Mortgage Key Terms:

We get it. The mortgage world is full of lingo and jargon and it feels like only experts can understand it. Or worse, you feel like you could get taken advantage of since you didn’t quite understand it all. Get a better understanding of what is presented to you by referring to our glossary. If you ever have any questions or want more details, reach out and let us know!

Is ownership of assets that may have debts or other liabilities attached to them. Equity is measured for accounting purposes by subtracting liabilities from the value of the assets. Equity is the amount your property is currently worth minus the amount of any existing mortgage or your property.

Is the reasonable and good faith determination most mortgage lenders are required to make that you are able to pay back the loan. The factors used to determine the ability to repay include the borrower’s current income and assets. The borrower must also provide verification of this income and their employment status. Lenders must consider a borrower’s current liabilities.

Is paying off a debt overtime in equal installments. Part of each payment goes toward the loan principal, and part goes toward interest. The amount going toward principal starts out small, and gradually grows larger month by month.

The amount of money you are borrowing from the lender, minus most of the upfront fees the lender is charging you.

Is the total value of income earned during a fiscal year (FY) a fiscal year is a 12 month and 52week period of time used by governments and businesses for accounting purposes to formulate annual. Gross annual income refers to all earnings.

Is a broader measure of the cost of borrowing money than the interest rate. The APR is usually higher than your interest rate.

Based on the complexity of the appraisal not the value of the property. Fees are never based on a percentage of the value of the property appraised. Appraisal fees are established by each firm.

An arrangement with a creditor that allows the creditor to periodically withdraw money from a credit card, checking or savings account to pay a bill. Used for regular monthly payments.

Bi-weekly payments are half of your monthly payments paid every 2 weeks. In a year you would pay 13 full payments. Enables the homeowner to pay off the mortgage almost eight years early with a savings of 23% of 30% of total interest cost. With bi-weekly mortgage plan each year, one additional mortgage payment is made.

The closing disclosure is the final document you will see in the mortgage loan process. It is a five page form that provides final details about the mortgage loan you have selected. Your lender is required to send you a closing disclosure at least 3 business days before your closing.

Is a mortgage loan that’s not backed by a government agency. The loan is backed by a private lender, and its insurance is usually paid by the borrower.

A person who is obligated to pay back the loan just as you, the borrower, are obligated to pay. Ex. Your spouse, a parent, or a friend. The lender cannot require your spouse to be a co-signer unless you both are applying for the loan. A co-signer typically will need credit in the very good or exceptional range- 670 or better. If the co-signer does not live in the property, they need an income that covers both their housing as well as the tenant’s rent. 

The record of how a person has managed his or her credit in the past, including total debt load, number of credit lines, and timeliness of payment. Mortgage lenders will typically assess the last six years of the applicant’s credit history for any issues.

 A statement that has information about your credit activity and current credit situation such as loan paying history and the status of your credit accounts.

The higher the score, the better a borrower looks to potential lenders. A credit score is based on credit history: number of open accounts, total levels of debt, and repayment history, and other factors. Lenders use credit scores to evaluate the probability that an individual will repay loans in a timely manner. Fico scores are best- known and most commonly credit worthiness for everything from a new mortgage to refinance mortgages. Range from 300 to 850- the higher the score the lower the lending risk.

The percentage of a consumer’s monthly gross income that goes toward paying debts. As a general guideline, 43% is the highest DTI ratio a borrower can have and still get qualified for a mortgage.

Is a document that voluntarily transfers the property’s title from the homeowners to the mortgage lender in exchange for a release from the mortgage lender, specifically by sparing both parties from an expensive and time-consuming foreclosure process. 

 Means that you are behind on payments. Once you are delinquent for a certain period of time (usually nine months for federal loans), your lender will declare the loan to be in default. The entire loan balance will become due at this time. If this happens your lender may charge you a late fee. If you continue to miss payments, the lender may ultimately declare your mortgage to be in default and begin foreclosure proceedings to take your home away from you and see it.

