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:: Closing Process

GLOSSARY

Alternative Documentation- a documentation option that allows lenders to obtain documentation related to a borrower’s income, employment, funds for closing and mortgage payment history directly form the borrowers, rather than from the borrower’s employer, bank or mortgage servicer. Samples of alternative documentation include W2 forms, bank statements, paystubs, cancelled checks. (We can use alternative documentation based on Automated Underwriting feed back.)

Annual Percentage Rate (APR)- The actual cost of borrowing money expressed in the form of an annual rate to make it easy to compare costs between lenders. The rate includes such items as the bas interest rate, origination fees, commitment fees, prepaid interest and any other credit costs that may be paid by the borrower to obtain the loan.

 
Appraisal Report- An opinion of estimated value for a specific purpose of described property on a given date. 

Appraised Value- An opinion of value determined by an appraiser based upon knowledge, experience, and a study of pertinent and comparable data. 

APR- Annual percentage rate. 

Automated Underwriting System (AUS)- AUS is a simple, easy to use application that allows lenders to obtain a preliminary underwriting decision, credit grade determination or credit report within minutes. We use DO, Fannie Mae’s Desktop Originator and LP, Freddie Mac’s Loan Prospector. 

Balloon Mortgage- A mortgage that has bevel monthly payments that will fully amortize it over a stated term, but that provides for a lump sum payment to be due a the end of a specified term. 

Cash-out Refinance- A refinance transaction in which the amount of money received from the new loan is greater that the total amount needed to repay the existing first mortgage and closing costs. NOTE: A refinance transaction is determined to be a cash out if the amount received exceeds the lesser of 2% or $2000. 

Change Date- The date on which the adjustable interest rate for an ARM loan my change. 

Closed-End Second- A fixed rate amortized mortgage loan secured by the equity in the borrowers’ home, that has rights secondary for a first mortgage.

Closing-The conclusion of a transaction. In real estate, it includes the delivery of a Deed of Trust, financial adjustments, the signing of documents and the disbursement of funds necessary to the sale or loan transaction. 

Combined Loan-To-Value (CLTV) Percentage- The relationship between the unpaid principle balance of all the mortgages on a property and the lesser of the property’s appraised value or sales price. 

Conventional Mortgage- A mortgage that is not insured or guaranteed by the federal government. The terms of the loan adhere to conventional standards. 

Debt-to-Income Ratio (DTI)- A borrower’s monthly payment obligation on long term debts divided by gross monthly income expressed as a percentage. The DTI ratio consists of two separate calculations: a monthly housing expense-to-income ratio and a total obligations-to-income ratio. Both ratios that are used in determine whether a borrower can qualify for a mortgage. 

Escrow Account- A trust account established to hold funds allocated for the payment of real estate taxes, hazard or mortgage insurance premiums, etc. as they are received each month and until such time as they are disbursed to pay related bills. Also referred to as an impound account. 

First Mortgage- A mortgage that is the primary lien against a property. 

Fixed Rate Mortgage- A mortgage that provides for only one interest rate for the entire term of the mortgage.  

Floor Rate- On an adjustable rate mortgage (ARM), the minimum interest rate the loan could reach over the adjustment periods. 

Fully indexed Rate- An interest rate on an adjustable rate mortgage (ARM) which equals the index plus the margin. 

Good Faith Estimate­- At the time of application, the borrower must be provided with a Good Faith Estimate, or its equivalent, itemizing closing costs. 

Hazard Insurance- Insurance coverage that compensates the property owner for physical damage to the dwelling cased by wind, fire or other natural disasters. It generally does not cover damage caused by flood, earthquake, and/or other types of hazard that typically require special coverage or separate endorsements. 

Home Equity Line of Credit (HELOC) – a revolving line of credit loan based on the equity in the subject property. The HELOC is typically in a subordinated lien position and permits the borrowers to obtain cash advances based on the approved line of credit. 

HUD-1 Uniform Settlement Statement- A standard form used to disclose at closing. All charges imposed in the transaction, including escrow deposits for taxes, hazard insurance and mortgage insurance must be disclosed separately. 

Index- The interest rate for and adjustable rate mortgage is tied to a published rat called an index. The index rate is the base for the “cost” of the money that is loaned to the borrower. By law, the index to which an adjustable rate mortgage is tied must be published regularly and cannot be under the control of any one financial institution. In addition, the borrower must be able to independently verify the index. The most commonly used indexes used for adjustable rat mortgages at the LIBOR, U.S. Treasury (T-Bill), and the COFI. 

Initial Interest Rate- The original interest rate of the mortgage when it is closed. This rate changes for ARM loans. 

