• A Bird's Eye View of a Loan Cycle - Info on the loan application process

• Calculator - Option ARM vs. a Fixed Rate

• Check your credit via Equifax

GLOSSARY and FAQ's:

7.5% Payment Cap: The next year's monthly payment would be capped at a max of 7.5% of the prior years payment. A safety feature on the MTA, COFI, COSI, LIBOR and CODI "Option ARM" program... more...
 

75% Rule: Monthly rental income X 75% = allowable rental income.
 

Acceleration clause: A provision in a mortgage that gives the lender the right to demand payment of the entire outstanding balance if a monthly payment is missed.
 

Adjustable-rate mortgage: A mortgage that permits the lender to adjust its interest rate periodically on the basis of changes in a specified index.
 

Adjusted Basis: The original cost of a property plus the value of any capital expenditures for improvements to the property minus any depreciation taken.
 

Administrator: A person appointed by a probate court to administer the estate of a person who died intestate.
 

Affordability analysis: A detailed analysis of your ability to afford the purchase of a home. An affordability analysis takes into consideration your income, liabilities, and available funds, along with the type of mortgage you plan to use, the area where you want to purchase a home, and the closing costs that you might expect to pay.

Amortization: The gradual repayment of a mortgage by installments, calculated to pay off the obligation at the end of a fixed period of time.
 

Amortization schedule: A timetable for payment of a mortgage showing the amount of each payment applied to interest and principal and the balance remaining.
 

Annual Percentage Rate (APR):  The total cost of a mortgage stated as a yearly rate; includes such items as the base interest rate, loan origination fee (points), commitment fees, prepaid interest, and other credit costs that may be paid by the borrower.  The main purpose of the APR is to compare Apples to Apples, i.e. a Fixed-Rate vs. a Fixed-Rate with the same Interest-Rate.  E.g., if a Broker was offering a 7% Fixed-Rate for 30 years w/an APR of 7.5% and another Broker was offering the same fixed 30 yr. at 7% but with a 7.3% APR, you would notice (by looking at the GFE) the 7.3% APR quote had less Closing Cost; therefore you would take the lower APR quote.  However, you can’t do this APR comparison with an Option ARM as the fully-indexed rate (index + margin) changes either monthly or yearly.  The only way to compare an Option ARM is by looking at the Margin, Start Rate, Life Cap, and Closing Cost; again, please keep in mind there are many variables with the "Base" Margin, Start Rate, Life cap and Closing Cost, therefore you always need to compare apples to apples when offered a quote (get it in writing.) 
 

Appraisal: A professional opinion or estimate of the market value of a property.
 

Acquisition Value (AV), this is not the *Market Value (MV) but the proposed cost to build your new home + the current Value of the lot.

Balance sheet: A financial statement that shows assets, liabilities, and net worth as of a specific date. professional opinion or estimate of the market value of a property
 

Balloon mortgage: A mortgage that has level monthly payments that will amortize it over a stated term but that provides for a lump sum payment to be due at the end of an earlier specified term... see Call Option
 

Back Ratio: Proposed P.I.T.I.+ all "*allowable" monthly debt ÷ by gross monthly income. * Allowable monthly debt = Car pmts (10+ months left), Credit Cards, student loans, personal loans, other mtgs., e.g., investment properties, 2nd homes, etc...  which will not be paid off prior, or at Settlement...see Ratios
 

Balance payment: The final lump sum payment that is made at the maturity date of a balloon mortgage.
 

Bankrupt: A person, firm, or corporation that, through a court proceeding, is relieved from the payment of all debts after the surrender of all assets to a court-appointed trustee
 

Bridge loan: Bridge Loans Bridge loans are a form of secondary financing collateralized by the borrower's current residence, which is usually for sale. This type of financing is acceptable provided the bridge loan is not cross-collateralized against the property being financed. The terms of the financing must be verified with either a letter from the lender or a copy of the note. Receipt of the funds must be verified with either a copy of the certified check drawn by the lender or evidence the funds were deposited in the borrower's account. Payments on bridge loans must generally be included in the total debt-to-income ratio.
 

