Glossary
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A
Adjustable-rate mortgage (ARM)
A mortgage with an interest rate that changes periodically
based on the changes in a specified index.
Adjustment date
The date on which the interest rate changes for an
adjustable-rate mortgage (ARM).
Adjustment period
The time between one rate change and the next, for an
adjustable rate mortgage (ARM). Typically the adjustment
period is 1, 3, 5 or 7 years.
Amortization
The repayment of a mortgage loan by installments with regular
payments to cover the principal and interest.
Amortization term
The amount of time required to amortize the mortgage loan. The
amortization term is expressed as a number of months. For
example, for a 30-year fixed-rate mortgage, the amortization
term is 360 months.
Annual percentage rate (APR)
The cost of a mortgage stated as a yearly rate; includes such
items as interest, mortgage insurance, and loan origination
fees (points).
Application
A form, commonly referred to as a 1003 form, used to apply for
a mortgage and to provide information regarding a prospective
borrower and the proposed security.
Appraisal
A written analysis of the estimated value of a property
prepared by a qualified appraiser.
Appraiser
A person qualified by education, training, and experience to
estimate the value of real property and personal property.
Appreciation
An increase in the value of a property due to changes in
market conditions or other causes.
Asset
Anything of monetary value that is owned by a person. Assets
include real property, personal property and enforceable
claims against others (including bank accounts, stocks, mutual
funds, etc.).
Assignment
The transfer of a mortgage from one person to another.
Assumable mortgage
A mortgage that can be taken over ("assumed") by the buyer
when a home is sold.
Assumption
The transfer of the seller's existing mortgage to the buyer.
Assumption clause
A provision that allows a buyer to assume, or take over, the
responsibility for the seller's (original borrower's)
mortgage. The loan does not need to be paid in full by the
original borrower upon sale or transfer of the property.
Assumption fee
The lender's charge for paperwork involved in processing
records for a new buyer assuming an existing mortgage.
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Balance sheet
A financial statement that shows assets, liabilities and net
worth as of a specific date.
Balloon mortgage
A mortgage that has level monthly payments that are
insufficient to fully amortize the principal and interest
within the term of the loan. With a balloon mortgage, a lump
sum payment ("Balloon Payment") is due at maturity.
Balloon payment
The final lump sum payment that is made at the maturity date
of a balloon mortgage.
Bankrupt
A person, firm, or corporation that, through a court
proceeding, is relieved from the payment of all debts after
the surrender of all assets to a court-appointed trustee.
Bankruptcy
A proceeding in a federal court in which a debtor, who owes
more than his or her assets, can relieve the debts by
transferring his or her assets to a trustee.
Before-tax income
Income before taxes are deducted.
Beneficiary
The person designated to receive the income from a trust,
estate or a deed of trust.
Binder
A preliminary agreement, secured by the payment of an earnest
money deposit, under which a buyer offers to purchase real
estate.
Biweekly payment mortgage
A mortgage that requires payments every two 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 directly from the borrower's bank account. The result
for the borrower is a substantial savings in interest.
Blanket mortgage
The mortgage that is secured by a cooperative project, as
opposed to the share loans on individual units within the
project.
Bond
An interest-bearing certificate of debt with a maturity date.
An obligation of a government or business corporation. A real
estate bond is a written obligation usually secured by a
mortgage or a deed of trust.
Breach
A violation of any legal obligation.
Bridge loan
A form of second trust that is collateralized by the
borrower's present home (which is usually for sale) in a
manner that allows the proceeds to be used for closing on a
new house before the present home is sold. Also known as a
"swing loan."
Broker
A person who, for a commission or a fee, brings parties
together and assists in negotiating contracts between them.
Buydown mortgage
A temporary buydown is a mortgage on which an initial lump sum
payment is made to reduce a borrower's monthly payments during
the first few years of a mortgage. A permanent buydown reduces
the interest rate over the entire life of a mortgage.
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Call option
A provision in the mortgage agreement that gives the lender
the right to call, or request, the mortgage due and payable at
the end of a specified period, for any reason.
