Mortgage Glossary

1003

Uniform Residential Loan Application

Additional Principal Payment

A way to reduce the remaining balance on the loan by paying more than the scheduled principal amount due.

Adjustable-Rate Mortgage (ARM)

A mortgage with an interest rate that changes during the life of the loan according to movements in an index rate. Sometimes called AMLs (adjustable mortgage loans) or VRMs (variable-rate mortgages).

Adjusted Basis

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

Adjustment Date

The date that the interest rate changes on an adjustable-rate mortgage (ARM).

Adjustment Period

The period elapsing between adjustment dates for an adjustable-rate mortgage (ARM).

Affordability Analysis

An analysis of a buyers ability to afford the purchase of a home. Reviews income, liabilities, and available funds, and considers the type of mortgage you plan to use, the area where you want to purchase a home, and the closing costs that are likely.

Amortization

The gradual repayment of a mortgage loan, both principal and interest, by installments.

Amortization Term

The length of time required to amortize the mortgage loan expressed as a number of months. For example, 360 months is the amortization term for a 30-year fixed-rate mortgage.

Appraised Value

An opinion of a property’s fair market value, based on an appraiser’s knowledge, experience, and analysis of the property.

Asset

Anything owned of monetary value including real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, etc.).

Assignment

The transfer of a mortgage from one person to another.

Assumability

An assumable mortgage can be transferred from the seller to the new buyer. Generally requires a credit review of the new borrower and lenders may charge a fee for the assumption. If a mortgage contains a due-on-sale clause, it may not be assumed by a new buyer.

Assumption Fee

The fee paid to a lender (usually by the purchaser of real property) when an assumption takes place.

Back End

This refers to the debt-to-income ratio calculated using principal, interest, taxes, insurance and consumer credit obligations divided by gross monthly income. It is expressed as a percentage

Balance Sheet

A financial statement that shows assets, liabilities, and net worth as of a specific date.

Balloon Mortgage

A mortgage with level monthly payments that amortizes over a stated term but also requires that a lump sum payment be paid at the end of an earlier specified term.

Balloon Payment

The final lump sum paid at the maturity date of a balloon mortgage.

Before-tax Income

Income before taxes are deducted.

Biweekly Payment Mortgage

A plan to reduce the debt every two weeks (instead of the standard monthly payment schedule). The 26 (or possibly 27) biweekly payments are each equal to one-half of the monthly payment required if the loan were a standard 30-year fixed-rate mortgage. The result for the borrower is a substantial savings in interest.

Bridge Loan

A second trust that is collateralized by the borrower’s present home allowing the proceeds to be used to close on a new house before the present home is sold. Also known as “swing loan.”

Broker

An individual or company that brings borrowers and lenders together for the purpose of loan origination.

Buydown

When the seller, builder or buyer pays an amount of money up front to the lender to reduce monthly payments during the first few years of a mortgage. Buydowns can occur in both fixed and adjustable rate mortgages.

Cap

Limits how much the interest rate or the monthly payment can increase, either at each adjustment or during the life of the mortgage. Payment caps don’t limit the amount of interest the lender is earning and may cause negative amortization.

Certificate of Eligibility

A document issued by the federal government certifying a veteran’s eligibility for a Department of Veterans Affairs (VA) mortgage.

Certificate of Reasonable Value (CRV)

A document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA mortgage.

Change Frequency

The frequency (in months) of payment and/or interest rate changes in an adjustable-rate mortgage (ARM).

Clear-to-Close

Loan is ready to be closed with no additional conditions.

Closing

A meeting held to finalize the sale of a property. The buyer signs the mortgage documents and pays closing costs. Also called “settlement.”

Closing Costs

These are expenses – over and above the price of the property- that are incurred by buyers and sellers when transferring ownership of a property. Closing costs normally include an origination fee, property taxes, charges for title insurance and escrow costs, appraisal fees, etc. Closing costs will vary according to the area country and the lenders used.

