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Glossary Of Mortgage Terms

Glossary Of Mortgage Terms

80/10/10 Loan or 80/20 Loan

80/10/10, 80/20, and various other similar combinations are a short hand way of referring to a piggyback loan. A piggyback loan is a second loan on top of a first loan used to avoid paying PMI, avoiding a jumbo mortgage, or to purchase a home with little or no money down.

See: Eighty Twenty Mortgages, Avoiding Private Mortgage Insurance, and Avoiding A Jumbo Mortgage

Adjustable Rate Mortgage

An adjustable rate mortgage is a mortgage that does not have a fixed rate of interest through out the life of the mortgage loan. During the life of the loan, the interest rate on the loan will be adjusted at various predetermined times. As the interest rate adjusts, so does the monthly principal and interest payment on the loan.

Alt-A Mortgage

Alt-A is not really a type of mortgage loan. It is more of a categorization of the loan and the borrower. Alt-A has traditionally meant a loan that has less than full documentation. Over time the definition has expanded to include loans that do not meet standard underwriting guidelines for property type, debt ratio or loan-to-value ratio, as well as documentation requirements.

See: Alt A Mortgages

Amortization

Amortization is the process of fully paying off a mortgage loan over the term of the loan. For example, a 30 year loan amortizes over the 30 year term of the loan, and a 15 year loan amortizes over the 15 year term of the loan.

APR

APR is an abbreviation for annual percentage rate. The Truth in Lending Act (TIL or TILA) requires that lenders publish an APR for their loans. As dictated by TIL, the APR includes the interest paid on the loan, any points or prepaid interest, and certain other costs of obtaining a loan. Its intent is to make it easier to compare one loan to another.

See: Mortgage Laws And Regulations To Protect The Consumer

ARM

ARM is an abbreviation for adjustable rate mortgage. An adjustable rate mortgage is a mortgage that does not have a fixed rate of interest through out the life of the mortgage loan. During the life of the loan, the interest rate on the loan will be adjusted at various predetermined times. As the interest rate adjusts, so does the monthly principal and interest payment on the loan.

Balloon Mortgage

A balloon mortgage is any mortgage that has a balance due at the end of its term.

See: Balloon Mortgage

Closing Costs

Closing costs are all of the fees that must be paid when closing a loan. They can include things such as discount and origination points, application fees, appraisal fees, credit report fee, title search and title insurance, survey fee, flood certification, recording and transfer charges, interim interest, and attorney's fees. Closing costs are itemized in a lenderÓł Good Faith Estimate (GFE). The GFE and the actual HUD-1 Settlement Statement are required by the Real Estate Settlement Procedures Act (RESPA).

See: Mortgage Laws And Regulations To Protect The Consumer

Construction Loan

A construction loan is a short term loan taken out to finance the building of a home. Construction loans usually have a six month to one year term. Other financing is typically found to pay off the construction loan when construction is completed and a Certificate of Occupancy issued.

See: Construction Loan

Construction-to-Permanent Loan

A construction-to-permanent loan program is a type of loan program that combines a construction loan for building a home, with an automatic traditional mortgage to finance the home upon its completion. It has the advantage of a single closing and set of fees for both loans.

See: Construction Loan

Credit History

A credit history is a record of an individual's various loans and credit cards, the balances of any current loans or credit cards, a payment history, and any other pertinent financial information.

See: Understanding Credit

Credit Score

A credit score is a numerical designation that gives an indication of the credit worthiness or credit risk of an individual. Lenders use credit scores to predict how likely an individual is to make their credit payments on time. The most commonly used credit scoring model is the FICO model (named after the company that developed the model, Fair Isaac and Company).

See: Understanding Credit

Debt Ratio

Debt ratio is the total of all monthly payments made by a borrower to service all debt (including housing expenses such as mortgage and escrow payments, property taxes, homeowner's insurance, and maybe private mortgage insurance, as well as the monthly payments for other credit such as credit cards, student loans, car loans, and other loans) divided by the borrower's monthly gross income (income before taxes and benefits are removed).

Down Payment

Down payment is that amount that a borrower puts down on a home. Most lenders like to see borrowers put down at least 20%. Typically the best interest rates and the most loan options are available to borrowers who put down 20% or more.

Fannie Mae

Fannie Mae is the Federal National Mortgage Association (FNMA). Fannie Mae is a corporation sponsored by the U.S. Government to establish a secondary market for mortgages. Fannie Mae purchases home loans from lenders.

FHA Loan

An FHA loan is a loan made by a lender that is insured by the Federal Housing Administration.

See: FHA Loans

Fixed Rate Mortgage

A fixed rate mortgage is a mortgage that has a fixed rate of interest and a fixed monthly principal and interest payment throughout the term of the loan.

