1031 Exchange – a tax-deferred exchange of real estate employed to offset or even avoid capital gains tax.
15-Year Fixed Mortgage – a fixed-rate home loan that has half the typical term of 30 years
203k Loan – an FHA loan that allows you to finance home improvements and permanent financing in a single mortgage loan.
3/1 ARM – An ARM that is fixed for the first three years (36 months) of the loan term before becoming annually adjustable.
5/1 ARM – An ARM that doesn’t have its first adjustment until year six, and then adjusts once annually thereafter
Adjustable-Rate Mortgage (ARM) – a mortgage with a variable interest rate, which adjusts monthly, biannually, or annually. Option-arms and hybrid mortgages are also considered adjustable-rate mortgages
Alt-A Mortgage – a home loan that isn’t prime or subprime, but somewhere in the middle
Amortization – the way a loan is paid off over time in installments, detailing how much goes toward interest, and how much is paid toward principal
Annual Percentage Rate (APR) – the actual interest rate you pay on your mortgage, which factors in fees, points, and other costs associated with the loan
Assumption – the act of assuming responsibility for the payment of a mortgage lien
Balloon Mortgage – a short-term mortgage with small monthly installments and a large lump sum due at the end of the loan term. An example would be a 30 due in 15, which amortizes like a 30 year fixed, but is due 15 years earlier
Biweekly Mortgage – a mortgage where 26 half payments, or 13 full payments, are made annually
Blanket Mortgage – a single home loan used to provide financing for multiple properties, such as rental units
Bridge Loan – a short term loan taken out against one property to finance the purchase of a new property
Buy-Down – the act of securing a lower than par interest rate by paying the bank a lender a premium
Caps – initial, periodic, and lifetime payment caps which limit how much and how frequently an interest rate can change on an adjustable-rate mortgage
Cash-In Refinance – a refinance transaction where borrowers bring money to the closing table to lower their mortgage balance
Certificate of Reasonable Value (CRV) – an appraisal issued by the Veterans Administration to determine the value of a property. The loan amount may not exceed the CRV on a VA loan
Closing – the final step in the loan process when loan documents are signed at an escrow or title company
Closing Costs – the amount of money that must be paid to close your loan, including lender fees and third-party charges, along with taxes and transfer fees
Combo Loan – a first and second mortgage used concurrently to finance a property
Conforming Loan – a loan that meets Fannie Mae and Freddie Mac guidelines, which also falls under a certain loan amount
Construction Loan – a short-term loan given to a builder during intervals of the building process which is due upon completion of the project
Conventional Mortgage – any mortgage loan that is not insured or guaranteed by the federal government
Credit Report – a tool used by the bank or lender to review your credit profile and your ability to carry and repay debt
Credit Score – a three-digit number that is used by lenders to assess your creditworthiness. There are minimum scores for most home loan programs
Debt-to-Income Ratio – the ratio of monthly liabilities and housing expenses divided by the monthly gross income of the borrower
Deed-in-Lieu of Foreclosure – a method of avoiding foreclosure by deeding your property to the lender
Deed of Trust – a security instrument between the borrower and the lender, recorded in public records as a lien on the subject property. It differs from a mortgage in that the bank can foreclose on the property without judicial proceedings
Deferred Interest – the amount of interest added to the principal loan balance when a borrower pays less than the interest-only note rate (see - option arm)
Delinquency – the failure to make a monthly mortgage payment on time, which can eventually lead to a notice of default, and later a foreclosure
Discount Rate – the interest rate the Federal Reserve offers to member banks and thrifts
Doctor Mortgage – a mortgage designed specifically for a physician that may allow financing before employment history is established
Down Payment – an upfront payment made by the home buyer toward the property purchase price, usually ranging from five to 20 percent. The remainder of the sales prices makes up the mortgage loan amount
Due Date – the date your mortgage payment is due each month during the loan’s duration
Earnest Money – a deposit paid to the seller by the buyer as a pledge to complete a real estate transaction. If the seller accepts the offer, the deposit is held in escrow and applied to closing costs when the deal is closed
Equal Credit Opportunity Act – a federal law that prevents lenders from discriminating applicants based on race, religion, national origin, sex, age, marital status or involvement in public assistance program
Escrow – a third party intermediary who holds and allocates funds, including taxes and insurance in a mortgage transaction
