tax Appraisal District tax break. Filing an Exemption (Homestead Exemption, Over 65 Exemption, Disabled Veteran Exemption) in most states lowers the overall Property Tax bill.

Related terms: Property Taxes.

EXPERIAN

One of the three largest Credit Bureaus (or Repositories) in the United States. Experian gives Credit Reports a Credit Score called a FICO. See the HomeStart Specialty Tutorials, “Understanding Credit and Credit Scores”, “How to Manipulate Your Credit Score Higher” and “How to Instantly Build Credit when You Have None”.

Related terms: Credit Report, Credit Score, Equifax, Trans Union.

F

FAIR MARKET VALUE

The Appraised Value of the property or (more loosely) the price for which a property sells on the open market. This should not be confused with the Tax Appraised Value, assigned by a county’s Tax Appraisal District, which is usually lower.

Related terms: Appraisal, Appraiser, Appraise, Tax Appraised Value, Tax Appraisal District.

FANNIE MAE

The Federal National Mortgage Association (FNMA), the largest purchaser and servicer of loans in the United States. More information on FNMA can be found at: http://www.fanniemae.com/kb/index?page=home.

Related terms: Freddie Mac, Desktop Underwriter, Overlay, DU Refi Plus.

FEES WORKSHEET

List of all Points, fees and charges on a Mortgage loan. This includes all Closing Costs and Prepaid Items.

Related terms: Loan Estimate, Loan Application.

FHA

Federal Housing Administration. The FHA was created in 1934 to offer home ownership opportunities to Americans with non-traditional loan qualifying characteristics. These characteristics include Income, employment, credit, time in the workforce, Liquid Assets and Down Payment. These are pertinent to both Purchases and Refinances. Highlights of the FHA program are:

• FHA Purchase loans are for Owner Occupied properties only;

• Two loan amounts exist on FHA loans: the Base Loan Amount (the amount of the loan before the Government insurance premium is added on) and the Final Loan Amount (the loan amount after the Government insurance premium is added on);

• Gift Funds (using a Gift Letter and proof of the grantor’s ability to make the Gift) for all or part of the Down Payment, all or part of the Closing Costs and all or part of the Prepaid items on the loan, are allowed;

• The minimum Down Payment on a Purchase is 3.5%. Loan To Value ratios (on the Base Loan Amount), therefore, can be as high as 96.5%. The worse the credit is, the greater the likelihood that Loan To Value will be limited. This is especially true following a Bankruptcy;

• A Borrower is eligible for a FHA loan with a Chapter 7 Bankruptcy on their Credit Report that has been Discharged for not less than 12 months (with extenuating circumstances beyond the control of the Borrower that were the reason for the Bankruptcy) or for not less than 24 months (without extenuating circumstances). In either case however, credit must have been re-established with at least four, new, perfectly-paid Trade Lines in existence for at least 12 months;

• A Borrower is eligible for a FHA loan with a Chapter 13 Bankruptcy on their Credit Report that has been successfully paid for not less than 12 months;

• Down Payment Assistance funds are allowed for the Down Payment, Closing Costs and Prepaids on the loan;

• Work Assistance Down Payment funds are allowed, without taxes withheld by the employer;

• FHA loans can be electronically underwritten using Desktop Underwriter/Loan Product Advisor when approvability is questionable or when the Debt To Income Ratios are outside the established Guidelines. There are some Lenders who will actually do a Manual Underwrite on an Automated Underwriting Refer/Eligible Finding. All HomeStart-certified Brokers and Bankers have access to at least one Lender that will do Manual Underwriting;

• Manual Underwrites are based solely on Underwriter Discretion following Refer/Eligible AUS Findings. Wholesalers exist that allow us to do an Agency FHA loan down to a 600 Credit Score. Manual Underwrites must have strong Compensating Factors.

• Sometimes the difference between a Declination and a Conditional Approval is so slight that verifying the monthly Homeowner’s Insurance figure and current Property Taxes can mean the difference. Some underwriters use standard formulas for Property Taxes and Homeowner’s Insurance that are unnecessarily high. Adjusting these numbers based on the Tax Certificate and the Homeowner’s Insurance binder can achieve Loan Approval;

• A CoBorrower whose relationship to the property is Non-Owner Occupied is permitted on the loan. These CoBorrowers are referred to as Non-Resident CoBorrowers. A non-Resident CoBorrower that is contributing to the transaction is not considered giving any Gift Funds, but instead may be the source of the Down Payment, the source of the funds for Closing Costs, etc. because he/she is actually a Borrower on the loan. Non-Resident CoBorrowers can also be the recipient of Gift Funds. Non-Resident CoBorrowers generally must be family members, however unrelated individuals who can document evidence of a family-type, long-standing and substantial relationship can be considered Non-Resident CoBorrowers as well. These types of individuals can include employers, close friends, godparents, mentors, coaches, domestic partners, etc;

• Seller Contributions toward Closing Costs are allowed up to six percent of the Purchase Price of the property. These contributions can pay for all Closing Costs and all Prepaid items but may not reduce the amount of the Down Payment. If all the Seller Concessions are not required based on the final charges of the loan, the Seller must retain the un-applied portion of the contributions as proceeds from the sale. However, this can be avoided by using the extra Seller Concessions in Discount and lowering the Rate, which would be the strategy of all HomeStart-certified Brokers and Bankers;

• Collections, repossessions and Charge Offs on the Credit Report do not have to be paid in order to achieve Loan Approval or Clear To Close, provided they do not threaten the first Lien position of the FHA loan and provided they do not, in the aggregate, exceed $1,000.00 on the Credit Report. This, however, assumes that the loan received an Automated Underwriting Approval. If Collections, repossessions and Charge Offs do exceed, in the aggregate, a sum of $1,000.00 then either the AUS or Underwriter Discretion If the loan must be Manually Underwritten, it is the underwriter’s discretion as to whether or not such items must be paid off based on overall risk;

• A Borrower currently in a Credit Card Counseling Services or similar program is eligible for a FHA loan provided that the involvement in counseling program has been taking place for at least 12 months, the payment history on the debts has been perfect and the counseling program entity approves the total PITI on the new loan;

• A Borrower with a prior Foreclosure is also eligible for an FHA loan, provided a full three year period has passed since the Foreclosure was finalized; however, if the Foreclosure was a result of a documented extenuating circumstance(s) that were beyond the control of the Borrower and the Borrower has re-established good credit since the Foreclosure, an exception may be granted to the three year-post foreclosure requirement. Serious illness, disability or death of a wage earner would be considered extenuating circumstances beyond the control of the Borrower;

• Student loans may no longer be eliminated from debt ratios. If there is no payment on the credit report, 5.00% of the balance is considered the “payment” for that Line Item on the credit report whether it is current, past due, deferred or in forbearance;

• Borrowers with time in the workforce under two years are sometimes acceptable provided there is a reasonable explanation for the lack of work history (disability, incarceration, previously a homemaker, illness, etc.) and provided the Borrower can demonstrate a two-year work history prior to the absence from the work force. Lenders who dispute the allowability of limited work force when determining effective income should be referred to the 4000.1, Section 2: Effective Income, subsection 2-6;

• Housing pay and other non-conventional pay is often considered Income;

• Non-resident aliens with work visas who intend to purchase their Primary Residence are acceptable candidates for FHA loans;

• Escrow accounts for Property Taxes and Homeowner’s Insurance are mandated on all FHA loans;

• FHA Base Loan Amounts are limited by the county in which the Subject Property is located. The Base Loan is the loan amount after the Down Payment is subtracted but before any financed Mortgage Insurance Premium is added;

• Down Payment funds that can neither be Sourced nor Seasoned can still be used provided the Borrower can show a budget that has created Cash Saved At Home. This guideline is for people who do not have checking, savings or other Liquid Assets accounts;

• Reserves are not required following the Closing of the transaction, whether it is a Purchase or a Refinance;

• It is important to follow the chart below in order to determine the Upfront MIP and Monthly MI because it is different based on LTV, whether or not the loan has a prior Case Number and the date of that Case Number as well as the term of the loan, if it’s a High Balance loan or if it is a Streamline Refinance;

• FHA loans also have an Upfront MIP of 1.75% of the Loan Amount (in all cases) that is added to the loan amount (and therefore almost completely financed) in addition to monthly Mortgage Insurance. Streamline Refinances have Upfront MIP of only 0.01%; and

• Mortgage Insurance (Monthly MI) is collected in the Mortgage Payment on the FHA loan on a monthly basis and continually gets lower each year (since it is re-assessed annually based on the Principle Owing). Monthly MI automatically goes away per the following rule: FHA Mortgages with Terms greater than 15 years will continue to require monthly Mortgage Insurance until such time as the loan balance equals 78% (of either the original loan amount or origination Appraisal, whichever is less) provided the Borrower has paid monthly Mortgage Insurance for at least five years. FHA Mortgages with terms of 15 years or less will require monthly Mortgage Insurance until such time as the loan balance equals 78% (of either the original loan amount or origination Appraisal, whichever is less) regardless of how long the Borrower has been paying monthly Mortgage Insurance. The amount of monthly Mortgage Insurance is based on the following chart:

More information on the FHA can be found at: http://www.hud.gov/offices/hsg/fhahistory.cfm.

Related terms: VA, Fannie Mae, Freddie Mac, Down Payment Assistance, Work Assistance, MIP.

FICO

Credit Score. FICO is used as a catch-all term to mean Credit Score, as in “my FICO is 700”. Even though the first two letters of FICO stand for Fair Isaac (the Experian score) it has become a term in Mortgaging to represent all three of the Credit Scores that exist. For example, you might say, “His middle FICO is 650.” Taken literally, this sentence doesn’t make sense, because there are not multiple FICO scores. In reality, there are three scores - the FICO (Experian), the Beacon (Equifax) and the Empirica (or New Empirica) which is the Trans Union score; however, when someone says “His middle FICO is 650”, the person means that the middle of his FICO, Beacon and Empirica scores (throwing out the high and the low) is a 650, which could be the score of any one of the three Credit Bureaus (or Repositories). See the HomeStart Specialty Tutorials, “Understanding Credit and Credit Scores”, “How to Manipulate Your Credit Score Higher” and “How to Instantly Build Credit when You Have None”.

Related terms: Credit Score, Credit Report, Experian, Equifax, Trans Union, Credit Bureaus, Repository.

FIELD NOTES

Actual notes from a surveyor usually as part of a Metes & Bounds Survey.

Related terms: Survey, Subdivision, Lot/Block, Metes & Bounds.

FIELD REVIEW

Another word for complete Appraisal. This is only called a Field Review because it is ordered as a review of the original Appraisal received by the Lender. The call for a Field Review generally means that the Underwriter is concerned that the Appraisal is somehow lacking in substantiation for the Appraised Value assigned.

Related terms: Appraisal, Appraise, Desk Review, Enhanced Desk Review, Drive By.

FINAL DRAW

The last draw from a Custom Builder. The Final Draw may be requested, but is usually not released until a number of things have been done. These are:

• Final Title work has been received;

• A Final Survey has been shot (done) and drafted (drawn);

• An All Bills Paid Affidavit has been executed by the Builder;

• The Appraiser has performed a Recertification Of Value (to make sure that the property was built such that it has the same value as was determined in the first, Subject To Appraisal; and

• A Final Inspection has been performed by an Inspector.

See the HomeStart Specialty Tutorial, “How to Do a Construction Project”.

Related terms: Custom Builder, Construction Loan, Draw, Survey, Recertification Of Value, Subject To, Appraisal, All Bills Paid Affidavit, Final Inspection.

FINAL INSPECTION

The last Inspection by the governing municipality to verify that construction is complete and to grant a Certificate of Occupancy (if they are used in that municipality). Final Inspection can also be used to describe an additional visit to the property by the Appraiser to either confirm that repairs were made or to confirm that all construction has been completed. This is called a 1004D. With Construction Loans, the Final Inspection by an Appraiser also includes a Recertification of Value, since construction takes so long to complete (usually a year or more). See the HomeStart Specialty Tutorial “How to Do a Construction Project”.

Related terms: Inspection, Draw, Final Draw, Recertification of Value, Final Survey, Appraiser, Certificate of Occupancy.

FINAL LOAN AMOUNT

See Loan Amount With MIP.

Related terms: FHA, MIP.

FINAL SURVEY

Survey at the end of a Construction Loan. Since the house, other structures, pavements, driveways, walkways, pools, etc. were not in existence when the Form Survey was performed, a Construction Loan requires a Final Survey to insure that all Public Utility Easements and Building Lines/Setbacks have been honored and that the property has not encroached onto them. See the HomeStart Specialty Tutorial, “How to Do a Construction Project”.

Related terms: Construction Loan, Form Survey.

FINDINGS

Results of a Desktop Underwriter or Loan Product Advisor following Mortgage profile characteristics and putting data into the Automated Underwriting engine.

Related terms: Desktop Underwriter, Loan Product Advisor, Front Ratio, Back Ratio.

FIRST MORTGAGE

A Mortgage in first Lien position on the property.

Related terms: Mortgage, Second Mortgage, Lien.

FIRST TIME HOME BUYER

A home buyer who has either never owned Real Estate or who has not owned Real Estate in the last three years.

Related terms: Buyer.

FIX & FLIP

A Mortgage for an investment property that allows for the property to be modified, knowing the borrower will then proceed to sell it.

Related terms: Investment Property.

FIXED

A Mortgage Rate that never changes. A “30 year Fixed” means that the Rate is constant over the 30 years of repayment.

Related terms: Mortgage, Rate, Interest, Amortization, Adjustable Rate Mortgage.

FIXED INCOME

Income that is based solely on Social Security Income, Pension Income or Annuity Income.

Related terms: Income, Social Security Income, Pension, Annuity, Grossed Up.

FIXED PERIOD

Portion of an Adjustable Rate Mortgage Term that has a Fixed Rate.

Related terms: Index, Margin, Floor, Initial Cap, Periodic Cap, Lifetime Cap, Period.

FIXED RATE MORTGAGE

A Mortgage loan with a static Interest Rate for the entire Term of the loan, that can only be changed by a Loan Modification.

Related terms: Mortgage, Fixed, Rate, Term, Loan Modification, Amortization, Adjustable Rate Mortgage.

FIXER-UPPER

Property that needs considerable remodeling, updating, renovation or the addition of square footage.

Fixer-Uppers in which a person cannot live while the improvements occur often must be purchased as Investment Properties. However, loan programs do exist (usually Construction Loans) that allow the Borrower to purchase the house as an Owner Occupied home even though the Borrower will not live in the house for some time. Usually these loans include funds for both the Purchase of the home and the Interim Financing (less any applicable Down Payment). See the HomeStart Specialty Tutorial, “How to Do a Construction Project”.

Related terms: Renovation, Remodel, Rehab, Construction Loan, Interim Financing, Owner Occupied, Investment Property.

FLOAT

When a loan is registered with a Lender, but the Interest Rate is not yet Locked.

Related terms: Interest Rate, Float Down, Lock.

FLOAT DOWN

A Locked Interest Rate that can be lowered once, prior to Closing. When the Borrower’s Broker or Mortgage Banker/Retail Banker locks an Interest Rate with a Float Down option, the Borrower may pay an upfront fee at the time of the Lock to exercise the Float Down option later on. In a Float Down, the Borrower is permanently attached to the Lender (because they paid to be), and in exchange, the Lender will allow the Borrower to exercise a one time option where, if Rates improve between the Lock date and a few days prior to Closing, the Borrower may alter his/her Interest Rate to a lower Rate at no additional charge. The upfront fee is applied to Closing.

Related terms: Lock, Interest Rate, Closing.

FLOOD CERTIFICATE

Determination of whether or not the physical structure on the Subject Property is within a Flood Zone, either completely or partially.

Related terms: Flood Zone, Flood Insurance.

FLOOD DISASTER PROTECTION ACT OF 1973

Loan Application Disclosure that states that if the Subject Property is found to be in a Federal Emergency Management Administration (FEMA) Flood Zone, the Subject Property will have to have Flood Insurance.

Related terms: Flood Zone, Flood Insurance, Flood Certificate, Loan Application.

FLOOD HAZARD AREA

Flood Zone.

Related terms: Flood Certificate, Flood Insurance, Flood Distaster Protection Act of 1973.

FLOOD INSURANCE

Federal insurance policy specifically for losses associated with a flood. Flood Insurance is only required if any portion of the structure of a property is found to be in a Federal Emergency Management Administration (FEMA) designated Flood Zone. The cost of the Flood Insurance is then based, in part, on the elevation of the structure.

Related terms: Flood Zone, Flood Certificate, Elevation Certificate.

FLOOD ZONE

A physical area determined by the Federal Emergency Management Administration (FEMA) to be prone to flooding.

Related terms: Flood Certificate, Flood Insurance, Elevation Certificate.

FLOOR

The lowest Interest Rate to which an Adjustable Rate Mortgage Rate may fall, set at the origination of the loan, based on the Lender’s Adjustable Rate Mortgage product.

Related terms: Adjustable Rate Mortgage, Index, Margin, Period, Initial Cap, Periodic Cap, Lifetime Cap.

FOOTPRINT

The outline of the physical structure of a building or complete lack thereof. At the end of construction of a home onto a piece of land, a new Survey is required because the Footprint has changed (a home is now present) on the land. See the HomeStart Specialty Tutorial, “How to Do a Construction Project”.

Related terms: Construction Loan, Land Survey, Form Survey, Final Survey.

FORCE PLACED INSURANCE

Insurance binder and premium forced onto a loan because the Borrower has failed to keep a Homeowner’s Insurance policy in force on the Subject Property.

Related terms: Collateral, Collateral Protection Letter, Homeowner’s Insurance.

FORECLOSURE

The legal seizure of a property pursuant to the terms of the Deed of Trust or other security instrument. Each state sets certain parameters that must be followed in order to Foreclose on a property. If a Borrower is facing Foreclosure, it is usually because he/she has not made Mortgage Payments in many months (though there are other reasons like keeping hazardous materials on the property, turning the property into a commercial concern, giving or selling part of title, etc.). The first indication of a Lender’s intention to Foreclose is the receipt of a Cure Letter that states that the Borrower has 30 days to cure the Mortgage and the exact amount (to the penny) that must be received by the Lender in order to cure the Default. Following this 30 day period, the Lender then has to inform the Borrower of the intent to Foreclose and the timeframes set down by the state begin. It is important that a Borrower knows that once he/she is behind on the Mortgage, it is considerably more difficult to Refinance the property. Therefore, if the Borrower foresees that a Mortgage Payment cannot be made, the Borrower should immediately consult a HomeStart-certified Broker or Banker to see if there is any way to Refinance the property to minimize the payment before the first payment is missed. If this happens, not only is it possible that the Borrower might be able to acquire a lower payment by virtue of the Refinance but the Borrower will also skip one to two Mortgage Payments (without negative effect) by doing the Refinance. This may very possibly take a potential Foreclosure and turn it into a period of relief for the Borrower. See the HomeStart Specialty Tutorials, “How to Skip Two Mortgage Payments”.

Related terms: Default, Deed Of Trust, Note.

FORGIVABLE

A loan that does not have to be paid back and is ultimately removed from Title over time. Down Payment Assistance loans are usually Forgivible Second Mortgages.

Related terms: Down Payment Assistance, Second Mortgage.

FORGIVENESS

The act of eliminating or not requiring the payback of a Borrower’s loan or portion thereof.

Related terms: Down Payment Assistance, Forgivable, Second Mortgage.

FORM SURVEY

Survey of the property at the stage of setting the forms for a foundation to be poured. This ensures that all Public Utility Easements and Building Lines/Setbacks have been honored and that the foundation, once poured, will not encroach onto them. See the HomeStart Specialty Tutorial, “How to Do a Construction Project”.

Related terms: Construction Loan, Land Survey, Final Survey, Public Utility Easement, Setback, Building Lines.

FOR SALE BY OWNER (FSBO)

Placing Real Estate on the market for sale without the use of a Real Estate Agent. See the HomeStart Specialty Tutorial, “For Sale By Owner” as to how to do this with the highest likelihood of a sale.

Related terms: Realtor, Listing.

FOURPLEX

A four-family property. See the HomeStart Specialty Tutorial, “Buying Multifamily Housing - Becoming a Landlord in One Easy Step”.

Related terms: Duplex, Triplex.

FREDDIE MAC

The Federal Home Loan Mortgage Corporation (FHLMC), the second largest purchaser and servicer of loans in the United States. More information on Freddie Mac can be found at: http://www.freddiemac.com.

Related terms: Fannie Mae, Servicing, Loan Product Advisor, Open Access.

FREE & CLEAR

Without incumbrance or obligation. When something is owned completely without a loan against it.

Related terms: Lien, Mortgage, Title.

FRONT

Charges paid by the Borrower, Seller, Broker, Banker or Real Estate Agent. In a Mortgage transaction there is a Front and a Back to a loan. The Front of the loan is the fees and Points charged to the Borrower. Brokers and Wholesale/Retail Bankers make Commissions off of the Front of the loan. Beginning on April 1, 2011, the Borrower needs to choose whether or not he/she wants the compensation on a loan to come from the Front or the Back. If they choose the Front, then all of the Broker’s or Banker’s Commission will come from Origination Points, Discount Points and fees charged.

Related terms: Back, Origination Charge, Discount, Points.

FRONT RATIO

Housing Expense divided by Gross Income (W2) or by Net Income (Self-Employed). Front Ratios generally should not exceed the following limits; however, strong Mortgage profiles (excellent credit, low Loan To Value, high Liquid Assets) can be run on an Automated Underwriting engine to see if the following general limits can be exceeded:

• 28% on Conventional, good credit loans;

• 29% for Government loans;

• 33% for Prime, Jumbo loans; and

• 35% for Prime (good or excellent credit), Conventional loans using Non-Resident CoBorrowers (CoBorrowers who will not live in the property which is the subject of the loan). This is 35% based on the Borrower’s Income only. The income of the Non-Resident CoBorrower on a Conventional, Prime loan can only be used to lower the Back Ratio, i.e. the Borrower alone must still have a Front Ratio of 35% or less.

See the HomeStart Specialty Tutorials, “Do-It-Yourself Mortgage” and “Tailor the Mortgage Yourself and Save Thousands - ”.

Related terms: Prime, Agency, Conventional, Government, Conforming, Jumbo, W2, Self-Employed, Non-Resident CoBorrower.

FULL DOC

Documentation type where all aspects of the Mortgage file are declared on the Uniform Residential Loan Application and all aspects of the Mortgage file are verified.

Related terms: Income, Income Tax Return, W2, Liquid Assets, Credit Report, Credit Score.

FULL REVIEW

Finding from an Automated Underwriting program with regard to a Condo. If Full Review Findings are received, then the Condo loan is not eligible, based on loan characteristics, for exclusion from the standard Fannie Mae Condo Questionnaire. The Full Review Condo Questionnaire contains more questions than the Limited Review Condo Questionnaire and therefore has more requirements to qualify for a Mortgage when it is filled out by the Homeowners Association of the Condo’s complex.

Whether a Condo receives a Full Review or a Limited Review, the following must be true:

For new Condo complexes:

• At least 90% of the units must be sold;

• All phases of construction must be completed;

• The Homeowners Association must have been under the control of the homeowners; and

• Owner Occupied and Second Home units must make up at least 70% of the units sold in the complex (not per building or per phase but for the entire complex). If any of these three items is not met, then the Condo complex is Non-Warrantable.

For established Condo complexes:

• At least 90% of the units must be sold;

• All phases of construction must be completed;

• The Homeowners Association must have been under the control of the homeowners for at least one year;

• Owner Occupied and Second Home units must make up at least 51% of the units sold in the complex (not per building or per phase but for the entire complex).

• Homeowner’s Association dues cannot be delinquent by more than 15% of the number of sold units; and

• The Homeowner’s Association must have at least 10% of its annual budget in reserves.

If any of these requirements is not met, then the Condo complex is Non-Warrantable. The reason that a Non-Warrantable Condo complex has increased risk is because the unit is not free-standing. Instead, the unit is connected to all the other units. If the Condo complex has a low Owner Occupied and Second Home percentage, this means that the majority of the units in the complex are Investment Properties. When recessions hit, people tend to pay their Owner Occupied and Second Home Mortgages first, which means that Investment properties tend to go into default. If the units of a Condominium complex are in default, then the Homeowners Association dues on those units are also not being paid. Thus, the coffers that keep the entire Condominium complex maintained will be bare and the complex itself may fall into disrepair, damaging the value of all the units.

On FHA and VA loans, Warrantability is not determined. Instead, a Condo complex must be “FHA Approved” or “VA Approved” prior to the transaction in order to do a Mortgage on the unit. Condominiums, regardless of their Loan To Value ratio, do not have monthly Mortgage Insurance on FHA or VA loan.

Related terms: Limited Review, Owner Occupied, Second Home, Automated Underwriting, Condo, Homeowners Association, FHA, VA, Conventional.

FUNCTIONAL OBSOLESCENCE

A characteristic in a home that is odd, inappropriate, obsolete or out of place. These will show up on an Appraisal as Functional Obsolescence. For example, if a living room has a wet bar and over the years, the owner has added a dishwasher, a mini fridge and a stove to it. Well, that’s a kitchen in the middle of a livingroom. Another example might be having two dining rooms side-by-side in an older home (where one used to be the smoking room or the parlor). Another example might be having a full bathroom that is only accessible through the dining room. These are all examples of Functional Obsolescence.

Related terms: Appraisal, Appraise.

FUNDER

Employee of the Lender who verifies that all Closing documents were executed appropriately in order to initiate the electronic wiring of funds and the release of the Funding Number to the Title/Escrow Company.

Related terms: Closing, Funding, Funding Number, Funding Conditions.

FUNDING

Supplying the funds and the access to the funds on a Closed Mortgage loan.

Related terms: Funder, Funding Number, Funding Conditions.

FUNDING CONDITIONS

Stipulations to the Clear To Close Approval for items that must be signed and/or collected by the Closer at the Closing in order for the loan to Fund. These items will need to be verified by the Funder in order for the wire to be sent out and the Funding Number to be released.

Related terms: Funding, Funding Number, Funder, Closing.

FUNDING FEE

Fee added to a VA loan to assist in ensuring the loan. A Funding Fee is non-refundable and ranges from 0.5% (Streamlined VA Refinance) to 1.4%-2.3% (first time Purchase use of VA benefit) to 1.4%-3.6% (subsequent Purchase use of VA benefit). This is based on the following chart.

Related terms: VA, Purchase, Certificate Of Eligibility, DD-214.

FUNDING NUMBER

Number series or “key” that “unlocks” the wired loan funds received by the Title/Escrow Company from the Lender. The Funding Number is released from the Lender to the Title/Escrow Company once all signatures on all necessary Closing documents have been verified and all Funding Conditions have been met.

Related terms: Closing, Funding, Funder, Funding Conditions.

G

GENERAL CONTRACTOR

Custom Builder or home improver. If the General Contractor is a home improver, the home improver must specialize in multiple kinds of construction (flooring, painting, masonry, electrical, plumbing, etc.) such that he/she can supervise and oversee Subcontractors are also referred to as General Contractors. See the HomeStart Specialty Tutorial, “How to Do a Construction Project”.

Related terms: Construction Loan, Interim Financing, Custom Builder, Plans, Specs.

GENERAL LIABILITY INSURANCE

This is an insurance policy held by the Custom Builder’s insurance company that protects the property under construction from liability claims. For example, nosey neighbors almost always walk onto construction sites to see the new house being built in their neighborhood and during construction, the Borrower’s Homeowner’s Insurance policy is not yet in place (because the Collateral has not been finished). Therefore, should a “visitor” to the site slip and fall, there must be liability insurance to protect the Borrower. During construction this is provided by the Custom Builder, unless the Borrower has an Umbrella Policy to be used instead. See the HomeStart Specialty Tutorial, “How to Do a Construction Project”.

Related terms: Custom Builder, Construction Loan, Umbrella Policy.

GIFT

Donation of funds to a Borrower or CoBorrower in order to assist in the Closing of a Mortgage transaction. The person or entity giving the Gift is called the Gift Donor. The Gift Donor may be a relative (Borrower’s or CoBorrower’s spouse, fiancé, domestic partner, child, or other dependent), an employer, or any other individual who is related to the Borrower by blood, marriage, adoption, or legal guardianship. If the Gift Donor is any other person, that person must demonstrate a long-standing and close relationship to either the Borrower or CoBorrower. Examples would be a pastor, mentor, sponsor, close friend, godparent, etc. The Gift Donor may not be, or have any affiliation with, the Tract Builder, the Custom Builder, the developer, the Real Estate Agent, or any other interested party to the transaction. Numerous rules and documentation requirements exist with regard to Gifts. The use of Gift Funds should be disclosed to the Mortgage originator before the Gift Funds are transferred to either the Borrower or CoBorrower. Gift Funds may be used to pay for the Down Payment, Closing Costs or Prepaid Items.

Related terms: Borrower, CoBorrower, Closing, Mortgage, Down Payment, Closing Costs, Gift Donor, Gift Funds, Gift Letter, Gift Documentation.

GIFT CHECK

Actual check that transfers the Gift Funds from the Gift Donor to the recipient (Borrower or CoBorrower).

Related terms: Gift, Gift Donor, Gift Funds, Gift Documentation.

GIFT DOCUMENTATION

Gift Letter (identifying the Gift Donor and that there is no expectation of repayment), proof that the Gift Donor is capable of making the Gift, the Gift Donor’s canceled check or a photocopy of the check itself, a photocopy of the deposit slip showing the Gift Check being deposited into the Borrower or CoBorrower’s account (unless the Gift Check was written directly to the Title/Escrow Company Closing the transaction.

Related terms: Gift, Gift Check, Gift Donor, Gift Letter.

GIFT DONOR

Relative (Borrower’s or CoBorrower’s spouse, fiancé, domestic partner, child, or other dependent), employer or any other individual who is related to the Borrower by blood, marriage, adoption, or legal guardianship. If the Gift Donor is any other person, that person must demonstrate a long-standing and close relationship to either the Borrower or CoBorrower. Examples would be a pastor, mentor, sponsor, close friend, god parent, etc. The Gift Donor may not be, or have any affiliation with, the Tract Builder, Custom Builder, the developer, the Real Estate Agent, or any other interested party to the transaction.

Related terms: Gift Funds, Gift, Gift Letter, Gift Documentation.

GIFT (OF) EQUITY

A Seller’s Gift of Equity or Gift Of Equity in a property. This occurs when, for example, a Seller sells a property for $200,000 and gives the Buyer (who usually is a family member) a Gift from the Equity in their property of $20,000, which acts as the Down Payment for the Buyer. The result would be a 90% Loan To Value Mortgage for the Buyer and no additional Down Payment would be required.

Related terms: Seller, Loan To Value, Non-Arm’s Length.

GIFT FUNDS

Monies being used in a Mortgage transaction that do not belong to either the Borrower or the CoBorrower. A personal Gift from an acceptable Gift Donor may be used only for the purchase of a Principal Residence or a Second Home, provided the loan program permits it (FHA and VA loans and occasionally Conventional loans). Gifts are not allowed for the Purchase of an Investment Property. A Gift may fund all or part of the Down Payment, Closing Costs, or financial Reserves in the transaction. An acceptable Gift Donor is a relative (Borrower’s spouse, fiancé, domestic partner, child, or other dependent), an employer or any other individual who is related to the Borrower by blood, marriage, adoption, or legal guardianship. If the Gift Donor is any other person, that person must demonstrate a long-standing and close relationship to either the Borrower or CoBorrower. Examples would be a pastor, mentor, sponsor, close friend, godparent, etc. The Gift Donor may not be, or have any affiliation with, the Tract Builder, the Custom Builder, the developer, the Real Estate Agent, or any other interested party to the transaction.

The Borrower must provide a Gift Letter awarding the Gift to the Borrower or a copy of the legal agreement that specifies the terms and conditions of the Gift. The document must include language indicating that repayment of the Gift is not expected, and how the funds will be transferred to the Borrower, CoBorrower, Lender, or Closing agent. The transfer of Gift Funds must be documented with a “paper trail” that includes 1) a copy of the Gift Donor’s canceled check; 2) a copy of the Gift Donor’s prior bank statement or signed letter from his/her Retail Banker proving that the Gift Donor’s had the ability to give the Gift, and 3) a copy of the Borrower’s deposit receipt or a copy of the wire transfer into the Borrower’s account.

Related terms: Gift, Gift Documentation, Gift Letter, Gift Check, FHA.

GIFT LETTER

Letter or legal agreement awarding the Gift from the Gift Donor to the recipient. The Gift Letter must include the terms and conditions of the Gift. The Gift Letter must make it clear that repayment of the Gift is neither expected nor required and must indicate how the Gift Funds will be transferred to the Borrower, CoBorrower or to the Title/Escrow Company Closing the transaction.

Related terms: Gift, Gift Donor, Gift Funds, Gift Documentation.