Cap
A provision in an adjustable-rate mortgage (ARM) agreement
that limits how much the interest rate or mortgage payments
may increase.
Capital improvement
Any structure or component erected as a permanent improvement
to real property that adds to its value and useful life.
Cash-out refinance
A refinance transaction in which the amount of money received
from the new loan exceeds the total of the money needed to
repay the existing first mortgage, closing costs, points and
the amount required to satisfy any outstanding subordinate
mortgage liens. In other words, a refinance transaction in
which the borrower receives additional cash that can be used
for any purpose.
Certificate of Eligibility
A document issued by the Department of Veterans Affairs which
states that a veteran is eligible for a long-term, low or no
down payment mortgage issued by the federal government.
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
mortgage.
Certificate of title
A statement provided by an abstract company, title company or
attorney, stating that the title to real estate is legally
held by the current owner.
Chain of title
The chronological order of the title's transfer from the
original owner to the present owner.
Change frequency
The frequency (in months) of payment and/or interest rate
changes in an adjustable-rate mortgage (ARM).
Clear title
A title that is free of liens or legal questions as to
ownership of the property.
Closer
Your closer is your contact at Executive Mortgage.
Your closer is responsible for reviewing and
clearing your title work and any other legal documentation
applicable to your mortgage. Once your title is clear
and your underwriter has issued a clear to close, your closer
will arrange for a closing.
Closing
The meeting between the buyer, seller and lender in which the
property and funds legally change hands. Also called
"Settlement."
Closing cost item
A fee that a homebuyer must pay at closing for a single
service, tax or product (ie. origination fees and attorney's
fees). Many closing cost items are included as numbered items
on the HUD-1 statement.
Closing costs
Expenses (over and above the price of the property) incurred
by buyers and sellers in transferring ownership of a property.
Closing costs consist of individual closing cost items, such
as an origination fee, an attorney's fee, taxes, an amount
placed in escrow and charges for obtaining title insurance and
a survey. Closing costs will vary according to the
geographical location of the property and are usually between
2 and 6 percent of the mortgage amount
Closing statement
Also referred to as the HUD1, it is the final statement of
costs incurred to close on a loan or to purchase a home.
Cloud on title
Any conditions found during the title search that adversely
affect the title to real estate. Clouds on title usually
cannot be removed except by a quitclaim deed or court action.
Co-borrower
A person who signs a promissory note (mortgage) along with the
borrower. A co-borrower's signature guarantees that the loan
will be repaid, because the borrower and the co-borrower are
equally responsible for the repayment. Also referred to as a
co-maker or co-signor.
Collateral
An asset (such as a car or a home) that guarantees the
repayment of a loan. The borrower risks losing the asset if
the loan is not repaid according to the terms of the loan
contract.
Collection
The efforts used to make a delinquent mortgage current and to
file the notices needed to proceed with foreclosure.
Commission
The fee charged by a broker or agent for negotiating a real
estate or loan transaction. A commission is generally a
percentage of the price of the property or loan.
Common areas
Those portions of a building, land and amenities that are
owned (or managed) by a planned unit development (PUD)/condominium
project's homeowners association (or a cooperative project's
cooperative corporation) and used by all of the unit owners
who share in the common expenses of their operation and
maintenance. 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.
Community Home Improvement Mortgage Loan
An alternative financing option that allows low to moderate
income homebuyers to obtain 95 percent financing for the
purchase and improvement of a home in need of modest repairs.
The repair work can account for as much as 30 percent of the
appraised value.
Community property
In some western and southwestern states, a form of ownership
under which property acquired during a marriage is presumed to
be owned jointly unless acquired as separate property of
either spouse.
Comparables
An abbreviation for "comparable properties." Comparables are
recently sold properties with traits similar to those of the
property being purchased, ie. similar size, in a nearby
location, with similar amenities. These properties can be used
as a base comparison to help the appraiser determine the
approximate fair market value of the property being purchased.