The closing disclosure has a statement that reads “your loan has a demand feature,” which is checked “yes” or “no.” A demand feature permits the lender to require early repayment of the loan.

A down payment on a house is a large sum of money that the buyer pays upfront in a real estate transaction. The amount paid is usually a percentage of the purchase price and can range from as little as 3% to as much ass 20% for a property being used as a primary residence.

Refers to assistance provided by an organization such as a government or non-profit agency, to a homebuyer to assist them with the down payment for a home purchase. The funds may be provided as an outright grant or may require repayment, such as when the home is sold.

An amount of money you put down to show you’re serious about purchasing a home. Earnest Money acts as a deposit on the property you’re looking to buy. “Good Faith Deposit” the deposit is held by a seller or third party like a real estate agent or title company. If the home sale is finalized or “closed” the earnest money may be applied to closing costs or the down payment. If the contract is terminated for a permissible reason, the earnest money is returned to the buyer. If the buyer does not perform in good faith, the earnest money might  be forfeited and paid out to the seller.

An escrow account is essentially a savings account that’s managed by your mortgage servicer. Escrow is the use of a third party, which holds an asset or funds before they are transferred from one party to another.

The Federal Mortgage Association purchases and guarantees mortgage from lending institutions in an effort to increase affordable lending. Fannie Mae is not a federal agency. It is a government sponsored enterprise under the conservatorship of the Federal Housing Finance Agency (FHFA)

The Federal Housing Administration (FHA) requires and FHA funding fee and a monthly insurance premium. (MIP) for most of its single-family programs. This upfront mortgage insurance premium is sometimes called an upfront mortgage insurance premium (UFMIP)

A government- backed mortgage insured by the federal housing administration. FHA home loans require lower minimum credit scores and down payments than many conventional loans, which makes them especially popular with first-time homebuyers. FHA, an agency within the U.S. Department of Housing and Urban Development (HUD) that was established by the National Housing Act on June 27, 1934 to facilitate home financing, improve housing standards, and increase employment in the home-construction industry in the wake of the great.

Are the dollar amount limits for qualifying mortgages that the FHA will insure as part of its single-family home mortgage programs. These limits are based upon location and they may be revised each year.

Is any fee representing the cost of credit, or the cost of borrowing. It is interest on, and fees charged for, some forms of credit. It includes not only interest but other charges as well, such as financial transaction fees.

FTHB loans include programs offered by FHA, VA, USDA, Fannie Mae, and Freddie Mac with low down payments. Some programs define a FTHB as someone who hasn’t purchased a home in three years or more.

Is a mortgage loan where the interest rate on the note remains the same through the term of the loan, as opposed to loans where the interest rate may adjust or “float.” The main advantage of a fixed-rate loan is that potentially significant increases in monthly mortgage payments if interest rates rise.

Is a special agreement between the lender and the borrower to delay a foreclosure. The literal meaning of foreclosure is “holding back.” This is also referred to as mortgage moratorium. When your mortgage servicer, that’s the company that sends your mortgage statement and manages your loan, or lender allows you to pause or reduce your payments for a limited period of time. Forbearance is a type of loss mitigation. Depending on the kind of loan you have, there may be different forbearance options. You must contact your loan servicer to request forbearance. Remember that you will have to make up these missed or reduced payments when your forbearance period is over.

Also known as creditor-placed, lender-placed or collateral protection insurance is an insurance policy placed by a lender, bank or loan servicer on a home when the property owners’ own insurance is cancelled, has lapsed or is deemed insufficient and the borrower does not secure a replacement. Force placed insurance policies will cover only the loans balance, not the actual property value.

Is a legal process in which a lender attempts to recover the balance of a loan from a borrower who has stopped making payments to the lender by forcing the sale of the asset used as the collateral for the loan. A foreclosure won’t ruin your credit forever, but it will have a considerate impact on your score, as well ass your ability to obtain another mortgage for a while.

The Federal Home Loan Mortgage Corporation is a private corporation founded by congress. Its mission is to promote stability and affordability in the housing market by purchasing mortgages from banks and other loan markets. The corporation from banks and other loan markets. The corporation is currently under conservatorship, under the direction of the Federal Housing Finance Agency (FHFA).

