Fixed-Rate Loan benefits include:

• No change in monthly principal and interest payments regardless of fluctuations in interest rates
• More stability may give you “peace-of-mind”

Fixed-Rate Loan disadvantages include:

• Higher initial monthly payments compared to those of adjustable rate mortgages
• Less flexibility

An adjustable rate mortgage, which may qualify as a second mortgage loan, does not apply the same interest rate toward monthly payments for the life of the loan. Throughout the life of that loan, the homebuyer’s principal and interest payment for second mortgage loans will adjust periodically based on fluctuations in the interest rate.

For example, a lender of second mortgage loans could offer a 30-year adjustable rate mortgage loan to a homebuyer at an initial 6.5% interest rate. During an adjustment period for the ARM Mortgage loan, the market interest rate could rise to 8.0%, resulting in a significantly larger interest payment. Similarly, the market interest rate could decrease to 6.0%, resulting in lower interest payments.

ARM Mortgage benefits include:

• Initial payments lower due to lower beginning interest rate, usually about 2 percentage points below the fixed rate
• Ability to qualify for a higher loan amount due to lower initial interest rates
• Lower interest payments if the interest rate drops over time
• Interest rate caps limit the maximum interest payment allowed for the loan
• ARM Mortgage disadvantages include:
• Initial lower interest rate and monthly payments are temporary and apply to the first adjustment period. Typically, the interest rate will rise after the initial adjustment period.
• Higher interest payments if the interest rate rises over time

To have one of our lending partners help you evaluate how you might best secure a great rate on a mortgage loan simply fill out our 1 Step Mortgage Home Loan Request Form.

Some lenders permit or may require borrowers to pay for additional costs above and beyond the principal and interest on the mortgage loan and usually includes real estate taxes and property hazard insurance. The estimated yearly cost for taxes and insurance is divided into monthly amounts and added to the cost of principal and interest on your mortgage loan. The amount collected monthly for taxes and insurance is placed into an account called an escrow account and is paid once a year when due. When escrow is used, a monthly payment is often referred to as a PITI payment (Principal, Interest, Taxes, Insurance).

Some lenders may require an additional payment for private mortgage insurance. Whether or not your mortgagor will require you to pay for PMI will depend on the type of mortgage you have and how much vested interest, equity, you have in your home.

How to Qualify for a Loan

When considering your application, mortgage lenders are primarily concerned with your ability to repay your mortgage. To determine if you qualify for a loan, they will consider your credit history, your monthly gross income and how much cash you will have for a down payment (most lenders will require anywhere from 5 percent to 20 percent of the purchase price of the home). A mortgagor will calculate your debt to income ratio when considering your mortgage application. There are two ways to do this. Generally, your monthly mortgage payment (including principal, interest, taxes and insurance) should not exceed 28 percent of your gross monthly income. Additionally, all of your debt (including car loans, mortgage payment, child support or alimony, credit cards, student loans, etc.) should not exceed 36 percent of your gross income.

Types of Mortgages

Lenders offer several types of mortgages, but the most common are fixed-rate mortgages. These loans feature fixed rates and set monthly payments, generally for 15-year and 30-year periods. They’re popular because managing a monthly budget is easier with set payments and they are affordable when interest rates are low. However, if you are planning on owning your home for a short period of time (less than five years) or if interest rates are high when purchasing your home or refinancing and you think they will fall, then an adjustable rate mortgage (ARM) might suit your needs. Adjustable rate mortgages differ from fixed rate mortgages because after an initial fixed rate period, the interest rate on an ARM will fluctuate as the market interest rates change. Adjustable rates start lower than fixed rate mortgages but there is the risk of higher rates over the years. Adjustable rate mortgages are available with different initial fixed-rate periods that range from one year, three years, five years, seven years and even up to ten years before the rates will adjust. Borrowers do have some protection from extreme interest rate increases because adjustable rate mortgages come with caps that limit the amount by which the interest rate can change.

Additional Mortgage Types

Other, less-often used mortgages include: Jumbo mortgages, which exceed the loan limits set by Fannie Mae and Freddie Mac; Two-Step mortgages, which combine elements of both fixed and adjustable rate mortgages; Biweekly mortgages, which are fixed rate mortgages in which payments are made every other week instead of monthly; Balloon mortgages, which give borrowers lower rates and payments for a specific period of time with a large lump sum principal balance payment due at the end of the balloon period; Assumable mortgages, which permit homeowners to “hand-off” the loan to a buyer instead of paying it off at the time of sale; Subprime mortgages, which are generally approved for home buyers or owners with less than perfect credit; and Construction mortgages, which are issued to people to build their home instead of purchase an existing home.

LendingLeaders will match you with lenders who will work with you to help decide what mortgage options are right for your situation. To have one of our lenders contact you, simply fill out the 1 Step Mortgage Home Loan Request Form.

Acceleration

The right of the mortgagee (lender) to demand the immediate repayment of the mortgage loan balance upon the default of the mortgagor (borrower), or by using the right vested in the Due-on-Sale Clause.

Adjustable Rate

An interest rate that changes periodically in relation to an index. Payments may increase or decrease accordingly.

Adjustable-rate mortgage (ARM)

A mortgage with an interest rate and payment that change periodically over the life of the loan based on changes in a specified index.

Adjustment interval

On an adjustable rate mortgage, the time between changes in the interest rate and/or monthly payment, typically one, three or five years, depending on the index.

Alternative Documentation

The use of pay stubs, W-2 forms, and bank statements in lieu of Verifications of Employment (VOE) and Verifications of Deposit (VOD) to qualify a borrower for a mortgage.

Amortization

A repayment method in which the amount you borrow is repaid gradually though regular monthly payments of principal and interest. During the first few years, most of each payment is applied toward the interest owed. During the final years of the loan, payment amounts are applied almost exclusively to the remaining principal.

Annual Membership

An amount that may be charged annually for having a line of credit available. Often charged regardless of whether or not you use the line. Also referred to as a “participation fee.”