Business Inventories And Sales: These figures measure the inventories and sales of manufacturing, wholesalers, and retail establishments. These figures are released monthly by the Bureau of Census. In most cases, an increase in these numbers indicates an expanding economy which could be inflationary. Bond Market Moves Down In Price.
 

Call Option: A provision in the mortgage that gives the mortgagee the right to call the mortgage due and payable at the end of a specified period for whatever reason.
 

Closing Cost: These are fees paid to the Broker, Lender, Attorney, County & State and Third Parties, e.g., Credit rpt., Appraisal. These fees will always be reflected on your GFE.

Consumer Price Index (CPI): The consumer price index is an indicator of the general level of prices. Components include energy, food and beverages, housing, apparel, transportation, medical care, and entertainment. When the consumer price index goes up, it is a sign of an inflationary environment. Consumers have to pay more for the same amount of goods and services. Bond Market Moves Down In Price.
 

Cap: A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or mortgage payments may increase or decrease.
 

Capacity Utilization: The capacity utilization rate measures the percent of industrial output currently in use. A change in the rate indicates a change in the direction of economic activity. As the percentage rate moves closer to 90% the industrial output is practically at full capacity and is inflationary. A number closer to 70% is recessionary. A higher percent- age indicates a stronger manufacturing sector and an expanding economy which can be inflationary. Bond Market Moves Down in Price.
 

Capital: (1) Money used to create income, either as an investment in a business or an income property. (2) The money or property comprising the wealth owned or used by a person or business enterprise. (3) The accumulated wealth of a person or business. (4) The net worth of a business represented by the amount by which its assets exceed liabilities

CLTV: Combined Loan To Value, e.g., 80/10/10 or 90% CLTV-(see Piggy back mtg.)
 

Conforming Rates: A paper, 1st mortgage, under Fannie Mae’s legislated mortgage amount limits.

 ... see Non-Conforming or Jumbo pricing
 

Construction loan: The Construction-to-Permanent Loan process is similar to the process of a standard home purchase or a refinance transaction. But, unlike a purchase transaction for an existing home, a Construction-to-Permanent Loan involves determining the value of a home that is not yet constructed - see Acquisition Value.
 

Deed: The legal document conveying title to a property.
 

Deed-in-lieu: A deed given by a mortgagor to the mortgagee to satisfy a debt and avoid foreclosure. Also called a "voluntary conveyance."
 

Deed of trust: The document used in some states instead of a mortgage; title is conveyed to a trustee.
 

Default: Failure to make mortgage payments on a timely basis or to comply with other requirements of a mortgage.
 

Durable Goods Orders: This gives a reading on the country's future manufacturing activity. Durable goods include those manufactured items with a normal life expectancy of three years or longer. An increase in the amount of durable goods orders may indicate an expansion in the economy and, if inflationary, the Federal Reserve could choose to tighten money by raising interest rates. Bond Market Moves Down In Price.
 

Earnest money deposit: A deposit made by the potential home buyer to show that he or she is serious about buying the house.
 

Easement: A right of way giving persons other than the owner access to or over a property.
 

Effect Of Economic Indicators On Fixed Income Investments: Market participants look to U.S. Government economic releases as an indication of the economy's strength and general direction. Overall, economic indicators reflect the rate of economic growth and inflation which, in turn, affects interest rates. There is an inverse relationship between interest rates and bond prices.
 

Effective age: An appraiser’s estimate of the physical condition of a building. The actual age of a building may be shorter or longer than its effective age.
 

Effective gross income: Normal annual income including overtime that is regular or guaranteed. The income may be from more than one source. Salary is generally the principal source, but other income may qualify if it is significant and stable.
 

Escrows: Monthly property taxes and hazard insurance and sometime your Home Owners Association fees (HOA.) These days, most Lenders are requiring an escrow be set up at Settlement however some still allow you to control your own escrows but with an upfront fee, usually a .25% point.  Hear is an example of a tax escrow from a Borrower who was buying a home in March and they were confused as to why I had to ask for so much $ at Settlement:

I’m a little (ok a lot) confused about the taxes.. 