Also called a GFE, is a form that a lender must give you when you apply for a reverse mortgage. The GFE lists basic information about the terms of the mortgage loan offer. The GFE includes the estimated costs for the mortgage loan. Lenders are required by law to give you the Good Faith Estimate (GFE) within three business days of receiving the loan application. This will explain your loan terms and costs associated with the loan. The GFE must be mailed or hand-delivered by the end of the third day.

Fees assessed by state and local government agencies for legally recording your deed, mortgage and documents related to your home loan. Either a buyer or a seller will pay these fees.

Home inspection is often a part of the home buying process. You typically have the right to hire a home inspector to examine a property and point out its strengths and weaknesses. This is often especially helpful to test a home’s structural and mechanical systems including heating, ventilation, air conditioning, and electrical.

HOA is run by a board of directors that is elected by homeowners to oversee the common assets of a property/area, manage its finances, run business affairs, enforce and set rules, and see to the maintenance and upkeep of the area. If you miss an HOA payment, you’ll receive a notice that you failed to pay. In most cases a late fee will be added to your amount due. If you don’t pay within 30 days, the amount of that fine may be increased and may have you HOA privileges suspended.

A regular fee (usually monthly or quarterly) assessed by the homeowners associated to pay for the services that it provides. HOA fees are usually paid separately from your monthly mortgage payments. If you do not pay these fees, you can face debt collection efforts by the homeowner’s association and even foreclosure.

A home appraisal is a process through which a real estate appraiser determines the fair market value of a home. It can assure you and your lender that the price you’ve agreed to pay for a home is fair. Appraisals are also often used to determine property taxes, which makes them a requirement in most counties.

A type of property insurance that covers a private residence. Homeowner’s insurance policies cover the structure of the home, including attached structure, fixtures, and built -in appliances. Homeowner’s insurance is a package policy. This means that it covers both damage to property and liability or legal responsibility for any injuries and property damage policyholders or their families cause to other people. When you have a mortgage, your lender wants to make sure your property is protected by insurance. Lenders generally require proof that you have homeowner’s insurance.

Home purchase price is the amount agreed to by the buyer and seller to be paid to the seller to purchase the home. The purchase price includes the total value of the items delivered or services provided, which are traditionally referred to as “shipping and handling” and include insurance for an item being shipped, delivery or shipping, and handling charges. These charges are taxable even if they are separately stated on the invoice.

The Department of Housing and Urban Development (HUD) is a government agency that helps people get and maintain quality affordable housing. Mortgage insurance programs that help low – and moderate – income families become homeowners by lowering some of the initial costs of their mortgage loans.

Also called HUD-1 settlement statement, is a standardized mortgage lending document. Creditors or their closing agents use this form to create an itemized list of all charges and credits to the buyer and to the seller in a consumer credit mortgage transaction. You receive a HUD-1 if you apply for a reverse mortgage or if you applied for a mortgage.

Initial escrow deposit is the amount that you will pay at closing to start your escrow account, if required by your lender. This initial amount may be different from what you pay monthly to maintain the escrow account. Usually, buyers get the money back and apply it to their down payment and mortgage closing costs.

A mortgage rate is the rate of interest charged on a mortgage. Mortgage rates are determined by the lender and can be either fixed, staying the same for the term of the mortgage, or variable, fluctuating with a benchmark interest rate. Mortgage rates vary for borrowers based on their credit report. It does not reflect fees or any other charges you may have to pay for the loan.

Jumbo loan or Jumbo mortgage, is a home loan for an amount that exceeds the “conforming loan limit” set on a mortgage eligible for purchase by Fannie Mae and Freddie Mac.

Title insurance protects mortgage lenders and homebuyers against defects or problems with a title when there is a transfer of property ownership. If a title dispute arises during or after a sale, the title insurance company may be responsible for paying specified legal damages, depending on the property.

