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Glossary of Home Loan & Lending Terms

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A

Abstract of title

A written history of all the transactions bearing on the title to a specific tract of land. An abstract of title covers the period from the original source of title (often the original land grant from the United States government to an individual) to the present time and summarizes all subsequent documents that have been recorded against that tract.

A buyer’s or seller’s agreement to enter into a contract and be bound by the terms of the offer.

Account termination fee

A fee that is often charged if you pay in full and terminate your home equity line of credit during the first five years. Paying down to a zero balance does not count as termination. See also: prepayment penalty.

An attachment to a contract to add, remove or amend specified terms or conditions.

Additional principal payment

A payment made by a borrower of more than the scheduled principal amount due in order to reduce the outstanding balance on the loan, to save on interest over the life of the loan and/or pay off the loan early.

Adjustable-rate mortgage (ARM)

A mortgage or home equity loan in which your interest rate and monthly payments may change periodically during the life of the loan, based on the fluctuation of an index. Lenders may charge a lower interest rate for the initial period of the loan. Most ARMs have a rate cap that limits the amount the interest rate can change, both in an adjustment period, and over the life of the loan. Also called a variable-rate mortgage.

Annual percentage rate (APR)

The annual cost of a loan to a borrower. Like an interest rate, the APR is expressed as a percentage of the loan amount. Unlike an interest rate, however, it includes other charges or fees to reflect the total cost of the loan. The Federal Truth in Lending Act requires that every consumer loan agreement disclose the APR. Since all lenders must follow the same rules to ensure the accuracy of the APR, borrowers can use the APR as a good basis for comparing certain costs of loans.

Adjustment cap

A limit to how much a variable interest rate can go up or down in a single adjustment period.

Adjustment date

The date on which the interest rate changes for an adjustable-rate mortgage (ARM).

Adjustment period

The period that elapses between the adjustment dates for an adjustable-rate mortgage (ARM).

Affordability analysis

A preliminary analysis of a borrower’s ability to afford the purchase of a home that takes into consideration factors such as income, liabilities, and available funds, as well as the type of home loan, the likely taxes and insurance for the home, and the estimated closing costs. See also: prequalification

A feature of real property that, while not essential to the property’s use, enhances its attractiveness and increases the occupant’s or user’s satisfaction. Natural amenities include: a pleasant or desirable location (near water, scenic views, etc). Man-made amenities include: swimming pools, tennis courts, community buildings, and other recreational facilities.

The gradual reduction in the principal amount owed on a debt. During the earlier years, most of each payment is applied toward the interest owed. During the final years of the loan, payment amounts are applied almost exclusively to the remaining principal (unless there has been negative amortization).

Amortization table or schedule

A timetable or schedule that gives you a breakdown of your monthly payments into principal and interest. You can use this schedule to figure out the amount of principal you’ll be repaying during your mortgage term.

Amortization term

The amount of time required to amortize (pay off) the loan. The amortization term is expressed in months. For example, for a 15-year fixed-rate mortgage, the amortization term is 180 months.

To repay a loan with regular payments that cover both principal and interest.

Annual adjustment cap

A limit on how much the variable interest rate on a loan can increase or decrease each year.

An annual amount you pay for having an open line of credit.

Annual income

The total amount of income earned in one year. This does not need to include alimony, child support, or separate maintenance income unless you wish to have it considered as a basis of repaying this obligation.

Annual percentage rate (APR)

The annual cost of a loan to a borrower. Like an interest rate, the APR is expressed as a percentage of the loan amount. Unlike an interest rate, however, it includes other charges or fees to reflect the total cost of the loan. The Federal Truth in Lending Act requires that every consumer loan agreement disclose the APR. Since all lenders must follow the same rules to ensure the accuracy of the APR, borrowers can use the APR as a good basis for comparing certain costs of loans.

Applicant faxes documents

The Applicant Faxes Documents step is the process of you faxing any needed documents, if applicable. We will advise you of any documents required to complete our evaluation. All requested documents should be faxed to us as soon as possible.

Application fees

Nonrefundable fees paid when you apply for your loan. These fees may include charges for a credit profile, a property appraisal, and so forth.

The Apply step is the process of providing financial and other information (such as employment history and proposed collateral) by a prospective borrower in conjunction with a request for credit.

Appraisal or appraised value

An informed estimate of the value of a property. When made in connection with an application for a loan secured by a home, a professional appraiser usually performs the appraisal.

Appraisal contingency

A contingency in a sales contract that the property must appraise at the same value or more as your offering price.

Appraisal fee

The charge for estimating the value of property.

A person qualified by education, training, and experience to estimate the value of real estate.

Appreciation

An increase in the value of property over time. Important factors in a home’s appreciation are its location and condition, and the selling price of similar homes in the area. Appreciation increases the amount of equity, which may also increase the amount you can borrow for a home equity loan or line of credit.

Approved loan amount (after approval)

The amount of credit you are approved for.

Approved loan amount (before approval)

The amount of credit you will be approved for once the bank makes a credit decision.

Approved term (after approval)

The number of months you are approved for that it will take to pay off a loan. The loan term is used to determine the payment amount, repayment schedule and total interest paid over the life of the loan.

Approved term (before approval)

The number of months you will be approved for, once the bank makes a credit decision, that it will take to pay off a loan. The loan term is used to determine the payment amount, repayment schedule and total interest paid over the life of the loan.

Assessed value

The value used to determine property taxes, based on a public tax assessor’s opinion.

The amount of tax due to local government. May also refer to the amount due to local government or to common owners of a property (e.g., a homeowner’s association) for a special payment to cover expenses for improvements or maintenance, such as new sewers or roads.

Assessment rolls

A public record of the assessed value of property in the taxing jurisdiction.

A public official who establishes the value of a property for taxation purposes.

Property or a possession of value that a lender may be willing to accept as collateral to secure repayment of debt. For example, real estate, stocks, mutual funds, cash, or automobiles.

The method of transferring a right or contract, such as the terms of a loan, from one person to another.

Associate discount

The associate discount is applied because you are a Bank of America Corporation associate. If your status changes during the life of the account, your rate may increase.

Assumable loan

When you sell your home, your buyer may be able to qualify to take over your existing mortgage at your current rate—making your mortgage assumable.  Assumption eligibility is determined in the note or mortgage.  ARM loans in the adjustable period, VA and FHA loans are generally assumable, but not all loans are assumable.  For more information about the process and costs and to download an application package, visit our mortgage assumptions page.

An assumption requires the assuming borrower to qualify for the existing note or mortgage based on current underwriting guidelines for the applicable loan program. See also: assumable loan.

Assumption fee

The fee paid to a lender (usually by the buyer) for the lender’s agreement to start collecting payment from the buyer instead of the original borrower (seller).

Assumption of loan

Assuming liability for the existing mortgage through the qualified assumption process. See also: assumable loan.

Automatic payment discount

To receive this benefit your monthly home equity loan or line of credit payment must be automatically drafted from your designated Bank of America deposit account. Automatic payment must be set up at the time of account opening and must be maintained. If automatic payment is discontinued, your Home Equity rate will increase by 0.25%. (TX: Increase may not apply.)

Available funds

The total amount of funds available to you from your own funds and/or other sources that can be used for your down payment and the closing costs associated with a loan.

B

Back-end ratio

A ratio that indicates what portion of a person’s monthly income goes toward paying debts. Total monthly debt includes expenses such as mortgage payments (made up of PITI, or principal, interest, taxes and insurance), credit card payments, child support and other loan payments. Also known as debt-to-income ratio.

Balance sheet

A dated financial statement (in table form) that shows your assets, liabilities, and net worth.

Balloon loan

A short-term loan with smaller payments for a certain period of time, and one or more large payments for the remaining principal amount, due at a specified time.

Balloon payment

A lump-sum payment, which is larger than your regular periodic payment, that’s paid at the end of your loan repayment period.

Bank makes credit decision

The Bank Makes Credit Decision step is when Bank of America makes a final decision on your credit request.

Bank-owned property

A property now owned by the lender as a result of the previous owner defaulting on the loan. Also known as a “foreclosure property” or a “real estate owned (REO) property.”

A proceeding in Federal Court that alters or eliminates an eligible individual’s obligations to repay some or all of his or her debts to creditors. Different chapters or types of bankruptcy exist. If a person files bankruptcy, this could negatively affect his or her credit.

The underlying interest rate that is used as a benchmark, or index, for pricing variable-rate loans such as adjustable-rate mortgages, auto loans, and credit cards.

An amount equal to 1/100th of a percentage point. For example, a fee calculated as 50 basis points of $200,000 would be 0.50% or $1000.

Bill of sale

A written document that transfers title to personal property from seller to buyer.

Biweekly payment loan

A loan that requires payments to reduce the debt every 2 weeks (instead of the standard monthly payment schedule). The 26 (or possibly 27) biweekly payments are each equal to one-half of the monthly payment that would be required, and they are usually drafted from the borrower’s bank account. This option allows you to pay off your loan more quickly and to build equity faster. Sometimes there are additional costs associated with choosing this option.

An interest-bearing certificate of debt with a maturity date. A real estate bond is a written obligation that is usually secured by a mortgage or a deed of trust.