1). If I’m paying the sellers back for approx 4 months of property taxes that have been prepaid, then why will I need to pay in an additional 10 months?  That would be 14 months paid in advance. GH – Your prop taxes are due every September – paid in advance when you buy a new home (or even if you already own the home.)  Its not like a mortgage where you pay for the previous month… taxes are paid for the future.  

• The Sellers already paid for a year (in advance)  on September 2007 for the tax periods of *July 1, 2007 – June 30, 2008; your taxes are now paid in full until 07/2008 (the tax period is July- July, but the bills don’t go out until September).
• However, the Sellers won’t be leaving until March 2008
• 07/07 – 07/08 = 12 months the Seller’s would have pre-paid (you need to pay them back from the date you move in, until the end of the tax period = 3.5 months)
• On September 1, the County will want another year paid from you (for 07/01/08 – 06/30/09). They will bill your mortgage company.  Your mortgage company will send them a check out of your escrow account.  There needs to be 12 months of taxes in there to pay the bill.  Since your first mortgage payment isn’t going to be until May 1, you will only have 4 months of tax payments in your escrow account.  They will be short by 8 months.  That is why you need to have 8 months of taxes put into your escrow account at settlement.  
• We are est. the Lender will want another 2 months for an on-going cushion which = 10 months.

 2). If I pay all this in advance, why am I also paying an additional $158-$160 per month?  Will these funds then be used for the 2009 tax yea as part of my escrow funds?  

• GH - Yes, what you will be paying every month beginning in May will be held for the NEXT bill due in September 2009.

Factor Rate: A Rate that determines the Minimum pmt. and is not fixed for that particular Starting Rate period. Instead, you would immediately begin to pay the fully-indexed Rate (index + margin) thus incurring deferred Interest beginning with day one (if) you were making the "Minimum pmt." instead of the "Scheduled pmt. or the fully-indexed Rate X the normal loan balance.

Factory Orders: Manufacturer's shipments, inventories, and orders. Factory orders include shipments, inventories, and new and unfilled orders. An increase in the factory order total may indicate an expansion in the economy and could be an inflationary factor. Bond Market Moves Down In Price.
 

Fair Credit Reporting Act: A consumer protection law that regulates the disclosure of consumer credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one's credit record.
 

Fair market value: The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept.
 

Fanne Mae (FNMA): A congressionally chartered, shareholder-owned company that is the nation's largest supplier of home mortgage funds.
 

FED Is Easing: Exactly the opposite of Fed tightening. The Federal Reserve feels that the economy is not growing at the desired level and eases credit conditions by lowering interest rates to help stimulate the economy. Bond Market Moves Up In Price.
 

FED Is Tightening: This term refers to efforts by the Federal Reserve to curb excessive growth in the money supply. This can be accomplished by their raising the discount rate and/or increasing the federal funds rate. Bond Market Moves Down In Price.
 

Front Ratio: Proposed P.I.T.I. ÷ by gross monthly income -see Ratios
 

Full Doc.:  Full documentation e.g., must produce W2's, pay stubs, tax returns, bank statements, etc.. in order to gain a higher LTV, or a lower Rate, or if you have bad credit, or have higher qualifying financial ratios see Ratios.
 

Fully-Indexed Rate is the monthly Principal and Interest due. It is achieved by adding the Margin to the ARM index.
 

Good Faith Estimate (see GFE )
 

Government National Mortgage Association: A government-owned corporation within the U.S. Department of Housing and Urban Development (HUD). Created by Congress on September 1, 1968, GNMA assumed responsibility for the special assistance loan program formerly administered by Fannie Mae. Popularly known as Ginnie Mae.
 

Grantee: The person to whom an interest in real property is conveyed.
 

Grantor: The person conveying an interest in real property.
 

Gross National Product (GNP): The Gross National Product is the broadest measure of the nation's production. It measures the market value of all newly produced goods and services in the United States. When GNP is down, it shows a slowing down in the economy. To counteract this, the Federal Reserve may loosen money by lowering interest rates. Bond Market Moves Up In Prices.
 