Closing Disclosure

A document that provides an itemized listing of the funds that are payable at closing. Items that appear on the disclosure include real estate commissions, loan fees, points, and initial escrow amounts. Each item on the disclosure is represented by a separate number within a standardized numbering system. The totals at the bottom of the Closing Disclosure define the seller’s net proceeds and the buyer’s net payment at closing.

Commitment

An agreement, often in writing, between a lender and a borrower to loan money at a future date subject to the completion of paperwork or compliance with stated conditions.

Comp. / Comparable

Interest paid on the original principal balance and on the accrued and unpaid interest.

Condominium

A property owned as a group, with rights to occupy specific units of the structure. An overseeing board, often referred to as a Homeowners Association, governs the property.

Construction Loan

A short term interim loan for financing the cost of construction. The lender advances funds to the builder at periodic intervals as the work progresses.

Consumer Credit

Credit owed by the individual, not secured by real estate.

Consumer Reporting Agency (or Bureau)

An organization that handles the preparation of reports used by lenders to determine a potential borrower’s credit history. The agency gets data for these reports from a credit repository and from other sources.

Conventional Loan

A mortgage not insured by FHA or guarantee by the VA or Farmers Home Administration (FMHA).

Conversion Clause

A provision in an ARM allowing the loan to be converted to a fixed-rate at some point during the term. Usually conversion is allowed at the end of the first adjustment period. The conversion feature may cost extra.

Credit Ratio

The ratio, expressed as a percentage, which results when a borrower’s monthly payment obligation on long-term debts is divided by his or her net effective income (FHA/VA loans) or gross monthly income (Conventional loans).

Credit Report

A report detailing an individual’s credit history that is prepared by a credit bureau and used by a lender to determine a loan applicant’s creditworthiness.

Credit Risk Score

A credit score measures a consumer’s credit risk relative to the rest of the U.S. population, based on the individual’s credit usage history. The credit score most widely used by lenders is the FICO® score, developed by Fair, Issac and Company. This 3-digit number, ranging from 300 to 850, is calculated by a mathematical equation that evaluates many types of information that are on your credit report. Higher FICO® scores represents lower credit risks, which typically equate to better loan terms. In general, credit scores are critical in the mortgage loan underwriting process.

Debt Ratio

The customer’s monthly obligations divided by their monthly gross income.

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.

Delinquency

Failure to make mortgage payments on time.

Department of Veterans Affairs (VA)

An independent agency of the federal government which guarantees long-term, low- or no-down payment mortgages to eligible veterans.

Deposit

This is a sum of money given to bind the sale of real estate, or a sum of money given to ensure payment or an advance of funds in the processing of a loan.

Discount

In an ARM with an initial rate discount, the lender gives up a number of percentage points in interest to reduce the rate and lower the payments for part of the mortgage term (usually for one year or less). After the discount period, the ARM rate usually increases according to its index rate.

Down Payment

Part of the purchase price of a property that is paid in cash and not financed with a mortgage.

Earnest Money

Money given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment.

Effective Gross Income

A borrowers normal annual income, including overtime that is regular or guaranteed. Salary is usually the principal source, but other income may qualify if it is significant and stable.

Equal Credit Opportunity Act (ECOA)

Is a federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs.

Equity

The amount of financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on the mortgage.

Escrow

An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the deposit of funds or documents into an escrow account to be disbursed upon the closing of a sale of real estate.

Escrow Disbursements

The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.

Escrow Payment

The part of a mortgagor’s monthly payment that is held by the servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due.

Escrow Waiver

Request for a borrower to pay their own taxes and insurance. Escrow wavers are rarely granted with less than a 25% equity position.

Farmers Home Administration (FMHA)

Provides financing to farmers and other qualified borrowers who are unable to obtain loans elsewhere.

Federal Home Loan Mortgage Corporation (FHLMC)

Also called Freddie Mac, is a quasi-governmental agency that purchases conventional mortgages from insured depository institutions and HUD-approved mortgage bankers.

