Mortgage & Homeownership Terms

1003/1008 Form

The 1003 refers to the ‘Uniform Residential Loan Application’ – the primary application form completed when seeking a mortgage. This document captures essential information including personal details, proposed loan structure, work history, earnings, and financial assets. The 1008 Form, also called a ‘Transmittal Summary,’ provides a condensed overview of all qualifying data from the loan application (such as debts, income, and loan parameters) to enable underwriters to quickly assess eligibility.

4506-T Request for Tax Return Transcript

This IRS form (4506-T or 4506-C) is utilized by mortgage companies to electronically request Tax Return Transcripts directly from the IRS after being completed and signed. These transcripts serve to confirm the validity of tax returns submitted with a loan application. Depending on the situation, lenders may submit this form to the IRS during closing, or it may simply need to be signed and retained in the loan documentation.

859 Liquidity

This refers to how readily assets can be accessed and converted to cash. For instance, an individual might possess 25 properties valued at over $10M in total but maintain minimal liquidity if their entire net worth is invested in real estate. Since selling property requires substantial time, it represents a relatively “illiquid” investment compared to brokerage or money market accounts. Conversely, funds held in savings accounts or stock portfolios are typically much more accessible and are therefore considered highly liquid.

Ability to Repay

This principle stems from the Truth in Lending Act. The Consumer Financial Protection Bureau (CFPB) defines it as: “The reasonable and good faith determination most mortgage lenders are required to make that you are able to pay back the loan. Under the rule, lenders must generally find out, consider, and document a borrower’s income, assets, employment, credit history, and monthly expenses.”

Adjustable-Rate Mortgage (ARM)

A mortgage loan featuring interest rates that automatically shift or change according to designated market indexes. ARM loans include specific terms such as index, margin, and rate caps. Typically, an ARM starts with a fixed introductory interest rate for a specified duration such as 5, 7, or 10 years. Following the initial fixed period, the rate adjusts according to prevailing market rates but will not surpass the ‘periodic’ or ‘life’ caps specified in your loan agreement.

Adjustment Period

For ARM loans, this defines the frequency at which the interest rate can be modified.

All-Cash

This describes a purchase completed entirely with available funds, without any mortgage or financing. The purchaser uses liquid capital to buy the property outright. This approach may be employed in competitive markets or when sellers require an expedited closing. Buyers who use “all cash” may be eligible for “delayed financing” following the purchase completion.

Amortization

A payment framework used to establish monthly installments for a loan designed to eliminate the loan balance over a specified timeframe. Mortgage loans typically feature full amortization, meaning the loan will be completely repaid by the conclusion of the loan term.

Amortization Schedule

This chart provides a detailed breakdown of every payment throughout a loan’s duration. The schedule itemizes each payment, showing how much is allocated to both principal reduction and interest until the loan is fully satisfied.

Annual Percentage Rate (APR)

The APR represents the complete cost of a mortgage loan. It recalculates a borrower’s actual mortgage interest rate by incorporating closing costs along with the interest paid over the loan’s life. These closing costs may include origination fees, points, escrow charges, and mortgage insurance. The APR can be somewhat misleading for loans requiring substantial mortgage insurance premiums, such as FHA loans. However, APR disclosure is mandated by the Truth in Lending Act to prevent lenders from advertising artificially low interest rates while charging significant fees, and all mortgage lenders must provide APR information.

Appraisal Management Company (AMC)

Appraisal Shortfall

This occurs when a property’s appraised value comes in below the purchase price stated in the contract. While the appraised value is simply an estimate, a shortfall may suggest an overpriced purchase. JVM’s Appraisal Desk Manager will always review the report for opportunities to “rebut” the valuation and provide additional comparable properties that may support a higher value. If rebuttal isn’t viable, we’ll inquire whether a price reduction (aligning more closely with the appraised value) is negotiable. Should price renegotiation fail, the loan may need restructuring to proceed, as qualification depends on the loan-to-value (LTV) ratio (where “value” is based on whichever is lower: purchase price or appraisal). Depending on loan type and LTV ratio, an appraisal shortfall may necessitate additional buyer funds to cover some or all of the gap between appraised value and purchase price. Alternatively, restructuring might involve adding or increasing monthly mortgage insurance. When an appraisal shortfall occurs, our team will inform the buyer’s agent and buyer of available restructuring options.

