Adjustable Rate Mortgage (ARM)
A type of mortgage loan characterized by interest rates that automatically adjust or fluctuate in concert with certain market indexes. Generally an ARM begins with an introductory or initial interest rate, which then may rise or fall, but monthly payments may not exceed the ARM loan cap.
The process of repaying a loan over a fixed period of time. Each repayment installment consists of both principal and interest. In most cases, at the beginning of your loan term, a greater amount of your monthly payment is applied to interest than to your principal balance; toward the end of your loan term, more of your money gets applied directly to your principal balance than to interest.
Annual Percentage Rate (APR)
The actual interest rate you pay on your mortgage, which factors in fees, points, and other costs associated with the loan.
A comprehensive report that estimates the value of your property based on a number of valuation factors.
A new loan that is larger than the remaining balance on your current mortgage. When you refinance with a cash-out mortgage, you get cash back from the equity in your home, which can be used for anything from home improvements to college tuition.
The final step in the loan process when loan documents are signed at an escrow or title company.
The amount of money that must be paid to close your loan, including lender fees and third-party charges, along with taxes and transfer fees.
Closing Disclosure (CD)
A form that outlines the key details of your loan when you receive an official offer for a mortgage. This standard form, which the Consumer Financial Protection Bureau (CFPB) requires lenders to provide to consumers three business days before closing, allows you to compare your final loan offer to the Loan Estimate that was provided to you at the time of application.
Any mortgage loan that is not insured or guaranteed by the federal government.
A detailed summary of your borrowing history. It shows previous and current credit accounts, along with your payment history. When you apply for a loan, your lender uses your credit report to determine whether to take a risk and lend you money.
Debt consolidation is the process of rolling all your debt into one loan. If you have other bills, such as credit card debts or car loans, that carry a higher interest rate than your mortgage, you may want to consider a debt consolidation loan. This allows you to refinance your existing mortgage and high-interest debt into one loan with one monthly payment.
Debt-to-Income Ratio (DTI Ratio)
The ratio of monthly liabilities and housing expenses divided by the monthly gross income of the borrower.
Discount Points (Points)
An upfront fee paid to the lender at the time that you get your loan. Each point equals 1% of your total loan amount. In general, the more points you pay, the lower your interest rate is. However, the more points you pay, the more cash you need upfront since points are paid at closing.
An upfront payment made by the home buyer toward the property purchase price, usually ranging from 5 to 20 percent. The remainder of the sales prices makes up the mortgage loan amount.
The difference between what your home is worth and what you owe on the home. With a new mortgage loan, the down payment represents the equity in your home.
A third party intermediary who holds and allocates funds, including taxes and insurance in a mortgage transaction.
Escrow Account (Impound Account)
A special account that your lender uses to hold your monthly payments toward property taxes and insurance. Instead of paying for your tax and insurance payments in one lump sum, you can pay for them as part of your monthly mortgage payment. Your lender collects these payments in your escrow account, and when your tax and insurance bills become due, your lender makes the payment for you.
Loans insured by the Federal Housing Administration. FHA loans are designed to make housing more affordable, particularly for first-time home buyers. These loans offer low down payments and looser credit qualifications.
A mortgage with a constant interest rate that will not adjust at any point during the life of the loan.
The cost a lender charges you to borrow money. A basic mortgage payment is made up of principal and interest. The amount of interest you owe depends on the interest rate and the loan amount – the lower the interest rate, the less you owe in interest.
A loan amount above the conforming loan limits, which is set each year by Fannie Mae and Freddie Mac. These loans typically carry higher interest rates than conforming loans because they can’t be sold to Fannie or Freddie.
Loan Estimate (LE)
A form that outlines the key details of your lender’s offer when you apply for a mortgage. The Consumer Financial Protection Bureau requires your lender to provide you with a Loan Estimate within three business days of receiving your application. This standard form lists your loan amount, interest rate, monthly payment, closing costs and other details, making it easy for you to compare loans and choose the one that’s best for you.
The percentage of the appraised property value that is borrowed from a bank or lender. A down payment of 20% would create a loan-to-value of 80%.
A temporary loan used to finance the purchase of real property, also known as a home loan.
An independent loan originator who works on behalf of consumers to obtain mortgage financing. Brokers don’t represent a single bank, but rather work with numerous lenders.
Required insurance on a mortgage typically if the down payment is less than 20% and a single loan is used to finance the property.
Processes to determine what you can afford to ensure you can obtain mortgage financing when purchasing a property.
The balance of the liens on a property, not including interest. What you owe on your mortgage.
Rate and Term Refinance
A new loan changing the interest rate and term of the loan, and perhaps the loan program, but not the loan amount.
The act of replacing your existing loan with a new loan on the same property. There are two main types of refinancing, including a rate and term refinance and cash-out refinance.
The actual document that shows you own a property. Individuals who have legal ownership in a property are considered “on title” and will sign the mortgage and other documentation.
Protects your lender against any title dispute that may arise over your property. Title insurance is a required fee that you pay at closing. Having a copy of your title insurance will help verify the legal description of the property, the taxes and the names on the title. You can also purchase owner’s title insurance, which protects you as a homeowner.
The process of determining the risks involved and establishing suitable terms and conditions for a particular loan. Mortgage underwriting includes a review of the potential borrower’s credit, employment history and financial statements, as well as a judgment of the quality of the property.
A mortgage offered to veterans and their families that is guaranteed by the Veterans Administration.
Wholesale Mortgage Brokerage
A wholesale mortgage brokerage works independently with both mortgage lenders and borrowers. They shop with multiple mortgage lenders simultaneously to find one that will offer borrowers the best rate and terms.