Glossary L – Z

LIBOR index – The London Interbank Offered Rate Index is the average yield of interbank offered rates for one-year U.S. dollar-denominated deposits in the London Market, as published in The Wall Street Journal.

Lien – An encumbrance on property which act as security for the payment of a debt or the performance of an obligation. A mortgage is a lien. A lender will want most, if not all, liens on the property removed before making a mortgage loan.

Loan-to-Value Ratio – The mortgage amount divided by the lower of the purchase price or the appraised value of the property. This ratio is expressed as a percentage. A lender will use this ratio in determining the maximum mortgage loan that it will make on the property.

Lock-In/Rate Lock Agreement – An agreement by the lender guaranteeing the applicant a specified interest rate on the mortgage loan provided the loan closes within a set period of time.

Mortgage – A pledge of real estate collateral to secure a debt. Also, the legal document describing and defining the pledge. The mortgage may also include the terms of repayment of the debt. (Also known as deed of trust)

Mortgage Insurance – Insurance that protects the lender in case the homebuyer does not make their mortgage payments. Typically, a borrower would be required to pay a fee for mortgage insurance if their down payment is less than 20%. (Also known as private mortgage insurance or PMI)

Mortgage Note – A document signed at closing which states the borrower’s promise to re-pay a sum of money. The note states an interest rate and a fixed period of time (term) for repayment.

Mortgagee – The lender in a mortgage transaction.

Mortgagor – The borrower in a mortgage transaction.

Origination – The first step in the mortgage loan process consisting of the completion of the application.

Points – A one-time charge paid by the borrower to the lender at closing to obtain a lower interest rate on the mortgage loan. One point equals 1% of the loan amount; therefore, two points on a $100,000 mortgage would cost $2,000.

Pre-Approval – A process in which a conditional commitment is issued after a loan profile is underwritten with all standard documentation except a property appraisal and a title search.

Pre-Qualification – A process in which the loan officer calculates the housing-to-income ratio and the total debt-to-income ratio to determine an approximate maximum mortgage loan amount.

Private Mortgage Insurance (PMI) – Insurance that protects a lender in the event of the borrower’s default in the payment of a mortgage loan and is generally required if the amount borrowed is more than 80% of the value of the real property securing the mortgage loan.

Processing – The second step in the mortgage application process which involves the verification of information stated on the application. Credit reports and the appraisal are also ordered at this time.

Pro-Rata Share – In relation to a Co-Op, the pro rata share is your apartment’s share of the building’s underlying mortgage. The share is determined by dividing the amount of the underlying mortgage by the number of shares in the building and then multiplying the per-share amount by the number of shares for your apartment. The lower of either the appraised value or purchase price then divides that number.

Ratios – Guidelines applied by the lender during underwriting a mortgage loan application to determine how large a loan to grant to an applicant. The ratios that lenders use are generally the Loan-to-Value Ratio, Housing-to-Income Ratio and Debt-to-Income Ratio.

Real Estate Broker – An individual employed on a fee or commission basis as agent to bring buyers and sellers together and assist in negotiating real estate contracts between them.

Recording Fees – The fee charged by the recorder’s office to record a document such as a mortgage, deed of trust, deed and UCC Financing Statement.

Refinancing – Proceeds of a new loan used to pay off an existing mortgage on the same property.

Seller Contributions – Payment by the seller of a property of some or all of the buyer’s closing costs.

Servicing – Activities the lender performs such as collecting the payments and/or paying taxes and insurance from an escrow account.

Title – Written evidence of the ownership of property, such as a property deed.

Title Search – A process that examines local public records, laws and related court decisions to determine if any other parties have valid claims against the subject property (such as past due taxes, judgments or mechanics’ liens). It also discloses past and current facts about the subject property’s ownership.

Title Insurance Policy – In real estate, an insurance policy by which the insurer agrees to pay the insured (purchaser, mortgagee, etc.) a specific amount for any loss caused by defects of title to the subject property.

Treasury Index – The Treasury Index is the weekly average yield on US Treasury securities adjusted to a constant maturity of one, three or five years, as made available by the Federal Reserve Board.

Truth-in-Lending Disclosure – Federal law requires that the lender must give this document to the homebuyer within three business days after loan application. This disclosure gives details of the mortgage payments along with the corresponding APR and finance changes.

Underwriting – In mortgage lending, the decision-making process used to determine whether the loan risk is acceptable to the lender. Underwriting involves the satisfactory review of the property appraisal and examination of the borrower’s ability and willingness to repay the debt.

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