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TERMINOLOGY

Amortization

Payment of a debt in regular, periodic installments of principal and interest as opposed to interest only payments. A loan that is fully amortizing pays to zero in its stated term. All loans originated by Northwest Mortgage Services Online, Inc., are fully amortizing loans. 

Annual Percentage Rate (APR)

The APR is NOT your interest rate. APR is a term used in the Truth-in-Lending Act to represent the percentage relationship between finance charges required to obtain a specific loan scenario, to the actual loan amount requested. The APR on a fixed rate loan will be higher than the stated interest rate when a loan includes things like origination fees, discount points, mortgage insurance, escrow fees. The APR will be the same as the note rate on a fixed rate loan if there are no finance charges whatsoever.

The theory of APR is to give a consumer one variable to use when shopping for a specific loan. One would need to contact a lender, supply the lender with an estimated credit score, loan amount, sales price or value, interest rate and term desired, and ask for the APRs for that scenario. The lender with the lowest APR for that exact scenario will be the lowest cost lender.       

Application Fee

Northwest Mortgage Services Online, Inc., does NOT charge an Application Fee. Many other lenders do charge one to cover estimated initial mortgage processing expenses such as appraisal and credit report. 

Appraisal

A report made by a state licensed and qualified person setting forth an opinion or estimate of property value. There are three main approaches to value; Sales Approach, Cost Approach, Income Approach. The Sales Approach is the most relied on in an appraisal as the subject property is compared for home size, lot size, room count and other amenities to recently closed sales in the subject property area. 

As Separate Property

Ownership in real property which is to be specifically excluded from community property.

Assessed Valuation

The value that a taxing authority places on real or personal property for the purpose of taxation.

Assessment

A charge against a property for purpose of taxation. This may take the form of a levy for a special purpose or a tax in which the property owner pays a share of the cost of community improvements according to the valuation of his or her property.

Borrower

A person (also known as mortgagor) who receives funds in the form of a loan with an obligation to repay principal with interest.

Cash to Close

This is your liquid assets identified in advance of closing to be the source of funds you will use for the earnest money up front and the balance of down payment, closing costs and other charges needed to be paid at closing.    

Closing Costs

Money paid by the borrower or seller in connection with the closing of a mortgage loan. This generally involves an origination fee, discount points, appraisal, credit report, title insurance, HOA related charges, and prepaid items such as tax and insurance.

Closing Statement

Also know as a HUD-1 which is a form used at closing that gives a full accounting of a transaction. Sales price, all charges, credits and balance due at closing. 

Co-Borrower

Additional borrower(s) whose income contributes to qualifying for a loan and whose name(s) appears on documents with equal legal obligations.

Collateral

Property pledged as security for a debt, such as the real estate pledged as security for a mortgage.

Conforming / Conventional Loan

This is the most common type of mortgage loan in the United States. They are mortgage loans eligible for sale and delivery to either the Federal National Mortgage Association (FNMA) or the Federal Home Loan Mortgage Corporation (FHLMC). 

Credit Report

A report detailing an individual's credit history.

Deed of Trust

An instrument used to temporarily transfer legal title to property from its owner to a trustee, so that the trustee can hold the title as security for the performance of certain obligations, monetary or otherwise by the owner or a third party. Reconveyance of the ownership takes place when a mortgage debt is retired and the lender conveys the property back to the equity owner free of the debt.  

Default

The failure to perform an obligation as agreed in a contract.

Delinquency

A loan payment that is overdue but within the period allowed before actual default is declared.

DeMinimus PUD

A PUD in which the common property has less than a 2% influence upon the value of the premises. The 2% rule of thumb is calculated by dividing the dollar amount of amenities by the total number of units. Also see PUD.

Deposit

A sum of money given to bind a sale of real estate. Also known as earnest money.

Depreciation

A loss of value in real property brought about by age, physical deterioration, functional or economic obsolescence. Also an accounting principal where a tax payer may represent a reasonable allowance for the exhaustion of property held for the production of income. The purpose of charging depreciation against income is to distinguish the portion of income that is a return of capital. This generates a tax free stream of income equal to the portion of the asset that has been used up. 

