No matter where you are on your path to homeownership, the most important thing you can do is to educate yourself on all the decisions involved. From loan applications to closing on your home to the life you’ll lead in your home for years to come, First Choice Loan Services Inc. would like to make your entire process as comfortable, informative and easy as possible.
Whether you’re a first-time home buyer or a homeowner several times over, as your trusted lender, is dedicated to answering all of your questions so that you can make the best decisions for your budget and your lifestyle.
A collection of all records, documents and transactions pertaining to the title of a property starting from the source of the title to the present date.
Contract clause permitting the lender to declare that the remaining loan balance is due if a borrower violates particular loan provisions or defaults on their loan.
A buyers or seller’s consent to be bound by the terms of a contract.
An addition within a contract allowing specified terms or conditions to be added, removed or amended.
Also known as a variable rate mortgage, a type of mortgage or home equity loan containing a variable interest rate where monthly payments are subject to change periodically over the life of the loan, based on changes of an index. May feature caps that limit how much the interest rate can change both in the particular adjustment period and over the entire life of the loan.
A limit on how much a variable interest rate can rise or fall during a single adjustment period.
The scheduled date on which the interest rate is subject to change for an adjustable-rate mortgage (ARM).
The period of time between adjustment dates for an adjustable-rate mortgage (ARM).
An attribute of the home that increases property value. This includes features of the home such as appliances and swimming pools as well as features of the surrounding community such as proximity to public transit, schools and shopping.
Reduction of mortgage debt owed through regularly scheduled payment installments of principal and interest over the term of a loan.
The limit on the amount that principal and interest can increase for an adjustable-rate mortgage (ARM) over a twelve-month period. Caps are designed to protect borrowers from sizable payment increases during an adjustment period.
The annual cost of a loan for a borrower, stated as a percentage. Includes fees and charges such as discount points, loan origination fees and mortgage insurance, and many closing costs.
An estimate of a property’s value prepared by a qualified appraiser and determined by replacement cost, similar properties or the property’s capacity to produce income.
The increase of property value due to important factors such as the homes condition and location as well as inflation or economic influences.
See: Annual Percentage Rate (APR)
See: Adjustable-Rate Mortgage (ARM)
Taxes paid to the local government for purposes of municipality/association improvements such as sewer/water management, streetlights or roads.
The process of transferring a mortgage from one individual to another person.
The agreement between buyer and a seller in which the seller assumes responsibility for repayment of the existing mortgage that is not originally in their name.
A type of short-term loan featuring smaller monthly payments that are amortized over a longer period than the term of the mortgage. The final lump sum (known as the Balloon Payment), which is higher than any preceding payments, must be paid in full by the borrower at a specified date.
An event when someone in debt relinquishes his or her assets to the bankruptcy court. After doing so, the borrower is dismissed from repaying unsecured debt and is no longer required to repay unsecured debt to unsecured creditors. However, not all debts may be discharged through bankruptcy, as the creditors holding deeds of trust or judgment liens are secured by the property.
An amount equivalent to 1/100th of one percentage point. The basis point is typically used to calculate changes in interest rates. As an example, a fee of 20 basis points on $300,000 would be 0.20% or $600.
A loan covering home financing that requires payments every two weeks. Payments are equal to half of what a full monthly payment would be on a typical 30-year fixed mortgage. With more frequent payment periods, a biweekly mortgage amortizes much faster than a loan requiring monthly payments and can facilitate greater savings in interest for the borrower.
A person who receives an amount of money (called the principal) from the lender and is contractually obligated to repay an equal amount of money, often with interest, to the lender by a later time.
Also known as a swing loan, this type of mortgage allows the proceeds from the sale of the borrowers current home (which is listed for sale and has not yet been sold) to be used towards closing on the borrowers new home.
An individual who arranges the funding and negotiates contracts for a borrower. This person does not loan the money directly and often charges a fee or earns a commission.
