Module 5: Glossary

Here is an extensive list of terms and acronyms commonly used in mortgage lending:

Adjustable-Rate Mortgage (ARM): A mortgage in which the interest rate may change periodically, based on an index or other factors.

Amortization: The process of gradually paying off a mortgage or other loan through regular payments over time.

Annual Percentage Rate (APR): The annual cost of a mortgage, expressed as a percentage of the loan amount, including interest and other fees.

Appraisal: An evaluation of a property's value, conducted by a licensed appraiser, to determine the amount of the mortgage loan that can be extended to the borrower.

Assessed Value: The value of a property, as determined by a tax assessor for the purposes of calculating property taxes.

Automated Underwriting System (AUS): A computer-based system used by mortgage lenders to determine whether a borrower qualifies for a mortgage loan.

Balloon Mortgage: A mortgage in which the borrower makes small monthly payments for a set period of time, after which the remaining balance is due in one large payment.

Borrower: The person or entity taking out a mortgage loan.

Buydown: A mortgage financing technique in which the borrower pays an upfront fee to reduce the interest rate on the loan for a certain period of time.

Cash-Out Refinance: Refinancing a mortgage to obtain a larger loan than the existing one, and using the difference in cash for other purposes.

Closing: The final step in the mortgage process, where the borrower signs the loan documents and receives the funds for the mortgage.

Closing Costs: Fees and charges associated with closing a mortgage loan, including appraisal fees, title insurance, and other costs.

Collateral: An asset, such as a property, that a borrower pledges as security for a loan.

Conforming Loan: A mortgage that meets the guidelines set by Fannie Mae and Freddie Mac, including loan amount and borrower creditworthiness. Also known as a Conventional Mortgage.

Credit Report: A report that shows a borrower's credit history, including payment history, outstanding debts, and credit score.

Credit Score: A numerical rating based on an individual's credit history and other factors, used by lenders to determine creditworthiness.

Debt-to-Income Ratio (DTI): The ratio of a borrower's debt to their income, used to assess their ability to repay a loan.

Deed: A legal document that transfers ownership of a property from one party to another.

Default: Failure to make mortgage payments on time or as agreed in the loan documents.

Delinquency: Failure to make a mortgage payment on time.

Discount Points: Fees paid to a lender at closing to lower the interest rate on a mortgage.

Down Payment: The amount of money a borrower pays upfront to secure a mortgage loan.

Equity: The difference between the value of a property and the amount owed on the mortgage loan.

Escrow: A financial arrangement in which a third party holds funds or assets on behalf of two other parties.

Escrow Account: An account held by a lender to pay property taxes and insurance on behalf of the borrower.

Escrow Analysis: A review of a borrower's escrow account to ensure that enough funds are being collected to cover property taxes and insurance.

Expiration Date: The date by which a loan commitment or lock-in agreement expires.

Fannie Mae: The Federal National Mortgage Association, a government-sponsored entity that buys and securitizes mortgage loans.

Federal Housing Administration (FHA): A government agency that provides mortgage insurance on loans made by FHA-approved lenders.

FHA Loan: A mortgage loan insured by the Federal Housing Administration, designed to help borrowers with lower credit scores and smaller down payments.

FICO Score: A credit score used by lenders to evaluate a borrower's creditworthiness.

Fixed-Rate Mortgage: A mortgage with a fixed interest rate for the life of the loan.

Foreclosure: The legal process by which a lender takes possession of a property and sells it to recover the amount owed on a defaulted mortgage.

Freddie Mac: The Federal Home Loan Mortgage Corporation, a government-sponsored enterprise that buys and sells mortgages.

Ginnie Mae: A government-owned corporation that guarantees securities backed by mortgages.

Home Equity Loan: A loan that allows borrowers to borrow against the equity in their home.

HELOC (Home Equity Line of Credit): A line of credit secured by the borrower's home equity.

Homeowners Insurance: Insurance that protects the borrower in the event of damage or loss to the property.

HUD: The U.S. Department of Housing and Urban Development, which oversees the FHA and other housing-related programs.

Interest Rate: The rate at which interest is charged on a mortgage loan, or the cost of borrowing money.

Jumbo Loan: A mortgage that exceeds the conforming loan limit set by Fannie Mae and Freddie Mac.

Lien: A legal claim on a property used to secure a loan.

Loan Servicer: The company that collects mortgage payments on behalf of the lender.

Loan-to-Value (LTV) Ratio: The ratio of the loan amount to the value of the property.

Lock-In: A guarantee from the lender that the borrower's interest rate will not change before the loan closes.

Mortgage: A loan that is used to purchase or refinance a property.

Mortgage Broker: A professional who helps borrowers find mortgage loans from different lenders.

Mortgage Insurance: Insurance that protects the lender in the event that the borrower defaults on the loan.

MIP (Mortgage Insurance Premium): Insurance required for FHA loans to protect lenders against losses.

Mortgage Payment: The amount of money a borrower pays each month to repay a mortgage loan.

Mortgage Rate: The interest rate charged on a mortgage loan.

Non-Qualified Mortgage (NQM): a type of mortgage loan that does not meet the criteria for a qualified mortgage (QM), which is set by the Consumer Financial Protection Bureau (CFPB).

Origination: The process of creating a new mortgage loan.

PITIA (Principal, Interest, Taxes, Insurance and Association Dues): The general components of a monthly mortgage payment.

PMI: Private Mortgage Insurance, insurance that protects the lender in the event of default on a mortgage loan.

Points: Fees paid to the lender at closing to reduce the interest rate on a mortgage loan.

Qualified Mortgage: A mortgage that meets certain requirements set by the Consumer Financial Protection Bureau (CFPB).

Refinance: The process of replacing an existing mortgage loan with a new loan, often to take advantage of lower interest rates.

Reverse Mortgage: A mortgage that allows homeowners aged 62 or older to borrow against the equity in their home.

Second Mortgage: a type of mortgage that allows homeowners to borrow against the equity in their home, in addition to their primary (first) mortgage.

Servicing: The process of collecting loan payments, managing escrow accounts, and handling other aspects of a mortgage.

Short Sale: A real estate transaction where the homeowner and the mortgage lender agree to sell the property for less than what is owed on the mortgage. The lender forgives the remaining balance, and the homeowner can avoid foreclosure.

Title: The legal right to own a property.

Title Insurance: Insurance that protects against losses due to defects in the title.

Underwriting: The process of evaluating a borrower's creditworthiness and ability to repay a loan.

USDA Rural Development Loan: A government agency that offers loans for rural housing.

United States Department of Veterans Affairs (VA): A government agency that offers loans to eligible veterans.

VA Loan: A type of mortgage loan available to eligible military veterans, active-duty service members, and their surviving spouses. VA loans are guaranteed by the Department of Veterans Affairs, which means that lenders are protected against losses if the borrower defaults on the loan.

Verification of Employment (VOE): Documentation provided by an employer to verify a borrower's employment and income.

Verification of Deposit (VOD): Documentation provided by a financial institution to verify a borrower's deposits and balances.

Waiver: A permission granted by a mortgage lender to a borrower to waive certain requirements or criteria that are typically required for loan approval.

Walkthrough: Is typically conducted by a loan officer or mortgage broker and is designed to help the borrower understand the lending process and what to expect at each stage.

Wraparound Mortgage: Also known as an all-inclusive mortgage, is a type of secondary financing that allows a borrower to obtain additional funds by combining an existing mortgage with a new mortgage.