Welcome to the Merriam-Webster of the mortgage world.
Interest on a loan that has accumulated since the initial investment.
A mortgage structure with an interest rate that fluctuates according to predetermined guidelines. The interest rate is based on the current market index the loan is tied to, plus the additional ARM margin (varies from one ARM program to the next). The initial interest rate remains fixed for a specified period of time (usually 1, 3 or 5 years) and adjusts periodically (usually annually).
A fixed percentage added to the index value of an adjustable rate mortgage that determines the rate paid by a borrower.
The date at which an adjustable rate mortgage (ARM) interest rate is eligible to change to a new interest rate.
Usually associated with homeownership, it is the belief that anyone is able to achieve their own version of success through hard work and sacrifice due to the inherent qualities of the American free-market system.
Is the term used to describe the timeframe by which your monthly mortgage payments are calculated to payoff your debt. For example, a loan that is amortized for 30 years will structure the monthly payments to payoff the debt after a period of 360 monthly payments (30 years worth).
The annual percent that is charged for borrowers in order to secure a mortgage loan. This is represented by a percentage that represents the cost of funds borrowed over the life of the loan.
The process of determining the value of a home based on the inspection of a certified home appraiser.
The fee charged by a licensed appraiser for estimating the value of a home or residence.
Refers to paying a debt incurred for use. Meaning, you pay for what you have used rather than what you intend to use. Think of it as the opposite of rent; when you are renting, you pay for the upcoming month that you are going to use; with mortgages, you pay in arrears, which means you pay for the month you just used the home for.
A valuable holding with economic value that an individual owns.
A large payment due at the end of a mortgage agreement. Some homeowners decide to finance the balloon payment into a secondary mortgage in order to avoid making such a large payment all at once.
A financial institution that invests money deposited by businesses and individuals, pays out available moneys to its customers, makes loans with interest, and invests on behalf of its customers.
Properties acquired by banking institutions after successful foreclosure proceedings.
The act of eliminating the financial obligations of an individual due to the inability to pay back outstanding debts. This process can negatively affect an individual’s credit rating for several years.
An organization dedicated to promoting ethical business practices by providing consumers with information about the quality of services from business owners.
A loan requiring a payment every two weeks instead of each month. This allows the borrower to build equity and repay back the loan much faster than with monthly payments.
A discount point that directly affects the rate of the loan, in other words, there is no inflated cost or premium for the discount point. Whatever the cost is for the rate is what is actually charged.
(Consumer) An individual who takes out a loan from a Lender (Creditor) at interest, specifically to obtain a house.
A short-term loan lent by a bank allowing a homebuyer to purchase a home while the transaction for the sale of their current home is being processed.
A person who charges for managing the home buying and selling process.
When a rate lower than the market rate is desired, borrowers sometimes have the ability to “buy-down” the rate by paying Discount Points.
The money flowing into and out of a borrower’s financial accounts. Records of cash flows are used to determine the ability of a borrower to repay a loan.
on an Adjustable Rate Mortgage (ARM), caps are the percentage points that the interest rate is eligible to increase by or to, based on the cap. For example, most ARMs have 3 cap’s:
a refinance transaction by which the borrower refinances the current mortgage and also liquidates equity from the subject property, receiving a lump sum of “cash” when the loan funds.
The maximum interest rate allowed for Adjustable-Rate Mortgages.
A document issued by a local government stating that a property meets the minimum health and building requirements for livability.
the employee of the lender who prepares the final documents for the closing/consummation of the loan, this works closely with the title company and documents attorneys to prepare the documents. The closer also sends the wire and issues the funding for the loan once everything is complete.
(Consummation) The finalizing and agreeing upon of all documentation regarding the purchasing/selling of real estate.
the costs associated with securing a mortgage. There are closing costs from the lender as well as other third party service providers, such as the title company and the appraiser.
the department responsible for the issuing of the closing documents and instructions, as well as the sending of the wire and funding of the loan.
the document signed by the borrower at least 3 days prior to closing/consummation, provides the breakdown of the closing costs in comparison to the Loan Estimate.