Annual Percentage Rate (APR)

The cost of credit on a yearly basis, expressed as a percentage. Required to be disclosed by the lender under the federal Truth in Lending Act, Regulation Z. Includes up-front costs paid to obtain the loan, and is, therefore, usually a higher amount than the interest rate stipulated in the mortgage note. Does not include title insurance, appraisal, and credit report.

Application

An initial statement of personal and financial information which is required to approve your loan.

Application Fee

Fees that are paid upon application. An application fee may frequently include charges for property appraisal ($200-$400) and a credit report ($30-50).

Appraisal Amount or Appraised Value

The fair market value of a home determined by an independent appraisal. The appraisal uses local real estate market sales activity as a major basis for valuation.

Appreciation

An increase in the value of a property due to market conditions or other causes. The opposite is depreciation.

Assessment

A local tax levied against a property for a specific purpose, such as a sewer or street lights.

Assumption

The agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller. Assuming a loan can usually save the buyer money since this is an existing mortgage debt, unlike a new mortgage where closing cost and new, probably higher, market-rate interest charges will apply.

Balloon (payment) mortgage

Usually a short-term fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a time specified in the contract.

Bankruptcy

Legal relief from the payment of all debts after the surrender of all assets to a court-appointed trustee. Assets are distributed to creditors as full satisfaction of debts, with certain priorities and exemptions. A person, firm or corporation may declare bankruptcy under one of several chapters of the U. S. Bankruptcy Code: Chapter 7 covers liquidation of the debtor’s assets; Chapter 11 covers reorganization of bankrupt businesses; Chapter 13 covers payment of debts by individuals through a bankruptcy plan.

Blanket Mortgage

A mortgage covering at least two pieces of real estate as security for the same mortgage.

Borrower (Mortgagor)

One who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan in full

Broker

An individual in the business of assisting in arranging funding or negotiating contracts for a client buy who does not loan the money himself. Brokers usually charge a fee or receive a commission for their services.

Buy-down

When the lender and/or the home builder subsidized the mortgage by lowering the interest rate during the first few years of the loan. While the payments are initially low, they will increase when the subsidy expires.

Callable debt

A debt security whose issuer has the right to redeem the security at a specified price on or after a specified date, but prior to its stated final maturity.

Cap

The limit placed on adjustments that can be made to the interest rate or payments such as the annual cap on an adjustable rate loan (ARM) or the cap on a rate over the life of the loan.

Cash Flow

The amount of cash derived over a certain period of time from an income-producing property. The cash flow should be large enough to pay the expenses of the income producing property (mortgage payment, maintenance, utilities, etc.)

Cash Out

Receiving money back when refinancing your present mortgage.

Cash-out Refinance

To refinance the mortgage on a property for more than the principal owed. This allows the borrower to get cash from the equity in their home. Loan products may vary on how much can be borrowed on a cash-out refinance.

Ceiling

The maximum allowable interest rate over the life of the loan of an adjustable rate mortgage.

Certificate of Eligibility

The document given to qualified veterans which entitles them to VA guaranteed loans for homes, business, and mobile homes. certificates of eligibility may be obtained by sending DD-214 (Separation Paper) to the local VA office with VA form 1880 (request for Certificate of Eligibility)

Certificate of Reasonable Value (CRV)

An appraisal issued by the Veterans Administration showing the property’s current market value

Certificate of Veteran status

The document given to veterans or reservists who have served 90 days of continuous active duty (including training time) It may be obtained by sending DD 214 to the local VA office with form 26-8261a (request for certificate of veteran status. This document enables veterans to obtain lower down payments on certain FHA insured loans).

Certified Mortgage Specialist (CMS)

The Certified Mortgage Specialist is the professional sales associate who communicates the needs of the agent and borrower to the operation team.

Charge-off

The portion of principal and interest due on a loan that is written off when deemed to be uncollectible.

Closer

The person who coordinates the closing time with the Client Coordinator and reviews and prepares the necessary closing documents.

Closing

The meeting between the buyer, seller and lender or their agents where the property and funds legally change hands. Also called settlement. closing costs usually include an origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. Thecost of closing usually are about 3 percent to 6 percent of the mortgage amount.

Closing Costs

Costs that are due at closing, in addition to the purchase price of the property. These costs normally include, but are not limited to, origination fee, discount points, attorney’s fees, costs for title insurance, surveys, recording documents, and prepayment of real estate taxes and insurance premiums held by the lender. Sometimes the seller will help the borrower pay some of these costs.

Closing Statement

An accounting of the debits and credits incurred at closing. All FHA, VA and Conventional financing loans use a Uniform Closing or Settlement Statement commonly referred to as the HUD-1.

Co-Borrower

A party who signs the mortgage note along with the primary borrower, and who also shares title to the subject real estate.

Collateral

Property pledged as security for a debt. For example, real estate that secures a mortgage. Collateral can be repossessed if the loan is not repaid.

Combined Loan To Value (CLTV)

The mathematical relationship between the total of all loan amounts (first mortgage plus subordinate liens) and the value of the subject property.

Commitment

A promise by a lender to make a loan on specific terms or conditions to a borrower or builder. A promise by an investor to purchase mortgages from a lender with specific terms or conditions. an agreement, often in writing, between a lender and a borrower to loan money at a future date subject to the completion of paperwork or compliance with stated conditions.

Common stock

A security that represents ownership in a company but gives no legal claim to a definite dividend or to a return of capital.

Community Reinvestment Act (CRA)

This act requires financial institutions to meet the credit needs of their community, including low and moderate-income sections of the local community. It also requires banks to make reports concerning their investment in the areas where they do business.

Condominium

A form of property ownership in which the homeowner holds title to an individual dwelling unit, an undivided interest in common areas of a multi-unit project, and sometimes the exclusive use of certain limited common areas. All condominiums must meet certain investor requirements.

