Ability to Repay - A borrower’s financial capacity to repay a debt to a lender. An analysis of the borrower’s financial profile is used when determining their ability to repay.
Additional Principal Payment - A way to reduce the remaining balance due on a loan by paying more than the scheduled amount due.
Adjustable-Rate Mortgage (ARM) - An adjustable-rate mortgage (ARM) is a type of mortgage in which the interest rate applied on the outstanding balance varies throughout the life of the loan. Normally, the initial interest rate is fixed for a period of time, after which it resets periodically, often every year or even monthly.
Adjustment Date - The date that the interest rate changes on an adjustable-rate mortgage (ARM).
Adjustment Period - The period elapsing between adjustment dates for an adjustable-rate mortgage (ARM).
Amortization - The repayment of a mortgage loan, both principal and interest, by installments.
Amortization Term - The length of time required to amortize the mortgage loan expressed as a number of months. For example, 360 months is the amortization term for a 30-year fixed-rate mortgage.
Annual Percentage Rate (APR) - The cost of credit, expressed as an annual rate, which includes interest, mortgage insurance, and loan origination fees. This allows the buyer to compare loans.
Appraisal - A written valuation prepared by a licensed, qualified appraiser that estimates the value of a property.
Appraised Value - An opinion of a property's fair market value, based on an appraiser's knowledge, experience, analysis of the property, and the value of recent comparable homes.
Asset - financial asset is a liquid asset that gets its value from a contractual right or ownership claim. Cash, stocks, bonds, mutual funds, and bank deposits are all are examples of financial assets.
Balance Sheet - A financial statement that shows assets, liabilities, and net worth as of a specific date.
Broker - An individual or company that brings borrowers and lenders together for the purpose of loan origination.
Cap - Limits how much the interest rate or the monthly payment can increase on an arm loan, either at each adjustment or during the life of the mortgage.
Certificate of Eligibility - A document issued by the federal government certifying a veteran’s eligibility for a Department of Veterans Affairs (VA) mortgage.
Certificate of Reasonable Value (CRV) - A document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA mortgage.
Change Frequency - The frequency (in months) of payment and/or interest rate changes in an adjustable-rate mortgage (ARM).
Closing - Closing is the final phase of the mortgage loan origination process, where the property title passes from the seller to the buyer and documents are executed, which secures the collateral of specified real estate property. The borrower is then obligated to pay back the loan with a predetermined set of payments.
Closing Costs - Closing costs are fees paid at the closing of a real estate transaction. Closing costs are incurred by both the buyer the seller.
Closing Disclosure (CD) - A form that provides final costs and financial information about your loan.
Compound Interest - Interest paid on the original principal balance and on the accrued and unpaid interest.
Credit Repository (Consumer Reporting Agency) - An organization that handles the preparation of credit reports used by lenders to determine a potential borrower's credit history. The agency gets data for these reports from a credit repository and from other sources.
Credit Report - A report detailing an individual's credit history that is prepared by a credit repository and is utilized by a lender to evaluate a borrower’s creditworthiness.
Credit Risk Score - A credit score measures a consumer's credit risk relative to the rest of the U.S. population, based on the individual's credit usage history. The credit score most widely used by lenders is the FICO® score, developed by Fair, Issac and Company. This 3-digit number, ranging from 300 to 850, is calculated by a mathematical equation that evaluates many types of information that are on your credit report. Higher FICO® scores represents lower credit risks, which typically equate to better loan terms. In general, credit scores are critical in the mortgage loan underwriting process.
Deed of Trust - An agreement between a lender and a borrower to give the property to a neutral third party who will serve as a trustee. The trustee holds the property until the borrower pays off the debt.
Default - Failure to make mortgage payments on a timely basis or to comply with other requirements of a mortgage.
Delinquency - Failure to make mortgage payments on time.
Deposit (Down Payment) - Earnest money is a deposit made to a seller that represents a buyer's good faith to buy a home.
