Glossary of Terms

It is often said that mortgage financing has a language of its own. To help you through the process, we have a dictionary of common terms you’re likely to come across during the home financing process. Of course, if you’re unsure about a term, or you see something you’re unfamiliar with, give us a call at 888-509-2867.

L

LAND

In a legal sense, the solid part of the surface of the earth, as distinguished from water; any ground, soil or earth whatsoever regarded as the subject of ownership and everything annexed to it, whether by nature, e.g., trees, and everything in or on it, such as minerals and running water, or annexed to it by man, e.g., buildings, fences, etc. In an economic sense, land consists of all those elements in the wealth of a nation that are supposed to be furnished by nature as distinguished from those improvements that owe their value to the labor and organizing power of man.

LAND CONTRACT

Installment plan for buying a house. It is used as an alternative to obtaining a loan from a traditional source such as a mortgage banker or savings and loan.

LATE CHARGE

A penalty for failure to pay an installment on time.

LATENT DEFECT

Hidden structural defect.

LEASE WITH OPTION TO PURCHASE

A lease under which the lessee has the right to purchase the property. The option may run for the length of the lease or only for a portion of the lease period.

LEGAL DESCRIPTION

An expanded and unique description of a property that is used on legal documents, such as deeds and deeds of trust. Recorded documents generally require a legal description.

LENDER

A general term encompassing all mortgages and beneficiaries under deeds of trust.

LENDER'S INSTRUCTIONS

A document that lenders prepare for the closing agent that outlines the requirements for loan closing.

LESSEE

One who possesses the right to use or occupy a property under lease agreement.

LESSOR

One who holds title to and conveys the right to use and occupy a property under lease agreement.

LETTER OF INTENT

A formal method of stating that a prospective developer, buyer, or lessee is interested in property.

LIEN

An encumbrance against property for the payment of debt; a lien may be a mechanic's lien, a mortgage, or for unpaid taxes or a judgment.

LIMITED PARTNERSHIP

A partnership consisting of one or more general partners who conduct the business and are responsible for losses, and one or more special partners who contribute capital and are liable only for the amount contributed.

LIS PENDENS

A public notice that litigation is pending on a property.

LISTING

A record of property for sale by a broker who has been authorized by the owner to sell. Also used to denote the property so listed.

LISTING AGREEMENT

Agreement between a property owner and a real estate broker, authorizing the broker to find a buyer for the property. If the sale is consummated, the listing broker will be paid a fee.

LOAN DISCOUNT/PREMIUM FEES

Fees that borrowers pay (sometimes the seller will pay for the borrower) that adjust to the yield requirement of the investor. Loan discount denotes an investor yield requirement higher than the note rate. Loan premium denotes an investor yield requirement lower than the note rate.

LOAN LOCK

Guarantee from a lender that a borrower will receive the interest rate in effect at the time of loan application.

LOAN OFFICER

A person who helps borrowers through the selection, processing, and closing of a mortgage loan. Loan officers can be paid a commission or salary for their services and can work for mortgage brokers, mortgage bankers, or depository institutions.

LOAN ORIGINATION FEES

The cost to obtain a loan. This fee is paid to the originating lender or broker.

LOAN PACKAGE

The information regarding a borrower and property necessary for a lender to decide whether or not to extend credit.

LOAN RATIO

The amount of a loan in relation to the value or selling price of real property.

LOAN SERVICING

The function of collecting loan payments, managing the property tax and insurance escrows, foreclosing on defaulted loans, and remitting payments to the investor/beneficiary.

LOAN-TO-VALUE RATIO (LTV)

The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.

LOW-DOC/NO-DOC MORTGAGES

A mortgage option that is good for borrowers who are self-employed and/or have credit issues but a lot of cash. Lenders typically look for two of three requirements for these loans: assets, income, or credit.

M

MARGIN

The fixed amount added to the index to determine the APR to be charged. Example: Prime + 2%.

MARKET PRICE

The price paid for a property; the amount of money that must be given or which can be obtained at the market in exchange under the immediate conditions existing at a certain date. To be distinguished from market value.

