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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“Hey Chad, Just wanted to send a quick note to Thank You for all your work and effort to get this escrow closed. It was a pleasure to work with someone as professional as yourself. If I have a client that ever needs a lender you will definitely be someone that I would recommend.”
“Chad Baker is THE BEST, most professional, understanding, HONEST person I’ve ever worked in the mortgage industry. He knows exactly what he’s talking about, will never promise something he can’t deliver, and will bend over backwards to get you what you need. I had a very unique problem qualifying and every other mortgage company I worked with assured me from the beginning that they could get me financed, and then it would all fall apart once we hit underwriting. Chad understood my circumstance from the beginning and patiently explained every step of the way. I can’t thank you enough Chad! Juliann has been great keeping me updated and making sure that everything comes together in a timely fashion. She also appreciates my sense of humor, which gives personality to a boring funding process. Thanks Juliann! I HIGHLY recommend Home Point and if I ever buy another home, will absolutely use them again.”
When looking for a house, we had couple recommendations for a lender. After talking with all the lenders, many were difficult to work with and couldn’t get it done as quickly as we needed. I was referred to Chad Baker’s team and I am glad we did. Not only did they get the things done quickly for us, they were very easily to get ahold of. It wasn’t rare to get a response within 15 minutes whenever an email was sent. I could not express how friendly and outgoing this team is. And on top of that, they came back with the best offer for us amongst all the other brokers. I am glad I worked with these guys. If you are looking for a lender…MAKE SURE TO CALL CHAD BAKER AND TEAM!!! Thanks Chad for all your hard work. Next time we buy another house I am calling you first!