Conforming Loan

Generally, a mortgage loan under $203,150. Qualifying ratios and underwriting methods are standardized to a large degree.

Construction loan

A short term interim loan to pay for the construction of buildings or homes. These are usually designed to provide periodic disbursements to the builder as he progresses.

Contract of Sale

The agreement between the buyer and seller on the purchase price, terms, and conditions necessary to both parties to convey the title to the buyer. More…

Conventional Loan

A mortgage loan not insured or guaranteed by the federal government.

Conventional mortgage

A mortgage loan that is not insured or guaranteed by the federal government.

Conversion Option

Options to convert an adjustable rate mortgage or balloon loan to a fixed rate mortgage under specified conditions.

Co-Signer

A party who signs the mortgage note along with the borrower, but who does not own or have any interest in the title to the property.

Credit enhancement

A method to reduce credit risk by requiring collateral, letters of credit, mortgage insurance, corporate guarantees, or other agreements to provide an entity with some assurance that it will be recompensed to some degree in the event of a financial loss.

Credit Limit

The maximum amount that you can borrow under a home equity plan.

Credit loss ratio

The ratio of credit-related losses to the dollar amount of MBS outstanding and total mortgages owned by the corporation.

Credit Rating

A rating given a person or company to establish credit-worthiness based upon present financial condition, experience and past credit history.

Credit Report

A document completed by a credit-reporting agency providing information about the buyer’s credit cards, previous mortgage history, bank loans and public records dealing with financial matters.

Credit scoring

A process that uses recorded information about individuals and their loan requests to assess – in a quantifiable, objective, and consistent manner – their future performance regarding debt repayment.

Creditor

A person to whom debt is owed by another person who is the “debtor”.

Deal Structure

An Underwriters review of certain aspects of a loan application that do not meet standard guidelines.

Debt security

A security in which the issuing company generally agrees to repay the principal (typically, the original amount borrowed) and make interest payments according to an agreed schedule.

Debt Service

The total amount of credit card, auto, mortgage or other debt upon which you must pay.

Debt to Income Ratio

Compares the amount of monthly income to the amount the borrower will owe each month in house payment (PITI) plus other debts. The other debts may include but not limited to car payment, credit cards, alimony, child support, and personal loans. This ratio is commonly used to see if the borrower has the capacity to repay the debt.

Deed of Trust

A legal document that conveys title to real estate to a disinterested third party (trustee) who holds the title until the owner of the property has repaid the debt. In states where it is used, a Deed of Trust accomplishes essentially the same purpose as a Mortgage.

Default

The failure of a borrower to comply with the terms of a note or the provisions of a mortgage.

Deferred interest

When a mortgage is written with a monthly payment that is less than required to satisfy the note rate, the unpaid interest is deferred by adding it to the loan balance.See negativeamortization

Delinquency

A mortgage loan on which a payment has not been made by the due date.

Department of Veterans Affairs (VA)

An independent agency of the federal government which guarantees long-term, low-or no-down payment mortgages to eligible veterans.

Depreciation

A decline in the value of property. The opposite of appreciation.

Derivative

A financial instrument which derives its value from an underlying security or notional amount.

Discount Points

A percentage of the loan amount which is charged or credited by the lender upon making a mortgage loan. Loans that are made at the present market rate, with no points, are considered to be made at “par.” Because of the lender’s ability to charge or credit points on an individual loan, the lender is able to tailor a loan program and interest rate to fit the needs of each individual borrower. Discount points can be negotiated in the Purchase Contract to be paid by either the seller or the borrower.

Down Payment

The difference between the purchase price and that portion of the purchase price being financed. Most lenders require the down payment to be paid from the buyer’s own funds. Gifts from related parties are sometimes acceptable, and must be disclosed to the lender.

Due on Sale

A clause in a mortgage agreement providing that, if the mortgagor (the borrower) sells, transfers, or, in some instances, encumbers the property, the mortgagee (the lender) has the right to demand the outstanding balance in full.

Due-on-Sale-Clause

A provision in a mortgage or deed of trust that allows the lender to demand immediate payment of the balance of the mortgage if the mortgage holder sells the home.

Duration

The weighted-average life of the present value of all future cash flows, both principal and interest, of a security. It is used as a measure of the sensitivity of the value of a security to changes in interest rates.

Earnest Money

Deposit made by a purchaser of real estate as evidence of good faith.

Effective Interest Rate

The cost of credit on a yearly basis expressed as a percentage. Includes up-front costs paid to obtain the loan, and is, therefore, usually a higher amount than the interest rate stipulated in the mortgage note. Useful in comparing loan programs with different rates and points.

Encumbrance

A claim against a property by another party which usually affects the ability to transfer ownership of the property.

Entitlement

The VA home loan benefit is called entitlement. Entitlement for a VA guaranteed home loan. This is also known as eligibility.

Equal Credit Opportunity Act (ECOA)

Is a federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs.

Equity

The difference between the current market value of a property and the principal balance of all outstanding loans.

Escrow Account

An account held by the lending institution to which the borrower pays monthly installments for property taxes, insurance, and special assessments, and from which the lender disburses these sums as they become due.

Fair Credit Reporting Act

Regulated the collection and distribution of information by the consumer credit reporting industry. It also affects how financial institutions collect and convey credit information about loan applicants or borrowers.

Fair Housing Act

Prohibits the denial or variance of the terms of real estate related transactions based on race, color, religion, sex, national origin, disability, or familiar status of the credit applicant. Real estate related transactions include a mortgage, home improvement, or other loans secured by a dwelling.

Fannie Mae

See Federal National Mortgage Association.

Farmers Home Administration (FmHA)

Provides financing to farmers and other qualified borrowers who are unable to obtain loans elsewhere.