Ground Rent: The amount of money that is paid for the use of land when title to a property is held as a leasehold estate rather than as a fee simple estate.
 

Hazard Insurance: Insurance coverage that compensates for physical damage to a property from fire, wind, vandalism, or other hazards.
 

Home Equity Conversion Mortgage (HECM: A special type of mortgage that enables older home owners to convert the equity they have in their homes into cash, using a variety of payment options to address their specific financial needs. Unlike traditional home equity loans, a borrower does not qualify on the basis of income but on the value of his or her home. In addition, the loan does not have to be repaid until the borrower no longer occupies the property. Sometimes called a reverse mortgage.
 

Home equity line of credit (HELOC): A mortgage loan, which is usually in a subordinate position, that allows the borrower to obtain multiple advances of the loan proceeds at his or her own discretion, up to an amount that represents a specified percentage of the borrower's equity in a property.
 

Index: A number used to compute the interest rate for an adjustable-rate mortgage (ARM). The index is generally a published number or percentage, such as the average interest rate or yield on Treasury bills. A margin is added to the index to determine the interest rate that will be charged on the ARM. This interest rate is subject to any caps that are associated with the mortgage.
 

Industrial Production Index: The industrial production index measures the monthly level of the physical output of the manufacturing, mining, and gas and electric utility industries. When industrial production is down, it indicates a slowing of economic growth and, therefore, the Federal Reserve is inclined to allow interest rates to drop to stimulate the economy. Bond Market Moves Up In Price.
 

In-file credit report: An objective account, normally computer-generated, of credit and legal information obtained from a credit repository.
 

Inflation: An increase in the amount of money or credit available in relation to the amount of goods or services available, which causes an increase in the general price level of goods and services. Over time, inflation reduces the purchasing power of a dollar, making it worth less.
 

Initial interest rate: The original interest rate of the mortgage at the time of closing. This rate changes for an adjustable-rate mortgage (ARM). Sometimes known as "start rate" or "teaser rate."
 

Judgment: A decision made by a court of law. In judgments that require the repayment of a debt, the court may place a lien against the debtor's real property as collateral for the judgment's creditor.
 

Judgment Lien: A lien on the property of a debtor resulting from the decree of a court.
 

Judicial foreclosure: A type of foreclosure proceeding used in some states that is handled as a civil lawsuit and conducted entirely under the auspices of a court.
 

Jumbo loan: (also called non-conforming) A loan that exceeds Fannie Mae’s legislated mortgage amount limits. Also called a nonconforming loan.

Legal description: A property description, recognized by law, that is sufficient to locate and identify the property without oral testimony.
 

Liability insurance: Insurance coverage that offers protection against claims alleging that a property owner's negligence or inappropriate action resulted in bodily injury or property damage to another party.
 

Leading Economic Indicators: This index is a composite of 11 statistics designed to foretell economic activity 6 to 9 months hence, (i.e. building permits, new orders for consumer goods and materials, the average workweek, index of consumer expectations).

Life cap (max Index + Margin.) Example: If your Life Cap = 9.95% and your Margin = 2.45%, the maximum the Index could increase is 7.50% or 9.95% - 2.45% = 7.50%.

• The Margin is fixed for the life of your loan

• The Index changes every month beginning in month two

LMIB: Low to Moderate Income Borrower

LMIT: Low to Moderate Income Tract (Census Tract) E.g., take 80% of the HUD Median Income, if Borrower's) income is less they may qualify for this discount.

Lock: a set period of time where your interest rate & or T&C's (e.g., margin life cap, start rate, etc..) - see further explanation

Low Doc.:  State Income, but must verify assets; see Reduced Doc.

LTrack:  Allows our clients to check their loan status information 24 hours a day, 7 days a week.
 

LTV:  Loan-To-Value or what is the percentage of your existing loan bal to the value of your home, e.g., if you owe $50k and your house is worth $100k = 50% LTV

Market Value: the proposed Value of the lot and the house AFTER the house is completed and you have received the Occupancy Certificate (OC.)  This value is used for the "permanent financing" and it is determined by a different Appraiser ordered by the permanent financing Lender.