GOODBYE LETTER

Letter of salutation from the Lender from which a Mortgage loan has been sold. In the Goodbye Letter, the new Lender will be identified and a new address will be offered for sending in payments. During the transition of a Mortgage loan from one Lender (seller) to another (buyer), no negative credit reporting may take place on the Mortgage Trade Line during the 60 days following the date of the Goodbye Letter. Because scams do exist, it is HomeStart’s suggestion to follow a Goodbye Letter up with a phone call to the prior Lender. Ask the prior Lender, “to whom was my Mortgage loan sold?” If they answer with the name of the Lender that is mentioned in the Goodbye Letter, then the letter is probably legitimate.

Related terms: Servicing, FCRA.

GOOD FAITH ESTIMATE

List of loan charges and attributes for a Mortgage. A Good Faith Estimate (GFE) is only used for reverse mortgages. The Good Faith Estimate was intended to be used to compare different offers (or quotes) from different loan originators; however, in 2015 when the TILA-RESPA Integrated Disclosure rule went into effect, the GFE was replaced with the Loan Estimate (for all mortgages except reverse mortgages), which is a far better form by which to compare Mortgage offerings.

Related terms: Origination Charge, Discount Points, Closing Costs, Loan Estimate.

GOOD NEIGHBOR LOAN

Loan offered by the Fair Housing Administration that allows a teacher or a first responder to purchase a HUD-owned REO at 50% of the listing price with a $100 down payment.

Related terms: FHA, First Responder.

GOVERNMENT

Area of lending. This area is for FHA, VA, USDA, Reverse Mortgages and other Government insured loans.

Related terms: FHA, VA, USDA, Reverse Mortgage.

GRACE PERIOD

Time period of excused non-payment of a Mortgage. On most loans, there is generally a “Grace Period” for payment. If the payment is received between the 1st and the 15th of the month, it will count as if it were received on or before the 1st. If the payment is received between 16 and 30 days after its due date, a percentage of the Principle and Interest (PI) payment will be charged as a Late Fee, but still no Interest will accrue. This charge is 5% for Conventional loans and 4% for Government loans.

Related terms: Mortgage, Late Fee.

GROSSED UP

Increasing certain Income by a particular margin. For example, non-taxable Social Security Income can be increased to 125% of value, thus it can be Grossed Up by 25% when figuring Income on Government loans. This factor is only 120% for Conventional loans.

Related terms: FHA, VA, Social Security Income.

GROSS INCOME

Income on which taxes are paid for a non-Self-Employed person. The Gross Income for Borrowers receiving a W2 at the end of the year is the Income before any taxes and/or deductions are subtracted. The monthly amount of this income can be used for Qualifying Income. Gross Income for Borrowers who are Self-Employed is taken from their business Income Tax Returns. If they are involved in an S-Corp or Partnership, the Income reported to them on their K-1(s) is the Gross Income. To that amount Depreciation can be added, according to their percentage of ownership in the S-Corp or Partnership. If their business is a Corporation, they will likely receive W-2 Income from the Corporation and the average monthly amount of the current gross W-2 wages paid to them from the Corporation is considered their Gross Income and can be used as Qualifying Income. Also, Depreciation can be added as Income from Pg. 1 of their corporate Income Tax Return. If a Borrower is a Sole Proprietor and files a Schedule C with his/her Income Tax Return, the Gross Income that is considered “taxable income” is the Net Income on Schedule C and a two-year average of this income is considered his/her Gross Income for Qualifying Income purposes. To this average, Depreciation reported on the Schedule C can be added back to increase the Gross Income for Qualifying Income purposes. See Income Analysis.

Related terms: Net Income, W2, K1, Self-Employed, Depreciation, Qualifying Income.

H

HARD PREPAY

A Prepayment Penalty where selling the home (and paying off the loan), doing a Refinance on the loan (and paying off the prior Mortgage) or paying off more than 20% of the Principle balance of the loan in a one year period will trigger a penalty during the period of the loan when the Prepayment Penalty applies. Prepayment Penalties can be applied to a loan for up to the first five years. While the downside to a Prepayment Penalty is obvious, the benefit is usually a lower Interest Rate for the entire Term of the loan. A Hard Prepay usually gets the Borrower a better rate than a Soft Prepay.

Related terms: Interest Rate, Prepayment Penalty.

HARP (HOME AFFORDABLE REFINANCE PROGRAM)

Refinance loan program that allows for unlimited Loan To Value for excellent credit borrowers. Generally, HARP loans allow even moderate credit applicants to Refinance their properties to up to 125% of the value of the property, and the higher the Credit Score, the higher the Loan To Value ratio that is allowed.

Related terms: Refinance, Loan To Value, Credit Score.

HAZARD INSURANCE

See Homeowner’s Insurance.

Related terms: Flood Insurance, Collateral, Collateral Protection Letter.

HAZARD INSURANCE REQUIREMENTS DISCLOSURE

Loan Application Disclosure that informs the Borrower that the property must have Homeowner’s/Hazard Insurance in effect at all times and the minimum requirements necessary for that Homeowner’s/Hazard Insurance policy. This Disclosure has one incorrect statement on it. This is:

• “That the dwelling coverage must be in an amount equal to the loan amount or higher”. This is incorrect. The rule is that the dwelling coverage must be in an amount equal to the Reconstruction Cost on the Cost Approach of the Appraisal or the loan amount, whichever is lower.

Related terms: Homeowner’s Insurance, Hazard Insurance, Reconstruction Cost, Collateral Protection Letter.

HELLO LETTER

Letter of introduction from the Lender to which a Mortgage loan has been sold. In the Hello Letter, the new Lender will be identified and a new address will be offered for sending in payments. During the transition of a Mortgage loan from one Lender (seller) to another (buyer), no negative credit reporting may take place on the Mortgage Trade Line during the 60 days following the date of the Hello Letter. Because scams do exist, it is best to follow a Hello Letter up with a phone call to the prior Lender. Ask the prior Lender, “to whom was my Mortgage loan sold?” If they answer with the name of the Lender that sent the Hello Letter, then the Hello Letter is probably legitimate.

Related terms: Goodbye Letter, Servicing, Service Release Premium.

HELOC

Home Equity Line Of Credit. A HELOC is an Adjustable Rate Mortgage. A HELOC’s Rate adjusts monthly. A HELOC allows the Borrower to access and repay Principle for the duration of the Term on the loan.

Related terms: Second Mortgage, Home Equity Loan, Equity, Line Of Credit, Adjustable Rate Mortgage.

HETEROGENEITY

Land characteristic. Because no two pieces of land are identical, all land has the quality of heterogeneity. Even two lots in a lot/block subdivision that look to be identical and measure to be identical, are still on two different points on the earth. Therefore, those two lots are not, in all respects, the same.

Related terms: Non-homogeneous, Industrible, Durable, Immobility.

HIGH BALANCE

Loan in certain states with higher Conforming loan limits. A loan is High Balance when the amount of a loan exceeds the Conforming loan limit for the majority of states, but because of its geographic location (state and county), it is still considered Conforming. High Balance loans can be originated under Fannie Mae, Freddie Mac, the FHA and the VA.

Related terms: Conforming, Fannie Mae, Freddie Mac, FHA, VA.

HIGH COST MORTGAGE

Loan where costs on the loan or Interest Rate exceed governmental guidelines. See HOEPA (Home Ownership and Equity Protection Act at http://www.ftc.gov/be/v010004.shtm). HOEPA outlaws things like Prepayment Penalties and other loan attributes on High Cost Mortgages. High Cost Mortgages do not always occur simply because a Lender is charging too much. Frequently a small loan amount is the culprit as a $400 Appraisal, for example, is a high percentage of a $40,000 loan. More information on High Cost Mortgages go to: http://www.alliemae.org/section32.html.

HI-RISE

Condominium complex with more than four stories.

Related terms: Condo, Homeowners Association.

HIT

A charge against Yield Spread Premium or Service Release Premium for a loan’s characteristic, such as Credit Score, Loan To Value, loan size, etc.

Related terms: Improvement, Rate Sheet, Rate, Pricing.

HOA

Homeowners Association. Board of homeowners and the Covenants, Conditions & Restrictions of a Subdivision.

Related terms: Condominium.

HOEPA

Home Ownership and Equity Protection Act. This act provides federal protection against lending practices that might adversely affect homeowners and/or the Equity in their homes. More information on HOEPA can be found at: http://www.ftc.gov/be/v010004.shtm.

HOME EQUITY LOAN

A First Mortgage or Second Mortgage that releases Equity from the property. A Home Equity Loan is a loan that either pays off a Borrower’s debts or releases cash to the Borrower. This is not the same thing as a HELOC.

Related terms: First Mortgage, Second Mortgage, Cash Out, Equity.

HOME IMPROVEMENT LOAN

A loan used specifically for improvements to the Subject Property. A Home Improvement Loan is a Lien against the property and can therefore be Refinanced using a Rate/Term Refinance, rather than a Cash Out Refinance.

Related terms: Lien, Mechanic’s Lien, Tax Lien, Rate/Term Refinance, Cash Out.

HOME INSPECTION

A total inspection of a property, including condition, plumbing, electrical, etc. Additionally, a Home Inspection should be conducted on almost all Purchases (except for houses that will be Razed) and should be conducted by an independent Inspector to avoid a conflict of interest. For example, it may be unwise to use the Inspector referred to you by the Real Estate Agent, because that Inspector may feel beholden to the Realtor® for business and may “overlook” something wrong with the house in order to not “kill” the Real Estate Agent’s deal. It can happen. It is best to contact the Mortgage originator for a referral (because the originator cares about the Collateral) or to use an Inspector with whom friends, coworkers or associates have worked. The cost of a Home Inspection is usually paid at the time of service by the Borrower.

Related terms: Inspector, Appraisal, Well, Septic.

HOME OFFICE DEDUCTION

A tax deduction in which you lease a percentage of the total square footage in your house to your business. There are two schools of thought on this: Some think it is better to make the deduction, and others think it absolutely best not to. If you take the deduction, then you must surrendur part of your profit (when you sell the house) to the government, in the same proportion as was the Home Office Deduction. For example, if one room was dedicated to your home office and it was 250 square feet against the total square footage of your home (2,500 square feet) then when you sell the house for say, $500,000, then 1/10th of your profit (let’s say it was $200,000) or $20,000 must go to the government. On the other hand, if you do not want to be obligated to surrendur this portion of your profit upon the sale of the house, do not take the Home Office Deduction. Instead, draw up a contract between yourself and the company for which you work that the company will pay 100% of all your utilities in order for you to work from home.

HOMEOWNER

An individual on the Title of a property.

Related terms: Title, Convey, Homeowner’s Insurance.

HOMEOWNERS ASSOCIATION (HOA)

A duly formed and organized group of Homeowners in a neighborhood or subdivision (or part of a municipality) that runs its own affairs related to the neighborhood, subdivision or part of town. Homeowners Associations regulate lawn length, paint colors, construction styles, yard signs, etc.

Related terms: Condo, Planned Unit Development.

HOMEOWNER’S INSURANCE

Insurance policy to protect from fire, wind or storm damage losses. A Homeowner’s Insurance policy usually runs approximately $50 for every $100,000 in value, however, in some states and municipalities where fires, hurricanes and other natural disasters are prevalent, Homeowner’s Insurance rates can be considerably higher. As with any insurance policy, the higher the deductible, the lower the annual premium; however, the maximum deductible is usually only 1% per Lender guidelines. Homeowner’s Insurance is not Flood Insurance. Flood Insurance is a completely separate policy and is required (by the Lender) if any portion of the physical structure on the Subject Property is in a Flood Zone per the Flood Certificate.

Related terms: Flood Insurance, Flood Zone, Flood Certificate.

HOMEPATH

Fannie Mae Conventional Conforming loan program that allows a Buyer to purchase a Fannie Mae-owned property. These loans require no Appraisal or Mortgage Insurance and offer a low Down Payment as well as flexible Mortgage Terms and excellent Interest Rates. Allowable Seller Contributions are higher than regular Conventional loans.

Related terms: Fannie Mae, Appraisal, Seller Contributions, Down Payment.

HOMESTEAD

Generally a Principle Residence. This is, in most states, a county tax assessor’s designation for a Property Tax reduction. In Texas, a Homestead is defined by a house and up to 10 acres of land.

Related terms: Property Tax, Tax Appraisal District, Exemption.

HOMESTEAD EXEMPTION

Tax Appraisal District tax break. A Homestead Exemption establishes the property as your Owner Occupied residence, which, in some states, limits the amount your Property Taxes may increase each year. In other states, this simply reduces your overall Property Taxes.

Related terms: Exemption, Owner Occupied, Property Taxes.

HOME WARRANTY

An insurance policy usually given to a Buyer and paid for by a Seller to ensure that various property pieces (appliances, roof, heating/cooling system, alarm system, garage door opener, etc.) continue to function for up to one year following the sale. The Buyer would choose the Home Warranty company and then select different coverages. If the cost of all the desired coverages exceeds the amount to which the Seller has contractually agreed, the Buyer can pay the difference at Closing. Usually Home Warranty companies have a “trip charge” of approximately $50.00 for each time someone comes to the property to evaluate a non-functioning or damaged piece of the property. After the first year, the Buyer may purchase subsequent years of coverage.

Related terms: Warranty, Home Inspection, Offer, Contract, Seller Contributions, Closing.

HOUSING EXPENSE

Either current rent or the PITI on a current loan plus any Homeowner’s Association monthly dues, divided by the Borrower’s Gross Income (W2) or Net Income (Self-Employed).

Related terms: Housing Ratio, Front Ratio, PITI, Gross Income, Net Income, Homeowner’s Association, Payment Shock, Negative Payment Shock.

HOUSING FINANCIAL DISCRIMINATION ACT OF 1977 FAIR LENDING NOTICE

Loan Application Disclosure that communicates to the Borrower that Mortgage Lenders do not discriminate against Borrower’s for any reason other than the ability to repay the loan (including race, color, religion, sex, marital status, domestic partnership, national origin or ancestry) and that Redlining is prohibited.

Related terms: Equal Credit Opportunity Act (ECOA) Disclosure, Loan Application, Redlining.

HOUSING RATIO

See Front Ratio or Housing Expense.

Related terms: PITI.

HUD

United States Commerce Department of Housing & Urban Development. More information on HUD (the government entity) can be found at http://portal.hud.gov/portal/page/portal/HUD.

HUD-1

Real Estate Settlement Statement. This Settlement Statement was used for all 1-4 Family Residential Real Estate transactions prior to July of 2015. After July of 2015 this term is only used for Reverse Mortgages or HECMs. All other transactions now use the TRID disclosure called the Closing Disclosure.

Related terms: HUD Settlement Booklet, Closing, Origination Charge, Adjusted Origination, Closing Disclosure, Closing Costs, Prepaids.

HUD REPO

The Repossession (or Foreclosure) of a HUD-owned property. HUD Repos are tricky transactions for originators but work as regular Purchases from the Borrower’s perspective. HUD Repos do allow $100 Down Payment Purchases; however, a special program with special Rates intended to reduce the inventory of HUD-owned Foreclosures. If the Buyer of a HUD Repo is going to use $100 Down Payment loan program (FHA only), the Contract for the Purchase of the HUD Repo must state that HUD has approved the Buyer for that particular financing option. Purchases of HUD Repos must Close at a HUD-chosen Closing agent and HUD usually will not pay for the Survey or the Owner’s Title Policy in the transaction. Further, HUD will only pay three percent (3%) of the Purchase Price toward the Buyer’s Closing Costs. When Closing documents are delivered to the Closing agent for a Purchase of a HUD Repo, that agent has three days and HUD has five days to review them before the Buyer may execute them. Another important note about Purchasing a HUD Repo is that if you are buying on your own, without a Realtor®, it is very easy for the Listing Agent to claim Intermediary status (Dual Agency) and double his/her commission (which drives up the Purchase Price of the home). HomeStart suggests that if you are Purchasing a HUD Repo without a Real Estate Agent on your side, you should read all documents in the Purchase Contract very carefully and you should have the Listing Agent sign a separate document stating that he/she is not the Selling (Buyer’s) Agent and is acting on behalf of the Seller only. See the HomeStart Specialty Tutorial, “Looking for Real Estate without a Real Estate Agent” for more information on this topic.

Related terms: Foreclosure, $100 Down Payment Purchase, Seller Concessions, Seller Contributions, Purchase, Survey, Owner’s Title Policy.

HUD SETTLEMENT COSTS BOOKLET (HOME LOAN TOOLKIT)

Prior to 2015, this booklet was called “Shopping Your Home Loan”, a publication of the United States Department of Housing and Urban Development’s (HUD’s) detailing ordinary settlement costs and containing a wealth of useful information for home buyers and people refinancing their homes. In August of 2015, the newly created CFPB renamed and revised this booklet to the called “Your Home Loan Toolkit”. This booklet now contains everything Borrowers should know about all the Mortgage settlement costs (Closing Costs) and Prepaid Items they will encounter on their Loan Estimate and on the new Closing Disclosure or CD at Closing. In addition to explaining Mortgage settlement costs in detail, the Home Loan Toolkit also discusses the home-buying process in general. It covers some of the initial steps you should take when buying a house, with a particular focus on Mortgage loans and Lenders. Lastly, this document provides worksheets and other valuable information to assist Borrowers in making decisions with regard to home prices, Lenders and Mortgage loan products. This booklet can be found here. All Mortgage applicants must sign a form acknowledging that they have been given this booklet which is offered to them as a link when a copy of the executed Loan Application is emailed to them.

Related terms: CFPB, CHARM Booklet, HUD, HUD-1 Settlement Statement, Loan Estimate, Closing Disclosure.

HVCC

Home Valuation Code of Conduct. Regulation within the Wall Street Reform and Consumer Protection Act of 2010 prohibiting communication between loan originators and Appraisers during the execution of an Appraisal. This law also establishes the new system by which loan originators must order Appraisals including the establishment of AMCs or Appraisal Management Companies.

Related terms: Appraisal, Appraiser, AMC.

I

IMMOBILITY

Land characteristic. Since land cannot be placed in another location, it is considered immobile.

Related terms: Indestructible, Non-homogenious, Hetergeneity.

IMPOUNDS

Property Tax and Homeowner’s Insurance reserves. Also called “Escrows”. Some loans (80% or lower Loan To Value loans and Combo Loan First Mortgages) are not required to have Impound accounts. See the HomeStart Specialty Tutorials, “Pros and Cons of Waiving Escrows” and “How and Why To Do a Combo Loan”.

Related terms: Escrows, Waiving Escrows, Aggregate Adjustment, Reserves.

IMPROVEMENT

An addition to Yield Spread Premium or Service Release Premium for a loan’s characteristic, such as Credit Score, Loan To Value, loan size, etc. This terms also means a significant change done to a property but is usually used in the plural, “improvements”.

Related terms: Hit, Rate Sheet, Rate, Pricing, Subject To.

INCOME

All gains made during a tax year. While W2 employees have Gross Income, then Net Income (after taxes are withheld), Self-Employed Borrowers only have Net Income. Not all Income is Qualifying Income for a Mortgage. Related terms: Income Analysis, Calculating Income, Income Tax Return, Self-Employed.

INCOME ANALYSIS

Analysis of income documentation to determine Qualifying Income (income by Mortgage standards). Qualifying Income is derived differently based on how the person is “employed”.

• Salaried Borrower (W2): The income that can be used as Qualifying Income is the monthly Gross Income per the Borrower’s paystub. The most recent year W-2 will also be reviewed to determine if there has been any substantial increase or decrease in Salary. If a salaried Borrower also earns Commission, Bonus, and/or overtime income, these non-Salary types of income will be averaged over a two year period. These non-Salary types of income must have a good likelihood of continuation;

• Commissioned Borrower who is paid by W-2: If the Borrower’s income is all Commission income but he/she receives a W-2 and taxes are withheld from his/her pay, the Commission income must have existed for the current year (Year to Date) and for the past two years to be used as Qualifying Income. The two previous years’ income and current Year to Date income will then be divided by the number of months represented;

• Commissioned Borrower who is paid by 1099: A Borrower who earns Commission income and is issued a 1099 and pays his/her own taxes by reporting his/her income on a Schedule C is considered Self-Employed. In this case, the income to be used for Qualifying Income is the Net Income from the Schedule C plus any Depreciation or depletion reported on the Schedule C minus 50% of the Exclusion for Meals and Entertainment. This must then be averaged over a two year period. Current Year to Date Commissions are not considered income;

• Self-Employed Sole Proprietorship: This Borrower will report income on a Schedule C and the income to be used for Qualifying Income is the Net Income from the Schedule C plus any Depreciation or depletion reported on the Schedule C minus 50% of the Exclusion for Meals and Entertainment. This must then be averaged over a two year period;

• Self-Employed Corporation (where Borrower owns 25% or more): Current base Salary being earned is used to qualify. Added to that number is a two year average of Bonuses and Commissions (less than two years cannot be used). If Bonuses and Commissions exist, the W2 will show more than the base Salary). In addition, the last two years of business Income Tax Returns can be reviewed to add any Depreciation or depletion less Mortgages, notes, and bonds due in less than a year multiplied by the Borrower’s percentage of ownership per the Return. A two year average of this additional income can be added to the base salary (plus any applicable Bonuses and Commissions). If Borrower owns <25% of the Corporation, Qualifying Income is based on how the Borrower is paid (Salaried/Salaried-Bonus/etc., Commissioned W2 or Commissioned 1099) plus K-1 earnings;

• Self-Employed S-Corp or LLC (where Borrower owns 25% or more): A two year average of Gross Income reported on the most recent two years W2s and K-1’s can be used for Qualifying Income. In addition, the last two years business Income Tax Returns can be reviewed to add any Depreciation or depletion less Mortgages, notes, and bonds due in less than a year multiplied by the Borrower’s percentage of ownership (per the K-1 or Return). A two year average of this additional income can be added to the other Qualifying Income. If Borrower owns <25% of the S-Corp or LLC, Qualifying Income is based on how the Borrower is paid (Salaried/Salaried-Bonus/etc., Commissioned W2 or Commissioned 1099) plus K-1 earnings;

• Self-Employed Limited Partnership (where Borrower owns 25% or more): A two year average of Gross Income reported on the most recent two years K-1s can be used for Qualifying Income. In addition, the last two years business Income Tax Returns can be reviewed to add any Depreciation or depletion less Mortgages, notes, and bonds due in less than a year multiplied by the Borrower’s percentage of ownership (per the K-1 or Return). A two year average of this additional income can be added to the other Qualifying Income. If Borrower owns <25% of the Limited Partnership, Qualifying Income is still calculated as above;

• Dividend/Interest Income: A two year average of Dividend/Interest Income from a personal Income Tax Return (Schedule B) can be used for Qualifying Income as long as it can be documented that the Borrower still has the assets that generated the Dividend/Interest Income;

• Unreimbursed Expenses: If a Borrower claims unreimbursed expenses on Schedule A, this amount must be deducted from the Qualifying Income;

• Schedule E: Schedule E is a declaration of income from a variety of sources including royalties, real estate rentals, estates and trusts. The first part of the form is used to report income from rent and royalties as well as expenses from these activities such as advertising, auto travel, Commissions, insurance, and Mortgage Interest. Provided the Borrower has a history of reporting rental income on Schedule E, the Net Income plus any Depreciation can be added to Qualifying Income. The third section reports income or losses from estates and trusts that can also be used to qualify using a two year average provided five years of future continuation can be documented;

• Schedule F: If a Borrower files a Schedule F for Farm Income, the net profit (Net Income) or loss plus Depreciation can be used for Qualifying Income;

• Retired or Semi-Retired Borrower: Monthly Pension, Annuity and/or Social Security Income (Grossed Up); and

• Foster or adoptive parents: Monthly adoption or foster care stipend.

If, over a two year (or three Tax Return years) average, income shows to be Declining Income, the most conservative of three Income averages must be used. These include:

• Two most recent years’ Tax Returns + YTD average (total earnings divided by number of months reflected)

• Most recent Tax Return + YTD average (total earnings divided by number of months reflected)

• Current YTD average (current earnings divided by number of months in current calendar year)

Related terms: Salary, W2, K1, 1099, Corporation, S-Corp, LLC, Partnership, Income, Gross Income, Net Income, Qualifying Income.

INCOME APPROACH

An Appraisal approach for Investment Properties that bases the value of the property on the amount of rent that can be attained for the Subject Property based on the rent prices of comparable properties.

Related items: Appraisal, Appraise, Appraiser, Sales Comparison Approach, Cost Approach.

INCOME TAX

The amount of tax due on an annual Income Tax Return. It is important to know that mortgage underwriters require proof that the tax due in the most current year’s filed tax return has been paid. On some files, this proof can cover the tax due for the last two years of filed tax returns.

Related terms: W2, K1, Income Tax Return, Depreciation, Depletion.

INCOME TAX RETURN

Personal or business income tax form made up of a summary and various schedules.

Related terms: 1040, Income Analysis.

INDESTRUCTIBILITY

Land characteristic

Related terms:

INDEX

The current yield of the financial commodity upon which an Adjustable Rate Mortgage is based. The amount by which the Interest Rate can adjust up or down is based on the Cap (or limit) and the Floor (lower limit), respectively. The plural of Index is indices.

In order to fully assess an ARM, you would need to know the Initial Rate, the Fixed Period, the Index upon which the ARM is based, the Period of adjustments, the Margin, the Initial Cap, the Periodic Cap, the Lifetime Cap and the Floor. There are various indices, too: T-Bill, LIBOR, COSI or COFI. Which kind of Adjustable Rate Mortgage dictates which index you will get. All HomeStart-certifed Brokers/Bankers are able to teach how an Adjustable Rate Mortgage Adjusts, and to a limited degree, the different indices to their HomeStart clients.

Understanding how an Adjustable Rate Mortgage Adjusts and the Index upon which it Adjusts, the Borrower can anticipate the new Rate and new payment that his/her ARM will adjust to. You’ll actually know what your payment is going to become. This is how it works:

An adjustment to the Rate is calculated by the Index plus the Margin that is then compared to the current Rate plus the Cap (the new Rate would be the lower of the two) which is then compared to the Floor (the new Rate would then be the higher of the two). For example, a 5/1 T-Bill ARM has an Initial Rate of 6.000%, a Margin of 3.000% and a Floor of 3.000% with 2/6/6 Caps (Initial, Periodic and Lifetime). If, after the five year Fixed Period is over, the T-Bill Index is 2.500%, this would be added to the Margin (3.000%) which is 5.500%. Then, as compared to the Initial Rate (6.000%) plus the 2.000% Initial Cap (total of 8.00%), the 5.500% is lower (if higher then the 8.000% would stand). The 5.500% is then compared to the Floor of 3%. 5.500% is higher than the Floor (if lower, then the Floor would stand). Thus the new rate for the next year (the Period) would be 5.500%.

Related terms: Adjustable Rate Mortgage, Margin, Floor, Initial Cap, Periodic Cap, Lifetime Cap, Period.

INDUSTRIAL REAL ESTATE

Property use. Industrial real estate is real estate used for, but not limited to manufacturing, storage, distribution, research, warehousing and as data centers.

Related terms: Residential Real Estate, Commercial Real Estate, Zoning.

INITIAL CAP

The maximum threshold that an ARM rate may increase on the first increase of the loan.

Related terms: Adjustable Rate Mortgage, Margin, Floor, Index, Periodic Cap, Lifetime Cap, Period.

INGRESS

Right and ability to enter something, like an ingress window or ingress onto a lot via another lot.

Related terms: Egress.

INQUIRY

Credit Report pull. Letters of Explanation regarding Inquiries is common so that the Undewriter knows whether or not these Inquiries resulted in new credit and a new monthly obligation.

Related terms: Credit Report, Debt To Income Ratios.

INSPECTION

A written report created by a professional Home Inspector that describes the condition of a property, noting where repairs are needed. If you have a Home Inspection done, the Home Inspector will provide you with a copy of the Inspection and typically will send a copy to your Real Estate Agent.

Inspection can also be used...Appraisal

The Home Inspection is ordered after a Purchase Agreement has been signed (and an Escrow account has been opened for Escrow states). The cost of an initial Home Inspection depends on the size and location of the property. General inspections range from $300 to $500. The buyer pays for the Home Inspection as part of the total Closing Costs, unless a different arrangement has been made between parties before the Purchase Agreement is signed; however, because property is a major investment, it makes sense to know as much as you can about the property before you buy it.

If the Inspector finds a defect in a particular system, a specialist, such as a professional roofer, plumber or electrician will need to be called to make the repairs. It is best if the Seller in a transaction agrees to make the repairs during Escrow. If the Seller agrees to pay a lump sum to the Buyer, however, that amount will be considered part of the Seller’s Contributions and may be subjected to a maximum percentage limit.

Related terms: Inspector, Real Estate, Purchase Agreement, Contract, Sales Contract, Closing Costs, Seller Contributions, Seller Concessions.

INSPECTOR

Licensed professional conducting an Inspection. There are different types of Inspectors: General Home Inspectors, Well Inspectors, Foundation Inspectors, Septic Inspectors, etc.

Related terms: Home Inspection, Well Inspection, Septic Inspection.

INSTALLMENT ACCOUNT

Credit account with a fixed number of payments at a static monthly amount. An auto loan is an Installment Account. A student loan is an Installment Account.

Related terms: Revolving, Open, Mortgage.

INTENT TO PROCEED

Document signed by Borrower(s) after receiving the initial Loan Estimate, indicating that they intend to proceed with the transaction. Following the initial Loan Estimate disclosure, if the Borrower(s) receives a Change In Circumstance or an updated Loan Estimate disclosure (due to a change in the loan amount, rate, fees, etc.), another Intent To Proceed document must be executed. An Intent to Proceed form must be executed and provided to the Appraisal Management Company or AMC to order an Appraisal.

Related terms: Loan Estimate, Change In Circumstance.

INTEREST

Percentage of profit on a loan or investment. This is also the portion of a loan payment that is profit for the Lender. Interest is most often expressed as an annual Rate.

Related terms: Rate, PITI.

INTEREST & DIVIDENDS

Gains from investments and bank accounts that appear on Schedule B of a Tax Return.

Related terms: Interest, Income Tax Return.

INTEREST CREDIT

A credit of a certain number of days of Interest at the new Interest Rate on the Closing Disclosure. When a Short Pay occurs, the first payment will be due on the 1st of the month following the Funding of the loan. When that payment is made, the payment pays the Interest on the loan for the entire prior month (the month of Closing). But since the loan did not Fund until the month had already begun (see Short Pay), it isn’t fair for the Borrower to have to pay for days that the loan was not his/hers. Therefore when a Short Pay occurs, instead of Prepaid Interest being added to the Closing Disclosure, a credit of a few days (4-9 days) occurs and the overall amount necessary to Close and Fund the loan is lowered.

Related terms: Long Pay, Odd Days Interest Prepaid Interest.

INTEREST ONLY

Interest Only loans allow the Borrower to just pay the Interest on the Mortgage on a yearly basis for a fixed number of years. Once the Interest Only period of the loan is completed, the loan switches to an Amortized loan for the remainder of its Term. For example, if an Interest Only loan has a Interest Only period of ten years, then at the end of that period the unpaid Principle on the Mortgage will become a Fixed Rate, 20 year Mortgage.

The Interest Only payment for each year is calculated on the outstanding Principle on the anniversary of the loan Closing. Thus, while the Borrower is not required to make Principle payments during the Interest Only period, the Borrower may do so (provided there is no Prepayment Penalty). Thus, the Borrower can lower his/her payments for the subsequent year by applying funds to Principle if desired.

The majority of Borrowers receiving Interest Only loans never make payments to Principle and thus, irresponsibly sold, these loans have the potential of getting Borrowers into trouble. There are two reasons why Interest Only loans, when misapplied, can harm the Borrower:

1. Overqualification: For many years, when applying for an Interest Only loan, the Borrower’s Debt To Income Ratio was based on the Interest Only payment, which is significantly lower than what its Amortized counterpart would be. Thus, the Borrower was qualifying to buy much more house than generally accepted Debt To Income Ratio guidelines would traditionally allow. If this does not get the Borrower into trouble during the period of the loan where the Borrower is only paying Interest (the more house you buy, the higher the expenses are associated with utilities, upkeep, maintenance, repair, landscaping, etc.) it will usually get the Borrower into trouble when the Mortgage becomes an Amortized loan and the payment increases substantially; and

2. Market influences and being “upside down”: Interest Only loans often are used to “overqualify” the Borrower because the market is demanding it. When Real Estate markets are exceptionally “hot” with rapid price appreciation, many Borrowers can only qualify for the price of a home with an Interest Only loan. The majority of Mortgage “professionals” use the Interest Only loan to achieve this qualification instead of advising the Borrower that they should not attempt to purchase in a market they cannot afford. Thus, the Borrower is buying too much house (see Overqualifying above) and often times, cannot afford even the minimum Down Payment that corresponds to the inflated cost of the Real Estate. Thus, the Borrower is using a 100% financed, no money down, Interest Only loan in an over-inflated Real Estate market. Only one event now needs to take place in order for Default to be likely. This event could be a downturn in the Real Estate market (which, despite unwavering optimism, always occurs). Should the market drop only 5%, the Borrower is now “upside down” (since a $300,000 house purchased at 0% down where Interest Only payments have been made and thus still has a loan balance of $300,000 is now only worth $285,000). Should the Borrower (for whatever reason) now need to sell the home, the Borrower would need to bring $15,000 plus Realtor® fees (if a Real Estate Agent is used) plus seller Closing Costs in order to sell the house (which, in total could be as much as $34,000). If the Borrower is in difficult financial straits (since Real Estate downturns usually precede local, regional or national recessions and higher unemployment rates), he/she will not be able to sell their homes in order to avoid Default.