See: Fixed Rate Mortgage

Freddie Mac

Freddie Mac is the Federal Home Loan Mortgage Corporation (FHLMC). Freddie Mac is a corporation sponsored by the U.S. Government to establish a secondary market for mortgages. Freddie Mac purchases home loans from lenders.

FRM

FRM is an abbreviation for a fixed rate mortgage. A fixed rate mortgage is a mortgage that has a fixed rate of interest and a fixed monthly principal and interest payment throughout the term of the loan.

See: Fixed Rate Mortgage

GFE

GFE is an abbreviation for Good Faith Estimate which is an estimate of the fees that will be due at closing. The GFE must be provided by a lender to a borrower within three days of an application for a mortgage loan. It is required by the Real Estate Settlement Procedures Act (RESPA).

See: Mortgage Laws And Regulations To Protect The Consumer

Ginnie Mae

Ginnie Mae is the Government National Mortgage Association (GNMA). GNMA is a federal agency that guarantees mortgage securities issued against pools of FHA and VA mortgages.

Good Faith Estimate

The Good Faith Estimate (GFE) is an estimate of the fees that will be due at closing. The GFE must be provided by a lender to a borrower within three days of an application for a mortgage loan. It is required by the Real Estate Settlement Procedures Act (RESPA).

See: Mortgage Laws And Regulations To Protect The Consumer

Graduated Payment Mortgage

A graduated payment mortgage is a mortgage with a fixed interest rate that starts with a low monthly payment. The payment increases with time until it eventually levels off and remains fixed through the remainder of the mortgage term.

See: Graduated Payment Mortgage

Growing Equity Mortgage

A growing equity mortgage (GEM) is a fixed rate mortgage whose payments increase by a fixed amount over a given schedule for an established period of time.

See: Growing Equity Mortgage

HECM

HECM is an abbreviation for a home equity conversion mortgage, which is another name for a reverse annuity mortgage (RAM) or a reverse mortgage (RM). It is a mortgage where an elderly borrower (62 years old or older) may borrow against the equity in their home to receive a monthly payment, and/or lump sum payment of cash.

See: Reverse Annuity Mortgage

HELOC

HELOC is an abbreviation for a home equity line of credit. Typically a secondary loan, a HELOC is a type of loan that allows a home owner to tap into the equity of their home to obtain cash for other uses. A HELOC may also be called an equity line or an equity loan.

See: Home Equity Line Of Credit and Second Mortgages

Home Equity Conversion Mortgage

A home equity conversion mortgage (HECM) is another name for a reverse annuity mortgage (RAM) or reverse mortgage (RM). It is a mortgage where an elderly borrower (62 years old or older) may borrow against the equity in their home to receive a monthly payment, and/or lump sum payment of cash.

See: Reverse Annuity Mortgage

Home Equity Line of Credit

A home equity line of credit, or HELOC, is typically a secondary loan. It allows a home owner to tap into the equity of their home to obtain cash for other uses. A home equity line of credit may also be called an equity line or an equity loan.

See: Home Equity Line Of Credit and Second Mortgages

Housing Expenses

Housing expenses consist of all monthly housing payments including principal and interest on a mortgage, property taxes, homeowner's insurance, private mortgage insurance (if applicable) and association or condominium dues (if applicable).

See: How Much House You Can Afford

Housing Ratio

Housing ratio is a borrower's total monthly housing expense (principal, interest, taxes, and insurance, and association dues if applicable) divided by their total monthly gross income (income before taxes and benefits are removed).

See: How Much House You Can Afford

Interest Rate

A mortgage interest rate is the interest rate charged for a certain period. It is quoted as an annual interest rate, even though the interest rate on a loan may change in smaller increments of time as is common with some adjustable rate mortgages.

Interest-Only Mortgage

An interest-only mortgage is not really a type of mortgage. Interest-only refers to the ability to make only interest payments on a loan for some specified period of time. The interest-only option may be available on both ARMs and FRMs. It is far more common on adjustable rate mortgages.

See: Interest Only Mortgage

Jumbo Mortgage

A jumbo mortgage, also known as a non-conforming loan, is any mortgage that exceeds loan limits set annually by Fannie Mae and Freddie Mac.

See: Avoiding A Jumbo Mortgage

Loan-to-Value Ratio

Loan-to-value ratio is the amount borrowed divided by the value of the property being purchased.

Mortgage Life Insurance

Mortgage life insurance is an insurance policy that will pay off a mortgage in the event of the death of the individual taking out the insurance policy.

See: Mortgage Life Insurance

Mortgage Pre-Approval

In a mortgage pre-approval a borrower provides income, asset, and debt information that is verified. After verification the lender pre-approves the borrower for a mortgage. This means that in the absence of a material change in their financial picture, or a bad appraisal on the home that they decide to buy, they will receive a mortgage.

