Interest that is earned but not paid, ultimately adding to the amount owed.
Additional Principal Payment
A way to reduce the remaining balance on the loan by paying more than the scheduled principal amount due.
Adjustable-Rate Mortgage (ARM)
An Adjustable Rate Mortgage, or ARM, is a mortgage where the interest rate is adjusted periodically based on an index.
A consumer’s capacity to afford a house usually expressed in terms of the maximum price the consumer could pay for a house and be approved for the mortgage required to pay that amount.
The gradual repayment of a mortgage loan, both principal and interest, through installments expressed in terms of the number of months required to repay the mortgage loan in full (also known as the amortization term).
A written report prepared by a qualified appraiser estimating the fair market value of a property based on the appraiser’s knowledge, experience, and analysis of the property (also known as appraised value).
A professional with knowledge of real estate markets skilled in the practice of determining a property’s fair market value.
Annual Percentage Rate (APR)
The cost of credit expressed as a yearly rate including interest, mortgage insurance, and loan origination fees. This allows the buyer to compare loans. However, APR should not be confused with the actual note rate.
Anything owned of monetary value including real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, etc.).
When the seller, builder, or buyer pays an amount of money up front to the lender to reduce monthly payments during the first few years of a mortgage.
Refinancing for an amount in excess of the balance on the old loan plus settlement costs. The borrower takes “cash-out” of the transaction. This way of raising cash is usually an alternative to taking out a home equity loan.
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.
A meeting held to finalize the sale of a property. At this time, the buyer signs the mortgage documents and pays closing costs.
Closing costs, also referred to as a “settlement”, include a loan origination fee, points, an appraisal fee, title search and insurance fees, survey, taxes, a deed recording fee, credit report charge and other costs assessed at settlement. The closing costs usually equal about 2% to 6% of the mortgage amount.
One or more persons who have signed the note and are equally responsible for repaying the loan.
A conforming loan is any loan that meets the criteria and limits set forth by the two largest buyers of loans, Fannie Mae and Freddie Mac.
Any mortgage which is not insured or guaranteed by a government agency such as HUD/FHA, VA, or the Farmers Home Administration.
Consumer Reporting Agency
An organization that handles the preparation of 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.
A report detailing an individual’s credit history that is prepared by a credit bureau and used by a lender to determine a loan applicant’s creditworthiness.
A credit score is a number generated by a statistical system used to rate the credit of an applicant according to various characteristics relating to creditworthiness.
Failure to make mortgage payments for 90 days.
Failure to make mortgage payments on time beyond 90 days of the due date or the inability to comply with other requirements of a mortgage.
Additional points you can pay a lender to lower the interest rate on your loan at closing. Each point is equal to 1 percent of the loan amount (e.g. two points on a $100,000 mortgage would cost $2,000).
Part of the purchase price of a property that is paid in cash by the buyer and not financed with a mortgage.
Down Payment Assistance
A program that provides financial assistance for a down payment and closing costs for qualified borrowers.
Debt-to-Income Ratio (DTI)
Debt-to-income ratio (also referred to as DTI, back-end ratio or bottom-end ratio) is the total of all monthly debt payments calculated by taking the proposed housing expense (not including living expenses such as food and utilities) divided by monthly gross (before tax) income.
Earnest Money Deposit
This is a sum of money given to bind the sale of real estate, to ensure payment, or to advance funds in the processing of a loan.
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.
Refers to a neutral third party who carries out the instructions for both the buyer and seller to handle all the paperwork of settlement or “closing.” Escrow may also refer to an account held by the lender into which the home buyer pays money for tax or insurance payments.
A congressionally chartered shareholder-owned company that is the nation’s largest supplier of home mortgage funds formally known as the Federal National Mortgage Association (FNMA).
The sum of all upfront cash payments required by the lender as part of the charge for the loan.
A mortgage that is insured by the Federal Housing Administration (FHA), also known as a government mortgage.
The primary lien against a property.
A mortgage loan in which the interest rate charged remains constant throughout the life of the loan.
An interest rate that is allowed to move up or down with the rest of the market or along with an index. The prime lending rate is used as a basis for the floating rate, with the agreement stating that the interest rate charged to the borrower is the prime interest rate plus a certain spread. A borrower may elect to lock the rate and points at any time but must do so a few days before closing.
The legal process by which a lender acquires possession of the property securing a mortgage loan as a result of a default by the borrower.
This is a government-owned corporation that buys mortgages and packages them into mortgage-backed securities, formally known as the Federal Home Loan Mortgage Corp. (FHLMC)
Fully Amortizing Payment
The monthly mortgage payment, which if maintained unchanged through the remaining life of the loan at the then-existing interest rate will pay off the loan over the remaining life. On FRMs, the payment is always fully amortizing provided the borrower has made no prepayments. (If the borrower makes prepayments, the monthly payment is more than fully amortizing). On GPMs, the payment in the early years is always less than fully amortizing. On ARMs, the payment may or may not be fully amortizing, depending on the type of ARM.
Gift of Equity
A sale price below market value where the difference is a gift from the sellers to the buyers. Such gifts are usually between family members. Lenders will usually allow the gift to count as a down payment.
A government-owned corporation that assumed responsibility for the special assistance loan program, formerly administered by Fannie Mae and referred to as the Government National Mortgage Association (GNMA).
Government-Sponsored Enterprise (GSE)
Privately held corporations with public purposes created by the U.S. Congress to reduce the cost of capital for certain borrowing sectors of the economy. The three most commonly known GSEs are Fannie Mae, Freddie Mac, and Ginnie Mae.
A borrower’s normal annual income, including overtime that is regular or guaranteed. Salary is usually the principal source, but other income may qualify if it is significant and stable.
The insurance purchased by the borrower and required by the lender in order to protect the property against loss from fire and other hazards. This is also known as “homeowner insurance” and is represented by the second “I” in PITI.
Home Equity Line of Credit (HELOC)
A home equity line of credit (HELOC) is a type of secondary financing that consists of a revolving line of credit secured by a lien junior to a mortgage.
The sum of the mortgage payment, hazard insurance, property taxes, and homeowner association fees. This is also the same as PITI and “monthly housing expenses.”
Housing Expense Ratio
The percentage of gross monthly income budgeted to pay housing expenses.
A measure of interest rate to decide the amount an interest rate on an ARM that will change over time. The index is generally a published number or percentage, such as the average interest rate or yield on Treasury bills. Some index rates tend to be higher than others, whereas some tend to be more volatile.
The fee charged for borrowing money.
Interest rate is the percentage of the loan that will be paid annually as the interest accrues.
A mortgage where a period of the monthly mortgage payments is directed toward paying off interest only. During that period, the loan balance remains unchanged.
A real estate property that has been purchased with the intention of earning a return on the investment (purchase), either through rent (income), the future resale of the property, or both. An investment property can be a long-term endeavor, such as an apartment building, or an intended short-term investment in the case of flipping (where a property is bought, remodeled or renovated, and sold for profit).
A loan with a loan amount larger than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Currently, the limit is set at $453,100 for most areas. However, special areas, such as Alaska, Hawaii, Guam, and the U.S. Virgin Islands, have higher limits. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.