Payments for Interest Only loans are calculated very simply and do not require a financial calculator. The formula is PRINCIPLE x RATE (expressed as .00XXXX) divided by 12. A $100,000 interest only loan at 7.00% would therefore have a payment calculated as $100,000 x .07 divided by 12, or $583.33.

There are, however, transactions in which an Interest Only loan is a smart idea. Interest Only loans are excellent vehicles for Borrowers who intend on keeping his/her properties for a very short period of time, for Borrowers who make a sizeable Down Payment, or for Borrowers who are in markets where the value of Real Estate is appreciating rapidly but is not overly inflated. Applied responsibly, Interest Only loans can be an wise vehicle for helping someone achieve his/her dream of home ownership, provided the Borrower has a good Down Payment. Additionally, Interest Only loans can often be used in order to prevent a Borrower from losing his/her home, if the Borrower has equity but is temporarily having difficulty making the Amortized payment.

Related terms: Principle, Interest, Default, Amortized.

INTERIM FINANCING

Funds for construction. The Borrower should ask if the Interim Financing for construction is being provided in a One-Time Close or a Two-Time Close situation. In a Two-Time Close loan, the Closing for the Interim Financing offers the Borrower funds only for the construction of the home (usually for a period of one year to 18 months depending on the size of the project). Additionally, the Interim Financing on a Two-Time Close loan must be Refinanced at the end of construction (in a second Closing) in order for the Borrower to obtain permanent financing. That is two Closings and two sets of Closing Costs. If the Interim Financing is being provided in a One-Time Close loan, then the Interim Financing will simply be modified into the permanent financing after construction is completed. One-Time Close loans are usually the less expensive of the two. There is no inherent benefit to a Two Time Close, however, the vast majority of Construction Loans are Two Time Closes. All HomeStart-certified Brokers and Mortgage Bankers have access to One-Time Close Construction Loans. The vast majority of non-HomeStart-certified Brokers and Mortgage Bankers do not and can only offer a more expensive, more labor intensive Two-Time Close Construction Loan. See the HomeStart Specialty Tutorial, “How to Do a Construction Project”.

Related terms: Construction Loan, Permanent Financing, Custom Build, Custom Builder, Draw, Final Draw, Construction Inspection.

INTEREST INCOME

Usually found on Schedule B of a personal Income Tax Return, Interest Income is usually Interest earned by the Borrower (taxpayer) from checking accounts, savings account, stock accounts, CDs, as well as from Mortgages or other loans made to other individuals.

Related terms: Income Tax Return.

INTEREST TO THE END OF THE MONTH

Daily amount of Interest added to the Prepaids on the new, Long Pay loan. This is also referred to as Prepaid Interest. This Interest is added on the Closing Disclosure to move the loan to the 1st of the month. For example, if a loan Closes and Funds on March 10, 22 days of Interest To The End Of The Month will be added as a Prepaid item on the Closing Disclosure so that the Mortgage “begins” on April 1. By adding this Interest To The End Of The Month and moving the “start date” of the Mortgage to April 1, the first Mortgage Payment on the new loan will be on May 1 because Mortgages are paid in arrears, that is, the Borrower must possess the loan for at least 30 days prior to the first payment being due. That means that when a Borrower makes a payment, the Borrower is actually paying for the prior month’s Interest. Thus a payment on May 1 pays for the Interest that accrued in April.

Related terms: Long Pay, Closing Disclosure.

INTERMEDIARY

Real Estate Agent acting as both the Buyer’s and the Seller’s Agent. HomeStart does not endorse Real Estate Agents acting as Intermediaries and feels it is impossible for a Real Estate Agent to ethically represent both parties in a transaction. See the HomeStart Specialty Tutorial, “Looking for Real Estate without a Real Estate Agent”.

Related terms: Purchase, Offer, Contract, Realtor, Dual Agency.

INVESTMENT PROPERTY

Property meant for leasing or resale in which the owner does not live. This is also be referred to as a Rental Property, and Investor Property or a Non-Owner Occupied Property. See the HomeStart Specialty Tutorials “Properly Buying Investment Property”, “Buying Multifamily Housing - Becoming a Landlord in One Easy Step” and “1031 Exchange”.

Related terms: Rental Property, Investor Property or a Non-Owner Occupied Property, 1031 Exchange.

INVESTOR

The Wholesaler or Lender of the funds that fund the loan.

Related terms: Lender, Mortgage Broker, Mortgage Banker, Retail Banker.

INVESTOR PROPERTY

Property meant for leasing or resale in which the owner does not live. This is also be referred to as a Rental Property, Investment Property or a Non-Owner Occupied Property. See the HomeStart Specialty Tutorials, “Properly Buying Investment Property” and “Buying Multifamily Housing - Becoming a Landlord in One Easy Step”.

Related terms: Rental Property, Investment Property, Non-Owner Occupied Property, 1031 Exchange.

IRA

Individual Retirement Account. An IRA is a tax-free retirement account where after-tax funds are used for deposits that have annual amount limits. Distributions from an IRA incur taxes and penalties unless the funds are paid back within 60 days of the distribution. The one exception to that rule is the use of up to $10,000 of a Borrower’s IRA for a Down Payment provided that the Borrower is a First Time Home Buyer.

Related terms: Down Payment.

J

JUDGMENT

A court determination of a debt to another party. Judgments can show up on Credit Reports and Real Estate Title. Generally, Borrowers with Judgments must pay the Judgment off in order to obtain a Mortgage loan. The only way to get around this would be to contact a HomeStart-certified Broker or Banker who can negotiate a payment arrangement in exchange for a Release Of Lien.

Related terms: Credit Report, Title, Release of Lien.

JUMBO LOAN

A loan with a balance above the Conforming Loan Limit for a particular county. Jumbo loans generally have Interest Rates that are higher than those associated with Prime Conforming Conventional and Government loans. Additionally, Jumbo loans usually have lower Loan To Values and lower Combined Loan To Values that Conforming loans.

Related terms: Conforming, Conventional, Government, Loan To Value, Combined Loan To Value.

K

K-1

Tax form. This form shows the amount of money that came to an individual who has ownership in an S Corporation, a Limited Liability Company (LLC) or a Partnership during the tax year.

Related terms: Income Tax Return, W2, 1099, S-Corporation, LLC, Partnership.

KEOGH

An account into which a Self-Employed person makes contributions up to a certain limit throughout his/her working life, and from which he/she begins to take distributions following retirement. Under a Keogh plan, contributions are tax deductible and withdrawals are taxed. The limit on annual contributions to a Keogh plan varies each year and is indexed to inflation, but in any case, it is higher than the limit for an IRA or a 401(k).

Related terms: Self-Employed, IRA.

L

LANDLORD

The owner and Lessor of a property. The other party is called the Lessee, or renter. This is the opposite of how things are referred to in Mortgaging. In Mortgaging, the owner of the property is the person “giving” something to the other party. The owner or Borrower is allowing Equity in his/her home to be encumbered as Collateral. Therefore the Borrower is the Mortgagor and the recipient, the Lender, is the Mortgagee. That is why, on a Refinance, the Title Insurance Company issues a Mortgagee Policy to the lender. See the HomeStart Specialty Tutorials, “Properly Buying Investment Property” and “Buying Multifamily Housing - Becoming a Landlord in One Easy Step”.

Related terms: Collateral, Lessee.

LAND SURVEY

A Survey of Raw Land.

Related terms: Survey, Form Survey, Final Survey, Metes & Bounds.

LATE FEE

A fee imposed by the Lender when a Mortgage Payment is received after the Grace Period has expired. This fee is 5% of the Principle and Interest (PI) payment for Conventional loans and 4% for Government loans. For example, if a Borrower makes his/her Mortgage Payment on January 20 and it is received by the Lender on January 23, a Late Fee will be charged because the Borrower did not make the payment during the 15 day Grace Period mentioned in the Note. The next month’s Mortgage statement will state that the Mortgage Payment is due, plus the Late Fee from the prior month; however, in order for the Borrower’s February Mortgage Payment to be considered paid on-time and in-full, it does not have to include the Late Fee charged on January 16. Late Fees can actually remain unpaid until the Mortgage is paid off in-full (through selling the property, Refinancing the property, paying the property off over time) and the Borrower’s credit will not be negatively affected. Accrued Late Fees do not have to be paid in order for the Mortgage Payment to be considered paid on time.

Related terms: Conventional, Government, Grace Period, PI.

LEASE

Residential or Commercial contract to use housing or office space in exchange for a repetitive payment. Exceptionally beneficial information on how to Lease To Own can be found in the HomeStart Specialty Tutorial “Lease to Own Using a Refinance”.

Related terms: Lease Back, Lease-Purchase Agreement, Lease To Own.

LEASE BACK

When the Buyer agrees to allow the Seller to lease the property from the Buyer after Closing to allow for greater flexibility in move out. Generally, Lease Backs of more than 60 days can be problematic when the Borrower is purchasing an Owner Occupied or Second Home property. This is because when the Borrower signs his/her Occupancy Affidavit at closing, the Borrower is swearing under penalty of perjury that he/she intends to occupy the property within 60 days. The amount of time for move-in on an Occupancy Affidavit is Lender specific (sometimes only 30 days), thus the Lender should be identified before the Borrower accepts a Lease Back. This is achieved by applying for the Mortgage loan before entering into a Sales Contract to Purchase property.

Related terms: Owner Occupied, Occupancy Affidavit, Sales Contract.

LEASE-PURCHASE AGREEMENT

Agreement wherein the parties and particulars of a Lease are defined as well as the basic requirements and particulars of how that lease becomes a Purchase transaction. For example, a Lease-Purchase Agreement may establish all of the particulars of a lease but may also establish the price at which the property will be Purchased, when that Purchase must take place, what, if any, credit will be given to the tenants toward the Down Payment, etc. Lease-Purchase Agreements require Purchase transactions in order for the ownership of the property to Convey to the Tenants. If the Lease-Purchase Agreement actually places the Tenant (Recorded) into Title with a Vendors Lien, then the transaction can be done as a Rate/Term Refinance as a Contract For Deed.

Related terms: Purchase, Purchase Price, Lease to Own, Contract for Deed.

LEASE TO OWN

Written agreement that gives the Lessee credit for rental payments toward the Purchase Price of the Subject Property to be Purchased by the Lessee on a specified date or after a specified period of time.

Related terms: Purchase Price, Purchase.

LEGAL DESCRIPTION

Written words that delineate a specific piece of real property. In the written transfer of real property, it is universally required that the instrument of conveyance include a written description of the property.

Legal descriptions for real property within the United States can generally be classified as one of two basic types: Lot/Block, and Metes & Bounds:

• Lot/Block System is a description that contains the Lot Number, Block Number, Name of Subdivision, Phase Number, Name of County and State. This is the most common Legal Description which exists after a parcel of land has been Subdivided: and

• Metes & Bounds is used to describe a tract of land using ‘due north’ as the "key" and using directions, degrees and distances to create boundaries defining the land. The boundaries are described using a point of beginning and working around the parcel of land in sequence and returning to the point of beginning. Usually rural properties and large tracts of un-Subdivided land have Legal Descriptions defined by Metes & Bounds. This type of description is commonly seen as “The Southeast Quarter of Section 31 Township-125-North Range-87-West of the Fifth Principal Meridian”. The same description in shorthand looks like this: SE¼ of Sec. 31 T125N R87W of the 5th P.M. or, still shorter, like this: SE¼ 31 T125N R87W.

Related terms: Lot/Block, Metes & Bounds, Subdivision.

LENDER

The Investor funding the loan.

Related terms: Wholesaler, Investor, Mortgage Broker, Mortgage Banker, Retail Banker.

LENDER CREDIT

Excess Yield Spread Premium given to the Borrower as a credit against Closing Costs and Prepaids.

Related terms: Yield Spread Premium, Closing Costs, Prepaids.

LENDER-PAID COMPENSATION (LPC)

Choice of Borrower to pay the costs and compensation involved in a Mortgage through a higher Rate. This lowers Closing Costs since the Lender will be paying the Broker’s or Banker’s comission. See the HomeStart Specialty Tutorials, “Do-It-Yourself Mortgage” and “Tailor the Mortgage Yourself and Save Thousands - Back Loaded Purchase/Refinance”.

Related terms: Borrower-Paid (Compensation), Closing Costs, Lender, Yield Spread Premium, Back.

LENDER PAID MORTGAGE INSURANCE (LPMI)

Increasing Borrower’s Interest Rate or charging a one-time fee in exchange for a waiver of Mortgage Insurance for maximum tax deductability (Borrower-Paid Mortgage Insurance is not tax deductible in some circumstances).

Related terms: Mortgage Insurance, Split Edge Mortgage Insurance.

LETTER OF EXPLANATION

Letter to explain some kind of unusual aspect or problem in the Mortgage file. Examples are Letters of Explanation for: Recent inquiries on the Credit Report, why the property will be a Second Home, how an employee is paid, negative credit on the Credit Report, etc.

Related terms: Credit Report, Second Home.

LIEN

Encumbrance to title on Real Estate. Liens can be Mortgage Liens, Tax Liens, Mechanic’s Liens and judgments.

Related terms: Real Estate, Title, Tax Lien, Mechanic’s Lien, Judgment.

LIFETIME CAP

The maximum that a Rate on an Adjustable Rate Mortgage can increase throughout the life of the loan. The Lifetime Cap is the last Cap represented. For example, an Adjustable Rate Mortgage with 2/2/6 Caps would have a Lifetime Cap of 6.00% above the Initial Rate. Needless to say an Adjustable Rate Mortgage with 2/2/2 Caps is better than an Adjustable Rate Mortgage with 2/2/6 Caps (provided all other loan attributes are the same).

Related terms: Adjustable Rate Mortgage, Index, Margin, Floor, Initial Cap, Period, Periodic Cap.

LIMITED LIABILITY COMPANY (LLC)

Business structure. This is a corporation with individuals as shareholders. A Limited Liability Company is not taxed on its profit. Instead, all profits roll over to the the shareholders based on their percentage of ownership in the business through a tax document called a K-1.

Related terms: S-Corporation, C-Corporation, Partnership, Self-Employed.

LIMITED REVIEW

Findings from an Automated Underwriting program with regard to a Condominium. Limited Review occurs when a Condo loan is eligible, based on loan characteristics (such as Loan To Value, client financial strength, etc.) for exclusion from the standard Fannie Mae Condo Questionnaire. The Limited Review Condo Questionnaire contains fewer questions and therefore is less likely to disqualify a Condo for a Mortgage when it is filled out by the Homeowners Association.

Related terms: Condo, Full Review, Condo Questionnaire.

LINE ITEM

The line of information from one creditor on a Credit Report. See the HomeStart Specialty Tutorials, “Understanding Credit and Credit Scores”, “Manipulating Your Credit Score Higher” and “How to Instantly Build Credit when You Have None”.

Related terms: Line Of Credit, Revolving Account, Installment Account, Mortgage Account, Credit Report, Credit Score.

LINE OF CREDIT

Revolving credit account, which may or may not be secured by Collateral. See the HomeStart Specialty Tutorials, “Understanding Credit and Credit Scores”, “Manipulating Your Credit Score Higher” and “How to Instantly Build Credit when You Have None”.

Related terms: Credit Report, Line Item, Credit Score.

LIST

The act of putting Real Estate up for public sale. See the HomeStart Specialty Tutorial, “For Sale By Owner”.

Related terms: Listing, Listing Agent, Listing Agreement, Listing Price.

LISTING

Real Estate that is publicly up for sale. Usually Real Estate is Listed on MLS, the Multiple Listing Service that is a nationwide database for Real Estate Agents and Appraisers. However, the internet has changed things in that many Real Estate properties are Listed on the internet now. Some Listings even have their own website. See the HomeStart Specialty Tutorial, “For Sale By Owner”.

Related terms: List, Listing Agreement, Listing Price, Purchase, Offer, Bid, Contract, Sales Contract, Purchase Contract.

LISTING AGREEMENT

Agreement between the Seller and the Listing Agent that sets down all the terms of the sale transaction between the parties. These terms include the Listing Price, the Commission, whether or not the house will have a Lockbox, the length of the Listing Agreement, etc. All items in a Listing Agreement are negotiable. Additionally, there is no law that states one must use a Real Estate Agent in order to put their home up for sale. Any owner of any Real Estate in the United States may sell a property For Sale By Owner (FSBO). See the HomeStart Specialty Tutorial, “For Sale By Owner”. Related terms: List, Listing, Listing Agent, Listing Price, For Sale By Owner.

LISTING AGENT

Real Estate Agent representing the Seller when Real Estate is put up for public sale. See the HomeStart Specialty Tutorial, “For Sale By Owner”. Related terms: List, Listing, Listing Agreement, Listing Price, For Sale By Owner.

LISTING PRICE

Price at which the property is listed for sale. This is the price the Seller wants or that the Real Estate Agent suggested in order to put the house “on the market”. Usually the Listing Price is determined based on either the Seller’s demand, the Real Estate Agent’s CMA or an Appraisal. The Listing Price is usually negotiated and once agreed to and contained in a Contract, becomes the Purchase Price. See the HomeStart Specialty Tutorial, “For Sale By Owner”. Related terms: List, Listing, Listing Agreement, Purchase, Realtor, CMA, Appraisal, Purchase Price.

LIQUID ASSET

Asset that can be accessed and therefore, liquidated to cash within a few days. Checking accounts, savings accounts, money market accounts, 401K accounts, IRAs, stock accounts, Whole Life Insurance Cash Value, etc. are all Liquid Assets. Related terms: 401K, IRA, Whole Life Insurance, Cash Value.

LOAN AMOUNT WITH MIP

Loan amount on an FHA loan after addition of the Mortgage Insurance Premium. The Base Loan Amount (the Puchase Price minus the Down Payment or the loan amount of the Refinance) must be within county limits. The Loan Amount With MIP (or the Final Loan Amount) is the Base Loan Amount plus the MIP (Government insurance policy premium). Related terms: Mortgage Insurance Premium, FHA.

LOAN APPLICATION

Act of applying for a loan or the physical documents that must be executed in order to apply for a loan. The documents in a conventional loan application include but are not limited to:

• The Uniform Residential Loan Application;

• The Fees Worksheet

• The Loan Estimate;

• Anti-Steering Disclosure

• The Intent to Proceed notice;

• The Truth in Lending disclosure;

• The Borrower’s Certification & Authorization;

• The Loan Servicing Disclosure Statement;

• The Mortgage Loan Origination Agreement;

• SSA-89

• 4506-C

• HVCC Disclosure

• The Loan Servicing Disclosure

• The “Credit Score” Disclosure;

• The “Hazard Insurance Requirements” Disclosure;

• The “Right to Copy of Appraisal” Disclosure;

• The Equal Credit Opportunity Act (ECOA) Disclosure;

• The Flood Disaster Protection Act of 1973 Disclosure;

• The Housing Financial Discrimination Act of 1977 Fair Lending Notice;

• The Patriot Act Information Disclosure;

• The Notice of Penalties for Making False or Misleading Statements.

State-specific forms are also included and FHA and VA have their own additional set of required disclosures.

Related terms: Occupancy Affidavit, Disclosure.LOAN APPROVAL

Loan approvals is the common phrase for what is really called an underwriting determination. An underwriting determination is a written underwriting assessment that the loan submitted has or has not met all relevant guidelines and lender overlays from the Lender and that the Lender is (or is not) giving a commitment to close the loan. Loan Approvals can be one of four types: denial, suspension, conditional or clear to close. The first is obvious. The second allows for a restructuring of the loan or placing it into a different loan program to achieve a conditional approval once revised and re-underwritten. The third is a written commitment that if all the listed conditions can be met, the lender will close the loan. The last is the final approval received once all the listed conditions have been met and verified as sufficient by an underwriter. There is no way to give a 100% certain loan approval until the file has been underwritten and all conditions have been met.

Related terms: Underwriter, Overlays, Close, Automated Underwriting, Prequalification, PreApproval, Conditional Approval.

LOAN MODIFICATION

Substituting a new Note for a prior Note, often including recapitalization of unpaid Interest. If a Borrower falls behind on his/her Mortgage Payments, he/she may request a Loan Modification from the Lender. Once the Loan Modification process is completed, the Borrower will have a new, recapitalized loan amount (including Principle Owed and all accrued Interest that has not been paid), a new Interest Rate, a new Term and/or other new characteristics (like switching from a Fixed Rate loan to an Adjustable Rate Mortgage). The Note is then modified in a Loan Modification agreement and the Borrower begins paying his/her Mortgage again with a new, “clean” slate. Related terms: Note, Recapitalization, Principle Owed, Interest, Fixed Rate Mortgage, Adjustable Rate Mortgage.

LOAN MODIFICATION

The substitution of a new Note for a prior Note, often including recapitalization of unpaid Interest. If a Borrower falls behind on his/her Mortgage Payments, he/she may request a Loan Modification from the Lender. Once the Loan Modification process is completed, the Borrower will have a new, recapitalized loan amount (including Principle Owed and all accrued Interest that has not been paid), a new Interest Rate, a new Term and/or other new characteristics (like switching from a Fixed Rate loan to an Adjustable Rate Mortgage). The Note is then modified in a Loan Modification agreement and the Borrower begins paying his/her Mortgage again with a newly “clean” slate. Related Terms: Note, Modification, Mortgage Payment, Principle Owed, Recapitalization.

LOAN PRODUCT ADVISOR (LPA)

Freddie Mac Automated Underwriting engine. Mortgage “loan specialists” that answer 800 numbers for companies that run national advertising and offer “immediate” or “10 minute” Loan Approval are simply typing the Borrower’s verbal information into an Automated Underwriting engine like Loan Product Advisor or the Fannie Mae counterpart, Desktop Underwriter. This does not necessarily mean, however, that you have a Loan Approval. The most important thing about Automated Underwriting engines is that the accuracy of the data that goes in is equal to the accuracy of the Findings that come out. If the Borrower incorrectly gives his Self-Employed income, for example, as gross sales rather then Net Income, the Findings (perhaps a Loan Approval) will be meaningless. The best way to get a preliminary Loan Approval is to get a free referral to a HomeStart-certified Mortgage Broker or Banker and then to supply the HomeStart Broker or Banker with proof of all relevant financial data so that Automated Underwriting data entry is done based on verified facts rather than guesses or estimates. Related terms: Automated Underwriting, Freddie Mac, Fannie Mae, Loan Approval, Self-Employed, Findings.

LOAN SERVICING DISCLOSURE STATEMENT

Loan Application Disclosure that makes the Borrower aware that:

• Mortgage loans can be sold or transferred after they are Closed;

• Whether or not the originator services Mortgage loans to collect Mortgage Payments;

• No negative credit reporting can take place within 60 days of receiving a Goodbye Letter;

• If the Mortgage is transferred or sold, the Borrower will be advised of it within 15 calendar days prior to the payment being due; and

• The percentage of loans the originator has sold for the last three years to give the Borrower some idea of how likely or unlikely it is that the Borrower’s Mortgage may be sold.

Related terms: Loan Application, Disclosure, Mortgage Payment.

LOAN TO COST

The loan amount divided by the acquisition cost of the property in a Construction Loan. See the HomeStart Specialty Tutorial, “How to Do a Construction Project”. Related terms: Construction Loan, Loan To Value, Interim Financing.

LOAN TO VALUE

The First Mortgage loan amount divided by the Appraised Value of the Subject Property on a Refinance or the First Mortgage loan amount divided by either the Appraised Value or the Purchase Price, whichever is lower, on a Purchase. A $96,000 First Mortgage has an 80% Loan To Value against an Appraised Value of $120,000. Related terms: First Mortgage, Appraised Value, Refinance, Purchase.

LOAN TERM

A period of time which is considerable. In Mortgaging, Long Term means a considerable number of years. A Long Term Refinance, for example, does not mean a Refinance with a long Term (like a 30 year Fixed Rate Mortgage). Instead it means a Refinance that will be associated with the Borrower for a considerable period of time. Thus, a Long Term Purchase is a house that you intend on buying and keeping for a considerable period of time, like ten years. Related terms: Seesaw, Structure, Short Term, Purchase, Refinance, Cash Out Refinance.LOCK

Linking the Borrower’s Interest Rate to a specific day of pricing. Locks last for a specific period of time, such a 15, 30 or 60 days. It is important to note that a Rate Lock attaches the Borrower’s loan to a specific day of pricing. This means that once locked, the Rate on the loan can change, but it will be based on the same day of pricing on which it was locked. Related terms: Rate, Rate Lock, Pricing.

LOCKBOX

Key container attached to a home up for public sale that requires a code to open. Usually Real Estate Agents and Appraisers have Lockbox codes. A home on Lockbox can be entered by the Buyer’s Real Estate Agent so that the Listing Agent does not have to be present every time the house is shown to a prospective Buyer. If you are selling a house, you can require the Listing Agent be present when people are in the home by simply refusing to authorize a Lockbox on the property when you sign the Listing Agreement. Related terms: Realtor, List, Listing, Listing Agent, Listing Agreement, Purchase.

LOCK CONFIRMATION

Written confirmation to the Broker or Banker that the Interest Rate on a loan has been Locked on a specific day of Pricing for a specific period of time (30 days, for example). Usually the Lock Confirmation includes all basic loan data (Borrower/CoBorrower name, loan amount, loan type, loan program, Lock date, Lock expiration date, etc.). Related terms: Rate, Interest Rate, Lock, Lock Desk, Lock Sheet.

LOCK DESK

Lender department that receives and confirms loan Locks. Related terms: Lock, Lock Confirmation, Lock Sheet, Rate.

LOCK PERIOD

The period of time that a Locked Interest Rate is valid prior to its expiration. Related terms: Lock, Lock Confirmation, Lock Sheet, Lock Desk.

LONG PAY

Loan in which Interest is added to the Prepaid costs on the Closing Disclosure to bring the loan to the end of the current month. By doing this, the Mortgage “begins” on the first of the following month so that payments will be due on the first of each subsequent month. Since Mortgages are paid in arrears, the Borrower must possess the loan for one full month before the first payment is due. For example, a loan Closing on the 15th of the month of January is a Long Pay when 15 days of Interest is added to the Prepaid Items of the loan so that the Mortgage “begins” on February 1. Since the Borrower must possess the loan for 30 days before making the first payment, the first payment would be due on March 1. Related terms: Short Pay, Prepaids, Interest, Odd Days Interest.

LO-RISE

Condominium complex with four or fewer stories.

Related terms: Hi-Rise, Condo.

LOT/BLOCK

A parcel of land that has been Subdivided. Real Estate is identified by its Legal Description, which is either Lot/Block or Metes & Bounds. Usually (but not always), Metes & Bounds properties tend to eventually become Lot/Block properties. Related terms: Subdivision, Metes & Bounds, Field Notes, Legal Description.

LPC

Lender Paid Compensation. Related terms: Yield Spread Premium, Borrower-Paid Compensation, Back, Front.

M

M&M Lien

See Mechanic’s Lien.

Related terms: Mechanic’s Lien, Merchants & Mechanic’s Lien, Lien, Title.

MAIL-OUT

Transaction that requires closing documents to be emailed or overnighted to one or more parties. In today’s PDF, secure portal, mobile notary environment, this usually now means the closing documents are uploaded to a secure portal where they are accessed and printed by a local, mobile notary and the closing takes place at a location convenient to the borrower(s). Additionally, some companies are allowing digital signatures on mortgage documents and the borrower(s) can sign from a computer or phone.

Related terms: Closing, Funding.

MANSION TAX

State tax on property Purchases over a certain amount (usually >$1 million).

Related terms: Tax Stamps, Mortgage Tax.

MANUAL UNDERWRITE

Underwriting a loan without regard for any Automated Underwriting Findings. A Manual Underwrite requires all standard documentation (no reduced documentation lists from Automated Underwriting engines) to prove Income, Liquid Assets, employment and credit history. The majority of Manual Underwrites are for FHA or VA loans that received a “Refer” or a “Refer With Caution” Finding when run on an Automated Underwriting engine. In a Manual Underwrite, the Borrower must demonstrate strict adherence to either the loan program and/or Lender requirements and/or the 4000.1 (FHA Handbook) or VA Handbook. Not all loan programs offer a Manual Underwrite. All HomeStart Brokers/Bankers have at least one Lender who performs Manual Underwrites.

Related terms: Automated Underwriting, Findings, Refer, Refer With Caution, FHA, VA, 4000.1.

MANUFACTURED HOME

Singlewide, doublewide, super doublewide and triplewide homes. Manufactured homes are delivered to a site as Chattle (like an automobile) on axles and wheels connected and towed by use of a tongue and possessing a Vehicle Identification Number (VIN). Generally when a Manufactured Home is in this state, it is referred to as a Mobile Home. When the Manufactured (or Mobile) Home is permanently attached with an approved foundation and proper skirting (axles, wheel & tongue removed), it can legally (from a Title perspective) be attached to the real property beneath it in a Mortgage transaction called a “Chattle-Land Conversion”. In this transaction the VIN is abandoned with the state and the land and structure become one unit of Real Estate. Related terms: Mobile Home, VIN, Chattle-Land Conversion, Mortgage.

MARGIN

Percentage of spread (profit) above an established standard price. Most often this refers to the percentage of spread added to the Index of an Adjustable Rate Mortgage. The Index plus the Margin is the formula for determining the new Rate to which an Adjustable Rate Mortgage adjusts. This value, however, is limited by the Caps (high) and the Floor (low) on the Adjustable Rate Mortgage product.

Related terms: Adjustable Rate Mortgage, Index, Floor, Period, Initial Cap, Periodic Cap, Lifetime Cap.

MATURITY DATE

The calendar date at which a loan reaches the end of its Due And Payable portion of its Term and therefore becomes due in full.

Related terms: Balloon, Due And Payable.

MECHANIC’S LIEN

Enforceable claim, permitted by law in most states, securing payment to contractors, subcontractors and suppliers of materials for work performed in constructing or repairing a building on the Subject Property. The Lien, which attaches to the Title of the real property, remains in effect until the workmen have been paid in full, or in event of liquidation, gives the contractor priority of Lien ahead of other creditors. Also referred to as a Merchants & Mechanic’s Lien or M&M Lien. See the HomeStart Specialty Tutorial “How to Do a Construction Project”.

Related terms: Lien, Title, Merchants & Mechanic’s Lien, M&M Lien.

MERCHANTS & MECHANIC’S LIEN

See Mechanic’s Lien.

Related terms: Mechanic’s Lien, M&M Lien, Lien, Title.

METES & BOUNDS

Legal Description for a piece of land. Metes & Bounds are used to describe a tract of land using ‘due north’ as the “key” and use directions, degrees and distances to create boundaries defining the land. The boundaries are described using a point of beginning and working around the parcel of land in sequence and returning to the point of beginning. Usually rural properties and large tracts of unsubdivided land have Legal Descriptions defined by Metes & Bounds.

Related terms: Legal Description, Lot/Block, Survey, Field Notes.

MI

Mortgage Insurance. See Mortgage Insurance.

Related terms: Lender Paid Mortgage Insurance, Split Edge Mortgage Insurance.

MINIMUM DOWN PAYMENT

Zero percent of the Purchase Price on VA and USDA loans, 3% of the Purchase Price on Conventional (non-Government) loans and 3.5% on FHA loans. Some special circumstance loans, such as one on a HUD Repo property can have as little as $100 Down Payment, provided HUD has approved the Contract for a $100 Down Payment loan.

Related terms: Purchase Price, Down Payment, Government, Conventional.

MINIMUM PAYMENT

Monthly payment option that is less than the amount of Interest that accrues in one month’s time. Minimum Payment options are usually part of Negative Amortization loans such as Payment Choice or Option ARMs.

Related terms: Payment Choice, Option ARM, Interest, Negative Amortization.

MIP

Mortgage Insurance Premium. This is the upfront Mortgage Insurance premium for FHA loans. This fee is 1.75% on all FHA loans which is added to the base loan amount to create the final loan amount. Upfront MIP is refundable per the 3 Year Chart below.