See: Mortgage Pre Qualification And Pre Approval

Mortgage Prequalification

In a mortgage pre-qualification a borrower provides income, asset, and debt information to a lender who, without verification, provides an opinion as to whether or not the borrower should receive a mortgage. Pre-qualification come with disclaimers that state that the opinion is subject to verification of the information provided by the borrower.

See: Mortgage Pre Qualification And Pre Approval, Typical Pre-Qualification Form, and A Typical Pre-Qualification Letter

Piggyback Loan

A piggyback loan (which may also be referred to using a numeric nomenclature such as 80/10/10, or 80/20) is a second loan on top of a first loan that is used to avoid paying PMI, to avoid a jumbo mortgage, or to purchase a home with little or non money down.

See: Eighty Twenty Mortgages, Avoiding Private Mortgage Insurance, and Avoiding A Jumbo Mortgage

PITI

PITI is an abbreviation for principal, interest, taxes, and insurance, which are the principal components of a borrower's housing expense.

PMI

PMI is an abbreviation for private mortgage insurance. Private mortgage insurance is insurance required by a lender and paid for by the borrower for any loan with less than a 20% down payment. The rate for private mortgage insurance varies depending on the amount of the down payment.

See: Private Mortgage Insurance

Points

Points are an up front payment required by the borrower typically to buy-down the interest rate of a mortgage or for an extended rate lock. A point is equal to 1% of the value of the loan (for example, 1 point on a $100,000 loan is $1,000).

Private Mortgage Insurance

Private mortgage insurance is insurance required by a lender and paid for by the borrower for any loan with less than a 20% down payment. The rate for private mortgage insurance varies depending on the amount of the down payment.

See: Private Mortgage Insurance

RAM

RAM is an abbreviation for reverse annuity mortgage, which may also be referred to as a home equity conversion mortgage (HECM) or reverse mortgage (RM). It is a mortgage where an elderly borrower (62 years old or older) may borrow against the equity in their home to receive a monthly payment, and/or lump sum payment of cash.

See: Reverse Annuity Mortgage

Refinancing

Refinancing a mortgage is the process of replacing an existing mortgage with a new one. This is typically done to obtain a lower interest rate and monthly payment, obtain a different loan term, or to obtain cash from the equity in a home for another purpose.

See: Refinancing Your Home

RESPA

RESPA is an abbreviation for the Real Estate Settlement Procedures Act. RESPA requires certain disclosures to borrowers, and it prohibits certain lender practices that can drive up the closing costs of a loan.

See: Mortgage Laws And Regulations To Protect The Consumer

Reverse Annuity Mortgage

A reverse annuity mortgage (RAM), home equity conversion mortgage (HECM), or reverse mortgage (RM), is a mortgage where an elderly borrower (62 years old or older) may borrow against the equity in their home to receive a monthly payment, and/or lump sum payment of cash.

See: Reverse Annuity Mortgage

Reverse Mortgage

A reverse mortgage is also referred to as a reverse annuity mortgage (RAM), or home equity conversion mortgage (HECM). It is a mortgage where an elderly borrower (62 years old or older) may borrow against the equity in their home to receive a monthly payment, and/or lump sum payment of cash.

See: Reverse Annuity Mortgage

RM

RM is an abbreviation for reverse mortgage, which may also be referred to as a reverse annuity mortgage, or a home equity conversion mortgage (HECM). It is a mortgage where an elderly borrower (62 years old or older) may borrow against the equity in their home to receive a monthly payment, and/or lump sum payment of cash.

See: Reverse Annuity Mortgage

Second Mortgage

A second mortgage may also be referred to as a second loan, a home equity loan, or even a "piggyback" mortgage or loan. It is an additional mortgage that a homeowner takes out on their home, above and beyond their first or primary mortgage.

See: Second Mortgages

Term

The term of a mortgage is the amount of time that it takes for the mortgage loan to be fully paid off, commonly referred to as amortization. The most common mortgage terms are 15 years and 30 years.

TIL/TILA

TIL and TILA are abbreviations for the Truth in Lending Act. The Truth in Lending Act sets forth certain written disclosure requirements, including finance charge, annual percentage rate (APR), amount financed, total of payments, and total sales price. TIL also sets forth certain advertising requirements for lenders as well as rescission rights for consumers.

See: Mortgage Laws And Regulations To Protect The Consumer

Title Insurance

Title insurance is a type of insurance that protects the holder of the policy from any claims resulting from defects to the title of real estate.

See: Title Insurance

Truth In Lending

The Truth in Lending Act sets forth certain written disclosure requirements, including finance charge, annual percentage rate (APR), amount financed, total of payments, and total sales price. TIL also sets forth certain advertising requirements for lenders as well as rescission rights for consumers.

See: Mortgage Laws And Regulations To Protect The Consumer

VA Loan

A VA Loan is a loan that is partially guaranteed by the U.S. Department of Veterans Affairs.

See: VA Loans

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