The fees paid to a broker for executing the sale and buying of real estate.
The interest earned on the initial principal and gained interest of previous periods of a loan. This is known as ‘interest on interest.’
items assigned by the underwriter that must be addressed prior to the final approval and issuing of the “clear-to-close” (CTC). May include additional documentation, clearer copies of documents, letters or explanation, and more.
(See Conventional Loan) A loan eligible for purchase by Fannie Mae and Freddie Mac.
(Borrower) As of October 3, 2015, the correct term used to refer to an individual who takes out a loan from a Lender (Creditor) at interest, specifically to obtain a house.
(Closing) As of October, 3 2015, the correct term used to refer to Te finalizing and agreeing upon of all documentation regarding the purchasing/selling of real estate.
A type of mortgage loan that meets the funding requirements for purchase from Fannie Mae and Freddie Mac for the secondary market. Qualifications include but are not limited to a 5% minimum down payment, 620 minimum credit score, and Fixed or Adjustable monthly payment options. Also known as a Conforming Loan
To sign for another person’s debt establishing a legally binding contract where an individual will cover another person’s debt if they were to default on their financial obligations.
The analysis of a borrower’s ability to repay a loan or any financial debts.
A report outlining the creditworthiness of an individual including their payment history and debt-to-income ratio.
A numeric range from 300 to 850 that expresses the likelihood that an individual has the ability to pay back borrowed moneys.
(Lender) As of October 3, 2015, the correct term used to refer to the entity that makes loans at interest to consumers (borrowers), specifically to obtain a house.
The value of an interest rate that is used to calculate the payment index of an adjustable rate mortgage.
Any outstanding loans or financial obligations owed by a homeowner. Debt obligations are considered liabilities.
A metric calculating the ability of a borrower to repay a loan based on their income in relation to the monthly mortgage payments. The higher the percentage, the more likely a borrower is to default.
An increase in the price of goods and services relating to the reduction of the supply of money or available credit.
A one-time cost, charged at closing/consummation in order to acquire a lower than market rate.
A non-refundable, up-front payment that represents a percentage of the total cost of a particular product, including a home.
The true interest rate earned on a mortgage – includes all compounding interest.
The difference between the amounts a person owes on a mortgage and the value of the property. This the amount a person would receive if they sold their home and paid off the remaining balance of the mortgage.
An account held by a third-party used to secure ownership of a home in the event there are obstacles to closing including appraisals.
Federal National Mortgage Association. A government sponsored organization that re-packages mortgages for the secondary market.
The United States Federal Housing Administration. A federal agency providing mortgage insurance to FHA-approved lenders. The FHA will pay a specific amount to the lender if an approved borrower defaults on the loan.
a certain loan program that provides funds for renovation in addition to the mortgage. This program is not always available through Network Funding and may have restrictions, check with your Loan Officer for more details.
Fair Isaac Corporation abbreviation. The Fair Isaac Corporation develops the criteria for determining credit scores for determining an individual’s risk of default. This term is used interchangeably with “credit score”.
A mortgage structure with an interest rate that does not change over the life of the loan.
The process of a lender taking possession of a property under contract that a borrower is unable to afford and defaults due to lack of payment.
The Federal Home Loan Mortgage Corporation. A government sponsored organization that re-packages mortgages for the secondary market.
after a loan has closed/completed consummation, the Closer issues the funding number, releasing the “wire” for disbursement of the funds to complete the mortgage transaction.
Funds paid by a borrower’s relative or loved one to a seller to help with closing costs, appraisal fees, and/or down payments.
this document has been replaced by the Loan Estimate. 3-page document that provides a breakdown of the closing costs associated with the mortgage.
A type of reverse mortgage insured by the FHA. The FHA insures the lender against loss in case the amount borrowed is more than the value of the home.
A type of secondary mortgage allowing borrowers to use the equity in their homes to finance improvements or other projects.
The process of evaluating a real estate property’s value by an approved home inspector.
an individual who owns their home.