MIP 3 Year Refundability Chart

Monthly Mortgage Insurance also applies to all FHA loans. For loans with terms of more than 15 years that are less than or equal to $726,200, it is 0.55% annually for Loan To Values of 95.01% and greater and 0.50% annually on Loan To Values equal to or below 95%.

For loans with terms of more than 15 years that are greater than $726,200, it is 0.75% annually for Loan To Values of 95.01% and greater and 0.70% annually on Loan To Values equal to or below 95%.

For loans with terms of 15 years or less, monthly Mortgage Insurance on FHA loans is 0.40% annually for loans less than or equal to $726,200 and with loan to values greater than 90%. For the same loans with loan to values less than or equal to 90% the monthly mortgage insurance falls to the lowest amount available, which is 0.15% annually.

Finally, for loans with terms of 15 years or less that are greater than $726,200 with loan to values of greater than 90%, the monthly mortgage insurance is 0.65% annually. For the same loans with loan to values greater than 78% and less than or equal to 90% the monthly mortgage insurance is 0.40% annually. For the same loans with loan to values less than or equal to 78% the monthly mortgage insurance is 0.150% annually for Loan To Values of 95.01 and greater and 1.45% annually on Loan To Values equal to or below 95% when the Term is greater than 15 years.

For streamline refinances, the monthly MIP is 0.55% annually, regardless of loan to value or loan size.

Monthly mortgage insurance on FHA loan can be represented in the following chart:

FHA Monthly MI Chart

Related terms: FHA, Mortgage Insurance, Final Loan Amount.

MIP REFUNDABILITY

Mortgage Insurance Premium (MIP) on FHA loans is refundable according to the “3 Year Chart” above.

Related terms: Mortgage Insurance Premium, FHA.

MLS

Multiple Listing Service. Database to which Real Estate Agents have access which displays Listings of real property based on various search criteria. The majority of Real Estate Listings in the United States are included in the MLS. The public does not have direct access to MLS. Only Real Estate Agents and Appraisers have direct access to this database.

Related terms: List, Listing, Listing Agreement, Listing Agent, Realtor, Appraiser.

MOBILE HOME

Manufactured Home. The distinction between Mobile Home and a Manufactured Home is based on moveability. When the unit (the house) is not attached to the ground, still has a VIN, axles, wheels and a tongue it is considered Chattle and therefore “mobile”. Technically, although the terms Mobile and Manufactured are used interchangeably, a Mobile Home is a Manufactured Home that is not permanently attached to the real property beneath it. Once a Mobile Home is attached to the ground (either temporarily or permanently) it is usually referred to as a Manufactured Home.

Related terms: Manufactured Home, Chattle, VIN, Chattle-Land Conversion.

MODIFICATION

Automatic conversion of Interim Financing into Permanent Financing on a One-Time Close Construction Loan. Modification specifically refers to changing, or modifying, the Note. Changing the Note from the Interim Financing terms to reflect the new terms of the Permanent Financing is a Modification of the Note. A second definition is the change of the terms of a Note to lower the payment of someone who is struggling to make his/her Mortgage Payment.

Related terms: Interim Financing, One-Time Close, Construction Loan, Note.

MODULAR HOME

Prefabricated home that usually looks just like a stick-built home but that was pre-manufactured in pieces at a plant before it was put together on site. A Modular Home is not considered a Manufactured or Mobile Home.

Related terms: Manufactured Home, Mobile Home.

MORTGAGE

A Collateralized loan that results in a Lien, legally placed against, or attaching to, Real Estate. Mortgage Liens “encumber” the property and secure the loan a position on the property by establishing the order in which it will be paid off if the property is sold, Refinanced or auctioned off after Foreclosure.

Most Mortgages are First Mortgages, or Mortgages that are in first Lien position. This means that if the property is sold, Refinanced or auctioned, the first thing to be paid off with the Proceeds of the sale or new loan will be the First Mortgage (provided that no subsequent Tax Liens were filed that superceded the First Mortgage’s first Lien position).

Second Mortgages also exist, but are obviously more risky loans for banks and financial institutions to make. This is because, per their name, these Mortgages are in second Lien position and are paid off after the first Lien is paid off. This is especially pertinent in the case of a defaulted loan that is recovered in an auctioned sale of the property. In this case, the auction might yield a percentage of the property’s current value, but most likely, not enough to pay off the second Lien. As a result of this potential loss, Second Mortgages are higher-risk loans, and accordingly, come with higher Interest Rates.

A Mortgage can also mean the contractual agreement between a Borrower and a Lender for the repayment of the collateralized loan against the property. This is also referred to, in some states, as a Note.

Related terms: Collateral, Real Estate, Lien, First Mortgage, Second Mortgage, Refinance.

MORTGAGE ACCOUNT

A Mortgage Line Item on a Credit Report.

Related terms: Mortgage, Credit Report, Line Item, Credit Score.

MORTGAGE BANKER

A Mortgage professional using his/her own funds to make a loan that is presold to a the Wholesale division of a Mortgage Lender. When a Mortgage professional is acting as a Mortgage Banker, he/she is not required to disclose either the Service Release Premium being made on the loan.

Related terms: Mortgage Broker, Retail Banker, Service Release Premium.

MORTGAGE BROKER

Mortgage professional with access to more than one Lender, acting on behalf of the Borrower. A Mortgage Broker can access loan programs from the Wholesale departments of retail banks (like Wells Fargo, Bank of America, etc.), private investors, Wholesale Lenders and other sources. A Broker must disclose the Yield Spread Premium he/she makes on the Back of the loan (from the Lender). See the HomeStart Specialty Tutorial, “What a Mortgage Broker Should Do”.

Related terms: Broker, Yield Spread Premium, Front, Back.

MORTGAGE CONCIERGE

A company that handles all Mortgage negotiations for you and guarantees a Rate equal to that of Bankrate.com or better. Mortgage Concierge is a one-phone-call way to do a Mortgage and while it offers great service, it does so at a reasonable cost. Cost is based on your Credit Score. To use Mortgage Concierge, access www.mymortgageconcierge.net on your smartphone or browser, or call (512) 5-6-7-LEND.

MORTGAGE DISABILITY INSURANCE

Expensive insurance policy that pays your Mortgage Payments in the event of partial or complete disability on the part of the Borrower, or CoBorrower, or both. A Mortgage Disability Insurance policy makes the Lender the beneficiary of the policy. These policies, while legal, are generally considered predatory and cannot be required in order for credit to be extended. It is HomeStart’s opinion that the Borrower is better off purchasing a private disability insurance policy that makes the Borrower the beneficiary of the policy, instead of the Mortgage Lender.

Related terms: Mortgage Life Insurance, Whole Life Insurance, Term Life Insurance.

MORTGAGEE

The entity receiving interest in the Collateral and extending a Mortgage loan to a Borrower in exchange. In a Mortgage transaction, the entity receiving the Collateral interest who extends the credit is the Mortgagee and the entity giving interest in the Collateral and receiving the loan is the Mortgagor. While the Borrower is receiving credit, the real transfer taking place is interest in the Collateral or property. This is congruous with other give/receive relationships, as the Lessor (or landlord) is the giver and the Lessee (or tenant) is the recipient. Similarly, the Grantor is the giver and the Grantee is the recipient.

Related terms: Mortgagor, Mortgage.

MORTGAGE INSURANCE

An insurance policy paid by the Borrower to ensure the Lender against Default. The acronym for this term is MI or PMI (Private Mortgage Insurance). Specifically, Mortgage Insurance insures the Lender for the portion above 80% that the Lender is extending in credit (as most Default sales obtain approximately 80 cents on the dollar). For example, if a Borrower does a 5% down, one Lien loan, the Loan To Value is 95% of the Purchase Price. Thus, the MI on that loan would insure the Lender for the 15% above the 80% that was extended in credit. Generally, Mortgage Insurance refers to Borrower-Paid Mortgage Insurance, where there is an annual premium and 1/12th of that amount is included in each Mortgage Payment. There are two other types of Mortgage Insurance, however. These are Lender Paid Mortgage Insurance and Split Edge Mortgage Insurance.

Monthly Mortgage Insurance also applies to all FHA loans. For loans with terms of more than 15 years that are less than or equal to $726,200, it is 0.55% annually for Loan To Values of 95.01% and greater and 0.50% annually on Loan To Values equal to or below 95%.

For loans with terms of more than 15 years that are greater than $726,200, it is 0.75% annually for Loan To Values of 95.01% and greater and 0.70% annually on Loan To Values equal to or below 95%.

For loans with terms of 15 years or less, monthly Mortgage Insurance on FHA loans is 0.40% annually for loans less than or equal to $726,200 and with loan to values greater than 90%. For the same loans with loan to values less than or equal to 90% the monthly mortgage insurance falls to the lowest amount available, which is 0.15% annually.

Finally, for loans with terms of 15 years or less that are greater than $726,200 with loan to values of greater than 90%, the monthly mortgage insurance is 0.65% annually. For the same loans with loan to values greater than 78% and less than or equal to 90% the monthly mortgage insurance is 0.40% annually. For the same loans with loan to values less than or equal to 78% the monthly mortgage insurance is 0.150% annually for Loan To Values of 95.01 and greater and 1.45% annually on Loan To Values equal to or below 95% when the Term is greater than 15 years.

For streamline refinances, the monthly MIP is 0.55% annually, regardless of loan to value or loan size.

Monthly mortgage insurance on FHA loan can be represented in the following chart:

FHA Monthly MI Chart

Related terms: FHA, Mortgage Insurance, Final Loan Amount.

Related terms: Lender Paid Mortgage Insurance, Split Edge Mortgage Insurance, Borrower Paid Mortgage Insurance, Loan To Value, Fannie Mae, Freddie Mac, Occupancy.

MORTGAGE INTERVIEW

The process of gathering pertinent information from the Borrower to determine if he/she will prequalify for a Mortgage. Information regarding Income, Liquid Assets, liabilities, and credit history, as well as the Subject Property and any other property currently owned, is collected. The Borrower is advised during this interview that a Credit Report must be pulled in order to determine the specific loan program and the loan amount for which he/she can prequalify. The Mortgage Interview is the first step in the loan process. If the Borrower decides to move forward with the Mortgage, a completed Loan Application with full Disclosures are generated and sent to him/her. Because the majority of the information for the Loan Application has already been obtained in the Mortgage Interview, this allows the generation of a Loan Application and Disclosures that are complete so that the Borrower does not have to fill anything out on the Loan Application forms.

Related terms: Loan Application, Subject Property, Credit Report, Disclosure.

MORTGAGE LIFE INSURANCE

Expensive insurance policy that pays your Mortgage off in the event of the policy holder’s death. A Mortgage Life Insurance policy makes the Lender the beneficiary of the policy. These policies, while legal, are generally considered predatory and cannot be required in order for credit to be extended. It is HomeStart’s opinion that the Borrower is better off purchasing a private life insurance policy that makes the Borrower’s heir the beneficiary of the policy, instead of the Mortgage Lender.

Related terms: Mortgage Disability Insurance, Payoff, Whole Life Insurance.

MORTGAGE LOAN ORIGINATION AGREEMENT

Loan Application Disclosure that sets forth the nature of the relationship between the Mortgage loan originator and the Borrower as well as how the loan originator’s compensation can be earned. Specifically this Disclosure explains that:

• The retail price offered; that is the Interest Rate, total Points, and fees, including the loan originator’s compensation;

• In some cases, all of the loan originator’s compensation may be paid entirely by the Lender or the Borrower;

• The loan originator may be paid partially by the Lender and partially by the Borrower and that if the Borrower wishes to pay a lower Interest Rate the Borrower may pay higher upfront Points and fees; and

• If the Borrower would rather pay less up front (on the Front of the loan), some or all of the loan originator’s compensation may be paid indirectly through a higher Interest Rate.

Related terms: Loan Application, Disclosure, Mortgage, Borrower, Front, Back, Interest Rate, Points.

MORTGAGOR

Entity giving temporary ownership in the Collateral to the Lender is the Mortgagor or the Borrower. In a Mortgage transaction, the entity receiving ownership is the Mortgagee and the entity giving ownership is the Mortgagor. This is congruous as compared to most “-gor/-gee” combinations. For example, the Lessor (or landlord) is the giver and the Lessee (or tenant) is the recipient. Similarly, the Grantor is the giver and the Grantee is the recipient; however, with Mortgages, this combination seems backward because it is actually the Borrower, or Mortgagor, who is temporarily giving Title “ownership” to the Lender until the loan is repaid and it is the Lender, or Mortgagee who is the recipient of the Title ownership despite the fact that the Lender is actually loaning the funds to the Borrower.

Related terms: Mortgagee, Grantee, Grantor, Title.

MORTGAGE PAYMENT

Total monthly payment required to meet the monthly financial obligation agreed to at Closing. This amount can be made up of a number of different loan payment parts: Principle, Interest, Homeowner’s Insurance, Mortgage Insurance, Property Taxes and/or Homeowner’s Association dues. Most commonly a Mortgage Payment consists of “PITI” which is Principle, Interest, Taxes (Property) and Insurance (Homeowner’s); however, a Mortgage Payment can include Mortgage Insurance as well, but would still only be referred to as PITI.

All loans with Mortgage Insurance include all four parts of the PITI. Loans without Mortgage Insurance may or may not include the “TI” (Property Taxes & Homeowner’s Insurance) portion as the Borrower without Mortgage Insurance has the right to Waive Escrows, if so desired. There is also something called a Minimum Payment on loans that are Payment Choice or Option ARMs which offer Negative Amortization. This payment is less than the Interest that accrues monthly on the loan, keeping the payment low, but making the Mortgage balance increase each month. Generally loans with Negative Amortization (and Minimum Payments) offer the Minimum Payment until the new balance of the Mortgage is 110% of the beginning balance. At that point the Minimum Payment is no longer offered.

Related terms: Closing, PITI, Principle, Interest, Property Taxes, Homeowner’s Insurance, Mortgage Insurance, Waiving Escrows, Payment Choice, Option ARM, Negative Amortization.

MORTGAGEE POLICY

Insurance policy paid for by the Buyer to protect the Lender in the event of a successful challenge to Title.

Related terms: Mortgagee, Mortgagor, Title.

MORTGAGE PROFILE

Borrower analysis. This is the analysis of the Borrower’s Income, credit, employment, Liquid Assets, Debt To Income Ratios and other criteria as a precursor to loan product choice and loan placement.

Related terms: Borrower, Loan Application, Income, Qualifying Income, Liquid Assets, Debt To Income Ratios.

MORTGAGE TAX

State tax based on the loan amount, which is charged at Closing.

Related terms: Tax Stamps, Mansion Tax.

MORTGAGE TAX DEDUCTION

The United States IRS Code permits the tax deductability of Interest paid on your Owner Occupied residence and your Second Home up to $1 million worth of loan Interest. That means if you paid $60,000 in Mortgage Interest between your Primary Residence and your Second Home and together those loans exceed $1 million, then only that portion of Interest paid on the $1 million of indebtedness is tax deductible.

Related terms: Interest, Income Taxes, Deduction.

MORTGAGE UNEMPLOYMENT INSURANCE

Expensive insurance policy that pays your Mortgage Payments in the event of the policy holder’s unemployment. A Mortgage Unemployment Insurance policy makes the Lender the beneficiary of the policy. These policies, while legal, are generally considered predatory and cannot be required in order for credit to be extended. It is HomeStart’s opinion that the Borrower is better off purchasing a private unemployment insurance policy which makes the Borrower the beneficiary of the policy, instead of the Mortgage Lender.

Related terms: Mortgage Payment, Lender.

MULTIFAMILY HOUSING

A property containing two to four units (in the residential Mortgage/Real Estate world). See the HomeStart Specialty Tutorial, “Buying Multifamily Housing - Becoming a Landlord in One Easy Step”.

Related terms: Duplex, 3plex, 4plex.

N

NEGATIVE PAYMENT SHOCK

When a Borrower’s proposed PITI payment will be lower than his/her current Housing Expense.

Related terms: PITI, Housing Expense.

NEGATIVE AMORTIZATION

Loan feature that allows a Minimum Payment to be made that is less than the Interest that accrues in one month. Therefore, the portion of the monthly Interest that is not paid is added to the balance of the Principle, thus, the Principle goes up rather than down. Usually Negative Amortization loans are permitted to add to Principle until the loan reaches 110% or 115% of its original Principle balance.

Related terms: Minimum Payment, Interest, Principle.

NET INCOME

Net Income is the amount of Income after any federal taxes, Medicare contributions and Social Security contributions are deducted from the Gross Income for a W2 Borrower. The term Net Income is also used for the amount that appears on a Self-Employed Borrower’s Schedule C. See Income Analysis.

Related terms: Income, Gross Income, Qualifying Income, Income Analysis, W2, 1099, Self-Employed.

NET SAVINGS

Formula to determine the savings involved in Refinancing a property. When Refinancing, if the Term of the loan decreases (from a 30 year Mortgage to a 15 year Mortgage, for example) where a period of time (months or years) is eliminated before the property is paid off, and the payment on the new Mortgage is higher than the prior Mortgage Payment, a Breakeven is not the appropriate calculation to determine the prudence and ethics of doing the Refinance. In this case, the Net Savings calculation formula is used in order to make sure the Refinance makes financial sense. In order to utilize a Net Savings formula, the Term of the new loan must be lower than the years remaining on the current Mortgage and the payment must increase.

The Net Savings argument for the advantages of a Refinance is simple, and it is the most commonly used reason for American refinancing. The saying goes as follows, “If you save more than you spend on a Refinance, it makes sense.” This is a simplified version of the Net Savings calculation. It compares Closing Costs and Prepaids (paid on the Refinance) to the number of current monthly payments (PI) that would be eliminated by the Refinance. While this is a good indicator of the financial wisdom of the transaction, it is lacking with regard to precision. The precise formula for the Net Savings calculation is as follows:

Related terms: Refinance, Mortgage Payment, Closing Costs, Prepaids, Breakeven.

NEW HOME

A Tract Builder home that is completed inventory intended for sale. See the HomeStart Specialty Tutorial, “Beware the Tract Builder”. While buying another person’s home is a new house to the Buyer, it is considered a Resale, not a New Home. Further, putting down a Deposit and picking a house out so that a Tract Builder can begin building a new house for you is called a To Be Built. The other kind of construction is a Custom Build (that is performed by a Custom Builder rather than a Tract Builder). These distinctions are important for two reasons: First, the name of the kind of property being Purchased dictates the kind of financing that will be utilized and often the Contract that will be used; and second it clarifies who is paying for the Interim Financing (if any). A To Be Built’s Interim Financing is paid for by the Tract Builder and a home being built where the Borrower pays for the Interim Financing is called a Custom Build.

Related terms: Tract Builder, To Be Built, Resale.

NO-COST MORTGAGE

A No-Cost Mortgage is a Mortgage where the Interest Rate on the loan is higher than normal but there are no costs on the Front of the loan. These Mortgages are good for people who are certain that they will not keep the Mortgage for a very long period of time. For example, if a No-Cost Mortgage raises your rate such that it saves you $5,000 in Closing Costs, but only adds $100/month to your Mortgage Payment, then it would take 50 months of paying that extra $100/month to equal what you saved. If you only keep the loan for two years, for example, doing a No-Cost Mortgage would save you $2,600. If, however you were keeping the loan for 6 years (72 months) the decision to do a No-Cost Mortgage would end up costing you $2,200 extra dollars. The whole point of a No-Cost Mortgage is to pay it for as short of a time as possible, then you have “won”.

Related terms: No Point Loan, Structure.

NO DOC

A documentation type where Income, Liquid Assets and employment are all left blank on the Uniform Residential Loan Application so that nothing can be verified. This documentation type avoids a Reasonability Test. Extremely high Credit Scores are required for this documentation type. Rarely, this documentation type will also be referred to as NINANE (No Income No Asset No Employment).

Related terms: Full Doc, Stated Income, SISA, NINA, NIV, NIVA, No Ratio.

NO INCOME NO ASSET (NINA)

A documentation type where both Income and Liquid Assets are left blank on the Uniform Residential Loan Application so that Debt To Income Ratios cannot be calculated and Liquid Assets cannot be verified. This documentation type avoids a Reasonability Test. Employment is declared on the Uniform Residential Loan Application and is verified. High Credit Scores are required for this documentation type.

Related terms: No Doc, Stated Income, SISA, NIV, NIVA, No Ratio.

NO INCOME VERIFICATION (NIV)

A documentation type where Income is declared on the Uniform Residential Loan Application but it is not verified; however, the unverified Income must pass a Reasonability Test. Liquid Assets and employment are declared on the Uniform Residential Loan Application and are verified. Sometimes, Lenders will require two to four months’ worth of the unverified Income in assets to consider the loan as NIV. High Credit Scores are required for this documentation type.

Related terms: No Doc, Stated Income, SISA, NINA, NIVA, No Ratio.

NO INCOME VERIFIED ASSETS (NIVA)

A documentation type where Income and employment are left blank on the Uniform Residential Loan Application so that Debt To Income Ratios cannot be calculated and employment cannot be verified. This documentation type avoids a Reasonability Test. Liquid Assets are declared on the Uniform Residential Loan Application and are verified. High Credit Scores are required for this documentation type.

Related terms: No Doc, Stated Income, SISA, NINA, NIV, No Ratio.

NON-OWNER OCCUPIED PROPERTY

Property meant for leasing or resale in which the owner does not live. This is also be referred to as a Rental Property, Investment Property and an Investor Property. See the HomeStart Specialty Tutorials, “Properly Buying Investment Property” and “Buying Multifamily Property - Becoming a Landlord in One Easy Step”.

Related terms: 1031 Exchange, Rental Property, Investment Property, Investor Property.

NON-BORROWING SPOUSE

A legally married or non-married Title owner who is not a Borrower on the loan. This term is interchangeable with Non-Obligor Spouse. The term “spouse” generally means a cohabitant and does not denote marital status. This term in used in both Refinance and Purchases transactions.

Related terms: Truth In Lending Statement, Deed Of Trust, Loan Application, Non-Purchasing Spouse, Non-Obligor Spouse.

NON-HOMOGENEITY

A physical land characteristic that dictates that every parcel of land is unique and different.

Related terms:

NON-PURCHASING SPOUSE

A legally married or non-married Title owner who is not a Borrower on the loan. The term “spouse” generally means a cohabitant and does not denote marital status. Usually this term is used in a Purchase transaction.

Related terms: Non-Borrowing Spouse, Non-Obligor Spouse, Loan Application, Truth In Lending statement,

NON-REALTY ITEMS

Items in a

Related terms:

NON-WARRANTABLE

Condo complex that does not meet minimum occupancy, Homeowners Association, completion, delinquency, reserve or other Condo Questionnaire criteria. If a Condo is Non-Warrantable, fewer Lenders will be able to lend on the property and the Interest Rates offered will be higher.

There are two processes by which Warrantability is determined: Full Review or Limited Review. These two types of reviews are determined by an Automated Underwriting program (either Freddie Mac’s Loan Product Advisor or Fannie Mae’s Desktop Underwriter). The difference between the two Findings is the number of questions on the Condo Questionnaire that the Homeowner’s Association must complete. The Full Review questionnaire has approximately 42 questions and the Limited Review questionnaire has approximately 20 questions.

Whether a Condo receives a Full Review or a Limited Review, the following must be true:

1. For new Condo complexes:

• At least 90% of the units must be sold;

• All phases of construction must be completed;

• The Homeowners Association must be under the control of the homeowners; and

• Owner Occupied and Second Home units must make up at least 70% of the units sold in the complex (not per building or per phase but for the entire complex).

If any of these three items is not met, then the Condo complex is Non-Warrantable.

2. For established Condo complexes:

• At least 90% of the units must be sold;

• All phases of construction must be completed;

• The Homeowners Association must have been under the control of the homeowners for at least one year;

• Owner Occupied and Second Home units must make up at least 51% of the units sold in the complex (not per building or per phase but for the entire complex);

• Homeowner’s Association dues cannot be delinquent by more than 15% of the number of sold units; and

• The Homeowner’s Association must have at least 10% of its annual budget in reserves.

If any of these three items is not met, then the Condo complex is Non-Warrantable.

The reason that a Non-Warrantable Condo complex has increased risk is because the unit is not free-standing. Instead, the unit is connected to all the other units. If the Condo complex has a low Owner Occupied and Second Home percentage, that means that the majority of the units in the complex are Investment Properties. When recessions hit, people tend to pay their Owner Occupied and Second Home Mortgages first, which means that Investment properties tend to go into Default. If the units of a Condominium complex are in Default, then the Homeowners Association dues on those units are also not being paid. Thus, the coffers that keep the entire Condominium complex maintained will be bare and the complex itself may fall into disrepair, damaging the value of all the units.

On FHA and VA loans, Warrantability is not determined. Instead, a Condo complex must be “FHA Approved” or “VA Approved” prior to the transaction in order to do a Mortgage on the unit. Condominiums, regardless of their Loan To Value ratio, do not have monthly Mortgage Insurance on FHA or VA loan.

Related terms: Condo, Condominium, Warrantability, Warrantable, Non-Warrantable, Full Review, Limited Review, Homeowners Association, Owner Occupied, Second Home, Investment Property, Rental Property, Non-Owner Occupied Property, Investor Property, Default, FHA, VA.

NO POINT LOAN

Loan on which no Points are charged where all compensation on the loan is made up of Yield Spread Premium or Service Release Premium. No Point Loans have higher Interest Rates than loans with Points. Contrary to popular belief, a No Point Loan is only prudent if the Borrower plans on keeping the loan for a very short period of time. Points, in and of themselves, are not bad. They are a financial tool to achieve long-term financial goals. For example, if a Borrower is buying a property that is intended to be resold within two years, a No Point Loan is the best Structure. However, if the Borrower intends on keeping the property for a few years, then turning it into an Investment Property, a No Point Loan is the wrong Structure. This is because some Points should be added to lower the Interest Rate. The proper number of Points is determined by the Recoup Formula. See the HomeStart Specialty Tutorials, “Do-It-Yourself Mortgage” and “Tailor the Mortgage Yourself and Save Thousands - Back Loaded Purchase/Refinance”.

Related terms: Yield Spread Premium, Service Release Premium, Point, Structure, Recoup.

NO RATIO

A documentation type where Income is left blank on the Uniform Residential Loan Application so that Debt To Income Ratios cannot be calculated. This documentation type avoids a Reasonability Test. Liquid Assets and employment are declared on the Uniform Residential Loan Application and are verified.

Related terms: No Doc, Stated Income, SISA, NINA, NIV, NIVA.

NOTARIZE

The act of verifying the identity and signature of someone executing a document.

Related terms: Notary.

NOTARY

A duly authorized individual who can verify the identity of the person executing a document and the signatures made on the document. In some states, only attorneys can be Notaries. In other states, anyone can be a Notary. Notaries can be found at Mortgage brokerages, Real Estate Agencies, attorney’s offices and banks and financial institutions.

Related terms: Notarize.

NOTE

Instrument setting forth the Lender, loan amount, Interest Rate, Term, Principle & Interest payment and other particulars about a loan. When a loan is modified through a Modification or when Interim Financing on a One-Time Close Construction Loan is converted to Permanent Financing, it is the Note that is altered.

Related terms: Closing, Principle, Interest, Mortgage Payment, Modification, Loan Modification, One-Time Close, Construction Loan, Interim Financing, Permanent Financing.

NOTICE OF PENALTIES FOR MAKING FALSE OR MISLEADING STATEMENTS

Loan Application Disclosure that states the criminal penalties for making false or misleading statements in order to obtain a Mortgage loan. Generally this document must be Notarized so that there is no question that the Borrower understands the severe penalties that are a result of loan fraud.

Related terms: Loan Application.

O

OBJECTION

Notice that a Buyer objects to something on the Title Commitment in a Purchase transaction.

Related terms: Contract, Title, Title Commitment.

OCCUPANCY

The manner in which a Borrower lives or does not live in the Subject Property. The three types of Occupancy are Owner Occupied, Second Home and Investment Property.

Related terms: Occupancy Affidavit, Owner Occupied, Second Home, Investment Property, Investor Property, Rental Property, Non-Owner Occupied Property.

OCCUPANCY AFFIDAVIT

Document that declares the intended use of the Subject Property as Owner Occupied, a Second Home or an Investment Property. This document also states the time frame (the number of days or the date) by which the property will be occupied.

Related terms: Owner Occupied, Second Home, Investment Property, Rental Property, Investor Property, Non-Owner Occupied Property.

ODD DAYS INTEREST

Daily amount of Interest added to the Prepaids on the new, Long Pay loan. This Interest is added on the Closing Disclosure to move the loan to the first of the month. For example, if a loan Closes and Funds on March 10, 22 days of Odd Days Interest will be added as a Prepaid item on the Closing Disclosure so that the Mortgage “begins” on April 1. By adding Odd Days Interest and moving the “start date” of the Mortgage to April 1, the first Mortgage Payment on the new loan will be on May 1 because Mortgages are paid in arrears, that is, the Borrower must possess the loan for at least 30 days prior to the first payment being due. That means that when a Borrower makes a payment, the Borrower is actually paying for the prior month’s Interest. Thus a payment on May 1 pays for the Interest that accrued in April.

Related terms: Long Pay, Closing Disclosure.

OFFER

Written proposal for the Purchase of a property. An Offer does not become a Contract until it is signed and dated by all parties and all changes have been initialed.

Related terms: Contract, Purchase Contract, Sales Contract.

OFFICE (THE)

The Office of Housing Counseling, created under the Dodd-Frank Act. This government entity deals with all activities relating to home ownership and rental housing counseling. The Office falls under the authority of the Department of Housing and Urban Development (HUD). For more information, go to: http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/hcc/hcc_home.

Related terms: HUD.

ONE-TIME CLOSE

Construction Loan that creates one transaction to finance the Purchase of a home or lot, the Interim Financing for the construction and the Permanent Financing for the Mortgage. In a One-Time Close transaction, there is only one set of Closing Costs for the acquisition of the property, the Interim Financing and the permanent Mortgage. This is achieved because when construction is completed, instead of a Refinance to pay off the Interim Financing, a One-Time Close loan simply modifies the construction Note to reflect the permanent loan terms. See the HomeStart Specialty Tutorial, “How to Do a Construction Project”.

Related terms: Construction Loan, Interim Financing, Closing Costs, Mortgage, Note, Two-Time Close.

OPEN ACCOUNT

Credit account that is paid to zero monthly, such as an American Express account.

Related terms: Revolving Account, Mortgage account, Installment Account.

OPEN ENDED

Credit without a Term. While most First and Second Mortgages have Terms that define the end date of the loan (30 years later, 15 years later, etc.), some Second Mortgages are Open End, like Home Equity Lines of Credit (HELOCs). Revolving debt (like credit cards) are also Open Ended Credit.

Related terms: Term, HELOC.

OPTION ARM

An Adjustable Rate Mortgage that has numerous payment options. Usually there are four payment options, including the payment for the loan Amortized over 30 years, the payment for the loan Amortized over 15 years, the Interest Only payment and a Minimum Payment that is less than the monthly Interest accrued. The Minimum Payment option has Negative Amortization.

Related terms: Adjustable Rate Mortgage, Amortization, Term, Interest Only, Interest, Minimum Payment, Negative Amortization.

OPTION FEE

Fee paid for the right to have the property inspected and, if dissatisfied, opt out of the Contract without losing the Earnest Money/Deposit. Every state, however, has standard Contracts. Thus, not all Contracts contain an Option Period and Option Fee. However, if this protection does not exist somewhere else in the Contract, the Borrower should make certain that it is written into a special or additional provisions section.

Related terms: Inspector, Home Inspection, Earnest Money, Deposit, Option Period, Contract, Sales Contract, Purchase Contract.

OPTION PERIOD

Period of time during which the property may be inspected and the contract nullified.

Related terms: Inspector, Home Inspection, Earnest Money, Deposit, Option Period, Contract, Sales Contract, Purchase Contract.

ORIGINATION CHARGE(S)

The Lender/Broker costs for producing the Mortgage loan is the Origination Charge. It is a lump sum which contains such costs as Origination Points, Discount Points, Processing fee, Underwriting fee, document preparation fee, and other miscellaneous Broker or Banker and/or Lender fees. The Origination Charge can be found on pg. 2 of the Loan Estimate or Closing Disclosure and cannot be increased subsequent to the initial Origination Charge quoted. The Origination Charge does not include costs incurred by third parties, such as Appraisers, credit reporting agencies, surveyors, Title/Escrow Companies, etc.; nor does it include estimated costs for Homeowner’s Insurance, Property Taxes, Prepaid Interest, or recording fees.

Related terms: Loan Estimate, Closing Disclosure, Origination Points, Point, Discount Points, Underwriting, Prepaids.

ORIGINATION POINTS

Points charged for the origination or extension of a Mortgage loan. Origination Points are not Discount Points, though one Origination Point is usually equal to one Discount Point (except on Government loans).

Related terms: Origination Charge, Adjusted Origination Charge, Point, Discount Points.

