ADDENDUM - a revision to the terms of a purchase contract after the initial ratified contract. Example - initial contract specifies $0 seller credit towards closing costs, and a subsequent addendum signed by all parties specifies a $1,000 seller credit.
AUS - an automated underwriting system which retrieves relevant data, such as a borrower's credit history, and arrives at a logic-based loan decision. Most lenders will not accept a loan application unless the file has been run through, and approved by, AUS prior to submission.
BROKER COMPENSATION - income earned by mortgage brokers for their work in originating mortgage applications. In most (but not all) cases brokers are paid by the lender, not the client for their services.
BUYDOWN - "PERMANENT"- The buyer (or seller) pays money to the lender to "permanently" buy down the mortgage rate for the entire length of the loan (most common is a 30 year term). This cost is referred to as "points". See item 6.
BUYDOWN - "TEMPORARY "- The buyer (or seller) pays money to the lender to "temporarily" buy down the mortgage rate. Example: 30 year fixed, locked rate is 6.0%. Year 1 rate=3%. Year 2 rate=4%. Year 3 rate=5%. Years 4 - 30 rate=6%.
CLOSING COSTS> "NON RECURRING"- any non-recurring fees incurred by homeowners or buyers related to the refinance or purchase of a home. These are paid one time per transaction. Example fees are title insurance, appraisal, escrow and credit report.
CLOSING COSTS > "RECURRING" - same as above except these are ongoing fees paid by the homeowner. For example homeowners insurance are paid once a year by most homeowners and property taxes are paid either annually or split into two payments.
CREDIT OR COSTS "FROM" or "TO" the *LENDER*- A lender CREDIT is the amount of money a LENDER pays the borrowers at close of escrow to help towards closing costs. The amount of credit (or cost) is dependent on the interest rate the borrowers choose. The higher the rate, the higher the credit - and conversely the lower the rate the higher the credit. For example - when the loan is eligible to be locked the lender may be offering a CREDIT of $2,000 at 5% interest rate versus a COST of $3,000 at 4.5% interest rate. If the borrower chooses to pay costs to "buy down" the interest rate those costs are referred to as "points"
CREDIT FROM *SELLER* - An amount of money SELLER's pay borrowers at close of escrow as agreed in the purchase contract. Normally this can only be used to pay for closing costs, and not towards down-payment.
CREDIT SCORE - as far as government rules are concerned a loan applicant's "credit score" is the lowest of all borrower's middle credit score. Example: John's 3 bureau scores are 680 701 720 and his wife Jane's are 692 722 790. Their "credit score" is 722
CREDIT REPORT - "SOFT PULL" - a credit report pulled by mortgage brokers or lenders that produces TWO of the three credit bureau's scores. They currently cost around $10
CREDIT REPORT - "TRI-MERGE" - as above, except that they produce ALL THREE credit bureau scores. These are the only credit reports that AUS (see above) will accept. They currently cost around $68 (unfortunately they have doubled in the last 12 months).
DEBT-TO-INCOME (DTI) *BOTTOM* RATIO - Monthly housing expenses as a percentage of the combined income of all borrowers. For example - $3,500 housing expenses paid by borrowers earning $10,000/month = 35% BOTTOM atio
DEBT-TO-INCOME (DTI) *TOP* RATIO - Monthly housing expenses plus all other monthly expenses as a percentage of the combined income of all borrowers. Example - $3,500 housing expenses plus $1,000/month car, student loan & credit card minimums for borrowers earning $10,000/month = $4,500 / $10,000 = 45% TOP ratio.
EARNEST MONEY DEPOSIT "EMD"- An amount of money agreed upon by the home buyer and seller that is paid into escrow by the borrower as a sign of good faith. Example: you place an offer to buy a home for $1M with $200,000 down payment. Once your offer is accepted , per the signed contract you wire $20,000 EMD to the title company - which means your remaining down payment would be $180,000.
DOWN PAYMENT - the amount of money borrowers put down to buy a home. Example: if you were in contract to buy a $1M home and you applied for an $800,000 mortgage you'd need to come up with $200,000 down payment.
HOUSING EXPENSES - the monthly cost of all home owners expenses. These include mortgage payment, property taxes, homeowners insurance plus mortgage insurance and/or homeowners association (HOA) fees if applicable.
IMPOUND ACCOUNT - an account in the name of the borrower in which 1/12 of the annual property taxes and 1/12 of the annual homeowners insurance is included with the borrower's mortage payment each month. When the loan to value (LTV) ratio is above 80% an impound account (and mortgage insurance) is usually mandatory.
INTEREST RATE LOCK - "RATE LOCK" - At some point (normally early in the process) your mortgage lender or broker will invite you to "lock the rate". This is an agreement between you and the lender to a particular interest rate and costs or credits within the lock time frame (30 day locks are the most common). This rate lock is dependent on certain terms being met (for example LTV is less than 80% (see next item).
LOAN-TO-VALUE (LTV) VALUE RATIO: The amount of the new loan divided by the value of the home. Example - $600,000 loan on a a $1M home = 60% LTV.
MORTGAGE INSURANCE (MI) - RECURRING- when borrowers buy or refinance a home and their equity in the home is less than 20% they are required to pay a monthly fee for mortgage insurance. This is because the less "skin in the game" they have the more of a risk they are to the mortgage lender.
MORTGAGE INSURANCE - ONE TIME UPFRONT - A once-per-transaction fee normally paid on FHA loans at the time of loan closing. It can be folded into the new loan amount. At the time of writing it is 1.75% of the loan amount.
"NO-COST" REFINANCES - Example, Steve and Laura refinance their home and incur $3,000 in non-recurring closing costs. Lender gives them a $3,000 CREDIT at close of escrow. Their net non-recurring closing costs therefore = $0. This is over simplified for the purposes of illustration.
POINTS - see item 4 above.
SALES PRICE AND PROPERTY VALUE - On a home purchase transaction the sales price is the price agreed to in the purchase contract or reflected in a subsequent addendum. As far as government regulations go the value of the home is the LOWER of the home sales price or the value indicated by an independent appraiser.