A violation of any legal obligation or contract.

Break even point

The point at which total income equals total expenses. Also used in connection with decisions related to purchasing discount points on a mortgage. Calculating the break even point will identify how many months it will take to recoup the costs associated with paying for the discount point amount under consideration. In other words, if $3,600 is paid toward discount points to “buy down” the interest rate, and the lowered rate would drop the mortgage payment by $100, it would take three years to break even on the choice to pay the amount toward discount points.

A type of mortgage financing between the termination of one loan and the start of another loan. For example, a mortgage secured by the borrower’s present home (which is usually up for sale) in a manner that allows the proceeds to be used for closing on a new house before the present home is sold. See also: swing loan.

A third party who arranges funding or negotiates a contract between parties, but does not lend the money.

Fees charged by a real estate broker or a mortgage broker for providing assistance in a real estate transaction.

A detailed plan of income and expenses expected over a certain period of time. A budget can provide guidelines for managing future investments and expenses.

Building code

Local regulations that specify minimum structural requirements for design of, construction of, and materials used in a home or office building. Building codes are based on safety and health standards.

A buydown is the prepayment by a lender or homebuilder of a portion of the interest that will become due on your promissory note during the buydown period, thereby reducing your monthly payments. The buydown period may be one, two, or three years, during which time your monthly payments will increase annually, in accordance with a predetermined schedule, ending with the monthly payment specified in your note.

Buydown account

An account in which funds are held so that they can be applied as part of the monthly loan payment, as each payment comes due during the period that an interest rate buydown plan is in effect. For example, if a seller agrees to help reduce a buyer’s monthly payment during the first year of a loan, the seller may put money in a buydown account which is then paid to the lender each month to reduce the buyer’s monthly payment. This is more commonly done through a buydown paid directly to the lender at closing.

A real estate agent who represents the interests of the buyer and has fiduciary and/or statutory duties to the buyer.

C

Calculate your combined loan-to-value (CLTV) ratio

A. How much do you need? $__________. 
B. Balance of your existing mortgages, combined. $___________.
C. The estimated value of your home $___________.

The calculation: (A + B)/ C = CLTV CLTV in most cases should not exceed .85 or as a percentage: 85%.

A provision in a loan that gives the lender the right to accelerate the debt, and require full payment of the loan immediately at the end of a specified period or for specified reason.

A limit on how much a variable interest rate can increase. Many adjustable-rate mortgages have both annual (or semiannual) rate caps and lifetime caps. They limit the amount your payments can increase in an adjustment period and over the life of the loan.

A person’s present income and anticipated future earnings. Lenders consider this when determining if a borrower will be able to make payments on a loan.

  1. Money used to create income, either as an investment in a business or an income property.
  2. The money or property comprising the wealth owned or used by a person or business enterprise.
  3. The accumulated wealth of a person or business.
  4. The net worth of a business represented by the amount by which its assets exceed liabilities.
Capital expenditure

The cost of an improvement made to extend the useful life of a property or to add to its value, such as adding a room. The cost of repairing a property is not a capital expenditure. Capital expenditures are appreciated over their useful life; repairs are subtracted from income for the current year.

Capital improvement

Any structure or component erected as a permanent improvement to real property that adds to its value and useful life. See also: capital expenditure.

Capitalized cost

The amount financed under a lease agreement.

Cash available for closing

Borrower funds that are available to cover down payment and closing costs. If lending guidelines require the borrower to have cash reserves at the time the loan closes or that the down payment come from specified sources, the borrower’s cash available for closing does not include cash reserves or money from other sources.

Cash to close

The amount a homebuyer needs in cash at the closing of the loan. Typically, this includes down payment and closing costs.

Cash-out refinance

A refinance transaction in which the new loan amount exceeds the total of the principal balance of the existing first mortgage and any secondary mortgages or liens, together with closing costs and points for the new loan. This excess is usually given to the borrower in cash and can often be used for debt consolidation, home improvement, or any other purpose. The borrower effectively borrows against the home’s available equity.

The maximum interest rate that can accrue on a variable rate loan or adjustable-rate mortgage (ARM).

Certificate of eligibility

A document issued by the federal government certifying a veteran’s eligibility for a Department of Veterans Affairs (VA) loan.

Certificate of reasonable value (CRV)

A document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA loan, based on an approved appraisal.

Certificate of title

A statement provided by an abstract company, title company, or attorney stating who holds title to real estate based on the public record.

Chain of title

The history of all of the documents affecting title to a parcel of real property, starting with the earliest existing document and ending with the most recent.

Titles that are marketable and are free of liens or disputed legal questions as to ownership of the property.

The Close step is the date you will sign and execute your new loan documents.

Depending on the location of the property or type of transaction, the three business days right of rescission period may apply before your funds are available to you.

The three business days right of rescission period states that in certain real estate secured transactions that involve the refinance of a primary residence, the Truth in Lending Act allows applicants 3 business days to cancel the transaction and prohibits lenders from disbursing proceeds until after the rescission period has lapsed.

A status of closed indicates that no further action is required on this item.

The time and place, at which all documents for your loan are signed, dated, and notarized. See also: settlement.

Closing costs

Closing costs, also known as settlement costs, are the costs incurred when obtaining your loan. For new purchases, these costs also include ownership transfer of any collateral property from the seller to you. Costs may include and are not limited to: attorney's fees, preparation and title search fees, discount points, appraisal fees, title insurance, and credit report charges. They are typically about 3% of your loan amount, and they are often paid at or just before your loan closes.

Funds often needed to close a loan, such as homeowners insurance, property taxes, and escrow impound account funds, aren't included in closing costs and are considered separate. You should be prepared to pay these costs before your loan closes.

The date you will sign your new loan documents.

Closing statement

An accounting of funds given to both buyer and seller before real estate is sold.

Cloud on title

An outstanding claim or lien, revealed by a title search, that adversely affects the owner’s title to real estate. Usually, clouds on title cannot be removed except by a quitclaim deed, release, or court action.

An additional person who assumes equal responsibility for repayment of a loan and is fully obligated under the terms of the loan. This person also has equal rights to the proceeds of the loan.

COBRA (Consolidated Omnibus Budget Reconciliation Act)

Requires employers with more than 20 employees to make group health care coverage available for 18 months, at the employee’s expense, to employees who leave the employer for any reason other than gross misconduct.

A sharing of insurance risk between the insurer and the insured. Coinsurance depends on the relationship between the amount of the policy and a specified percentage of the actual value of the property insured at the time of the loss.

An asset, such as a car or a home, used for securing the repayment of a loan. The borrower risks losing the asset if the loan is not repaid.

The efforts used to bring a delinquent loan current and, if necessary, to file legal papers and notices to proceed with foreclosure.

Combination loan

Two loans combined for the purpose of purchasing or refinancing a home. For example: A loan is made for 80% of the home price. 70% of the purchase price is supplied by a first mortgage and 10% by a home equity second mortgage. The home equity second mortgage supplements the first.

Combined liens

The outstanding balance of all mortgages held on a property. Used to determine the total available equity when considering the appraised value of the property less total combined or outstanding liens.

Combined loan-to-value ratio (CLTV)

The ratio between the unpaid principal amount of your first mortgage, plus your home equity loan (or your credit limit in the case of a line of credit) and the appraised value of your home. Expressed as a percentage.

The fee charged by a broker or agent for negotiating a real estate or loan transaction. A broker commission is generally a percentage of the price of the property or loan.

Commitment letter

A formal notification from a lender stating that the borrower’s loan has been conditionally approved and specifying the terms under which the lender agrees to make the loan. See also: loan commitment.

Common area assessments

Payments required of individual unit owners in a condominium or planned unit development (PUD) project for additional capital to defray homeowners association costs and expenses and to repair, replace, maintain, improve, or operate the common areas of the project.

Common areas

Those portions of a building, land, and amenities owned (or managed) by a planned unit development (PUD) or condominium project’s homeowners association (or a cooperative project’s cooperative corporation) that are used by all of the unit owners. Common areas include swimming pools, tennis courts, and other recreational facilities, as well as common corridors of buildings, parking areas, means of ingress and egress, etc. The unit owners share in the common expenses of their operation and maintenance.

Community property

In some Western and Southwestern states, the law specifies that property acquired during a marriage is presumed to be owned jointly by the husband and wife unless acquired as separate property of one spouse or the other.

Comparables (comps)

An abbreviation for “comparable properties” used for comparative purposes in the appraisal process. Comparables are properties like the property under consideration; they have reasonably the same size, location, and amenities and have recently been sold. Comparables help the appraiser determine the approximate fair market value of the subject property.

Compound interest

Interest paid on the principal balance and on the accrued and unpaid interest.

(1) Declaration that a building is unfit for use or is dangerous and must be destroyed; (2) taking of private property for a public use (such as a park, street, or school) through an exercise of the right of eminent domain.

Condominium (condo)

A building or development with many housing units where each person owns his or her individual unit and shares an interest in the common areas and facilities of the entire project. You go through the same process of buying a condo as you do when buying a house, and have a deed to and a mortgage on your particular unit. You also pay property taxes on your unit.

Conforming loan

A mortgage loan that has the standard features as defined by and is eligible for sale to Fannie Mae and Freddie Mac.