The United States Department of Housing and Urban Development. A government agency created to increase homeownership and affordable rental opportunities for low-income individuals.
synonymous with “escrow account”. See Escrow Account definition.
A fluctuating percentage that represents the price at which goods and services increases.
the percentage charged to the borrower, in addition to the principle owed. It is the profitable part of the mortgage payment to the lender.
A type of mortgage where the borrower only pays off the interest owed on the loan. Although, eventually, the borrower will have to pay back the remaining balance.
The maximum interest rate charged to borrowers by financial institutions.
a property that is not inhabited by the homeowner but is used as an investment, generally through leasing out to tenants.
the list of documentation needed in order to process and underwrite a mortgage.
A mortgage amount that exceeds the Office of Federal Housing Enterprise Oversight and cannot be purchased by Fannie Mae and Freddie Mac. Some of the features include but are not limited to a 20% down payment (some options may require more), 690 minimum credit score, and Fixed or Adjustable rate mortgage options.
(Creditor) The entity that makes loans at interest to borrowers, specifically to obtain a house.
All debts and financial obligations that a homeowner owes.
London Interbank Offered Rate. The average interest rate determined by the leading banks in London to be charged to other banks for short-term loans. It is also used to determine the interest rate for adjustable rate mortgages.
A loan structure where the principal of the loan is paid over the life of the loan based on a predetermined repayment schedule.
A Creditor is said to have a completed Loan Application when they are in possession of the following from a Consumer: name, income, SSN, subject property address, estimate of value of subject property, and mortgage loan amount.
the documents sent from the lender to the borrower that the borrower must review and sign in order for the loan to proceed in the Loan Process. The disclosures cover the terms of the loan, the borrower's information and more.
the disclosure that details the closing costs associated with the loan. The Loan Estimate replaced two other disclosures on 10/3/15, the Good Faith Estimate (GFE) and the Truth In Lending (TIL) disclosure.
Individuals representing banks and financial institutions that help individuals acquire mortgage loans.
the process through which a mortgage transaction must go to progress from Loan Application to Funding. See Network Funding’s helpful illustration for more details on the process (nflp.com/the-loan-process).
Ratio between the unpaid financial obligation and the value of a particular property.
The amount that an asset would be sold for in the current marketplace.
A legally binding agreement where an individual borrows money from a lender in order to purchase property from a buyer. The borrower pays off the balance of the loan by agreeing to a set repayment schedule.
An individual who connects borrowers with mortgage lenders without using their own funds to originate the loan. A mortgage broker collects the appropriate paperwork and provides it to a lender for approval.
A tool used to determine the monthly payments of a mortgage by evaluating the amount financed, the term of the loan, and the interest rate.
Insurance paid for by borrowers in order to protect lenders against default.
also known as a “real estate lien” or “promissory note”, it is a written guarantee to repay a certain sum of money (plus interest usually) at a specified rate and length of time and is tied to a specific property for collateral.
A monthly payment that includes principal and interest paid to a lender in order to satisfy a debt incurred by a borrower. The payment includes principal, interest, property tax, and may include mortgage insurance.
the specific way in which a lender puts their name and address on legal documents.
A borrower; the person who receives a loan to purchase a property with the intention of paying it back with an agreed upon rate of interest.
The National Mortgage Licensing Service. The system used to license individuals for mortgage loan origination.
The interest rate before accounting for inflation. The nominal rate can be calculated as (1 + nominal rate) = (1 + real interest rate)(1+ inflation rate).
The activity of organizing and processing all information necessary for the creation and approval of a mortgage loan.
The fees charged by a lender for processing a mortgage loan application, which is a percentage of the total loan amount and is usually between .5% and 1%.
the principal balance (plus interest and fees if applicable) required to pay in order remove a lien or debt.
a one-time closing cost associated with acquiring a lower interest rate or in some cases, the necessary fee paid to secure a certain type of mortgage.
The act of evaluating and approving a borrower for a mortgage prior to the actual purchasing of a particular home or residence. This involves assessing a borrower’s credit score, annual income, and likelihood of repayment.
