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 Glossary of Mortgage Terms

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​​​​​Glossary of Mortgage Terms

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A

Adjustment Period

  • The adjustment period is the time between one rate change and another.

Adjustable Rate Mortgage (ARM)

  • An Adjustable Rate Mortgage, or ARM, is a fully amortizing loan with an interest rate​ that can change. The rate can change upward or downward at set periods of time based on the performance of an established INDEX, such as the Treasury Securities.

Amortization

  • Amortization is the gradual paying down of a loan over a pre-determined period of time. Initially, most of the payment is interest, but over time, more principal is paid than interest.

Annual Percentage Rate (APR)

  • The Annual Percentage Rate, or APR, is the final rate after all points, fees and charges are applied. Since there are other finance costs added to the initial interest rate, the compiled APR allows buyers to compare rates in an apples-to-apples scenario.

Appraisal

  • An appraisal is the evaluation of a home against nearby homes with similar characteristics that have recently sold. This evaluation is used to establish the market value of the home.

B

Balloon Loan
A short-term loan with relatively small payments but one large payment due at a specific date to pay the remaining balance.


C

Closing

  • The act of signing the legal documents to transfer ownership and/or acknowledge debt in financing real estate; the end of the loan application process.

Closing Costs

  • Closing costs are fees charged by closing agents, lenders, and other third parties in connection with closing a mortgage loan.

Closing Disclosure (CD)

  • A Closing Disclosure is a set of forms that provide final details about the mortgage loan you have selected. It includes the loan terms, your projected monthly payments, and how much you will pay in fees and other costs to get your mortgage (closing costs).

Conforming Loan

  • A conventional mortgage loan made within the guidelines established by FNMA or FHLMC. There is a current maximum loan limit of $417,000.

Conventional Loan

  • A mortgage loan that typically requires 5% to 10% down as a minimum and may be held by the lender or sold to FNMA, FHLMC, or a Private Investor.

Conversion

Credit Report

  • A detailed report on an individual’s use of credit over time. This also includes public record checks for tax liens and judgments, and can be used in evaluating an individual for a new loan.

Credit Score

  • A score derived from an individual’s credit data at a credit agency; reflects the risk of delinquency, default, bankruptcy, and/or foreclosure relative to many other individuals’ borrowing histories.​



D

Debt Consolidation

  • Debt consolidation is the act of paying off existing, high-rate consumer debt (usually credit cards, student loans, auto loans) with a new loan or line of credit secured by the equity in a home. Generally these new loans or lines of credit are at a much lower rate than the existing consumer debt.

Debt-to-Income (DTI) Ratio

  • The ratio of a buyer’s minimum monthly credit payments (including the mortgage payment) to his/her gross monthly income; the second of the qualifying ratios.

Discount Points

  • Discount points are fees paid at closing to decrease the interest rate for the life of the loan.


E

Equity

  • Equity is the market value of a home minus any mortgage debt on the home.

Equity Line of Credit

  • An equity line of credit is a source of credit secured by the amount of equity in a home that is accessible as needed through a credit card or checks. The line of credit is paid down in a similar fashion, and interest paid is sometimes deductible.

Equity Loan

  • An equity loan is a source of credit secured by the amount of equity in a home. The funds are received at closing in a lump sum. The loan is re-paid according to an amortization schedule, and the amount of interest paid can sometimes be tax deductible.

Escrow Account

  • Escrow is a third-party account that holds the funds and documents that change hands during the buying and selling process. An escrow officer will confirm the items in the purchase contract are complete and then will pay all appropriate parties from the funds.
  • After the sale, the lender uses an escrow account to pay the taxes and insurance for the loan.


F

Federal Home Loan Mortgage Corp. (FHLMC)

  • FHLMC buys loans from lenders, providing liquidity to meet housing finance needs of the general public.

Federal Housing Administration (FHA)

  • FHA provides lenders with insurance and guarantees to make housing finance affordable to the general public; down payments are typically less than for a Conventional Loan.

Federal National Mortgage Association (FNMA)

  • FNMA buys loans from lenders, providing liquidity to meet housing finance needs of the general public.

Fixed Rate Mortgage

  • A Fixed Rate Mortgage is a fully amortizing loan that has a stated rate and payment that remain constant throughout the life of the loan.

Floating

  • During the processing of a loan, the rate is said to be floating if it is not locked-in​. This means it can rise or fall with daily changes in the financial markets.


G

Good Faith Estimate (GFE)

  • An estimate of the closing costs and expected new loan payment based on a loan amount, a sales price, a term, and an interest rate.

Government National Mortgage Association (GNMA)

  • GNMA buys FHA and VA loans from lenders, providing liquidity to meet housing finance needs of the general public.