Federal Home Loan Bank Board (FHLBB)

The former name for the regulatory and supervisory agency for federally chartered savings institutions. Agency is now called the Office of Thrift Supervision

Federal Home Loan Mortgage Corporation (FHLMC)

Also known as Freddie Mac. A publicly owned corporation created by Congress to support the secondary mortgage market. It purchases and sells conventional residential mortgages as well as residential mortgages insured by the Federal Housing Administration (FHA) or guaranteed by the Veterans Administration (VA).

Federal Housing Administration (FHA)

A division of the Department of Housing and Urban Development. Its main activity is the insuring of residential mortgage loans made by private lenders. FHA also sets standards for underwriting mortgages.

Federal National Mortgage Association (FNMA)

Also known as Fannie Mae. A privately owned corporation to support the secondary mortgage market. It adds liquidity to the mortgage market by investing in home loans through the country.

Federal National Mortgage Association (FNMA) also know as “Fannie Mae”

A tax-paying corporation created by Congress that purchases and sells conventional residential mortgages as well as those insured by FHA or guaranteed by VA. This institution, which provides funds for one in seven mortgages, makes mortgage money more available and more affordable.

FHA Loan

More appropriately termed “FHA Insured Loan.” A loan for which the Federal Housing Administration insures the lender against losses the lender may incur due to your default.

FHA mortgage insurance

Requires a fee (up to 2.25 percent of the loan amount) paid at closing to insure the loan with FHA. In addition, FHA mortgage insurance requires an annual fee of up to 0.5 percent of the current loan amount, paid in monthly installments. The lower the down payment, the more years the fee must be paid.

FHLMC

The Federal Home Loan Mortgage Corporation provides a secondary market for savings and loans by purchasing their conventional loans. Also known as “Freddie Mac.”

FICO Score

A credit score given to a person that establishes creditworthiness based on present financial condition, experience and past credit history.

Finance Charge

The cost of credit as a dollar amount (i.e. total amount of interest and specific other loan charges to be paid over the term of the loan and other loan charges to be paid by the borrower at closing). Loan charges include origination fees, discount points, mortgage insurance, and other applicable charges. If the seller pays any of these charges, they cannot be included in the finance charge.

Financial Statement

A summary of facts showing an individual’s or company’sfinancial condition. For individuals, it states their assets and liabilities as of a given date. For a company it should include a Profit and Loss Statement (P&L) for a certain period of time and balance sheet, stating assets and liabilities as of a given date.

Firm Commitment

A promise by FHA to insure a mortgage loam for a specified property and borrower. A promise from a lender to make a mortgage loan.

First Mortgage

A mortgage which is in first lien position, taking priority over all other liens (which are financial encumbrances).

First Rate Adjustment — First rate adjustment after

In association with an Adjustable Rate Mortgage loan, this is the number of months after which the loan has closed when the first interest rate adjustment will occur.

First Rate Adjustment — Maximum rate decrease

In association with an Adjustable Rate Mortgage loan, this is the most the interest rate can decrease during the first adjustment period.

First Rate Adjustment — Maximum rate increase

In association with an Adjustable Rate Mortgage loan, this is the most the interest rate can increase during the first adjustment period.

Fixed Rate

An interest rate which is fixed for the term of the loan. Payments as well are fixed at one amount.

Fixed-rate mortgage

A mortgage loan in which the interest rate does not change during the entire term of the loan.

Floating

The term used when a purchaser elects not to lock-in an interest rate at the time of application.

Flood Insurance

Insurance that compensates for direct physical damages by or from flood to the insured property subject to the terms, provisions, conditions and losses not covered provision of the policy. It is required for mortgages on properties located in federally designated flood areas.

FNMA

The Federal National Mortgage Association is a secondary mortgage institution which is the largest single holder of home mortgages in the United States. FNMA buys VA, FHA, and conventional mortgages from primary lenders. Also known as “Fannie Mae.”

Forbearance

The lender’s postponement of legal action when a borrower is delinquent. It is usually granted when a borrower makes satisfactory arrangements to bring the overdue mortgage payments up to date.

Foreclosure

The legal process by which property that is mortgaged as security for a loan may be sold to pay a defaulting borrower’s loan.

Freddie Mac

See Federal Home Loan Mortgage Corporation

Gift Letter

A letter or affidavit that indicates that part of a borrower’s down payment is supplied by relatives or friends in the form of a gift and that the gift does not have to be repaid.

Global Debt Facility

A debt issuance facility through which U.S. dollar and foreign currency debt securities may be offered to investors worldwide with the feature of clearing and settlement through a variety of clearing systems.

Good Faith Estimate (GFE)

An estimate of settlement charges paid by the borrower at closing. The Real Estate Settlement Procedures Act (RESPA) requires a Good Faith Estimate of settlement charges be provided to the borrower.

Grace Period

A period of time during which a loan payment may be paid after its due date but not incur a late penalty. Such late payments may be reported on your credit report.

Graduated Payment Mortgage (GPM)

A type of flexible-payment mortgage where the payments increase for a specified period of time and then level off. This type of mortgage has negative amortization built into it.

Gross Income

A person’s income before deduction for income taxation.

Guaranty

A promise by one party to pay a debt or perform an obligation contracted by another if the original party fails to pay or perform according to a contract

Guaranty fee

Compensation paid by a lender to Fannie Mae for the guarantee of timely payments of principal and interest to MBS security holders.

Hazard Insurance

A form of insurance in which the insurance company protects the insured from specified losses, such as fire, windstorm and the like.

Home Equity Line of Credit

A loan providing you with the ability to borrow funds at the time and in the amount you choose, up to a maximum credit limit for which you have qualified. Repayment is secured by the equity in your home. Simple interest (interest-only payments on the outstanding balance) is usually tax-deductible. Often used for home improvements, major purchases or expenses, and debt consolidation.

Home Equity Loan

A fixed or adjustable rate loan obtained for a variety of purposes, secured by the equity in your home. Interest paid is usually tax -deductible. Often used for home improvement or freeing of equity for investment in other real estate or investment. Recommended by many to replace or substitute for consumer loans whose interest is not tax-deductible, such as auto or boat loans, credit card debt, medical debt, and education loans.