Discount Point

Amount payable to the lender to lower the interest rate. One point is equal to one percent on the loan amount.

Earnest Money

A portion of the down payment delivered with a purchase offer to the seller or an escrow agency by the purchaser as evidence of good faith. Also known as a deposit.

Equal Credit Opportunity Act (ECOA)

A Federal law requiring lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, sex, age, marital status, receipt of income from public assistance programs or past exercising of rights under the Consumer Credit Protection Act.

Equity

The ownership interest; i.e. portion of a property's value over and above the liens against it.

Escrow

A procedure whereby a disinterested third party (Escrow Officer) handles legal documents and completes a transaction on behalf of a seller, buyer and lender only at a specified time per the contract and when all the parties goals can be met together. In Escrow, the Escrow Officer will take the seller out of title, put the buyer in title, payoff the seller's loans, record the buyer's new loan and disburse all funds required to close to interested parties on the HUD-1 such as the seller, underlying lender, real estate agents, HOA and anyone else shown on the closing statement.   

Fair Credit Reporting Act (FCRA)

A federal law which requires a lender who is rejecting a loan request because of adverse credit information to inform the borrower of the source of such information. This law also requires consumer reporting agencies to exercise fairness, confidentiality and accuracy in preparing and disclosing credit information.

Federal Home Loan Mortgage Corporation - FHLMC (FREDDIE MAC)

One of two federally chartered corporations that buy and pool US mortgages and issue securities based on those pools.

Federal National Mortgage Association - FNMA (FANNIE MAE)

One of two federally chartered corporations that buy and pool US mortgages and issue securities based on those pools.

First Mortgage

A real estate loan that has priority over any subsequently recorded mortgages.

Fixed Interest Rate

An interest rate which does not change during the loan term.

Foreclosure

A legal procedure in which property mortgaged as security for a loan is sold to pay the defaulting borrower's debt.

Gift Letter

A written explanation signed by the individual giving the gift stating, "This is a bona fide gift and there is no obligation expressed or implied to repay this sum at any time."

Gross Monthly Income

Total monthly income earned per month before taxes and other deductions. Lender debt to income ratios are based on Gross Monthly Income. 

Hazard Insurance

A contract whereby an insurer, for a premium, undertakes to compensate the insured for loss on a specific property due to certain hazards (i.e. fire).

Homeowners' Association Dues

The fees imposed by a condominium or homeowners' association for maintenance of common areas.

Insured Loans

A loan insured by HUD-FHA or a private mortgage insurance company. The insurance covers the lender in case of default. The borrower is still liable for the loss to the lender and insurance provider. 

Interest

Consideration in the form of money paid for the use of money. Also a right, share or title in property.

Interest rate

The percentage of an amount of money which is paid for its use for a specified time.

Investment Property

Real estate owned with the intent of supplementing income and not intended for owner occupancy.

Lien

A legal claim or attachment against property as security for payment of an obligation.

Loan-To-Value Ratio

The ratio between the amount of a given mortgage loan and the lower of sales price of appraised value. A sales price of $100,000.00 with a loan of $80% would be considered a loan with an 80% LTV or Loan-to-Value. 

Market Value

The most probable price which a ready, willing and able buyer would pay and a willing seller will accept, both being fully informed under no pressure to act. The market value may be different from the price a property can actually be sold for at a given time (market price).

Maturity

The termination or due date on which final payment on a loan must be paid in full.

Monthly Payment

Usually, the amount of PITI (principal, interest, taxes, and insurance) paid each month on a mortgage loan.

Mortgage

The conveyance of an interest in real property given as security for the payment of a loan.

Mortgagee

The lender on a mortgage transaction.

Mortgage Insurance Premium (MIP)

The consideration paid by a mortgagor (borrower) for mortgage insurance - either to the FHA, USDA, VA, or to a private mortgage insurer of a Conventional loan. 

Mortgage Note

A written promise to pay a sum of money at a stated interest rate during a specified term. The note contains a complete description of the conditions under which the loan is to be repaid and when it is due.

Mortgagor

The borrower in a mortgage transaction who pledges property as security for a debt.

