Glossary

Adjustable-Rate Mortgage (ARM)

An adjustable-rate mortgage is a home mortgage loan in which the interest rate is not fixed for the course of the loan. After the initial rate period, usually 3,5 or 7 years, the interest rate can fluctuate based on current interest-rate index.

Amortization

Amortization is the practice of decreasing a home loan amount over the life of the loan term by making equal, (typically monthly) payments. This includes the accrued interest amount on the outstanding balance.

Annual Percentage Rate (APR)

APR is the interest rate that reflects the cost of a home mortgage as a yearly rate. This rate may be more than the stated note rate or advertised rate on the mortgage because it is the cumulative of points and other credit costs. The APR permits home buyers to compare different possible mortgages types based on the annual cost of an individual mortgage product.

Buydown

A mortgage lender or home builder may subsidize a mortgage loan by lowering the interest rate for the first couple of years of the loan. Payments are more affordable initially but increase when the subsidy expires. This option is typically seen when sellers or lenders are seeking to entice homebuyers.

Construction Loan

This is a short-term temporary loan for financing the costs associated with construction. The mortgage lender loans funds to the builder periodically as the construction advances.

Discount Points

Prepaid interest evaluated at closing by your mortgage lender. Each point equates to 1% of the loan, i.e., three points on a $100,000 mortgage would be equal to $3,000. Discount points are charged to reduce the interest rate, or can be evaluated as added risk based on loan-level price adjustments (LLPA's).

Down Payment Assistance Program (DPA)

DPA Programs are available to provide down payment assistance to qualified buyers seeking to purchase a home. These funds do not require repayment. Local programs will vary, so please contact us to see what may be available.

Earnest Money or Escrow Deposit

This is the money supplied to the seller from the home buyer as part of the cost of the home. This money is supplied as part of a good faith statement to bind the contract and attest to the commitment on the part of the home buyer to the transaction.

FHA Loan

An FHA Loan is a type of loan offered by the Federal Housing Administration and is an option for most qualified homebuyers. An FHA loan has limitations as to the amount of the loan but is typically sufficient to obtain a reasonably priced home in most areas of the country. The biggest advantage of this type of loan is that it features a low down payment and plenty of flexibility in terms.

FHA Mortgage Insurance

FHA Mortgage Insurance is a requirement related to obtaining an FHA Loan. This insurance protects the lender if the borrower defaults on the loan. The FHA requires two types. One is Up Front Mortgage Insurance Premium (UFMIP), which can be financed as part of the loan. Additionally, a monthly mortgage insurance premium is included as part of your monthly payment. In the current market, the upfront premium is 1.75% of the loan amount and monthly premiums are typically 1.25% divided monthly for a 30 year fixed rate loan with the minimum down payment. Variances can be seen based upon the terms and loan to value.

First-Time Homebuyer Program

First-time home loans offer distinct qualifying terms reserved for buyers that have not owned real estate before or have not owned real estate in at least 3 years. Available home loan programs will vary by state, but oftentimes you may get assistance with closing costs and down payments.

Impound/Escrow Account

This is a measure of a borrower's monthly payments held by the mortgage lender or servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and additional items as required.

Index

A published interest rate against which lenders gauge the difference between the current interest rate on an adjustable-rate mortgage and that earned by other investments (such as varying U.S. Treasury Security yields and varying London Interbank Offered Rate [LIBOR] yields). This sum is what is then used to modify the interest rate on an adjustable-rate mortgage (ARM) up or down.

Loan Level Price Adjustments (LLPA's)

Loan-Level Price Adjustments are automatic, cumulative fees dictated by credit scores, occupancy, the kind of property in question, down payment and additional considerations. LLPA's are not related to the mortgage company or its assorted products and are not subject to negotiations.

Margin

The sum a mortgage lender adds to the index on an adjustable-rate mortgage (ARM) to formulate the adjusted interest rate.

Mortgage Broker

A mortgage broker's role is to facilitate the procurement of funds and/or help with contract negotiations for home buyers. Brokers typically are compensated for their services.

Mortgage Insurance (MI)

This is defined as money paid to insure the mortgage when the borrower has less than a 20% down payment. Also see Private Mortgage Insurance and FHA Mortgage Insurance.

Origination Fee

This was a fee that the loan originator charged in exchange for giving the borrower a lower interest rate. It was charged as a percentage of the loan amount. In 2010, HUD required the Good Faith Estimate, which now can include the original “origination fee” as well as processing, underwriting and administrative fees.

PITI

PITI is an acronym that describes total monthly housing expense – principle, interest, taxes and insurance.

Piggyback Loan

This type of mortgage loan is really slang terminology that defines the closing of a 1st and 2nd loan at the same time. Getting a ‘piggyback' loan in the current lending landscape is rare unless the borrower has 20% down. Most borrowers will be served by getting a single mortgage with private mortgage insurance.

Private Mortgage Insurance (PMI)

In some cases where the borrower does not have a 20% down payment, the lender may allow a reduced down payment, even as low as 3.5% on VA or USDA guaranteed loans. With a smaller down payment, lenders typically require that the borrower have private mortgage insurance on the borrowed amount. You can obtain private mortgage insurance in various forms such as upfront, paid at closing and monthly. Lenders may demand a mix of both upfront and monthly. The amount required will depend on many factors such as the program type, property type, and credit score.

Title Insurance

Title Insurance is important to both the lender and the homebuyer because it insures against financial loss or damage that might be incurred because of liens, encumbrances or defects to the title of property or error of the related search. This insurance also protects the lender and homebuyer from claims such as ownership interest, incorrectly recorded documents, forgery, liens, encroachments, easements, and more risks listed in the policy.

Underwriting

Based upon considerations such as credit, employment, and assets, underwriting approves or declines funding to persons seeking a home loan. Underwriting is also the process of matching approved risks with appropriate rates, terms and loan amounts to homebuyers.

USDA Rural Home Loan

A USDA Rural Home Loan is guaranteed by the USDA and is available with no down payment to qualified buyers. This loan is one of the few remaining loan programs of this type. Not all properties must comply with the term ‘rural', but the physical location of the property and the maximum household income of the borrower come into play. Contact us to see if this option would be a good choice for you.

VA Loan

A VA Loan is a mortgage that is available to U.S. military veterans. The Veterans Administration guarantees these loans for military personnel and veterans, and offered through a private lender like banks or mortgage companies when the home buyer is seeking to purchase a property for their own personal occupancy. These loans are available at competitive rates and can be obtained with little or no money down.

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