Home Maintenance

Costs associated with maintaining a home. This may include, but not limited to, general repairs, replacement or repair of furnace, air conditioning, roof, plumbing and electrical systems.

Home Mortgage Disclosure Act (HMDA)

Also known as Regulation C. The purpose of HMDA is to provide disclosure of mortgage lending application activity (home purchase or improvement) to regulators and the public. Information is collected on each application, and is recorded on a log that is compiled to produce a report on application activity by geographic designation (census tract).

Homeowners Association (HOA)

A non-profit corporation or association that manages common areas and services of a Condominium or Planned Unit Development (PUD).

Homeowners Insurance

Insurance that covers damage to the insureds‘ residence and liability claims made against the insured subject to the policy terms, conditions, provisions, losses not insured provision and exclusions.

Housing Expense Ratio

Ratio used to determine the borrowers capacity to repay a home loan. The ratio compares monthly income to the house payment (Principal, Interest, Taxes and Insurance).

Housing Expenses-to-Income Ratio

The ratio, expressed as a percentage, which results when a borrower’s housing expenses are divided by his/her gross monthly income. See debt-to-income ratio.

HUD I Settlement Statement

A form utilized at loan closing to itemize the costs associated with purchasing the home. Used universally by mandate of HUD, the Department of Housing and Urban Development. More…

Impound

That portion of a borrower’s monthly payments held by the lender or servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Also known as reserves.

Index

A published interest rate against which lenders measure the difference between the current interest rate on an adjustable rate mortgage and that earned by other investments (such as one- three-, and five-year U.S. Treasury security yields, the monthly average interest rate on loans closed by savings and loan institutions, and the monthly average costs-of-funds incurred by savings and loans), which is then used to adjust the interest rate on an adjustable mortgage up or down.

Initial Interest Rate

The beginning interest rate at the start of an adjustable rate mortgage (ARM). It may be lower than the fully indexed rate or “going market rate” and it will remain constant until it is adjusted up or down on the adjustment date.

Interest

The amount paid by a borrower to a lender for the use of the lender’s money for a certain period of time.

Interest Income

The potential income from funds which would have been used for the down payment, closing costs, and any difference (increase) between monthly rental payment and monthly mortgage payment.

Interest Rate

The periodic charge, expressed as a percentage, for use of credit.

Interest rate swap

A transaction between two parties in which each agrees to exchange payments tied to different interest rates or indices for a specified period of time, generally based on a notional principal amount.

Interim Financing

A construction loam made during completion of a building or a project. A permanent loan usually replaces this loan after completion.

Intermediate-term mortgage

A mortgage loan with a contractual maturity at time of purchase equal to or less than 20 years.

Investor

A money source for a lender.

Judgment

Decree of a court declaring that one individual is indebted to another and fixing the amount of such indebtedness.

Jumbo Loan

Mortgage loans over $203,150. Terms and underwriting requirements may vary from conforming loans.

Late Charge

An additional charge a borrower is required to pay as a penalty for failure to pay a regular mortgage loan installment when due; a penalty for a delinquent payment.

Lender option commitments

An agreement giving a lender the option to deliver loans or securities by a certain date at agreed-upon terms.

Lien

A claim upon a piece of property for the payment or satisfaction of a debt or obligation.

Life of Loan — Maximum rate decrease

In association with an Adjustable Rate Mortgage loan, this is the most the interest can decrease over the life of the mortgage loan.

Life of Loan — Maximum rate increase

In association with an Adjustable Rate Mortgage loan, this is the most the interest can increase over the life of the mortgage loan.

Loan Application

A source of information on which the lender bases a decision to make or not make a loan; defines the terms of the loan contract, gives the names of the borrower(s), place of employment, salary, bank accounts, credit references, real estate owned, and describes the property to be mortgaged.

Loan Balance

The amount of remaining unpaid principal balance owed by the borrower.

Loan servicing

The tasks a lender performs to protect a mortgage investment, including collecting monthly payments from borrowers and dealing with delinquencies.

Loan Term

Number of years a loan is amortized. Mortgage loan terms are generally 15, 20, or 30 years.

Loan to Value Ratio (LTV)

A ratio determined by dividing the sales price or appraised value into the loan amount, expressed as a percentage. For example, with a sales price of $100,000 and a mortgage loan of $80,000, your loan to value ratio would be 80%. Loans with an LTV over 80% may require Private Mortgage Insurance, defined below.

Lock or Lock In

A commitment you obtain from a lender assuring you a particular interest rate or feature for a definite time period. Provides protection should interest rates rise between the time you apply for a loan, acquire loan approval, and, subsequently, close the loan and receive the funds you have borrowed.

Loss mitigation

Activities designed to reduce either the likelihood of the corporation suffering financial losses on a loan or the final dollar value of those losses in the event of a borrower default.

Mandatory delivery commitment

An agreement that a lender will deliver loans or securities by a certain date at agreed-upon terms.

Margin

An amount, usually a percentage, which is added to the index to determine the interest rate for adjustable rate mortgages.

Market Value

The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.

Median Income

The middle income level. Half of the incomes would be higher than the median income and half of the incomes would be below the median income. This is not to be confused with an average income.

Medium-term notes

Unsecured general obligations of Fannie Mae with maturities of one day or more and with principal and interest payable in U.S. dollars.

Minimum Payment

The minimum amount that you must pay, usually monthly, on a home equity loan or line of credit. In some plans, the minimum payment may be “interest only,” (simple interest). In other plans, the minimum payment may include principal and interest (amortized).

MIP (Mortgage Insurance Premium)

It is insurance from FHA to the lender against incurring a loss on account of the borrower’s default.

Modification

Any change to the original terms of a mortgage.

Mortgage

The written instrument used to pledge a title to real estate as security for repayment of a Promissory Note.

Mortgage Banker

Originates mortgage loans, loaning you their funds and closing the loan in their name.