Construction loan

A short-term, interim loan for financing the cost of home construction. The lender makes payments to the builder at periodic intervals as the work progresses.

Consumer reporting agency (bureau)

An organization that prepares reports that lenders use to determine a potential borrower’s credit history. The agency obtains data for these reports from a credit repository as well as from creditors such as mortgage lenders, credit card companies, department stores, etc.

A specified condition in a sales contract that must be satisfied before the home sale can occur. When buying a home, the two most common contingencies are that the house must pass inspection and that the borrower must be approved for a loan.

Contingency addendum

A clause added to an offer contract stating a condition that must be met before a contract is legally binding.

An oral or written agreement to do, or not to do, a certain thing.

Conventional loan

A home loan that is not insured or guaranteed by the federal government. Can be for conforming or non-conforming loan amounts.

Convertibility clause

A provision in some adjustable-rate mortgages (ARMs) that allows the borrower to change the ARM to a fixed rate loan at specified times during the life of the loan.

Convertible ARM

An adjustable-rate mortgage (ARM) that can be converted to a fixed rate loan under specified conditions.

To transfer or deliver title to property from one to another by deed or contract. When an item becomes a part of the transfer of title, it is “conveyed” with the property.

Cooperative (co-op)

A type of multiple ownership in which the residents of a multiunit housing complex own shares in the cooperative corporation that owns the property, giving each resident the right to occupy a specific apartment or unit.

A second person who signs your loan and assumes equal responsibility for payment of the loan but receives no benefit from the loan proceeds.

Cost benefit analysis

A dollar-value analysis that compares the benefits of owning a home to the costs of owning a home. Some home ownership benefits may include: the tax breaks you may receive for the mortgage interest and property taxes you pay, and the appreciation that may occur in the value of your home over time (which builds your home equity). Home ownership costs may include: the interest you pay on the loan; closing costs (including any mortgage points), property taxes, homeowner’s insurance premiums, private mortgage insurance premiums, and maintenance costs including those associated with normal wear and tear or weathering on the property.

Cost of Funds Index (COFI)

An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It represents the weighted-average cost of savings, borrowings, and advances of the 11th District members of the Federal Home Loan Bank of San Francisco. See also: adjustable-rate mortgage (ARM).

A new offer made by a buyer, seller or lender in response to a previous offer that has been rejected.

A promise in a mortgage or deed that requires or prevents certain uses of the property, that, if violated, may result in loss or foreclosure of the property.

An arrangement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date.

Credit bureau

An organization that gathers, records, updates and stores financial and public records of individuals who have been granted credit and provides this information to lenders and other authorized users for a fee.

Credit history

A record of an individual’s debts and payment habits over time. It helps a lender determine whether or not a potential borrower is a good business risk.

Credit limit

The maximum amount you can borrow under a line of credit.

Credit monitoring service

A service that offers the benefit of early detection of unauthorized activity in order to limit the amount of financial damage that a person may suffer at the hands of an identity thief.

Credit rating

A numeric expression of creditworthiness based upon an individual’s present financial condition and past credit history.

Credit report

A record of an individual’s debts and payment habits. It helps a lender determine whether or not a potential borrower is a good business risk.

Credit reporting agency (credit bureau)

An organization that gathers, records, updates, and stores financial and public records of individuals who have been granted credit, and provides this information to lenders and other authorized users for a fee.

The likelihood that a borrower will pay their obligations as agreed. Borrowers who pay as agreed pose less credit risk to lenders.

A number that rates the quality of an individual’s credit. Credit reporting agencies calculate this number, often with the assistance of computer systems, as part of the process of assigning rates and terms to the loans they make. The number helps predict the relative likelihood that a person will repay a credit obligation, such as a mortgage loan. In general, the higher your credit score, the more likely you are to be approved for and to pay a lower interest rate on a loan.

A person or business from whom you borrow or to whom you owe money.

Creditworthiness

The likely ability of a borrower to repay debt.

Cumulative interest

Total interest accrued.

Current loan balance

The remaining principal balance of your original loan amount excluding any interest or tax obligations.

A payment that reduces the principal balance of a loan.

D

DD 214 Certificate of Eligibility

A certificate issued by the Department of Veterans Affairs to establish the amount the government will guarantee for a VA mortgage loan.

An amount of money owed by one person, company, organization, or other entity to another.

Debt consolidation

A single loan to pay off multiple debts, usually over a longer term. This is a popular use of home equity loan or line of credit.

Debt-to-income ratio

Debt-to-income ratio is the percentage of your gross monthly income (before taxes are taken out) that you pay toward debt (loans, credit cards, court-ordered payments), as well as your projected total monthly home payment. It also will include HOA dues and private mortgage insurance, if applicable.

Deed (warranty or quit-claim)

A document that legally transfers ownership of real estate from a seller to a buyer. It’s delivered to the buyer at closing. Before making a loan, a lender will usually require a title search or a title report to make sure the borrower legally owns the real estate that is to secure the loan.

Deed-in-lieu of foreclosure

A deed given by a borrower to the lender to satisfy a debt and avoid foreclosure. Also called a “voluntary conveyance.”

Deed of trust

The document used in some states instead of a mortgage; title is vested in a trustee to secure repayment of the loan.

Failure to make mortgage payments on time or to meet other terms of a loan. Default can lead to foreclosure.

Failure to make payments on time.

Department of Veterans Affairs

An agency of the federal government that guarantees residential mortgages made to eligible veterans of the military services. The guarantee protects the lender against loss and thus encourages lenders to make mortgages to veterans.

A decline in the value of property due to wear and tear or any other reason.

Direct deposit

The automatic electronic deposit of wages or benefits directly from your employer or another organization into your bank account (such as a checking, savings or money market account). Deposits can include salary, pension, Social Security and Supplemental Security Income (SSI) benefits, or other regular monthly income.

Information given to consumers about their loans.

Discount points

Typically, it’s an amount usually paid at closing to the lender in conjunction with a mortgage loan in order to lower or “buy down” the interest rate. One discount point equals one percentage point of the loan amount. For example, two points on a $100,000 mortgage would cost $2,000. Negative points reflect the amount that will be credited to you and reduce the amount of closing costs you will pay. Also called mortgage points or points.

Document drawn date

The date on which your legal documents are prepared for closing.

Document preparation fee

Fee required to cover the cost of preparing the necessary documents for closing.

Down payment

The amount of cash you pay toward the purchase of your home to make up the difference between the purchase price and your mortgage loan. Down payments often range between 5% and 20% of the sales price depending on many factors, including your loan, your lender, your credit history, and so forth.

The process of obtaining an advance against your available credit, under your line of credit.

The period during which a borrower can obtain advances from the available line of credit. At the end of the draw period, borrowers may be able to renew the credit line or be required to pay the outstanding balance in full or in monthly installments.

Due-on-sale provision

A provision in a mortgage home loan that allows the lender to demand repayment in full if the borrower sells the property that serves as security for the loan.

Due-on-transfer provision

This terminology is usually used for second mortgages. See also: due-on-sale-provision.

E

Earnest money

A deposit made by the potential home buyer to show that he or she is serious about buying the house.

Earthquake insurance

Earthquake policies are similar to regular homeowners policies but without the liability coverage. You choose a dollar ceiling for the dwelling coverage, and a percentage of this ceiling is then applied to coverages for personal property and additional living expenses (hotel expenses if your home becomes uninhabitable).

The right of way given to persons other than the owner, to access a property.

Effective age

An appraiser’s estimate of the physical condition of a building. The actual age of a building may be shorter or longer than its effective age.

Eminent domain

The right of a government to take private property for public use upon payment of fair compensation to the owner. Eminent domain is the basis for condemnation proceedings.

Employer-assisted housing

A special Fannie Mae housing initiative that offers several different ways for employers to work with local lenders to develop plans to assist their employees in purchasing homes.

An improvement that physically intrudes or trespasses on another’s property.

Anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements, deeds, or restrictions.

A person who signs a check or promissory note over to another party.

Equal Credit Opportunity Act (ECOA)

A federal law that requires lenders and other creditors to make credit available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.

The difference between the fair market value (appraised value) of your home and your outstanding mortgage balances and other liens.

A financial contribution to a homebuyer's down payment that is not a loan. Must be accompanied by a "gift letter" confirming that the funds will not be repaid. The gift is often from a family member.

An item of value, money, or documents deposited with a third party, to be delivered upon the fulfillment of a condition. For example, the deposit by a borrower with the lender, of funds to pay taxes and insurance premiums when they become due, or the deposit of funds or documents with an attorney or escrow agent, to be disbursed upon the closing of a sale of real estate.

Escrow analysis

The periodic examination of escrow accounts to determine if current monthly deposits will provide sufficient funds to pay taxes, insurance, and other bills when due.

Escrow collections

Funds collected by the loan servicer and set-aside in an escrow account to pay borrower expenses such as property taxes, mortgage insurance, and hazard homeowners insurance.

Escrow disbursements

The use of escrow funds to pay real estate taxes, homeowners insurance, mortgage insurance, and other property expenses as they become due.