H

Housing and Urban Development (HUD)

  • The Housing and Urban Development (HUD) is an agency within the federal government that establishes and monitors housing development and finance.

Housing Ratio

  • The Housing Ratio is a ratio of the house payment (principal, interest, insurance and taxes) compared to the gross monthly income; the first of the qualifying ratios.


I

Impounds

  • The monthly amounts collected within the mortgage payment for insurance, taxes, and mortgage insurance; see Escrow Account.

Index

  • An average or indicator of market conditions usually expressed in percentages. The One Year US Treasury Security is a common index used in adjusting interest rates on ARM loans.

Interest Rate

  • The percentage paid for the use of money, usually expressed as an annual percentage.

Investor

  • A person or institution that invests in mortgages or mortgage backed securities.


J

Jumbo Loan

  • A loan made in excess of $252,700 currently; varies as does the Conforming Loan amount.


L

Lifetime Cap

  • A limit on the amount that your rate can change over the entire period that you have the loan.

Loan Estimate (LE)

  • The Loan Estimate is a set of forms that you will receive after applying for a mortgage. The Loan Estimate tells you important details about the loan you have requested. A lender must provide you a Loan Estimate within three business days of receiving your application.

Loan to Value Ratio (LTVR)

  • The loan amount divided by the value of the property, generally expressed as a percentage.

Lock-in

  • During the processing of a loan, a lender can lock-in the interest rate until closing, preventing it from rising if economic activity increase rates, but also preventing it from falling.

Low-Cost Loan

  • A loan for which the lender pays some of a borrower’s closing costs through a slight increase in the interest rate.


M

Margin

  • A percentage stated in the Note that is added to the Index to arrive at the Contract Rate.

Mortgage Insurance

  • Insurance paid for by borrowers with a down payment of generally less than 20%; applies to conventional loans only; usually paid as an Impound and from the Escrow Account.

Mortgage Insurance Premium (MIP)

  • Insurance paid for by all borrowers utilizing FHA loans; generally added to the loan balance with a small premium also paid monthly.

Mortgagee

  • The lender in a mortgage transaction.

Mortgagor

  • The borrower in a mortgage transaction.


N

Non-Conforming

  • Mortgage loan products that do not meet the guidelines of FNMA or FHLMC due to type (second mortgage), size (greater than $417,000), or credit history.

Note

  • A promise to pay a specific amount at a specific time usually secured by a Deed of Trust.


O

Option

  • A choice to change certain terms of the original loan contract if specified guidelines are met.

Origination Fee

  • Fee paid to the lender at closing that represents their fee for making the loan; generally no more than 1% of the loan amount.


P

Periodic Rate Cap

  • A limit on the amount that a rate can change on an annual or semiannual basis.

Points

  • Terms used to describe fees paid at closing to reduce the rate, e.g. Discount Points; one point equals one percent of the loan amount.

Pre-Paids

  • Amounts collected at closing for interest, taxes, and insurance that are due or will be due as part of the monthly payment, or in connection with the closing.

Prequalification

  • A quick analysis of an individual’s income and debts to determine an approximate loan amount for which the individual would qualify.

Principal, Interest, Taxes, and Insurance (PITI)

  • Abbreviation for Principal, Interest, Taxes, and Insurance; the mortgage payment.

Private Investor

  • A private corporation whose business it is to purchase mortgage loans from lenders made to the private investor’s guidelines.

Private Mortgage Insurance (PMI)



Q

Qualifying Ratios



R

Rate

  • A percentage stated in the Note and charged over the term of the loan that can remain constant or that can change at stated intervals during the time that you have the loan.

Right of Recission

  • A "cooling-off period" between the act of closing a refinance or equity loan by the borrower, and the act of funding that loan by the lender; this is a federal and/or state requirement that generally runs 3 full business days.

Rider

  • An attachment to the Deed of Trust that defines certain terms of the Note​.


S

Second Mortgage

  • A mortgage loan or line-of-credit made in addition to an already existing first mortgage; generally used for home improvements, debt consolidation, and major purchases such as an automobile or college education.

Survey

  • The "blueprint" of a lot, showing its boundaries, any structures and improvements, and any legal or illegal rights-of-way held by others.


T

Title Insurance

  • Insurance coverage that precludes a new property owner from being liable for any claims made by anyone against the property and the prior owners.


U

Underwriting

  • Underwriting is the process of reviewing an individual’s income and credit file, and the property appraisal to determine the ability and willingness of the individual to repay the loan they are requesting. Underwriting will also assess the condition and value of the property they are attempting to finance.


V​

Veteran's Administration (VA)

  • Agency within HUD that guarantees a portion of a loan made to a Veteran under guidelines established by the VA; very low cost source of mortgage funds for Veterans only.
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