"Margin" is how the Lender makes their "profit"; e.g., if the Margin is 2.95%, the Lender will always make 2.95% of the existing loan amount regardless of what the monthly Index does.  If the Index goes up, the Lender only earns 2.95%, if the Index goes down they only earn 2.95% of the new loan balance. 

•  The Margin directly affects the monthly :
  • Principal and Interest (P.I.) payment or (Index + Margin x outstanding loan balance)
  • Fully-Indexed Rate (Index + Margin)
  • Scheduled payment or (Index + Margin x outstanding loan balance) 
  • The Margin is fixed for the life of your loan (after your loan is locked in.)
  • You will find the different Margin choices on the "Rate Sheet" hyper-link.

Master association: A homeowners' association in a large condominium or planned unit development (PUD) project that is made up of representatives from associations covering specific areas within the project. In effect, it is a "second-level" association that handles matters affecting the entire development, while the "first-level" associations handle matters affecting their particular portions of the project.
 

Maturity: The date on which the principal balance of a loan, bond, or other financial instrument becomes due and payable.
 

Maximum financing: A mortgage amount that is within 5 percent of the highest loan-to-value (LTV) percentage allowed for a specific product. Thus, maximum financing on a fixed-rate mortgage would be 90 percent or higher, because 95 percent is the maximum allowable LTV percentage for that product.
 

Merchandise Trade Balance: Released monthly, this figure measures the difference between imports and exports. When exports are higher than imports, there is a surplus in the balance of trade. When imports are higher than exports, there is a deficit. The import-export differential is referred to as the trade gap.
 

MI: Mortgage Insurance - insurance paid monthly to the Lender if your LTV is greater than 80%
 

Minimum payment is usually calculated using the *1st month "Starting Rate." The Starting Rate is a Principal and Interest (P.I.) Rate for the first month of the loan program.  You will find the "Starting Rate" on the Rate Sheet link located on each Option ARM's Introduction page (see Intro links at the bottom of this page.) The purpose of the "Starting Rate" is to create or establish the "Minimum payment" (or the lowest payment you are allowed to make for the next twelve (12) months and for several years following.)
 

Money Supply: The amount of money in circulation. M1 = cash + regular demand deposits + other check-type deposits. M2 = M1 + savings and small denomination time-deposits. When the money supply figure is up, it is an inflationary factor and, therefore, generates concern that the Federal Reserve will tighten money growth by allowing short-term interest rates to rise. Bond Market Moves Down In Price.

Negative amortization: A gradual increase in mortgage debt that occurs when the monthly payment is not large enough to cover the entire principal and interest due. The amount of the shortfall is added to the remaining balance to create "negative" amortization. more...
 

Net cash flow: The income that remains for an investment property after the monthly operating income is reduced by the monthly housing expense, which includes principal, interest, taxes, and insurance (PITI) for the mortgage, homeowners' association dues, leasehold payments, and subordinate financing payments.
 

Net worth: The value of all of a person's assets, including cash, minus all liabilities.
 

NINA: No Income, No Assets are proved, just state them on the Loan Application -(Assuming your credit scores are fine, and your Loan Application makes sense, e.g., if you say your work for a small grocery store as a bagger but you "state" you earn $6k a month, this doesn't make sense.)  

•  Just “state” your gross monthly income on the Loan Application.   

•  Just "state" at least 4 to 6 months of your "stated" monthly income as seasoned assets  on your Loan Application. *Some programs only ask you to state 2 months of your proposed PITI.

Non-Farm Payroll: The non-farm payroll figure is a component of total civilian employment and measures the number of people employed in all activities except agriculture.

No Ratio: Works like a NINA but you leave your income & assets blank on the Application - usually works with an Option ARM with low LTVs
 

O.O.: Owner Occupied or Primary residence (not a 2nd home or Investment property)
 

Original principal balance: The total amount of principal owed on a mortgage before any payments are made.
 

Origination fee: A fee paid to a lender for processing a loan application. The origination fee is stated in the form of points. E.g., one point is 1 percent of the mortgage amount.
 

