terminology. Loan jargon. The language used in the loan
process can be confusing if you’re new to it.
This Franklin Mortgage Company dictionary is your one-step
resource for user-friendly definitions to our most commonly
FEDERAL TAX RETURN
Federal tax form used by U.S. citizens and residents
to report their annual income to the Federal government.
The 1040 tax return must be accompanied by any applicable
schedules, which provide line-item detail of various
sources of income.
A details itemized deductions.
B details investment income.
C details business income.
D details capital gains/losses.
E details supplemental income, such as rental income.
F details farming profit/loss.
secured claim against a property that will be the first
claim to be repaid should the property owner declare
bankruptcy or default on the secured loan.
history of a property’s title record used to prepare
the Title Commitment report. An Abstract of Title lists
anyone who’s ever had a claim to the property,
past and present. Most states condense the abstract
into a document called either the Preliminary or Title
Commitment which lists only current claims to the property.
mortgage loan where the interest rate is not fixed for
the entire term of the loan, and can change during the
life of the loan in line with movements or an index
The interest rate on an ARM is fixed for an initial
period. Following the initial fixed-rate period, the
remainder of the loan term is divided into one year-long
or three year-long adjustment periods.
B. Your loan has “caps”
which limit the amount of interest rate adjustments.
The cap limits increases and decreases in your interest
rate at each adjustment. In addition, over the term
of your loan, your interest rate will never increase
above or decrease below the lifetime cap, from your
initial interest rate.
C. ARM loans are best for customers
Want lower initial payments
Plan to move or refinance within a few years
Are purchasing or refinancing when interest rates
are expected to move lower
Underwriting standards for ARMS are generally more
flexible than with a fixed-rate loan
Purchasing acreage or subdivision lots
rider is an addition to a security instrument. The adjustable-rate
rider outlines terms and conditions specific to an adjustable-rate
loan. It must be recorded along with the security instrument
at the county recorder’s office.
adjustment cap limits the degree of interest rate changes
during a specific period, during the life of the loan.
is the process of reducing principal and interest in
equal installment payments at specific intervals over
a set term. For example, a fully amortized loan payment
is a portion of which will be applied to pay accruing
interest on the loan with the remainder being applied
to principal. Over time, the interest portion decreases
as the loan balance decreases and the amount applied
to principal increases so that the loan is paid off
in the specified term.
Annual Percentage Rate(“APR”) is a measure
of the cost of credit, expressed as a yearly rate. The
APR takes into account the amount financed, the finance
charge, and the amounts and timing of the payments.
as to the monetary value of the property. For example,
an appraisal of property provides an idea of how much
money the property is worth in the housing market at
a given time by comparing like houses that have recently
for Annual Percentage Rate.
who borrows money and is responsible for repaying it
to the lender. Also known as obligor. If the loan is
secured by a mortgage, the borrower is known as a mortgagor.
maximum increase of an adjustable-rate mortgage period
and lifetime. Example: The original loan is made at
6% with a 6% cap. The interest rate on the loan may
never exceed 12%, regardless of index changes. See ADJUSTABLE-RATE
refinance transaction in which the borrower receives
cash that may be used for any purpose: such as debt
consolidation or home improvements.
meeting between a lender and borrower when the loan
documents are signed and the funds legally change hands.
Also known as settlement.
such as title insurance premiums, appraisal fees, recording
2nd borrower on a loan.
company that collects and organizes information about
an individual’s credit and payment habits. The
3 national credit bureaus are Experian, TransUnion and
report provided by a credit reporting bureau that provides
a detailed account of the applicant’s credit history
which reflects if the borrower has met financial obligations
on time in the past.
numerical assessment assigned to the customer by credit
bureaus that represents a measurement of the customer’s
overall credit rating. The scores are weighted and range
from approximately 365 to 840. Lower scores reflect
a “high risk”, while higher scores reflect
a “lower risk”. Your credit score could
impact your interest rate. Each credit bureau has its
own credit score system.
security instrument used by financial institutions that
places a lien on the property.
document issued by the court that dissolves the marriage
The difference between the purchase price and the mortgage
amount for home purchase transactions.
The cash deposit paid by the prospective buyer of real
property, as evidence of good faith intentions, to complete
the purchase transaction
CREDIT OPPORTUNITY ACT (ECOA)
A Federal act passed in 1974 that prohibits discrimination
in lending on the basis of sex, marital status, race,
color, religion, national origin, age or receipt of
Usually refers to a non interest bearing account, in
which the borrower contributes to monthly in addition
to their standard Principal & interest payment.
When real estate taxes or homeowners insurance is due,
the mortgage company is responsible fro collecting and
paying those bills.
The nation’s largest mortgage investor created
in 1968 by an amendment to Title III of the National
Housing Act. This stockholder-owner corporation, a portion
of whose board of directors is appointed by the President
of the United States, supports the secondary market
in mortgages on residential property.
A secured claim against a property that will be the
first claim to be repaid should the property owner someday
declare bankruptcy or default on the secured loan.
A mortgage having a rate of interest that remains the
same for the life of the mortgage. A fixed-rate loan
offers the security of a predictable monthly principal
and interest payment over the life of the loan. This
allows protection from rising interest rates in the
Fixed-rate mortgages are best for customers who:
* Plan to reside in their homes a long time
* Are on limited or fixed incomes
* Are more comfortable with regular payments
* Are buying or refinancing when interest rates are
Insurance against loss by flood damage. Required in
federally designated special Flood Hazard Areas.
