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A

Adjustable-Rate Mortgage (ARM)

A type of mortgage in which the interest rate on the note varies throughout the life of the loan. The interest rate may be fixed for a period of time (i.e. introductory rate) after which the rate adjusts periodically based on an index. When your loan adjusts, monthly payments can go up or down, depending on current rates. Also referred to as a variable-rate mortgage.

Amortization

Your loan repayment process. The Amortization schedule is the amount you pay each month in principal and interest to ensure your loan is repaid by the end of your loan's term.

Annual Percentage Rate (APR)

The APR expresses the cost of the loan on a yearly basis as a percentage.  It includes interest charges as well as points and other costs.

Appraisal

An estimate of your property's fair market value as determined by an independent Appraiser. The valuation is based on a variety of factors, including recent sales in the area and current market conditions. Also referred to as a valuation.

Appreciation

An increase in value, the opposite of depreciation.

B

Balloon Mortgage

A mortgage loan with initially low interest payments, but that requires one large payment due upon maturity (for example, at the end of five or seven years).

Borrower

The person who receives a mortgage with the obligation to repay the loan's principal and interest.

Broker

In real estate, a broker is an individual that passed their broker license exam and can handle property transactions, own a firm and hire agents to work for them.

Buydown

A buydown occurs when one party pays an initial lump sum in exchange for a lower interest rate on the mortgage for a limited introductory period (i.e. 2 or 3 years).

C

Cash Out Refinance

A refinance that allows you to take cash out from your home's equity. You replace your existing mortgage with a new loan for a higher amount, and you get the difference in cash at closing.

Certificate of Eligibility (COE)

A document which verifies your eligibility for a VA loan. You need a Certificate of Eligibility when you apply. Veterans can get a COE by submitting a Separation Paper (Form DD-214) and Request for Certificate of Eligibility (VA Form 1880) to the Department of Veterans Affairs. Active duty military personnel and surviving spouses who qualify can also get COEs.

Closing

The last step of your home purchase or refinance, your closing is where you sign necessary documents and exchange funds. As a home buyer / owner you'll need to attend (in some cases with your representative). Also referred to as a settlement.

Collateral

Property pledged as security for a debt, such as the real estate as security for a mortgage.

Collections

The efforts a mortgage company takes to collect past due payments.

Conventional Loan

A mortgage not insured or guaranteed by a government agency such as the Department of Veteran Affairs (VA), the Federal Housing Administration (FHA), or the Department of Agriculture (USDA).

Convertible ARM

An Adjustable-Rate Mortgage loan that can be converted into a fixed-rate mortgage during a certain time period.

Credit Report

A detailed report of your borrowing and repayment history provided by an independent credit reporting agency.

D

Debt-to-Income Ratio (DTI)

A percentage calculated by dividing your total monthly debt payments (i.e. rent or mortgage payments, other loans, credit cards, etc.) by your total income. Some mortgage solutions require specific debt-to-income ratios for eligibility. Example: Your total debt payments are $1,000 per month and your total income is $4,000 per month, your DTI is $1,000/$4,000 or 25%.

Deed

A legal document under which ownership of a property is conveyed.

Deed-in-Lieu of Foreclosure

The transfer of title from a homeowner to the mortgage company to satisfy the mortgage debt and avoid foreclosure, also called a Deed-in-Lieu of Foreclosure or a voluntary conveyance.

Default

A borrower is in default when they fail to meet the terms of their loan agreement. Usually this is based on failure to make payments on time.

Deficiency Balance

The difference between what a foreclosed home sold for and the remaining mortgage balance. The mortgage company may require you to pay the amount of the deficiency balance.

Deferred Payments

Payments that are authorized to be postponed as part of a workout process to avoid foreclosure.

Delinquency

When your loan is past due.

Department of Veterans Affairs (VA)

The federal agency that oversees veteran services including home financing programs.

E

Entitlement

The amount the VA will repay your lender if you default on your VA loan. Entitlement plays an important role in determining how much you can borrow through your mortgage. If you live in an area with a high cost of living, it could impact the size of your entitlement.

Equity

Your home's value minus the amount you owe on it (the balance on your mortgage or home equity loan/line of credit). Example: if your home is worth $200,000 and you owe $150,000 on your mortgage and home equity loans, your equity would be $50,000.

Escrow

Funds your lender collects and stores in an escrow account to pay property taxes, homeowners insurance and mortgage insurance. Your lender pays these expenses on your behalf, adding the cost of taxes and insurance to your monthly mortgage payment.