The assessment of the amount a borrower is qualified to borrow and the likelihood of a borrower’s ability to pay back a loan based on several factors including credit score and income.
(Principal Residence) The main location that an individual occupies as their home.
The lowest commercial interest rate charged by banks to their most credit-worthy customers.
The amount a lender borrows for a mortgage loan or the amount still owed an existing mortgage loan.
Private Mortgage Insurance. Insurance required for securing a conventional loan when a borrower has less than 20% equity in their home.
the part of the loan process prior to underwriting that organizes and prepares the loan application for the underwriter. This step also involves the ordering of certain documents (verification of employment, tax transcripts, appraisal, survey, etc).
the individual who processes the loan application, preparing it for the underwriter. This person may or may not have direct contact with the borrower and usually works as the liaison between the Loan Originator and the Underwriter.
The tax levied on property owners by a local government usually based on the property’s value.
also referred to as Hazard Insurance, this is insurance that protects the homeowner from certain types of damage to the property. This is not the same thing as Mortgage Insurance (PMI).
An individual licensed to execute the buying and selling of real estate transactions in a specified area.
The process of homeowners renegotiating the terms of their mortgage in order to save money over the life of the loan.
the cost (usually determined by the appraiser or insurance company) regarding what it would take to rebuild the home in the event of a major catastrophe.
The cancellation of a contract within the 3-day grace period.
A type of mortgage reserved for homeowners 62 and older that allows them to sell their homes while maintaining residency. Once the homeowner dies, the lender takes ownership of the home unless the balance of the reverse mortgage is paid back.
the legal document by which a home seller and a home buyer agree to terms on the transaction of a specific property.
The market where mortgage lenders sell primary mortgages in order to raise funds to originate more mortgage loans. Investors include Fannie Mae and Freddie Mac.
A supplementary mortgage loan that is issued while the original loan is still in effect. In case of default, the original loan holder would receive repayment first. Since the original mortgage is paid back first, the second mortgage usually has a much higher interest rate to make up for the risk of default.
The financial contributions made by a seller in order to incentivize borrowers to purchase a particular home.
An alternative to foreclosure proceedings that allows a borrower to sell their home to pay off the current mortgage based on financial difficulties.
A claim against a property for unpaid taxes.
closing costs that may be charged by entities other than the lender that are responsible for providing services in association with a specific mortgage transaction, such as an appraisal or title work.
The document outlining ownership and possession of a property.
insurance provided by a title company, that protects against financial loss from defects in the title to a property, should there be invalidity or unenforceability of a mortgage loan. Essentially, it ensures the lender and the homeowner that there are no other claims of ownership or lien against the subject property.
(Tila-Respa Integrated Disclosure) A rule created by the CFPB (Consumer Financial Protection Bureau) with the authority of the Dodd-Frank Act that brought a wave of changes to the mortgage industry on October 3, 2015. Changes included the integration and formation of new disclosure forms, new terminology, new timeline requirements, and new definitions for loan-specific terminology.
this document has been replaced by the Loan Estimate. 2-page document that provides a specific breakdown of the cost associated with financing a property.
the individual responsible for reviewing the loan application and issuing the approval or denial of the mortgage.
The process of bankers raising investment capital in order to finance mortgages on behalf of investment corporations and governments issuing mortgages and other investment securities.
Also known as the USDA Rural Development Guaranteed Housing Loan Program, this offers mortgage loans for properties designated as rural areas by the United States Department of Agriculture.
(Second Home) A home other than the homeowner’s primary residence used for recreation and vacations.
A loan program created by the United States Department of Veteran Affairs established to provide veterans and active-duty service men and women with affordable financing for home mortgages. The VA does not originate loans, but insures VA loans and creates the rules for qualification.
a one-time closing cost fee that is applied to most veterans using their eligibility. This fee may be rolled into the loan amount or paid for at closing. The VA Funding Fee is waivable and variable in certain circumstances.
A document signed by a borrower’s employer affirming their employment status including current position and salary.
The final inspection of a property addressing any outstanding issues that may need correction before consummation.