A time when the lender or homebuilder is able to extend the borrower a lower interest rate the first few years of the loan by subsidizing the mortgage. The pre-payment becomes due on a homebuyer’s promissory note, thus reducing monthly payment amounts. Initially, loan payments are low; with the expiration of the funding, they will increase.
The limit on the amount an adjustable-rate mortgage’s monthly payment or interest rate can decrease or increase. See also: Annual Cap
The amount of cash acquired over a set time period from an income-producing property. The total should cover expenses such as maintenance and utilities for the income-producing property.
A type of refinancing mortgage where the new loan amount is more than the total principal balance of the existing mortgage, any secondary mortgages or liens, closing costs and points for the new loan. This overage may be given to the borrower in cash for use towards purposes such as home improvements or debt consolidation. This process allows the homeowner to borrow against the home’s available equity.
The document from the federal government acknowledging a borrowers eligibility to qualify for a VA loan.
A Department of Veterans Affairs document certifying a VA loans maximum value and loan amount, determined by an approved appraisal.
A document from an attorney or title company certifying the status of a property’s title based on public records.
A certificate that may allow a Veteran to possibly pay a lower down payment on specific FHA loans. This is granted to Veterans or Reservists who have served 90 consecutive days of active duty, including training time.
The meeting at which the property and funds are legally transferred. Also known as settlement, attendees include the homebuyer, seller and lender (and/or the lender’s agents).
Expenses above the purchase price of the property that are charged to buyers and sellers during the process of transferring ownership of the property. Typically about 3 percent to 6 percent of the mortgage amount, these costs vary according to location, and often include an origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed during the settlement.
An individual who is equally responsible to repay a mortgage loan and is obligated to the terms and conditions of the agreement.
An item of value that is pledged to secure repayment of a loan.
The promise from a lender to a borrower to provide a loan with specific terms or conditions.
The fee charged to a borrower in exchange for a guaranteed locked rate. This occurs when an agreement is reached for a loan with specific terms, rates and points.
A type of property, development or building with multiple housing units, the individual owners of which share interest in common areas such as the grounds, parking facilities and pool facility.
A type of loan that conforms to Federal National Mortgage Association or Federal Home Loan Mortgage Corporation guidelines.
A short-term, interim loan providing finances for the building of a home. As the work is conducted, the builder receives payments from the lender. When construction is completed, the borrower must pay the construction loan in full or acquire permanent financing.
A form of installment sale, this agreement conveys title between the home seller and purchaser after certain conditions have been met.
A type of mortgage loan not insured, guaranteed or funded by the Veterans Administration (VA), the Federal Housing Administration (FHA) or any other federal agency.
A type of adjustable-rate mortgage (ARM) that enables the borrower to shift to a fixed-rate mortgage at a specified point in the loan term.
A report documenting a borrower’s credit history and current credit standing.
See: Certificate of Reasonable Value (CRV)
The amount of money owed by an individual, company or organization to another.
The percentage used to determine the loan amount for which a borrower qualifies. It is calculated by dividing a borrowers monthly debt obligations (proposed house expenses, credit cards, etc.) by the borrowers monthly income (pre-taxes). If applicable, Homeowners Association (HOA) dues and private mortgage insurance (PMI) are also included as expenses.
A written legal document conveying or transferring property rights from a seller to a buyer.
A document used in some states instead of a mortgage. Title is held by a trustee to ensure repayment of the loan.
Failure to meet scheduled loan payments or lack of compliance with the terms of a mortgage. Foreclosure may result.
The interest amount that is included with the principal balance of a mortgage when the terms of a loan permit for a scheduled payment that is less than the interest due.
Failure to make timely payments. Foreclosure may result.
A federal agency that guarantees long-term, low- or no-down payment residential mortgages to eligible veterans.
The reduction in the value of a property.
A fee paid at closing by the borrower to the lender. Designed to reduce the interest rate of the mortgage, one point equals 1 percent of the loan amount. See also: Points.