Owner financing: A property purchase transaction in which the property seller provides all or part of the financing.

PFC: PREPAID FINANCE CHARGE - Charges made in connection with the loan that must be paid upon the close of the loan. These charges are defined by the Federal Reserve Board in Regulation Z and  must be paid by the borrower. Examples of such charges are Loan origination fee, “Points” or Discount, Private Mortgage Insurance or FHA Mortgage Insurance, Tax Service Fee. Some loan charges, such as appraisal fees and credit report fees, are specifically excluded from the Prepaid Finance Charge.

Piggy-back mortgage: (see Combined Loan To Value (CLTV) You only need to put 10% down payment (purchase) or just have 10% existing equity (refinance). Piggy-back 2nd mtg. for the other 10% LTV in order to keep your new 1st. mortgage an 80% LTV in order to avoid monthly Mortgage Insurance (MI.)  Example: 
Sales price = $650,000 - 90% CLTV
1st mtg. = $520,000 @ 80% LTV
2nd mtg. = $65,000 @10% LTV
Deposit = 10% LTV + closing cost

PITI: Principal, Interest, (property) Taxes and monthly (hazard) Insurance.

PITI reserves: A cash amount that a borrower must have on hand after making a down payment and paying all closing costs for the purchase of a home. The principal, interest, taxes, and insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a predefined number of months.
 

Points: A one-time charge by the lender for originating a loan. E.g., a point is 1 percent of the amount of the mortgage. Read more...
 

Power of attorney: A legal document that authorizes another person to act on one’s behalf. A power of attorney can grant complete authority or can be limited to certain acts and/or certain periods of time.
 

Prearranged refinancing agreement: A formal or informal arrangement between a lender and a borrower wherein the lender agrees to offer special terms (such as a reduction in the costs) for a future refinancing of a mortgage being originated as an inducement for the borrower to enter into the original mortgage transaction.
 

PP - Pre Payment Penalties: A lender offers u an option to take a PP on an ARM for a lower Margin, e.g., you are offered a 2.5% Margin for 1 point, but if you took a 2.75% Margin u would pay zero points.  A PP is usually a based upon a % X your beginning loan bal; e.g., if u accepted a 1 yr. PP with a 2% penalty & your orig bal was $100k and u sold or refi in less than 12 mo your penalty would be $2k.

Producer Price Index (PPI): The monthly producer price index measures the level of prices for all goods produced and imported for sale in the primary marketplace. Increase in the PPI tend to lead other measures of inflation. Bond Market Moves Down In Price.
 

PUD: Plan Unit Development
 

Qualifying ratios: Calculations that are used in determining whether a borrower can qualify for a mortgage. They consist of two separate calculations: a housing expense as a percent of income ratio and total debt obligations as a percent of income ratio.
 

Quite claim deed: A deed that transfers without warranty whatever interest or title a grantor may have at the time the conveyance is made.
 

Rate-improvement mortgage: A fixed-rate mortgage that includes a provision that gives the borrower a one-time option to reduce the interest rate (without refinancing) during the early years of the mortgage term.
 

Rate lock: A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate for a specified period of time.

Ratios:

• Front Ratio = Proposed P.I.T.I. (at the fully-indexed rate) ÷ by *gross monthly income. 
   

• Back Ratio = Proposed P.I.T.I. (at the fully-indexed rate) + all other "allowable" monthly debt ÷ by *gross monthly income.
   

• (PITI = Principal, Interest, (property) Taxes and monthly (hazard) Insurance.)

• * For a "Low Doc." or "NINA", substitute "stated-income."

• 80% LTV - max ratios 33%/45% - (i.e., Front Ratio max is 33% & Back is 45%)

• 90% LTV - max ratios 30%/38% 

• 80/10/10  - max ratios 34%/43% 

• Advantage 90 - max ratios 28%/36%

• 95% LTV max ratios 28%/36% 

• (Higher ratios may be acceptable with compensating factors.)
   

