VA Home Loans
Glossary of Loan & Banking Terms
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A
- Acceleration Clause
- A provision stated in a mortgage agreement giving the lender legal capability to request the full outstanding balance of a loan upon delinquency of the first mortgage payment.
- Acceptance
- When a borrower’s offer is accepted by a seller, along with conditions of the sale. A purchase and sale agreement is drawn up stating the terms of the sale and is signed by both parties to become official.
- Acre
- A unit of measure determining land area, represented by 4,840 square yards or 43,560 square feet.
- Ad Valorem
- A term of Latin origin. Simply means “according to value.” Usually refers to Ad Valorem taxes, which are assessed according to home value.
- Adjustable-Rate Mortgage (ARM)
- An alternative to a fixed-rate mortgage, where the lender is permitted to adjust the interest rate on a loan based on changes in an interest index. This typically occurs after a brief period of fixed interest, usually three, five or seven years.
- Amortization
- The process of mortgage repayment in the form of designated installments.
- Amortization Schedule
- A schedule of payments that shows the amount of each payment going toward interest, the amount going toward the balance and the amount of remaining balance.
- Annual Percentage Rate (APR)
- The yearly cost of a mortgage expressed as a percent, which includes base interest rate, primary mortgage insurance and costs associated with loan origination fees.
- Appraisal
- A professional estimate of a property's market value.
- Appreciation
- The increased value of a property because of changes in market conditions or other factors.
- Assessed Value
- A numerical value placed upon property by a public tax assessor to levy taxes.
- Assessment
- See Assessed Value.
- Assumable Mortgage
- A mortgage whose balance can be taken over ("assumed') by the buyer when a home or property is sold. In an ordinary assumption, both the buyer and seller are responsible for making payments
- Assumable Mortgage With Novation
- The seller is released from liability; the buyer is responsible for making the payments.
- Assumption
- The act of transferring the seller's existing mortgage to the buyer.
B
- Back-Up Position
- If a seller receives two offers simultaneously, the seller has the right to accept either one. If your offer is not the one accepted, you can request that it remain on file as a second offer, or a back-up position. You will be able continue your home or property search in this situation.
- Binder
- A preliminary agreement, under which a buyer offers to purchase real estate. The agreement is secured by the payment of an earnest money deposit.
- Bundle of Rights
- The rights of property ownership; i.e. the right to use, lease, sell, enjoy or encumber your property.
- Buy-Down
- A cash payment made by a party to a lender to lower the interest rate.
C
- Cap
- A provision of an adjustable rate mortgage restricting how much interest rate or mortgage payments can increase or decrease.
- Cash Reserve
- The requirement of some lenders that buyers have enough cash on hand after closing to make the first two monthly mortgage payments.
- Certificate of Eligibility
- Document provided by the VA which confirms your eligibility for a home loan. You will need a VA Form 26-1880 and a copy of your DD Form 214 to obtain this certificate.
- Certificate of Reasonable Value
- A legal document stating the estimated value of your property. It is prepared by an appraiser.
- Chattel
- Your personal property that is not connected with real estate holdings; i.e. cars, jewelry, etc.
- Clear Title
- A property title that is free of liens and legal questions as to the owner. Is also called a “good title”, “just title” or “free and clear title.”
- Closing
- A meeting at which a sale of a property is finalized. This includes the buyer signing the mortgage documents and paying closing costs. Also called a settlement.
- Closing Costs
- Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Also called settlement costs.
- Commitment Letter
- The formal offer by a lender stating the terms under which it agrees to lend money to a home buyer.
- Condominium
- A form of property ownership in which the homeowner holds individual ownership of a unit in a multiunit structure (i.e. an apartment building) or on land owned in common (i.e. a town house complex).
- Consumer Credit Counseling Plan
- A counseling plan offered to those who have unfavorable credit.
