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All | Glossary Help
A list of defined terms will appear in this box. Clicking on one will take you to its definition in the box to the right.
| Glossary Help
Terms and their definitions will be located here. To view definitions for a specific letter, click it in the tab selector above (for example, clicking on the letter 'A' will display only words that begin with 'A').
Upon selecting a letter, all the terms that begin with the aforementioned letter will be displayed in the left-hand box.
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Back-end Ratio
Your total debt-to-income ratio - That is, your total monthly obligations (debt), divided by your gross monthly income. Your monthly obligations include such items as your mortgage payment, property taxes, insurance premiums, installment loans, and revolving debt (credit cards). This ratio is used to determine your capacity to repay the mortgage and all other debts. Your debt-to-income ratio is a crucial calculation in determining the loan amount for which you can qualify. In conjunction with your expenses-to-income ratio, it represents your financial capacity to assume and repay debt.
Bankruptcy
A legal procedure petitioned either by the debtor (voluntary) or by creditors (involuntary) when the debtor is unable to make his or her payments, in which the court distributes the debtor's property to creditors to fulfill repayment of debts.
Base Income
The borrower's salary. If the borrower is self-employed, it is the net income - that is, your income after expenses.
Broker
A professional who does not lend money directly, but who arranges financing and contracts for a client for a fee and commission. Brokers basically bring together borrowers and lenders.
Fannie Mae
A tax-paying corporation, created by Congress to support the secondary mortgage market. It makes mortgage money more available. It buys and sells conventional residential mortgages, as well as VA-guaranteed and FHA-insured mortgages.
FHA (Federal Housing Administration)
A government mortgage insurance agency that sets requirements for underwriting mortgages and insures residential mortgages made by private lenders against loss from default of borrowers on residential properties.
Fixed-Rate Mortgage
A mortgage set up with one fixed interest rate for the entire term of the mortgage, so the borrower pays the same monthly payments for the life of the loan. This offers predictability, an advantage for borrowers on fixed or limited incomes.
Foreclosure
The legal process by which a borrower in default under a mortgage or deed of trust loses all rights to, and interest in, the mortgaged property. This usually involves a forced sale of the property at a public auction, with the proceeds of the sale being applied to the mortgage debt. Foreclosure can result if mortgage payments are not made on time.
Freddie Mac (Federal Home Loan Mortgage Corporation)
A tax-paying corporation, created by Congress, that purchases conventional mortgages in the secondary mortgage market from insured financial institutions and qualified mortgage bankers.
Front-end Ratio
The ratio of house payment(s) - including insurance, PMI, and property taxes - to income.
Hazard Insurance
Insurance coverage that compensates for physical damage to the property caused by fire, wind, or other natural disasters.
HOA (Homeowners Association)
A nonprofit association whose directors and officers are elected by the unit owners of a condominium or PUD project. Primary responsibilities are to manage the common areas, expenses, and services of the condominium or PUD project.
Home Equity Loan
A loan in which the lender acquires an interest in one's home up to the amount of this loan, giving the borrower the funds he or she needs for a purchase opportunity, home maintenance, debt consolidation, or major expenses.
Housing Debt-to-Income Ratio
The sum of all monthly housing mortgage expenses, such as PITI, homeowners dues, private mortgage insurance, and any special assessments, as a percentage of the borrower's gross qualifying income.
Impound Account Or Escrow Account
An account in which a portion of the monthly payment is held by the lender on the borrower's behalf for the payment of future taxes, mortgage and hazard insurance, special assessments insurance, and other ongoing payments as they occur. Impound/escrow accounts allow one to make fractional payments for these charges as part of the monthly mortgage payments. The funds are gradually collected in the escrow account, then paid out in full when the charges become due.
Income-to-Expenses Ratio
The ratio of your monthly income (gross unless self-employed - in which case net income) to monthly expenses. It is used to determine one's ability to repay debt and thus is a crucial consideration in determining if, and for how large a loan, one can qualify to borrow.
Index
A published interest rate - such as the Prime Rate, LIBOR, T-Bill rate, or the 11th District COF - against which lenders compare other investments. Lenders use an index to establish and adjust interest rates on adjustable mortgages, or to compare investment returns. You can find these rates published in the real estate or business portion of newspapers or on the Internet. To compute the interest rate on an adjustable-rate mortgage, a predetermined margin is added to the index.
Installment Debt
Borrowed money that is repaid in successive payments, usually at regular intervals; the monthly debt service is sometimes excluded for debt-to-income calculator purposes if 10 or fewer payments remain to be made.
Investment Property
A nonowner occupied residential property used to generate income.
Payback Period
The amount of time it takes to pay back the fees for obtaining a loan on a property.
Piggyback
Borrowers often use a "piggyback" second mortgage in conjunction with a first mortgage so that they do not have to provide a 20 percent down payment in order to avoid PMI.
PITI (Principal, Interest, Taxes, And Insurance)
Principal, interest, taxes, and insurance - a term used to refer to the components of one's monthly mortgage payments.
PMI (Private Mortgage Insurance)
Insurance coverage a lender requires the borrower to obtain to protect the lender against loss in the event of a mortgage default. It's mandatory for higher loan-to-value mortgages (those above 80 percent LTV in most cases - that is, where the loan amount is 80 percent or more of the property's appraised value).
Points
A prepaid finance charge assessed by the lender at closing. Paying points will decrease the loan's interest rate. One point equals 1 percent of the loan amount. They are also called discount points.
Preapproval
Mortgage preapproval specifies the actual amount a buyer is preapproved by a lender to borrow before a house is purchased. The buyer has to apply and qualify for the mortgage. Preapproval allows the buyer to negotiate like a cash buyer. Even if the buyer is not granted preapproval status, it's a helpful step to take, as it illuminates existing problems in securing a loan and allows the buyer to take steps toward resolving them.
Prepaid Items
Items that generally must be paid for at the time of closing and are generally recurring charges. Prepaid items may include taxes; first-year premiums for hazard, flood, and mortgage insurance; prorated interest, any special assessments that must be prepaid (e.g., water/sewer connection); escrow account for any of the above.
Prequalification
Providing financial information (credit ratings, employment status and income, and outstanding debts) to a lender in order to calculate a suitable mortgage for the buyer. Prequalification grants no legal rights, but is helpful in showing how large a mortgage one can handle and, by extension, how much house one can afford.
Principal
The remaining debt on a loan, not counting interest.
Property Value
The value of a piece of real property - either the appraised amount or the purchase amount, whichever is lower.
PUD (Planned Unit Development)
A real estate project in which each unit owner has title to a residential lot and a nonexclusive easement on the common areas of the project.
Purchase Money Mortgage
A mortgage used to purchase real property where the title is conveyed from one individual to another.
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