Condominium
A real estate project in which each unit owner has title to a
unit in a building, an undivided interest in the common areas
of the project and the exclusive use of certain limited common
areas.
Condominium conversion
The changing of a rental property (two or more units) to the
condominium form of ownership. Physical changes, as well as
paperwork, may be necessary to conform to building and safety
codes.
Conforming mortgage loan
Any loan that meets the criteria and limits set forth by the
largest buyers of loans,
Construction loan
A short-term, interim loan for financing the cost of
construction. The lender makes payments to the builder at
periodic intervals as the work progresses.
Contingency
A condition that must be met before a contract is legally
binding. For example, homebuyers often include a contingency
that specifies that the contract is not binding until they
obtain a satisfactory home inspection report from a qualified
home inspector.
Contract
An agreement between two or more people, or entities, that
creates or modifies a legal commitment.
Conventional mortgage
A mortgage that is not insured or guaranteed by the federal
government agency.
Convertibility clause
A provision in some adjustable-rate mortgage (ARM) agreements
that allows the borrower to change the ARM to a fixed-rate
mortgage at specified time frames after loan origination. The
borrower will likely pay a higher rate or more points to have
this option.
Convertible ARM
An adjustable-rate mortgage (ARM) that can be converted to a
fixed-rate mortgage under specified conditions.
Cooperative (co-op)
An apartment building or a group of dwellings owned by a
corporation, the stockholders of which are the residents of
the dwellings. It is operated for their benefit by their
elected board of directors. In a cooperative, the corporation
or association owns title to the real estate. A resident
purchases stock in the corporation, which entitles him to
occupy a unit in the building or property owned by the
cooperative. While the resident does not own his unit, he has
an absolute right to occupy his unit for as long as he owns
the stock.
Corporate relocation
Arrangements under which an employer moves an employee to
another location as part of the employer's normal course of
business, or under which it transfers a substantial part or
all of its operations and employees to another area because it
is relocating its headquarters or expanding its office
capacity.
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.
Covenant
A clause in a mortgage that obligates or restricts the
borrower and that, if violated, can result in foreclosure.
Credit
An agreement in which a borrower receives something of value
in exchange for a promise to repay the lender at a later date.
Credit bureau
An agency that keeps your credit record on file.
Credit history
A record of an individual's open and fully repaid debts. A
credit history helps a lender to determine whether a potential
borrower has a history of repaying debts in a timely manner.
Credit Officer
A credit officer has the authority to approve or decline a
loan on the behalf of any lender. The credit officer is
"behind-the-scenes" and you will not directly speak with him
or her. Instead, the credit officer uses the documentation
that your underwriter collects from you and decides whether or
not your loan is approved.
Credit report
A report of an individual's credit history prepared by a
credit bureau, reporting agency or repository and used by a
lender in determining a loan applicant's credit worthiness.
Credit reporting agency
Company that collects information from several credit
repositories, merges all the information and reports it in one
form - merged credit report.
Credit repository
An organization that gathers, records, updates and stores
financial information on an individual's credit history and
reports it in one form - in-file credit report.
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Debt
An amount owed to another.
Deed
The legal document conveying title to a property.
Deed-in-lieu
A deed given by a borrower to the lender to avoid foreclosure
proceedings.
Deed of trust
The document used in some states, instead of a mortgage, to
secure the repayment of money borrowed.
Default
Failure to repay a loan on a timely basis or otherwise meet
the terms of a commitment or agreement.
Delinquency
Failure to make payments on time. This can lead to
foreclosure.
Department of Veteran's Affairs
An independent agency of the federal government that
guarantees long-term, low or no down payment mortgages to
eligible veterans.
Deposit
Money given in advance to show intention to complete the
purchase of a property.
Depreciation
A decline in the value of property due to wear and tear,
adverse changes in a neighborhood, or any other reason.
Disclosures
Information that must be given to consumers about their
financial dealings.
Documentation
A list of documents that you will be required to provide when
submitting a loan application. See "Required Documents" on our
selection menue.
Down payment
The part of the purchase price of a property that the buyer
pays, usually in cash, and is not included in the loan amount.