The amount paid up front to cover the difference between the home purchase price and the mortgage amount. Typically, down payments are 5 percent to 20 percent of the sales price and are affected by the type of loan, the lender, the borrowers credit history and other factors.
A provision included within a mortgage agreement or deed of trust that enables a lender to require immediate payment of the balance of the loan in the event the property which serves as security for the loan is sold.
A deposit of cash paid by a buyer to a seller as a good faith assurance of a forthcoming transaction and payment. This payment typically ranges from one percent to five percent of the purchase price. If the offer is accepted, this amount becomes a part of the down payment. If the buyer’s offer is ultimately rejected, the money is returned. The amount may be forfeited in the event the borrower cancels the transaction.
The permission or right to use and access another’s property for a specific limited purpose.
A structure or improvement that physical trespasses or intrudes on anothers land.
A federal law prohibiting lenders and other creditors from discrimination based on race, color, sex, religion, national origin, age, marital status, or receipt of public assistance for income.
The calculated difference of the propertys current fair market value and the borrowers existing outstanding mortgage balance. It represents the owner’s interest in a property beyond any liens against it.
A deposit in the form of money, an item of value or documents given to a third party and delivered upon the fulfillment of a condition. Examples include the deposit of documents or funds with an escrow agent or attorney to be distributed at the closing of a sale of real estate or the deposit with a lender from a borrower to cover expenses for taxes or insurance premiums when they are due.
The price at which a property can likely sell on the open market based on a professional appraisal.
The nickname for the Federal National Mortgage Association (FNMA or Fannie Mae).
A federal government-sponsored organization which purchases conventional mortgages from HUD-approved lenders and insured depository institutions thereby creating a secondary market for mortgage financing. This entity sets many of the guidelines for conventional mortgage loans.
As a division of the Department of Housing and Urban Development (HUD), this organization’s primary mission is to insure residential mortgage loans made by private lenders. Additionally, it sets guidelines and standards for underwriting mortgages.
As the largest single holder of home mortgages in the United States, this government-sponsored organization purchases and sells VA, FHA and conventional mortgages from primary lenders.
See: Federal Housing Administration (FHA)
Available to all qualified home buyers, this loan is insured by the Federal Housing Administration (FHA). The guarantee from the FHA protects the lender if the borrower defaults on the loan. This provides loan options typically not available in conventional financing.
A type of mortgage which holds the same interest rate for the original borrower throughout the entire life and full term of the loan.
A loan feature which allows the borrower the opportunity to reduce the interest rate on the mortgage if the market conditions improve after the rate is locked. With the ability to be used on all conforming loans, both government and conventional, this applies to the interest rate only and is based on the initial lock period.
See: Federal National Mortgage Association (FNMA or Fannie Mae)
The legal procedure in which a property is sold by a lender or seller because the borrower has not met the terms and conditions of the mortgage. If the amount paid at foreclosure doesn’t fully repay the loan, then the borrower may continue to owe the lender payment. Also known as a repossession of property.
The nickname for the Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac).
Monetary resources often provided by a relative for a down payment for the purchase of a home. These do not require repayment.
The nickname for the Government National Mortgage Association (GNMA or Ginnie Mae).
A document that includes approximate expenses of all fees paid before closing, including closing costs, any escrow costs and monthly mortgage payments. As outlined in the Real Estate Settlement Procedures Act (RESPA), this must be supplied by the lender to the borrower within 3 days of the borrower’s application to ensure he or she is fully informed when shopping for a loan.
This federal government-owned organization based within the Department of Housing and Urban Development (HUD) provides funding sources for FHA- and VA-insured loans. Created by Congress on September 1, 1968, it is also known as Ginnie Mae.
The assurance from one party to pay the debt of another if the original/contracted party fails to pay, meet conditions, or otherwise fulfill the responsibilities of the mortgage contract terms.
A type of insurance which covers the insured from damage or loss to the property due to instances like fire, hurricanes, tornados, and similar situations.
A line of credit secured by the equity of a borrower’s home, often used for home improvements, debt consolidation and other major purchases. A borrower is able to draw upon an established and approved line of credit as needed during the designated draw period, submitting monthly payments as required according to the signed contract.