Mortgage Broker

As do mortgage bankers, takes loan application and processes the necessary paperwork. Unlike a mortgage banker, brokers do not fund the loan with their own money, but work on behalf of several investors, such as mortgage bankers, S and L’s, banks, or investment bankers.

Mortgage Insurance

Money paid to insure the mortgage when the down payment is less than 20 percent. See private mortgage insurance, FHA mortgage insurance.

Mortgage Loan

A loan which utilizes real estate as security or collateral to provide for repayment should you default on the terms of your loan. The mortgage or Deed of Trust is your agreement to pledge your home or other real estate as security. More…

Mortgage Note

A written promise to pay a sum of money at a stated interest rate during a specified term. It is typically secured by a mortgage.

Mortgage Servicing

Controlling the necessary duties of a mortgagee, such as collecting payments, releasing the lien upon payment in full, foreclosing if in default, and making sure the taxes are paid, insurance is in force, etc. The lender or a company acting for the lender, for a servicing fee, may do servicing. (Also called Loan Servicing.)

Mortgage-Backed Security (MBS)

A Fannie Mae security that represents an undivided interest in a group of mortgages. Principal and interest payments from the individual mortgage loans are grouped and paid out to the MBS holders.

Mortgagee

The institution, group, or individual that lends money on the security of pledged real estate; the association, the lender.

Mortgagee

The lender in a mortgage loan transaction.

Mortgagee Clause

This is the clause that is typically used for hazard insurance and flood insurance.

Mortgagor

The borrower in a mortgage loan transaction.

Multifamily housing

A building with more than four residential rental units.

Negative Amortization

Occurs when your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan. the danger of negative amortization is that the home buyer ends up owing more than the original amount of the loan.

Net Effective Income

The borrower’s gross income minus federal income tax.

Net Income

The difference between effective gross income and expense including taxes and insurance. The term is qualified as net income before depreciation and debt.

Non Assumption Clause

A statement in a mortgage contract forbidding the assumption of the mortgage without the prior approval of the lender. Note: The signed obligation to pay a debt, as a mortgage note.

Non-Conforming

A loan with a mortgage amount that exceeds that which is eligible for purchase by FNMA or FHLMC. All other loans above this amount are considered to be non-conforming or jumbo loans.

Non-Owner-Occupied Property

Property purchased by a borrower not for a primary residence but as an investment with the intent of generating rental income, tax benefits, and profitable resale.

Nonperforming asset

An asset such as a mortgage that is not currently accruing interest or on which interest is not being paid.

Note

A written promise by one party to pay a specific sum of money to a second party under conditions agreed upon mutually. Also called “promissory note.”

Note Rate

The interest rate on the mortgage loan.

Notional principal amount

The hypothetical amount on which interest rate swap payments are based. The notional principal amount in an interest rate swap generally is not paid or received by either party.

Office of Thrift Supervision (OTS)

The regulatory and supervisory agency for federally chartered savings institutions. Formally known as Federal Home Loan Bank Board

Origination Fee

A fee paid to a lender for processing a loan application; it is stated as a percentage of the mortgage amount.

Origination Process

Process in which a lender solicits business, gathers required information and commits to loan money, for the purchase of real estate.

Owner-Occupied Property

The borrower or a member of the immediate family lives in the property as a primary residence.

Permanent Loan

A long term mortgage, usually ten years or more. Also called an “end loan.”

PITI

Principal, interest, taxes and insurance, which comprise your monthly mortgage payment. Also called monthly housing expense.

PITI Ratio

Compares the amount of the monthly income to the amount the borrower will owe each month in principal, interest, real estate tax and insurance on a mortgage. Lenders use it in deciding whether to give the borrower a loan. Also called “income-to-debt” ratio.

Planned Unit

A housing project that may consist of any combination of homes (one-family to four-family), condominiums, and various other styles. In a PUD, often the individual unit and the land upon which it sits are owned by the unit/homeowner; however, the homeowner’s association owns common facilities.

Pledged account Mortgage (PAM)

Money is placed in a pledged savings account and this fund plus earned interest is gradually used to reduce mortgage payments.

Points (loan discount points)

Prepaid interest assessed at closing by the lender. Each point is equal to 1 percent of the loan amount (e.g., two points on a $100,000 mortgage would cost $2,000).

Power of Attorney

A legal document authorizing one person to act on behalf of another.

Pre-Approval

A process in which a customer provides appropriate information on income, debts and assets that will be used to make a credit only loan decision. The customer typically has not identified a property to be purchased, however, a specific sales price and loan amount are used to make a loan decision. (The sales price and loan amount are based on customer assumptions)

Preferred stock

Stock that takes priority over common stock with regard to dividends and liquidation rights. Preferred stockholders typically have no voting rights.

Preforeclosure sale

A procedure in which the borrower is allowed to sell his or her property for an amount less than what is owed on it to avoid a foreclosure. This sale fully satisfies the borrower’s debt.

Prepaid Expenses or Prepaids

The term used to describe the funds the Lender requires to be deposited to establish the escrow account for taxes and insurance at the time of closing (also refers to Prepaid Interest).

Prepaid Interest

Interest that the borrower pays the lender before it becomes due.

Prepayment

A loan repayment made in advance of its contractual due date.

Prepayment Penalty

Money charged for an early repayment of debt. Prepayment penalties are allowed in some form (but not necessarily imposed) in many states.

Pre-Qualification

A process designed to assist a customer in determining a maximum sales price, loan amount and PITI payment they are qualified for. A pre-qualification is not considered a loan approval. A customer would provide basic information (income, debts, assets) to be used to determine the maximum sales price, etc.

Primary Mortgage Market

Lenders making mortgage loans directly to borrower’s such as savings and loan associations, commercial banks, and mortgage companies. These lenders sometimes sell their mortgages into the secondary mortgage markets such as to FNMA or GNMA, etc.

Principal

The amount of debt, not counting interest, left on a loan.