The disbursement of loan funds.
A letter to the lender from the donor stating a gift
of money has been made to the buyer in order to purchase
specific property. The relationship of the donor and
donee is stated, as well as the amount of the gift.
One who received property rights when a grant is made.
One who grants property or property rights to another.
MONTHLY INCOME (BORROWER)
The total amount the borrower earns per month, before
any expenses are deducted.
Insurance protecting real property against loss caused
by fire, some natural causes, vandalism, etc., depending
upon the terms of the policy.
An association of people who own homes in a given area,
formed for the purpose of improving or maintaining the
quality of the area.
A monthly payment paid to the association for the maintenance
and care of the common areas.
Final statement of the actual settlement costs of the
loan and all other disbursements of a loan’s proceeds.
A published interest rate against which lenders measure
the difference between the current interest rate on
an adjustable-rate mortgage and that earned by other
investments, which is then used to adjust the interest
rate on an adjustable-rate mortgage. The Wall Street
Journal publishes index information.
Money charged over time for the use of money.
Percentage paid for the use of money, usually expressed
as an annual percentage.
Property used for investment purposes, such as rental
properties and vacant land.
A method of geographically identifying a parcel of land
that is acceptable in a court of law.
PAID MORTGAGE INSURANCE (LPMI)
A secured financial interest or legal encumbrance on
a property. For example, a secured loan appears as a
lien on the property’s title report.
The order in which liens will be repaid when the property
is transferred to a new owner.
The amount of money originally lent to a borrower.
The loan term is the period of time over which the loan
will be paid. First mortgage loans typically have terms
of 40, 30, 20 or 15 years.
TO VALUE RATIO (LTV)
The loan amount in relationship to the appraised value
or selling price expressed as a percentage.
A constant number, set in the terms of the note, added
to an rate index to compute the interest rate on an
adjustable-rate mortgage. This fixed number is added
to an index to determine the new interest rate when
a new change period begins.
A written instrument that creates a lien upon real estate
as collateral for the payment of a specified debt. The
borrower retains possession and use of the property.
A property used as a residence by a renter/tenant instead
of the owner of the property.
An agreement containing an expressed and absolute promise
of the signer to pay to a named person or bearer a definite
sum of money at a specified date or on demand.
Borrowers’ signed acknowledgement that they wish
to cancel their loan. This applies only to customers
who are refinancing.
OF RIGHT TO CANCEL
Under Regulation Z, customers refinancing must be notified
they are entering into a transaction that will result
in a lien against their primary residence. This document
explains they have the right to cancel (right of recision)
the transaction, at no cost, within 3 business days
from the date of signing the closing documents on a
The owners primary residence.
A charge which is assessed when the loan is paid before
it’s due to compensate the investor for the loss
of anticipated interest income.
The property in which the customer resides the majority
of the time.
AND INTEREST (P & I)
This refers to the principal and interest portions of
a monthly mortgage payment.
MORTGAGE INSURANCE (PMI)
Insurance against a loss by a lender normally required
in the event the lender has lent more than 80% of the
value of the property securing the loan. The premium
is paid by the borrower and is included in the mortgage
A deed operating as a release; intended to pass any
title, interest or claim that the grantor may have in
the property, but not containing any warranty that such
title is valid, or containing any warranty or covenants
The amount charged by a public record documents office
to record within the county
The creation of a new loan to pay off existing debts.
When a lien against the property is satisfied (paid
off) the note holder records a document that reflects
the discharge of the obligation and releases the lien
recorded against the property. This document must be
recorded with the county.
A 2nd loan on the same property, that is in a junior
lien or subordinate position.
A property used by a person as a second residence, not
as an investment.
Final statement of the actual settlement costs of the
A lien taking a legal title position junior to another
lien that recorded later. For example, if a mortgage
lien recorded in 2000, it can subordinate to a lien
recorded in 2003.
A document prepared by a licensed surveyor that verifies
the accuracy of a property’s legal description,
plat maps, easements or other information found in a
The right or ownership in land; also, the evidence of
A written report showing all current claims against
a property before a sale or loan transaction. After
completion of the transaction, a title insurance policy
Insurance against certain loss resulting from undisclosed
defects or title to a specifically described parcel
of real property.
Discloses loan amount, finance charges and APR. This
disclosure also states what property is being purchased
or refinance as well as if there is a pre-payment penalty.
The analysis of a customer’s credit capacity and
the loan’s collateral upon which a risk is given.
OF MORTGAGE (VOM)
Documentation that establishes the customer’s
mortgage payment history.
OF DEPOSIT (VOD)
Documentation that confirms the customer has access
to specified amounts of money through a bank or investment
OF EMPLOYMENT (VOE)
Documentation that confirms the customer works in the
job and at the employer listed on the handwritten loan
application and receives a stream of income from this
source. Verifications of Employment confirm the customer’s
position title, date of hire, employment type, hours
of work per week, frequency of payment and salary.
A document that reports to the Federal government income
earned by salaried employees. This document reports
employees’ total gross and withholdings made during
the previous tax year. Employers must mail W-2s by January
31 of each year for the prior tax year.
A deed in which the grantor or seller warrants or guarantees
good title is being conveyed to the buyer and essentially
gives the buyer ownership of the property.