Escrow impound account

An escrow impound account is designed to make sure your property taxes and insurance premium are always paid on time. The account is set up along with your new loan. It works by collecting 1/12th of the annual property taxes and/or insurance each time you pay your mortgage payment. When your taxes and insurance premium are due each year, the impound account will already have collected the payment and will make the payment for you.

Escrow reserves/payment

The portion of a borrower’s monthly payment that is held by the loan servicer to pay for taxes, hazard homeowners insurance, mortgage insurance, lease payments, and other items as they become due. Known as “impounds” or “reserves” in some states.

The ownership interest of an individual in real property. The sum total of all the real property and personal property owned by an individual at time of death.

Estimated customer value

The estimated customer value is the applicant’s stated fair market value of the collateral property. Fair market value is the likely selling price of a home between a willing buyer and a willing seller on the open market.

Estimated escrow funds date

Monies collected by the lender from the borrower in order to pay the property taxes and homeowners insurance premiums when they become due.

Estimated funding date

The estimated funding date is the date we anticipate authorizing the settlement agent to disburse your loan proceeds. If your loan program is rescindable, funding will not occur until 3 business days after you sign the loan documents.

A legal proceeding by a landlord to recover possession of real property from the tenant.

Examination of title

The report on the title of a property from the public records or an abstract of the title.

Exclusive listing

A written contract that gives a licensed real estate agent the exclusive right to sell a property for a specified time, but reserving the owner’s right to sell the property alone without the payment of a commission.

Existing line amount

The amount of your current home equity line of credit.

F

Fair Credit Reporting Act (FCRA)

Congress passed this act to give consumers certain rights when dealing with consumer reporting agencies, or CRAs. CRAs are required to provide accurate credit histories to authorized businesses for use in evaluating applications for insurance, employment, credit, or loans.

Fair market value

The likely selling price of a home between a willing buyer and a willing seller on the open market. In a mortgage or a home equity loan, the fair market value is usually determined by an appraisal.

Federal National Mortgage Association, a government-sponsored enterprise that buys and securitizes mortgages for resale in the secondary market.

Federal Housing Administration (FHA)

An agency of the Department of Housing and Urban Development. The FHA provides mortgage insurance for certain residential mortgages. It sets standards for underwriting these mortgages and for construction of homes secured by these mortgages.

An unconditional, unlimited estate of inheritance that represents the greatest estate and most extensive interest in land that can be enjoyed. It is of perpetual duration. When the real estate is in a condominium project, the unit owner is the exclusive owner only of the air space within his or her portion of the building (the unit) and is an owner in common with respect to the land and other common portions of the property.

FHA home loan

A mortgage home loan that is insured by the Federal Housing Administration (FHA). Also known as a government loan. FHA mortgage insurance protects the lender (not the borrower) if a borrower defaults on the FHA loan. This insurance enables a lender to provide loan options and benefits often not available through conventional financing.

An acronym for Fair Isaac Corporation, which develops the mathematical formulas used to produce credit scores for assessing credit risk. FICO scores fall between a low of 300 and a high of 850. The higher the FICO score, the lower credit risk a consumer presents.

Finance charge

The finance charge is the cost of consumer credit expressed as a dollar amount. It includes the amount of interest you will pay during the terms of the loan, origination points, and certain other items. Some closing costs are not treated as finance charges.

Financial goals

Objectives you set for yourself related to money management, saving, paying off debt and financial stability.

First mortgage

A mortgage that is the senior lien against a property.

First payment due

The date that the first payment is due on this loan.

Fixed installment

The monthly payment due on a mortgage loan. The fixed installment includes payment of both principal and interest.

Fixed-rate mortgage

A home loan with a predetermined fixed interest rate for the entire term of the loan.

Fixed-rate option (fixed-Rate loan option)

An option available on certain home equity lines of credit allowing borrowers to fix the payments and interest rate on all or a portion of their outstanding principal balance for a specific term. Customers may be charged a fee for this privilege.

Personal property that becomes real property when attached in a permanent manner to real estate (such as a lighting fixture or an inground spa).

Floating rate

A loan rate for which the lender has not "locked" or committed to lend at a particular interest rate. The floating interest rate and any discount points are not guaranteed. Your actual interest rate and discount points will be based on the market price available for your loan product at the time your interest rate is locked.

Flood certification

A determination by a reputable source about whether property is located within a special flood hazard zone.

Flood insurance

Insurance that protects against loss due to floods. When available, this type of insurance is required by law when a property is located within a special flood hazard zone.

A specified period of time (usually 3 to 6 months) wherein borrowers can make either lower payments or no payments at all on a loan. This is sometimes offered by a lender as an option to prevent foreclosure.

A legal procedure in which property securing a defaulted loan is sold by the lender in order to repay a borrower’s loan. The amount paid by a buyer at the foreclosure may not be enough to fully repay the loan and the borrower may continue to owe the lender the difference.

The loss of money, property, rights, or privileges due to a breach of legal obligation.

A legal tax form that reports the amount of interest and points paid during the previous year.

A government-sponsored enterprise that buys and securitizes mortgages for resale in the secondary market.

Front-end Ratio

A ratio that indicates what portion of an individual’s income is used to make mortgage payments. It is calculated as an individual’s monthly housing expenses divided by his or her monthly gross income and is expressed as a percentage.

Fully amortized loan

A mortgage loan where the borrower makes payments that are applied first to interest and then to principal, and that gradually reduce the principal balance to zero.

The Fund step is the date on which the proceeds from a loan are available to or disbursed for the benefit of the borrowers.

The date on which the proceeds from a loan are available to or disbursed for the benefit of the borrowers.

G

General warranty deed

A type of deed where the seller guarantees to warrant and defend title to the property against every person who may claim an interest.

The funds a borrower receives that do not have to be paid back. The gift is often from a family member to be used towards a down payment on a home purchase.

Good faith estimate (GFE)

An itemized, detailed list of certain estimated costs associated with a home loan that the lender is required to provide to the borrower within three business days of the application.

Government loan

A loan that is insured by the Federal Housing Administration (FHA), guaranteed by the Department of Veterans Affairs (VA), or the Rural Housing Service (RHS). The insurance protects the lender (not the borrower) if a borrower defaults on the loan. This insurance enables a lender to provide loan options and benefits often not available through conventional financing.

Government National Mortgage Association (GNMA or Ginnie Mae)

A government-owned corporation within the U.S. Department of Housing and Urban Development (HUD). Created by Congress on September 1, 1968, GNMA assumed responsibility for the special assistance loan programs formerly administered by Fannie Mae.

The person to whom an interest in real property is conveyed (e.g., the buyer).

The person who conveys an interest in real property (e.g., the seller).

Gross annual income

The total amount of income from all sources (not just salary) that a borrower receives per year before deductions.

H

Hazard insurance

Insurance to protect your home against damage from fire, hurricanes and other catastrophes. Usually, hazard insurance also covers you against theft and vandalism, as well as personal liability in case someone is hurt or injured on your property. A lender will likely require you to name it as a payee under the insurance if you need to make a claim. Also called homeowners insurance.

Home equity line of credit (HELOC)

A line of credit secured by the equity in a borrower’s residence. It is often used for home improvements, debt consolidation, and other major purchases or expenses. At closing, a credit limit is established. In most cases, the borrower can access the line of credit for the first ten years during the “draw period” by a variety of access devices, such as convenience checks, debit cards, and credit cards. The typical HELOC term is 25 years, a 10-year draw period followed by a 15-year repayment period.

Home equity loan

An installment loan secured by the equity in a borrower’s residence. It can be used for home improvements, debt consolidation, and other major purchases or expenses. On the funding date, all of the principal is advanced for the benefit of the borrower(s). Often referred to as a “second mortgage.”

Home inspection

An inspection of the condition of a property. A third party conducts the inspection, which includes all major appliances and structural elements. If an inspector finds something wrong, and your sales contract allows you to, you can request that the seller pay for the repairs. If the seller refuses, and your sales contract allows you to, you may not have to proceed with the purchase of the home.

The total amount a homeowner spends on their home loan each month, including all required payments. This will consist of principal, interest, property taxes, and homeowner’s insurance (or PITI), plus any private mortgage insurance or homeowner’s association dues that may apply.

Home warranty

A type of insurance that covers repairs to specified parts of a house for a specific period of time. The builder or property seller as a condition of the sale may provide it, but homeowners can also purchase it.

Homeowners association

An organization of property owners that administers the rules and upholds the covenants of a subdivision, development, or condominium complex.

Homeowners association dues

Fees paid monthly to cover the maintenance and amenities of a condominium complex or neighborhood.

Homeowners insurance

Insurance to protect your home against damage from fire, hurricanes and other catastrophes. Usually, hazard insurance also covers you against theft and vandalism, as well as personal liability in case someone is hurt or injured on your property. A lender will likely require you to name it as a payee under the insurance if you need to make a claim. Also called Hazard Insurance.

Housing expense ratio

The percentage of gross monthly income that goes toward paying housing expenses.

An acronym for the U.S. Department of Housing and Urban Development. HUD is a government agency that is responsible for the implementation and administration of housing and urban development programs.

HUD median income

Median family income for a particular county or metropolitan statistical area (MSA), as estimated by the Department of Housing and Urban Development (HUD).

