Loans allow individuals to do things like purchase cars and homes, and attend schools that they would otherwise be unable to afford. Whether someone is looking into a home loan, car loan, student loan, or something else, the terminology that comes along with loan applications can be overwhelming. To clear up any confusion, take a look at the following list of loan terms before starting a loan application to ensure that all terminology is understood.
Amortized Loan – A loan that needs to be repaid with a series of installment payments on interest and principal, that are equal or close to equal, without balloon payments prior to the end of the loan.
Annual Percentage Rate (APR) – A rate that will reflect the amount of interest that is charged or earned on a loan.
Appraised Value – A dollar value that is given to a property by an appraiser that is approved by a loan program officer.
Automated Clearinghouse (ACH) – An electronic transfer network which allows direct transfers between lenders and bank accounts.
Balloon Payment – Usually refers to the final payment on a loan for discharging debt, it is normally quite a bit bigger than the other payments.
Borrower Checklist – A list of documents that is itemized that the borrower needs to provide for loan approval. This form is also known as OLP-09.
Borrower – Any eligible person who will be the primary one responsibly for repayment of a loan.
Bridge Loan – A loan that is temporary, usually no longer than 12 months, which is provided to borrowers when the profit from a selling of a prior residence is not yet available towards the purchase of another residence.
Close of Escrow – A meeting that occurs with the seller, lender, and buyer where funds and property legally changes hands.
Certification of Eligibility – A form that is signed by representatives which certifies that a person applying is actually eligible for the amount of the loan.
Co-Signer – Any person that will assume the responsibility for a loan but does not hold a title interest in the property.
Curtailment – A payment that can be made in addition to regular payments to reduce the amount of principal on a loan.
Date of Recordation – A date that a deed of trust is actually entered in the books of a county recorder.
Deed of Trust – A instrument used to secure the payment of a promissory note.
Default – The failure of a borrower to fulfill the terms specified in a deed of trust or promissory note.
Deferred Loan Payment – A loan in which the borrower can defer all monthly repayments until the end of the promissory note. After that time the accrued interest and outstanding balance needs to be paid.
Downpayment – An amount that the borrower provides towards the price of an item.
Equity – Difference between the current indebtedness which is secured on a property and the fair market value of the property.
Escrow Holdback – Any funds that are retained by an escrow company following the close of escrow until all necessary work and repairs have been completed.
Evidence of Insurance – The written documentation provided by an insurance company proving that the property in question is covered.
Graduated Mortgage Payment – A type of alternative loan that results in a lower initial interest rate and then a higher interest rate as time goes on.
Hazard Insurance – An insurance contract in which an insurer promises to pay compensation to the insured for losses on a property because of specific hazards outlined in the contract.
Homeowners Association – A group of homeowners that reside within a housing development and whose goal is to provide and maintain services and facilities for the enjoyment of development residents.
Homeowners Insurance – A policy that protects a homeowners property in the event of theft, fire, personal liability, and wind damage.
HUD-1 Closing Statement – The financial disclosure statement that gives an account of all of the funds that are disbursed and received at a loan closing.
Inspection Reports – Any reports that are ordered by a loan holder to assess the condition of a home.
Interest – Money that is repaid in addition to the loan amount as a consideration for the use of the money borrowed.
Interest-Only Payment Loan – A loan that is non-amortizing in which a lender receives interest throughout the loan and principal is repaid in one large sum at the end of the loan.
Joint Tenancy – A joint ownership of a property by at least two people with equal rights and interest.
Loan-to-Value (LTV) Ratio – Ratio of the value of securing a property to the principal balance of a mortgage as determined by the appraised value, or purchase price, whichever is less.
Loan Commitment – A letter that commits to the funding of a loan for a borrower.
Loan Denial Letter – A document that denies a loan to a potential borrower; reasons for loan denial can vary.
Loan Underwriting – The analysis of any risks along with the decision of whether to make a loan to a potential borrower based on credit and other determining factors.
Mortgagee – A creditor or lender who holds a Deed of Trust or a mortgage.
Mortgagor – The loan holder who is obligated by contract to pay on a Deed of Trust or mortgage.
Net Income – The monthly income of a loan holder after deducting all payroll taxes.
Notice of Completion – The documentation from a company stating that any required repairs are completed.
Pre-Approval – A certificate issued to a borrower that states the borrower’s income and credit have been confirmed and the borrower qualifies for a loan.
Preliminary Disclosures – A set of disclosure forms that are required to be provided to any loan application under federal law.
Principal – The amount of interest debt that remains on a loan.
Processing – When a lender prepares a mortgage loan application and all supporting documents.
Quit Claim Deed – A deed that relinquishes a portion or, or all of, the title, interest, or claim to a property by the grantor.
Refinancing – When a loan holder pays off the existing loan in order to establish a new loan, usually with lower interest rates.
Rights of Rescission – The right to terminate contracts and restore any parties to the same position that was held prior to the contract being entered into.
Servicing – The collection of payments along with management of operational procedures that are related to mortgage loans.
Title – The document that proves the right to ownership of a property.
Title Insurance – A policy that ensures a lender and homebuyer against errors in a title search.
Trustee – An individual who holds the title to a property for the benefit of another individual.
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