Get to know some of the common terms that may come up during the process of getting a mortgage or refinancing your home. If you ever have a question, reach out to your local Fairway Loan Officer for answers.
A mortgage with an interest rate that changes during the life of the loan according to movements in an index rate. Sometimes called AMLs (adjustable mortgage loans) or VRMs(variable-rate mortgages).
The date that the interest rate changes on an adjustable-rate mortgage (ARM).
The period elapsing between adjustment dates for an adjustable-rate mortgage (ARM).
The gradual repayment of a mortgage loan, both principal and interest, by installments.
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.
A written analysis prepared by a qualified appraiser estimating the value of a property.
Anything owned of monetary value including real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, etc.).
A mortgage that can be transferred from the seller to the new buyer. Generally, it requires a credit review of the new borrower, and lenders may charge a fee for the assumption.
A financial statement that shows assets, liabilities and net worth as of a specific date.
Income before taxes are deducted.
A second loan that is collateralized by the borrower's present home allowing the proceeds to be used to close on a new house before the present home is sold. Also known as a "swing loan."
An individual or company that brings borrowers and lenders together for the purpose of loan origination.
A limit on how much the interest rate or the monthly payment can increase, either at each adjustment or during the life of the mortgage.
The frequency (in months) of payment and/or interest rate changes in an adjustable-rate mortgage (ARM).
A meeting held to finalize the sale of a property. The buyer signs the mortgage documents and pays closing costs. Also called "settlement."
These are expenses that are incurred by buyers and sellers when transferring ownership of a property. Closing costs normally include an origination fee, property taxes, charges for title insurance and escrow costs, appraisal fees, etc. Closing costs will vary.
A document that provides an itemized listing of the funds that are payable at closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow amounts. Each item on the statement is represented by a separate number within a standardized numbering system. The totals at the bottom of the closing disclosure define the seller's net proceeds and the buyer's net payment at closing.
Interest paid on the original principal balance and on the accrued and unpaid interest.
An organization that handles the reports used by lenders to determine a potential borrower's credit. 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 measures a consumer's credit risk, based on the individual's credit usage.
The document used in some states instead of a mortgage. Title is conveyed to a trustee.
Failure to make mortgage payments on a timely basis or to comply with other requirements of a mortgage.
Failure to make mortgage payments on time.
Part of the purchase price of a property that is paid in cash and not financed with a mortgage.
A sum of money given to bind the sale of real estate, or a sum of money given to ensure payment or an advance of funds in the processing of a loan.
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 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 principal balance of the mortgage.
An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the deposit of funds or documents into an escrow account to be disbursed upon the closing of a sale of real estate.
A mortgage that is insured by the Federal Housing Administration (FHA). Also known as a government mortgage.
The FICO® Score is the most widely used credit score in U.S. mortgage loan underwriting. This 3-digit number, ranging from 300 to 850, is calculated by a mathematical equation that evaluates many types of information that are on your credit report. A higher FICO® Score represents a lower credit risk, which typically equates to better loan terms.
A congressionally chartered, shareholder-owned company that is the nation's largest supplier of home mortgage funds.
The primary lien against a property.
The monthly payment due on a mortgage loan, including payment of both principal and interest.
A mortgage that has an interest rate that doesn’t change throughout the entire term of the loan.
A government-owned corporation that assumed responsibility for the special assistance loan program formerly administered by Fannie Mae. Popularly known as Ginnie Mae.
A mortgage that is guaranteed by a third party.
The percentage of gross monthly income budgeted to pay housing expenses.
A combination fixed- and adjustable-rate loan — also called 3/6, 5/6 or 7/6 — that can offer the best of both worlds: lower interest rates (like ARMs) and a fixed payment for a longer period of time than most adjustable-rate loans. For example, a 5/6 loan has a fixed monthly payment and interest for the first five years and then will adjust and is subject to further adjustments every six months after the initial fixed period. It's a good choice for people who expect to move or refinance around the time the adjustment occurs.
The regular periodic payment that a borrower agrees to make to a lender.
The percentage of loan charged for borrowing money.
The percentage rate at which interest accrues on the mortgage. In most cases, it is also the rate used to calculate the monthly payments.
For an adjustable-rate mortgage (ARM), the maximum interest rate, as specified in the mortgage note.
For an adjustable-rate mortgage (ARM), the minimum interest rate, as specified in the mortgage note.
A person's financial obligations. Liabilities include long-term and short-term debt.
For an adjustable-rate mortgage (ARM), a limit on the amount that payments can increase or decrease over the life of the mortgage.
For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can increase over the life of the loan. See cap.