HUD-1 settlement statement

A closing document, which provides an itemized list of the credits and charges, for both the buyer and the seller, based on the contract terms.

I

Impound account (escrow account)

An account specifically set up by a lender to hold funds that are set aside for the payment of property taxes and insurance. These funds are held in escrow until disbursed on behalf of the borrower to the appropriate parties.

The collection and placement of monies by a lender into a fund in order to pay the borrower’s property taxes and insurance premiums when they become due.

Regular income from earnings, commissions, investments, rental payments or other sources.

Income property

Real estate developed or improved to produce income.

When used in a mortgage note or credit agreement, a financial index is the measurement used to decide how much the annual percentage rate will change at the beginning of each adjustment period. Generally, the index plus or minus margin equals the new rate that will be charged, subject to any caps. Lenders use various financial index rates: London Interbank Offered Rate [(LIBOR and Treasury-Indexed ARMs (T-Bills)]

Inflation rate

The increase in price of consumer goods, usually expressed as a percentage over a specific period of time.

Initial advance

The process of obtaining an advance against available credit under your line of credit.

Initial advance at closing

You have chosen our funds transfer option to reduce your interest rate. Please verify that the account information is correct. If you maintain at least this $25,000 balance for the first three consecutive billing cycles the account is open, you will receive .25% off your approved rate for the life of the line.

Initial advance of $25,000 or more

The initial advance of $25,000 or more discount applies for drawing an initial advance of $25,000 or more, and maintaining at least that minimum balance for the first 3 full consecutive billing cycles.

Initial draw amount

The proceeds of the home equity line of credit or construction loan up to an amount the borrower is allowed to request at closing.

The starting interest rate. Some people call this the “teaser rate,” because it gives you low interest and low monthly payments at the beginning, but may adjust up at the next adjustment period (it will usually adjust even if the index doesn’t go up, since it’s lower than index plus margin for the initial period).

A request for your credit report, made by you or a company considering you for an offer of credit.

Installment loan

A loan that is repaid in equal payments, known as installments.

A contract that provides compensation for specific losses in exchange for a periodic payment. An individual contract is known as an insurance policy, and the periodic payment is known as an insurance premium.

Insurance binder

A document that states that insurance is temporarily in effect. Because the coverage will expire by a specified date, a permanent policy must be obtained before the expiration date.

Insured mortgage

A mortgage that is protected by an insurer in case of default. The insurance protects the lender (not the borrower) if a borrower defaults on the loan.

Interest (in property)

Denotes a right, claim, title or legal share in property.

Interest accrual rate

The percentage rate at which interest accrues on the mortgage. In most cases, it is also the rate used to calculate the monthly payments.

Interest-only loan

A loan for which you pay only the interest due for a portion of the loan term. This lowers your periodic payment but does not decrease your principal balance on the loan.

Interest payment

The portion of a monthly payment that goes to interest based on the amortization schedule.

Interest rate

Cost for the use of a loan, usually expressed as a percentage of the loan, paid over a specific period of time. The interest rate does not include fees charged for the loan. See also: annual percentage rate (APR).

Interest rate buydown

A temporary buydown that gives a borrower a reduced monthly payment during the first few years of a home loan, and is typically paid for in an initial lump sum made by the seller, lender, or borrower. A permanent buydown is paid the same way but reduces the interest rate over the entire life of a home loan.

Interest rate cap

A limit on how much the variable interest rate can increase at any one time. Many home loans have both annual (or semiannual) caps and lifetime caps, which limit the amount your payments can increase in an adjustment period and over the life of the loan. Many caps allow a rate increase of 2-5% over the starting interest rate in an adjustment period, i.e., a starting rate of 5.0% could increase to 7.0%, or depending on the loan guidelines, to 10.0%. Common lifetime caps are 6.0% over the life of the loan.

Interest-only payments

Some lenders permit you to pay only the interest due on a loan for a portion of the loan term, which lowers your periodic payment during that period, but does not decrease your principal balance on the loan. Making interest-only payments will result in larger payments being due (“payment shock”) at the end of the interest-only payment period. See also: balloon loan and balloon payment.

Investment property

Property that is purchased to generate rental income, or to be sold once it has appreciated in value.

J

Joint tenancy

A form of co-ownership that gives each tenant equal undivided interest and rights in the property, including the right of survivorship. Contrast with tenancy in common and tenancy by the entirety.

A decree by a court of law that one person is indebted to another for a specified amount. In some states, the court may place a lien against the debtor’s real property as collateral for payment of the judgment to the creditor.

Also known as a nonconforming loan. The amount of the loan exceeds standards that would make it eligible for sale to Fannie Mae and Freddie Mac. Certain geographical areas have temporary conforming loan limits higher than typical conforming limits. Lenders may charge additional fees and place certain restrictions due to the large loan amounts.

K

No entries for this letter.

L

The penalty charged to the borrower when a payment is made past the due date or any allowable grace period.

A written agreement between a property owner and a tenant that stipulates the conditions under which the tenant may use the estate property for a specified period of time and the amount of rent to be paid.

An individual or business entity making a loan.

A person’s debts or financial obligations. Liabilities include long-term and short-term debt, as well as potential losses from legal claims.

Liability insurance

Insurance coverage that offers protection against claims alleging that a property owner’s negligence or inappropriate action resulted in bodily injury or property damage to another party. See also: homeowners insurance.

London Interbank Offering Rate; an index commonly used for some adjustable-rate mortgages (ARMs).

The legal claim of a creditor on a borrower’s property, to be used as security for a debt.

An individual or entity that has placed a lien on real property.

Lifetime adjustment cap

A limit on how much the variable interest rate can increase during the term of a loan.

Line of credit

An agreement by a lender to extend credit up to a maximum amount for a specified time. In a home equity line of credit, the line of credit is secured by the borrower’s home.

Liquid asset

A cash asset or an asset that is easily converted into cash.

To sell assets for the purpose of accumulating cash.

Listing agent

The agent who represents the seller in the real estate transaction.

Listing price

The asking price of the home, or the price the home is listed for.

A sum of borrowed money (principal) that is generally repaid over time with interest.

The amount of debt, not including interest.

Loan application

The process of providing financial and other information (such as employment history and proposed collateral) by a prospective borrower in conjunction with a request for credit.

Loan commitment

A formal notification from a lender stating that the borrower’s loan has been conditionally approved and specifying the terms under which the lender agrees to make the loan.

Loan modification

Changes to one or more of the terms of a loan.

Loan origination

The process by which a mortgage lender makes a home loan and records a mortgage against the borrower’s real property as security for repayment of the loan.

The period of time during which a loan must be repaid. For example, a 30-year fixed loan has a term of 30 years. Also called term. See also: maturity date.

Loan-to-value ratio

The ratio between the unpaid principal amount of your loan, or your credit limit in the case of a line of credit, and the appraised value of your collateral. Expressed as a percentage.

A lock period refers to the amount of time prior to closing that you can secure an interest rate for your loan. Lock periods typically range from 30 days to more than 90 days. Generally, the longer the lock period, the more you pay in points or interest.

Loan-to-Value Ratio. The ratio between the unpaid principal amount of your loan, or your credit limit in the case of a line of credit, and the appraised value of your collateral. Expressed as a percentage.

M

Manufactured housing

A structure that has been partially or entirely constructed at another location and moved onto the property (on a permanent foundation). A manufactured home may or may not be a mobile home.

Manufacturer's rebate

Money you’ll get back from the manufacturer if you buy a specific model and otherwise comply with the terms of the rebate program.

The number of percentage points the lender adds to or subtracts from the index rate to determine the interest rate.

The likely selling price of a home between a willing buyer and a willing seller on the open market. In a mortgage or a home equity loan, the fair market value is usually determined by an appraisal. Also called fair market value.

Matricula Consular Identification

An identification card granted by the government of Mexico to Mexicans living in the United States. Similar consulate identification cards are issued to citizens of Argentina, Colombia, El Salvador and Honduras.

Maturity date

The day on which the outstanding principal, interest, and fees must all be repaid.

Minimum payment

The minimum amount you must pay (usually monthly) on your account to avoid a delinquency. Some loans may permit a minimum payment of interest only. Other loans may require a minimum payment of principal and interest. Many other variations of minimum payments also exist.

A type of residence that’s built upon a wheeled chassis and can be transported from site to site.

A factory-built home that’s erected on-site, with the appearance and characteristics of a site-built residence.

Money market account

A savings account that provides bank depositors with many of the advantages of a money market fund. Certain regulatory restrictions apply to the withdrawal of funds from a money market account.

Monthly payment

The amount paid each month toward the principal and interest amount of a loan. The monthly payment may or may not include taxes and insurance.

Monthly Treasury Average (MTA)

An index used on some adjustable-rate mortgage (ARM) loans.

A legal document giving a lender a lien on real estate to secure repayment of a loan. Mortgage loans generally run from 10 to 30 years, after which the loan is required to be paid off. Also called deed of trust and/or security deed.

Mortgage broker

An individual or company that, for a fee, acts as an intermediary between borrowers and lenders.

Mortgage insurance

For conventional loans, insurance that protects the lender if you default on your loan. If your down payment is less than 20%, most lenders will require you to pay mortgage insurance. Also called private mortgage insurance (PMI).

