Mortgage Glossary Terms

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

A

Acceleration: The right of the lender to demand the immediate repayment of the balance of the mortgage loan upon the default of the borrower. Or the lender may use the right vested in the 'due on sale' clause.

Adjustable rate mortgage (ARM): This is a mortgage which the interest rate is adjusted periodically based on a pre selected index. Sometimes this is known as the re-negotiable rate mortgage or the variable rate mortgage.

Adjustment interval: On an adjustable rate mortgage, this is the time between changes in the interest rate and/or monthly payment, typically one, three or five years, depending on the index.

Amenity: A feature of the home or property that serves as a benefit to the buyer. An example would be the location of the property, nearby woods, a creek, or things like a garden or swimming pool.

Amortization: Repayment of a mortgage loan through monthly installments of principal and interest. The monthly payments are based on a schedule that will allow you to own your home at the end of a specific time, such as 15 or 30 years.

Annual Percentage Rate (APR): This is calculated by using a standard formula. The APR shows the cost of a loan which is expressed as a yearly interest rate, this includes the interest, mortgage insurance, points, and any other fees associated with the loan.

Application: This is the first step in the official loan approval process. This form is used to record important information about the potential borrower, this information is necessary to the underwriting process.

Appraisal: A document that gives an estimate of a property's fair market value. An appraisal is generally required by a lender before a loan is approved. The appraisal ensures that the mortgage loan amount is not more than the value of the property.

Appraiser: A qualified person who uses his or her experience and knowledge to prepare the appraisal estimate.

ARM: Adjustable Rate Mortgage. This is a mortgage that is subject to changes in interest rates. When rates change, ARM monthly payments increase or decrease at intervals determined by the lender. These changes in the monthly payment amount are usually subject to a cap.

Assessment: A local tax levied against a property for a particular purpose, such as a sewer or street lights.

Assessor: This person is a government official who is responsible for determining the value of a property, the purpose is for taxation.

Assumption: The agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller. Assuming a loan can usually save the buyer money since this is an existing mortgage debt, unlike a new mortgage where closing cost and new, probably higher, market-rate interest charges will apply.

Assumable mortgage: A mortgage that can be transferred from a seller to a buyer. Once the loan is assumed by the buyer, the seller is no longer responsible for repaying the mortgage. However, there may be a fee and/or a credit package involved with the transfer of an assumable mortgage.

B

Balloon Mortgage: A mortgage that typically offers low rates for an initial period of time, usually 5, 7, or 10 years. After that time period passes, the balance is due or is refinanced by the borrower.

Bankruptcy: A federal law where a person's assets are turned over to a trustee and used to pay off outstanding debts. This typically occurs when someone owes more than they have the ability to repay.

Blanket Mortgage: A mortgage covering at least two pieces of real estate, this is security for the same mortgage loan.

Borrower: A person who has been approved to receive a loan and he or she is obligated to repay the loan plus any additional fees according to the loan terms.

Broker: A person in the business of assisting in the arrangement of funds or negotiating contracts for a client buy who does not loan the money himself. Brokers usually charge a fee or receive a commission services provided.

Building code: This is an agreement based on safety standards within a specific area. A building code is a regulation that determines the design, construction, and materials used in building.

Budget: A detailed record of all income earned and all money spent during a period of time.

Buy-down: The lender and/or the home builder subsidized the mortgage by dropping the interest rate during the first few years of the loan. While the payments are low in the beginning, they will increase when the subsidy expires.

C

Cap: A limit on how much a monthly payment or interest rate can increase or decrease. An example is would be a cap on an adjustable rate mortgage.

Cash Flow: The amount of cash earned from an income producing property over a certain period of time. The cash flow should be big enough to pay the expenses of the income producing property (example: mortgage payment, utilities, and maintenance).

Cash-Out: A type of loan in which the total proceeds of the loan are more than the actual refinanced amount and loan costs. Typically this extra money is given to the homeowner to use or paid directly to an account of the homeowner's choice.

Cash reserves: A cash amount sometimes required to be held in reserve, this is in addition to the down payment and closing costs. This amount is determined by the lender.

Certificate of Eligibility: This document is given to qualified veterans which entitles them to a VA guaranteed loan(s) for homes, business, and mobile homes. Certificates of eligibility can be obtained by sending DD-214 (Separation Paper) to the local VA office with VA form 1880 (request for Certificate of Eligibility).