A mortgage secured by the equity in a borrower’s current home, typically used towards home improvements, debt consolidation or major expenses. The borrower is provided the full loan amount upon funding and makes monthly payments as outlined in the agreement. Often called a second mortgage.
Prior to a home purchase, a professional third party performs a thorough review of the property’s condition including all major appliances and structural elements. If your sales contract allows it, prior to closing, you may request that the seller pay for repairs in the event the inspector finds something wrong. Depending on the terms of your contract, if the seller refuses to conduct repairs, you may be able to cancel the purchase of the home.
Insurance providing coverage for repairs to particular parts of a home for a specified time period as outlined in the warranty.
An organization composed of property owners that supervise the rules and guidelines of a subdivision, development or condominium complex. Typically, fees are required.
Insurance that combines hazard insurance and liability coverage thereby protecting the homeowner against loss from theft, liability and disasters such as fires, storms and tornadoes.
The U.S. government agency established in 1965 to implement and administer fair housing laws and develop national programs and policies which enhance communities.
See: Debt-to-Income Ratio
See: Housing and Urban Development (HUD)
See: Debt-to-Income Ratio
A published interest rate used by lenders to measure the variance between the present interest rate on an adjustable-rate mortgage (ARM) and one earned by other investments, such as the monthly average interest rate on loans closed by saving and loan institutions, the monthly average costs-of-funds incurred by savings and loans, and one-, three- and five-year U.S. Treasury security yields. This is then used to adjust the Annual Percentage Rate up or down at the beginning of each adjustment period. Financial index rates commonly used include LIBOR, T-Bill rate, prime rate, or the 11th District COFI.
- The expense, fee or charge for borrowing money.
- The title, right or legal claim to a property.
The percentage charged by a lender to the borrower on the principal amount of borrowed money. Fees charged for the loan are not included. See also a related item: Annual Percentage Rate (APR)
A construction loan offered during the completion of a building project. Usually, a permanent loan replaces this loan after the project is fully completed.
A lenders source for money.
A manner of co-ownership giving each tenant equal and undivided interest and rights in the property. Including the right of survivorship, if a joint tenant dies, the interest in the property passes along to the surviving joint tenant instead of the heirs. See also: Tenancy
A court’s decree that one individual is indebted to another for a specified amount. In some states, a lien may be placed against the debtors real property as collateral for payment to the creditor by order of the court.
A mortgage exceeding the limits set by the Federal National Mortgage Association (FNMA or Fannie Mae) or Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac). Due to the larger loan amounts, lenders may add additional fees or restrictions and interest rates may be a bit higher. Also known as a Non-Conforming Loan.
London Interbank Offering Rate. A commonly used index for some adjustable-rate mortgages (ARMs).
A legal claim against a property used as security for the payment of a debt.
A limit on the amount an interest rate can increase and decrease over the term of an adjustable-rate mortgage (ARM). See also: Cap
The capacity to easily convert an investment or asset into cash.
A fee to cover administrative costs involved in processing a loan, usually expressed in points. One point is 1 percent of the mortgage amount. See also: Origination Fee
Expressed as a percentage, the ratio between the unpaid principal of a loan and the appraised value of the property.
A written agreement guaranteeing a specific rate from a lender if the mortgage closes by an outlined date/period of time. The number of points to be paid at closing is usually included in this agreement as well.
The span of time prior to closing when a borrower is guaranteed an interest rate by the lender.
See: Loan-to-Value Ratio (LTV)
The amount of percentage points added to the index to determine the interest rate of an adjustable-rate mortgage (ARM) during an adjustment period.
The price at which a willing buyer would realistically purchase a property and at which a willing seller would accept on the open market. Typically determined by an appraisal, this could differ from the actual price for which a property sells.
A lien filed against a property that serves as security for the repayment of a loan. Some states will use a deed of trust rather than a mortgage.