OVER 65 EXEMPTION

Tax Appraisal District tax break. This allows anyone on Title to file an Exemption due to the fact that the person is over 65. This considerably lowers the Property Taxes on the property in most states.

Related terms: Property Taxes, Prepaids, Exemption.

OVERLAY

Rule or guideline specific to a Lender who is above and beyond an industry standard. For example, while Desktop Underwriter may give a Finding of Approve/Eligible on a loan with a 60% Back Ratio, some Lenders have an Overlay that limits Back Ratios to 50%, regardless of whether or not the file receives an Approve/Eligible from Desktop Underwriter. Another example would be that generally non-taxable Social Security Income can be increased to 125% of its value (“Grossed Up” by 25%) yet some Lenders have an Overlay that states that Social Security Income may not be Grossed Up at all.

Related terms: Desktop Underwriter, Loan Product Advisor, Findings, Social Security Income, Back Ratio, Debt To Income Ratio.

OWNER OCCUPIED

Property in which the owner lives. Second Homes are technically Owner Occupied, however, Owner Occupied usually means a Principle or Primary Residence.

Related terms: Occupancy Affidavit, Second Home, Investment Property, Rental Property, Investor Property, Non-Owner Occupied Property.

OWNER’S TITLE POLICY (OTP)

Insurance policy sold by the Title Insurance Company. The Owner's Title Policy ensures Buyers that the Title to the Real Estate is free from all defects, Liens and encumbrances except those which are listed as exceptions in the policy or are excluded from the policy's coverage. It also covers losses and damages suffered if the Title is unmarketable. The policy also provides coverage for loss if there is no right of access to the land. An expanded residential Owner's Title Policy can be purchased that covers additional items of loss.

The liability limit of the Owner's Title Policy is typically the Purchase Price paid for the property. The policy may be paid by the Seller or Buyer as the parties agree; usually there is a custom in a particular state or county on this matter that is reflected in most local Real Estate Contracts. Consumers should ask their Real Estate Agents the cost of Title Insurance before signing a Real Estate Contract. Title Insurance Companies provide rate schedules to Real Estate Agents, Mortgage Brokers, Wholesale and Retail Bankers, Closing Attorneys and Lenders with detailed information as to the price of Title Insurance. Title Insurance coverage lasts as long as the Buyer retains an interest in the Real Estate insured.

In layman’s terms, the Buyer of a home who receives and Owner’s Title Policy is assured of good and marketable Title to his/her property. Should, for example, a prior owner come forth who states that he/she had Title to the property and never signed a conveyance of ownership, first the Title Company will attempt to pay the plaintiff off and will pay the legal costs involved in such an effort. If that does not work and the suit goes to court and the homeowner loses (the prior owner wins), the Title Company will pay the homeowner the Purchase Price of the home less any subsequent (from the date of sale forward) liens encumbering the property.

Related terms: Title, Title Insurance, Title Insurance Company, Buyer, Seller, Contract.

P

PADDING

Addition of Per Diem days of Interest to the Payoff to have it reflect the amount needed to pay off an existing Lien up to and including the day that the owner of the Lien will receive it; A charge in California and other Escrow states that allows for Escrow to Close after the loan has funded and allows for additional Per Diem Interest on Payoffs and time to gather exact figures on certain fees, like recording or courier fees.

Related terms: Escrow Company, Escrow, Per Diem, Payoff, Close.

PAPER TRAIL

The chain of documents that proves where something comes from. For example, if a Buyer is going to use a loan against his/her 401K to pay his/her Down Payment, the Underwriter will need the original 401K loan application for the loan, an approval letter, a copy of the loan check and a deposit slip showing the funds were deposited into a checking or savings account. Another example would be documenting rental history without a Verification Of Rent. This might be a letter from a retail bank stating it has received $980 in teller deposits, to one account, every month along with the last 12 money order slips.

Related terms: 401K Loan, Documenting Gifts.

PAR

Rate that costs nothing to the loan originator but also pays nothing to the loan originator. Par costs no Discount and pays no Yield Spread Premium or Service Release Premium.

Related terms: Par Rate, Wholesale, Rate, Discount, Yield Spread Premium.

PAR RATE

Interest Rate that costs nothing to the loan originator but also pays nothing to the loan originator. The Par Rate costs no Discount and pays no Yield Spread Premium or Service Release Premium.

Related terms: Par, Wholesale, Rate, Discount, Yield Spread Premium.

PARTNERSHIP

Business structure. Two or more individuals in a collective concern that does not include incorporation is a Partnership.

Related terms: K1, Income Analysis.

PATRIOT ACT INFORMATION DISCLOSURE

Loan Application Disclosure that informs the Borrower that Mortgage loan originators are considered “financial institituions” and are thereby required by law to verify the identity of Borrowers using various forms of identification in order to help fight terrorism and money laundering activities.

Related terms: Loan Application.

PAYMENT CHOICE

Mortgage that offers multiple monthly Mortgage Payment options. On an Option ARM, there are four possible payments: The Minimum Payment, the Interest Only payment, the 30 year Amortized payment and the 15 year Amortized payment. Minimum Payments cause Negative Amortization.

Related terms: Adjustable Rate Mortgage, Mortgage Payment, Minimum Payment, Interest Only, Amortization, Negative Amortization.

PAYMENT SHOCK

The amount that the housing payment will increase. For example, if a Buyer currently pays $1,000 a month in rent and the proposed Mortgage Payment will be $1,300 PITI then the Payment Shock is $300 or 30%. If the same Buyer purchases a cheaper house and the proposed Mortgage Payment is $900 PITI, then the Payment Shock is -$100 or -10% or is called Negative Payment Shock.

Related terms: Mortgage Payment, Housing Expense, PITI, Negative Payment Shock.

PAYOFF

Principle Owed plus Interest accrued up to the day the Payoff is received by the current Lender. In the case of a Contract For Deed, this is the amount the Seller states will allow him/her to convey Title to the Renter/Buyer.

Related terms: Principle Owed, Interest, Per Diem, Contract For Deed, Title.

PAYSTUB

A proof of Income paycheck stub that shows kind of Income, amount of Income, Income period, all Deductions and Net Income among other items (like Social Security Number, etc.).

Related terms: Income, Deduction, Gross Income.

PENSION

Sum of money that produces monthly Income for retirement. Usually Pensions are associated with private companies that offer this benefit to employees with a particular number of years of service to the firm.

Related terms: Annuity, 401K, IRA, KEOGH, SEP, Social Security Income, Income Analysis.

PER DIEM

A daily charge of Interest used to calculate a Payoff and to perform Padding on a Payoff. All loans except FHA loans have Per Diem.

Related terms: Payoff, Padding.

PER DIEM INTEREST

See Per Diem. Related terms: Per Diem, Payoff, Padding.

PERIOD

Quantity of time between adjustments (after the Fixed Period) with regard to an Adjustable Rate Mortgage. The Period of the ARM is designated by the second number in the name of the ARM. For example, a 5/1 ARM will adjust once a year after the initial Fixed Period of five years.

The hierarchy of ARMS generally runs along the following guide: A 1/1 ARM has a Period of one month; a 2/6, a 3/6, and a 5/6 ARM all have Periods of six months. Next, the Periods run in one year quantities. A 3/1, a 5/1, a 7/1 and a 10/1 ARM all have a Period of one year.

Related terms: Adjustable Rate Mortgage, Index, Margin, Floor, Initial Cap, Periodic Cap, Lifetime Cap.

PERIODIC CAP

The Periodic Cap is the middle of the three Caps generally quoted on an ARM. That is, on a 5/1 T-Bill ARM with 2/3/6 Caps, the “3” is the Periodic Cap is the maximum percent that the Rate may increase or decrease every year.

Related terms: Adjustable Rate Mortgage, Index, Margin, Floor, Period, Initial Cap, Periodic Cap, Lifetime Cap.

PERMANENT FINANCING

Financing following the Interim Financing of a Construction Loan. Permanent Financing is either a Refinance that pays off the Interim Financing or it is a Modification of the Note of the Interim Financing with final terms. See the HomeStart Specialty Tutorial, “How to Do a Construction Project”.

Related terms: Construction Loan, Interim Financing, Refinance, Modification.

PERMIT

Document allowing construction to commence on the Subject Property. See the HomeStart Specialty Tutorial, “How to Do a Construction Project”.

Related terms: Construction Loan, Interim Financing, Construction Inspection.

PI

Principle and Interest. This is the “Mortgage Payment” calculated based on the loan amount, the Interest Rate and the Term. This payment does not include Escrows (Property Taxes or Homeowner’s Insurance). When a Mortgage Payment is late under the terms of the Note (received by the Lender after the Grace Period has expired), then 5% of the PI payment will be charged as a Late Fee on Conventional loans and 4% of the PI payment will be charged as a Late Fee on Government loans.

Related terms: Principle, Interest, Interest Rate, Term, Escrows, Property Taxes, Homeowner’s Insurance, Late Fee, Grace Period, Note.

PITI

Principle, Interest, Taxes and Insurance (the four main pieces of a Mortgage Payment). Although not stated in the acronym, monthly Homeowner’s Association Dues are also part of the PITI. Principle is the portion of the payment that will be applied to Principle Owed each month. Interest is the portion of the payment that will pay the prior month’s Interest, Taxes are 1/12th of the Property Taxes and Insurance is Mortgage Insurance and/or 1/12th of the annual Homeowner’s Insurance premium.

Related terms: PI, Mortgage Payment, Principle, Principle Owed, Interest, Property Taxes, Homeowner’s Insurance.

PLANNED UNIT DEVELOPMENT (PUD)

A Subdivision or development that was generally built at the same time and that usually has a Homeowners Association. A HomeStart-certified Realtor® can communicate to the Buyer if the property in which he/she is interested is a PUD.

Related terms: Homeowners Association.

PLANS

Architectural drawings.

Related terms: Construction Loan, Interim Financing, Permanent Financing, Custom Builder.

POWER OF ATTORNEY (POA)

A document that allows the Borrower or CoBorrower to appoint a person or organization to handle his/her affairs while he/she is unavailable or unable to do so. The person or organization appointed is referred to as an "Attorney-in-Fact" and/or "Agent." A Special Power of Attorney is the type of POA that is used in a Mortgage transaction. It authorizes your Agent to act on your behalf in that specific Real Estate transaction, and allows specific powers to be given to the person or organization appointed as the Agent or Attorney in Fact. The appointed person on a Power Of Attorney used in a Mortgage transaction cannot be a person with a financial interest in the transaction. For example, a Buyer’s Real Estate Agent cannot be named as the Attorney in Fact in a Power Of Attorney document.

A Specific POA is allowable on a Mortgage loan transaction when a party or parties to the transaction are traveling outside the state or the country, or the party may not be able to handle this specific situation because of health reasons. The Specific POA must be reviewed and approved by both the Lender’s and the Title/Escrow Company’s attorneys prior to Closing.

Related terms: Attorney in Fact, Agent, Real Estate.

POC

Paid Out of Closing. A charge that is POC can be paid either by the Borrower (POC/B) or the Lender (POC/L). Usually POC items on the Loan Estimate are the Credit Report Fee, the Home Inspection fee (on a Purchase), the Appraisal Fee and possibly the Application Fee paid by the Borrower.

Related terms: Credit Report, Loan Application, Application Fee, Appraisal.

POINT

One hundredth (or one percent) of the loan amount.

Related terms: Origination Point, Discount Point.

POOLING

When a Lender is trying to increase the number of a particular loan product. Also, combining millions of dollars worth of Mortgages together in order to sell them on the Secondary Market. When a Lender is pooling in order to increase the number of 30 year Fixed Mortgages, for example. the Lender will most often improve pricing on that particular loan product (like having a sale). This will result in one Lender having better pricing than most, if not all, other Lenders on 30 year Fixed Mortgages.

Related terms: Secondary Market.

PORTFOLIO

A group of loans that are held and not sold. Sometimes more lenient Underwriting guidelines can be found on Portfolio loan products.

Related terms: Secondary Market, Servicing.

PREAPPLICATION DISCLOSURE AND FEE AGREEMENT

Loan Application Disclosure that sets forth the services the Mortgage Broker or Banker will be performing for the Borrower (counseling, assistance in obtaining a Mortgage) and the percentage or dollar amount of the Broker’s or Banker’s fee, if known at the time the document is executed by the Borrower. Additionally, this Disclosure discloses the standard fees associated with the Mortgage, like the Broker’s or Bank’s processing fee or Appraisal fee.

Related terms: Loan Application.

PREAPPROVAL

A written certification that a Borrower has been evaluated (including his/her Credit Report) and has proven his/her claimed Income and Liquid Assets. A PreApproval means that except for an Appraisal and Underwriting Conditions, the loan is Approved. While HomeStart can provide a Borrower with a Prequalification, only a HomeStart-certified Broker or Banker can provide a PreApproval.

Related terms: Prequalification, Conditional Approval, Clear To Close.

PREMIUM

See Yield Spread Premium.

Related terms: Yield Spread Premium, Discount, Back, Rebate.

PREPAID INTEREST

Interest that is added to the Closing Disclosure in the Prepaids section to prepay the loan to the end of the month so that the Mortgage “begins” on the 1st of the following month. This is also referred to as Interest To The End Of The Month. After Prepaid Interest is added, the Borrower then has to hold the loan for another 30 days before the first payment is due. For example, if a Purchase loan Closes on March 20 and March has 31 days in it, 12 days of Prepaid interest (the day of Funding, the 20th, plus 11 more days) will be added to the Closing Disclosure. This will prepay the Interest for the part of March that the loan was in existence and will force the loan to “begin” on April 1. The Borrower then has to live in the house (and hold the loan) for one month (April) before the first payment is due. The first payment would be due on the 1st of May. This is also referred to as a Long Pay.

Related terms: Interest, Prepaids, Interest To The End Of The Month.

PREPAID ITEMS

See Prepaids. Related terms: Property Taxes, Homeowner’s Insurance, Mortgage Insurance Premium, Funding Fee, Interest To The End Of The Month.

PREPAIDS

Property Tax reserves, Homeowner’s Insurance reserves, Mortgage Insurance Premium (on an FHA loan), Funding Fee (on VA loans), Prepaid Interest, Homeowner’s Insurance premium (on Purchases), deliquent Property Taxes, all charged on the Closing Disclosure. Prepaids are not Closing Costs. Prepaids are not considered Closing Costs.

Related terms: Property Taxes, Homeowner’s Insurance, Mortgage Insurance Premium, Funding Fee, Interest To The End Of The Month, Prepaid Interest.

PREPAYMENT PENALTY

Penalty charged for paying a loan off either completely or more than a preset percentage of the loan. Prepayment Penalties can be a percentage of the loan (two percent, for example) or a multiple of one month’s Interest on the loan (six months Interest, for example). Prepayment Penalties can exist for years on a loan (the first five years for example). Prepayment Penalties can be either static or stepped. A static Prepayment Penalty, for example, would carry a two percent penalty for the first five years of the loan. A stepped Prepayment Penalty might be a “3-2-1”, where the first year carries a three percent penalty, the second year carries a two percent penalty and the third year carries a one percent penalty. Prepayment Penalties are not permitted on High Cost Mortgages. Additionally, some states prohibit Prepayment Penalties altogether.

Related terms: Hard Prepay, Soft Prepay.

PREQUAL

Prequalification. A written certification that a Borrower has been evaluated (including his/her Credit Report) and, provided he/she proves his/her claimed Income and Liquid Assets, can obtain a loan for the Purchase of a property. HomeStart can provide a Borrower with a Prequal.

Related terms: Prequalification, PreApproval

PREQUALIFICATION

A written certification that a Borrower has been evaluated (including his/her Credit Report) and, provided he/she proves his/her claimed Income and Liquid Assets, can obtain a loan for the Purchase of a property. Also referred to as a Prequal. HomeStart can provide a Borrower with a Prequalification.

Related terms: PreApproval

PRICING

The costs or Yield Spread Premium associated with certain Interest Rates for a particular day. Interest Rates for Mortgages sold by Brokers and Mortgage Bankers are derived from a Wholesale Rate Sheet, provided to the originator by each of the Lenders in the originator’s network. Wholesale Rate Sheets show numerous Interest Rates that are available for numerous kinds of loans. Each of these Interest Rates has a price attached to it based on that day’s market activity. In the following graphic, lower Rates have a cost (paid to the Lender), usually represented as a positive number (i.e. a Rate of 6.125% on a 30 year Fixed, Conventional, Conforming loan has a cost of 2.875% of the loan amount on a 30 day Lock). Higher Rates offer payment to the either the Broker or Mortgage Banker (paid by the Lender), usually represented by a negative number (in the following graphic 7.125% on a 30 year Fixed, Conventional, Conforming loan pays 1.125% of the loan amount, represented as -1.125 on a 30 day Lock). Rates that pay nothing and cost nothing are called “Par Rates” or “Wholesale Par”. Payment to the Broker or Mortgage Banker for selling a Rate higher than Par is called Yield Spread Premium. Payments to Retail Banker is called Service Release Premium, but it does not have to be disclosed under the law.

Borrowers should demand to know what Wholesale Par is for their particular loan and should demand to know a Broker or Mortgage Banker’s Yield Spread Premium (or a Banker’s Service Release Premium) earned on the Rate being offered to the Borrower.

Every day, hundreds of Lenders distribute multiple page Rate Sheets, each containing numerous Rate options for numerous products. It is impossible to responsibly quote a Rate without knowing the Borrower’s job history, Credit Score, Liquid Assets, Reserves, type of loan, Appraised Value (or an estimate), Liens on the property, etc. Wholesale Rate Sheet

See the HomeStart Specialty Tutorials, “Do-It-Yourself Mortgage”, “Tailor the Mortgage Yourself and Save Thousands - Back Loaded Purchase” and “Tailor the Mortgage Yourself and Save Thousands - Back Loaded Refinance”.

Related terms: Rate, Rate Sheet, Yield Spread Premium, Service Release Premium, Credit Score, Appraised Value.

PRIMARY RESIDENCE

Property in which the owner lives full-time. Related terms: Owner Occupied, Principle Residence, Occupancy Affidavit.

PRIME

Area of lending. This area is for good and excellent credit Borrowers that covers both Conforming and Jumbo Conventional loans. Prime is also the Interest Rate at which member banks borrow money from the Federal Reserve.

Related terms: Conventional, Agency, Interest Rate.

PRINCIPLE

Amount of original loan that is still owed. Related terms: Principle Owed.

PRINCIPLE OWED

Amount of the Payoff that is the Principle of the loan.

Related terms: Principle, Payoff.

PRINCIPLE RESIDENCE

Property in which the owner lives full time. Related terms: Owner Occupied, Primary Residence, Occupancy Affidavit.

PROCEEDS

Gains, as in the sum resulting to the Seller for the sale of Real Estate.

Related terms: Purchase, List, Listing, Listing Agreement, Listing Agent, Buyer, Seller.

PROCESSING

The act of the Processor “building” the Mortgage file with proof of Income, employment, Liquid Assets, credit, property documents, etc. so that it can be underwritten by the Underwriter.

Related terms: Processor, Income, Liquid Assets, Appraisal, Survey, Credit Report, Loan Application.

PROCESSOR

Broker or Mortgage Banker/Retail Banker employee who prepares Mortgage loans for Underwriting. The Processor’s job description includes gathering all loan information and documentation from all Applicants to “build” the Mortgage loan file. The Processor generally orders the Credit Report, Title work, Survey (if applicable), property insurance information, Appraisal, Income proof, Liquid Assets documentation and Mortgage/rental verifications pertinent to the file. As each document is received, the Processor must review it and update the file accordingly. The fully documented file must then be submitted by the Processor to the Lender’s Underwriting Department. Once the file has been underwritten, the Processor is responsible for obtaining and submitting any Conditions of the Loan Approval required by the Underwriter. Upon receipt of a Clear-To-Close from the Underwriter, the Processor then prepares the file for Closing. The Processor sets the Closing with the Title/Escrow Company and coordinates all parties’ schedules. The Processor then monitors the arrival of Closing documents. The Processor also keeps in constant contact with the Borrowers, the Real Estate Agents (if applicable), the loan originator, the Title/Escrow Company, the Lender, the Appraisal Management Company, and other entities.

Related terms: Loan Application, Credit Report, Income, Liquid Assets, Title, Survey, Appraisal, Lender, Underwriter, Closing.

PROCESSOR’S CERT

Written letter by a Processor, certifying some fact within the Mortgage loan file. If, for example, a Borrower is asked to write a letter with regard to how his/her Income is paid, but this information has already been communicated to the Processor on the loan, it would be reasonable for the Borrower to ask if the loan originator to simply have the Processor do a Processor’s Cert instead.

Related terms: Letter Of Explanation, Processor.

PROFIT & LOSS (P&L)

Itemization of Income and expenses for Self-Employed Borrowers or Borrowers who own more than 25% of a business to show their Net Income (or loss) in order to figure Income. A Profit & Loss is done in order to determine the Net Income (or loss) from the current year which has not yet been filed through taxes.

Related terms: Income Analysis, Self-Employed.

PROPERTY PACKAGE

A term used on Construction Loans. The submission of the Appraisal, Construction Contract, Survey, Plans, Specs (Specifications) and final (credit) Underwriting Approval to the property Underwriter of the construction Lender.

Related terms: Construction Loan, Appraisal, Survey, Plans, Specs, Underwriter, Lender, Interim Financing, Permanent Financing.

PROPERTY TAXES

City, municipal, county or state taxes levied against a piece of Real Estate. Unpaid Property Taxes can become Liens on Real Estate that take first Lien position ahead of Mortgages or other Liens.

Related terms: Real Estate, Tax Certificate, Lien.

PROTEST

To challenge the Tax Appraised Value of a property. A Protest is made to the Tax Appraisal District (county) and must be done within a specific period of time following the receipt of the current year’s Tax Appraised Value.

Related terms: Property Taxes, Tax Appraised Value, Tax Appraisal District.

PRIOR TRANSACTION HUD ANALAYSIS

Tax Advantage Mortgaging principle. This is the analysis of the Borrower’s prior Purchase and Refinance history including all HUD-1 Settlement Statements and Closing Disclosures for the Subject Property and/or other properties to uncover unused but still existent tax deductions. See the HomeStart Specialty Tutorial, “Tax Advantage Mortgaging”.

Related terms: HUD-1 Settlement Statement, Closing Disclosure, Purchase, Refinance, Income Tax Return.

PUBLIC UTILITY EASEMENT (PUE)

An area of land that is reserved for the maintenance and repair of public utilities. Surveys will have Building Lines/Setbacks but will also show Public Utility Easements so that the Borrower knows where they may and may not make improvements. For example, if a structure (like a shed) is built over a Public Utility Easement and the municipality needs to maintain or make repairs in that same area, the municipality can destroy the shed within the Public Utility Easement. Furthermore, because it is an Easement, the municipality is not obligated to rebuild any structure, pavement, walkway, etc. that was in the Public Utility Easement, nor is the municipality required to reimburse the home owner for the damage.

Related terms: Survey, Building Lines, Setback.

PUD

Planned Unit Development.

Related items: Homeowner’s Association.

PUNCH LIST

Written list of unfinished work generally created by a Buyer and his/her Real Estate Agent and given to either the Seller (in a Resale Purchase) or the Builder (for a New Home, a To Be Built or a Custom Build home). See the HomeStart Specialty Tutorial, “How to Do a Construction Project”, especially if you (the Borrower) are acting as your own construction Lender.

Related terms: Construction Loan, Custom Builder, To Be Built, New Home, Tract Builder, Cash Out, Draw, Construction Inspection, Retainage.

PURCHASE

The act of buying a property and having Title conveyed to the Buyer.

Related terms: Buyer, Realtor, Offer, Contract.

PURCHASE AGREEMENT

Agreement of conveyance where a Purchase Price and other terms are agreed to in exchange for ownership of a property. Also known as a Contract, a Purchase & Sale Agreement and a Purchase Contract, depending on the state of the Subject Property. See the HomeStart Specialty Tutorial, “Looking for Real Estate without a Real Estate Agent”.

Related terms: Purchase, Offer, Contract, Contract of Sale, Purchase Contract.

PURCHASE CONTRACT

See Contract. See the HomeStart Specialty Tutorial, “Looking for Real Estate without a Real Estate Agent”.

Related terms: Purchase, Offer, Contract, Purchase Agreement.

PURCHASE MONEY

A Mortgage that funds only the Purchase of a property. This is important because Second liens must be Seasoned (in existence) for at least 12 months in order to be Refinanced (and replaced) with a non-Cash Out lien. The original loan(s) on a property are the Purchase Money Mortgages until they are Refinanced, if ever.

Related terms: Purchase, Lien, Second Mortgage, Refinance.

PURCHASE PRICE

The price agreed to by the Buyer and Seller for a property being sold, excluding any Seller Concessions. Related terms: Purchase, Offer, Contract.

Q

QUALIFYING INCOME

A Borrower’s Income per Mortgage guidelines. Not all Income is Qualifying Income.

Related terms: Income Analysis, Gross Income, Net Income, W2, 1099, Depreciation, Depletion, Divident & Interest.

R

RAPID RESCORE®

Permanently altering credit at the Credit Bureau level and forcing the bureaus to assign new Credit Scores to a Credit Report. See the HomeStart Specialty Tutorials, “Understanding Credit and Credit Scores” and “Manipulating Your Credit Score Higher”.

Related terms: Credit Report, Credit Score, Bureau, Repository.

RATE

The amount of annual Interest paid on a loan. A Rate can be either Fixed or Adjustable. Fixed Rates remain the same throughout the life (the Term) of the Mortgage. Adjustable Rate Mortgages change throughout the Term of the Mortgage (usually after an initial Fixed Period). Interest Rates can change on a daily basis, can be altered based on the amount of money the Borrower and/or property Seller wishes to pay in the Mortgage transaction, can differ from Lender to Lender and can differ depending on the client’s Mortgage Profile (credit, Income, employment, Liquid Assets).

There is a great deal of ignorance within the general public regarding Interest Rates. The public generally thinks that Interest Rates are both static and universal. Often people ask, “What is the Interest Rate now? or “Where are Interest Rates now”. There is no one answer to these questions. Interest Rates are different for different people, based on qualification. Interest Rates are also different based on Loan To Value, Loan Structure, Property Type, single Liens or Combo Loans, Credit Scores and loan size (to name a few determining factors). Additionally, residential, Wholesale Interest Rates change on a daily basis, sometimes hourly, based on economic conditions and bond market trading.

Interest Rates for Mortgages sold by Brokers and Mortgage Bankers are derived from a Wholesale Rate Sheet (see following graphic), provided to the originator by each of the Lenders in the originator’s network, every business day. Wholesale Rate Sheets show numerous Interest Rates that are available for numerous kinds of loans. Each of these Interest Rates has a price attached to it. Lower Rates have a cost (paid to the Lender), usually expressed as a positive number (in the following graphic, the Rate of 6.125% on a 30 year Fixed, Conventional, Conforming loan has a cost of 2.875% of the loan amount on a 30 day Lock). Higher Rates offer payment to the either the Broker or Mortgage Banker (paid by the Lender), usually expressed as a negative number (in the following graphic, the Rate of 7.125% on a 30 year Fixed, Conventional, Conforming loan pays 1.125 percentage points, represented as -1.125 on a 30 day Lock). Rates that pay nothing and cost nothing are called “Par Rates” or “Wholesale Par”. Payment to the Broker or Mortgage Banker for selling a Rate higher than Par is called Yield Spread Premium. Payments to Retail Bankers are called Service Release Premium but Retail Bankers legally do not have to disclose the Service Release Premium to the Borrower. Borrowers should demand to know what Wholesale Par is for their particular loan and should demand to know a Broker’s or Mortgage Banker’s Yield Spread Premium or a Retail Banker’s Service Release Premium earned on the Rate being offered to the Borrower.

Every day, hundreds of investors will distribute multiple page Rate Sheets, each containing numerous Rate options for numerous products. It is impossible to responsibly quote a Rate without knowing the Applicant’s job history, Credit Score, Liquid Assets, Reserves, type of loan, Appraised Value (or an estimate), Liens on the property, etc. Most Mortgage originators, however, want the Borrower to think there is just one Rate for a 30 year Mortgage, for a 15 year Mortgage, etc. This is because they consider Mortgaging a “numbers game” rather than a profession. When asked “What are Interest Rates now?”, originators answer with a Rate that would earn them payment from the Lender. If the Borrower does not question such a Rate, that is the Rate the originator sells without any consideration of the Borrower’s long-term or short-term financial picture, needs or goals. HomeStart-certified Brokers/Bankers, however, tailor Interest Rates specifically to the short-term and long-term goals of the Borrower.

The Interest Rate of the Mortgage is simply the Interest Rate that is sold, which should be sold based on the Borrower’s financial interests, needs, goals and other determining factors. An Interest Rate is a financial tool, not something used to impress friends at a cocktail party. The Interest Rate on a loan can be low or high, depending upon the Structure of the loan. See the HomeStart Specialty Tutorial, “Tax Advantage Mortgaging” for more information on Structure.

The general public also thinks they have no say in what their Interest Rate will be. Not so. Simply put, if the Borrower wishes to pay more Closing Costs, the Borrower can have a lower Interest Rate. Fewer Closing Costs would mean a higher Interest Rate, allowing the investor to make a larger contribution to the Mortgage transaction.

Proper Interest Rates are situational. If someone is buying a home and intends to keep it only for two years and then plans to sell it, a higher Interest Rate with minimal Closing Costs is mathematically the wisest financial move. Conversely, if someone is buying an Investment Property and intends to keep it for 20 years, a low Interest Rate with higher Closing Costs makes the most financial sense. Wholesale Rate Sheet.

The Interest Rate on a loan is not the same as an APR. The APR on the Truth In Lending Statement is higher because it reflects Closing Costs paid in order to acquire the loan.

Related terms: Interest Rate, Yield Spread Premium, Service Release Premium, Par, Par Rate, Wholesale Par, Closing Costs.

RATE LOCK

Attaching a Borrower’s Interest Rate to a particular day of Pricing and the actual pricing for the Rate itself.

Related terms: Lock, Rate, Lock Desk, Interest Rate.

RATE SHEET

Matrix of Rates and associated costs or Yield Spread Premium (or Service Release Premium) published by a Wholesale Lender or bank. Rate Sheets are not available to the public. Interest Rates for Mortgages sold by Brokers and Mortgage Bankers are derived from a Wholesale Rate Sheet (see following graphic), provided to the originator by each of the Lenders in the originator’s network, every business day. Wholesale Rate Sheets show numerous Interest Rates that are available for numerous kinds of loans. Each of these Interest Rates has a price attached to it. Lower Rates have a cost (paid to the Lender), usually expressed as a positive number (i.e. in the following graphic, the Rate of 6.125% on a 30 year Fixed, Conventional, Conforming loan has a cost of 2.875% of the loan amount on a 30 day Lock). Higher Rates offer payment to the either the Broker or Mortgage Banker (paid by the Lender), usually expressed as a negative number (i.e. in the following graphic, the Rate of 7.125% on a 30 year Fixed, Conventional, Conforming loan pays 1.125 percentage points, or

-1.125 on a 30 day Lock). Rates that pay nothing and cost nothing are called “Par Rates” or “Wholesale Par”. Payment to the Broker or Mortgage Banker for selling a Rate higher than Par is called Yield Spread Premium. Payments to Retail Bankers are called Service Release Premium but Retail Bankers legally do not have to disclose the Service Release Premium to the Borrower. Borrowers should demand to know what Wholesale Par is for their particular loan and should demand to know a Broker’s or Mortgage Banker’s Yield Spread Premium or a Retail Banker’s Service Release Premium earned on the Rate being offered to the Borrower.

Related terms: Rate, Interest, Par, Par Rate, Wholesale Par, Yield Spread Premium, Service Release Premium, Lock, Rate Lock, Lock Desk, Pricing.

RATE/TERM OR RATE & TERM REFINANCE

Simple Refinance where there is no Cash Out and therefore, only the Rate and/or the Term on the loan are changing (from the current loan to the new loan). A change in the Rate might be taking a current 30 year Fixed Mortgage at 6.5% and changing it to a new 30 year Fixed Mortgage at 5.0%. A change in Term might be taking a current 30 year Fixed Mortgage and changing it to a new 15 year Fixed Mortgage.

Related terms: Refinance, Cash Out, Rate, Term, Fixed, Mortgage.

RATIO

A percentage resulting from dividing one number by another. For example a $100,000 loan divided by a $150,000 Appraised Value is a Loan To Value Ratio of 66.67%. Most commonly, Ratios are used to show the Housing Expense divided by the Income of the Borrower, or the Debt To Income Ratio of the Borrower.

Related Terms: Housing Expense, Debt To Income Ratio, Front Ratio, Back Ratio, Loan To Value, Loan To Cost.

RAW LAND

Property (Real Estate) with a Metes & Bounds Legal Description with no improvements or utilities. Raw Land will have no curbs, no Septic system, no Sewer system, no buildings, no electricity, no developed Well, etc.