Discount Points (Mortgage Points) - Discount points are fees paid directly to the lender at closing in exchange for a reduced interest rate.
Equity - The amount of financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on the mortgage.
Escrow Disbursements - The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.
Escrow Payment - The part of a mortgagor’s monthly payment that is held by the servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due.
Fannie Mae - A congressionally chartered company operating under federal conservatorship that is the nation's largest supplier of home mortgage funds to mortgage lenders in the Secondary Mortgage Market.
FHA Mortgage - A mortgage that is insured by the Federal Housing Administration (FHA).
FICO Score - FICO® scores are the most widely used credit score in U.S. mortgage loan underwriting. This 3-digit number, ranging from 300 to 850, is calculated by a mathematical equation that evaluates many types of information that are on your credit report. Higher FICO® scores represent lower credit risks, which typically equate to better loan terms.
First Mortgage - The primary lien against a property.
Fixed-Rate Mortgage (FRM) - A mortgage loan whose interest rate is fixed throughout the entire term of the loan.
Freddie Mac - A congressionally chartered company operating under federal conservatorship that is a major supplier of home mortgage funds to mortgage lenders in the Secondary Mortgage Market.
Fully Amortized ARM - An adjustable-rate mortgage (ARM) with a monthly payment that is sufficient to amortize the remaining balance.
Gross Income - Income before taxes are deducted. Also called pre-tax income.
Housing Expense Ratio - The percentage of gross monthly income budgeted to pay housing expenses.
Hybrid ARM - A hybrid adjustable-rate mortgage, or hybrid ARM (also known as "fixed-period ARMs"), blends the characteristics of a fixed-rate mortgage and a regular adjustable-rate mortgage. This type of mortgage will have an initial fixed interest rate period followed by an adjustable rate period.
Income - Income is money (or some equivalent value) that an individual or business receives in exchange for providing a good or service.
Index - The index is the measure of interest rate changes a lender uses to decide the amount an interest rate on an ARM will change over time. The index is generally a published number or percentage, such as the average
Initial Interest Rate - This refers to the original interest rate of the mortgage at the time of closing.
Insured Mortgage - A mortgage that is protected by the Federal Housing Administration (FHA), Veteran’s Administration (VA), Rural Development loans (USDA) or by private mortgage insurance (PMI).
Interest Rate - The fee charged for borrowing money.
Interest Accrual Rate - Mortgages are paid in arrears, which means that the interest due on the balance accrues before a payment is made.
Interest Rate Ceiling - For an adjustable-rate mortgage (ARM), the maximum interest rate, as specified in the mortgage note.
Interest Rate Floor - For an adjustable-rate mortgage (ARM), the minimum interest rate, as specified in the mortgage note.
Late Charge - If the mortgage payment is late, a late fee that may be charged once the grace period ends.
Lender - A licensed institution that works with a borrower to complete a mortgage transaction.
Liabilities - A person's financial obligations. Liabilities include long-term and short-term debt.
Libor Index - The London Interbank Offered Rate, or LIBOR, is a common benchmark interest rate index used to make adjustments to variable-rate loans.
Lifetime Payment Cap - For an adjustable-rate mortgage (ARM), a limit on the amount that payments can increase or decrease over the life of the mortgage.
Lifetime Rate Cap - For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can increase or decrease over the life of the loan. See cap.
Line of Credit - An agreement by a commercial bank or other financial institution to extend credit up to a certain amount for a certain time.
Liquid Asset - A cash asset or an asset that is easily converted into cash.
Loan - A mortgage is a loan in which property or real estate is used as collateral. The borrower enters into an agreement with the lender wherein the borrower receives a loan and makes payments over a set period of time until the loan is paid in full.
Loan Estimate - A Loan Estimate is a three-page form that is received after applying for a mortgage. The Loan Estimate provides important details about the loan requested. The form provides important information, including the estimated interest rate, monthly payment, and total closing costs for the loan.