An independent organization retained by the mortgage lender to procure an appraisal report. The AMC serves as a liaison between lender and appraiser, managing many administrative tasks throughout the process.

Appraisal Waiver

See Property Inspection Waiver (FNMA) or Property Inspection Alternative (FHLMC).

Property Appraisal

An assessment of a property’s fair market value, conducted by a licensed appraiser. Appraisers will photograph, measure, and examine all county records pertaining to the property to complete their report following physical inspection. Appraisers must adhere to rigorous quality and legal standards. JVM works with its local network of carefully vetted appraisers whenever possible.

Appreciation

The quantifiable increase in a property’s market value. Factors such as market improvements and property renovations can contribute to appreciation.

Loan Approval

Loans progress through various “approval” stages, including “conditional” and “final.” Both represent formal written loan approvals from the underwriter. “Conditional” approval is issued after the underwriter’s initial comprehensive review of the loan file, including current income, assets, credit, property documents, and/or the appraisal report. It’s termed “conditional” because approval is contingent upon satisfying all transaction-related conditions. Depending on the number and nature of requested conditions, the loan contingency may be removed after conditional approval. Once all conditions are reviewed and satisfied, the underwriter grants “final” approval, also known as “clear to close.” Final approval typically indicates that only the final signing appointment, loan funding, and county recording remain before purchase completion.

Assumable Mortgage

A mortgage type that may permit a buyer to “assume” (take over) an existing mortgage loan attached to the property. FHA mortgages are generally assumable with formal lender approval, whereas most conventional mortgages are not. Assumable loans can be particularly attractive in high interest rate environments when the seller possesses a mortgage with a substantially lower locked rate.

Automated Underwriting System (AUS)

Software created by FNMA (Fannie Mae) and FHLMC (Freddie Mac) for pre-approving borrowers for mortgage loans. Lenders employ this technology to pre-underwrite a buyer’s financial profile and help establish qualification before they enter into a property contract (which requires manual underwriter review). FNMA uses DO (Desktop Originator) and DU (Desktop Underwriter), while FHLMC uses LP (Loan Prospector). For FHA or VA loans, either system is acceptable. FNMA and FHLMC produce similar results and qualifying parameters, while FHA/VA loan algorithms are more lenient.

Balloon Payment

A substantial payment due at the loan term’s conclusion. In certain cases, the final amount may equal the entire principal balance. Loans with balloon payments are classified as “non-QM” and have exceptionally strict qualification requirements, primarily based on creditworthiness. Many homeowners face challenges making the large payment if they haven’t already refinanced before the final payment becomes due.

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Base Loan Amount

For FHA loans, this represents the original loan amount before the upfront mortgage insurance premium (UFMIP) is optionally added to the loan. For an FHA loan requiring 3.5% down, the base loan amount equals 96.5% of the purchase price.

Basic Entitlement Amount

For eligible veterans, basic entitlement ensures that Veterans Affairs (VA) will compensate the lender up to the lesser of $36,000 or 25% of the VA loan amount should the borrower default. For qualification purposes, a $36,000 entitlement allows the veteran to pursue any loan amount they desire. If entitlement falls below $36,000 (which happens when the veteran currently has a VA home loan), the veteran must either prove full entitlement has been restored or accept a capped loan amount.

Basis Points

Basis points (abbreviated as BPs and pronounced “bips”) serve as a unit of measurement equal to one-hundredth of one percent (0.01%). Financial professionals commonly use “basis points” as the standard measurement unit when discussing interest rates.

Benefit to Borrower

All refinances require the mortgage lender to demonstrate how the new loan will advantage the borrower, with each loan type having specific guidelines defining what constitutes a “benefit.” Typically, the benefit of a rate/term refinance involves reducing the interest rate or payment by a minimum threshold (varying by loan type). Additional reasons include shortening the loan’s term (such as moving from a 30-year to a 15-year fixed-rate mortgage), converting from an adjustable-rate to a fixed-rate loan (considered lower risk), eliminating private mortgage insurance, consolidating a 1st/2nd combination into one new loan, or adding/removing a borrower from the loan. For cash-out refinances, the benefit lies in receiving cash from the property’s equity for debt consolidation or home improvements.