Related terms: Metes & Bounds.

RAZE

To demolish a home or structure, usually down to the foundation. See the HomeStart Specialty Tutorial, “How to Do a Construction Project”.

Related terms: Demolish, Demo, Construction Loan, Interim Financing, Permanent Financing.

REAL ESTATE

Land plus any improvements or structures. Property that is not permanently attached to land (both physically and with regard to Title), like mobile homes that are still mobile, are not Real Estate.

Related terms: Realtor, Manufactured Home, Mobile Home, Chattle, Chattle-Land Conversion, Purchase, Offer, Contract.

REAL ESTATE AGENCY

Collective of Real Estate Agents and brokers who offer Real Estate Purchase and sales assistance. Agencies are made up of managers, administrative staff, Real Estate Brokers (who oversee Real Estate Agents) and Real Estate Agents.

Related terms: Buyer’s Agent, Selling Agent, Listing Agent, Seller’s Agent, Realtor, Offer, Contract, Purchase Contract, Contract of Sale, Purchase Agreement.

REAL ESTATE AGENT

Professional that is licensed to represent parties in a Real Estate transaction. A real estate agent can be either an associate or a broker. Associates are sponsored by brokers and brokers do not need any form of sponsorship and must have a requisite number of years of real estate experience under their belt in order to be real estate brokers. All real estate Associates and brokers are real estate agents, however, that does not mean they are Realtors®. For a real estate agent to be a Realtor® that real estate agent must be a member of the NAR. See the HomeStart Specialty Tutorials, “Looking for Real Estate without a Real Estate Agent” and “What a Realtor® Should Do” to learn more about the specific services a real estate agent offers to the public.

Related terms: Real Estate, Buyer’s Agent, Selling Agent, Listing Agent, Seller’s Agent, Realtor, Offer, Contract, Purchase Contract, Contract of Sale, Purchase Agreement.

REAL ESTATE BROKER

Professional licensed to represent a party in a Real Estate transaction and to supervise other Real Estate Agents. See the HomeStart Specialty Tutorials, “Looking for Real Estate without a Real Estate Agent” and “What a Realtor® Should Do”.

Related terms: Real Estate, Buyer’s Agent, Selling Agent, Listing Agent, Seller’s Agent, Realtor, Offer, Contract, Purchase Contract, Contract of Sale, Purchase Agreement.

REAL ESTATE LICENSE

State license provided by a state real estate commission allowing an individual to sell residential, commercial, industrial or farm & ranch real estate.

Related terms: Real Estate, Buyer’s Agent, Selling Agent, Listing Agent, Seller’s Agent, Realtor, Offer, Contract, Purchase Contract, Contract of Sale, Purchase Agreement.

REALTOR®

A Real Estate Agent or a Real Estate Broker who is a member of the NAR. This association has a higher standard of education and ethics to which a Real Estate Agent or Real Estate Broker must subscribe. See the HomeStart Specialty Tutorials, “Looking for Real Estate without a Real Estate Agent” and “What a Realtor® Should Do”.

Related terms: Real Estate, Buyer’s Agent, Selling Agent, Listing Agent, Seller’s Agent, Offer, Contract, Purchase Contract, Contract of Sale, Purchase Agreement.

REASONABILITY TEST

An examination of the reasonability of the Income placed on the Uniform Residential Loan Application using a Stated Income (NIV) or Stated Income Stated Asset (SISA) Mortgage. For example, a supermarket cashier making $15,000 a month in Gross Income does not pass the Reasonability Test; however, a Web Technologist who builds web applications from scratch, who is Self-Employed making $15,000 a month in Net Income does pass the Reasonability test. The Reasonability Test cannot be performed on a No Doc, No Income No Asset (or NINA), No Ratio or No Income Verified Asset Mortgage because there is no Income to consider. It is important to point out that the Reasonability Test has a second component. This is a comparison of Income to Liquid Assets. For example, an Interior Designer who states $20,000 a month in Net Income but who only has $25,000 in total Liquid Assets does not pass this part of the Reasonability Test.

Related terms: Stated Income, NIV, Stated Income Stated Asset, SISA, Self-Employed.

REBATE

See Yield Spread Premium.

Related terms: Yield Spread Premium, Back, Discount, Premium.

RECAPITALIZATION

Adding the Principle Owed and any unpaid Interest that has accrued to create a new loan amount of Principle. For example, if a Borrower owes $100,000 and does not make his/her Mortgage Payment for five months (which contains $860 of Interest each month) and then is approved for a Loan Modification, the loan will be Recapitalized at $104,300 ($100,000 plus the sum of $860 x 5) and a new Note is executed.

Related terms: Loan Modification, Note.

RECEIPTED

When a Contract in a Purchase transaction is taken to the Title/Escrow Company, which vouches for the receipt of the Earnest Money/Deposit from the Buyer. Sometimes Contracts are Receipted without funds because the Deposit was paid to the Real Estate Agency (but a receipt is provided to the Buyer). Loosely, Receipted means the Contract is finalized, at least for the purposes of creating a transaction file at the Title/Escrow Company.

Related terms: Purchase, Offer, Contract, Steps In A Purchase, Title/Escrow Company.

RECERTIFICATION OF VALUE

Confirmation of value. One kind of a Recertification of Value is a Final Inspection. When an Appraiser is asked to complete a Final Inspection, the Appraiser is confirming that conditions established in the initial Appraisal have, or have not, been met. Final Inspections are commonly used in the case of proposed construction where an Appraisal is completed Subject To completion per Plans and Specs (Specifications). Once the home is completed and the Borrowers are ready to Close on their Permanent Financing, a Final Inspection or Recertification of Value must be performed. The second kind of a Recertification of Value is when an Appraisal was done one year ago or less and the Borrower and/or the Underwriter wants to know whether the value of a property has changed since the initial Appraisal. This is an update to the intial Appraisal to avoid the time and expense of doing another new Appraisal. See the HomeStart Specialty Tutorial, “How to Do a Construction Project”.

Related terms: Construction Loan, Appraisal, Final Inspection, Subject To, Permanent Financing.

RECISSION

The period after loan Closing, during which the Borrower may cancel the loan. In the United States, all Owner Occupied Refinances carry a three day right of Rescission. This means that when a loan Closes, three full business days (not counting Sundays or holidays) must pass before the loan can Fund.

Related terms: Owner Occupied, Refinance.

RECONCILIATION

Section of a Universal Residential Appraisal Report (URAR) that discloses the resulting value(s) according to the Sales Comparison Approach, the Cost Approach, or the Income Approach (on an Investment Property). Here, the Appraiser adds comments to further substantiate his/her decision regarding Fair Market Value. He/she then indicates whether this is an "As Is" value or a value made Subject To repairs or Improvements. If the Appraiser makes the value Subject To repairs, these repairs must be completed prior to Closing and the Appraiser must make a second trip to the Subject Property to inspect the property and complete a Final Inspection form for the Lender. If the Appraiser makes the value Subject To Improvements, then a second trip to the Subject Property will be required to perform a Recertification Of Value once the Improvements (construction items) are completed. This Recertification Of Value is sometimes referred to as a “442”. The last paragraph in this section is devoted to the Appraiser's opinion of value and the effective date of the Appraisal. This date starts the "life" of the appraisal which is generally four months.

Related terms: Appraisal, Appraise, Appraiser, Sales Comparison Approach, Cost Approach.

RECONSTRUCTION COST

Final tally of the Cost Approach on an Appraisal. This number is used in Construction Loans (to make sure the Custom Builder’s budget is realistic) and to set one of the numbers required for Homeowner’s Insurance. On a Homeowner’s Insurance policy the dwelling coverage must be equal to the Reconstruction Cost of the dwelling or the loan amount, whichever is lower. See the HomeStart Specialty Tutorial, “How to Do a Construction Project”.

Related terms: Homeowner’s Insurance, Hazard Insurance, Hazard Insurance Requirements Disclosure, Cost Approach, Appraisal.

RECORD

To file an agreement, a Lien, a Release of Lien or other instrument in the Real Estate records of the county in which the Subject Property exists. This allows the item to show up in a Title search of the property.

Related terms: Lien, Release of Lien, Real Estate, Subject Property, Title.

RECORDED

Instrument filed of record in the Real Estate records of the county in which the Subject Property exists. This allows the item to show up in a Title search of the property.

Related terms: Lien, Release of Lien, Real Estate, Subject Property, Title.

RECOUP

Formula to choose among different Interest Rates, i.e. how to know to what extent to Buydown the Rate. Whether or not to Buydown, or pay more for, a particular Rate is a mathematical question with a mathematical answer. Every transaction raises this question, because the Borrower needs to choose which Rate fits his/her short-term and long-term goals. If short-term financial goals weigh heavier, then the Recoup formula is not used. For example, if on a Purchase transaction, a Borrower has funds only for a Down Payment and there are no Seller Contributions toward Closing Costs, then a Buydown is obviously not appropriate. Similarly, if a Borrower (on a Purchase or a Refinance) intends to keep the properry for only two years then plans to sell it, a Buydown would be a waste of money. It is when the long-term goals weigh heavier that the Recoup formula becomes important. For example, if a Borrower plans on keeping a home for seven more years following the origination of the loan, then it is possible that a Buydown could benefit the Borrower, provided the number of months it would take to Recoup the cost of the Buydown is less than 84 months (seven years). This situation is examined as follows:

Assume the loan in question is a $100,000 loan with a Term of 15 years. On the left side of the Recoup formula, the monthly payment differences of various Rates are compared against a 7.75% standard (in the preceding graph, the difference in red between a 7.75% payment and a 6.75% payment would be $55.28/mo). To arrive at these monthly payment differences, establish the payment for 7.75% (or whatever your standard will be), determine the payments for other available Rates, then subtract each payment from the payment for the standard. This is illustrated on the left side of the preceding graph. These calculations can be done using the HomeStart Mortgage Calculator. You only need to enter the loan amount ($100,000), the Term (15) and the Interest Rate to get each payment. Subtracting each payment from the payment for the standard is simple subtraction.

On the right side of the preceding graph the costs of the Rate choices are compared against the standard of $0 (the black line of 7.75%). The goal then is to divide the difference in cost by the difference in monthly payment to arrive at the number of months it would take to Recoup the costs. This is done through simple division.

For example, the $500 cost (in blue) of the lowering of the Rate from 7.75% to 7.50% is divided by the $13.99 monthly savings (in blue) to equal 35.74 months to Recoup. Lowering to 7.25% (in pink) divides the $1,000 difference by the $27.86 monthly savings and would Recoup in 35.89 months; 7.00% (in green) would Recoup in 48.05 months; 6.75% (in red) would Recoup in 49.75 months.

This comparison of Rates and associated costs shows clearly that the quickest period of Recoup is the period corresponding to lowering the Rate from 7.75% to 7.5%; however, it also demonstrates that the longest period of Recoup is the period corresponding to lowering the Rate to 6.75%, which is 49.75 months, which is only slightly longer than four years. If the Borrower plans on keeping the new loan for at least seven years, then all Rate choices would be appropriate. Actually, lower Rate choices would even be appropriate, provided the Recoup period did not approach the seven year mark.

Related terms: Rate, Buydown.

REDACT

To mark over with completely opaque magic marker. Often, to ease a Seller’s worry, the Buyer’s Mortgage professional may fax or email the Loan Approval to the Listing Agent or the Seller (when the Seller is selling the house For Sale By Owner). All personal, identifying, and private data is Redacted before it is sent.

Related terms: Loan Approval.

REDLINING

The act of a Lender or loan originator refusing to lend in a particular geographical area or areas of a municipality. Redlining is a way to discriminate against Borrowers not based on their race, color, religion, sexual orientation, etc. by refusing to lend in an area that is predominantly African American, minority, jewish, gay, etc. Redlining is illegal. Related terms: Equal Credit Opportunity Act (ECOA), Housing Financial Discrimination Act of 1977 Fair Lending Notice.

RED TAG

An order from a municipality to cease all construction on a property or incur a fine. See the HomeStart Specialty Tutorial, “How to Do a Construction Project”.

Related terms: Construction Loan, Interim Financing, Permit.

REFER

Desktop Underwriter Finding indicating that the loan is permitted to be approved through a Manual Underwrite and that Fannie Mae’s willingness to buy the loan on the Secondary Market is unclear and the Loan Approval is referred to the Underwriter.

Related terms: Desktop Underwriter, Fannie Mae, Underwriter, Loan Approval.

REFER WITH CAUTION

Desktop Underwriter Finding indicating that the loan is permitted to be approved through a Manual Underwrite but that the Underwriter must use extreme caution in approving the loan. Fannie Mae’s willingness to buy the loan on the Secondary Market is unclear and the Loan Approval is referred (with caution) to the Underwriter.

Related terms: Refer, Desktop Underwriter, Fannie Mae, Underwriter, Loan Approval.

REFI

Public vernacular meaning Refinance. See Refinance.

Related terms: Refinance, Contract For Deed.

REFINANCE

A transaction in which either the Rate or Term are changed and/or Equity is released from the Property. Closing Costs can be rolled into a Refinance. The Loan To Value on a Refinance is calculated as the sum of all Liens on the property divided by the current Appraised Value. Conventional, VA and FHA loan programs all offer Refinances.

It is worth noting that even Borrowers who are Under Water can Refinance. Numerous loan products (Fannie Mae’s DU Refi Plus, a HARP loan) exist that, based on Credit Scores, will loan a Borrower more than the property is currently worth. HomeStart-certified Mortgage Brokers and Bankers are scrutinized to make sure that they have access to just about every Mortgage loan product in existence. Therefore, obtaining a HomeStart referral to one of these quality Mortgage professionals is an excellent way of making sure that you get the greatest financial benefit possible out of your Refinance.

Related terms: Rate, Term, Rate & Term, Rate/Term, Owner Occupied, Rescission, Loan To Value, Appraised Value.

REFINANCE POINTS AMORTIZATION TAX DEDUCTION

The Amortized tax deduction of Points charged on a Refinance. See the HomeStart Specialty Tutorial, “Tax Advantage Mortgaging”.

Related terms: Refinance, Point, Origination Points, Discount Points.

REHAB

Property that will be rehabilitated into a functional home. Usually the scope of construction on a Rehab is foundation, plumbing, electrical wiring, heating and cooling systems and units, appliances, cabinets, vanities and flooring. Rehab is also a loan product. It is important to note that the Rehab of a property can be done as a Construction Loan.

Related terms: Subject To, Remodel, Renovation, Construction Loan.

RELEASE OF LIEN

An executed instrument stating that the Lien on either a Credit Report and/or the Title of Real Estate has been satisfied and is thereby released. Recording this instrument permanently removes the Lien from the list of current Liens against the property or person.

Related terms: Credit Report, Title, Lien.

RELOCK

Re-establishing the Lock on a loan that had a previous Lock that expired. There is sometimes a fee (usually absorbed by the originator then passed onto the Borrower) that accompanies a Relock.

Related terms: Lock, Lock Desk, Lock Confirmation, Lock Period.

REMODEL

Construction on a property that is considerable, usually above $30,000, but not to the point where the structure is Razed. It is important to note that a Remodel is usually done as a Construction Loan or through the use of the cash extracted in a Cash Out Refinance. See the HomeStart Specialty Tutorial, “How to Do a Construction Project”.

Related terms: Subject To, Rehab, Renovation, Construction Loan.

RENEW & EXTEND (RENEWAL & EXTENSION)

Refinance of prior Purchase Money Lien(s). Technically, when any Mortgage loan is Refinanced by subsequent non-Cash Out Mortgage(s), the new loan(s) is/are a Renewal & Extension of the prior Mortgage(s).

Related terms: Rate/Term Refinance, Lien, Purchase Money, Cash Out.

RENOVATION

Construction that updates a property to a more modern state. Renovation usually includes new appliances, new flooring, new roofing, and updated heating and cooling systems and units. It is important to note that the Renovation of a property is usually done as a Construction loan. If a Renovation is equal to or under $30,000, it is usually considered a Rehab.

Related terms: Subject To, Rehab, Remodel, Construction Loan.

RENTAL PROPERTY

Property meant for leasing or resale in which the owner does not live. This is also be referred to as a Non-Owner Occupied, Investment Property or Investor Property. See the HomeStart Specialty Tutorials, “Properly Buying Investment Property” and “Buying Multifamily Housing - Becoming a Landlord in One Easy Step”.

Related terms: 1031 Exchange, Non-Owner Occupied Property, Investment Property, Investor Property.

REPOSITORY

Company that collects credit data from creditor clients. This is also referred to as a Credit Bureau. There are three Repositories in the United States: Experian, Equifax and Trans Union. See the HomeStart Specialty Tutorials, “Understanding Credit and Credit Scores”, “Manipulating Your Credit Score Higher” and “How to Instantly Build Credit when You Have None”.

Related terms: Credit Bureau, Credit Report, Credit Score, Rapid Rescore.

REPOSSESSION

The legal seizure of property (with the exception of Real Estate) resulting from non-payment. Repossessions negatively effect the Credit Report of the Borrower. When a Repossession takes place, the property (an automobile, for example) might be resold and the Borrower receives a credit for the amount of the sale. However, if the property sells for less than what the Borrower owes, a balance can still appear on the Borrower’s Credit Report for which the Borrower is responsible even though the property was seized. While one might hear the term “HUD Repo” (HUD reposession), that is technically a Foreclosure since it is the Repossession of Real Estate.

Related terms: Credit Report, Foreclosure, HUD Repo.

RESALE

The Purchase of a real estate that already exists, but is not a New Home. See the HomeStart Specialty Tutorials, “Looking for Real Estate without a Real Estate Agent” and “For Sale By Owner”.

Related terms: Purchase, Real estate agent.

RESERVES

Monies placed into an Escrow/Impound Account at Closing; The amount of Liquid Assets that the Borrower will have in his/her possession following the Closing of a transaction.

Related Terms: Escrows, Impounds, Liquid Assets.

RESIDENTIAL REAL ESTATE

Property use. Residential properties are where people live but only including dwellings between one and four units.

Related terms: Zoning, Commercial Real Estate, Industrial Real Estate.

RESPA

Real Estate Settlement and Procedures Act. This act (enhanced with the TILE-RESPA Integrated Disclosure rule) not only requires the Loan Estimate and Loan Servicing Disclosure Statement be signed within three days of Loan Application and how the HUD should be completed, but also governs the conduct of Mortgage Brokers, Wholesale and Retail Bankers, Real Estate Agents, Real Estate Brokers, Title/Escrow Company agents and Closing Attorneys. A Broker, for example, that charges any fee other than a Credit Report fee prior to Loan Application, is in violation of RESPA. Borrowers should familiarize themselves with this Act, which can be here.

Related terms: Kickback, Settlement provider, Owner’s Title Policy, Title company, Condition of sale.

RETAIL BANKER

A Mortgage professional acting on behalf of a retail bank in the transaction (neither a Broker nor a Mortgage Banker). When a Mortgage professional is acting as a Retail Banker, he/she is not required to disclose either the Service Release Premium being made on the loan. If the Borrower is using a Retail Banker for his/her Mortgage, the Borrower should demand to know how much Service Release Premium is being earned on the Rate he/she is being sold.

Retail Bankers also have a very limited amount of Mortgage products that they can sell to the public, because they only have access to the loan programs and Underwriting guidelines offered by the retail bank for which they work. For example, most retail banks require two full years of Self-Employment on Income Tax Returns before they will consider that Borrower for a loan. Brokers and Mortgage Bankers, however, can easily reduce this requirement to one year or less.

Related terms: Mortgage Broker, Mortgage Banker, Service Release Premium.

RETAIL LOAN ORIGINATOR

Loan originator who originates Mortgages at a large, highly-advertised company. Quicken loans, Ditech and Cash Now are all examples of companies that employ Retail Loan Originators. HomeStart does not certify Retail Loan Originators for two reasons: First, they are usually some of the most poorly educated loan originators in existence. Second, their profit model is based on unrealistic advertisements full of fine print for which only a small percentage of Borrowers can qualify. This is called using a “loss leader” to entice people to apply for a Mortgage, only to find (the majority of the time) that they cannot qualify for the advertised Rate or loan program. Additionally, Retail Loan Originators can only offer the products of the company for which they work and do not have the reach of Mortgage Brokers or Mortgage Bankers.

Related terms: Mortgage Broker, Mortgage Banker, Retail Banker.

RETAINAGE

The portion of a Custom Builder’s Draw that is withheld by the Lender of a Construction Loan. Some Lenders take Retainage from every Draw requested. Others take Retainage only from the Final Draw. See the HomeStart Specialty Tutorial, “How to Do a Construction Project”.

Related terms: Construction Loan, Custom Builder, Draw, Final Draw.

RETURN

Personal or Business Income Tax form, including all schedules.

Related terms: 1040, Income Tax Return.

REVERSE MORTGAGE

A Government loan that pays monthly payments to the Borrower in exchange for Equity in the property. Reverse Mortgages require the Borrower to be at least 62 years of age and the property (the Collateral) must have sufficient Equity in it for the loan to be Approvable. Since there are no monthly payments paid by the Applicant, the Applicant does not need to meet Qualifying Income, Liquid Asset or employment standards.

Related terms: Government, Equity.

REVOLVING

See Revolving Account. See the HomeStart Specialty Tutorials, “Understanding Credit and Credit Scores”, “Manipulating Your Credit Score Higher”.

Related terms: Credit Report, Line Item, Installment Account, Mortgage Account, Open Account.

REVOLVING ACCOUNT

A credit account with a credit limit, a fluctuating balance and payment that is a minimum percentage of the balance that mostly pays accrued Interest. Revolving Accounts have no set Term for payoff. Credit Cards are Revolving Accounts. See the HomeStart Specialty Tutorials, “Understanding Credit and Credit Scores” and “Manipulating Your Credit Score Higher”. Related terms: Credit Report, Line Item, Installment Account, Mortgage Account, Open Account.

REZONE

To change the Residential or Commercial use of a structure in a particular area of land.

Related terms: Zoning.

RIGHT OF RECISSION

The Borrower’s right to a three (3) business day period during which the Borrower may cancel the loan (even though documents have been executed) after Closing. This right does not exist on Purchases and does not exist on Refinances of Second Homes or Investment Properties. This right, which is afforded Americans by a federal law, exists only on Refinances of Owner Occupied properties.

Related terms: Recission, Owner Occupied, Refinance, Second Home, Investment Property, Rental Property, Investor Property, Non-Owner Occupied Property.

RIGHT TO COPY OF APPRAISAL DISCLOSURE

Loan Application Disclosure that informs the Borrower that he/she has a right to receive a copy of the Appraisal at least three calendar days prior to the Closing of the associated loan.

Related terms: Appraise, Appraiser, Appraisal, Closing.

ROLLING LATE

Continued status of late on a Credit Report even though payments are being made monthly. For example, if a car loan is 60 days past due on March 15 and on April 5 one payment is made, and then on May 5 another single payment is made, the loan will still report to the Borrower’s Credit Report as 60 days late, despite the fact that payments have been made monthly (because two payments were made, but two more months have elapsed). This would be called a Rolling (60 day) Late. If on June 5 two full payments were made then the loan would be 30 days late for the Month of June when June reports to the Borrower’s Credit Report. If on July 5 only one payment was made, then the loan would be considered as Rolling (30 days) Late for the month of July when July reports to the Borrower’s Credit Report.

Related terms: Credit Report.

RURAL

An area or property located beyond the Suburban limits of a city or municipality. In larger states, properties that would be considered Rural are considered Suburban because distances are larger. Sometimes, the rule of thumb is that a property is considered Rural if the population in the Subject Property’s municipality is 2,500 people or less.

Related terms: Suburban, Urban, Appraisal.

S

SALARIED

A wage earner with set earnings that are not affected by the number of hours worked. Salaried borrowers usually receive a W2 at the end of the calendar year and have taxes withheld from their paychecks (deducted from their Gross Income).

Related terms: W2, Bonus, Commission, 1099, Self-Employed.

SALES COMPARISON APPROACH

Appraisal approach that uses Sales Comps to establish an estimate of value for a property. The Sales Comparison Approach compares the Subject Property to three to five (usually) recently sold properties in the Subject Property’s area. These Sales Comps (when compared to the Subject Property) have what are called “Adjustments” that are dollar value additions and subtractions to the Sales Comp as it compares to the Subject Property. The end result is the value of the Sales Comp as if the two properties (the Sales Comp and the Subject Property) were almost identical. This, in turn, gives an estimate of the value of the Subject Property.

Related terms: Appraisal, Sales Comp, Cost Approach.

SALES CONTRACT

A Sales Contract is a agreement for the sale of a New Home or a To Be Built Tract Builder property. This term is specific to a New Home or a To Be Built home, but is sometimes also used to mean a general Real Estate Contract. See the HomeStart Specialty Tutorial, “Beware the Tract Builder”.

Related terms: New Home, To Be Built, Tract Builder.

SALES COMP

Property sold within the last year (ideally the last six months) within the Subject Property’s immediate vecinity, similar enough to the Subject Property that it can be used to justify the Fair Market Value of the Subject Property.

Related terms: Appraisal, Sales Comparison Approach.

SALES COMPARABLES

See Sales Comp.

Related terms: Appraisal, Sales Comparison Approach.

SALES PRICE

The agreed upon price for the Purchase of property.

Related terms: Purchase Price, Offer, Contract, Contract of Sale, Purchase Agreement.

SALES PROCEEDS

Residual funds to the Seller from the sale of Real Estate after deducting real estate commissions, closing costs and prorations.

Related terms: Purchase, Closing.

SAME OR SIMILAR NAME AFFIDAVIT

Affidavit signed at Closing verifying that the Applicant is not another person.

Related terms: Title Company, Title.

SCHEDULE A

Income Tax Return schedule. Schedule A shows the itemized deductions, such as medical/dental expenses, taxes paid, interest paid, gifts to charity, casualty and theft loses, unreimbursed job expenses and miscellaneous deductions.

Related terms: Income Tax Return, 1040.

SCHEDULE B

Income Tax Return schedule. Schedule B is the form provided to report all interest and dividend Income. Related terms: Interest, Dividend, Income Tax Return, 1040.

SCHEDULE C

Income Tax Return schedule. Schedule C is a Profit & Loss from a Sole Proprietorship showing Gross Income, expenses, and the resulting net profit or net loss.

Related terms: Sole Proprietorship, Gross Income, Profit & Loss, Net Income, Income Tax Return, 1040.

SCHEDULE D

Income Tax Return schedule. Schedule D is the form on which you report Capital Gains or losses.

Related terms: Income Tax Return, Capital Gains.

SCHEDULE E

Income Tax Return schedule. Schedule E is used to report supplemental Income and loss from Investment Properties, Partnerships and S-Corporations, estates and trusts, and real estate mortgage investment conduits.

Related terms: Investment Property, Rental Property, Partnership, S-Corporation, Income Tax Return, 1040.

SCHEDULE F

Income Tax Return Schedule. Schedule F is the Profit & Loss statement from farming income showing Gross Income, expenses, and the resulting net profit or net loss.

Related terms: Gross Income, Income Tax Return, 1040.

S CORPORATION

Corporate structure. This is a type of corporation with limited shareholders. Also referred to as an S-Corp.

Related terms: Income Analysis, Limited Liability Company, C-Corporation.

SEASONED

Whether or not a property has been owned for at least one year; Funds that can be accounted for over the last 60 days.

When a property is not Seasoned (owned less than one year) it can be Refinanced the day after it is Purchased, provided the loan amount is Conforming. There are times when Interest Rates fall very suddenly and a Borrower, who Purchased a home only a short time ago, finds Rates are suddenly much lower. In this case, the Borrower might Refinance the property and if the loan amount is Conforming, the property does not have to be Seasoned.

When a Lien is not Seasoned, it can generally not be Refinanced unless special circumstances exist. If you are trying to Refinance an un-Seasoned second Lien, for example, you should only use a HomeStart-certified Mortgage professional for your transaction because the special circumstances involved in such a transaction are known to few loan originators.

When funds are not Seasoned, they must be Sourced in order to be used in a Mortgage transaction.

Related terms: Seasoning, Liquid Assets.

SEASONING

Whether or not funds can be accounted for over at least a 60 day period in a Borrower’s account(s). If funds do not meet the criteria for Seasoning, the funds must be Sourced. For example, if the Borrower receives an Income Tax refund and wishes to use those funds in a Mortgage transaction within a 60 day period after receiving the refund, there will be no Seasoning of the funds. Instead, the Borrower would have to Source the funds and show the Income Tax Return (showing the refund) and either the bank statement showing the wire received or a photocopy of the refund check and the deposit slip (putting the funds into the Borrower’s account).

Related terms: Seasoned, Liquid Assets.

SECONDARY MARKET

Market into which originated and Closed loans are sold.

Related terms: Pooling, Portfolio, Servicing.

SECOND HOME

A residence that is not rented, not lived in by relatives and occupied by the owners at least two weeks out of every year. A Second Home should be in a desireable Second Home community, such as the beach, the mountains, the city (if your Primary Residence is in the country, for example), the lake or the desert and must be at least 35 miles away (distance, not drive time) from the Borrower’s Primary Residence.

Related terms: Owner Occupied, Primary Residence, Principle Residence, Investment Property, Rental Property, Investor Property, Non-Owner Occupied Property.

SECOND MORTGAGE

A Mortgage in second Lien position on Title. In the event of a default, the property will be sold on the regular market or at auction. In this situation, the First Mortgage is paid off first and if there are any funds leftover, the Second Mortgage is then paid off (in part or in full). For this reason, Second Mortgages (that are not HELOCs) usually have higher Interest Rates than First Mortgages.

Related terms: First Mortgage, Lien, HELOC.

SECTION 32

A High Cost Mortgage as defined by HOEPA. For more information on the definitions, rules and restrictions on Section 32 loans, go here.

SECURITIZE

Prepare for sale on the Secondary Market. This usually manifests as additional documentation requirements for the Borrower that have nothing to do with qualification. For example, if a borrower has ample Liquid Assets of his/her own but a Gift shows up on a bank statement, and as a result the Underwriter demands a Gift Letter, that is a documentation requirement for Securitization of the loan, rather than to prove a Borrower’s credit worthiness.

Related terms: Secondary Market, Pooling.

SECURITY INSTRUMENT

The term for a Deed of Trust in some states.

Related terms: Closing, Lien.

SEESAW

The illustration of the costs and compensation of a loan and how they are paid. Imagining two children on a Seesaw, the height of one child would represent the Interest Rate and the height of the other child would represent Points and fees. The higher one child is, the lower the other child is. Thus, a No Point loan would have the highest Interest Rate available for that loan and a loan with Points would have a lower Rate. This is also referred to as Structure.

Related terms: Structure, Closing Costs, Interest Rate.

SELF-EMPLOYED

Earning status. A Borrower who is paid in 1099 status, who is a sole proprietor, an owner of a C-Corporation, an S-Corporation, a Limited Liability Company or a Partnership who receives a K-1 and who owns at least 25% of the business, or who is a W2 employee but who owns at least 25% of the business.

Related terms: Business for self, Gross income, Net income, C-Corporation, S-Corporation, Limited Liability Company, Partnership, 1099.

SELLER

The grantor of the deed that will convey Title of the property to the Buyer.

Related terms: Purchase, Title, Buyer, Offer, Contract, Purchase Contract, Purchase Agreement.

SELLER’S AGENT

Real Estate Agent representing the Seller in a Purchase transaction.

Related terms: List, Listing, Listing Agent, Listing Agreement.

SELLER CONCESSIONS

Contributions from the Seller in a Purchase transaction to pay for Buyer Closing Costs, Prepaids, etc. Also referred to as Seller Contributions. These contributions are limited according to the following table:

Maximum Allowable Seller Concessions per Buyer

Down Payment and Occupancy Type

Buyer Down Payment - Maximum Concessions from Seller

5% (Owner Occupied & Second Home) - 3%

6 - 10% (Owner Occupied & Second Home) - 6%

10% + (Owner Occupied & Second Home) - 6%

Investment Property (regardless of Down Payment) - 2%

FHA - 3.5% - 6%

VA - (No down payment requirement) - 4%

Related terms: Seller Contributions, Purchase, Seller, Buyer, Offer, Contract, Purchase Contract, Purchase Agreement.

SELLER CONTRIBUTIONS

Contributions from the Seller to pay for Buyer Closing Costs, Prepaids, etc. Also referred to as Seller Concessions. These contributions are limited according to the following table:

Maximum Allowable Seller Concessions per Buyer

Down Payment and Occupancy Type

Buyer Down Payment - Maximum Concessions from Seller

5% (Owner Occupied & Second Home) - 3%

6 - 10% (Owner Occupied & Second Home) - 6%

10% + (Owner Occupied & Second Home) - 6%

Investment Property (regardless of Down Payment) - 2%

FHA - 3.5% - 6%

VA - (No down payment requirement) - 4%

Related terms: Seller Concessions, Purchase, Seller, Buyer, Offer, Contract, Purchase Contract, Purchase Agreement.