An entity that originates and services mortgage loans exclusively for resale to other lenders and investors in the secondary market.
A third-party professional or organization that helps match a borrower with a lender for purposes of residential or commercial mortgage loan origination. Typically, these services incur a fee or require a commission.
Coverage for lenders protecting them against loss due to foreclosure or a borrower defaulting on a loan. This is typically required on conventional loans when the down payment from the borrower is less than 20 percent of the purchase price. See also: Private Mortgage Insurance (PMI)
Insurance from the Federal Housing Administration (FHA) to the lender providing coverage for when a borrower defaults on the mortgage. On FHA-insured mortgage loans, borrowers pay one-half percent every month for MIP.
The length of time that a mortgage is scheduled to exist.
The lender or party to receive the repayments of a home loan in a mortgage transaction.
The borrower or party to submit the repayments of a home loan in a mortgage transaction.
When monthly payments from a borrower do not fully cover the interest charged for a loan. Unpaid interest is then added to the unpaid loan principal, causing the borrower to owe more than the original amount of the mortgage.
The borrower’s gross income minus federal income tax.
A section of a mortgage contract that prohibits a buyer from assuming a mortgage without the approval of a lender.
A type of loan that does not conform to the guidelines set by the Federal National Mortgage Association (FNMA or Fannie Mae) or Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac) due to factors such as the loan amount, underwriting guidelines or loan characteristics. See also: Conforming Loan
A signed legal document in which a borrower agrees to repay a debt with an established interest rate to a lender within a specified amount of time.
A fee, calculated as a percentage of the loan amount and expressed in points, charged by lenders to cover the costs of the services involved from loan origination to closing.
An abbreviation for principal and interest. The majority of the mortgage payment is comprised of the principal and interest. It does not include escrow payments for taxes, insurance and any other expenses that are paid monthly, or fees that come due.
A collection of documents that includes copies of all checks, deposit slips, loan paperwork, forms to liquidate assets and more which helps cover the lender if the borrower defaults on the loan.
Sets limits on the amount by which a monthly payment can increase at a time. These are included along with annual (or semi-annual) interest rate caps and lifetime interest rate caps in some adjustable-rate mortgages. The amount of interest charged is not limited by payment caps, and they may cause negative amortization. See also: Cap
An acronym that represents the four main components of a monthly mortgage payment: principal, interest, taxes and insurance.
A charge paid to the lender by the borrower at closing to decrease the interest rate. It is based on the loan amount and is equal to 1 percent of the loan amount. For example, two points on a $100,000 mortgage equals $2,000.
One person is authorized to act on behalf of another through this legal document.
The opportunity outlined in the mortgage agreement for a borrower to make advanced payments before the payment date.
An additional fee charged to the borrower by the lender for repaying the loan in full or pre-paying a large amount in order to lower the unpaid principal balance before the outlined due date.
Required to create an escrow account or to adjust the seller’s existing escrow account. These can include taxes, hazard insurance, private mortgage insurance and special assessments
The process of acquiring the initial estimate of how much loan the potential borrower may acquire from the lender for purchasing a home. This does not include a credit check and is not a commitment to lend.
The entire borrowed mortgage loan amount, not including interest. Also, the portion of the monthly mortgage payment that decreases the outstanding amount of the balance of the mortgage.
The portion of your monthly mortgage payment that reduces the overall balance of a home loan. This also covers any pre-payments a borrower makes to the principal balance to pay down the loan amount faster.
A type of insurance that protects lenders against loss due to foreclosure or loan default. This is typically required on conventional loans when the borrower’s down payment is less than 20 percent of the purchase price. The borrower is typically required to make an initial premium payment of 1 to 5 percent of the mortgage amount. Depending on the borrowers loan terms, private mortgage insurance may also require an additional monthly fee. See also: Mortgage Insurance (MI)
A written document that binds a borrower to repay a specified amount over a specified period of time.
A limit placed on how much the interest rate may change, either over the life of the loan or per adjustment period. See also: Cap
A real estate broker or associate member in a local real estate board linked with the National Association of Realtors.