Bidding War

When significant interest exists for a particular property during an active market, a bidding war may develop. This refers to situations where multiple competitive bids are submitted to a seller, often in quick succession. Purchase prices may escalate as a result of bidding wars, and/or closing timelines and loan terms may become more aggressive. When bidding wars cause substantial purchase price increases, appraisal shortfalls often follow.

Borrower(s)

The individual or individuals granted a mortgage loan for purchasing a residential property. The borrower holds responsibility for making all associated payments — including but not limited to principal & interest payments, homeowner’s (hazard) insurance, and property taxes – throughout the loan’s life. Legally, a borrower is termed a mortgagor.

Buyer's Agent (Selling Agent)

The “Buyer’s Agent” is a real estate professional representing the homebuyer. Also called the “Selling Agent,” they typically conduct market research, present houses to prospective buyers, and assist in writing offers on properties of interest. The selling agent should not be confused with the listing agent, who represents the seller.

Cap

An interest-rate cap restricts how much your interest rate can increase on an adjustable-rate mortgage (ARM). Two types of caps exist: a periodic adjustment cap and a lifetime cap. A periodic adjustment cap restricts the rate’s increase from one adjustment period to the next. A lifetime cap restricts the rate increase over the loan’s entire duration. All ARMs must include a lifetime cap.

Cash Out Refinance

A mortgage refinance where the borrower taps into property equity to increase the loan size and obtain additional cash. For example, a borrower owing $300,000 refinances into a new $400,000 loan to access $100k of their home’s equity. Interest rates are sometimes elevated for cash out loans, depending on remaining home equity, and guidelines tend to be somewhat more stringent. An alternative method to access home equity cash would be through a Home Equity Line of Credit.

Cash Reserves

Cash reserves, often simply called “reserves,” are regarded by lenders as savings designated for making future mortgage payments, managing unexpected emergencies, etc. Documenting reserves on file assists in the lender’s risk assessment, as substantial reserves historically suggest a lower probability of mortgage default. Certain loan programs mandate anywhere from two to 24 months of reserves on file to secure mortgage financing. The “reserve requirement” is calculated based on the projected monthly payment for the property being purchased and/or the actual monthly payments for properties already owned. Reserves represent the documented “excess” funds that will remain in a borrower’s account(s) after the purchase is completed. For jumbo financing, different investors have restrictions on which accounts (and their percentages) qualify toward meeting the reserve requirement, though overall, the funds must always be held in the borrower’s own name.

Cash to Close

Cash to close represents the total amount of funds a buyer must bring into escrow before a transaction concludes. These funds encompass the entire down payment and all closing costs. It’s critically important that buyers know the source of these funds before entering into contract, as all lenders require that every dollar contributing to cash to close be sourced and documented with a paper trail.

Certificate of Eligibility (COE)

A Certificate of Eligibility (COE) is documentation from the Department of Veterans Affairs confirming your eligibility to secure a VA home loan.

Chapter 13 Bankruptcy

A bankruptcy form allowing individuals to repay some or all of their debt(s) to their creditor(s) according to a proposed repayment plan. Each loan product (such as Conventional, FHA, VA) has its own ‘seasoning’ requirements. These are parameters outlining the minimum time that must elapse (and documentation required) between the bankruptcy and mortgage loan’s acquisition.

Chapter 7 Bankruptcy

A bankruptcy form allowing individuals to liquidate or sell nonexempt property and use the proceeds to essentially repay their creditor(s). Unlike Chapter 13 Bankruptcy, no repayment plan is necessary. Each loan product (such as Conventional, FHA, VA) has its own ‘seasoning’ requirements. These are parameters outlining the minimum time that must elapse (and documentation required) between the bankruptcy and mortgage loan’s acquisition.

Close of Escrow

The close of escrow, commonly called “closing,” is the point in the real estate transaction when the seller receives all funds due (from the buyer and lender), and the property is formally transferred to the buyer’s name on title. All involved parties have fulfilled their legal obligations to one another, and the transaction has concluded.