Certificate of Reasonable Value (CRV): An appraisal issued by the Veterans Administration that shows the current market value of the property.

Certificate of title: A document provided by a qualified source, such as a title company, that shows the property legally belongs to the current owner. Before the title can be transferred at closing, it should be clear and free of all liens or any other claims.

Certificate of veteran status: This document is given to veterans or reservists who have served 90 days of continuous active duty, this includes training time. The certificate may be obtained by sending DD 214 to the local VA office with form 26-8261a (request a certificate of veteran status). This document enables veterans to obtain lower down payments on certain FHA insured loans.

Closing: Also known as settlement. This is the time at which the property is formally sold and transferred from the seller to the buyer. At this time, the borrower takes on the loan obligation, pays all closing costs, and receives title from the seller.

Closing costs: Customary costs above and beyond the sale price of the property that must be paid to cover the transfer of ownership at closing. These costs generally vary by geographic location and are typically detailed to the borrower after the submission of a loan application.

Commission: An amount that is usually a percentage of the property sales price. The commission is collected by a real estate professional as a fee for negotiating the transaction.

Commitment: A promise made by the lender to make a loan on specific terms or conditions to a borrower or builder. A promise made by an investor to purchase mortgages from a lender with specific terms or conditions. An agreement, typically in writing, between a lender and a borrower to loan money on a future date subject to the completion of paper work or compliance with stated conditions.

Condominium: A form of ownership in which individuals purchase and own a unit of housing in a multi-unit complex. The owner also shares financial responsibility for common areas.

Construction loan: A short term interim loan to pay for the construction of homes or buildings. These loans usually provide periodic disbursements to the builder as he progresses.

Contract sale or deed: This is a contract between a purchaser and a seller of real estate to convey title after certain conditions have been met. This is also known as a form of installment sale.

Conventional loan: A private sector loan, one that is not guaranteed or insured by the U.S. government.

Cooperative (Co-op): Residents purchase stock in a cooperative corporation that owns a structure. Each stockholder is then entitled to live in a specific unit of the structure and they are responsible for paying a portion of the loan.

Credit history: History of an individual's debt payment. Lenders use this information to determine a potential borrower's ability to repay a loan.

Credit report: A record that lists all past and present debts and their history on repayments of these debts.

Credit bureau score: A number that represents the possibility a borrower may default. This score is based on credit history and it is used to determine the ability to qualify for a mortgage loan.

D

Debt to income ratio: A comparison of gross income to housing and non housing expenses. A mortgage payment combined with non-housing debts should not exceed 41% of income.

Debtor: Any corporation, company, partnership, or individual who extends credit to another. They reserve the right to repayment of that credit.

Deed: The document which transfers ownership of a property.

Deed of trust: In most states, the deed of trust document is used in place of a mortgage in order to secure the payment of a note.

Deed in lieu: To avoid foreclosure ('in lieu' of foreclosure), a deed is given to the lender to fulfill the obligation to repay the debt. The process does not allow the borrower to remain in the house, but helps avoid the costs, time, and effort associated with foreclosure.

Default: The inability to pay the monthly mortgage payments in a timely manner, in other words they fail to meet the mortgage terms.

Deferred interest: When you write a mortgage with a monthly payment that is less than what is required to satisfy the note rate, the unpaid interest is deferred by adding it to the loan balance.

Delinquency: Failure of a borrower to make timely mortgage payments under a loan agreement.

Department of Veterans Affairs (VA): An independent agency of the federal government which can guarantee long term mortgages, low payment mortgages or no down payment mortgages to eligible veterans.

Discount point: Discount points are paid to reduce the interest rate on a loan. This is typically paid at closing and generally calculated to be equivalent to 1% of the total loan amount.

Down payment: The amount of a home's purchase price that is paid in cash. The down payment is not part of the mortgage loan.

'Due on Sale' Clause: A condition in a mortgage or deed of trust that permits the lender to demand immediate payment of the balance of the mortgage if the mortgage holder sells the home.

E

Earnest money: Money put down by a potential buyer to show that he or she is serious about purchasing the home; it becomes part of the down payment if the offer is accepted, is returned if the offer is rejected, or is forfeited if the buyer pulls out of the deal.

EEM: Energy Efficient Mortgage; an FHA program that helps homebuyers save money on utility bills by enabling them to finance the cost of adding energy efficiency features to a new or existing home as part of the home purchase.