- Contingency Clauses
- A mortgage contingency clause is a provision in the home purchase contract that says that if the prospective buyer can’t get a mortgage within a fixed period of time, s/he can call the whole deal off. In other words, the agreement is conditional on the buyer being able to obtain a mortgage on the property.
- Convertible ARM
- An adjustable-rate mortgage that can be changed to a fixed-rate mortgage under certain conditions.
- Cooperative
- A type of multiple ownership. The residents of a multi-unit housing complex own shares of the company that owns the property, giving each resident the right to occupy a specific unit.
- Counter Offer
- The seller's response to a buyer's offer.
- Covenant
- Clauses in a mortgage that obligate or restrict the borrower. If violated foreclosure can result. Covenants, conditions and restrictions (CC&R) on a property (for example, fence height, type of livestock permitted) protect the property's value and prevent undesirable conditions.
- Credit Report
- Report of an individual's credit history prepared by a credit bureau (usually Experian, Equifax and TransUnion), which used by a lender to determine a loan applicant's creditworthiness.
- Credit Standing
- Your rating depends on whether you pay all of your bills on time. The better your standing, the better your chances of getting a loan.
D
- DD Form 214
- Also known as the Certificate of Release or Discharge from Active Duty. It states the date and conditions under which you were discharged.
- Debt-to-Income Ratio
- The ratio of monthly liabilities to gross monthly income. Typically, a future mortgage payment plus current monthly debt shouldn’t exceed 40% of gross monthly income.
- Deed
- A legal document constituting the evidence of a person's legal ownership of a property
- Deed of Trust
- Some states use this instead of a mortgage. The title is conveyed to a trustee rather than to a borrower.
- Default
- The failure to make a mortgage payment in a timely fashion, or comply with other requirements of a mortgage.
- Delinquency
- A financial status in which a loan payment is overdue but not yet in default.
- Department of Housing and Urban Development (HUD)
- A government office that helps with the house appraisal and mortgage process.
- Depreciation
- A decline in the value of a property.
- Discount Points
- Charges added by a lender which may range from 1% to 6% of the loan amount. A point is 1% of the loan amount. JoeMath: On a $100,000 loan with four points, you will prepay $4,000. (100,000 x .04 = 4,000.) Discount points are used in order to qualify you for the lowest possible interest rate.
- Down Payment
- A percent of the total value of the home the borrower pays at closing. Conventional loans typically require 10%; VA loans don’t require a down payment.
- Due-on-Sale Clause
- A clause in a mortgage enabling the lender to demand full repayment if the borrower sells the mortgaged property.
E
- Earnest Money
- A deposit made by a potential buyer to the seller to show that s/he is serious about buying the property.
- Easement
- A provision giving persons other than the owner access to/over their property.
- Employment Verification
- A borrower of a VA loan usually needs to present proof of two years employment.
- Entitlement
- Your basic entitlement is $36,000. If the loan is in excess of $144,000, additional entitlement up to 25% of the Freddie Mac conforming loan may be available. This loan limit changes yearly.
- Escrow
- An earnest money deposit given to an unaffiliated third party to hold funds pending the conclusion of a sale. (See Earnest Money.)
- Escrow Company
- A third party to a real estate transaction. The escrow company composes the final documents and explains them to the seller and buyer. They are responsible for getting the parties’ final signatures and recording the transaction. An escrow company may be a bank, attorney, real estate agent or title company.
- Equal Credit Opportunity Act (ECOA)
- A federal law forbidding discrimination in lending practices.
F
- Fair Housing Act (FHA)
- Federal laws which make it illegal to discriminate against a buyer because their gender, race, age, color or creed.
- Federal Housing Administration (FHA)
- A federal agency under the Department of Housing and Urban Development.
- Fee Simple
- Simple outright ownership.
- Foreclosure
- The process of repossessing a property when the signers on a loan fail to meet the obligations stated in a mortgage agreement.