Rebate: This is the Yield Spread or remuneration the Broker receives from the Lender for offering a certain fully-indexed (ARM) for fixed-rate to a Borrower. This is always a percentage of the proposed loan amount, e.g., if a $100k loan amount and the Broker is receiving a 1% Rebate, the Broker will earn $1000 paid by the Lender, not the Borrower.

Recast Provision: (It should read something like this: Your existing principal balance may never exceed 110%, or 115% or 125% of the original principal balance amount in any 5 year period (some Lenders allow a 10 yr. period.) However, if deferred interest (negative amortization) ever caused your principal balance to reach these limits, the Lender would immediately increase your Minimum payment without regard to the 7.5% payment cap. The increased Minimum payment would pay off the loan at the then current fully indexed rate (Index + Margin) and remaining term. In that event, in the 5th, 10th, 15th, 20th, and 25th years, the Lender would take the amount of deferred interest, add it to the existing balance, and "recast" or re-amortize the loan so that it will still pay off on its original term. Moreover, some Lenders have the right to recast your amortization or term every fifth year even if you did not defer your Interest up to the 110%, or 115% or 125% max.)
 

Reduced Doc. - (No Income verified, but Assets are verified) - (assuming your credit scores are fine, and your Loan Application makes sense, e.g., if you say your work for a small grocery store as a bagger but you "state" you earn $6k a month, this doesn't make sense)

1.        “State” your gross monthly income on the Loan Application.   

2.        List and be able to prove at least 4 months of your "stated" income as seasoned assets or *Reserves on your Loan Application. – (Some programs only ask to prove 2 months of your proposed PITI.  If UW is asking for proof of 2 months PITI, these "Reserves" must be based upon the fully-indexed rate not the "minimum" pmt.)

Reserves: Any savings (e.g., stocks, bonds, **401k, checking, savings etc.) you've owned for at least 60 days prior to final Clear-To-Close (we will either ask for bank Stmts or order a Verification of Deposit {VOD.} These assets must have the “ability” to be made liquid - (FYI... UW will only allow 70% of 401k, SEP and IRA as Reserves; e.g., if you can prove $50k X 70% = $35k max allowed.) Reserves cannot be used to cover closing cost or a down pmt.  Income from a recent sale of a home does not need to be seasoned and it can be used for Reserves.   

 ** If you use a 401k for down pmt or closing cost (CC), we would need to use the repayment loan against your qualifying ratios.

 
Retail Sales: Key components of retail sales include automobiles, building materials, furniture, department store sales, food stores, gasoline, clothing, restaurants and drugstores. High retail sales are an indication of economic growth and an expanding economy. The Bond Market usually moves down in Price.
 

R&T: Rate and Term - You are not taking any extra cash-out but only refinancing your existing 1st mtg. (and 2nd mtg. if applicable and seasoned) including your proposed closing cost.

Rule of 72: States that if your savings portfolio earns 10% annually (& you reinvested the dividends), then it must double every 7.2 years.
 

Seasoning: A 1st mortgage taken out over 12 months, or a 2nd mtg. (fixed or HELOC) that was taken-out over 12 months ago (fixed) or if a HELOC, it hasn't been used in the past 12 months.

Seasoned funds: Any savings (e.g., Stocks, Bonds, 401k, checking, savings etc..) that you've owned for at least 60 days prior to Settlement & can be made liquid; these must be proved prior to final Clear-To-Close from Underwriting. 

 Scheduled payment: Index + Margin x outstanding loan balance (assuming no deferred Interest) = the "full payment", or Principal & Interest "PI" payment, or "Scheduled payment" or "Fully-Indexed payment." The "Scheduled payment" (also called the "Full", "P.I." or "Fully-Indexed" payment) can NEVER give you deferred interest or negative amortization.  The Scheduled payment is a Principal and Interest pmt. based upon the fully-indexed Rate (Index + Margin) X outstanding loan balance; you are allowed to make this pmt. every month beginning with month *two.  If you make this payment, your loan balance would always decline regardless of the movement of the Index. This is because your loan balance could be lower each month, and this lower balance would then be re-calculated by the new monthly Index + Margin; moreover, the Lender could re-adjust your next "Scheduled payment" higher to compensate for the higher Index. Therefore the yearly 7.5% "Payment Cap" would never "come into play"; moreover, your future Scheduled pmts. could actually decrease even if the Index were increasing. more....