Closing Costs: Non-recurring and Recurring

Non-recurring closing costs include one-time fees paid at closing. Examples comprise escrow fees, appraisal fees, notary fees, processing/underwriting fees, recording fees, title insurance, etc. Recurring closing costs are fees that will continue even after the purchase’s close of escrow. Examples include mortgage interest, property taxes, homeowner’s insurance, etc. These fees will persist throughout the loan’s life.

Closing Disclosure (CD)

The Closing Disclosure (CD) is the updated version of the Loan Estimate (LE) from initial disclosures. The CD provides a breakdown of the projected monthly mortgage payment and the estimated cash-to-close figure (comprised of the remaining down payment due plus estimated closing costs). The CD must be “acknowledged” (electronically signed) at least three ‘business’ days (excluding Sundays and federal holidays) before signing the final loan documents. The mandatory waiting period is required by TRID to allow borrowers time to review the fees and terms before signing final loan documents.

Closing Statement (of fees)

The closing statement is prepared by escrow and provided to the lender. It itemizes the estimated closing costs associated with title, escrow, and other third parties’ fees. The lender utilizes this estimated closing statement to prepare the Closing Disclosure (CD).

Closing Timelines

Closing timelines refer to the time required to complete the transaction and to satisfy any contingency periods. These terms are incorporated into your purchase contract with your offer.

Closing Timelines

Closing timelines refer to the time required to complete the transaction and to satisfy any contingency periods. These terms are incorporated into your purchase contract with your offer.

Purchase Agreement (Residential Purchase Agreement or Sales Contract)

A Residential Purchase Agreement, or RPA, is a formal written contract established between a buyer and seller for a specific property. The document includes the property address, purchase price, inspections, contingencies, closing date, various addenda, and more. Addenda may also be utilized to modify the original terms if all parties agree to sign the revisions. The most common changes involve purchase prices (if the buyer’s agent negotiates for a reduction) or seller credits. The RPA must be fully signed by the buyer, seller, agent, and escrow. The date of the last signature serves as the ‘start’ date for the contractual closing period. For instance, a contract signed by the last party on 1/1 for a 14-day closing period will be expected to close on 1/15 (14 days after 1/1).

Purchasing Power (Purchase Power)

Purchasing power is a common way to reference a client’s maximum pre-approved purchase price. For instance, if a client is pre-approved up to an $800,000 purchase price, their purchasing power extends up to $800,000.

ROI (Return on Investment)

A guarantee for a specified period of time (typically 15 or 30 days, though a rate can be locked for up to 60 days) to “hold” a specific interest rate on a loan for a property under contract (meaning a buyer’s written offer has been formally accepted) through the date the loan funds. Rate locks can normally be extended for a few days (and up to a few weeks, depending on the investor) beyond their original expiration date to preserve the rate if any delays occur to the closing timeline. The extension comes in exchange for a one-time “lock extension fee” added to closing costs. The primary benefit of a rate lock is a hedge to protect borrowers from market rate increases; as somewhat of a double-edged sword, this also prevents borrowers from repeatedly requesting their rate be lowered (a “rate rolldown”) whenever there’s a slight market dip. JVM does lock with investors who have the option to roll down a locked interest rate if there’s a significant enough market dip among the mortgage bank’s pool of investors. We monitor the market for this opportunity from the moment a client locks in their rate until their loan docs are prepared.

Rate and Term Refinance

The process by which a borrower can secure a lower interest rate or more favorable terms on a mortgage. With a rate and term refinance, the new loan must provide a benefit to the borrower and typically matches the balance of their current loan. The benefit to the borrower may be a lower monthly payment or better loan terms (such as eliminating a balloon payment or adjustable rate feature). JVM monitors all our closed files and will contact previous borrowers with refinance offers when applicable.

Rebate or Yield Spread Premium

A yield spread premium (YSP), or rebate, is the money or rebate paid to a lender or loan officer for giving a borrower a higher interest rate on a loan in exchange for lower upfront costs, such as “no points.” Generally, the higher the rate, the higher the YSP.

Recording

This is the final stage of a purchase or refinance transaction when the escrow or title agent records the new deed with the County. This step occurs after the loan funds and, for a purchase, is the last item needed for the borrower to officially own the property and ‘receive their keys’.

Refi Boom

We experience a refi boom when rates decline significantly and many borrowers choose to refinance to capitalize on lower rates. During a refi boom, banks often see substantial increases in volume, causing processing times to slow slightly.