A three-page form that you receive after applying for a mortgage. The loan estimate tells you important details about the loan you have requested. The lender must provide you a loan estimate within three business days of receiving your application.

 Is a change to the original terms of your mortgage loan. Unlike a refinance, a loan modification doesn’t pay off your current mortgage and replace it with a new one. Instead, it directly changes the conditions of your loan. Qualifying for a loan modification: * you have to be suffering financial hardship * you have to show you can’t afford your current mortgage payments. * You have to be able to show that you can stay current on a modified payment schedule. *The property has to be your primary residence to qualify for a HAMP modification.

A measure comparing the amount of your mortgage with the appraised value of the property. The higher your down payment, the lower your LTV ratio. Mortgage lenders may use the LTV in deciding whether to lend to you and to determine if they will require private mortgage insurance. Some loan modifications are a debt settlement, and it can affect your credit depending on the type of program in which you enroll. Debt settlement will hurt your credit score, even if there is an agreement with the lender. 

Total Housing expenses is the sum of a homeowner’s monthly mortgage principal and interest payments plus any other monthly expenses associated with their home such as insurance, taxes and utilities. Monthly housing costs include your principal and interest payments as well as your homeowner’s insurance premium and taxes. Most of these obligations will have a fixed due.

A mortgage refers to a loan used to purchase or maintain a home, land, or other types of real estate. The borrowers agree to pay the lender over time, typically in a series of regular payments that are divided into principal and interest. The property serves as collateral to secure the loan. The greatest advantage of a mortgage loan is that you do not have to bequeath your ownership of the property and can get the loan at very low interest rates as opposed to most other loans.

Mortgage Closing Checklist is the schedule, including all appendices, exhibits or schedules there to, listing certain documents and information to be delivered in connection with the agreement, the other loan documents and the transactions contemplated thereunder, substantially in the form attached hereto as Annex D. It can help you identify key questions to ask ahead of time so you can close with confidence.

Are processing fees you pay to your lender when you close on your loan. Closing cost on a mortgage loan usually equals 3-6% of your total loan balance. Appraisal fees, attorney’s fees and inspection fees are examples of common closing costs. Lenders are required to provide a summary of these costs to you in the loan estimate.

A type of insurance that protects against default on home loans. Mortgage insurance protects the lender if you fall behind on your payments. The insurance typically covers your mortgage payments for a certain amount of time if you lose your job or become disabled, or it pays it off when you die.

Means that you are trading in your old mortgage for a new one, and possibly a new balance. When you refinance your mortgage, your bank or lender pays off your old mortgage with the new one; this is the reason for the term refinancing. Refinancing can allow you to change the terms of your mortgage to secure a lower monthly payment, switch your loan terms, consolidate debt or even take some cash from your home’s equity to put toward bills or renovations. If you refinance and get a lower monthly payment, make sure you understand how much of the reduction is from a lower interest rate and how much is because your loan term is longer. 

The term of your mortgage loan is how long you have to repay the loan. For most types of homes, mortgage terms are typically 15,20, or 30 years. Some even allow borrowers to choose their own term. Home buyers should consider all possible home loan options before committing to a mortgage. The longest mortgage term available in the United States is 50 years. 40- or 50-year mortgages are available as both fixed and adjustable rate loans.

 Is a payment associated with the establishment of an account with a bank, broker or other company providing services handling the processing associated with taking out a loan. Typically, a set amount for any account. Almost all lenders charge origination fees to cover the cost of processing, underwriting, and executing your loan.

Provides protection to the homeowner if someone sues and says they have a claim against the home from before the homeowner purchased it. An owner’s title insurance policy protects the homebuyer. For an owner’s policy, the coverage amount is usually equal to the purchase price.

Your payoff amount is how much you will actually have to pay to satisfy the terms of your mortgage loan and completely pay off your debt. Your payoff amount id=s different from your current balance. Your current balance might not reflect how much you actually have to pay to completely satisfy the loan.

PCS travel orders are designed to provide for travel and transportation expenses of an employee and immediate family members, movement and storage of household goods and personal effects, and certain others allowances incidental to movement overseas.

