- Accrued interest: A contractual provision that gives the lender the right to demand repayment of the entire loan balance in the event that the borrower violates one or more clauses in the note.
- Alt-A: A mortgage risk categorization that fall between prime and sub-prime, but is closure to prime.
- Amortization: Repayment of a mortgage loan through monthly installments of principal and interest. The monthly payment amount is based on a schedule that will allow you to own your home at the end of a specific time period, for example, 15 or 30 years.
- Annual Percentage Rate (APR): Calculated by using a standard formula, the APR shows the cost of a loan that is expressed as a yearly interest rate, which includes interest, points, mortgage insurance, and other fees associated with the loan.
- Appraisal: A document that gives an estimate of a property’s fair market value. An appraisal is generally required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property.
- Adjustable Rate Mortgage (ARM): A mortgage loan that is subject to changes in interest rates. When rates change, the ARM monthly payments increase or decrease at intervals determined by the lender; however, the change in the monthly payment, amount is usually subject to a cap.
- Balance: The amount of the original loan remaining to be paid. It is equal to the loan amount less the sum of all prior payments of principal.
- Balloon mortgage: A mortgage that is payable in full after a period that is shorter than the term. In most cases, the balance is refinanced with the current or another lender.
- Bankruptcy: A federal law whereby a person’s assets are turned over to a trustee and used to pay off outstanding debts, which usually occurs when someone owes more than they have the ability to repay.
- Closing: On a home purchase, the disbursement of funds the buyer and the lender to the seller. On a refinance, closing includes repayment to the previous lender.
- Co-borrowers: One or more persons who have signed the note, and are equally responsible for repaying the loan.
- Conventional loan:A home mortgage that is neither Federal Housing Administration (FHA) insured nor Veteran’s Administration (VA) guaranteed.
- Credit report:A report from a credit bureau that contains detailed information that includes credit history. Lenders use this information to gauge a potential borrower’s ability to repay a loan.
- Credit bureau score: A number representing the possibility a borrower may default, which is based upon credit history and is used to determine a borrower’s ability to qualify for a mortgage loan.
- Debt-to-income ratio: A comparison of gross income to housing and non-housing expenses; With the FHA, the monthly mortgage payment should be no more than 29 percent of monthly gross income (before taxes) and the mortgage payment combined with non-housing debts should not exceed 41 percent of income.
- Deed: The document that transfers ownership of a property.
- Deed-in-lieu of foreclosure: To avoid foreclosure, a deed is given to the lender to fulfill the obligation to repay the debt. This process doesn’t allow the borrower to remain in the house, but helps them to avoid the costs, time, and effort associated with foreclosure.
- Default: The inability to pay monthly mortgage payments in a timely manner or to otherwise meet the mortgage terms.
- Delinquency: Failure of a borrower to make timely mortgage payments under a loan agreement.
- Equity: An owner’s financial interest in a property that is calculated by subtracting the amount still owed on the mortgage from the fair market value of the property.
- Escrow: An agreement that money or other objects of value be placed with a third party for safe keeping, pending the performance of some promised act by one of the parties to the agreement.
- Fair market value: The hypothetical price that a willing buyer and seller will agree upon when they are acting freely, carefully, and with complete knowledge of the situation.
- Fannie Mae: One of two Federal agencies that purchase home loans from lenders.
- Federal Housing Administration (FHA) Mortgage: A mortgage on which the lender is insured against loss, with the borrower paying the mortgage insurance premium.
- Fees: The sum of all upfront cash payments required by the lender as part of the charge for the loan.
- Fixed-rate mortgage: A mortgage with payments that remain the same throughout the life of the loan because the interest rate and other terms are fixed and do not change.
- Foreclosure: A legal process in which mortgaged property is sold to pay the loan of the defaulting borrower.
- Freddie Mac:One of two Federal agencies that purchase home loans from lenders.
- Good Faith Estimate: Form that lists the settlement charges the borrower must pay at closing that the lender is obligated to provide the borrower within three business days of receiving the loan application.
- Government National Mortgage Association (GNMA): Also known as Ginnie Mae. A Federal agency that guarantees mortgage securities that are issued against pools of FHA and VA mortgages.
- Hazard insurance: Also known as homeowner insurance. Insurance that is purchased by the borrower when required by the lender that protects the property against loss from fire and other hazards.
- Home Affordability Refinance Program (HARP): Provides refinancing to borrowers with loan-to value ratios that are too high to be offered standard programs.
- Home equity line of credit (HELOC): A mortgage that is setup as a line of credit against that a borrower can draw up to a maximum amount, as opposed to a loan for a fixed-dollar amount.
- Housing counseling agency: An agency that provides counseling and assistance to individuals on a variety of issues, including loan default, fair housing, and home buying.
- Interest rate: The amount of interest charged on a monthly loan payment, which is usually expressed as a percentage.
- Judgment: A legal decision that is required for debt repayment. A judgment may include a property lien that secures the creditor’s claim by providing a collateral source.
- Lien: A legal claim against property that must be satisfied when the property is sold.
- Loan-to-value (LTV) ratio: A percentage calculated by dividing the amount borrowed by the price or appraised value of the home to be purchased. The higher the LTV, the less cash a borrower is required to pay as down payment.
- Loss mitigation: A process to avoid foreclosure where the lender tries to help a borrower who has been unable to make loan payments and is in danger of defaulting on his or her loan.
- Maturity: The period until the past payment is due.
- Mortgage modification: A loss mitigation option that allows a borrower to refinance and/or extend the term of the mortgage loan and thus reduce the monthly payments.
- Partial claim: A loss mitigation option offered by the FHA that allows a borrower, with help from a lender, to get an interest-free loan from Housing of Urban Development (HUD) to bring their mortgage payments up-to-date.
- Principal, Interest, Taxes, and Insurance (PITI): The four elements of a monthly mortgage payment. Payments of principal and interest go directly towards repaying the loan, while the portion that covers taxes and insurance (homeowner’s and mortgage, if applicable) goes into an escrow account to cover the fees when they are due.
- Pre-foreclosure sale:Allows a defaulting borrower to sell the mortgaged property to satisfy the loan and avoid foreclosure.
- Short sale: A workout program where the lender accepts less than the total payoff amount.
- Special Forbearance: A loss mitigation option where the lender arranges a revised repayment plan for the borrower that may include a temporary reduction or suspension of monthly loan payment.