Refinance

The process of replacing an existing mortgage with a new mortgage, either to reduce the interest rate, lower the monthly payment, shorten the loan term, extract equity from the home, or some combination thereof.

Reserves

Reserves are funds required to be maintained in your account after closing. Reserves can be calculated from checking, savings, vested stocks, CDs, and retirement accounts. Reserve funds will be required for most jumbo loans and non-owner-occupied purchases. The amount of reserves required will be measured in a specified number of monthly PITI(A) payments – meaning 12 months of reserves will equal 12 times the monthly payment for the loan. Some investors also require a portion or all of the reserves to be held in liquid, non-retirement accounts.

Residual Income

VA residual income is the discretionary income that remains after a homeowner has fulfilled their monthly spending obligations. To obtain VA loan approval, applicants need to demonstrate a minimum residual income amount (established by the VA) based on their geographic location and household size.

Restoration of Entitlement

Restoration of entitlement occurs when a veteran pays off their current VA loan. Since the VA limits total entitlement in some instances (depending on the amount of entitlement previously used), we will need to demonstrate restoration of entitlement with the VA prior to proceeding with a new VA loan.

Seasoned Funds

Funds that have been in the borrower’s account(s) for at least two consecutive recent months (60 days).

Seasoning Period

See Seasoned Funds.

Second Mortgage

A second mortgage sits in the second position behind a first mortgage. This is commonly termed the “second mortgage” because it ‘subordinates’ to the first mortgage. A second mortgage can be originated at closing on a first loan transaction or opened as a ‘standalone’ later after the first loan has closed. When opened concurrently with a purchase or refi transaction, funds from the second mortgage can be applied toward the down payment for the home purchase, most often utilized to enable a buyer to avoid either jumbo financing or mortgage insurance. Alternatively, if the second mortgage is opened independently, it is called a Stand-Alone Second; under this scenario, the first mortgage remains unaffected.

Secondary Market

The secondary mortgage market is a marketplace where home loans and servicing rights are bought and sold between lenders and investors. It is in the secondary market where the loan servicer is determined after closing.

Secured Overnight Financing Rate (SOFR) Index

The Secured Overnight Financing Rate (SOFR) index serves as a reference for adjustable rate mortgages (ARMs). SOFR is calculated as the average interest rate as estimated by the top banks in the United States, based on the rate they would expect to be charged if they were to borrow from other banks.

Seller Credit

A seller credit is funds coming from the seller to the borrower to be used toward closing costs. Seller credits are negotiated by your Real Estate Agent and will be incorporated into the terms of your contract. Federal lending guidelines limit the maximum credit the buyer is allowed to receive depending on transaction type, and we must ensure total credits do not exceed closing costs. When considering adding a credit, check in with your lending team to ensure the proposed amount does not exceed guidelines.

Seller Rentback

An agreement between the buyer and seller where the seller is permitted to reside in a property after the close of escrow. The terms of the rentback are determined with your Real Estate Agent and written into your contract. As a general rule of thumb, investors do not allow rentbacks exceeding 59 days for owner-occupied purchases. This does vary somewhat among lenders and products. With an investment property purchase, there is additional flexibility. Be sure to check in with your lender on timing if considering a longer rentback.

Short Sale

A short sale occurs when a home is sold for less than what is owed on the home. With this, the lender does not receive a full payoff for the debt they have tied to the subject property. Short sales can be a lengthy process and do require bank approval prior to sale.

Spousal Liabilities

Debts incurred by a spouse. Spousal liabilities (credit card debt, auto loans, etc.) are critical to consider when pursuing FHA or VA financing since guidelines require that spousal liabilities be factored into debt-to-income ratio calculations.

Streamline

A type of refinance for FHA or VA loans when refinancing into a new government loan (such as FHA to FHA or VA to VA). This is often called an IRRRL (Interest Rate Reduction Refinance Loan) for VA loans. Streamline refinances have very specific guidelines that must be met and require very minimal documentation from borrowers.

Subject Property

Property for which the mortgage is being obtained on a purchase or refinance transaction.

