Want to better understand mortgages? Then you need to understand the essential terms. Using this mortgage glossary, you’ll have a better understanding of real estate and the mortgage industry.
This is Part 2 in our mortgage glossary series. Read Mortgage Glossary of Terms Part 1 for more information.
Mortgage Glossary Of Terms: Part 2
The Federal Housing Finance Agency. Not to be confused with the FHA, the FHFA sets lending limits and provides oversight for Fannie Mae and Freddie Mac. It was created in 2008 as a response to the financial crises.
A loan with an interest rate that does not change. Unlike adjustable-rate loans, fixed-rate loans allow the borrower to know exactly how much they will pay in the future, as the rate and total payment will not fluctuate.
Seizure of property by a lender. When a lender makes a mortgage loan, they keep a legal right to take possession of the home if payments are not made. The home may then be sold in a “foreclosure auction.”
The Federal Home Loan Mortgage Corporation. Like Fannie Mae, this is a government-sponsored company that provides support to the real-estate lending sector. It was created in 1970 with the goal of expanding the secondary market.
A Home Equity Line of Credit. This is a line of credit secured by your home that gives you access to a revolving fund of money. It is not a lump-sum loan, but rather an account from which you can make withdrawals. To secure the loan, the lender is given the rights of a lien against your home.
The Department of Housing and Urban Development. This is a cabinet-level department that directly advises the President and oversees agencies such as the FHA and FHFA.
A loan where the borrower only pays the interest on a mortgage loan for a specific term, usually about five to seven years.
A large loan that is above and beyond the limits set by government institutions. Jumbo loans, which do not have government insurance or support, generally have tighter approval requirements, although they may not have higher interest rates as is often assumed.
A legal right to your property. If a lender has a lien against your property, they have the right to take possession of the property in order to be compensated for the loan.
Loan-To-Value ratio. This is an expression of the total loan amount compared to the stated value of the home, which is usually established with an appraisal. If the loan covers the entire value of the home, the LTV is 100%. Generally lenders want the LTV to be low, which reduces risk.
The process of borrowing money and creating the loan. Origination includes many different steps, starting with the loan application, submission of documents, and assessment by the lender. There are usually loan origination fees involved in the loan.
A person who owns the home and also lives in the property. If you own the house where you live, you are an owner-occupant. Some loans require owner-occupant status for a certain period.
An initial approval of the loan for which you have applied. Pre-approval generally includes credit checks and document verification, so it is more significant, but also more time-consuming, than pre-qualification.
Private Mortgage Insurance. This is the insurance policy paid by the borrower on conventional loans, which are not supported by government programs. Usually PMI is removed once the borrower reaches 20% equity on the property.
Also called “discount points,” these are fees paid to the lender that reduce the total interest rate you pay. Essentially, you pay for points to get a lower interest rate.
Land and any property attached directly to it. Real property doesn’t just include the land, but can also include buildings, fixtures, materials, equipment, and structures that are attached to the land. Real property can also include the resources attached to land, such as oil or crops, assuming the crops have not been harvested yet.
A process of getting a new mortgage loan in place of your existing one. Most borrowers will refinance in order to get better terms, such as a lower interest rate. They may also refinance to a longer term, such as a 15-year to a 30-year mortgage, which will have lower monthly payments.
Cash reserves kept on hand by the borrower to help increase the chances of mortgage approval. Lenders will often require cash reserves, which gives them assurance that if the borrower loses their income, the payments can still be made. They are especially common for high-risk loans, such as jumbo loans.
Any home that is not your primary residence. Second homes typically include vacation homes and weekend homes.
Insurance that provides compensation if there are issues with the home’s title after a purchase. For example, if an estate home is sold but a family member appears years later with a legal claim to the property, the title insurance will provide financial resources to settle the issue.
The process of determining whether or not a loan should be made. Underwriting will include a wide variety of information, including credit checks, debt-to-income ratios, and loan-to-value ratios. Most lenders use risk-assessment software as part of their underwriting process.
Loans backed by the United States Department of Agriculture. These loans are part of the USDA’s Rural Development program, which seeks to improve homeownership in rural and small-town areas. One of the top advantages of USDA loans is that you can get 100% financing (no down payment), assuming the house you buy is in a qualifying area.
Loans guaranteed by the Department of Veterans Affairs. They are available to qualifying service members, veterans, and some family members, including spouses and children. They also include the option of 100% financing.
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“Chad – Your team has been nothing short of amazing. Juliann has aggressively followed-up with escrow and gone out of her way to make sure things get done on schedule. Matt and I can’t express to you enough how much we’ve appreciated all of your counsel at the beginning of the process and her execution to see it through to close. As always, appreciate everything that you guys have done to see this through.”
“Chad and his entire team were over the top amazing, professional, and attentive throughout the entire home loan/buying process. I could not have asked for a better team to have on my side through what could be one of the most challenging and stressful processes one experiences. From the first conversation I had with Chad, I felt comfortable with him. He helped guide us through the process without ever once making us feel uneasy, unimportant, or uninformed. I never felt silly or stupid for asking the same questions over and over until I fully understood what we were getting into, or until something made total sense to me. The home loan world is fast paced, overwhelming, and confusing, and Chad and his team held our hands and helped us to feel comfortable and confident about our choices. He and his team were always there for us day or evenings, weekdays, or weekend and never made you feel like you were a bother if you had a burning question you had to get answered at 8pm Saturday night. I will use them again and again, and suggest them to any friend, family, or acquaintance. Seriously, they are rock stars. They work hard for you to get you into your dream home, we could not be happier with their hard work, dedication, and kindness.”
I was referred to Chad by my Realtor for a purchase of a new house. The experience with Chad and the team (I mainly worked with Juliann) was nothing short of outstanding. From start to finish there were always quick to respond and when needed, notify me of any new documentation that was required. There were very helpful explaining to me the pros and cons of different financing options as well as some other loan related issues, such as termite clearance outside the purchase contact and septic tank certification process. Overall, very knowledgeable and processional team. Loan preapproval was done in a single day and loan documents were ready for signing in 21 days, which was 9 days ahead of schedule. That never happened to me before.