Secured loan: A loan that is backed by collateral.
 

Security: The property that will be pledged as collateral for a loan.
 

Seller take-back: An agreement in which the owner of a property provides financing, often in combination with an assumable mortgage.
 

SF: Single Family i.e. House, Town House, Row house.
 

SFD: Single Family Detached  house

SISI: Stated Income, Stated Assets

SP: Sales Price

 Starting Rate: a Principal and Interest Rate (PI) for the *first month of your loan; a "Teaser Rate" is another name for the "Start Rate."  The purpose of the "Start Rate" is to establish the "Minimum payment" (or the lowest payment option) for the next eleven months, and for the next several years.  If you have a higher "Starting Rate", the "Minimum payment" option should go away faster as you will reach the Scheduled payment or the monthly payment which is paying all the P&I due.. more.... 
* Some ARM programs have a 3-month "Starting Rate" which is a fixed PI payment; however, other Option ARM programs like the COSI and CODI have "Starting Rates" which are not fixed for that particular Starting Rate period. Instead, you would immediately begin to pay the fully-indexed Rate (index + margin) thus incurring deferred Interest beginning with day one (if) you were making the "Minimum pmt." instead of the "Scheduled pmt."

Stated Income: see Reduced Doc.
 

Survey: A drawing or map showing the precise legal boundaries of a property and the location of improvements, easements, rights of way, encroachments, and other physical features.
 

Tenancy by entirety: A type of joint ownership of property that provides rights of survivorship and is available only to a husband and wife.
 

Tenancy in common: A type of joint ownership in a property without rights of survivorship.
 

Title: A legal document evidencing a person's right to or ownership of a property.
 

Title or Escrow company: A company that specializes in examining and insuring titles to real estate.
 

Title insurance: Insurance to protect the lender (lender's policy) or the buyer (owner's policy) against loss arising from disputes over ownership of property.
 

Title search: An examination of the public records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.
 

Transfer tax: State or local tax payable when title passes from one owner to another.
 

Truth-in-Lending Act: A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the APR and other charges.
 

UW: Underwriter
 

Underwriting: The process of evaluating a loan application to determine the risk involved for the lender. It involves an analysis of the borrower's creditworthiness and the quality of the property itself.
 

Unemployment Rate:

This is the percent of the civilian labor force currently unemployed. If unemployment figures are up, it indicates a lack of expansion within the economy and is, therefore, good for the bond market. Conversely, a big gain in employment would be an obvious cue for the Federal Reserve to tighten (raise) either the federal funds rate or the discount rate. Bond Market usually moves up in Price.
 

VA loan: A loan that is guaranteed by the U.S. Department of Veteran Affairs. Also referred to as a "government" mortgage.
 

What-if analysis: An affordability analysis that is based on a what-if scenario. A what-if analysis is useful if you do not have complete data or if you want to explore the effect of various changes to your income, liabilities, or available funds or to the qualifying ratios or down payment expenses that are used in the analysis.
 

What-if scenario: A change in the amounts that is used as the basis of an affordability analysis. A what-if scenario can include changes to monthly income, debts, or down payment funds or to the qualifying ratios or down payment expenses that are used in the analysis. You can use a what-if scenario to explore different ways to improve your ability to afford a house.
 

Wrap around mortgage: A mortgage that includes the remaining balance on an existing first mortgage plus an additional amount requested by the mortgagor. Full payments on both mortgages are made to the wraparound mortgagee, who then forwards the payments on the first mortgage to the first mortgagee

Yield Spread:  This is the Rebate or remuneration the Broker receives from the Lender for offering a certain fully-indexed (ARM) for fixed-rate to a Borrower. This is always a percentage of the proposed loan amount, e.g., if a $100k loan amount and the Broker is receiving a 1% Rebate, the Broker will earn $1000 paid by the Lender, not the Borrower.

top