Principal and Interest

Two components of a monthly mortgage payment. Principal refers to the portion of the monthly payment that reduces the remaining balance for the mortgage. Interest is the fee charged for borrowing money.

Principal Balance

The outstanding balance of a mortgage, not counting interest.

Principal, Interest, Real Estate Tax, Insurance Payment

The total mortgage payment which includes principal, interest, taxes and insurance.

Private Mortgage Insurance (PMI)

In the event that you do not have a 20 percent down payment, lenders will allow a smaller down payment – as low as 5 percent in some cases. With the smaller down payment loans, however, borrowers are usually required to carry private mortgage insurance. Private mortgage insurance will usually require an initial premium payment and may require an additional monthly fee depending on you loan’s structure.

Processing

Gathering the loan application and all required supporting documents (including the property appraisal, credit report, credit history, and income and expenses) so that a lender can consider the borrower for a loan.

Promissory Note

A document in which the borrower promises to pay a stated amount on a specific date. The note normally states the name of the lender, the terms of payment and any interest rate.

Property Taxes

Taxes assessed on real estate. Property taxes are based on valuations by local and or state governments.

Purchase Agreement

A written agreement between a buyer and seller of real property, that states the price and terms of the sale.

Purchase Price

The total amount paid for a home.

Qualifying Income Ratios

Income analysis used by lenders in deciding whether to offer the borrower a loan. One type of analysis compares only the amount of the proposed monthly mortgage payment to the monthly income. Another compares the amount of the total monthly payments (for example car, credit card and proposed mortgage payments) to the monthly income.

Qualifying Ratios

Comparisons of a borrower’s debts and gross monthly income.

Rate Index

An index used to adjust the interest rate of an adjustable mortgage loan.

Real Estate Appreciation Rate

Percentage increase in the value of real estate, expressed at an annual rate.

Real Estate Mortgage Investment Conduit (REMIC)

A security that represents a beneficial interest in a trust having multiple classes of securities. The securities of each class entitle investors to cash flows structured differently from the payments on the underlying mortgages.

Real Estate Settlement Procedures Act (RESPA)

A consumer protection law that requires, among other things, lenders to give borrowers advance notice of closing costs.

Realtor

A person licensed to negotiate and transact the sale of real estate on behalf of the property owner. A real estate broker or associate must hold active membership in a real estate board affiliated with the National Association of Realtors.

Recision

The cancellation of a contract. With respect to mortgage refinancing, the law that gives the homeowner three days to cancel a contract in some cases once it is signed if the transaction uses equity in the home as security.

Recording Fees

Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records.

Refinance

Obtaining a new mortgage loan on a property already owned. Often to replace existing loans on the property.

Regulation Z

Federal Reserve regulation issued under the Truth-in-Lending Act, which, among other things, requires that a credit purchaser be advised in writing of all costs connected with the credit portion of the loan.

Renegotiable Rate Mortgage

A loan in which the interest rate is adjusted periodically. See adjustable rate mortgage.

Rental Payment

A payment made to use another’s property. The amount of the rent is determined in a contract and is typically paid monthly.

Renters Insurance

Insurance against perils which are commonly covered in policies described as a “Renters Policy”.

Repayment plan

An agreement between a lender and a borrower who is delinquent on his or her mortgage payments, in which the borrower agrees to make additional payments to pay down past due amounts while still making regularly scheduled payments.

Rescind

To avoid or cancel in such a way as to treat the contract or other object of the rescission as if it never existed.

RESPA

Short for the Real Estate Settlement Procedures Act. RESPA is a federal law that allows consumers to review information on known or estimated settlement cost once after application and once prior to or at a settlement. The law requires lenders to furnish the information after application only.

Return on average common equity

Net income available to common stockholders, as a percentage of average common stockholders’ equity.

Reverse Annuity Mortgage (RAM)

A form of mortgage in which the lender makes periodic payments to the borrower using the borrower’s equity in the home as Satisfaction of Mortgage: The document issued by the mortgagee when the mortgage loan is paid in full. Also called a “release of mortgage.”

Reverse mortgage

A financial tool which provides seniors with funds from the equity in their homes. Generally, no payments are made on a reverse mortgage until the borrower moves or the property is sold. The final repayment obligation is designed to not exceed the proceeds from the sale of the home.

Right to Rescission

The legal right to void or cancel your mortgage contract in such a way as to treat the contract as if it never existed. Right of rescission is not applicable to mortgages made to purchase a home, but may be applicable to other mortgages, such as home equity loans.

Risk-based capital

The amount of capital necessary to absorb losses throughout a hypothetical ten-year period marked by severely adverse circumstances.

Sales Contract

A written agreement between parties stating all terms and conditions of a sale.

Savings Rate

The interest rate a person expects to earn on a savings account or investment account.

Second Mortgage

A mortgage made subsequent to another mortgage and subordinate to the first one.

Secondary Market

An informal market where existing mortgages are bought and sold. It is the traditional aftermarket for mortgage loans that brings together lenders that sell mortgages with lenders, investors and agencies that buy mortgages.

Secondary Mortgage Market

The place where primary mortgage lenders sell the mortgages they make to obtain more funds to originate more new loans. It provides liquidity for the lenders. security.

Security

A financial instrument showing ownership of equity (such as common stock), indebtedness (such as a debt security), a group of mortgages (such as MBS), or potential ownership (such as an option).

Security Interest

An interest that a lender takes in the borrower’s property to assure repayment of a debt.

Seller Contribution

The seller may be paying some or all of the borrower’s cost. The amount of the contribution has limitations.

Selling Costs

The costs incurred in selling a home. This could include Realtor expenses and other miscellaneous expenses such as painting or minor repairs to prepare the home for sale.

Serious delinquency

A single-family mortgage that is 90 days or more past due, or a multifamily mortgage that is two months or more past due.

Servicing

All the steps and operations a lender performs to keep a loan in good standing, such as collection of payments, payment of taxes, insurance, property inspections and the like.