Mortgage points

Typically, it’s an amount usually paid at closing to the lender in conjunction with a mortgage loan in order to lower the interest rate. One discount point equals one percentage point of the loan amount. For example, two points on a $100,000 mortgage would cost $2,000. Negative points reflect the amount that will be credited to you and reduce the amount of closing costs you will pay. Also called discount points or points.

Mortgage type

There are three basic mortgage programs: Federal Housing Administration (FHA) loans, Department of Veterans Affairs (VA) loans and conventional mortgage loans. VA loans are only offered to qualifying veterans and surviving spouses, while FHA loans are available to all qualifying borrowers. Both VA and FHA loans are guaranteed/insured by the federal government. This insurance protects the lender (not the borrower) should the borrower default and the lender sustains a loss. Conventional loans are available to all qualifying borrowers and are not insured or guaranteed by the federal government.

The lender or other party named in the mortgage as the party who’s entitled to receive repayment of the home loan.

The borrower, or other party named in the mortgage as the party obligated to repay the home loan.

Multi-family residence (2 to 4 units)

A residential property with 2 to 4 individual housing units (duplex, triplex, or quadplex).

Multiple Listing Service (MLS)

A service used by real estate brokers to distribute information on properties for sale to other brokers in the community.

N

Changing the borrower’s name that is currently listed on an existing account based on legal documentation. For more information about the process and costs and to download an application package, visit our mortgage assumptions page.

National Flood Insurance Program (NFIP)

A federal program that makes flood insurance available in communities in predefined flood areas.

Negative amortization

The result when monthly payments don’t cover all the interest due on the loan. The unpaid interest is added to the unpaid balance, which means the homebuyer will owe increasingly more than the original amount of the loan.

Net cash flow

The income that remains for an investment property after the monthly operating income is reduced by the monthly housing expenses (principal, interest, taxes, insurance for the mortgage, homeowners association dues, leasehold payments, and subordinate financing payments).

The amount of money left over from the sale of your home after subtracting the outstanding loan balance plus transaction costs, which may include sales commissions, fees, closing costs, repairs, and prorated taxes.

The total value of a person’s complete assets (including cash) and minus all liabilities.

New line amount

The sum total of the existing credit line and the amount of additional credit requested.

No closing cost loan

A loan in which the borrower(s) are not required to pay cash out-of-pocket at closing for the normal closing costs. The lender typically includes the closing costs in the principal balance or charges a higher interest rate than for a loan with closing costs to cover the advance of closing costs.

Nonconforming loan

A mortgage loan that’s not eligible for sale to Fannie Mae and Freddie Mac due to nonstandard features. These loans are often sold on the secondary market to private investors or held in the lender’s portfolio as an asset.

Nonowner occupied

Properties in which the owner does not live.

The act by a notary public who witnesses the signing of documents, authenticating the identity of the signer.

A written agreement in which the signer promises to pay to a named person or company a specific sum of money at a specified date or on demand.

The interest rate stated in a mortgage note.

Notice of default

A formal written notice to a borrower that a default has occurred and that legal action may be taken.

O

A status of “Open” indicates that the applicant(s) needs to take action by faxing a document, or Bank of America needs to take action on an item shown in the To Do list. Once that action is taken, the item will progress to a status of “Pending Review” and finally “Closed.”

A type of adjustable-rate mortgage (ARM) that offers the borrower a choice of 4 monthly payment options to help provide financial flexibility to manage payments in rising rate markets and take advantage of falling interest rates.

The date that the proceeds of a loan are disbursed. See also: closing.

Origination date

The date on which a loan was funded or disbursed.

Origination fee/point

A fee imposed by a lender to cover certain processing expenses in connection with making a mortgage loan. Usually a percentage of the amount loaned (often 1%). The origination fee is stated in the form of points. One point is 1% of the mortgage amount (e.g., $1,000 on a $100,000 loan).

Other Housing Expenses

Other housing expenses include certain amounts that are required to be collected with your payments (principal & interest) that do not fit into pre-defined categories such as taxes or insurance. Examples include special forms of insurance or fees that must be paid in relation to property ownership, such as homeowner association dues and special assessments.

Other Principal & Interest

Other Principal and interest pertains to amortized payments made on an existing mortgage that will not be paid off at closing, but subordinated to the first lien.

Outstanding balance

The balance owed on a debt.

Owner financing

A property purchase transaction in which the property seller provides all or part of the financing and takes back a security instrument.

Owner-occupied

A property that the owner occupies as a principal residence.

P

An abbreviation meaning principal and interest. Principal and interest accounts for the majority of your mortgage payment, but it doesn’t include escrow payments for taxes, insurance and any other costs that are paid monthly, or fees that periodically come due.

The periodic amount of money, to be paid by the borrower, to reduce the balance of a loan. Sometimes referred to as principal and interest or “P & I.” Principal and interest accounts for the majority of your mortgage payment, but doesn’t include escrow payments for taxes, insurance, mortgage insurance (if any) and any other costs that are paid monthly, or fees that periodically come due.

A limit on how much a monthly payment can increase at any one time. Some adjustable-rate mortgages have payment caps in addition to annual (or semi-annual) interest rate caps and lifetime interest rate caps. Payment caps don’t limit the amount of interest charged and may cause negative amortization. Also called a cap.

Payment change date

The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM). Generally, the payment change date occurs in the month immediately after the interest rate adjustment date. The borrower is notified 30 days before the new rate and payment take effect.

Payment shock

A significant rise in a homeowner’s monthly home payment, usually as the result of rising interest rates (in the case of an adjustable-rate loan) or the end of an interest-only introductory period.

Payment of the outstanding balance of a loan in full. Also, the amount required to pay the outstanding balance in full.

Pending review

A status of “Pending Review” indicates that Bank of America is now reviewing the item shown in the To Do list. Once the bank completes the review, the item will be changed to a status of “Closed” if no further action is required.

Per diem interest

The amount of interest that accrues daily on a loan. This is calculated by multiplying the outstanding loan balance by the annual rate of interest, then dividing the result by 365.

Periodic payment (rate) cap

A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or loan payments may increase or decrease. In upward rate markets, it protects the borrower from large increases in the interest rate or monthly payment at each adjustment period.

Personal property

Any property that is not real property or is not permanently fixed to land. Cash, furniture and cars are all examples of personal property.

Piggyback loan

A piggyback loan pairs a conforming first mortgage with a home equity second mortgage for up to 80% of the property's value in a single application with 1 down payment. Piggyback loans may help you avoid the higher rates of a jumbo first mortgage. Piggyback loans are made up of 3 parts: a 70% first mortgage, 10% home equity second mortgage and 20% down payment.

An acronym for principal, interest, taxes, and insurance. Also referred to as the monthly housing expense.

PITI reserves

A cash amount that a borrower must have on hand after making a down payment and paying all closing costs for the purchase of a home. The PITI reserves must equal the amount that the borrower would have to pay for PITI for a predefined number of months.

Planned unit development (PUD)

A project or subdivision that includes common property that is owned and maintained by a homeowners association for the benefit and use of the individual PUD unit owners.

An acronym for private mortgage insurance. If your down payment is less than 20% on a conventional loan, most lenders will require you to get private mortgage insurance. This is insurance that protects the lender if you default on your loan. Also called mortgage insurance.

Typically, it’s an amount usually paid at closing to the lender in conjunction with a mortgage loan in order to lower the interest rate. One discount point equals one percentage point of the loan amount. For example, two points on a $100,000 mortgage would cost $2,000. Negative points reflect the amount that will be credited to you and reduce the amount of closing costs you will pay. Also referred to as discount points or mortgage points.

A lender’s conditional agreement to lend a specific amount on specific terms, to a homebuyer.

Prearranged refinancing agreement

A formal or informal arrangement between a lender and a borrower where the lender agrees to offer special terms (such as a reduction in the rate or closing costs) for a future refinancing as an inducement for the borrower to enter into the original mortgage transaction.

Preforeclosure sale (short sale)

A procedure in which the investor allows a mortgagor to avoid foreclosure by selling the property, typically for less than the amount that is owed to the lender.

Prepaid expenses

The expenses that are usually paid in advance, such as escrows for taxes and insurance (which are paid at closing).

Prepaid interest

The interim interest that’s collected at closing of a first mortgage, covering the period from the date of disbursement to the start of the next payment period.

Preparation charges

The charges you pay the dealer for preparing your new car for delivery. These costs may include fueling and servicing the car as well as any cosmetic changes the dealer makes before the sale.

An amount paid to reduce the principal balance of a loan before the principal is due.

Prepayment penalty

A penalty assessed by some lenders if a loan is paid off before the specified term. This is a lump-sum amount due and payable in addition to the loan balance, and is usually limited to the early years of a mortgage. A prepayment penalty is called a “hard” penalty if it applies when you sell or refinance your home or a “soft” penalty if it applies only to refinancing. Not all loans have prepayment penalties.

Prequalification

The process of providing financial and other information (such as employment history and proposed collateral) by a prospective borrower in order for the lender to preliminarily estimate how much loan the borrower may obtain for the purchase of a home. A prequalification is not a commitment to lend.

Primary applicant

The applicant whose name appears first on the application.

Primary residence

This is the home in which a borrower resides most of the time.

