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Mortgage and Real Estate Glossary ~ L

Lease

A rental agreement between a landlord and a tenant that lasts for an agreed period of time. A lease must include a property's description, the date the lease expires, the price of the rent, and the landlord's signature. Even though it is common practice for both the tenant and landlord to sign a lease, the lease is legally binding if only the landlord signs it. Also, by law, a landlord can take back a property when the lease ends.
See: Estate

Liability

Lenders want to know what liabilities you have to see if you're a high-risk candidate for a loan. Liabilities include car and student loans, credit card debt, child support, insurance premiums and alimony. The fewer liabilities that you have, the more confident a lender feels about giving you a loan.
See: Acceptable debt

Lien

A claim placed on a property to make sure that a debt is repaid. The mortgage on your home is a voluntary lien-you agree to put up your home as a guarantee that you'll repay the loan. Creditors, like the IRS or someone who has won a civil court suit against you, can also have a lien put on your home, but without your permission. All liens must be paid off before you can sell or will your property to someone.
See: Judgment lien, Mechanic's lien, Foreclosure

Lifetime rate cap

A limit on how much the interest rate on an adjustable rate mortgage (ARM) can go up or down over the life of a loan. The average lifetime rate cap is 5 to 6 percentage points over an ARM's initial interest rate. So, for example, if your initial interest rate is 6% and the lifetime rate cap is +5%, your rate can't go beyond 11% over the loan's term. The maximum lifetime rate cap is often called the ceiling Thus, the minimum lifetime rate cap is called the floor.
See: Cap, Adjustable rate mortgage

Liquid asset

Any item of value that can be quickly turned into cash. Your liquid assets are the easiest to cash, which is especially helpful when you are gathering money for a down payment on a home. The best examples of liquid assets are certificate of deposits (CDs) and money market accounts. Real estate, boats, antique furniture, and collectible plates are not liquid assets since they take time to sell.

Loan

A sum of money that a lender gives to a borrower that must be repaid along with interest. There are many types of loans to choose from when you are looking to buy a home. Each loan will have a different interest rate and term, which will affect how much you have to pay each month. How much you put towards a down payment will also affect your monthly payment. The three most common types of loans are fixed rate, adjustable rate, and balloons. A home loan is also called a mortgage.
See: Fixed rate mortgage, Adjustable rate mortgage, Balloon mortgage

Loan origination fee

A service fee charged by a lender and broker that the borrower pays on the closing date. All lenders and mortgage brokers charge an origination fee, which can be as high as 2.5% of the loan amount. Online mortgage brokers charge significantly less. Sometimes lenders will refer to this fee in terms of origination points, where 1 point equals 1% of the loan amount. Unlike discount points, you can't deduct the origination fee from your income taxes since it is just a service charge, not interest.
See: Closing costs

Loan processor

The person who collects and organizes all the documents required by the lender to approve a loan. The loan processor has the important task of making sure that a lender has all the information needed to approve your loan, including your credit report, W-2 form, pay stub and signed loan application. The loan processor will also order your title insurance and arrange the property's appraisal. The processor works for either a lender or a broker.

Loan-to-value ratio (LTV)

LTV compares how much a person plans to borrow versus the property's value. For example, a 90% LTV loan that means you want to borrow 90% of the home's price and will have a 10% down payment (or equity if you're refinancing). This gives you 10% equity in your property.

All lenders use LTV as a guideline to figure out if you're a high-risk loan candidate. The higher the LTV, the more risk that a lender takes, causing them to carefully examine your finances. Also, if your LTV is over 80%, the lender requires that you buy Private mortgage insurance (PMI).
See: Down payment, Equity, Private mortgage insurance

Lock-in rate

Until you request a rate lock, a loan's interest rate quoted by either a lender or broker is probably going to change due to market fluctuations. The rules on how to do this will vary from lender to lender and broker to broker, but typically you can request a rate lock after you submit your signed loan application/1003 and other requested forms. Don't let a low rate slip through your fingers. Once you have settled on a rate, the lender usually guarantees the rate for 15, 30, 45 or 60 days.

Lock period

The amount of time that a lender will guarantee a loan's interest rate. Once you have locked in an interest on a loan, the lender will guarantee that rate for a certain period of time, usually for 30, 45 or 60 days (Normally, the longer the lock period, the more points that you have to pay up-front since the lender is taking a greater risk when they guarantee a rate for a long time).

You will need to complete your home's purchase or refinance within the lock period. If you need extra time, you may have to pay up to 1 point (1% of the loan amount) or more, and there's no guarantee that you can keep your original interest rate after the expiration date.
See: Rate lock

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