Loan-to-Value (LTV) Percentage - The loan-to-value (LTV) ratio is a financial term used express the ratio of a loan to the value of an asset purchased.
Lock-In Agreement - An agreement between a borrower and a lender that allows the borrower to lock in the interest rate on a mortgage over a specified time period at the prevailing market interest rate
Margin - The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.
Maturity - The due date on which the principal balance of a loan becomes due and payable at the end of the amortization period.
Mortgage - A legal document that pledges a property to the lender as security for payment of a debt.
Mortgage Insurance - Mortgage insurance is an insurance policy that protects a mortgage lender or title holder in the event that the borrower defaults on payments, dies or is otherwise unable to meet the contractual obligations of the mortgage
Mortgage Insurance Premium (MIP) - The amount paid by a mortgagor for mortgage insurance.
Mortgagor - The borrower in a mortgage agreement.
Net Worth - The value of all of a person's assets, including cash.
Non-Liquid Asset - An asset that cannot easily be converted into cash.
Note - A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.
Processing Fee (Application Fee) - A fee paid to a lender for originating a loan application.
Payment Change Date - The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM) or a graduated-payment mortgage (GPM).
Prepayment Penalty - A fee that may be charged to a borrower who pays off a loan before it is due.
Pre-Qualification - The process of determining how much money you may be eligible to borrow before you apply for a loan.
Principal - The loan amount borrowed or remaining unpaid principal balance. The part of the monthly payment that reduces the remaining balance of a mortgage.
Principal, Interest, Taxes, and Insurance (PITI) - The four components of a monthly mortgage payment. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the monthly cost of property taxes and homeowners insurance, whether these amounts that are paid into an escrow account each month or not.
Private Mortgage Insurance (PMI) - Mortgage insurance provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require MI for a loan with a loan-to-value (LTV) percentage in excess of 80 percent.
Qualifying Ratios - Calculations used to determine if a borrower qualifies for a mortgage. The ratios consist of two separate calculations: a housing expense as a percent of income ratio and total debt obligations as a percent of income ratio, most commonly referred to Debt to Income Ratio or DTI.
Real Estate Agent - A person licensed to negotiate and transact the sale of real estate on behalf of the property owner or borrower.
Real Estate Settlement Procedures Act (RESPA) - A consumer protection law that requires lenders to give borrowers advance notice of closing costs.
Recordation - The recordation in the registrar’s office of the details of a properly executed legal document, such as a deed, a mortgage note, a satisfaction of mortgage, or an extension of mortgage, thereby making it a part of the public record.
Reserves - Liquid assets that a borrower has available after making a down payment and paying all closing costs for the purchase of a home.
Revolving Liability - A credit arrangement, such as a credit card, that allows a customer to borrow against a pre-approved line of credit when purchasing goods and services.
Secondary Mortgage Market - Where existing mortgages are bought and sold between mortgage lenders and mortgage investors.
Security - The property that will be pledged as collateral for a loan.
Servicer - An organization that collects principal and interest payments from borrowers and manages borrowers’ escrow accounts.
Third-party Origination - When a lender uses another party to completely or partially originate, process, underwrite, close, fund, or package the mortgages it plans to deliver to the secondary mortgage market.
Total Expense Ratio - Total obligations as a percentage of gross monthly income including monthly housing expenses plus other monthly debts.
Total Interest Percentage (TIP) - The total amount of interest a consumer will pay over the loan term as a percentage of the loan amount.
Treasury Index - An index used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. Based on the results of auctions that the U.S. Treasury holds for its Treasury bills and securities or derived from the U.S. Treasury's daily yield curve.
Truth-in-Lending - A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the annual percentage rate (APR) and other charges.
Underwriting - The process of evaluating a loan application to determine the risk involved for the lender.
VA Mortgage - A mortgage that is guaranteed by the Department of Veterans Affairs (VA). A VA mortgage is a type of government mortgage offered as a benefit to certain active-duty or retired military personnel.