The difference between the cost of the property and the loan
amount.
Due-on-sale clause
A provision in a mortgage, or deed of trust, that allows the
lender to demand immediate repayment of the mortgage balance
if the borrower sells the property.
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Escrow
Refers to a third neutral party who carries out the
instructions of both the buyer and the seller to handle all
closing paperwork. May also refer to an account held by the
lender into which the homebuyer makes tax and/or insurance
payments.
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Federal Home Loan Mortgage Corporation (FHLMC or Freddie
Mac)
A quasi-governmental agency that purchases conventional
mortgages from insured depository institutions and
HUD-approved mortgage bankers.
Federal Housing Administration (FHA)
A division of the Department of Housing and Urban Development.
Its main activity is the insuring of residential mortgage
loans made by private lenders. FHA also sets standards for
underwriting mortgages.
FHA Loan
A loan insured by the Federal Housing Administration that is
open to all qualified home purchasers. Although there are
limits to the size of FHA loans, they are generous enough to
handle moderate-priced homes almost anywhere in the country.
FHA Mortgage Insurance
Requires a small fee (up to 3 percent of the loan amount) paid
at closing or a portion of this fee added to each monthly
payment of an FHA loan to insure the loan with FHA. In
addition, FHA mortgage insurance requires an annual fee of 0.5
percent of the current loan amount.
Federal National Mortgage Association (Fannie Mae)
A tax-paying corporation, created by Congress, that purchases
and sells conventional residential mortgages as well as those
insured by FHA or guaranteed by VA. This institution makes
mortgage money more available and more affordable.
Fixed Rate Loan
A loan with the same interest rate and monthly payment over
the life of the loan.
Float Period
The float period refers to the time between when you accept a
loan and when you lock-in your rate. During this time the
interest rate and points on your loan will fluctuate with the
market until you lock.
Foreclosure
A legal proceeding in which the default borrower is
extinguished of all rights, title and interest on the
underlying property.
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Good Faith Deposit
A sum of money given to demonstrate intention to complete the
purchase. With regard to mortgages, it is the sum of money
given to demonstrate intention to complete the loan, a show of
good faith.
Good Faith Estimate
An estimate of charges that a borrower is likely to incur in
connection with a settlement.
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Home Equity Loan
Sometimes referred to as a second mortgage or borrowing
against your home. The loan allows you to tap into your home's
built-up equity, which is the difference between the amount
your home could be sold for, and the amount that you still
owe. Homeowners often use a home-equity loan for home
improvements, to pay for a new car, or to finance their
child's college education. A home-equity loan is a good way to
borrow money for two main reasons: 1.) the interest rate is
usually one of the lowest loan rates a borrower can get and
2.) the interest you pay on the loan is usually
tax-deductible. But taking out a home-equity loan also means
the lender can take possession of the home if the loan isn't
repaid.
U.S. Department of Housing and Urban Development (HUD)
Office of Housing/Federal Housing Administration within HUD
insures home mortgage loans made by lenders and sets minimum
standards for such homes.
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Index
A published interest rate against which lenders measure the
difference between the current interest rate on an
adjustable-rate mortgage and that earned by other investments
(such as U.S. Treasury Security yields, the monthly average
interest rate on loans closed by savings and loan institutions
and the monthly average Costs-of-Funds incurred by savings and
loans), which is then used to adjust the interest rate on an
adjustable-rate mortgage.
Interest
A charge paid for borrowing money. Interest is usually
expressed as a percentage of the amount borrowed, or interest
rate.
Interest Rate
The annual rate of interest on the loan, expressed as a
percentage of 100.
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Jumbo Loan
A loan that is larger than the limits set by the Federal
National Mortgage Association and the Federal Home Loan
Mortgage Corporation. Because jumbo loans cannot be funded by
these two agencies, they usually carry a higher interest rate.
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Lender
Any licensed person or entity advancing funds that are to be
repaid. Also known as a mortgagee.
Lien
A claim upon a piece of property for the payment or
satisfaction of a debt or obligation.