MARKET VALUE

The highest price estimated in terms of money that a buyer would be warranted in paying and a seller justified in accepting, provided both parties were fully informed, acted intelligently and voluntarily and, further, that all the rights and benefits inherent in or attributable to the property were included in the transfer.

MARKETABLE TITLE

A title that is free and clear of objectionable liens, clouds, or other title defects. A title that enables an owner to sell his property freely to others and which others will accept without objection.

MARKETING

The management process through which efforts to conceive, develop, and deliver goods and services are integrated to satisfy the needs and wants of selected customers as a means of achieving company objectives.

MECHANIC'S LIEN

A lien created by statute for the purpose of securing priority of payment for the price or value of work performed and materials furnished in construction or repair of improvements to land.

MISREPRESENTATION

False statement made to another party, or concealment of knowledge from that party, with the intent to provoke action from the party.

MORTGAGE

A voluntary lien filed against property to secure a debt, usually a loan. To foreclose, the lender must often institute a court action and the borrower may have the right to reclaim the property after foreclosure.

MORTGAGE BANKER

A financial intermediary who originates mortgage loans through loan officers or independent mortgage brokers and sells the mortgages into the secondary mortgage market.

MORTGAGE BROKER

A professional who helps consumers through the loan selection, processing, and closing of a mortgage loan. Most mortgage brokers have access to a wide range of mortgage products through many mortgage lenders. Mortgage brokers are paid a fee by the borrower when a suitable mortgage is found and closed.

MORTGAGE COMMITMENT

A written notice from the bank or other lending institution saying it will advance mortgage funds in a specified amount to enable a buyer to purchase a house.

MORTGAGE INSURANCE

Money paid to insure the mortgage when the down payment is less than 20 percent.

MORTGAGE INSURANCE PREMIUM (MIP)

The amount the FHA charges up front when it insures a loan under one of its programs.

MORTGAGE NOTE

The document outlining the amount of the debt, the terms and payments, the interest rate, margins and caps for ARMs, the name of the lender and the borrower, and any other material item required by the lender.

MORTGAGE WAREHOUSING

A funding facility, such as a commercial bank, that is used by mortgage companies to fund loans that are sold to an investor shortly thereafter. The mortgage notes are used as collateral for this interim financing.

MORTGAGEE

The lender of money or the receiver of the mortgage document.

MORTGAGOR

The borrower of money or the giver of the mortgage document.

MULTIPLE LISTING SERVICE (MLS)

A means of making possible the orderly dissemination and correlations of listing information to its members so that REALTORS® may better serve the buying and selling public.

N

NATIONAL ASSOCIATION OF REALTORS®

The association of REALTORS® dedicated to the protection and the preservation of the free enterprise system and the right of the individual to own real property as guaranteed by the Constitution of the United States of America. Each member of the NATIONAL ASSOCIATION OF REALTORS® must adhere to a strict Code of Ethics and Standards of Practice designed to provide assurances to the public of the REALTORS®’ integrity and professionalism.

NEGATIVE AMORTIZATION

Occurs when your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan. The danger of negative amortization is that the homebuyer ends up owing more than the original amount of the loan.

NEGOTIABLE RATE-MORTGAGE (RBM)

A loan in which the interest rate is adjusted periodically. More commonly called an adjustable rate-mortgage.

NET EFFECTIVE INCOME

The borrower's gross income minus federal income tax. Used in FHA/VA loans to compute debt-to-income ratios.

NET LISTING

An arrangement whereby the broker receives as commission all monies received above a minimum sales price agreed to by the owners and the broker.

NON-CONFORMING LOAN

Loans that are above the loan limits set by FNMA and FHLMC. Also known as Jumbo loans.

NON-CONFORMING USE

A property that does not conform to the zoning of an area.

NOTE

A written promise to pay a certain sum of money at a certain time. A negotiable note starts "Pay to the order of" and is transferable by endorsement similar to a check.

NON-ASSUMPTION CLAUSE

A statement in a mortgage contract forbidding the assumption of the mortgage without the prior approval of the lender.