The sum of the monthly principal, interest, taxes, and insurance, the component costs that add up to the monthly mortgage payments in most mortgages. It helps both the buyer and the lender determine the affordability of an individual mortgage.

A type of mortgage insurance you might be required to pay for if you have a conventional loan. You pay a monthly premium to the insurer, and the coverage will pay a portion of the balance due to the mortgage lender in the event you default on the home loan.

Are charges due at closing for any daily interest that accrues on your loan between the date you close on your mortgage loan and the period covered by your first monthly mortgage payment.

A fee that some lenders charge if you pay off all or part of your mortgage early. If you have a prepayment penalty, you would have agreed to this when you closed on your home. Not all mortgages have a prepayment penalty. If you already have a loan, you can look at your monthly billing statement, as it should be outlined in there.

The amount you borrowed and have to pay back, your monthly payment includes a portion of that principal. When a payment on the principal is made, the borrower owes less, and will pay less interest based upon a lower loan size.

Property taxes or millage rate is an ad valorem tax on the value of a property. The tax is levied by the governing authority of the jurisdiction in which the property is located. This can be a national government, a federal state, a county or geographical region or a municipality. Property taxes are collected within the homeowner’s monthly mortgage payments, and then paid to the relevant jurisdiction one or more times each year. This is called an escrow account. If the loan does not have an escrow account, then the homeowners will pay the property taxes directly.

This is a category of loans that have a certain, more stable feature that help make it more likely that you’ll be able to afford your loan. A lender must make a good-faith effort to determine that you have the ability to repay your mortgage before you take it right.

Repayment plan is a structural repaying of funds that have been loaned to an individual, business or government over either a standard or extended period of time, typically alongside a payment of interest.

The rights of rescission is a right, set forth by the Truth in Lending Act (TILA) under U.S. Federal Law, of a borrower to cancel a home equity loan or line of credit with a new lender, or to cancel a refinance transaction done with another lender other than the current mortgagee, within 3 days of closing. The 3-day clock doesn’t start until you sign the credit contract. 

This is commonly referred to as junior liens, are loans secured by a property in addition to the primary mortgage. The loan can be structured as either a stand alone second mortgage or piggyback second mortgage.

Security Interest is what lets the lender foreclose if you don’t pay back the money you borrowed.

Seller Financing is a loan that the seller of your home makes to you.

Servicer is the process by which a company collects interest, principal, and escrow payments from a borrower. In the U.S., the vast majority of mortgages are backed by the government or government- sponsored entities through purchase by Fannie Mae, Freddie Mac, or Ginnie Mae.

Short sale is when a mortgage lender agrees to accept a mortgage payoff amount less than what is owed in order to facilitate a sale of the property by a financially distressed owner. The lender forgives the remaining balance of the loan.

This number tells you the total amount of money you will have paid over the life of your mortgage.

TIP is a disclosure that tells you how much interest you will pay over the life of your mortgage loan. 

These fees include the title search fee, the premium for the lender’s title insurance policy, and other costs and services associated with issuing title insurance. In most states, the fee for conducting your closing is also a part of the title service fees.

Survey is a drawing of your property showing the location of the lot, the house and any other structure, as well as any improvements on the property.

This is generally a loan that is meant to be offered to prospective borrowers with impaired credit records. The higher interest rate is intended to compensate the lender for accepting the greater risk in lending to such borrowers.

TRID is an acronym that some use to refer to the TILA Respa Integrated Disclosure rule. Is used in real estate to inform people who apply for a mortgage and describe loan lender rules.

The U.S. Department of Agriculture (USDA) home loans programs offers mortgage to low-income residents of rural areas who cannot otherwise obtain a conventional mortgage. If you live in a rural area and can’t qualify for a conventional loan, you may qualify for either a USDA guaranteed loan or a USDA direct loan.

 VA Loan is a mortgage offered through a U.S. department of Veterans affairs program. VA loans are available to active and veteran service personnel and their surviving spouses, and are backed by the federal government but issued through private lenders.