Federal Housing Administration (FHA)

A division of the Department of Housing and Urban Development. Its main activity is the insuring of residential mortgage loans made by private lenders. FHA also sets standard for underwriting mortgages.

Federal National Mortgage Association (FNMA)

Also known as Fannie Mae. A tax-paying corporation created by Congress that purchases and sells conventional residential mortgages as well as those insured by FHA or guaranteed by VA. This institution, which provides funds for one in seven mortgages, makes mortgage money more available and more affordable.

Fee Simple

The most common form of ownership where the vestee owns both the land and the structures.

FHA Loan

A loan insured by the Federal Housing Administration open to all qualified home purchasers. While there are limits to the size of FHA loans, they are generous enough to handle moderate-priced homes almost anywhere in the country.

FHA Mortgage Insurance

Requires a small fee (up to 3 percent of the loan amount) paid at closing or a portion of this fee added to each monthly payment of an FHA loan to insure the loan with FHA. On a 9.5 percent $75,000 30-year fixed-rate FHA loan, this fee would amount to either $2,250 at closing or an extra $31 a month for the life of the loan. In addition, FHA mortgage insurance requires an annual fee of 0.5 percent of the current loan amount.

FICO Score

FICO® scores are the most widely used credit score in U.S. mortgage loan underwriting. This 3-digit number, ranging from 300 to 850, is calculated by a mathematical equation that evaluates many types of information that are on your credit report. Higher FICO® scores represent lower credit risks, which typically equate to better loan terms.

First Mortgage

The primary lien against a property.

Fixed Installment

The monthly payment due on a mortgage loan including payment of both principal and interest.

Fixed-Rate Mortgage (FRM)

A mortgage interest that are fixed throughout the entire term of the loan.

Flood Insurance

A mandatory insurance for some homeowners whose property is built in a designated flood zone.

Foreclosure

A legal procedure in which property securing debt is sold by the lender to pay a defaulting borrower’s debt.

Free and Clear

This means the property is completely paid for and has no liens attached.

Fully Amortized ARM

An adjustable-rate mortgage (ARM) with a monthly payment that is sufficient to amortize the remaining balance, at the interest accrual rate, over the amortization term.

Government National Mortgage Association (GNMA)

Also known as Ginnie Mae, provides sources of funds for residential mortgages, insured or guaranteed by FHA or VA.

Graduated Payment Mortgage (GPM)

A type of flexible-payment mortgage where the payments increase for a specified period of time and then level off. This type of mortgage has negative amortization built into it.

Grant Deed

A Grant Deed is the most common form of title transfer deed. A Grant Deed contains warranties against prior conveyances or encumbrances.

Gross Monthly Income

The total amount the borrower earns per month, before any expenses are deducted.

Guarantee Mortgage

A mortgage that is guaranteed by a third party.

Hazard Insurance

A form of insurance in which the insurance company protects the insured from specified losses, such as fire, windstorm and the like, it would not cover earthquake, riot, or flood damage.

Housing Expense Ratio

The percentage of gross monthly income budgeted to pay housing expenses.

Hybrid ARM (3/1 ARM, 5/1 ARM, 7/1 ARM)

A combination fixed rate and adjustable rate loan – also called 3/1,5/1,7/1 – can offer the best of both worlds: lower interest rates (like ARMs) and a fixed payment for a longer period of time than most adjustable rate loans. For example, a “5/1 loan” has a fixed monthly payment and interest for the first five years and then turns into a traditional adjustable rate loan, based on then-current rates for the remaining 25 years. It’s a good choice for people who expect to move or refinance, before or shortly after, the adjustment occurs.

Index

The index is the measure of interest rate changes a lender uses to decide the amount an interest rate on an ARM will change over time.The index is generally a published number or percentage, such as the average interest rate or yield on Treasury bills. Some index rates tend to be higher than others and some more volatile.

Initial Interest Rate

This refers to the original interest rate of the mortgage at the time of closing. This rate changes for an adjustable-rate mortgage (ARM). It’s also known as “start rate” or “teaser.”