Interest Rate- The percentage paid for the use of money, usually expressed as an annual percentage. 

Interest Rate Cap- A limit on the interest rate increases and/or decreases during each interest rate adjustment (referred to as the adjustment period cap) or over the term (as referred to as the life cap) of the adjustable rate mortgage. 

Interest Rate Change Date- The date when the interest rate and payment amount will change, as shown on the ARM Note and Addendum. 

Investment Property- A one to four-unit property that the borrower doesn’t occupy. This definition is used whether or not the property produces revenue. 

Jumbo Loan- A mortgage loan that has a principal balance greater than the amount eligible for purchase by FNMA or FHLMC. Any loan amount over $322,700. 

Late Charge- An additional charge that a borrower is required to pay as a penalty for failing to pay a regular installment when it is due. 

Lien­- A legal hold or claim of one person on the property of another as security for a devt or charge. 

Life Cap- This is the maximum limit the interest rate may change over the life of an ARM loan. 

Loan-To-Value (LTV) Ratio- The relationship between the unpaid principal balance of the mortgage and the lesser of the property’s appraised value or sales price. 

Manufactured Housing- Single Family housing unit that is constructed off-site in a factory according to a federal building code established by HUD and which became effective June 15, 1976. Sections are transported to a permanent site and attached to a permanent foundation. 

Margin- The amount that is added to an index value to create the mortgage interest rate for an ARM loan. 

Mortgage Insurance (MI)- Insurance that protects mortgage lenders against loss int even of default by the borrower. Required on all loans over 80% LTV. 

Negative Amortization- A loan payment schedule that produces additions to the principal, not a reduction. The unpaid interest is added to the mortgage principal in a loan. This causes the principal balance to increase rather that decrease because the mortgage payments do not cover the full amount of interest due. 

No Cash-Out Refinance- A refinance transaction in which the amount of money from the new loan is used to repay the existing first mortgage, to pay closing costs, points, prepayment penalties, and any purchase money seconds. Incidental cash back my not exceed the lesser of 2% of the principal amount of the new mortgage or $2000. Also referred as a Rate and Term Refinance. 

Note Rate- The interest rate paid by the borrower, as stated on the note. 

Periodic Cap- The limit on the maximum amount the interest rate can change in any adjustment period following the initial interest rate change on an ARM loan. 

P & I- Principal and Interest 

PITI – Principal, Interest, Taxes, and Insurance. 

Preliminary Title Report – A report generated by a title search company for the purpose of determining if a real property has “clear” title or if there are recorded encumbrances, judgments, labor liens, etc., that would affect the salability of the property. 

Prepayment Penalty- A charge that a borrower may be required to pay during the early years of a mortgage (typically within the first 5 years) if it is paid in full or if a large payment is made in order to reduce the unpaid balance. *On our Standard Conventional loans, we do not charge pre-payment penalties.  

Principle Residence­­- A borrower’s primary residence. At least one of the borrowers must occupy and hold title to the property, and also execute the Note and mortgage. Also known as Owner-occupied. 

Purchase Agreement­- A written proposal by a buyer to purchase real estate that becomes binding upon the acceptance of the property seller. Also known as Sales Contract or Real Estate Purchase Contact. 

Regulation Z/Truth in Lending- A federal regulation that requires borrowers be provided in advance with a full disclosure of al l costs included in securing a loan, including the calculation of an annual percentage rate (APR). 

Second Home­- A property that the borrower occupies for some portion of the year, in addition to their primary residence. The property must be located in an area that can reasonably function as a second home and must be suitable for year-round occupancy. Typically, this property is located far from the borrower’s primary residence, and near a resort or vacation area, such a mountain, oceanfront, desert, etc. 

Second Mortgage- A mortgage that is subordinate to the first mortgage, i.e., the proceeds from a foreclosure sale must pay the first mortgage before any funds can go to repay the second mortgage. 

Self-Employed Borrower-  A borrower who has ownership interest of 25% or more in a business. The business may be a sole-proprietorship, a general or limited partnership or a corporation. 

Single Family Residence- A residential property on a single lot designed for the use of one family. It can be attached or a detached dwelling. 

Treasury Index (T-Bill)- An index that is used as abase for interest rate changes on certain ARM loan programs. It is based on the results of auctions that the U.S. Treasury holds for its treasury bills and securities. 

Underwriting- The analysis of risk, the determination of the appropriate loan amount , and the setting of loan terms and conditions, based on the borrower’s creditworthiness and the value of the real property that will secure the loan. 

1003- Traditional mortgage application, used by Freddie Mac and Fannie Mae.