SELLER’S DISCLOSURE

A form that allows the Seller to communicate to potential Buyers the exact state of the property being sold, including known problems, repairs that are needed, improvements done, utilities in the area, etc.

Related terms: Purchase, Seller, List, Listing, Listing Agent, Listing Agreement.

SELLER’S MARKET

When housing inventory is low and Seller’s are under little to no pressure to make favorable concessions (Purchase Price, Seller Contributions, etc.) in order to achieve sales.

Related terms: Purchase Price, Seller Concessions, Seller Contributions.

SELLING AGENT

Real Estate Agent representing the Buyer. See the HomeStart Specialty Tutorial, “Looking for Real Estate without a Real Estate Agent”.

Related terms: Buyer’s Agent, Purchase.

SEP

Simplified Employee Pension. A SEP plan allows employers to contribute to traditional IRAs (SEP-IRAs) set up for employees and owners. SEP contributions are tax deductible for the business. A business of any size, even Self-Employed individuals, can establish a SEP.

Related terms: C-Corporation, S-Corporation, Limited Liability Company, Partnership, 1099, Self-Employed.

SEPARATION AGREEMENT

A document that formalizes the legal separation of married individuals (in states that have or require separation before divorce). A Separation Agreement sets down the assignment and ownership of Real Estate, other assets debts and obligations. These awards and responsibilities can then be altered when a final Divorce Decree is executed.

Related terms: Divorce Decree.

SEPTIC

A waste disposal system not connected to municipal sewer lines that consists of a tank beneath a patch of ground called a Septic Field.

Related terms: Septic Field, Septic Inspection.

SEPTIC FIELD

Area of property under which a Septic system exists.

Related terms: Septic, Septic Inspection.

SEPTIC INSPECTION

The inspection and resulting certification that a septic system is in full working order or, if not, the specific items that need to be repaired to achieve (re)certification. It is noteworthy that a septic inspection cannot be done unless the septic tank is empty or very close to empty. Thus, either the inspector, the borrower or the borrower’s agent must schedule a company to pump the septic tank just prior to inspection if it has not very recently already been pumped. This is an extra expense for the buyer or borrower that is rarely mentioned on a Loan Estimate. Septic pumping costs are incurred by the gallon and a normal-sized septic tank that is not even completely full can cost $750 or more in order to prepare it for inspection and certification.

Related terms: Septic, Septic Field.

SERVICE RELEASE PREMIUM

Percentage of the loan amount that is earned when a Banker sells an Interest Rate on a Mortgage loan. Sometimes a Mortgage Banker will make both undisclosed Yield Spread Premium and undisclosed Service Release Premium. A Borrower should demand to know what amount the Wholesale or Retail Banker is making in Service Release Premium because, under the law, it does not have to be disclosed to the Borrower. If the Banker is making a large amount of Service Release Premium, the Rate is probably too high.

Related terms: Interest Rate, Yield Spread Premium, Mortgage Banker, Retail Banker.

SERVICING

The act of collecting Mortgage Payments. Related terms: Hello Letter, Goodbye Letter, Secondary Market, Portfolio.

SERVICING DISCLOSURE

Loan application and closing disclosure stating if the party associated services loans and if that party intends to service (or not) the loan that is the subject of the loan application or closing.

Related terms: Closing, servicing, mortgage payment.

SETBACK

Line deliniating a section of property that cannot have a structure. Usually lots have four Setbacks: A front Setback, two side Setbacks and a back Setback. These Setbacks define which parts of the property may have structures and which may not. Setbacks are the same thing as Building Lines. See the HomeStart Specialty Tutorial, “How to Do a Construction Project”.

Related terms: Building Lines, Public Utility Easement, Suvery.

SHORT PAY

Loan Closing where there is a short period of time between the Funding of the loan and the first payment. On Purchases, this is a loan that Funds within the first five or ten days of the month (depending on the Lender’s cut-off). On Refinances, these are usually loans that Fund in the first five or ten days of the month, or a loan that actually Closes at the end of one month but Funds in the beginning of the next. Short Pay is sometimes not permitted on Adjustable Rate Mortgages or on Government loans.

When a Short Pay occurs, the first payment will be due on the 1st of the month following the Funding of the loan. When that payment is made, the payment will include Interest for the prior month (since Mortgages are paid in arrears). But since the loan did not Fund until the month had already begun, it isn’t fair for the Borrower to have to pay for days that the loan was not in place. Therefore when a Short Pay occurs, instead of Prepaid Interest being added to the Closing Disclosure, a credit of a few days (4-9 days) occurs and the overall amount necessary to Close and Fund the loan is lowered.

Related terms: Long Pay, Prepaid Interest.

SHORT TERM

A period of time which is brief. In Mortgaging, Short Term means a brief number of years. A Short Term Refinance, for example does not mean a Refinance with a brief Term (like a 10 year Fixed Rate Mortgage). Instead it means a Refinance that will only be associated with the Borrower for a short period of time. Thus, a Short Term Purchase is a house that you intend on buying but keeping for a brief period of time, like two years.

Related terms: Seesaw, Structure, Long Term, Purchase, Refinance, Cash Out Refinance.

SHORT TERM RENTAL

Investment property that is rented out only for days, weeks or a few months at a time, either privately or through services like AirBnB, VRBO or through an HOA or community site.

Related terms: Investment property, Rental.

SHORT SALE

Purchase of a Foreclosed property sold for less than its value by the Lender after Repossession. Short Sales are notorious for taking up to half of a year to Close from the date of the signed Contract. Monolithic banks cannot make decisions or sign paperwork quickly and any Buyer enticed into a Short Sale due to the “deal” he/she is getting should be prepared for a long and arduous transaction.

Related terms: Foreclosure, Closing.

SINGLE FAMILY RESIDENCE (SFR)

Structure that accommodates one family (not a Duplex, Triplex or Fourplex) that usually has no common walls. This is also referred to as a detached Single Family Residence. An attached Single Family Residence is a Townhouse/Townhome.

Related terms: Duplex, Triplex, Fourplex.

SINGLE FAMILY DWELLING (SFD)

Dwelling that accommodates one family (not a Duplex, Triplex or Fourplex) that usually has no common walls. This is also referred to as a detached Single Family Residence. An attached Single Family Residence is a Townhouse/Townhome.

Related terms: Duplex, Triplex, Fourplex.

SITE VALUE

Value of the land on a property in the Cost Approach in an Appraisal. This value is usually incongruous with the dollar-per-acre price on the Adjustments in the Sales Comparison Approach because acreage in the Sales Comparison Approach is about useable space rather than the actual value of the lot. Site Value is the more accurate picture of what the land beneath a house is really worth.

Related terms: Cost Approach, Appraisal.

SOCIAL SECURITY AWARD LETTER

Annual letter from the Social Security Administration showing the new year’s monthly Social Security Income.

Related terms: Social Security Income, Income Analysis.

SOCIAL SECURITY INCOME

Income from the Social Security Administration. Social Security Income is documented by collecting the annual Award Letter from the Borrower and/or CoBorrower. Social Security Income can generally be Grossed Up by 25% on Government loans. Related terms: Award Letter, Grossed Up, Fixed Income.

SOFT COST DRAW

A draw at the beginning of construction given to a custom builder or manufactured home retailer to cover (as applicable):

• Soil testing;

• Building Permit;

• Temporary facilities (office, trailer, singlewide);

• Utilities (light pole for electricity, port-a-potty;

• Any payments due for Builder’s Risk Insurance or General Liability Insurance;

• Dumpster acquisition;

• Clearing and Grading;

• Foundation Prep; and

• Foundation Pour.

For more information on construction, purchase the HomeStart Specialty Tutorial, “How to Do a Construction Project”.

Related terms: Construction Loan, Draw.

SOFT PREPAY

A Prepayment Penalty where selling the home (and paying off the loan) does not trigger a penalty but Refinancing the loan or paying off more than 20% of the Principle balance of the loan in a one year period does trigger the penalty (during the period of the loan when the Prepayment Penalty applies). Prepayment Penalties can be applied to a loan for up to the first five years. While the downside to a Prepayment Penalty is obvious, the benefit is usually a lower Rate for the entire Term of the loan.

Related terms: Prepayment Penalty, Hard Prepay.

SOLE PROPRIETORSHIP

A business that is not incoporated in any way. Such a business would report on Schedule C of the Income Tax Return.

Related terms: S-Corporation, C-Corporation, LLC, Income Tax Return, Gross Income, Net Income.

SOURCING

Linking funds to their specific Source to either allow or disallow their use in a Mortgage transaction. In a transaction where the Borrower did not disclose a large deposit that went into his/her checking account 20 days prior to Closing, those funds are not Seasoned (since they have been in the account for less than 60 days), thus, they need to be Sourced. Income Tax refunds are often not Seasoned and must be Sourced. The documentation for Sourcing an Income Tax refund might be getting a photocopy of both the deposit slip and the face of the refund check, a Letter Of Explanation (that the deposit was the refund) and a photocopy of the most recent Income Tax Return to show the refund on the Income Tax Return for the prior year. Sourced this way, the funds would be allowed for use in the Mortgage transaction. The reason that Underwriters are sensitive to non-Sourced, non-Seasoned funds is because they need to demonstrate that the Borrower alone has the ability to consummate the transaction, without the use of other people’s money if he/she is not using a Gift.

Related terms: Liquid Assets, Seasoning, Gift.

SPEC FINANCING

Financing for the construction of a home that is intended to be either a Spec Home (one being built for sale) or a show home for the Custom Builder.

Related terms: Construction Loan, Investment Property, Investor Property.

SPEC HOME

A property being built for sale by a Custom Builder or individual using a Custom Builder. Spec Homes are considered Non-Owner Occupied properties.

Related terms: Custom Builder, Non-Owner Occupied Property, Investment Property, Investor Property, Construction Loan.

SPECIFICATIONS

Written list of client choices for the construction of a home. These are also referred to as Specs. These include client choices with regard to flooring, cabinets, countertops, trim, wall coverings, appliances, plumbing, electrical fixtures, etc.

Related terms: Plans, Custom Builder, Construction Loan.

SPECIFIC POWER OF ATTORNEY

A document specific to a Mortgage transaction that allows the Borrower or CoBorrower to appoint a person or organization to handle his/her affairs while he/she is unavailable or unable to sign the Closing documents. The person or organization appointed is referred to as an "Attorney-in-Fact" and/or "Agent." A Special Power of Attorney authorizes the appointed party to act on your behalf in a specific Real Estate transaction, and allows specific powers to be given to the person or organization appointed as the Agent or Attorney in Fact. The appointed person on a Special Power Of Attorney used in a Mortgage transaction cannot be a person with a financial interest in the transaction. For example, a Buyer’s Real Estate Agent cannot be named as the Attorney-in-Fact in a Specific Power Of Attorney document.

A Specific Power Of Attorney document is allowable on a Mortgage loan transaction when a party or parties to the transaction are traveling outside the state or the country, or the party may not be able to handle this specific situation because of health reasons. The Specific Power Of Attorney document must be reviewed and approved by both the Lender’s and the Title/Escrow Company’s attorneys prior to Closing.

Related terms: Power Of Attorney, Attorney in Fact, Agent, Real Estate.

SPECULATIVE CONSTRUCTION

The construction of Investment Properties.

Related terms: Construction Loan, Spec Financing.

SPECS

See Specifications.

Related terms: Construction Loan, Plans, Custom Builder.

SPLIT EDGE MORTGAGE INSURANCE

Mortgage Insurance that is paid both by the Borrower in the monthly payment and by the Lender through a slightly elevated Interest Rate. Split Edge Mortgage Insurance can positively affect Debt To Income Ratios and is often used when Debt To Income Ratios are too high.

Related terms: Mortgage Insurance, MI, Lender Paid Mortgage Insurance, Mortgage Insurance Premium.

STAND ALONE

A Second Mortgage originated by itself, not in conjunction with a First Mortgage.

Related terms: Second Mortgage, First Mortgage, Combo Loan.

STATED INCOME

A documentation type where Income is Stated on the Uniform Residential Loan Application but it is not verified; however, the Stated Income must pass a Reasonability Test. Liquid Assets and Employment are declared on the Uniform Residential Loan Application and are verified. Sometimes, Lenders will require two to four months of the Stated Income in Liquid Assets to consider the loan with Stated Income. High Credit Scores are required for this documentation type.

Related terms: Reasonability Test, SISA, No Doc, NINA, NIV, NIVA.

STATED INCOME STATED ASSET (SISA)

A documentation type where Income and Liquid Assets are Stated on the Uniform Residential Loan Application but neither is verified. SISA loans must pass a Reasonability Test for Income. Employment is declared on the Uniform Residential Loan Application and is verified. Sometimes, Lenders will require two to four months of the Stated Income in the Stated Liquid Assets section to Approve the loan as SISA. High Credit Scores are required for this documentation type.

Related terms: Reasonability Test, No Doc, Stated Income, NINA, NIV, NIVA.

STEPS IN CONSTRUCTION

The Steps In Construction (building a new Custom Home) are as follows. These steps assume that the architectural Plans and the construction Specifications are already done.

1. Construction preparation - obtaining any required soil testing, acquiring the building Permit, putting temporary facilities (an office, trailer, singlewide) and utilities (a light pole for electricity) on the property, and putting a port-a-potty on the property;

2. Clearing and Grading - cutting trees, clearing brush, removing any obstructions (old driveways, old walkways, etc.) and grading the property in preparation for the foundation;

3. Foundation Prep - framing, footings, plumbing and electrical connections, gas lines, rebar;

4. Foundation - pouring the foundation;

5. Framing - flooring, subfloor, walls, roof, sheathing;

6. Rough plumbing - connections, pipes, rough outlets, tubs;

7. Rough electrical - junction boxes, wiring, outlet boxes;

8. HVAC (heating and cooling system) rough - duct work, rough outlets;

9. Roof - finish, cornice, fascia;

10. Dry-In - exterior doors and windows, exterior vaneer;

11. Insulation - walls and ceilings;

12. Sheetrock - cut, tape, bed, texture;

13. Fireplaces - boxes, hearth, mantle;

14. Interior Finish - cabinets, countertops, trim and millwork, doors, hardware, paint/wallpaper;

15. Exterior Finish - stone, Portland cement, clapboard, priming, painting;

16. Flooring Finish - carpet, wood, stone, tile, staining/scoring;

17. Exterior Surface - driveway and walkways (stone/pavers/cement);

18. Plumbing Finish - fixtures;

19. Electrical Finish - fixtures;

20. HVAC (heating and cooling system) Finish - condensers and units;

21. Exterior Detail - gutters, screens, garage doors;

22. Appliances;

23. Well/Septic - if applicable;

24. Landscaping - finish grading, sod, planting, irrigation system; and

25. Final Clean - interior and exterior.

For more information purchase the See the HomeStart Specialty Tutorial, “How to Do a Construction Project”.

Related terms: Survey, Draw, Custom Builder, Construction Loan, Interim Financing.

STEPS IN A PURCHASE

The Purchasing process is as follows:

1. Gather your financial documents to prepare, in part, for your mortgage financing;

2. Choose a mortgage loan originator and obtain a prequalification letter. The best mortgage loan originators are HomeStart-certified mortgage brokers or bankers. To better understand the differences between mortgage loan originators, see the final video under Client Education or read “The Hierarchy of Home Loan Originators” in the second section of “Extra Extra!”, both of which can be found in the navigation panel above (or in the “hamburger” on your smartphone);

3. Get started on your mortgage loan. Arranging the mortgage financing before you look for property may seem backward, but it allows you to know how much you can qualify for, and whether or not you are comfortable with the payments and other homeownership responsibilities before finding a property;

4. Find a buyer’s agent and an attorney (if an attorney is required in your state). A buyer’s agent can be found several different ways:
   Use a HomeStart real estate agent with almost three decades of real estate and mortgage experience;
   Request a free referral to a HomeStart-certified Realtor®
   Choose a real estate agent that you know is really good (just because they are your boss’s friend’s aunt doesn’t mean they are any good).
   Once you have chosen one, that agent can usually suggest an attorney if one is required in your state. Keep in mind that there is no requirement to have a buyer’s agent. To assist users who wish to handle the Real Estate side of the transaction themselves, HomeStart sells a Specialty Tutorial called “Looking for Real Estate without a Real Estate Agent”;

5. Find a home you wish to make an offer on;

6. Enter into a Contract (this is usually done with a real estate agent);

7. Deliver the earnest money/deposit and option/inspection fee funds(if applicable) to the appropriate party (real estate agency, title/escrow company or closing attorney’s firm);

8. Perform a home inspection, including termite (if desired, but required on an FHA loan);

9. Perform any other inspections required or recommended (septic or well, if applicable, or foundation inspection if the home inspector has concerns about the foundation);

10. Order or obtain a survey from the seller (in states that use surveys);

11. Prepay and perform the appraisal;

12. Arrange homeowner’s insurance coverage for the home;

13. Complete the mortgage financing, including deciding if using a power of attorney;

14. Obtain the closing check or wire the closing funds. If a check, this check must be a cashier’s check so that the funds are immediately negotiable (can be immediately cashed) and if a wire then it must be from the borrower’s bank account (one disclosed to the underwriter). The company doing title (in wet states), escrow (in dry states) or the closing attorney’s office will be the recipient of the funds and that company will have previously issued wiring istruction to you; and

15. Attend closing. Usually the only items you need to bring to closing are photo identification, the closing check (if you didn’t wire funds) and a checkbook (if the closing check was not for the exact amount due or if the final number is less than you wired).

Related terms: Mortgage, Real estate agent, Title company, Escrow company, Closing attorney, Wiring instructions, Inspection, Home inspection, Offer, Contract.

STEPS IN A REFINANCE

1. Preparing financial documents (see Steps to Prepare for a Mortgage);

2. Choosing a Mortgage loan originator or get a free referral to a HomeStart-certified Broker or Banker;

3. Finding your Survey (in states that use Surveys);

4. Applying for Mortgage financing. This can be done by contacting a HomeStart-certified Broker or Banker;

5. Meeting Appraiser;

6. Meeting any required inspectors (Well, Septic);

7. Working with Processor;

8. Deciding if using a Power of Attorney;

9. Gathering Conditions;

10. Closing; and

11. Obtaining Closing check, if applicable.

Related terms:

STEPS IN THE MORTGAGE PROCESS

1. Mortgage Interview;

2. Loan Application;

3. Financial document gathering and delivery;

4. Processing;

5. Property Appraisal;

6. Underwriting;

7. Conditional Approval;

8. Gathering Conditions;

9. Document Preparation; and

10. Closing.

Related terms:

STEPS TO PREPARE FOR A MORTGAGE

1. Finding Income Tax Return copies for last two years;

2. Finding W2 forms for last three calendar years;

3. Finding business (C-Corporations, S-Corporations, Limited Liability Companies, Partnerships) Income Tax copies (if Self-Employed) for last two years;

4. Finding K-1 forms for last three calendar years (if Self-Employed);

5. Gathering pay documents (one month’s worth of paycheck stubs, a Social Security, Pension, Annuity Award Letters, adoption stipend stubs and/or county printout of child support payments received);

6. Gathering asset documents (two months most current bank statements for all checking, savings, and money market accounts, last two statements received for all IRAs, 401Ks, Stock accounts, and Annuities, HUDs from recent property sales). Note that state, county and federal retirement accounts for current employees do not count as assets:

7. Gathering situational documents (Divorce Decree, Bankruptcy discharge letter and list of creditors, leases for Rental Properties, Tax Appraisal notices for Rental Properties, Homeowner’s Insurance Declarations Pages for Rental Properties, proof of payment for Judgments, Tax Liens or collections);

8. Obtaining a statement of Whole Life Cash Value (if applicable);

9. Finding the Survey (if Refinancing and in a state that uses surveys);

10. Finding the Homeowner’s Insurance Declarations Page;

11. Writing down the names, addresses and telephone numbers of all landlords for the past two years; and

12. Writing down the name, address and telephone number of all Human Resources departments for all jobs.

Related terms:

STEPPED PAYMENTS

The payments involved in an FHA 2-1 Buydown loan. The Mortgage Payment is very low the first year, slightly higher in the second year and slightly higher still for years 3-30 (on a 30 year Mortgage).

Related terms: 2-1 Buydown, FHA.

STIPULATIONS (STIPS)

Items that must be produced on a Mortgage loan to turn a Conditional Approval into a Clear To Close Loan Approval. These are also referred to as Stips. Examples of Conditions are bank statements, Letters Of Explanation, updated paystubs, Gift Documentation, cleared Earnest Money/Deposit check, etc. These are also referred to as Conditions.

Related terms: Conditional Approval, Conditions, Loan Approval, Clear To Close.

STRATEGIC DEFAULT

When a Borrower purposely stops paying their Mortgage, despite the fact that the Borrower has the funds to pay it.

Related terms: Default, Foreclosure, Acceleration, Calling The Note.

STREAMLINE

When Desktop Underwriter or Loan Product Advisor Findings offer a limited documentation list of financial documents for the Borrower to produce. See the HomeStart Specialty Tutorial, “Refinancing the Problem Borrower - FHA and VA Streamline Refinances”.

Related terms: Desktop Underwriter, Loan Product Advisor, Findings.

STREAMLINE REFINANCE

FHA or VA Refinance program where Income and Liquid Assets are not verified, provided the Borrower’s payment is going down at least $50 a month or the Term is being shortened or there is some other tangible benefit for the loan (like going from an ARM to a Fixed Rate Mortgagae). A Credit Report is only analyzed if the new loan amount is higher than the original or prior loan amount. An Appraisal is only required if the Borrower is rolling Closing Costs into the new Mortgage. Using this program to the advantage of the Borrower is contained in the HomeStart Specialty Tutorial, “Refinancing the Problem Borrower - FHA and VA Streamline Refinances”.

Related terms: FHA, VA, Credit Report, Appraisal, Income Liquid Assets.

STRUCTURE

Tax Advantage Mortgaging principle. The use of Mortgage loan Structure to provide tax deduction maximization for the Borrower. See the HomeStart Specialty Tutorials, “Tax Advantage Mortgaging”, “Do-It-Yourself Mortgage”, “Tailor the Mortgage Yourself and Save Thousands - “ and “Responsible Zero Down Payment Financing”.

Related terms: Points, Buydown, Recoup, Closing Costs, Front, Back, Yield Spread Premium, Borrower Paid Compensation, Lender Paid Compensation.

SUB

Subcontractor.

Related terms: Custom Build, General Contractor, Custom Builder, Construction Loan.

SUBCONTRACTOR

A specialty construction worker. A Subcontractor is a construction worker who has a particular specialty, such as plumbing, framing, cleaning, painting, electrical, etc. Subcontractors work directly under a foreman or a General Contractor.

Related terms: Construction Loan, Custom Build, Custom Builder, General Contractor.

SUBDIVISION

One or more parcels of land that are described by Lot/Block Legal Descriptions where they are given lot numbers under a common name. For example, two lots can be Lot A and Lot B of Block 1 in the Kruger subdivision (named by the land owner). Usually Metes & Bounds properties become Lot/Block Subdivisions because either a Tract or Custom Builder wishes to sell or build on the lots, or when a municipal code requires an owner to Subdivide in order to obtain a construction Permit for the property.

Related terms: Legal Description, Lot/Block, Metes & Bounds.

SUBJECT PROPERTY

The property upon which the transaction is being done. On a Purchase, the Subject Property would be the property being bought. On a Refinance, the Subject Property would be the property being Refinanced. This is important, usually, when the Borrower has more than one property so that properties can be distinguished from one another.

Related terms: Owner Occupied, Second Home, Investment Property, Investor Property, Rental Property, Non-Owner Occupied Property.

SUBJECT TO

An Appraisal done in anticipation of repairs and/or improvements. This would be an Appraisal of the Fair Market Value “Subject To completion of the following repairs/improvements”. All construction Appraisals are done Subject To because the value is based on what the property will be worth upon completion of the property based on construction Plans and Specifications.

Related terms: Appraise, Appraiser, Appraisal, As Is.

SUBORDINATION AGREEMENT

Agreement by a Second Mortgage holder to remain in second Lien position at Funding when a new First Mortgage is originated.

Related terms: Lien, Second Mortgage, First Mortgage.

SUBPRIME

Area of lending later called “Non-QM”. This area is for challenged-credit Borrowers or for Borrowers with good and excellent credit but whose loan needs are too Non-Conforming (like a 95% loan on an Investment Property Purchase). It is important to note that HomeStart-certified Brokers/Bankers do not have to have access to Subprime Lenders because they are very rare.

Related terms: Stated Income, Bank statement income, SISA, No Doc, NINA, NIV, NIVA.

SUBURBAN

Property located within a reasonable distance from the city or municipality’s metroplex. Depending on the size of a city, the Suburban area can be enormous and is important for the Appraisal, since the Appraisal must state whether the Subject Property is Urban, Suburban or Rural.

Related terms: Appraisal, Urban, Rural.

SUSPENSION

The disposition of a Mortgage file where the Underwriter feels the file has merit but still requires additional documentation in order to be granted a Conditional Approval.

Related terms: Underwriter, Conditional Approval, Denial.

SURVEY

Measurement and drawing of a property including its boundaries and easements. A Survey looks like a sketch of the property, including the property lines, any structures on the property, driveways, walkways, etc. from above. A Survey literally looks like an outline of the property from the view of an airplane. Surveys can be done two ways: Lot/Block and Metes & Bounds. Some Title/Escrow Companies (in states that use Surveys) offer Survey Insurance. Survey Insurance is a “deletion” that binds to the Title Policy ensuring the boundary lines of the property and the accuracy of the Survey. Survey insurance does not ensure encroachments and protrusions of any improvements (house, fence, porch, gazebo, dock, well, etc.). Survey Insurance is usually worth considering on properties with Legal Descriptions defined by Metes & Bounds.

Related terms: Legal Description, Lot/Block, Metes & Bounds, Survey Insurance, Title Policy.

SURVEY INSURANCE

Title Insurance Policy insuring the accuracy of the Survey being used in the transaction. If an old Survey is being used in the transaction and it matches the size, shape, buildings, driveways, walkways, porches and decks of a property, then Survey Insurance is probably not necessary. If the Survey is brand new, then similarly Survey Insurance is probably not necessary. In the case of a highly complicated or very old Survey, then it may be wise to purchase Survey Insurance.

Related terms: Survey, Title Insurance, Title Policy.

T

T-19

Endorsement from a title company that “provides coverage to the lender against loss due to a present or future violation of CC&Rs affecting the property and protects against the encroachment of improvements and damage to improvements associated with the surface entry for mineral development.” © First American Title Company. For a list of all title company endorsements, see the list provided by First American Title Company.

Related terms: Title, Title Company, Title Insurance.

TAX ADVANTAGE MORTGAGING

Conducting the Mortgage transaction along Tax Advantage Mortgaging principles. See the HomeStart Specialty Tutorial, “Tax Advantage Mortgaging” for more information.

Related terms: Structure, Prior Transaction HUD Analysis, Discount Points, Seller Contributions, One-Time Close, Construction Loan.

TAX APPRAISAL NOTICE

Document received from the county or other tax assessor’s office showing the annual Tax Appraised Value of a property. This document also provides information on the manner in which and the time frame to Protest the value.

Related terms: Tax Appraisal District, Tax Appraised Value, Protest.

TAX APPRAISAL DISTRICT

Municipality, or county that assigns value to properties for taxation purposes. This entity assesses the Tax Appraised Value on properties within its jurisdiction on an annual basis, to determine the property’s Property Taxes.

Related terms: Tax Appraised Value, Protest, Property Taxes.

TAX APPRAISED VALUE

An estimate of what a piece of property is worth per the county tax assessor’s office. This valuation of the property helps decide what part of the local property tax levy will be billed to the property. Once this has been determined, the value is multiplied by the tax rates to determine how much tax the owner must pay on that piece of property. Many states use full market value (or a fraction of it) as a basis for their assessments. Assessors "value" property for tax appraisal purposes. "Value" is also known as Actual Value, Appraisal Value, Fair Cash Value, True Value, Market Value, etc. Most states focus on "market value." Market value is the amount of money a typical, knowledgeable, Buyer (unrelated to the Seller) would pay for a given piece of property. To calculate the market value of a piece of property, an assessor will determine if there have been changes in the Real Estate market where the property is situated. The assessor will examine what different types of property are selling for, local construction costs, normal operating expenses like utilities, nearby rental rates, and inflation. Changes in these factors may change the assessed value of the property. Taxpayers have a right to fair assessments. Furthermore, no property should be over-or under-valued in relation to similar properties within a given area. It is up to individual property owners to monitor their assessments. To learn more information, owners should contact their local tax assessor's office.

Related terms: Tax Appraisal District.

TAX CERT

Tax Certificate. A certification of taxes currently due on the property by an independent agency, delivered to the Title/Escrow Company. In a Purchase transaction, the Tax Cert is usually paid for by the Seller. In a Refinance transaction, the Borrower pays for the Tax Cert. In some states, a separate Tax Cert is not generated, but instead, annual Property Taxes and Property Taxes due are listed in the Title Company’s commitment and their accuracy is certified by the Title/Escrow Company.

Related terms: Tax Certificate, Property Taxes, Tax Appraisal District, Tax Appraised Value.

TAX CERTIFICATE

A certification of taxes currently due on the property by an independent agency, delivered to the Title/Escrow Company. In a Purchase transaction, the Tax Cert is usually paid for by the Seller. In a Refinance transaction, the Borrower pays for the Tax Cert. In some states, a separate Tax Cert is not generated, but instead, annual Property Taxes and Property Taxes due are listed in the Title Company’s commitment and their accuracy is certified by the Title/Escrow Company.

Related terms: Tax Cert, Tax Appraisal District, Tax Appraised Value.

TAX LIEN

A Title claim against the property for non-payment of taxes (Property, state or federal).

Related terms: Title, Lien.

TAX PRORATION

The proration (or payment) of Property Taxes for the current property tax year from the Seller of a home to the Buyer of the home. Property Tax funds due from the Seller to a Buyer (in a Purchase transaction) with an Escrow/Impounds account will go directly into the Escrow/Impounds account of the Buyer. Property Tax funds due from the Seller to a Buyer without an Escrow/Impounds account will go directly to the Borrower.

In some cases, both the Seller and the Buyer will have to pay Property Taxes at Closing. In the case of a loan Closing in Texas on the last day of November, 2012, for example, the Closing is taking place after Property Taxes are “out” (meaning 2102 Property Taxes are now due and are late after January 31 of the next year. In this case, the Seller prorations will be from January 1, 2012, through the end of November, 2012 and the Buyer will be charged the December portion of property taxes at Closing. This is an important loan Closing Prepaid charge that Brokers, Mortgage Bankers, Retail Bankers and Retail Mortgage Originators neglect to tell Borrowers will take place (in the situation described). Often, because it isn’t mentioned, the Borrower gets a “bottom line” number for funds due at Closing that are higher than expected. HomeStart-certified Brokers and Bankers are particularly sensitive to this situation and inform their Borrowers accordingly.

Conversely, when a Purchase loan closes before Property Taxes are due, and the Borrower does not have an Escrow/Impound account, the Seller Tax Proration will be a large credit to the Buyer at Closing. Many Lenders simply forget this credit will take place at Closing and tell the Borrower that they will need far more funds than necessary to Close the loan. Additionally, very few Mortgage professionals prequalifying a Borrower will keep this credit in mind and may tell a Buyer that he/she does not “have enough funds to close” (killing the Prequal) when he/she actually does have enough funds and can be Prequalified.

Related terms: Property Taxes, Closing.

TAX RELATED SERVICE FEE

Fee for the generation of the annual 1098 that is mailed to the Borrower every year so that the Borrower knows the Interest paid on the loan in the previous year, in order to deduct all or part of that number from his/her personal Income Tax Return for the same year. The first 1098 form mailed following a Purchase will also include any Discount Points paid at the Closing. It is important to note that Origination Points are also tax deductible. See the HomeStart Specialty Tutorial, “Tax Advantage Mortgaging” to maximize these benefits.

Related terms: Interest, 1098, Discount, Origination.

TAX STAMPS

State taxes paid on the loan amount and/or the Purchase Price in states that require them.

Related terms: Mortgage Tax, Mansion Tax.

TEAR DOWN

An existing home that will be completely leveled or Razed in order to clear the land for construction.

Related terms: Construction Loan, Raze, Demolish, Demo.

TEASER RATE

An initial, temporary Interest Rate that is used to sell a product.

Related terms: HELOC, Adjustable Rate Mortgage.

TERM

Length of time over which the loan will be repaid. This can range from five to 50 years, but generally tends to be either 15, 20 or 30 years. While the Term of the loan is generally up to the Borrower, often the Borrower can only qualify for a longer Term (30 years as opposed to 15) because the Mortgage Payment is correspondingly lower.