Expenses the borrower pays to the lender for recording a home sale with local authorities and placing it in the public records.
Paying off an existing loan on a property by acquiring a new mortgage for the same property, typically to obtain a lower interest rate.
The cancellation of a contract. With mortgage refinancing, the law states that the homeowner has three days to cancel the new loan if the agreement uses equity in the home as security.
Real Estate Settlement Procedures Act. This obligates lenders to disclose information to potential customers throughout the mortgage process. The law was developed to protect borrowers from abusive lending practices, giving consumers the right to review closing costs, lender servicing, escrow account practices and business relationships between closing service providers at application and again prior to closing.
A type of mortgage available to homeowners age 62 and up that permits them to stay in their home and receive payments from the lender that are backed and secured by the home’s equity.
A loan subsequent to a primary or first mortgage; it often features a higher interest rate with a shorter term.
The market in which mortgages are bought and sold by primary lenders to investors.
See: Closing Costs
In the event that a homeowner is no longer able to make mortgage payments and their home is worth less than they owe, then this allows them to pay off the mortgage by selling the home. In the process the lender accepts a lesser amount than what is actually owed based on evidence of financial hardship.
Interest that is calculated strictly on the principal balance.
The physical measurement of property performed by a registered professional that shows the location, dimensions, easements, encroachments, rights of way, roads and more.
Equity created by a purchaser through performing labor towards the construction or the renovation of the property being purchased.
The use of real estate granted under the right of title. There are several categories of tenancies.
- Joint Tenancy – The equal ownership of a property by two or more parties, both of which have the right of survivorship.
- Tenancy by the Entirety – The ownership of property between husband and wife where consent is required by both in order to act on matters regarding the property. In the event of a death to either party, the property is owned by the survivor.
- Tenancy in Common – The equal ownership of property by two or more parties without the right of survivorship.
- Tenancy in Severalty – The ownership of property by one legal entity or a sole party.
- Tenancy at Will – A license to use or occupy a property with permission of the owner.
A document that establishes ownership of property. A property owner is considered “in title.”
A type of insurance that offers protection for the property owner and the lender against damage or loss resulting from an error in title ownership. It protects against errors made during a title search as well as unknown issues found in public records including mistakes, fraud, missing heirs and forgery.
The process when a title company or title attorney investigates municipal records in order to verify the legal ownership of a property.
See: Deed of Trust
Also known as Regulation Z. A federal law that requires lenders to disclose the Annual Percentage Rate (APR) and the cost of credit (as a dollar amount) to homebuyers. The goal of this law is to promote consumer credit awareness by requiring disclosure about its terms and costs.
The mortgage professional who reviews all verified information collected in loan processing to determine risk based on loan criteria and ultimately approve or deny the loan. This assessment includes credit history, employment history, assets, debts and other factors.
The process of assessing whether a potential homebuyer will be issued a loan or not. Credit, employment, assets and other risks are considered and matched to an appropriate rate and term or loan amount.
Recurring housing expenses for water, electricity, natural gas, heating and other utilities.
See: Veterans Administration
A long term mortgage available with low-to-no down payment for qualified veterans of U.S. military forces that is guaranteed by the Department of Veterans Affairs (VA).
Also known as a second home, this property is one the borrower occupies in addition to their primary residence. It may not be part of a mandatory rental pool and cannot be deemed income-producing. Rental income may not be used to qualify an applicant for a property to be classified as a second home. A two- to four-unit property is not eligible to qualify for this status.
A type of interest rate that is subject to periodic increase or decrease, typically in relation to an index.
See: Adjustable-rate Mortgage (ARM)
The federal agency responsible for the VA loan program as well as other services for eligible veterans including financial assistance, education assistance and health care.
A document signed by a borrowers financial institution verifying the status and balance of a borrower’s financial accounts.
A document verifying a borrowers employment and salary and signed by the borrower’s employer.
The rate of earnings from a home investment.