Equity: An owner's financial interest in a property. The equity is calculated by subtracting the amount still owed on the mortgage loan from the fair market value of the property.

Entitlement: The VA home loan benefit is called an entitlement. Eligibility is an entitlement for a VA guaranteed home loan.

Equal Credit Opportunity Act (ECOA): ECOA is a federal law that requires lenders and other creditors to make credit equally available without discrimination based on national origin, race, color, religion, sex, age, marital status or if they are receiving income from public assistance programs.

Escrow account: A separate account into which the lender puts a portion of each monthly mortgage payment; an escrow account provides the funds needed for such expenses as property taxes, homeowners insurance, mortgage insurance, etc.

F

Fair Housing Act: A law that prohibits discrimination in all aspects of the home purchasing process on the basis of race, national origin, color, religion, sex, familial status, or disability.

Fair market value: The hypothetical price that a buyer and seller will agree upon when they are acting freely, carefully, and with complete knowledge of the situation.

Fannie Mae: Federal National Mortgage Association (FNMA); a federally-chartered enterprise owned by private stockholders that purchases residential mortgages and converts them into securities for sale to investors; by purchasing mortgages, Fannie Mae supplies funds that lenders may loan to potential homebuyers.

Farmers Home Administration (FmHA): This administration provides financing to farmers and other qualified borrowers who are unable to obtain loans elsewhere.

Federal Home Loan Bank Board (FHLBB): This agency is now known as the Office of Thrift Supervision. The former name for the regulatory and supervisory agency for federally chartered savings institutions.

Federal Home Loan Mortgage Corporation (FHLMC): This is also called "Freddie Mac". This organization is a government agency that purchases conventional mortgages from insured depository institutions and HUD-approved mortgage bankers.

Federal Housing Administration (FHA): This is a division of the Department of Housing and Urban Development. This division's main activity is to insure residential mortgage loans made by private lenders. FHA also sets the standards for underwriting mortgages.

Federal National Mortgage Association (FNMA): This is also known as the Fannie Mae Foundation. This tax-paying corporation was created by Congress. They purchase and sell 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.

FHA (Federal Housing Administration): This organization was established in 1934 to advance homeownership opportunities for all Americans. They assist homebuyers by providing mortgage insurance to lenders to cover many losses that may occur when a borrower defaults. This will encourage lenders to make loans to borrowers who might not qualify for conventional mortgages.

FHA mortgage insurance: A required fee of up to 2.25 percent of the loan amount. This fee is paid at closing to insure the loan with FHA. In addition to the FHA mortgage insurance fee, an annual fee of up to 0.5 percent of the current loan amount is also required. This is paid in monthly installments. The lower the down payment, the more years the fee must be paid.

First Trust: A lien on real property which is recorded as the primary lien for that property.

Fixed rate mortgage: This is a mortgage with payments that remain the same throughout the life of the loan. The interest rate and other terms are fixed and do not change.

Flood insurance: An insurance that protects homeowners against losses from a flood. If a home is located in a flood plane, the lender will require flood insurance before approving a loan.

FNMA: The Federal National Mortgage Association is a secondary mortgage institution which is the largest single holder of home mortgages in the U.S. FNMA buys VA, FHA, and conventional mortgages from primary lenders. This association is also known as the Fannie Mae Foundation.

Foreclosure: A legal process where mortgaged property is sold to pay the loan of the defaulting borrower.

Freddie Mac (Federal Home Loan Mortgage Corporation - FHLM): This is a federally chartered corporation that purchases residential mortgages, securitizes them, and sells them to investors. This provides lenders with funds for new homebuyers.

G

Ginnie Mae (Government National Mortgage Association - GNMA): This is a government owned corporation overseen by the U.S. Department of Housing and Urban Development. Ginnie Mae pools FHA-insured and VA-guaranteed loans to back securities for private investment. With Fannie Mae and Freddie Mac, the investment income provides funding that may be loaned to eligible borrowers by lenders.

Good faith estimate: An estimate of all closing fees including pre-paid and escrow items as well as lender charges. This estimate must be given to the borrower within three days after submitting a loan application.

Graduated Payment Mortgage (GPM): A flexible payment mortgage where the payments will increase for a specific period of time and after a while they will level off. This type of mortgage has negative amortization built in.

Guaranty: If the original party fails to pay or perform according to a contract, another party will pay a debt or perform the obligation which was contracted by another party.

H

Hazard Insurance: A type of insurance which the insurance company protects the insured property from specified losses, such as a fire or windstorms.