Installment

The regular periodic payment that a borrower agrees to make to a lender.

Insured Mortgage

A mortgage that is protected by the Federal Housing Administration (FHA) or by private mortgage insurance (MI).

Interest

The fee charged for borrowing money.

Interest Accrual Rate

The percentage rate at which interest accrues on the mortgage. In most cases, it is also the rate used to calculate the monthly payments.

Interest Rate Buydown Plan

An arrangement that allows the property seller to deposit money to an account. That money is then released each month to reduce the mortgagor’s monthly payments during the early years of a mortgage.

Interest Rate Ceiling

For an adjustable-rate mortgage (ARM), the maximum interest rate, as specified in the mortgage note.

Interest Rate Floor

For an adjustable-rate mortgage (ARM), the minimum interest rate, as specified in the mortgage note.

Joint Tenants

A form of holding title where the owners have 100% rights of survivorship unless redirected by a will.

Jumbo Loan

A loan which is larger than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.

Late Charge

The penalty a borrower must pay when a payment is made a stated number of days (usually 15) after the due date.

Lease-Purchase Mortgage Loan

An alternative financing option that allows low- and moderate-income home buyers to lease a home with an option to buy. Each month’s rent payment consists of principal, interest, taxes and insurance (PITI) payments on the first mortgage plus an extra amount that accumulates in a savings account for a downpayment.

Liabilities

A person’s financial obligations. Liabilities include long-term and short-term debt.

Lifetime Payment Cap

For an adjustable-rate mortgage (ARM), a limit on the amount that payments can increase or decrease over the life of the mortgage.

Line of Credit

An agreement by a commercial bank or other financial institution to extend credit up to a certain amount for a certain time.

Liquid Asset

A cash asset or an asset that is easily converted into cash.

Loan

A sum of borrowed money (principal) that is generally repaid with interest.

Loan-to-Value (LTV) Percentage

The relationship between the principal balance of the mortgage and the appraised value (or sales price if it is lower) of the property. For example, a $100,000 home with an $80,000 mortgage has an LTV of 80 percent.

Lock-In Period

The guarantee of an interest rate for a specified period of time by a lender, including loan term and points, if any, to be paid at closing. Short term locks (under 21 days), are usually available after lender loan approval only. However, many lenders may permit a borrower to lock a loan for 30 days or more prior to submission of the loan application.

Margin

The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.

Maturity

The date on which the principal balance of a loan becomes due and payable.

Monthly Fixed Installment

That portion of the total monthly payment that is applied toward principal and interest. When a mortgage negatively amortizes, the monthly fixed installment does not include any amount for principal reduction and doesn’t cover all of the interest. The loan balance therefore increases instead of decreasing.

Mortgage

A legal document that pledges a property to the lender as security for payment of a debt.

Mortgagee

The lender in a mortgage agreement.

Mortgage Broker

An individual or company that brings borrowers and lenders together for the purpose of loan origination.

Mortgage Escrow Accounts

The account set by the Lender to pay Taxes and Insurance on behalf of the Borrower.

Mortgage Insurance

A contract that insures the lender against loss caused by a mortgagor’s default on a government mortgage or conventional mortgage. Mortgage insurance can be issued by a private company or by a government agency.

Mortgage Insurance Premium (MIP)

The amount paid by a mortgagor for mortgage insurance.

Mortgage Life Insurance

A type of term life insurance In the event that the borrower dies while the policy is in force, the debt is automatically paid by insurance proceeds.

Mortgagor

The borrower in a mortgage agreement.

Negative Amortization

Amortization means that monthly payments are large enough to pay the interest and reduce the principal on your mortgage. Negative amortization occurs when the monthly payments do not cover all of the interest cost. The interest cost that isn’t covered is added to the unpaid principal balance. This means that even after making many payments, you could owe more than you did at the beginning of the loan. Negative amortization can occur when an ARM has a payment cap that results in monthly payments not high enough to cover the interest due.