Non-Conforming Loan

Conventional home mortgages not eligible for sale and delivery to either FNMA or FHLMC because of various reasons, including loan amount, loan characteristics or underwriting guidelines. Also known as Sub-Prime mortgages. 

Origination Fee

The amount charged for services performed by the company handling the initial application and processing of the loan. Some firms are zero Origination Fee lenders while others charge the same to all applicants such as 1% Origination fee with points charged or credited from there. Northwest Mortgage Services Online, Inc., is a Zero Origination Fee loan provider.  

Percentage Point

One percent of the loan or a measure of the interest rate. PITI (Principal, Interest, Taxes, and Insurance) The most common components of a monthly mortgage payment.

Preliminary Title Report

This is a document assembled by the title company handling a real estate transaction. It is distributed to interested parties prior to closing and contains the results of a search of public records search on the parties of the transaction and the property itself. The obvious items it contains are the vested owners of the property, legal description, property taxes, plat map. It also shows child support judgments, IRS liens, notices of mortgages recorded, special assessments on the property, names the HOA, its restrictions, and displays other recorded items like mining rights, maintenance agreements. The document allows parties to specify what items must go away before closing. 

Primary Residence

A residence which the borrower intends to occupy as the principal residence.

Principal Balance

The remaining balance due on a debt, exclusive of accrued interest.

Private Mortgage Insurance

Insurance written by a private company protecting the mortgage lender against loss resulting from a mortgage default. The insurance is required when the borrower wishes to put less than 20% down.

Processing

The preparation of a mortgage loan application and supporting documentation for consideration by a lender or insurer.

PUD (Planned Unit Development)

A planned combination of diverse land uses, such as housing, recreation, and shopping in one contained development or subdivision. A major feature of a PUD includes areas of common land for use by the housing unit owners; the association of unit owners generally owns, pays fees, and maintains the common areas. Also see DiMinimus PUD.

Purchase Contract (Agreement/Offer)

An agreement between a buyer and seller of real property, setting forth the price and terms of the sale. Also known as a sales contract.

Rate Lock Option

An agreement to supply a locked interest rate for a specified time. 

Real Assets

Real estate or real property owned by an individual of business.

Real Estate Settlement Procedures Act (RESPA)

A federal law requiring lenders to provide home mortgage borrowers with information on known or estimated settlement costs. It also establishes guidelines for escrow account balances.

Real Property

Land and that which is affixed to it.

Refinancing

The repayment of a debt from the proceeds of a new loan using the same property as security.

Satisfaction of Mortgage

The recordable instrument issued by the lender verifying full payment of a mortgage debt.

Second Home (Vacation Home, Weekend Home)

A residence other than the borrower's primary residence which the borrower intends to occupy for a portion of each year. Must be suitable for year-round occupancy.

Secondary Mortgage Market

A market where existing mortgages are bought and sold. It contrasts with the primary mortgage market where mortgages are originated.

Security

In lending, the collateral given, deposited, or pledged to secure the payment of a debt.

Settlement Services

Services provided by the lender at the closing of a loan.

Survey

The measurement and description of land by a registered surveyor.

Term

The time limit within which a loan must be repaid.

Title

The legal evidence of ownership rights to real property.

Title Insurance Policy

A contract in which an insurer, usually a title insurance company, agrees to pay the insured party a specific amount for any loss caused by defects of title on real estate in which the insured has an interest as purchaser, mortgagee, or otherwise.

Title Search

An examination of public records to disclose the past and current facts regarding the ownership of a given piece of real estate. See also Preliminary Title Report. 

Truth-in-Lending Act

A Federal law requiring full disclosure of credit terms using a standard format. This is intended to facilitate comparisons between the lending terms between financial institutions.

Underwriting

Analysis of risk and setting of an appropriate rate and terms for a mortgage on a given property for given borrowers.

Zero Point Option

An option which allows the borrower to opt to pay a slightly higher loan interest rate in lieu of paying a point to get a reduced rate for the term of the loan. A zero point loan is best on a refinance since points are not economically beneficial to deduct on your taxes on a refinance. Paying a point or more on a purchase is a good idea depending on how long you will be in the home.