Purchase Mortgages are usually 30 year Mortgages, while Refinances tend to be anywhere from 10 year to 30 year Mortgages. This is because in some instances, a Refinance can be used to shorten the life of the Mortgage for those who intend on keeping the loan until it is paid off.

Second Mortgages for Purchase transactions tend to be Balloons. These are Mortgages that are Amortized over a period such as 30 years (the Mortgage Payments are set as if the Mortgage were a 30 year Mortgage paid over 30 years), but with a balloon after completion of a particular year. The most common Second Mortgage is a 30/15 balloon, where it is Amortized over 30 years but after the 15th year it has a Balloon payment when the Principle Owed is Due And Payable; however, Second Mortgages that are Amortized over 30 years and due in 30 years also exist. Second Mortgages that are Home Equity loans and not Home Equity Lines of Credit (HELOCs) can be Amortized over any Term ranging from five to 20 years.

HELOCs are often only Amortized after an initial period of monthly variable Interest has passed. Usually, HELOCs have Interest Rates that are tied to Prime that fluctuate on a monthly basis for a set period of time (like the first five years) during which the Borrower pays Interest Only and does not pay Principle on the amount of money drawn against the HELOC. After the conclusion of this period, the loan usually “recasts” based on current market conditions (Prime or some other security at that time) and becomes Amortized over the next 15 years, during which time both Interest and Principle will be a part of each payment.

Related terms: Second Mortgage, Balloon, Due And Payable.

TERMITE INSPECTION

The examination of a property for termite and any other wood destroying insects. There normally is a term in the Purchase Contract that allows the Buyer to inspect for termites. If any are found, the Seller can be required to treat the problem or to give the Buyer Seller Contributions to cover treatment. If the Termite Inspection is done during the Option Period (or the Inspection period) of the Contract and there is too much damage to the property, the Buyer can opt out of the Contract.

A Termite Inspection is not required by the Lender unless the Appraiser comments that termite damage is evident or that there exist conditions conducive to infestation; however, then you are Purchasing a home and unfamiliar with the condition of the home, it is advisable to get a Termite Inpection. Any termite treatment required by the Lender must be completed prior to Closing and a certificate of completion must be provided to the Lender.

Related terms: Home Inspection, Option Period.

TERM LIFE INSURANCE

Private life insurance policy with coverage for a specific number of years. Term Life Insurance policies are not considered Liquid Assets since they have no Cash Value.

Related terms: Whole Life Insurance, Cash Value, Mortgage Life Insurance.

THIRD PARTY FEE

A fee not associated with the Lender or originator. Lawyers fees, Credit Report fees, Title Insurance fees and Tax Stamps are all Third Party Fees.

Related terms: Closing Costs, Credit Report, Title Insurance.

TITLE

Chain of transactions that have taken place in association with a property.

Related terms: Title Company, Title Insurance, Lien, Judgment.

TITLE CHARGES

Title/Escrow Company fees, Closing Attorney’s fee, other attorneys fees (for preparing the Release of Lien), Title Insurance, Survey, Tax Stamps, recording etc.

Related terms: Closing Costs, Third Party Fees, Release of Lien, Title Insurance, Survey, Tax Stamps.

TITLE COMMITMENT

Proposed Title Policy (either Owner’s Title Policy or Mortgagee Policy) that identifies exclusions from coverage, owners of record, proposed owners, proposed Lender and Liens against the property.

Related terms: Title, Lien, Title Company, Title Insurance.

TITLE COMPANY

See Title Insurance Company.

Related terms: Title, Lien, Title Commitment, Title Insurance.

TITLE INSURANCE

Insurance policy. This policy, sold by the Title/Escrow Company protects the buyer from challenges to ownership with respect to the Title search. Simply put, if there is a challenge to title (a prior owner, for example, who returned from overseas to find that his wife had sold his property without his consent), the Title/Escrow Company issuing the policy will represent the Buyer, defend the claim, and if the claim is valid either pay off the plaintiff or reimburse the Buyer for the Purchase Price (Owner’s Title Policy) of the property. There is also a Title Insurance policy called a Mortgagee Policy that protects the Lender in such a situation, up to the amount of the loan that was extended by the Lender. Related terms: Title, Lien, Title Commitment, Title Insurance Company, Owner’s Title Policy, Mortgagee Policy.

TITLE INSURANCE COMPANY

A company that provides Title searches, Title Commitments and Title (Insurance) policies. While the choice of which Title/Escrow Company will Close the Mortgage loan is the Borrower’s choice on a Refinance and contractually negotiated between the Buyer and the Seller on a Purchase transaction, ultimately either party can be overruled by the Mortgage brokerage or bank originating the Mortgage loan. This is because in addition to providing an Owner’s Title Policy, the Title/Escrow Company also provides the Lender with a Mortgagee Policy to protect the loan from Title challenges. Not all Title/Escrow Companies are approved by all Lenders, thus, if a Title/Escrow Company is chosen for a transaction that is unacceptable to the Lender, the Lender has the right to change it to one of the Lender’s approved Title/Escrow Companies.

Related terms: Contract, Owner’s Title Policy, Mortgagee Policy, Lender, Title/Escrow Company.

TITLE POLICY

Insurance policy properly called an Owner’s Title Policy. This is an insured guarantee that the Title history is clean and that the property has no Liens other than those being paid off by the transaction. The Title Policy protects the owner from challenges to Title. For example, if a woman came forward two years after closing and stated that her husband sold the property without her signature ten years ago, the Owner’s Title Policy would kick in. That means that the Title Insurance Company’s attorneys would defend the owner against the woman’s claim. If her claim proves to be valid, the Title Insurance Company will usually attempt to settle with her (give her money to go away and drop her claim). If this doesn’t work, then the Title Insurance Company will represent the owner for free all the way through a trial. If, in the worst case scenario, the owner loses, the Title Insurance Company would pay the owner for the Purchase Price of the property.

Related terms: Title, Lien, Title Insurance Company, Title Commitment, Title Policy, Owner’s Title Policy, Purchase Price.

TLTV

Total Loan To Value (more commonly referred to as CLTV). This is the total of all Mortgages divided by the Appraised Value of the property on a Refinance or the lower of the Purchase Price or the Appraised Value on a Purchase.

Related terms: Loan To Value, Combined Loan To Value, Appraised Value.

TO BE BUILT

Tract Builder new home that has not yet been constructed. See the HomeStart Specialty Tutorial, “Beware the Tract Builder”.

Related terms: Tract Builder, New Home, Sales Contract.

TOWNHOUSE/TOWNHOME

A Single Family Residence where at least one wall is a common wall and the land beneath the property is owned by the homeowner.

Related terms: Single Family Residence, Condo, Duplex, Triplex, Fourplex.

TRACT

A large amount of land that is parceled up into smaller, Subdivided, Lot/Block pieces in order to prepare for the construction of homes.

Related terms: Custom Builder, Tract Builder, Lot/Block, Metes & Bounds, Legal Description.

TRACT BUILD

The construction of a home by a Tract Builder in which the borrower makes limited decisions and gets either a New Home in the Tract Builder’s inventory or a To Be Built that will be completed at a later date. See the HomeStart Specialty Tutorial, “Beware the Tract Builder” for more information.

Related Terms: New Home, To Be Built, Tract Builder.

TRACT BUILDER

A Builder who builds numerous, practically identical homes on a pre-owned tract of land, which is then subdivided into Lot/Block parcels. See the HomeStart Specialty Tutorial, “Beware the Tract Builder”.

Related terms: To Be Built, Sales Contract, New Home.

TRADE LINE

Information from one creditor on a Credit Report. See the HomeStart Specialty Tutorials, “Understanding Credit and Credit Scores”, “Manipulating Your Credit Score Higher” and “How to Instantly Build Credit When You Have None”.

Related terms: Credit Report, Revolving Account, Installment Account, Mortgage Account, Open Account.

TRANS UNION

One of the three largest Credit Bureaus (or Repositories) in the United States. Experian gives Credit Reports a Credit Score called a FICO. See the HomeStart Specialty Tutorials, “Understanding Credit and Credit Scores”, “Manipulating Your Credit Score Higher” and “How to Instantly Build Credit When You Have None”.

Related terms: Credit Report, Credit Score, Equifax, Experian.

TRIPLEX

A three-family property. See the HomeStart Specialty Tutorials, “Properly Buying Investment Property” and “Buying Multifamily Housing - Becoming a Landlord in One Easy Step”.

Related terms: Single Family Residence, Duplex, Triplex, Fourplex, Condo, Townhouse/Townhome.

TRUSTEE

A person or entity in control of funds or property. When a Borrower is in Bankruptcy, a Trustee is appointed to be in control of all the Borrower’s assets. If a Borrower is in Default of a Mortgage, the Trustee designated in the Deed Of Trust or other Security Instrument becomes the entity in control of the property.

Related terms: Deed Of Trust, Security Instrument, Default.

TRUTH IN LENDING STATEMENT (TIL)

Regulation Z disclosure (no longer used except on Reverse Mortgages). This document contains the APR, a schedule of payments, whether or not a Prepayment Penalty will be on the loan, any Grace Period permitted on repayment and any associated Late Fees if the payment is late, as well as other loan characteristics.

Related terms: Loan Estimate, APR.

TRUTH IN LENDING ACT (TILA)

Truth In Lending Act, part of Regulation Z, Title I of the Consumer Credit Protection Act. This Act is aimed at promoting the informed use of consumer credit by requiring disclosures about its terms and costs. This regulation applies to each individual or business that offers or extends credit that is secured by an interest in real property or a dwelling. TILA is intended to enable the customer to compare the cost of credit among different Lenders. TILA also establishes disclosure standards for advertisements that refer to certain credit terms.

Related terms: APR, Loan Application, Grace Period, Prepayment Penalty.

TWO-TIME CLOSE

A loan where Interim Financing for a construction project is provided, but following construction, the property must be Refinanced in order to obtain Permanent Financing. There is one Closing for the Interim Financing and one Closing for the Refinance. Two-Time Close loans are the more expensive of the two types of Construction Loans (One-Time Close and Two-Time Close). All HomeStart-certified Brokers/Bankers must have at least one Lender who offers One-Time Close Construction Loans. For more information, purchase the HomeStart Specialty Tutorial, “How to Do a Construction Project”.

Related terms: Construction Loan, Interim Financing, Refinance, One-Time Close.

U

UMBRELLA POLICY

Additional liability insurance policy that gives additional coverage above and beyond those limitations on one’s Homeowner’s Insurance policy. Individuals with a high net worth should consider an Umbrella Policy because the liability limits on a Homeowner’s Insurance policy are usually not high enough to protect the home owner. Umbrella Policies cover all property owned by a Borrower, including Raw Land or undeveloped land. In a Construction Loan, the Umbrella Policy can be used to take the place of a Custom Builder’s General Liability Insurance policy.

Related terms: Homeowner’s Insurance.

UNDERWRITING

Risk management review of a Mortgage loan file to make certain that the loan meets all of the requirements of the Lender’s program guidelines. The process of Underwriting takes from two to eight hours; however, from the perspective of the Borrower, this process may take longer because when submitted, the Mortgage loan file must sit in an Underwriting queue until its turn comes up, at which time it is actually reviewed by an Underwriter. The result of the process of Underwriting is either a Suspension, a Denial or a Conditional Approval.

Related terms: Underwriter, Suspension, Denial, Conditional Approval.

UNDERWRITING FEE

Lender fee to cover all work hours performed by employees of the Lender (loan coordinator, Underwriter, Closer, Funder) during file submission to the Lender.

Related terms: Origination Charges, Underwriting.

UNSEASONED

Not Seasoned. Funds that have been in a Borrower’s account(s) for less than 60 days are considered Unseasoned.

Related terms: Seasoned, Sourced.

UPFRONT MIP

See Mortgage Insurance Premium.

Related terms: FHA, MIP Refundability.

UPSIDE DOWN

When more is owed on a property than the property is worth. This sometimes occurs when Borrowers take out gimmick-style Zero Down Payment Financing loans and the housing market subsequently takes a downturn. See the HomeStart Specialty Tutorials, “Responsible Zero Down Payment Financing” and “Beware the Tract Builder”.

Related terms: Zero Down Payment Financing, Tract Builder, Down Payment, Down Payment Assistance.

UNDER WATER

When more is owed on a property than the property is worth. This sometimes occurs when Borrowers take out gimmick-style Zero Down Payment Financing loans and the housing market subsequently takes a downturn. See the HomeStart Specialty Tutorials, “Responsible Zero Down Payment Financing” and “Beware the Tract Builder”.

Related terms: Zero Down Payment Financing, Tract Builder, Down Payment, Down Payment Assistance.

UNIFORM RESIDENTIAL LOAN APPLICATION

This is the Loan Application that is signed by the Borrower at the beginning of the Mortgage process that is constantly updated by the Mortgage professional (usually the Processor) as information (such as exact Salary, exact Liquid Assets, etc.) is verified.

Related terms: Loan Application, Disclosure.

UNREIMBURSED EXPENSES

Business expenses that are paid for by an individual, then deducted from the individual’s personal Income Tax Return. Unreimbursed Expenses are properly found on Schedule B of a 1040 form; however, many times Borrowers will erroneously place them on Schedule C of the Income Tax Return. While a loss in the same amount of all the Unreimbursed Expenses is realized on Schedule C (which is appropriately reserved for Self-Employed individuals), and then carries over as a deduction against earnings on the first page of the personal Income Tax Return, making the end result the same,the correct manner is to itemize the Unreimbursed Expenses in Schedule B, provided the individual with the Unreimbursed Expenses does not own more than 25% of the company.

Related terms: Qualifying Income, Income Tax Return, Schedule B, Schedule C.

URBAN

Property located within a city or municipality. Depending on the size of a city, the Suburban area can be enormous and is important for the Appraisal, since the Appraisal must state whether the Subject Property is Urban, Suburban or Rural.

Related terms: Appraisal, Suburban, Rural.

USDA

United States Department of Agriculture loan. A USDA loan is a Government loan program that attempts to make lending easier on Rural properties.

Related terms: Government, Rural.

V

VA

Veterans Administration. A federal agency designed to help veterans enter the housing market. A VA loan is made by an institutional Lender, which is guaranteed by the Veteran’s Administration. The VA does not actually loan the funds, although it is permitted to do so in areas that are not serviced by lending institutions. A VA loan may permit a Borrower to finance up to 100% of the value of the property (the Appraised Value on a Refinance and the lower of the Purchase Price and the Appraised Value on a Purchase). VA loans are available to honorably discharged veterans (with a DD-214) or their un-remarried widows or widowers who possess a Certificate of Eligibility. Military personnel such as reservists and active service members as well as veterans may avail themselves of VA loans, which typically waive a Down Payment and offer favorable loan terms. The fixed Interest Rate on a VA home loan is equivalent to or even lower than Conventional Mortgage Rates. Advantages associated with a VA loan include:

• No requirement that Borrowers purchase private Mortgage Insurance;

• Minimum or no Down Payment; and

• Governmental restriction on the Appraisal fees, Origination Charges and Closing Costs.

More information on the VA can be found at: http://www.benefits.va.gov/homeloans/.

Related terms: Government, Certificate Of Eligibility, DD-214.

VA APPROVAL LETTER

All builders who wish to be able to accept VA loan-financed Buyers must apply for an receive a VA Approval Letter from the closest VA office. This letter shows acceptance by the VA, requires a Builder identification number for use when ordering Appraisals and offers resources and contact information for the local VA office. A VA loan on a New Home cannot be completed without this letter.

Related terms: VA, DD-214, Certificate Of Eligibility.

VA HANDBOOK

Government issued document containing all Veterans Administration Underwriting Guidelines, rules, restrictions and conditions.

Related terms: 4000.1, Overlay.

VALUE ABANDONMENT

The practice of Tract Builders selling on Subdivision or section of a Subdivision for high prices, followed by selling a neighboring Subdivision or section of a Subdivision for lower prices, instantly dragging down the values of the houses in the initial Subdivision or section. Value Abandonment results in the early Buyers in a Subdivision becoming Upside Down or Under Water when the value of their New Homes suddenly drops due to the most recent sales by the Tract Builder.

Related terms: Tract, Tract Builder, Subdivision, New Home, To Be Built, Zero Down Payment Financing.

VARIANCE

An exception to a Zoning rule or requirement.

Related terms: Zoning.

VEHICLE IDENTIFICATION NUMBER (VIN)

Unique number that identifies a vehicle or Chattle.

Related terms: Manufactured Home, Chattle-Land Conversion.

VERIFICATION OF ASSETS

The process of verifying Liquid Assets either through the collection of statements or through one or more Verifications Of Deposit.

Related terms: Verification Of Deposit, Liquid Assets, Loan Application.

VERIFICATION OF DEPOSIT

The process of verifying the current balance and the 60 day average balance of a checking account, savings account, money market account, certificate of deposit (CD), stock account, 401K account, IRA account, etc.

Related terms: Seasoning, 401K, IRA, Liquid Assets.

VERIFICATION OF RENTAL HISTORY

The process of verifying the payment history on an apartment or home that is rented. Apartment complexes fill out the same Verification of Rental History form as private owners, yet the former is called a commercial Verification of Rental History and the latter is called a private Verification Of Rental History. In the case of a tenant Purchasing the home he/she is living in, a private Verification of Rental History cannot be used in the Mortgage transaction because the Seller is an interested party in the transaction. Instead, to prove rental history, the Borrower must produce canceled checks for the prior 12 months or some other definitive proof of the rental history.

Related terms: Purchase.

VESTED BALANCE

The amount of a 401K against which a 401K loan can be made. Not all contributions to a 401K are immediately vested. Company contributions to the plan and time are both factors in how much of the 401K balance is the Vested Balance.

Related terms: 401K, 401K Loan, Liquid Assets.

W

W2

Tax form. This form is for employees who have taxes withheld from their paychecks.

Related terms: Income tax return, Salary.

W9

Tax form. This is the form executed at Closing that establishes the link between the Borrower’s Social Security Number and the Interest that will be paid on the Mortgage.

Related terms: Interest, Closing.

WAIVE ESCROWS

Paying your own Property Taxes and Homeowner’s Insurance annually. Some loans (80% or lower Loan To Value loans and Combo Loan First Mortgages) afford the Borrower the right to have an Escrow/Impounds Account or to Waive Escrows. If the Borrower wants an Escrow Account, the appropriate Reserves will be required from the Borrower at Closing (if a Refinance, these can be rolled into the loan, just like Closing Costs). If the Borrower does not want an Escrow account (and wishes to pay the Homeowner’s Insurance premium and the Property Tax bill separately when they come due), the Borrower is asking to Waive Escrows. For more information, purchase the HomeStart Specialty Tutorials, “Pros and Cons of Waiving Escrows” and “How and Why To Do a Combo Loan”.

Related terms: Loan To Value, Escrow Account.

WALK-THROUGH

Final visual Inspection by the Buyer and/or Realtor® and/or private Inspector of a home. This is done to verify that certain contractual repairs and the replacements or upgrades that were to be performed by the Seller prior to Closing. If these repairs, replacements or upgrades have not been completed, the Buyer has the contractual right to keep the Contract valid until such time as all Seller tasks have been completed. A Walk-Through is a part of many different transactions:

• The Purchase of Real Estate (a Resale of an existing home) where the Seller has agreed, as part of the Contract, to correct certain items prior to Closing;

• The Purchase of a To Be Built, built by a Tract Builder, at the end of construction, where the Tract Builder has agreed to allow a Walk Through;

• The Purchase of Real Estate (a New Home) from a Tract Builder’s completed inventory, where the Tract Builder has agreed to allow a Walk Through; and

• A Construction Loan (One-Time Close or Two-Time Close) by a (private) Custom Builder, where, as part of the Construction Agreement, the Custom Builder agrees to a Walk Through.

In each of these cases, a slow and careful Walk-Through is highly recommended, holding the Seller, Tract Builder or Custom Builder to his/her obligations. Any items that are not completed at Walk-Through will go onto a formal Punch List. This Punch List, once completed, should be followed by a final Walk-Through.

If a property is Appraised and the Appraiser notes the absence or Deferred Maintenance of any item that affects value, the Appraiser can assign a value “Subject To” completion (of repairs, replacements, etc.) In this case, the Appraiser would perform his/her own Final Inspection to verify that all work on the property has been completed prior to Closing.

If privacy is preferred, there is no law that says a Seller or Builder must be present at the Walk-Through. Often, it is a private Walk Through (no Seller, no Builder) where Buyers do a more complete job of their Walk Through. If a Real Estate Agent is present, that Agent should take notes so that all Punch List items can be effectively communicated to the Seller, the Seller’s Real Estate Agent, or the Builder (or Builder representative).

In a Construction Loan, 10% to 20% of the Custom Builder’s final draw is withheld as Retainage. This means that these funds will not be released to the Custom Builder until the Walk-Through is completed, the Punch List items addressed and the Final Inspection is completed by the Appraiser. For more information, purchase the HomeStart Specialty Tutorial, “How to Do a Construction Project”.

Related terms: New Home, Resale, To Be Built, Custom Builder, Tract Builder, Seller, Punch List, Construction Loan.

WARRANTABLE

Meets all Condo Questionnaire criteria. There are two processes by which Warrantability is determined: Full Review or Limited Review. These two types of reviews are determined by an Automated Underwriting program (either Freddie Mac’s Loan Product Advisor or Fannie Mae’s Desktop Underwriter). The difference between the two Findings is the number of questions on the Condo Questionnaire that the Homeowner’s Association must complete. The Full Review questionnaire has approximately 42 questions and the Limited Review questionnaire has approximately 20 questions.

Whether a Condo receives a Full Review or a Limited Review, the following must be true:

For new Condo complexes:

• At least 90% of the units must be sold;

• All phases of construction must be completed;

• The Homeowners Association must have been under the control of the homeowners; and

• Owner Occupied and Second Home units must make up at least 70% of the units sold in the complex (not per building or per phase but for the entire complex). If any of these three items is not met, then the Condo complex is Non-Warrantable.

For established Condo complexes:

• At least 90% of the units must be sold;

• All phases of construction must be completed;

• The Homeowners Association must have been under the control of the homeowners for at least one year;

• Owner Occupied and Second Home units must make up at least 51% of the units sold in the complex (not per building or per phase but for the entire complex);

• Homeowner’s Association dues cannot be delinquent by more than 15% of the number of sold units; and

• The Homeowner’s Association must have at least 10% of its annual budget in reserves.

If any of these three items is not met, then the Condo complex is Non-Warrantable. The reason that a Non-Warrantable Condo complex has increased risk is because the unit is not free-standing. Instead, the unit is connected to all the other units. If the Condo complex has a low Owner Occupied and Second Home percentage, that means that the majority of the units in the complex are Investment Properties. When recessions hit, people tend to pay their Owner Occupied and Second Home Mortgages first, which means that Investment properties tend to go into default. If the units of a Condominium complex are in default, then the Homeowners Association dues on those units are also not being paid. Thus, the coffers that keep the entire Condominium complex maintained will be bare and the complex itself may fall into disrepair, damaging the value of all the units.

On FHA and VA loans, Warrantability is not determined. Instead, a Condo complex must be “FHA Approved” or “VA Approved” prior to the transaction in order to do a Mortgage on the unit. Condominiums, regardless of their Loan To Value ratio, do not have monthly Mortgage Insurance on FHA or VA loan.

It is HomeStart’s recommendation that when Purchasing or Refinancing a Condo, you should use a HomeStart-certified Broker for the financing. This is because HomeStart-certified Brokers must have Lenders in their networks that include both Lenders that lend on Warrantable and on Non-Warrantable Condos.

Related terms: Condo, Condominium, Warrantability, Non-Warrantable, Full Review, Limited Review, Homeowners Association, Owner Occupied, Second Home, Investment Property, Rental Property, Non-Owner Occupied Property, Investor Property, Default, FHA, VA.

WARRANTABILITY

The characteristic that a Condo either complies with all requirements of the Condo Questionnaire (either Full Review or Limited Review) and is eligible for a standard Interest Rate Conventional loan. These two types of reviews are determined by an Automated Underwriting program (either Freddie Mac’s Loan Product Advisor or Fannie Mae’s Desktop Underwriter). The difference between the two Findings is the number of questions on the Condo Questionnaire that the Homeowner’s Association must complete. The Full Review questionnaire has approximately 42 questions and the Limited Review questionnaire has approximately 20 questions.

Whether a Condo receives a Full Review or a Limited Review, the following must be true:

1. For new Condo complexes:

• At least 90% of the units must be sold;

• All phases of construction must be completed;

• The Homeowners Association must be under the control of the homeowners; and

• Owner Occupied and Second Home units must make up at least 70% of the units sold in the complex (not per building or per phase but for the entire complex).

If any of these three items is not met, then the Condo complex is Non-Warrantable.

2. For established Condo complexes:

• At least 90% of the units must be sold;

• All phases of construction must be completed;

• The Homeowners Association must have been under the control of the homeowners for at least one year;

• Owner Occupied and Second Home units must make up at least 51% of the units sold in the complex (not per building or per phase but for the entire complex);

• Homeowner’s Association dues cannot be delinquent by more than 15% of the number of sold units; and

• The Homeowner’s Association must have at least 10% of its annual budget in reserves.

If any of these three items is not met, then the Condo complex is Non-Warrantable.

The reason that a Non-Warrantable Condo complex has increased risk is because the unit is not free standing. Instead, the unit is connected to all the other units. If the Condo complex has a low Owner Occupied and Second Home percentage, that means that the majority of the units in the complex are Investment Properties. When recessions hit, people tend to pay their Owner Occupied and Second Home Mortgages first, which means that Investment properties tend to go into Default. If the units of a Condominium complex are in Default, then the Homeowners Association dues on those units are also not being paid. Thus, the coffers that keep the entire Condominium complex maintained will be bare and the complex itself may fall into disrepair, damaging the value of all the units.

On FHA and VA loans, Warrantability is not determined. Instead, a Condo complex must be “FHA Approved” or “VA Approved” prior to the transaction in order to do a Mortgage on the unit. Condominiums, regardless of their Loan To Value ratio, do not have monthly Mortgage Insurance on FHA or VA loan.

It is HomeStart’s recommenation that when Purchasing or Refinancing a Condo, you should use a HomeStart-certified Broker for the financing. This is because HomeStart-certified Brokers must have Lenders in their networks that include both Lenders that lend on Warrantable and on Non-Warrantable Condos.

Related terms: Condo, Condominium, Warrantability, Non-Warrantable, Full Review, Limited Review, Homeowners Association, Owner Occupied, Second Home, Investment Property, Rental Property, Non-Owner Occupied Property, Investor Property, Default, FHA, VA.

WARRANTY

Insurance policy that covers items that conveyed from the Seller to the Buyer in a Purchase. Home Warranties are usually paid for by the Seller and do not count as a Seller Contribution toward Closing Costs. Home Warranties can cover appliances, heating and cooling systems, the roof, the garage door opener and numerous other items. While the Seller usually pays for this policy, the coverage is up to the Buyer (which items are to be covered). If, after choosing the items to be covered, the premium of the policy exceeds the amount the Seller agreed to pay, the remainder can be paid at Closing by the Buyer. Even though the Home Warranty covers specifica items or systems in the newly purchased home, many companies do have a “trip charge” for each time they must come to the property. Lastly, a Home Warranty does not have to last for only one (1) year. Home Warranties can be renewed as many times as the Home Warranty company will allow.

Related terms: Home Warranty, Purchase, Seller, Buyer, Convey.

WARRANTY DEED

Instrument conveying Title.

Related terms: Deed.

WASH

When Income and Debt cancel each other out. For example, when you take 75% of a rental Lease as Income you can then calculate how much of the PITI debt it Washes.

Related terms: Lease, Rental Property, Investment Property, Non-Owner Occupied Property, Debt To Income Ratio, Back Ratio.

WELL

Water supply system that is private.

Related terms: Inspection.

WHOLE LIFE INSURANCE

Insurance policy that acts as a retirement investment. A Whole Life Insurance policy has a larger monthly premium than a Term Life Insurance policy and builds Cash Value over time. Cash Value is a Liquid Asset.

Related terms: Cash Value, Liquid Assets.

WHOLESALE

Division of a retail bank or Lender that sells Mortgages indirectly to consumers by using the services of Brokers/Mortgage Bankers. Included among Wholesalers, there are retail banks (such as Wells Fargo) with Wholesale divisions, there are SuperBrokers using warehouse lines to make loans (then selling those loans to larger entities). There are also Wholesale Lenders with larger warehouse lines that sell Mortgages to larger entities in bulk. The Broker should have access to all of these different types of Wholesale Lenders.

Related terms; Mortgage Broker, Wholesale Mortgage Banker.

WHOLESALER

Division of a retail bank or warehouse line-equipped lender that sells Mortgages indirectly to consumers by using the services of mortgage brokers/bankers. Included among Wholesalers, there are retail banks (such as Wells Fargo) with Wholesale divisions, there are SuperBrokers using warehouse lines to make loans (then selling those loans to larger entities). There are also Wholesale Lenders with larger warehouse lines that sell Mortgages to larger entities in bulk. The Broker should have access to all of these different types of Wholesale Lenders.

Related terms; Mortgage Broker, Wholesale Mortgage Banker.

WHOLESALE PAR

Rate that has no cost and provides no Yield Spread Premium or Service Release Premium to the originator. Every Lender has a different Wholesale Par Rate each day. If the Borrower elects to pay the costs and compensation associated with a transaction on the Front of the loan, the Rate sold should be as close to Wholesale Par as possible. In this situation, any Yield Spread Premium or Service Release Premium that does result from the Rate would be credited to the Borrower as a percentage of the loan amount at Closing. For example, if, on a Purchase, the Purchase Price is $120,000 and the Borrower is putting 20% down, the resulting loan would be $96,000. If the closest Rate to Wholesale Par is 4.5% paying 0.25% in Yield Spread Premium, then the Lender would credit the Borrower for ¼ of 1 percent of the loan amount toward Closing Costs ($240.00). If the closest Rate to Wholesale Par has a small cost, for example, 4.375% costing 0.125% then the Borrower would pay that cost as an additional Closing Cost (Discount) and would receive the slightly below Wholeslae Par Rate. For more information, purchase the HomeStart Specialty Tutorial, “Do-It-Yourself Mortgage” and “Tailor & Save Thousands - Front Loaded Purchase/Refinance”.

Related terms: Rate, Par, Par Rate, Rate Sheet, Yield Spread Premium, Service Release Premium.

WIRING INSTRUCTIONS

Instructions for sending a wire to a Title/Escrow Company, including routing number, account number, file number, bank name, bank address, etc. A client wishing to wire funds to their closing (instead of bringing a cashier’s check and their checkbook) would need Wiring Instructions in order to send those funds.

Related terms: Title/Escrow Company, Closing.

WORK ASSISTANCE

Funds given to an employee by an employer, usually so that the employee can become permanently established in a particular geographic area to heighten the likelihood that the employee will continue to work for the employer. Work Assistance Down Payment funds are only allowed on Government loans.

Related terms: Down Payment, FHA, VA, USDA, Gift.

Y

YIELD SPREAD PREMIUM

The Margin between Wholesale Par and the Rate the Broker, Mortgage Banker, Retail Banker or Retail Loan Originator sells to the Borrower. Yield Spread Premium (and Service Release Premium) is a percentage of the loan amount that is paid to the Broker, Mortgage Banker or Retail Banker by the Lender outside of the transaction in consideration for the Rate sold to the Borrower. For more information, purchase the HomeStart Specialty Tutorials, “Do-It-Yourself Mortgage” and “Tailor the Mortgage Yourself and Save Thousands - Back Loaded Purchase/Refinance”.

Related terms: Premium, Back Points, Discount, Back, Service Release Premium, Mortgage Broker, Mortgage Banker, Retail Banker, Retail Loan Originator.

YEAR TO DATE

Current partial or completed fiscal year. This is used in reference to paystubs, bank statements and Profit & Loss statements. For example, you might say, “What is your Year To Date on your most current paystub?” meaning what are the Borrower’s Gross Income earnings to date. Someone else might tell his/her Self-Employed Borrower “I will need a Year To Date P&L through August 31” indicating that the statement must be generated to show business activity from January 1 through and including August 31.

Related terms: Profit & Loss, Self-Employed.

Z

ZERO BALANCE LETTER

See the HomeStart Specialty Tutorial, “Understanding Credit and Credit Scores”.

Related terms: Credit Report, Credit Score, Line Item.

ZERO DOWN PAYMENT FINANCING

See the HomeStart Specialty Tutorial, “Responsible Zero Down Payment Financing”.

Related terms: Down Payment, Down Payment Assistance, Seller Contributions, Seller Concessions.

ZONE

An area of land in which Commercial interests and Residential interests are established. To Zone is to cause the Zoning of or to pertain to Zoning. Zones are usually Residential, Mixed Use and Commercial (with subgroups).

Related terms: Commercial, Residential, Rezone.