Federal Funds Rate – the interest rate banks charge one another for overnight use of excess reserves
Federal Home Loan Mortgage Corporation – one of the largest financiers of conventional mortgages on the secondary market. Widely known as Freddie Mac
Federal National Mortgage Corporation – a publicly owned, government-sponsored corporation that packages mortgages and resells them on the secondary market. Also known as Fannie Mae
FHA Loan – a program originated during The Great Depression that allows lower income borrowers to qualify for mortgages as long as they fit certain criteria set forth by the Federal Housing Administration who insures them
First-Time Home Buyer – typically defined as someone who has not owned another property at any time during the three years prior to the date of the purchase
Fixed-Rate Mortgage – a mortgage with a constant interest rate that will not adjust at any point during the life of the loan
Foreclosure – the legal process by which a bank or lender sells a property after a borrower fails to meet the repayment terms of the loan
Gift Letter – a letter required by the borrower when using gift funds to obtain a mortgage loan
Good Faith Estimate – a disclosure which details your loan summary and an estimate of the charges you’ll incur upon settlement, now known as the Loan Estimate (LE)
Graduated Payment Mortgage – a negative amortization mortgage with flexible payment options that gradually increase over time until leveling off. Intended for young couples who are unable to make the full mortgage payment, but whose income will increase over time
Hard Money Loan – a mortgage of last resort for borrowers who can’t obtain financing in the standard market due to poor credit
HARP Loan – a refinance loan offered to those with negative equity
Hazard Insurance – insurance which protects a property owner from damages caused by fire or severe weather
Home Appraisal – a comprehensive report that determines the value of your property based on a number of valuation factors
Home Equity – the value of a property less any and all existing liens. If a borrower owns a property worth $500,000 and has liens of $400,000, equity is $100,000
Home Equity Line of Credit – a line of credit that uses the value of a property as collateral
Impound Account – an account established by the issuing bank/lender or loan servicer to collect monthly and automatically pay a borrower’s property taxes and insurance costs when payments are due
Interest-Only Mortgage – a home loan that lets you pay just the interest portion of the mortgage payment each month
Investment Property – a property that you do not occupy, but rather rent out to a tenant
Jumbo Loan – a loan amount above the conforming loan limits, which is set each year by Fannie Mae and Freddie Mac. These loans typically carry higher interest rates than conforming loans because they can’t be sold to Fannie or Freddie
Lender Credit – a credit paid by the lender to the borrower for taking an above-market interest rate
Lender-Paid Mortgage Insurance – the lender pays for your mortgage insurance in exchange for a higher interest rate on your mortgage
Lender Overlay – a guideline (or set of guidelines) in addition to those required by Fannie Mae, Freddie Mac, or the FHA/VA
Letter of Explanation – a common loan condition required to clear up or provide additional details for any matter that needs further review
Lien – a claim against a property by the issuing bank or lender to secure repayment of a debt, typically in the form or a mortgage
Loan Officer – a representative of a bank or broker who originates mortgages on their behalf
Loan Origination – the initiation of the home loan process whereby a borrower submits their information to a bank or lender in order to obtain mortgage financing
Loan Processor – the individual who handles all the paperwork associated with closing your loan
Loan-to-Value – the percentage of the appraised property value that is borrowed from a bank or lender. A down payment of 20% would create a loan-to-value of 80%
Margin – a given amount specified by the bank or lender which when added to the accompanying mortgage index sets the interest rate for an adjustable-rate mortgage
Mortgage – a temporary loan used to finance the purchase of real property, also known as a home loan
Mortgage Broker – an independent loan originator who works on behalf of consumers to obtain mortgage financing. Brokers don’t represent a single bank, but rather work with numerous lenders
Mortgage Discount Points – a form of prepaid interest whereby the borrower lowers the interest rate of the mortgage at closing
Mortgagee – the issuing bank or mortgage lender
Mortgage Insurance – required insurance on a mortgage if the down payment is less than twenty percent and a single loan is used to finance the property
Mortgage Late – a term used in the mortgage industry to identify a late payment that is 30 days or more past due
Mortgage Lender – an institution that originates mortgage loans either to keep for interest income or sell on the secondary market