Net Effective Income

The borrower’s gross income minus federal income tax.

Net Worth

The value of all of a person’s assets, including cash.

Non Liquid Asset

An asset that cannot easily be converted into cash.

Non-Owner Occupied

A property not used as a residence by the owner of the property.

Notary Public

A person, designated by the state, which can certify the identity of a person when signing various documents.

Note

A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.

Negative Amortization

Amortization means that monthly payments are large enough to pay the interest and reduce the principal on your mortgage. Negative amortization occurs when the monthly payments do not cover all of the interest cost. The interest cost that isn’t covered is added to the unpaid principal balance. This means that even after making many payments, you could owe more than you did at the beginning of the loan. Negative amortization can occur when an ARM has a payment cap that results in monthly payments not high enough to cover the interest due.

Net Effective Income

The borrower’s gross income minus federal income tax.

Net Worth

The value of all of a person’s assets, including cash.

Non Liquid Asset

An asset that cannot easily be converted into cash.

Non-Owner Occupied

A property not used as a residence by the owner of the property.

Notary Public

A person, designated by the state, which can certify the identity of a person when signing various documents.

Note

A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.

Obligations

Any debt, or recurring payment the borrower is obligated to pay, including mortgage payments.

Origination Fee

A fee paid to a lender for processing a loan application. The origination fee is stated in the form of points. One point is 1 percent of the mortgage amount.

Owner Occupied

Designation given to property used as the owner’s residence.

Owners Policy

A policy of the title insurance which protects the buyer against problems with the title.

Payment Change Date

The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM) or a graduated-payment mortgage (GPM). Generally, the payment change date occurs in the month immediately after the adjustment date.

Periodic Payment Cap

A limit on the amount that payments can increase or decrease during any one adjustment period.

Periodic Rate Cap

A limit on the amount that the interest rate can increase or decrease during any one adjustment period, regardless of how high or low the index might be.

Piggy Back Loan

Financing obtained, subordinate to the first mortgage, to facilitate closing the first mortgage. Also known as a Secondary Financing.

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 (usually three).

Points

A point is equal to one percent of the principal amount of your mortgage. For example, if you get a mortgage for $165,000 one point means $1,650 to the lender. Points usually are collected at closing and may be paid by the borrower or the home seller, or may be split between them.

Preliminary Title Report

The title report generated at the beginning of the application process. It tells the mortgage company what liens are on the property and gives advice as to what will need to be done to gain clear title prior to recording the trust deed.

Prepaid Interest

The portion of interest, collected at loan closing, which covers the time period between funding and the beginning of the first 30-day period covered by the first payment. For example, if the loan closed on 2/15, the first payment due on 4/1 would pay interest from 3/1 to 4/1. The prepaid interest would cover the period from 2/15 to 2/28.

Prepaids

Expenses necessary to create an escrow account or to adjust the seller’s existing escrow account. Can include taxes, hazard insurance, private mortgage insurance and special assessments.

Prepayment Penalty

The process of determining how much money you will be eligible to borrow before you apply for a loan.

Pre-Qualified

Buyer has discussed their financial situation with a loan expert. No attempt has been made to verify the validity of any of the borrowers information. PRE-Qualification is only an indication of what the buyer should qualify for.

Prime Rate

The interest rate that banks charge to their preferred customers. Changes in the prime rate influence changes in other rates, including mortgage interest rates.

Principal

The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.

Principal Balance

This refers to the principal and interest portions of the monthly mortgage payment.

Principal, Interest, Taxes, and Insurance (PITI)

The four components of a monthly mortgage payment. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the monthly cost of property taxes and homeowners insurance, whether these amounts that are paid into an escrow account each month or not.

Private Mortgage Insurance (PMI)

Mortgage insurance provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require MI for a loan with a loan-to-value (LTV) percentage in excess of 80 percent.

Profit and Loss (P&L)

A statement of a business’s gross income, cost of goods, operating costs and net profit or loss.