Subordinate

When referencing loans, the loan that sits in a lesser position is subordinate to the first mortgage. The loan in the first position would be paid first in the case of a default. The junior (or second) lien is paid if funds remain.

Supplemental Tax Bill

Property tax bill issued in addition to the regular ‘secured’ property tax bill. The County can issue a supplemental tax bill for various reasons, but these are most commonly seen in California after the purchase of a property. The County reassesses the property value based on the new purchase price and issues a supplemental bill to charge for the difference between the originally assessed value and the post-purchase value increase.

Suspend

A loan is suspended when underwriting is unable to approve a loan based on the documentation in the file. If this occurs, JVM will work with all parties to provide the necessary documentation or explanations to obtain loan approval. If loan approval cannot be obtained, the loan will be formally denied.

TILA/RESPA: Truth in Lending Act and Real Estate Settlement Procedures Act

The two main pieces of federal legislation that govern mortgage lending. TILA (Truth in Lending Act) requires lenders to provide borrowers with clear terms and costs of a loan following specific disclosure formatting and guidelines. RESPA (Real Estate Settlement Procedures Act) is in place to help prevent unnecessary settlement costs to the consumer.

Title Company

A title company typically manages all tasks associated with the property title, including title search, insurance, and reports. The reports show, among other things, the legal description of the property, all liens recorded against a property, and a property “plat map.” Title companies also provide title insurance to protect the borrower and lender against any undisclosed claims on the property.

Title Insurance

Title companies offer two types of title insurance. ALTA Insurance is a guarantee for the lender to ensure there are no other liens against the property when your mortgage is recorded. This is required by the lender to protect their interest in the property. CLTA insurance is for the borrower’s benefit and ensures there are no claims for or against the property being purchased. While CLTA insurance is optional, it is highly recommended so borrowers can be certain they are purchasing a home with a “clear title.” Many title companies, particularly in Northern California, also serve as escrow companies.

Tradelines

Tradelines are accounts that appear on a credit report. Common examples of tradelines include credit cards, student loans, auto loans, personal loans, mortgages, and lines of credit. Most jumbo investors will require a minimum number of total and open/active tradelines to qualify for jumbo financing.

U.S. Department of Veteran Affairs (VA)

The Department of Veterans Affairs (the “VA”) operates programs benefiting veterans and members of their families. Among the many services they provide is guaranteeing mortgages for eligible veterans.

Underwriter

An impartial third-party individual who reviews a loan application and submitted financial documents to evaluate a borrower’s creditworthiness for a particular loan product, usually for a specific property. An underwriter will either approve, decline, or suspend a loan. Underwriters are licensed individuals and must adhere to both federal lending guidelines and investor overlays to maintain their licensure. FHA and VA underwriters are specially certified to underwrite government loans.

Underwriting Fees

Lender fees associated with underwriting the loan, usually part of closing costs and usually only collected when a loan funds and records. Underwriting fees can range from $200 to $1,000, or more.

Upfront Funding Fee (VA)

Funding fees are typically financed. The fee ranges from 1.4-3.6% of the loan amount and varies based on the down payment and whether you’ve had a VA loan in the past. Eligible veterans can have their funding fee waived – your Certificate of Eligibility will indicate whether the funding fee is required. This is not to be confused with Upfront Mortgage Insurance for FHA Financing.

VA Loans

Special home loans designed exclusively for military veterans which allow 100% financing in many cases. They also typically have excellent terms with low interest rates and no monthly mortgage insurance required.

Vacancy Factor

Investment purchases generally require a 25% vacancy factor offsetting future rental income to account for periods of time where the property is between tenants. When purchasing a new investment home with an expected rent of $3K per month, the lender will consider only $2,250 of the rental income in their calculation.

W-2

A tax form issued by employers that reports an individual’s annual earnings. With the exception of self-employed borrowers, mortgage lenders use the W-2 as the basis of their income calculations to help determine qualification for a loan product. See Debt to Income (DTI) ratio.

Yield Curve

A yield curve refers to the relationship of interest rates to the length of debt or loan maturities. Usually, the longer the maturity, the higher the rate. This is because there is more risk associated with a longer maturity, so investors demand higher rates of return (the higher the risk, the higher the return). In other words, a loan with a 30-year maturity should have a higher rate than a loan with a 5-year maturity.