HELP (Homebuyer Education Learning Program): An educational program developed by the FHA that counsels people about the home buying process. HELP educates on topics like budgeting, getting a loan, finding a home, and home maintenance. In many cases, completion of the program may entitle the homebuyer to a reduced initial FHA mortgage insurance premium, usually from 2.25% to 1.75% of the home purchase price.

Home inspection: An examination of the structure and mechanical systems to determine the safety of a home. The inspection provides important information to the potential homebuyer of any repairs the house may need.

Home warranty: This warranty offers protection for mechanical systems and attached appliances against unexpected repairs not covered by homeowner's insurance. Overage extends over a specific time period and does not cover the home's structure.

Homeowner's insurance: An insurance policy that combines protection against damage to a dwelling and its contents. This also includes protection against claims of negligence or inappropriate action that results in someone's injury or property damage.

Housing counseling agency: Provides counseling and assistance to individuals on a variety of issues, including loan default, home buying, and fair housing issues.

HUD (The U.S. Department of Housing and Urban Development): HUD was established in 1965. They work to create a decent home and suitable living environment for all Americans. The organization does this by improving and developing American communities, addressing housing needs, and by enforcing fair housing laws.

HUD1 Statement: This is also known as the 'settlement sheet'. This statement itemizes all closing costs and must be given to the borrower before closing or at closing.

HVAC: This is a home's heating and cooling system, which includes heating, ventilation and air conditioning.

I

Impound: The portion of a borrower's monthly payments which are held by the lender to pay for taxes, mortgage insurance, lease payments, hazard insurance, and other things that may become due. This is also known as reserves.

Index: A measurement used by lenders to determine changes to the Interest rate charged on an adjustable rate mortgage.

Inflation: The number of dollars in circulation exceeds the amount of goods and services available for purchase. An inflation results in a decrease in the dollar's value.

Interest: A fee charged for the use of money.

Interest rate: The amount of interest charged on a monthly loan payment. This is usually expressed as a percentage.

Interim Financing: A construction loan made while a building or project is being completed. A permanent loan usually replaces this loan after the project is completed.

Insurance: Protection against a specific loss over a period of time that is secured by the payment of a regularly scheduled premium.

Investor: This is a money source for a lender.

J

Judgment: A legal decision that is made which requires debt repayment. A judgment may include a property lien that secures the creditor's claim by providing a collateral source.

Jumbo Loan: A loan that is larger (more than $322,700 as of 1/1/2003) than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because this type of loan cannot be funded by these two agencies, they usually carry a higher interest rate.

L

Lease purchase: Assists low to moderate income homebuyers in purchasing a home by allowing them to lease a home with an option to buy. The rent plus an additional amount is credited to an account for the use as a down payment.

Lien: A legal claim against property that must be satisfied by the time the property is sold.

Loan: Money borrowed that is usually repaid with interest.

Loan fraud: Intentionally giving incorrect information on a loan application with the hopes of qualifying for a loan. This action can result in civil liability or criminal penalties.

Loan-to-value (LTV) ratio: A percentage calculated by dividing the amount borrowed by the price or appraised value of the purchased house. The higher the LTV, the less cash a borrower is required to pay as down payment.

Lock in: This refers to a specific interest rate that is guaranteed if the loan is closed within a certain time.

Loss mitigation: This process is to help avoid foreclosure. The lender tries to help a borrower who has been unable to make loan payments and is in danger of defaulting on his or her loan.

M

Margin: An amount the lender adds to an index in order to determine the interest rate on an adjustable rate mortgage.

Market: This is in reference to the 'long bond' or the 'thirty year' treasury bond market. This is the market which determines interest rates.

Market Value: The highest price that a buyer would pay and the lowest price a seller would accept on a property. The market value may be different from the price a property may be sold for at any given time.

Mortgage: A lien on the property that secures the Promise to repay a loan.

Mortgagee: The lender.

Mortgage banker: A company that originates loans and resells them to secondary mortgage lenders like the Fannie Mae Foundation or Freddie Mac.

Mortgage broker: A firm that originates and processes loans for a number of lenders.

Mortgage insurance: This policy protects lenders against some or many of the losses that can occur when a borrower defaults on a mortgage loan. Mortgage insurance is mostly required for those with a down payment of less than 20% of the home's purchase price.

Mortgage insurance premium (MIP): A monthly payment which is usually part of the mortgage payment and is paid by the borrower for mortgage insurance.