Servicing a Loan

The ongoing process of collecting your monthly mortgage payment, including accounting for and payment of your yearly tax and/or homeowners insurance bills.

Servicing Released

A stipulation in the agreement for the sale of mortgages in which the Lender is not responsible for servicing the loan.

Servicing Retained

A loan sale in which the original lender’s servicing department continues to service the loan after the sale to a secondary institution or investor.

Settlement Statement

Also referred to as a HUD-1 Settlement Statement. The complete breakdown of costs involved in the real estate transaction for both the seller and buyer.

Shared Appreciation Mortgage (SAM)

A mortgage in which a borrower receives a below-market interest rate in return for which the lender (or another investor such as a family member or other partner) receives a portion of the future appreciation in the value of the property. May also apply to mortgage where the borrowers shares the monthly principal and interest payments with another party in exchange for part of the appreciation.

Simple Interest

Interest which is computed only on the principle balance.

Single-Family Attached Home

A single-family dwelling that is attached to other single-family dwellings.

Single-Family Detached Home

A freestanding dwelling for a single family

Stripped MBS (SMBS)

Securities created by “stripping” or separating the principal and interest payments from the underlying pool of mortgages into two classes of securities, with each receiving a different proportion of the principal and interest payments.

Subordinate Financing

An additional lien against the real estate securing borrowers first mortgage. This lien takes second priority to the first mortgage.

Subsequent Rate Adjustment — Maximum rate decrease

In association with an Adjustable Rate Mortgage loan, this is the most the interest rate can decrease when it is scheduled for reevaluation and possible adjustment.

Subsequent Rate Adjustment — Next ARM Adjustment Date

In association with an Adjustable Rate Mortgage loan, this is the date scheduled for the next reevaluation and possible adjustment.

Subsequent Rate Adjustment — Rate Change Frequency

In association with an Adjustable Rate Mortgage loan, this is the frequency in which possible adjustments may be made to the interest rate amount for Adjustable Rate Mortgages after the initial adjustment.

Survey

A measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to know points, its dimensions, and the location and dimensions of any buildings.

Sweat Equity

Equity created by a purchaser performing work on a property being purchased.

Tax Rates

Tax levied by the federal government and some states based on a person’s income. Federal income tax rates vary depending on a person’s adjusted gross income.

Tax Savings

The amount saved on taxes by itemizing deductions on income tax returns.

Title

The evidence to the right to or ownership in property. In the case of real estate, the documentary evidence of ownership is the title deed, which specifies in whom the legal state is vested and the history of ownership and transfers. Title may be acquired through purchase, inheritance, devise, gift or through the foreclosure of a mortgage.

Title Insurance

A policy, usually issued by a title insurance company, which insures a home buyer against errors in the title search. The cost of the policy is usually a function of the value of the property, and is often borne by the purchaser and/or seller. Policies are also available to protect the lender’s interests.

Title Search

An examination of municipal records to determine the legal ownership of property. Usually is performed by a title company.

Transaction Fee

A fee which may be charged each time you draw on a home equity credit line.

Transfer agent

A bank or trust company charged with keeping a record of a company’s stockholders and canceling and issuing certificates as shares are bought and sold.

Treasury Bills

Interest bearing U.S. Government obligations sold at a weekly sale. The change in interest rates paid on these obligations is frequently used as the Rate Index for Adjustable Mortgage Loans.

Truth in Lending (TIL)

The name given to the federal statues and regulations (Regulation Z) which are designed primarily to insure that prospective Borrowers of credit received credit and cost information before concluding a loan transaction.

Two-Step Mortgage

A mortgage in which the borrower receives a below-market interest rate for a specified number of years (most often seven or 10), and then receives a new interest rate adjusted (within certain limits) to market conditions at that time. thelender sometimes has the option to call the loan due with 30 days notice at the end of seven or 10 years. also called “Super Seven” or “Premier” mortgage.

Underwriting

The decision whether to make a loan to a potential home buyer based on credit, employment, assets, and other factors and the matching of this risk to an appropriate rate and term or loan amount.

USURY

Interest charged in excess of the legal rate established by law.

VA Loan

A long-term, low-or no-down payment loan guaranteed by the Department of Veterans Affairs. Restricted to individuals qualified by military service or other entitlements.

VA Mortgage Funding Fee

A premium of up to 1-7/8 percent (depending on the size of the down payment) paid on a VA-backed loan. On a $75,000 fixed-rate mortgage with no down payment, this would amount to $1,406 either paid at closing or added to the amount financed.

Variable Rate

An interest rate that changes periodically in relation to an index. Payments may increase or decrease accordingly.

Variable Rate Mortgage (VRM)

See adjustable rate mortgage

Verification of Deposit (VOD)

Form used in mortgage lending to verify the deposits or assets of a prospective borrower when monthly statements are unavailable or unusable.

Verification of Employment (VOE)

Form used in mortgage lending to verify the employment and income of a prospective borrower when pay stubs and W2 forms are unavailable or unusable.

Verification of Mortgage (VOM)

Form used in mortgage lending to verify the existing mortgage balance, monthly payments and late payments, if any.

Verification of Rent

Form used in mortgage lending to verify monthly rents paid and late payments, if any.

Warehouse Fee

Many mortgage firms must borrow funds on a short term basis in order to originate loans which are to be sold later in the secondary mortgage market (or to investors). When the prime rate of interest is higher on short term loans than on mortgage loans, the mortgage firm has an economic loss which is offset by charging a warehouse fee.

Wraparound mortgage

Results when an existing assumable loan is combined with a new loan, resulting in an interest rate somewhere between the old rate and the current market rate. The payments are made to a second lender or the previous homeowner, who then forwards the payments to the first lender after taking the additional amount off the top.

LendingLeaders will match you with lenders who will work with you to help decide what mortgage options are right for your situation. To have one of our lenders contact you, simply fill out our 1 Step Mortgage Home Loan Request Form.