- Funding Fee
- A fee the VA charges for their services. First time buyers pay 2.15% of the total loan amount. Veterans who receive 10% or more disability from the VA are exempt from this fee. The fee is usually added to the mortgage and paid over the term.
G
- Gift Letter
- If relatives want to contribute extra funds in the event you don't have enough money to close a sale, they will need to send a “gift letter” to the lender. They must state that they do not expect to be repaid. Donated funds must be confirmed before a home sale is closed.
- Graduated Payment Mortgage (GPM)
- A repayment plan for a mortgage in which low initial payments are gradually raised to a higher level payment.
- Grantee
- The buyer in a real estate transaction (legal term).
- Growing Equity Mortgage (GEM)
- A repayment plan for a mortgage in which the size of payments gradually increase. The increase is applied to the capital.
H
- Hazard Insurance
- Insurance coverage that will compensate an owner for physical damage to a property from fire, storms, vandalism, floods, etc…
- Homeowner's Insurance
- An insurance policy that covers personal liabilities and hazard damage for a property and its contents.
- Homeowner's Warranty
- A short-term insurance policy that covers repairs to specified parts of a house for a specified period of time. The builder or property seller provides this guarantee as a condition of sale.
- HUD-1 Form
- Every federally related mortgage transaction requires a HUD-1 Form to be filed. The HUD-1 Form is an itemized list of the purchase transactions incurred in buying a home. JoeNote: Buyers are referred to as borrowers on this form even though it may be used when there is no loan involved, such as in a cash transaction.
I
- Interest
- A fee the lender charges borrowers for borrowing money, expressed as a percentage rate over a period of time.
- Interest Rate Cap
- A provision of an adjustable-rate mortgage that limits how much interest rates may increase or decrease per adjustment period or over the life of a mortgage. Also called an interest rate ceiling.
- Interest Rate Reduction Refinancing Loan (IRRL)
- Also known as a Streamline or a VA to VA, an IRRL adjusts an adjustable-rate mortgage to a fixed-rate loan.
J
- Joint Tenancy
- A co-ownership of a property giving each tenant equal interest and rights in the property, including the right of survivorship.
L
- Late Charge
- A penalty fee incurred when a payment is made after its due date.
- Lease-Purchase Mortgage Loan
- A Fannie Mae financing option that allows low to moderate-income home buyers to lease a home from a not-for-profit organization with the option to buy. Rent payments include Principal Interest, Tax and Insurance (PITI) payments on a first mortgage, plus money that is deposited in a savings account to accrue for a down payment.
- Lender Appraisal Processing Program
- A special VA program allowing certain lenders to conduct their own home appraisals.
- Lien
- A legal charge against a property to secure payment of a debt. Liens must be paid when a property is sold.
- Lifetime Cap
- A provision of an adjustable-rate mortgage that limits the highest interest rate that can be charged over the life of a loan.
- Loan Approval
- A loan becomes approved when the lender verifies that the borrower is capable of meeting the terms of the mortgage. Official documents verifying income, liabilities and assets are needed for this approval.
- Loan Servicing
- The process of collecting mortgage payments from borrowers and the other related responsibilities of a loan servicer.
- Loan Guaranty Entitlement
- The amount of money a borrower who has previously used a VA loan can use for a new loan. You may be eligible for the remaining entitlement for any unused balance.
- Loan-to-Value Percentage (LTV)
- The LTV is the loan amount given as a percent of: 1) the purchase price or 2) the appraisal value of the property. JoeMath: If you made a 15% cash down payment on a property, you would take out a loan for 85% of the purchase or appraisal price. Therefore the LTV is 85%.
- Lock-In
- A written agreement guaranteeing the buyer a specific interest rate if the loan is closed within a certain time period.
M
- Market Value
- How much you should expect your property to sell for based on sales of similar property in the area.
- Mortgage
- A legally binding document from a lender securing the property for the borrower in turn for payment of borrowed money.
- Mortgage Banker
- A company that creates mortgages for the sole purpose of reselling them in the secondary market.