Mortgage Modification: A loss-mitigation-option which allows a borrower to refinance and/or extend the term of the mortgage loan which will reduce the monthly payments.

Mortgagor: The borrower or homeowner.

N

Negative Amortization: This occurs when your monthly payments aren't large enough to pay all of the interest due for the loan. This unpaid interest is added to the unpaid balance of the loan. The setback of negative amortization is the home buyer ends up owing more than the original amount of the loan.

Net Effective Income: The borrower's gross income minus federal income tax.

No Income Verification (NIV): Those loans in which a borrower needs to provide documentation of their limited or no income.

Non-Assumption Clause: A statement in a mortgage contract forbidding the assumption of the mortgage without prior approval from the lender.

O

Offer: An indication by a potential buyer and their interest in purchasing a home at a specific price, generally this is put in writing.

Origination: The process of preparing, submitting, and evaluating a loan application. Typically this includes a verification of employment, credit check, and a property appraisal.

Origination fee: This is a charge for originating a loan, usually calculated in the form of points and paid at closing.

P

Partial Claim: A loss mitigation option offered by the FHA that allows the borrower, with help from a lender, to get an interest-free loan from HUD to bring their mortgage payments up to date.

Permanent Loan: A long term mortgage, this loan usually lasts ten or more years. This is also known as an end loan.

PITI (Principal, Interest, Taxes, and Insurance): This includes the four elements of a monthly mortgage payment. Payments of principal and interest go directly towards repaying the loan while the portion that covers taxes and insurance goes into an escrow account to cover those fees when they are due.

Pledged Account Mortgage (PAM): Money that is placed in a pledged savings account. This fund, plus earned interest is gradually used to reduce mortgage payments.

PMI (Private Mortgage Insurance): Insurance programs offered by privately owned companies for standard and special affordable mortgage insurance programs for qualified borrowers with down payments totaling less than 20% of a purchase price.

Points: Loan discount points. This is prepaid interest assessed at closing by the lender. Each point equals one percent of the entire loan amount (example: two points on a $100,000 mortgage would cost $2,000).

Power of Attorney: A legal document that authorizes one person to act on behalf of another.

Pre-approve: Lender commits to lending money to a potential borrower. This commitment remains as long as the borrower continues to meet the qualification requirements at the time of purchase.

Pre-foreclosure sale: Allows a defaulting borrower to sell the mortgaged property to satisfy the loan and avoid foreclosure.

Pre-qualify: A lender informally determines the maximum amount an individual is eligible to borrow.

Premium: An amount paid on a regular schedule by a policyholder that maintains insurance coverage.

Prepaid Expenses: This is necessary to create an escrow account or to adjust the seller's existing escrow account. This account can include taxes, private mortgage insurance, hazard insurance, and special assessments.

Prepayment: Payment of the mortgage loan before the scheduled due date. Prepayments may be subject to a prepayment penalty.

Primary Mortgage Market: Lenders making mortgage loans directly to borrower's such as savings and loan associations, commercial banks, and mortgage companies. These lenders sometimes sell their mortgages into the secondary mortgage markets such as to FNMA or GNMA, etc.

Private Mortgage Insurance (PMI): If you do not have a 20 percent down payment, some lenders will allow a smaller down payment, sometimes as low as 5 percent. With smaller down payment loans, borrowers usually require you to carry private mortgage insurance. Private mortgage insurance companies will usually require an initial premium payment and may require an additional monthly fee, this all depends on your loan agreement.

Principal: The amount borrowed from a lender, this amount doesn't include interest or additional fees.

R

Radon: A radioactive gas found in some homes that, if occurring in strong enough concentrations, can cause health problems.

Real estate agent: An individual who is licensed to negotiate and arrange real estate sales. This person works for a real estate broker.

Realtor: A real estate agent or broker who is a member of the National Association of Realtors, and its local and state associations.

Recision: To cancel a contract. With respect to mortgage refinancing, the law gives the homeowner three days to cancel a contract. In some cases, once the contract is signed, the transaction uses equity in the home as security.

Recording Fees: Money paid to the lender for recording the sale of a home, thereby making it part of the public records.

Refinancing: To pay off one loan by obtaining another. Refinancing is usually done to secure better loan terms, such as a lower interest rate.