Escrow Account

An account set up by the lender into which the borrower makes periodic payments, usually monthly, for taxes, hazard insurance, assessments, and mortgage insurance premiums. The funds are held in trust by the lender who pays the sums as they become due.

Escrow Analysis

A periodic review of escrow accounts to make sure that there are sufficient funds to pay the taxes and insurance on a home when they are due.

F

Fixed-Rate Mortgage

A loan with an interest rate which remains the same for the entire loan. With a fixed rate loan, your monthly payment will only change if your taxes or insurance costs fluctuate.

Forbearance

An agreement to temporarily suspend or reduce monthly mortgage payments for a specific period of time. A forbearance is usually granted when a homeowner makes satisfactory arrangements to bring the overdue mortgage payments up to date.

Foreclosure

A legal process where the lender takes possession of a home after a borrower has not met the mortgage's terms of repayment. Also known as a repossession; often homes are re-sold to pay off borrowers' debt.

Foreclosure Prevention

Steps by which the mortgage company works with the homeowner to find a permanent solution to resolve an existing or impending loan delinquency.

Funding Fee

A fee you'll pay directly to the VA to help offset losses on defaulted loans. Your VA Funding Fee amount depends on a number of factors, including down payment size, VA loan history and the nature of your service.

G

Guaranty

A portion of your loan is guaranteed by the Department of Veteran Affairs, who will pay your lender this guaranty if your loan forecloses. The guaranty amount varies depending on your loan amount, property location and other factors. Your guaranty amount may impact your ability to qualify for specific loans or loan amounts.

Gross Monthly Income

The total amount of income before taxes and expenses are deducted. This amount may include overtime pay, bonuses, commissions and income from dividends or interest, provided that the individual can show consistent history of receiving such income.

H

Hardship

A hardship is the reason why a homeowner is having trouble making their mortgage payments, such as job loss, medical emergency or illness, divorce, etc. A hardship may be short term (less than 6 months) or long term (more than 6 months). When contacting your mortgage company or a housing counselor for assistance, homeowners may be required to demonstrate/explain any hardship they are experiencing.

Hazard Insurance

A portion of your homeowners insurance that covers you from hazards such as fire or some natural disasters.

Home Affordable Modification Program (HAMP)

The Home Affordable Modification Program is part of the government’s Making Home Affordable Program, and provides homeowners an opportunity to modify their loan to more affordable monthly payments. For more information about this program, please visit MakingHomeAffordable.gov.

Home Affordable Refinance Program (HARP)

The Home Affordable Refinance Program was part of the government's Making Home Affordable Program, and provided homeowners an opportunity to refinance their loan to more affordable monthly payments — even if they had limited or no equity in their home. The application deadline for this program was December 31, 2018. For more information about this program, please visit MakingHomeAffordable.gov.

Home Equity Line of Credit

A way of borrowing money against the equity of your home for an agreed upon maximum amount that the homeowner can use to pay for things such as home repairs, college education, or other personal uses. You can draw money from this line of credit for a specified period of time.

Homeowners Insurance

Insurance you take out on your property that covers hazards (events such as fires) and liability (accidents that take place in your home). Typically, homeowners insurance is required by your lender.

I

Inspection

An assessment of a property's condition prior to sale. Typically performed by a professional home inspector.

Interest Rate

The cost you pay to borrow money, shown as a percentage. The amount of interest you owe on the mortgage depends on the interest rate and loan amount.

Interest-Only Mortgage

A mortgage where the homeowner pays only the interest on the loan for a specified amount of time.

Interest Rate Reduction Refinance Loan (IRRRL)

Allows you to refinance a VA loan to a new VA loan to lower your rate. Fewer requirements compared to VA Cash-Out refinances mean the process is typically faster.

Investment Property

A property used for the purpose of generating income or gaining profit from the resale or tax write-offs.

Investor

The owner of the loan on a property.

J

Jumbo Loan

Loans larger than the limits set by Fannie Mae and Freddie Mac. Jumbo Loan amounts vary depending on the location of your property. Interest rates on Jumbo Loans are typically higher than conforming loans.

L

Lien

A claim on a home used as collateral against a debt. Your mortgage is an example of a lien.

Loan-to-Value Ratio (LTV)

A percentage calculated by taking your mortgage amount and dividing it by your home's value. The LTV may be used to determine if you're eligible for a mortgage. Example: If your home is worth $100,000 and your mortgage is for $65,000 your LTV is 65,000/100,000 or 65%.