- Mortgage Broker
- An individual licensed to act as middleman between a borrower and lender. A fee is usually associated with their services.
- Mortgagee
- Refers to the lender in a mortgage agreement.
- Mortgage Insurance Premium (MIP)
- The amount you pay to either the Federal Housing Administration (FHA) or a private insurer in return for mortgage insurance.
- Mortgage Interest Rate
- The rate of interest for your monthly payment due.
- Mortgage Margin
- The set percentage the lender will add to the index value. This will determine the interest rate of an adjustable-rate loan.
- Mortgage Note
- A legally binding document stating the terms of a loan, specifically, the amount borrowed, interest rate, monthly payments, and time in which the total amount is required to have been paid.
- Mortgagor
- Refers to the borrower in a mortgage agreement.
N
- National Personnel Records Center
- If you are in need of a DD Form 214, submit a Standard Form 180 to this center.
- Negative Amortization
- When the monthly payment on your mortgage is not large enough to cover the entire principal and interest due, a gradual increase in mortgage debt occurs. However much you are short is added to the unpaid principal balance to create “negative” amortization.
- Notice of Default
- A written notice to the borrower stating that they have either a) failed to make required debt payments on a timely basis or b) failed to comply with other obligations of their mortgage agreement, and legal action might be taken.
O
- Origination Fee
- A fee the lender charges for processing the loan application, usually expressed as a percent of the total loan amount.
- Owner Financing
- A home-financing technique in which the buyer borrows from the seller instead of, or in addition to, a bank. This is sometimes done when the buyer doesn’t qualify for a full bank loan.
P
- Payment Cap
- Usually associated with adjustable-rate mortgages, a payment cap limits the amount that a borrower’s payments may increase despite an increase in the interest rate. This could result in negative amortization.
- PITI
- Stands for Principal, Interest, Taxes, and Insurance, which make up a monthly mortgage payment.
- Planned Unit Development (PUD)
- A project or subdivision that is owned and maintained by an owner’s association, consisting of common property, that is used by and benefits the individual PUD owners.
- Points
- Finance charges paid by the borrower at the beginning of a loan. One point is 1% of the loan amount.
- Power of Attorney
- Refers to the legal power for one person to act on another’s behalf; a signed legal document.
- Prepayment Penalty
- In some loans, the borrower is penalized for paying off the balance prior to the date agreed to in the loan terms, usually in the form of a fee from the lender. VA loans restrict provisions for prepayment penalties.
- Prepurchase Counseling
- The Department of Housing and Urban Development (HUD) offers counseling to prospective home buyers and lenders. For more information, call HUD at
- Prequalification
- The process of gathering information from a prospective borrower who intends to seek a mortgage. Usually conducted by a loan officer or assistant loan officer, a rough estimate of the maximum amount you may borrow can be assessed.
- Principal
- The amount of money a borrower owes a lender, also called outstanding balance, reduces every time a mortgage payment is made.
- Private Mortgage Insurance (PMI)
- Insurance required for non-VA loans when the borrower puts less than 20% down on a mortgage. The insurance protects the lender if the borrower fails to meet the terms of the loan agreement.
- Promissory Note
- The borrower promises to repay a loan under agreed upon terms by signing this agreement.
- Property Taxes
- Taxes collected by your local government based on the assessed value of your property. This may be included in your mortgage payment.
- Purchase and Sale Agreement
- Both the buyer and seller must sign this contract that states the terms and conditions under which the property will be sold.
- Purchase Contract
- The buyer and the seller draw this up together once it is decided that the home will be purchased. This should be contingent upon approval of a VA-guaranteed loan.
Q
- Qualifying Ratios
- Lenders use these calculations to determine the largest mortgage that a home buyer can afford.
R
- Rate Lock
- A lender commitment that guarantees a specific, unchanging interest rate for a specified amount of time.