Mortgage Payment – the cost of your loan, paid monthly
Mortgage Points – stands for a percentage point of the loan amount, typically makes up the origination fee, which can be a fraction of a point to multiple points
Mortgage Principal – the balance of the lien(s) on a property, not including interest. What you owe on your mortgage
Mortgage Rate – the rate of interest associated with your mortgage
Mortgage Rate Lock – the act of locking-in a desired interest rate on your mortgage so it cannot change. Borrowers also have the option to float their rate
Mortgage Term – the length of your mortgage. Most are 30 years, though 15 years is also very common
Mortgage Underwriter – the individual who decisions your mortgage by either approving, suspending, or declining it
Mortgagor – the borrower or homeowner
Negative Amortization – when a mortgage payment received is below the interest-only payment, the difference will be added onto the principal balance of the loan
No Closing Cost Refinance – a refinance transaction in which the bank or broker pays all settlement costs
Note – a written promise to repay the mortgage plus interest, which includes the name of the borrower, issuing lender, and the terms and provisions
Option Arm – a home loan that gives borrowers four payment options, including a negative amortization payment option
Origination Fee – a percentage of the loan amount charged by the bank or broker for completing the loan process
Par Rate – the interest rate a borrower will qualify for assuming there is no rate manipulation
Payment Shock – a sudden, large increase in the monthly mortgage payment as a result of an adjustable-rate mortgage or through a refinance with new financing terms
Piggyback Mortgage – a second mortgage that closes simultaneously with the first mortgage to reduce the total necessary down payment
PITI – the monthly housing expense, expressed as principal, interest, taxes, and insurance (see - mortgage payment)
Pre-Approval/Pre-Qualification – processes to determine what you can afford to ensure you can obtain mortgage financing when purchasing a property
Prepayment Penalty – if a loan is refinanced or repaid prior to a certain date as agreed upon in the loan documents, a fee will be charged by the bank or lender
Primary Residence – a house or condo you plan to occupy the majority of the year
Prime Rate – the interest rate offered by commercial banks to its best corporate customers
Purchase Money Mortgage – a mortgage used to purchase a piece of property
Qualified Mortgage – a home loan that meets new underwriting guidelines established by the CFPB. Also known as a QM loan
Quitclaim Deed – a document by which a person either disclaims interest in a property or transfers interest to another person, typically a spouse
Refinance – the act of replacing your existing loan(s) with a new loan on the same property. There are two main types of refinancing, including a rate and term refinance and
Reserve Requirements – the amount of verifiable assets you need to qualify for a given mortgage
Resetting the Clock – when you refinance and extend the original loan term of your mortgage
Reverse Mortgage – a mortgage reserved for homeowners aged 62 or older who wish to tap their home equity without paying monthly mortgage payments
Right of Rescission – a law which allows a homeowner to rescind a contract to refinance their primary residence within three days of signing loan documents
Second Mortgage – a mortgage taken out behind a first mortgage, either concurrently or after the fact
Seller Carryback – when a seller acts as the bank or lender and carries a second mortgage on the subject property
Short Sale – a foreclosure alternative where a property is sold for less than the balance on the associated mortgage
Short Refinance – a refinance transaction where the lender agrees to lower the rate and/or change the term despite the mortgage balance exceeding the property value
Stated Income Mortgage – a mortgage in which the borrower does not have to document their income
Streamline Refinance – an expedited refinance that requires limited underwriting, and may even forego the need for an appraisal
Subprime Mortgage – a home loan reserved for those who have marginal credit or difficulty qualifying for a traditional loan
Teaser Rate – the initial, discounted interest rate offered on adjustable-rate mortgages
Title Insurance – protection against lawsuits and claims tied to the chain of title on the subject property
Underwater Mortgage – a mortgage whose balance exceeds the value of the property. Also known as an “upside down” mortgage
USDA loan – a mortgage insured by the USDA that allows borrowers to purchase homes in rural areas with nothing down
VA Mortgage – a mortgage offered to veterans and their families that is guaranteed by the Veterans Administration
Yield Spread Premium – the commission mortgage brokers used to receive from banks and mortgage lenders by originating loans
Zero Down Mortgage – a home loan that doesn’t require a down payment
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