An agreement by a commercial bank or other financial institution to extend credit up to a certain amount for a certain time. A line of credit can be used at any time up to the limit, paid back and can be borrowed again.
A cash asset or an asset that is easily converted into cash.
A sum of borrowed money (principal) that is generally repaid with interest.
The relationship between the principal balance of the mortgage and the appraised value or sale price of the property. For example, a $100,000 home with an $80,000 mortgage has an LTV of 80 percent.
The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.
The date on which the principal balance of a loan becomes due and payable.
A legal document that pledges a property to the lender as security for payment of a debt.
A company that originates mortgages exclusively for resale in the secondary mortgage market.
A fee that insures the lender against loss caused by a mortgagor's default on a government mortgage or Conventional mortgage. Mortgage insurance can be issued by a private company or by a government agency.
The borrower in a mortgage agreement.
The value of all of a person's assets, including cash.
An asset that cannot easily be converted into cash.
A fee paid to a lender for processing a loan application. The origination fee is stated in the form of points. One point is one percent of the mortgage amount.
A cash amount that a borrower must have on hand after making a down payment and paying all closing costs for the purchase of a home. The principal, interest, taxes and insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a pre-defined number of months (usually three).
The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM) or a graduated-payment mortgage (GPM). Generally, the payment change date occurs in the month immediately after the adjustment date.
A limit on the amount that payments can increase or decrease during any one adjustment period.
A limit on the amount that the interest rate can increase or decrease during any one adjustment period, regardless of how high or low the index might be.
A point is equal to one percent of the principal amount of your mortgage. For example, if you get a mortgage for $165,000, one point means $1,650 to the lender. Points are usually collected at closing and may be paid by the borrower or the home seller, or may be split between them.
The process of determining how much money you will be eligible to borrow before you apply for a loan.
A fee that may be charged to a borrower who pays off a loan before it is due.
The interest rate that banks charge to their preferred customers. Changes in the prime rate influence changes in other rates, including mortgage interest rates.
The amount borrowed or remaining unpaid on a loan.
A payment that is made directly to the principal amount of your loan as a way to reduce the remaining balance. It is a separate payment from your monthly mortgage payment. While your monthly payment goes toward principal, interest, taxes, and insurance, this additional payment goes toward principal only, saving you interest over the life of the loan.
The four components of a monthly mortgage payment. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the percentage of loan charged for borrowing money. Taxes and insurance refer to the monthly cost of property taxes and homeowners insurance, whether these amounts that are paid into an escrow account each month or not.
Mortgage insurance provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require MI for a loan with a loan-to-value percentage (LTV) in excess of 80 percent.
Calculations used to determine if a borrower can qualify for a mortgage. They consist of two separate calculations: housing expense as a percent of income and total debt obligations as a percent of income.
A real estate broker or an associate who is an active member in a local real estate board that is affiliated with the National Association of REALTORS®.
A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate and lender costs for a specified period of time.
A person licensed to negotiate and transact the sale of real estate on behalf of the property owner.
A consumer protection law that requires lenders to give borrowers advance notice of closing costs.
The noting in the registrar’s office of the details of a properly executed legal document, such as a deed, a mortgage, a satisfaction of mortgage, or an extension of mortgage, thereby making it a part of the public record.
Paying off one loan with the proceeds from a new loan using the same property as security.
A credit arrangement, such as a credit card, that allows a customer to borrow against a pre-approved line of credit when purchasing goods and services.
Where existing mortgages are bought and sold.
The property that will be pledged as collateral for a loan.
An organization that collects principal and interest payments from borrowers and manages borrowers’ escrow accounts. The servicer often services mortgages that have been purchased by an investor in the secondary mortgage market.
The method used to determine the monthly payment required to repay the remaining balance of a mortgage in substantially equal installments over the remaining term of the mortgage at the current interest rate.
A temporary buydown is an up-front interest payment that lowers the interest on a fixed-rate mortgage for the first one to two years of the mortgage, after which the interest rate reverts to the full note rate for the remainder of the loan.
When a lender uses another party to completely or partially originate, process, underwrite, close, fund or package the mortgages it plans to deliver to the secondary mortgage market.
Total obligations as a percentage of gross monthly income, including monthly housing expenses plus other monthly debts.
An index used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans.
A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the annual percentage rate (APR) and other charges.
The process of evaluating a loan application to determine the risk involved for the lender. Underwriting involves an analysis of the borrower's creditworthiness and the quality of the property itself.
A mortgage that is guaranteed by the Department of Veterans Affairs (VA). Also known as a government mortgage.