Liquid Assets
Cash or assets that can be immediately converted to cash.
Loan Amount
The amount of debt, not including interest.
Loan Officer
Your loan officer is your personal guide throughout the
mortgage process. He or she will help you to identify your
needs, select a loan program, complete the application
process, offer advice and answer any questions you may have.
Loan-to-Value Ratio
The relationship between the amount of the mortgage loan and
the appraisal value of the property, expressed as a
percentage.
Lock Period
A lock period refers to the amount of time prior to closing
that you can secure an interest rate for your loan. Generally,
lock periods range from 30 days to over 90 days.
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Margin
The amount a lender adds to the index on an ARM to establish
the adjusted interest rate.
Market Value
The highest price that a buyer would pay and the lowest price
a seller would accept on a property. Market value may be
different from the price a property could actually be sold for
at a given time.
Marketable Title
A title that is free and clear of objectionable liens, clouds
or other title defects. A title that enables an owner to sell
his property freely to others and that others will accept
without objection.
Minimum Down Payment
Minimum down payment is the amount of money you are required
to put down at closing. If the minimum is 10%, you must make a
down payment of at least $10,000 on a $100,000 house.
Monthly Payment
The amount paid each month towards the principal and interest
amount of a loan. The monthly payment may or may not include
taxes and insurance.
Mortgage
A loan for a house. Also referred to as a lien or claim
against real property.
Mortgage Broker
A person, or entity, that specializes in loan originations and
receives a commission for matching borrowers with lenders. The
mortgage broker performs some or most of the loan processing
functions such as taking loan applications, ordering credit
reports, appraisals and title reports. Typically, the mortgage
broker does not underwrite the loan and generally does not use
its own funds for closing. (MortgageSelect.com) is NOT a
mortgage broker, we are a full-service lender, underwriting
and funding most of our loans.
Mortgage Commitment Letter
A formal offer from a bank, or other lending institution,
which states the terms under which it agrees to advance
mortgage funds to a homebuyer.
Mortgage Insurance
Money paid to insure the mortgage when the down payment is
less than 20 percent.
Mortgage Insurance Premium
The payment made by a borrower to the lender for transmittal
to HUD. These payments help defray the cost of the FHA
mortgage insurance program and provide a reserve fund to
protect lenders against loss in insured mortgage transactions.
In FHA insured mortgages, this represents an annual rate of
one-half of 1 percent paid by the borrower on a monthly basis.
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Negative Amortization
Occurs when your monthly payments are not large enough to pay
all the interest due on the loan. This unpaid interest is
added to the unpaid balance of the loan. The danger of
negative amortization is that the buyer ends up owing more
than the original amount of the loan.
No Documentation Mortgage
A no-documentation, or "no-doc", mortgage is a specialty loan
product that generally requires a down payment of at least 5%
to 30% of the home purchase price. No-doc mortgages are
generally a wise choice for self-employed people, those who do
not wish to verify their income and those with a brief or
blemished credit history, or no credit at all. The benefits of
a no-doc mortgage include a shorter application process, since
you are not required to provide income, employment or asset
documentation, as well as a streamlined approval, because
there is little subsequent verification. However, no-doc
mortgages generally will be at slightly higher interest rates.
Non-conforming Loan
A conventional home mortgage that does not meet the criteria
of Fannie Mae or Freddie Mac for various reasons including
loan amount, loan characteristics or underwriting guidelines.
Non-conforming loans usually incur a higher rate and/or
points.
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Origination Fee
The fee charged by a lender to prepare loan documents, make
credit checks, inspect and sometimes appraise a property;
usually computed as a percentage of face value of the loan.
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Piggyback Loan
An alternative to private mortgage insurance, also known as a
second trust loan. The most common type is an 80/10/10 where a
first mortgage is taken out for 80% of the home's value, a
down payment of 10% is made and another 10% is financed in a
second trust at a higher interest rate. In some cases, you may
even qualify for a piggyback loan with as little as a 5% down
payment.
PITI
Principal, interest, taxes and insurance. Also called monthly
housing expense.
