Have a general question about some industry terminology when reading about Tucson mortgages? Find your answer below!

Appraisal
Performed by a licensed and state certified, expert, this is a report stating their opinion of value of a subject property. The report consists of specific information about not only the subject property, but of all identified Competing properties known as “comps”. Appraisers attempt to locate at least 3 properties which have sold within the last 90-days, within 1 mile of the subject property, that are of like-age and construction

Annual Percentage Rate or APR
This is not the Promissory Note rate, rather its a calculated yield based upon a government mandated formula. The APR, stated in a %, includes the cost of acquiring the loan plus any Mortgage Insurance in addition to the actual loan itself. Stated another way, the only way that the APR and the Note rate can be the same is if there were no fees and no Mortgage Insurance

ARM
Unlike a Fixed rate loan, an Adjustable Rate Mortgage or ARM, has a fixed rate period and then adjusts throughout the life of the loan. Most current ARM programs are based upon a 30-year term and have initial fixed rate periods of 1, 3, 5, 7 and 10-years. The new rate is always determined by adding a fixed Margin (i.e., 2.25%) to the then-current value of an Index. Presently, the 12-month LIBOR is the index of choice for most lenders.

Balloon
Also called a “Stop”, a loan with a balloon is payable in-full before the term is completed. For example, a 30-year loan with a 15-year balloon requires repayment of any remaining balance at the end of 180 months.

Capital Gains
Recognized income subject to taxation as a result of the sale of certain Real Estate. In the event of a rental property, a “deferred exchange” can eliminate immediate taxation by rolling proceeds into a new rental property (see your tax professional for formal information).

Cash to close
The amount needed from the borrower(s) at closing, this covers: remaining down payment, closing costs and prepaid items. Please note the these funds should either be WIRED bank-to-bank, or provided in the form of a LOCALLY DRAWN Cashier’s check.

Closing Date
Defined in the Contract, In “wet funding” States, this is the date when all parties sign final documents, money is exchanged, and the deed(s) are recorded. In “dry funding” States (like Arizona), we typically break this into the signing date and then the funding/recording date – a gap that is typically 1-3 days apart.

Closing Costs
These are fees paid to all third parties of the transaction: Lender, Title, Escrow, Attorney, Appraiser, Credit Agency, etc.

Condo/Townhome
Property types that typicall have the following characteristics: they are attached, have a homeowners association, the outside maintenance is taken care of by the association, and common areas and amenities available to all owners in the association.

Conventional Financing
Loans through financial institutions not backed by any Government entity.

Credit Bureaus
The three main Credit Bureaus are TransUnion, Experian and Equifax. Together they are the data repositories the mortgage industry relies upon to accurately report credit history, credit utilization and credit scores

Credit Report
Also referred to as a Tri-Merged report, this is the physical report generated as result of data “pulled” from the Credit Bureaus

Credit Scores
These are the figures generated by each of the Credit Bureaus that are a numerical representation of a person’s forecasted ability to make timely payments into the future; the higher the figure the less risky a borrower is. In the current market a minimum score of 640 is required; 680 is considered acceptable; 720 is considered very good; 740+ is considered excellent.

Debt Ratios
The ratio of total Gross income vs. proposed monthly house payment (Front) and total Gross Income vs, all monthly debts (Bank). Conventional loans are typically limited to 45% Back Ratios; Government Insured loans such as FHA, VA and USDA are given more flexibility and max exceed 45% in certain circumstances.

Discount Points
This represents the cost to “buy down” a rate below that day’s Par Rate. One point = 1% of the loan amount, not the amount of the rate reduction. On Conventional 30-year fixed rate loans, ½ point typically equates to a 0.125% basis-point rate reduction (i.e., 4.25% to 4.125%)

Down Payment
The different between the purchase price of the subject and the base loan amount

Earnest Money
The amount of money submitted into Escrow with an accepted contract as “consideration” for the purchase. This is not fixed and the amount is usually part of the negotiation process.

Escrow (aka Impound Account)
An account maintained by the mortgage servicing company containing funds collected towards the future payment of property taxes, home insurance and mortgage insurance (if applicable).

Fannie Mae
The short name for the Government Sponsored Entity “Federal National Mortgage Association.

Freddie Mac
The short name for the Government Sponsored Entity “Federal Home Loan Mortgage Corporation

Federal Housing Association (FHA) financing
Government insured loan allowing minimum down payments with greater flexibility for credit challenged homebuyers. FHA loans require a 3 ½% down payment from the Buyer (this can be in the form of a gift, grant or employer bonus).

Fixed rate loan
Most common term of mortgage, ranging from 10 to 30 years (in 5 year increments). Payments typically including principle and interest, but interest-only programs are available.

Floating
The opposite of locking, the interest rate and associated points changes with market conditions

Flood Certification
Required on all loans, if the subject property is in a FEMA designated “flood zone” then flood insurance is required to be in place for closing.

Funds held in Escrow at closing
If there are any approved repairs/alternations/additions to be made on a subject property after closing, these are the funds held to fund the work. These must be pre-approved by the lender in advance.