Loss Mitigation

When the homeowner and the mortgage company are working together to determine the appropriate option/workout solution to bring the mortgage current and avoid foreclosure.

M

Modification

Any change to the terms of a mortgage loan, including changes to the interest rate, loan balance or loan term.

Mortgage

A loan used to purchase or refinance a home. The term also describes the legal document that pledges property to the mortgage company as security for the repayment of the loan.

Mortgage Company

Mortgage companies may originate (i.e., your lender) as well as service the loan. The lender who originated your mortgage may or may not service your loan. When the mortgage company services your mortgage, they do the following: collect the homeowner’s mortgage payments, pay taxes and insurance, generally manage your escrow accounts (i.e., they “service” your loan), and provide customer service and support.

Mortgage Insurance

Insurance that protects the mortgage company against losses caused by a homeowner's default on a mortgage loan. Mortgage insurance (or MI) typically is required if the homeowner's down payment is less than 20% of the purchase price.

Mortgage Release (Deed-in-Lieu of Foreclosure)

The transfer of title from a homeowner to the mortgage company to satisfy the mortgage debt and avoid foreclosure, also called a Deed-in-Lieu of Foreclosure or a voluntary conveyance.

Mortgagee

A lender to whom property is conveyed as security for a loan.

Mortgagee Clause

A clause in property insurance policies that protects the interests of the lender. This clause creates a separate contract between the mortgagee and the insurer. It gives lenders the right to collect insurance payouts in certain circumstances such as when the property is lost to fire.

Mortgagor

One who borrows money, typically a homeowner.

O

Origination Fee

The fee lenders charge to originate your mortgage. Unlike a discount fee or "points" this fee does not impact your mortgage interest rate.

P

PITI

Principal, Interest, Taxes and Insurance are the components of a mortgage payment.

Pre-foreclosure Sale

The process in which a mortgage company works with a delinquent homeowner to sell the house by a real estate agent prior to the foreclosure sale. The sale price is less than what is owed on the mortgage.

Pre-qualification

An estimate of how much you may be able to borrow based on unverified financial details you provide such as your debt, income and liquid assets.

Prime

Mortgages provided to those with good credit scores, a history of stable income, low debt ratios and ample down payment.

Principal

The amount of your loan that remains unpaid. Or, the portion of each mortgage payment used to pay down the amount you owe on your mortgage.

Private Mortgage Insurance (PMI)

This insurance protects the lender if the borrower defaults on the mortgage. Often required on mortgages with a down payment below 20% (different guidelines apply to FHA and VA loans). PMI is added to the monthly payment.

R

REALTOR®

Real estate agents that belong to the National Association of REALTORS®. Real estate agents are licensed and earn a commission when representing home sellers and buyers in real estate transactions.

Refinance

You pay off your existing mortgage with a new loan. You may want to do this to lower your interest rate, reduce monthly payments, change your term, lock in a low fixed rate or take cash out of your home's equity.

Repayment Plan

A homeowner promises to pay down past-due amounts on a mortgage over a specified time period while still making regular monthly payments.

S

Servicer

After a mortgage loan closes, the loan servicer collects the payments, manages escrow accounts, pays escrow taxes and insurance, and manages delinquent payments.

Short Sale (also called Pre-foreclosure)

The process in which a mortgage company works with a delinquent homeowner to sell the house by a real estate agent prior to the foreclosure sale. The sale price is less than what is owed on the mortgage.

Streamline

Streamline loans are generally available for Federal Housing Authority (FHA) or VA loans. VA Streamline is another term for an Interest Rate Reduction Refinance Loan (IRRRL). Streamline refinances typically involve fewer requirements and are a faster option when your goal is to keep the same loan, but refinance to reduce your interest rates.

T

Title

The document that identifies you as a property owner along with a history of previous owners of the property.

V

VA Loan

A mortgage loan guaranteed by the U.S. Department of Veteran Affairs. VA loans provide a number of benefits to eligible veterans and active military personnel including no down payment, no mortgage insurance and flexible qualifying guidelines.

Voluntary Conveyance

The transfer of title from a homeowner to the mortgage company to satisfy the mortgage debt and avoid foreclosure; also called a "Deed-in-Lieu of Foreclosure."

W

Workout

Options to resolve or restructure a loan or prevent someone from going into foreclosure.