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1003 The form number for the standard mortgage loan application

Adjustable Rate Mortgage A mortgage with a rate that can adjust at set periodic intervals

Alt-A A mortgage that does not fit the standard prime mortgage guidelines

Amortization The paying off of debt with a fixed term

APR Annual percentage rate. A calculated rate that includes the interest rate and the fees of the loan. Used to compare loans of different rates and fees

ARM See adjustable rate mortgage

Assumable mortgage A mortgage that may be taken over by another borrower, where all of the existing terms remain in place

AUS Automated underwriting system. A system used by lenders that reviews the characteristics of a loan and renders an approval decision.

Bail-out The purchase of a home of a family member to save that person from a foreclosure. These loans are generally not allowed by lenders.

Balloon Payment A payment consisting of the entire remaining balance of a loan.

Bank fees Fees charged by the lender

Broker A middleman that arranges loans between the borrower and the lender

Capacity A borrower’s ability to repay the loan

Cash-out refinance A refinance transaction where the mortgage includes either paying off debt other than the existing mortgage or where the borrower receives cash

Collateral Property used to secure the loan

Commitment An approval given by the lender to extend a loan to the borrower, often contingent on final conditions being met

Conforming A loan that meets the criteria set forth by Freddie Mac and/or Fannie Mae

Conventional financing A loan that is not insured by the Government

Correspondent lender A lender that closes and funds a loan in their name, and subsequently sells the loan to another lender post-closing

Credit Report A report containing all of the borrower’s credit information, including credit scores, liabilities and payment history

Deed A legal document showing ownership of property

Deed in lieu A pre-foreclosure action taken by the homeowner whereby they offer the deed to the property to the lender holding the lien on the property in exchange for the satisfaction of that lien

Direct lender A lender that closes and funds their own loans

Discount points Fees paid to the bank in exchange for a reduced interest rate. One point is equal to 1% of the loan amount.

Down Payment The difference between the sales price of the property and the amount borrowed.

DTI Debt to income ratio. The ratio, expressed as a percentage, of a borrower’s total monthly debt to their monthly gross income.

Earnest Money Deposit A “good faith” deposit made to the seller when the sales contract is signed. This is not the down payment.

Equity The difference between the value of a property and the amount owed on it.

Escrow Money held in an account, controlled by the lender, for the purposes of paying property taxes and insurances

Fannie Mae Federal national mortgage association, is a government-sponsored entity that securitizes mortgages allowing them to be sold on the secondary market, allowing lenders to reinvest in the mortgage market

FHA Federal Housing Administration. Overseen by HUD, they guarantee and insure certain mortgages

First Lien The highest priority debt on a property

Fixed A rate that will remain the same for the duration of the loan

Float-down The option for the borrower to negotiate a lower rate than the agreed upon, locked interest rate

Freddie Mac Federal home loan mortgage corporation, is a government-sponsored entity that securitizes mortgages allowing them to be sold on the secondary market, allowing lenders to reinvest in the mortgage market

Front end ratio The proportion of a borrower’s hosing payment to their gross monthly income, expressed as a percentage

Fully amortized A loan with a payment that covers all of the interest and enough principal to ensure the entire balance is paid at the completion of the loan term

Fully Indexed Rate The total interest rate on an adjustable loan, made up of an index and a margin

Funding Fee A fee charged to insure or guarantee a loan

Gift of Equity A portion of the value of a home that is gifted to the buyer for use as a down payment. This is generally only allowed between relatives.

HAMP Home Affordable Modification Program, a government program allowing lenders to modify the terms of certain mortgages to terms that are more affordable for the homeowner

HARP Home Affordable Refinance Program, a government program allowing lenders to refinance certain loans regardless of the amount of equity in the property, or lack thereof.

HECM Home equity conversion mortgage, FHA’s reverse mortgage program.

HELOC Home equity line of credit. A revolving line of credit secured by real property.

HUD Department of Housing and Urban Development. They oversee FHA.

Hybrid ARM A loan with an initial fixed rate period, then converts to an adjustable rate loan for the duration of the term.

Interest Money paid in addition to the amount borrowed

Interest only A payment that only includes the interest accrued, and no principal.

Investment property A property that is not occupied by the borrower, and is generally rented for income purposes.

Jumbo A loan that exceed the conforming loan limit.

Junior Lien Any lien on the property other than the first lien

Liabilities Debt obligations of the borrower

MIP Mortgage insurance premium, this is the monthly mortgage insurance paid on an FHA loan

Modification A change to the terms of the original note

Mortgage A legal document that ties a note to a specific property

Negative amortization A payment amount that is less than the accrued interest, resulting in a balance that increases over time

Note A legal document that obligates the borrower to pay the loan that is secured by the collateral

Origination points A fee charged by the mortgage originator to originate the loan. Once point equals 1% of the loan amount.

Payment shock The difference between a borrower’s existing housing payment, and the payment of the proposed mortgage

Piggyback mortgage Two loans taken simultaneously, often with one at 80% and the other at up to 20% of the property’s value.

PITI Principal, interest, taxes and insurance, this makes up the total housing payment

PMI Private mortgage insurance. This covers a lender’s loss in the event of foreclosure. Generally required with a loan amount of greater than 80% of the value of the property.

Pre-approval An approval obtained prior to the purchase of a home, showing that the borrower would be qualified to purchase.

Prepayment penalty A fee paid to the lender in the event of the mortgage being paid off prior to the elapsing of specified time period.

Primary residence A property occupied as a principal residence by the homeowner.

Principal The amount borrowed, or the amount still owed on a loan.

Rate and term refinance A refinance mortgage that only includes the payoff of the prior loan and any closing costs.

Rate Lock An agreement between the borrower and the lender of a specified rate.

Refinance A loan taken on a property already owned by the borrower.

Reverse Mortgage A type of refinance loan that does not require monthly payments, but does accrue interest. Offered to homeowners 62 years of age and older.

Right of rescission A legal right to cancel a refinance transaction

Second Home A property used a vacation property by the borrower, and not permanently occupied by tenants.

Second Lien A lien on a property with the second highest priority.

Short sale A sale price of a property that is less than the amount owed by the current homeowner, where the current lien holder has agreed to accept the lesser amount.

Streamline A mortgage with fewer requirements and/or documentation.

Sub prime A loan that allows borrowers with credit and/or income that does not meet standard mortgage guidelines. Higher risk loans.

Term The length of a loan.

Title The document that shows the legal description of a property, anyone with a legal ownership to the property, and any liens against that property.

Title Insurance An insurance policy that protects the homeowner and/or lender against future claims against the title to the property

Total debt ratio The proportion of a borrower’s total monthly debt to their gross monthly income, expressed as a percentage.

UFMIP Upfront mortgage insurance premium. A lump sum payment required when obtaining an FHA loan. It can be financed and included in the loan amount.

Underwriting Assessing the credit worthiness and ability to repay of the borrower.

USDA United States Department of Agriculture. They guarantee a rural housing loan program.

VA Veteran’s Administration. They guarantee a mortgage available to active military and veteran’s.

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