Rehabilitation mortgage: A mortgage that covers the costs of improving or repairing a property. Some rehabilitation mortgages, like the FHA's 203(k), will allow a borrower to roll the costs of rehabilitation and home purchase into one mortgage loan.

Renegotiable Rate Mortgage: A loan where the interest rate is adjusted periodically.

RESPA (Real Estate Settlement Procedures Act): This is a law that protects consumers from abuses during the residential real estate purchase and loan process by requiring lenders to disclose all settlement costs, practices, and relationships.

Reverse Annuity Mortgage (RAM): A type of mortgage which the lender will make periodic payments to the borrower using the borrower's equity in the home as Satisfaction of Mortgage. This document is issued by the mortgagee when the mortgage loan is paid in full.

S

Second Mortgage: A mortgage which is made subsequent to another mortgage. The second mortgage is subordinate to the first one.

Secondary Mortgage Market: The place where primary mortgage lenders will sell the mortgages they make in order to obtain more funds to originate more 'new' loans. This activity provides liquidity for the lenders. It's a form of security.

Servicing: All of the necessary steps a lender acts upon to keep a loan in good standing. This should include the collection of loan payments, insurance, payment of taxes, property inspections and the like.

Settlement: Another name for closing.

Shared Appreciation Mortgage (SAM): A mortgage where a borrower receives a below market interest rate in exchange for a portion of the future appreciation in the value of the property. The lender or another investor such as a family member or another partner receives this future appreciation. This may also apply to a mortgage where the borrowers share the monthly principal and the interest payments with another party in exchange for part of the appreciation.

Simple Interest: The interest computed only on the principle balance.

Special Forbearance: A loss mitigation option where the lender arranges a revised repayment plan for the borrower that may include a temporary reduction or suspension of monthly loan payments.

Subordinate: To place in a rank of lesser importance or to make one claim secondary to another.

Sub-prime: Refers specifically to those mortgage products created using the 'prime rate' as a starting interest rate. Usually the' treasury bond market rate' is used. More generally, this refers to those products created for credit types rated less than A+.

Survey: A property diagram that indicates legal boundaries, easements, encroachments, rights of way, improvement locations, etc.

Sweat equity: Using labor to build or improve a property as part of the down payment

T

Title: A document that proves ownership of an individual's property.

Title 1: An FHA-insured loan that allows a borrower to make non-luxury improvements (like renovations or repairs) to their home; Title I loans less than $7,500 don't require a property lien.

Title insurance: Insurance that protects the lender against any claims that arise from arguments about ownership of the property; also available for homebuyers.

Title search: A check of public records to be sure that the seller is the recognized owner of the real estate and that there are no unsettled liens or other claims against the property.

Truth-in-Lending: A federal law obligating a lender to give full written disclosure of all fees, terms, and conditions associated with the loan initial period and then adjusts to another rate that lasts for the term of the loan.

Two-Step Mortgage: A mortgage in which the borrower receives a below-market interest rate for a specified number of years (typically 7 or 10 years). Then the borrower receives a new interest rate adjusted (within certain limits) to the market conditions at that time. The lender sometimes has the option to call the loan due with 30 days notice at the end of seven or 10 years. This is also known as "Super Seven" or "Premier" mortgage.

U

Underwriting: The process of analyzing a loan application to determine the amount of risk involved in making the loan. This includes a review of the potential borrower's credit history and a judgment of the property value.

USURY: Interest amounts charged in excess of the legal rate established by law.

V

VA (Department of Veterans Affairs): A federal agency that guarantees loans made to veterans. Similar to mortgage insurance, a loan guarantee protects lenders from loss that may result from a borrower default.

VA Mortgage Funding Fee: Depending on the size of the down payment, a premium of up to 1-7/8 percent paid on a VA-backed loan. On a $75,000 fixed-rate mortgage with no down payment, this would equal $1,406, which can either be paid at closing or added to the amount financed.

Verification of Deposit (VOD): A document which is 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 which verifies their position and salary.

W

Warehouse Fee: A lot of mortgage firms must borrow funds on a short-term basis in order to originate loans which are sold later in the secondary mortgage market or they are sold to investors. When the prime rate of interest is higher on short-term loans than on mortgage loans, the mortgage firm has an economic loss which is offset by charging a warehouse fee.

Wraparound mortgage: When a new loan is combined with an existing assumable loan, which results in an interest rate somewhere between the old rate and the current market rate. The payments are made to the previous homeowner or the second lender, and then they forward the payments to the first lender after taking the additional amount off the top.