Points
The amount of prepaid interest you will be assessed at
closing. Each point is equal to 1 percent of the loan amount
(i.e. two points on a $100,000 mortgage would cost $2,000).
Prepayment
A privilege in a mortgage permitting the borrower to make
payments in advance of their due date. Allows the borrower to
pay the loan off sooner and save on interest. Not all mortgage
agreements allow for prepayment, and some lenders will charge
a fee for early repayment of debt.
Prepayment Premium
Money charged for early repayment of debt if the original
mortgage commitment does not allow for prepayment. Prepayment
premiums are allowed in some form (but not necessarily
imposed) in 36 states and the District of Columbia.
Principal
The amount of debt, not counting interest, left on a loan.
Private Mortgage Insurance (PMI)
In the event that a borrower does not have at least a 20% down
payment lenders will allow a smaller down payment - sometimes
as low as 5%. With these loans, borrowers are required to
carry private mortgage insurance. PMI usually requires an
initial premium payment, and may require an additional monthly
fee, depending on your loan structure.
Processing
Processing is the steps a lender takes to gather borrower
information for underwriting. Processing includes getting the
credit report, appraisal, verification of employment, assets,
etc.
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Qualification
Qualification is the initial process to verify that a borrower
has enough cash and sufficient income to purchase a home.
Qualification is not an approval because it does not include a
credit check. Qualified borrowers can be turned down if they
have poor credit history.
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Rate
In lending, the amount of interest on the loan expressed as an
interest rate or annual percentage rate (APR) of the
principal.
Rate/Point Options
These options are all the combinations of interest rate and
points that are offered on a particular loan. Usually, paying
more points lowers interest rates.
Real Estate Broker
A middleman or agent who buys and sells real estate for a
company, firm, or individual on a commission basis. The broker
does not have title to the property but generally represents
the owner.
Realtor
A real estate broker or an associate holding active membership
in a local real estate board affiliated with the National
Association of Realtors.
Rescind
To cancel a contract. With respect to mortgage refinancing,
the law that gives the homeowner three days to cancel a
contract once it is signed if the transaction uses equity in
the home as security.
Recording Fees
Money paid to the lender for recording a home sale with the
local authorities, thereby making it part of the public
records.
Refinancing
The process of the same borrower paying off one loan with the
proceeds from another loan.
RESPA
The Real Estate Settlement Procedures Act is a federal law
that allows consumers to review information on known or
estimated settlement costs once after application and once
prior to or at settlement. The law requires lenders to furnish
information after application only.
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Term
The life of the loan. The period of time between the beginning
loan date on the legal documents and the date the entire
balance of the loan is due.
Title
A document that gives evidence of an individual's ownership of
property.
Title Insurance
A policy, usually issued by a title insurance company, which
insures a homebuyer against errors in the title search. The
cost of the policy is usually a percentage of the value of the
property, and is often purchased by the buyer and/or seller.
Title Search
An examination of municipal records to determine the legal
ownership of property. Usually is performed by a title
company.
Truth-in-Lending
A federal law requiring disclosure of the Annual Percentage
Rate, finance charge and several other pieces of information
related to the loan. This disclosure allows you to compare the
total cost of a loan from lender to lender. The disclosure is
provided shortly after an application is received and again at
closing.
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Underwriting
The analysis of risk involved in granting a mortgage loan to a
particular borrower and the process by which a lender
determines whether the risk is acceptable. Underwriting
involves the evaluation of the property as outlined in the
appraisal report, and of the borrower's ability and
willingness to repay the loan.
Underwriter
At (MortgageSelect.com), your underwriter is the liaison
between you and the credit officer. The underwriter is
responsible for reviewing and verifying all your documents and
information and submitting it to a credit officer.
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Veteran Affairs (VA) Loan
A mortgage loan made by an approved lender and guaranteed by
the Department of Veterans Affairs. All veterans, and those
currently serving in the military, are eligible for a VA loan,
which is commonly characterized by a lower down payment than
other types of loans.
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