Good Faith Estimate (GFE)
Prepared by your Lender, this documents ALL costs, expenses and prepaid items as part of the transaction regardless of who might be paying for them at closing. Formal document required to be signed up front and subsequently if there are changes during the process. At closing the last GFE is referenced on the Settlement Statement (HUD-1) to confirm all fees are in tolerance.

Government financing
Loans insured by a Federal Government Agency such as FHA, VA, USDA

HELOC

Home Inspection
Not required, but HIGHLY recommended, this is a private inspection performed to verify the strengths/weaknesses in the mechanical, electrical, plumbing, and structure of a property.

Home Owners Association dues
The amount paid by the homeowner to cover various amenities & services provided by the Associations such as, but not limited to, common areas, insurance, garbage, landscaping, etc.

Home Owners/Hazard Insurance
Insurance that covers physical damage and/or loss to the subject property. The Mortgage lender is named on the policy as a “Loss Payee” in case any payment is made out.

HUD-1 (Settlement Statement)
Document prepared by the settlement agent (Escrow or Attorney) listing all debits & credits of the transaction, broken down by Seller and Buyer. The net shows money required from Buyer.

Jumbo financing (aka, Non-Conforming loan)
Either loan amounts that exceed the limits of Fannie Mae/Freddie Mac (currently $417,000) –or- loan programs that are outside of Fannie Mae/Freddie Mac guidelines – as a result they do not conform to Fannie/Freddie so they are also referred to as Non-Conforming loans. These loans typically offer rates higher than Fannie/Freddie as well.

Loan-to-Value
Proposed loan vs. lesser of purchase price –or- appraised value.

Locking in
The “fixing” of the terms of a loan including rate, points, loan type, number of days for a specific property. Once a “lock” has been executed these items will not change (under normal circumstances).

Mortgage Insurance
In the event of a Government insured loan, or a Conventional loan in excess of 80% Loan-to-Value, this is an insurance policy to makes limited payment guarantees to the Lender in the case of default by the Borrower

Mortgage
In Arizona, this consists of Promissory Note and Deed of Trust securing the Promissory Note to the subject property. In the case of default, the Deed of Trust documents the rights of the Lender.

Note (Promissory Note)
Contains the terms of the loan including amount, rate, amortization schedule, prepayment schedule (if any), adjustment basis (if any), repayment amount, etc.

Origination Fee
Source of income for Lender on certain loans.

Paying Points
Typically only required on certain programs, paying points will afford the borrower a below-market interest rate. Since up-front fees will be recouped over several years, the longer a loan is to remain in place the more beneficial paying points can be.

Piggy Back
A Second mortgage closed simultaneously behind a first mortgage usually to eliminate the need for Mortgage Insurance, Jumbo (Non-Conforming) loan amounts, or to facilitate a future need such as ability to apply cash to reduce the loan balance in an event a “windfall” of cash is expected.

PITI
Acronym for Principle, Interest, Taxes and Insurance – total monthly house payment

Pre-Approval
Based upon a full “Tri-Merged” Credit report and a review of income and asset documentation, a formal pre-approval implies loan approval for a potential home Buyer’s loan. Since this relates only to the financial side of the mortgage process, no specific property is at hand so generic purchase price and other estimates are assumed.

Pre-paid items
This covers items such as interim interest plus home insurance and property taxes and an amount necessary to set up the initial Escrow (Impound) account to be held by the Mortgage Servicing Company.

Pre-Qualification
A lesser version of Pre-Approval based upon verbal information only

Pre-Payment penalty
If stated in the Promissory Note, this is a defined amount due to the Lender if the loan is paid off prior to a specific timeframe (for example, 5 years). There typically are no prepayment penalties on Conventional or Government insured loans.

Property Taxes
The amount due to the County, usually collected and maintained in the escrow (impound) account; the Mortgage Servicing Company is responsible for making payment on-time. In Arizona, ½ of the year’s taxes come due on October 1 and April 1

Purchase Agreement (Contract)
Formal document between Seller and Buyer outlining the terms of the purchase

Rate vs. Price
Interest rates go hand-in-hand with price (referred to as Points) but don’t be confused as both rate and points are usually referred to in 1/8 percent increments.

Single Family Residence
Traditional home housing one family vs. a multifamily (2-4 families), condominiums (one family among many), and townhomes (one family is close proximity of another)>

Title Company
In Arizona, the company that performs Title search and offers Title insurance.

Title Insurance
Insurance policies issued by the Title Company: Owner’s Policy insures that the Buyer is purchasing a home with no “clouds” on their ownership; Lender’s Policy insures that the Lender is in clear 1st lien position.

Underwriting
The act of reviewing a borrower complete loan application package including all financing and property information, and comparing that to the Lender’s guidelines and requirements. Loans can be “suspended” for more information or “declined” for not meeting requirements, but are typically “approved” with or without additional documentation being required.

USDA financing
Insured by the US Department of Agriculture, these loans are intended to help family’s purchase single family residences in RURAL area which will be occupied by them as their Primary Residence. Like VA loans, no down payment is required.

VA financing
Insured by the Department of Veteran’s Affairs, these loans are intended to help Veterans and or Veterans with spouses to purchase homes they will occupy as their primary residences. 2-4 family properties are allowed and no down payment is required. Additionally, if the Veteran has been assigned any “Service Connected Disability” the up-front insurance called the Funding Fee is waived.

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