- Real Estate Sales Professional
- A person who is licensed to handle the sale of real estate on behalf of the property owner.
- Real Estate Settlement Procedures Act (RESPA)
- This statute was enacted to protect homebuyers during the purchase and loan application processes by requiring lenders to give borrowers advance notice of closing costs.
- Real Property
- Term that includes land, building, attachments, and improvements.
- Refinancing
- The process of paying off a current loan with a new loan. Usually motivated by potentially receiving a lower interest rate, paying off other debt with equity or to finance home improvements.
- Rent and Mortgage Payment History
- Your complete history of where you’ve lived and the payments made on your previous residences. This will help decide if you meet credit requirements for a loan.
- Rescission Agreement
- An agreement signed by both parties that shows the cancellation or annulment of a contract by mutual consent or by law.
- Residual Income
- Gross income minus current monthly bills, taxes and a future mortgage payment. Current rent or mortgage payment is replaced with future mortgage payment and should not be included.
S
- Second Mortgage
- A mortgage on real estate that has already been pledged as collateral for an earlier mortgage. The second mortgage must meet all the rights of the first.
- Secondary Mortgage Market
- A market in which existing mortgages and mortgage-backed securities are traded
- Seller Concessions
- Something of value that the seller gives to the buyer when involved in a real estate transaction
- Seller Take Back
- A property owner agrees to provide financing, most times associated with an assumed mortgage
- Settlement
- The finalizing of the sale of a property, as its title is transferred from the seller to the buyer. Also called closing.
- Settlement Sheet
- A real estate agent will prepare this document that describes the real estate transaction. It includes most of the information agreed upon between the buyer and seller, including the escrow deposits for taxes, commissions, loan fees, points, hazard insurance, and mortgage insurance. Also called HUD-1 statement or closing statement.
- Survey
- A drawing of your property that shows exactly where the legal boundaries are. The drawing also includes the location of improvements, easements, rights of way encroachments, and other physical features.
- Standard Form 180
- The form you use to request your military records. Once completed, submit this form to the National Personnel Records Center if you need a DD Form 214 for eligibility purposes.
- Statement of Service
- This document is provided by your military unit and lists your dates of entry on your current active duty period and shows how long you have served in the military.
T
- Tenancy by Entirety
- Available only to married couples, this type of joint tendency provides right of survivorship.
- Tenancy in Common
- A type of joint tenancy that doesn’t allow right of survivorship. Each tenant's portion of ownership is distributable under will.
- Title
- A legal document stating who owns the rights to a specific property.
- Title Company
- A company that examines and insures title claims on behalf of its customers.
- Title Insurance
- Insurance to protect a lender or owner against loss in the event of a property ownership dispute.
- Title Search
- The process of examining records to determine if the seller is the legal owner of the property and that there are not liens or other claims outstanding.
- Transfer Tax
- The state or local tax payable upon the transfer of a title.
- Traditional Fixed Payment
- A mortgage repayment plan in which the principal and interest is constant.
- Truth in Lending Act
- Federal legislation that assures that everyone who is extended commercial credit is given meaningful disclosures with respect to the cost of the credit being extended. Also called the Consumer Credit Protection Act.
U
- Underwriter
- A lender employee who examines the loan application and related documents and either approves or denies your loan request.
V
- VA Eligibility Centers
- Where you submit your VA Form 26-1880 and DD Form 214 in order to receive your Certificate of Eligibility.
- VA Form 26-1880
- The VA form necessary to request a Certificate of Eligibility (also known as the Request for a Certificate of Eligibility form). VA Form 26-1880 and a copy of your DD Form 214 need to be sent to your regional VA office in order to receive the Certificate of Eligibility.
- Variable Rate
- Any interest rate or dividend that changes on a periodic basis. The change is usually tied to movement of an outside indicator, such as the prime interest rate. Movement above or below certain levels is often prevented by a predetermined floor and ceiling for a given rate. Also called adjustable rate.
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