The prime rate is the rate of interest publicly announced from time to time by Bank of America as its “prime rate”. The prime rate is set by Bank of America based on various factors, including the bank’s costs and desired return, general economic conditions, and other factors, and is used as a reference point for pricing some loans. Bank of America may price loans to its customers at, above, or below prime rate.

The amount of money borrowed on a loan.

Principal & interest

The principal is the amount of money borrowed on a loan. The interest is the charge paid for borrowing money. Principal and interest accounts for the majority of your mortgage payment, but it doesn’t include escrow payments for property taxes, homeowners insurance, mortgage insurance and any other costs that are paid monthly, or fees that may come due.

Principal balance

The unpaid portion of the loan amount. The principal balance does not include interest or any other charges.

Principal, interest, taxes and insurance (PITI)

Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the charge for borrowing the money.

Principal payment

Portion of your monthly payment that reduces the principal balance of a home loan. This term also refers to prepayments you make to the principal balance.

Private mortgage insurance (PMI)

If your down payment is less than 20%, most lenders will require you to get private mortgage insurance. This is insurance that protects the lender if you default on your loan. This insurance usually costs from 0.15% to 2.5% of the loan amount. Also called mortgage insurance.

Processing fee

A fee charged to cover the administrative costs of processing a loan request.

Promissory note

A written promise to repay a specified amount over a specified period of time.

A fixed percentage based on the appraised value of your home that you pay to the county in which the home is located. The specific percent varies dramatically from county to county in every part of the country. You pay this tax annually, semiannually or as part of your monthly mortgage payments. Depending on when you actually close your loan, some of this property tax may be due at the time of closing. The local county assessor’s office can give you the rate for your county.

Property valuation

An informed estimate of the value of property often made in connection with an application for a loan secured by a home. A professional appraiser usually makes it.

Property value

The current value of a property as determined by an appraisal or other method of valuation. Also known as appraisal or appraised value.

Public auction

A meeting in an announced public location to sell property to repay a mortgage that is in default.

PUD (planned unit development)

A project or subdivision that includes common property that is owned and maintained by a homeowners association for the benefit and use of the individual PUD unit owners.

Purchase agreement

A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

Purchase price/sales price

The total amount paid by a buyer to a seller for the purchase of property.

Q

Qualifying ratios

Calculations that are used to determine whether a borrower can qualify for a mortgage. They consist of two separate calculations: a housing expense as a percent of income ratio, and total debt obligations as a percent of income ratio.

Quitclaim deed

A deed that transfers, without warranty of ownership, whatever interest or title a grantor may have at the time the conveyance is made.

R

The rate of interest on a loan, expressed as a percentage.

A limit on how much the interest rate can change, either per adjustment period or over the term of the loan.

A commitment issued by a lender to a borrower guaranteeing a specific interest rate for a specified period of time.

Rate lock expiration

Rate lock periods are a fixed number of days, 30-day, 45-day, etc. Rate lock expiration occurs when that period has passed, subjecting the interest rate on the loan to market fluctuations since the date of the initial rate lock. The interest rate and discount points may be higher than the interest rate and discount points that were originally locked. When a rate lock expires, you will need to contact your Mortgage Loan Officer to establish a new rate lock prior to closing your loan.

Rate reduction option

A fixed-rate mortgage that includes a provision that gives the borrower an option to reduce the interest rate (without refinancing) at a later date. It is similar to a prearranged refinancing agreement, except that it does not require re-qualifying.

Real estate agent

A person who is typically licensed by the state and who, for a commission or a fee, assists in negotiating a real estate transaction.

Real estate owned (REO) property

A property now owned by the lender as a result of the previous owner defaulting on the loan. Also known as a “foreclosure property” or a “bank-owned property.”

Real Estate Settlement Procedures Act (RESPA)

A consumer protection law that, among other things, requires advance disclosure of settlement costs to home buyers and sellers, prohibits certain types of referral and other fees, sets rules for escrow accounts, and requires notice to borrowers when servicing of a home loan is transferred.

Real estate tax

Typically, a fixed percentage based on the appraised value of your home that you pay to the county, the school district and the municipality where your property is located. The taxes may be assessed annually or semiannually, and you may pay them as part of your monthly mortgage payments. Depending on when you close your loan, some of this property tax may be due at the time of closing. Each local tax assessor’s office can give you the tax rate. Also known as property tax.

Real property

Land and appurtenances, including anything of a permanent nature such as structures, trees, minerals, and the interest, benefits and inherent rights thereof.

A real estate broker or an associate who holds active membership in a local real estate board that is affiliated with the National Association of Realtors.

To take the remaining balance of a mortgage loan and establish a new period of amortization after which the principal balance will be zero. Typically used after the end of the term of an interest-only loan.

The public official who keeps records of transactions that affect real property in the area. Sometimes known as a Registrar of Deeds or County Clerk.

The noting in a book of public record of the terms of a legal document affecting title to real property, such as a deed, a security instrument, a satisfaction of mortgage, or an extension of mortgage.

Recording fee

A charge for recording a deed or security instrument.

Reduced documentation

A method used to determine income when qualifying a borrower for a loan. Borrower(s) provide their income, however no verification documentation is typically required.

Paying off your existing loan with the proceeds from a new loan, generally using the same property as collateral, in order to take advantage of lower monthly payments, lower interest rates, or save on financing costs.

Paying off one loan with the proceeds from another loan, generally using the same property as collateral.

Rehabilitation mortgage/loan

A first mortgage that enables borrowers to purchase or refinance and rehabilitate homes. With this mortgage product, borrowers can qualify for loan amounts based on the “as-completed” value of the property, up to the maximum loan limits.

Relationship discount

The relationship discount applies for having a qualifying Bank of America relationship. If your relationship changes during the life of the account, your rate may increase.

The process of moving one’s residence from one location to another, often having to do with a change of employment.

Remaining balance

The amount of principal that has not yet been repaid.

Remaining line of credit

The amount of unused credit available to you.

Remaining term

The original amortization term minus the number of payments that have been applied.

Repayment period

In a line of credit, the period when no advances of principal are available and during which the line must be fully repaid, according to the payment terms. In a home equity line of credit, the repayment period (typically 15 years) is the portion of the loan term that follows the draw period (typically 10 years).

Repayment plan

An arrangement made to repay delinquent installments or advances. Lenders’ formal repayment plans are often called “relief provisions.”

Requested increase amount

The amount of additional credit requested.

Requested loan amount

The amount of credit requested.

Requested term

The number of months requested that it will take to pay off a loan. The loan term is used to determine the payment amount, repayment schedule and total interest paid over the life of the loan.

Request for notice of default

A recorded document that obligates the holder of the first mortgage lien to notify subordinate lien holders in the event of default by the borrower.

The cancellation of a contract. In certain real estate-secured transactions that involve the refinance of a primary residence, applicants have three business days to cancel the transaction.

The amount of savings, separate from the down payment, that a homebuyer sets aside in case of unforeseen events or emergencies. During the loan approval process, many lenders require reserves—typically the equivalent of two monthly mortgage payments—to be verified.

Reverse mortgage

A mortgage product available to homeowners who are at least 62 years of age that enables them to remain in their home and receive periodic payments secured by the home’s equity. Rather than paying a monthly mortgage payment to the lender, the homeowner receives funds from the lender.

Revolving line of credit

A line of credit that allows up to the credit limit amount to be re-borrowed in repeated transactions once it’s been repaid.

Right of first refusal

A provision in an agreement that requires the owner of a property to give another party the first opportunity to purchase or lease the property before he or she offers it for sale or lease to others.

Right of ingress (or egress)

The right to enter or leave designated premises.

Right of survivorship

In joint tenancy, the right of survivors to acquire the interest of a deceased joint tenant.

Rural housing loan

A loan product offered by an agency within the Department of Agriculture. The agency provides financing to farmers and other qualified borrowers buying property in rural areas who are unable to obtain loans elsewhere.

Rural Housing Service (RHS)

An agency within the Department of Agriculture. This agency provides financing to farmers and other qualified borrowers buying property in rural areas who are unable to obtain loans elsewhere. Funds are borrowed from the U.S. Treasury.

S

The rate of return you receive on your investments, stated as a yearly percentage rate. Also called the rate of return.

A property occupied part-time by a person in addition to his or her primary residence.

Second mortgage or second lien

The traditional term for a home loan that’s a subordinate lien and not a first mortgage, such as a home equity loan or line of credit.

Secondary mortgage market

The market in which lenders and investors buy and sell existing mortgages or mortgage-backed securities, which in turn provides greater availability of funds to lenders for additional mortgage lending. See Fannie Mae and Freddie Mac.

Secure socket layer (SSL)

A protocol designed to increase security on the internet. It allows encrypted files to be transferred from one computer to another.

Secured loans

Loans for which you’ve given the lender a lien on property such as an automobile, boat, other personal property or real estate that will serve as collateral for the loan.

The property that will be pledged as collateral for a loan. If the borrower defaults, the lender can sell the collateral to satisfy the debt.

Security instrument

An agreement that creates or provides the lender a security interest in your property. Commonly titled “Deed of Trust” or “Mortgage.”