Purchase Agreement

The agreement made between the buyer and seller of a property, containing the purchase price and contingencies of the sale.

Qualifying Ratios

Calculations used to determine if 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.

Rate Float

Assuming market risk on an interest rate in the hopes that it will go lower prior to closing.

Rate Lock

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

Ratios

How a buyers housing expense and debt picture relates to their income.

Real Estate Agent

A person licensed to negotiate and transact the sale of real estate on behalf of the property owner.

Real Estate Settlement Procedures Act (RESPA)

A consumer protection law that requires lenders to give borrowers advance notice of closing costs.

Rescission

The cancellation of a contract. With respect to mortgage refinancing, the law that gives the homeowner three days to cancel a contract in some cases once it is signed if the transaction uses equity in the home as security.

Recording

The noting in the registrar’s office of the details of a properly executed legal document, such as a deed, a mortgage note, a satisfaction of mortgage, or an extension of mortgage, thereby making it a part of the public record.

Recording Fees

Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records.

REFI

Slang for refinance, or a new mortgage on a property that does not change ownership.

Refinance

Paying off one loan with the proceeds from a new loan using the same property as security.

Revolving Liability

A credit arrangement, such as a credit card, that allows a customer to borrow against a pre-approved line of credit when purchasing goods and services.

Secondary Financing

Financing obtained, subordinate to the first mortgage, to facilitate closing the first mortgage. Also known as a “piggyback” loan.

Secondary Mortgage Market

Where existing mortgages are bought and sold.

Security

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

Seller Carry-back

An agreement in which the owner of a property provides financing, often in combination with an assumable mortgage. See Owner Financing.

Servicer

An organization that collects principal and interest payments from borrowers and manages borrowers’ escrow accounts. The servicer often services mortgages that have been purchased by an investor in the secondary mortgage market.

Servicing

All the steps and operations a lender perform to keep a loan in good standing, such as collection of payments, payment of taxes, insurance, property inspections and the like.

Standard Payment Calculation

The method used to determine the monthly payment required to repay the remaining balance of a mortgage in substantially equal installments over the remaining term of the mortgage at the current interest rate.

Step-Rate Mortgage

A mortgage that allows for the interest rate to increase according to a specified schedule (i.e., seven years), resulting in increased payments as well. At the end of the specified period, the rate and payments will remain constant for the remainder of the loan.

Submission

This refers to a complete loan application package submitted for approval to the underwriting department.

Suspended

The underwriter cannot yet approve or deny the loan. More information is required.

Tenants in Common

A percentage interest in a property by two or more individuals without rights of survivorship.

Third-party Origination

When a lender uses another party to completely or partially originate, process, underwrite, close, fund, or package the mortgages it plans to deliver to the secondary mortgage market.

Title Insurance

The insurance policy insuring the lender and/or the buyer that the liens are as stated in the title report. Any claim arising from a lien other than that disclosed is payable by the title insurance company.

Title Search

An examination of municipal records to determine the legal ownership of property. Usually is performed by a title company.

Title

A document that gives evidence of an individual’s ownership of property.

Total Expense Ratio

Total obligations as a percentage of gross monthly income including monthly housing expenses plus other monthly debts.

Treasury Index

An index used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. Based on the results of auctions that the U.S. Treasury holds for its Treasury bills and securities or derived from the U.S. Treasury’s daily yield curve, which is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market.

Truth-in-Lending

A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the annual percentage rate (APR) and other charges.

Two-step Mortgage

An adjustable-rate mortgage (ARM) with one interest rate for the first five or seven years of its mortgage term and a different interest rate for the remainder of the amortization term.

Underwriting

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

VA Mortgage

A mortgage that is guaranteed by the Department of Veterans Affairs (VA). Also known as a government mortgage.

Verification of Deposit (VOD)

A document signed by the borrower’s financial institution verifying the status and balance of his/her financial accounts.

Verification of Employment (VOE)

A document signed by the borrower’s employer verifying his/her position and salary.