Security interest

The legal right an owner gives to a lender to use the owner’s property as collateral for repayment of a debt to either the owner or another borrower.

Set closing date

The Set Closing Date step is the process of determining the date you will sign your new loan documents.

The completion of a property’s sale or purchase, or the completion of all steps necessary to receive the proceeds of and create an obligation to repay a loan. See also: closing.

Settlement agent

A person or entity that conducts the settlement to transfer title of the property and to close on the mortgage loan. May be an attorney, a title insurer, a title agent or an escrow agent.

Settlement costs

Settlement costs, also known as closing costs, are the costs incurred when obtaining your loan. For new purchases, these costs also include ownership transfer of any collateral property from the seller to you. Costs may include and are not limited to: attorney's fees, preparation and title search fees, discount points, appraisal fees, title insurance, and credit report charges. They are typically about 3% of your loan amount, and they are often paid at or just before your loan closes.

Funds often needed to close a loan, such as homeowners insurance, property taxes, and escrow impound account funds, aren't included in closing costs and are considered separate. You should be prepared to pay these costs before your loan closes.

Settlement statement/sheet

A document prepared by the closing agent that provides the actual charges and adjustments for all parties to the closing, including the seller, buyer, agents, lender and all third parties. The most commonly used form is the promulgated HUD-1 Settlement Statement published by the Department of Housing and Urban Development (HUD). Also known as the closing statement.

A commonly used alternative to a foreclosure. If a homeowner can no longer afford to make mortgage payments and their home is worth less than they owe, a short sale allows them to sell the home to pay off the mortgage. In a short sale, the lender agrees to accept an amount less than is actually owed on the loan, based on a showing of financial hardship.

Single-family residence

A detached individual housing unit. The property shares no common ground with neighboring properties and shares no wall or roof, but can be part of a planned unit development (PUD).

The starting interest rate for an adjustable-rate mortgage (ARM) loan or variable-rate home equity line of credit. Also known as an initial rate or intro rate. It provides lower interest and lower monthly payments at the beginning but may adjust at the next adjustment period. (The start rate will usually adjust at the first interest rate change date since it is lower than the index plus margin for the initial period.)

A housing development that is created by dividing a tract of land into individual lots for sale or lease.

Subordinate financing

Any mortgage or other lien that has a priority that is lower than that of the first mortgage. The subordinate loan has a claim to payment in a foreclosure only after the first mortgage is paid.

Home loans made available to borrowers with credit problems or lack of documentation, usually offered at higher interest rates. Also called non-prime loans.

A drawing or map showing the precise legal boundaries of a property, the location of improvements, easements, right of way, encroachments and other physical features.

Contribution to the construction or rehabilitation of a property in the form of labor or services performed personally by the owner.

A type of mortgage financing between the termination of one loan and the start of another loan. For example, a mortgage secured by the borrower’s present home (which is usually up for sale) in a manner that allows the proceeds to be used for closing on a new house before the present home is sold. See also: bridge loan.

T

A lien against a property for unpaid taxes.

The percentage of your income that you owe in income taxes.

The amount you may save in taxes by itemizing deductions on income tax returns. Mortgage interest and property taxes are two expenses that you may realize tax savings on, since you may be able to deduct these expenses from your income. Always check with your tax advisor for advice on tax deductibility.

Taxes and insurance payment

Taxes and insurance refer to the amounts that may be paid into an escrow account each month to pay for future property taxes and mortgage and hazard insurance.

Tenancy by the entirety

A form of ownership by a husband and wife, in which one may not act without the other’s consent in matters affecting the property. (Some states afford this right to domestic partnerships and civil unions.) When one spouse or partner dies, the rights of the deceased spouse or partner automatically pass to the survivor spouse or partner. Contrast this with tenancy in common and joint tenancy.

Tenancy in common

A type of joint tenancy in a property without right of survivorship. Contrast with tenancy by the entirety and with joint tenancy.

The number of years it will take to pay off a loan. The loan term is used to determine the payment amount, repayment schedule and total interest paid over the life of the loan.

Third-party fees

Fees charged for services rendered by parties other than the borrower or the lender. Such fees may include appraisal, credit report, title, and flood certifications.

Written evidence of ownership in property.

Title company

The agency that will investigate a property’s title (or deed) for discrepancies or undiscovered liens and that will issue title insurance to the lender after the title is deemed clear. Also see Title insurance.

Title insurance

Insurance that protects an interested party, either the owner or the lender, against defects that would affect legal ownership of the property.

An examination of records used to determine the legal ownership of property and all liens and encumbrances on it. Usually performed by a title company or attorney.

Total approved amount (after approval)

The sum total of the existing credit line and the amount of additional credit you will be approved for once the bank makes a credit decision.

Total approved amount (before approval)

The sum total of the existing credit line and the amount of additional credit you are approved for.

Total cash required to close

The total of all closing costs, points, prepaid expenses, down payment, and any other fees or adjustments due at closing.

Total expense ratio

Total obligations as a percentage of gross monthly income. The total expense ratio includes monthly housing expenses plus other monthly debts. Used to help qualify a potential borrower for a home loan.

Total housing expense

The total of all of your combined expenses due to the ownership of property, including: principal, interest, property taxes, homeowners insurance, mortgage insurance, homeowners association dues, and any special assessments.

Total monthly payment

The amount you will pay each month.

Includes origination fees and discount points.

A type of residence that shares common walls with other dwellings.

Transaction fee

The fee that may be charged each time you draw on your credit line.

A charge for conveyance of property.

Transfer of ownership

Transfer of ownership occurs when one or more parties are removed from title. A transfer of ownership does not add or release liability of the note.

State or local tax payable when title to a property passes from one owner to another.

Treasury index

An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It is based on the results of auctions that the U.S. Treasury holds for its Treasury bills and securities or is derived from the U.S. Treasury’s daily yield curve, which is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market. See also: adjustable-rate mortgage (ARM).

A fiduciary that holds or controls property for the benefit of another.

Truth in Lending Act

A federal law requiring disclosure of credit terms using a standard format. This is intended to facilitate comparisons between the lending terms of different financial institutions.

Types of loans

Major types of loans include:
Purchase money loan - a loan used to pay for your home.
Home equity loan and line of credit - money borrowed against the equity in your home. Consolidation loan - a loan used to pay off more than one debt.
Refinance loan - a loan used to repay an existing mortgage loan.

U

The person who approves or denies a home loan, based on the lender’s underwriting and approval criteria.

The lender’s process of deciding whether to make a loan to a potential borrower based on credit, employment, assets, and other factors, and the matching of this risk to an appropriate rate, term, and loan amount.

Uniform Residential Loan Application (1003)

The standard loan application form published by the Federal National Mortgage Association (Fannie Mae) and used by most lenders.

Unsecured lines of credit

Revolving line of credit that has no collateral pledged, typically accessed with a check or credit card.

Unsecured loan

A loan that is not backed by collateral.

Upfront costs

The costs you must pay when applying for a loan. Typically these include loan application fees. Some lenders require some of your closing costs also be paid when you apply.

V

A mortgage that is guaranteed by the Department of Veterans Affairs (VA) for qualified veterans of U.S. military forces. Also known as a government loan.

Vacation home

A vacation home is a single-family property that the borrower occupies in addition to his or her primary residence. The property cannot be considered income-producing and must not be part of a mandatory rental pool, but occasionally may be rented to friends and relatives. When property is classified as a second home, rental income may not be used to qualify the applicant. A 2- to 4-unit property is not eligible for second home status. Also known as second home.

Variable rate

An interest rate that may fluctuate or change periodically, often in relation to an index, such as the prime rate or other criteria. Payments may increase or decrease accordingly.

W

The form you get from your employer every year and used for filing your income tax returns.

A final inspection a day or two before settlement to make sure the property is in the same condition that it was at the time the offer contract was written.

What-if analysis

An affordability analysis that is based on a what-if scenario. A what-if analysis is useful if you do not have complete data or if you want to explore the effect of various changes to your income, liabilities, or available funds or to the qualifying ratios or down payment expenses that are used in the analysis.

Where is this found?

Your application number is listed in your Welcome Letter or other bank communications regarding this application. If you haven’t received your Welcome Letter or need help with your application number, please call 1.800.269.3084.

Why do we ask for this?

When you create online credentials, we take extensive precautions to protect your information and verify your identity. Your Social Security number allows us to confirm your identity.

Windstorm insurance

Windstorm coverage pays for your property losses that result from a windstorm. The coverage acts like a flood or earthquake policy in that it pays for damage to the dwelling, and, in some cases, for damage to your personal property and for living expenses if your home becomes uninhabitable. If you live in a coastal area, you’ll probably need to purchase separate windstorm coverage on your house. In areas where coverage is scarce, states sometime offer market assistance programs or joint underwriting associations to help homeowners find a carrier.

Wire transfer

A transfer of money from one person’s bank to another person’s bank account, either domestically or internationally.

X

No entries for this letter.

Y

Year-end statement

The report shows how much was paid in interest during the year, as well as the remaining mortgage loan balance at the end of the year. If the bank has an impound account for you, it will also show how much was paid and reserved in property taxes. If the bank does not have a property tax impound account, then tax details are not displayed on the report.

Z

No entries for this letter.