Here are some resources and tools that may help when buying or refinancing.
The latest guidance directly from our regulators, Consumer Finance Protection Bereau
This booklet takes you from budgeting to closing with worksheets, checklists, and conversation starters.
Interest that you have accumulated on a loan but not yet paid to your lender. Mortgage interest accrues daily or weekly depending on your loan type, and is based on your loan’s principal balance and mortgage rate.
Also known as a variable rate mortgage, an Adjustable Rate Mortgage is a loan with an interest rate that changes periodically based on changes in the market. After an initial fixed-rate period (usually 5, 7 or 10 years), your interest rate either increases or decreases once per year. An included interest rate cap safeguards you from dramatic payment changes.
Is paying off an amount owed over time by making planned, incremental payments of principal and interest.
The annual percentage rate (APR) is the cost of a loan on a yearly basis and is shown as a percentage. The APR gives you more information about the actual cost of the loan, reflecting interest charges as well as points and other fees.
An independent, professional evaluation that helps establish a property’s market value – the sales price a home would bring if offered in an open and competitive real estate market. Appraisals are usually required to ensure that the mortgage loan amount is not greater than the value of the property.
Appreciation is the increase in the value of a property over time. Home improvements or changes in the housing market can cause the property’s value to change.
The balance is the full dollar amount of a loan that is left to be paid. The balance is equal to the loan amount minus the sum of all prior payments to the principal.
Also known as a mortgagor, a borrower is an individual who qualifies for and receives funds through a loan. The borrower is obligated to repay the loan in full under the terms of the loan.
A person who is licensed to handle property transactions and who acts as a go-between for buyers and sellers.
When you refinance with a cash-out mortgage, you get cash back from the equity in your home. The amount is determined by the difference between your new loan and the remaining balance on your current mortgage. The cash-out can be used for anything from home improvements to college tuition.
Also known as the settlement, closing is the conclusion of your real estate transaction. It includes the signing of legal documents and the disbursement of the funds necessary for the sale of your home or your refinance transaction.
Also known as settlement costs, mortgage closing costs are fees charged for services that are required to process and close your loan application. Closing costs include things like: taxes, title fees, recording fees, appraisal fees, credit report fees, inspection fees, attorney’s fees, and surveying fees.
A co-borrower or co-applicant is a person who, along with you, accepts responsibility for repaying a loan.
The combined loan-to-value ratio is the sum of the balances of all loans on a property divided by the property’s value. This ratio is usually denoted as a percentage.
Interest that is added not only to the principal of a loan or savings account, but also to the interest already added to the loan or account; interest paid on interest.
For a mortgage loan to be conforming, it must meet the specific criteria that allow Fannie Mae and Freddie Mac to purchase the loan.
A construction loan is often used to build a house or make major renovations. This can be a great option if you want to: build a new home, add on to your current home, and/or make a major renovations. With a construction loan, you usually only need to qualify once, sign one set of documents, and only pay one set of loan fees for both construction-phase financing and a permanent mortgage!
Any type of mortgage that is not secured by a government-sponsored entity, such as the Federal Housing Administration (FHA) or the Veterans Administration (VA).
A number generated through statistics systems that evaluate your credit. Scores are based on various factors including loan repayment, outstanding debt, credit cards, bankruptcies, collections, and judgements.
Monthly debt payments divided by your gross monthly income. This number is one way lenders measure your ability to manage the payments you make every month to repay the money you have borrowed.
A legal document used to transfer property from one owner to another. It contains a description of the property and is signed, witnessed and delivered to you as the buyer at closing.
Default is the failure to make payments on your home loan.
Delinquency is the failure to make payments as laid out in a loan agreement.
Often referred to simply as points, discount points are an upfront fee paid to the lender at the time that you get your loan. Each point equals 1% of your total loan amount. In general, the more points you pay, the lower your interest rate is. However, the more points you pay, the more cash you need upfront since points are paid at closing.
The amount you pay in cash upfront for the purchase of your home. Usually based on a percentage of your home’s value, there are down payment options as low as 0%-5%, depending on your qualifications. A down payment that’s at least 20% of your home’s value will usually prevent you from having to pay private mortgage insurance.
Equifax is one of the “big three” largest credit bureaus in the United States (along with Experian and TransUnion).
The difference between what your home’s worth and what you owe on the home.
A special account that your lender uses to hold your monthly payments toward property taxes and insurance. Instead of paying for your tax and insurance payments in one lump sum, you can pay for them as part of your monthly mortgage payment. Your lender collects these payments in your escrow account, and when your tax and insurance bills become due, your lender makes the payment for you.
A neutral third party who accepts money into an escrow account and makes sure that the money is dispersed according to the contract signed during the home purchasing process. The agent serves the buyer and the seller to make sure that the terms of sale are met.
Experian is one of the “big three” largest credit bureaus in the United States (along with Equifax and TransUnion).
A government-sponsored corporation that buys mortgages from lenders and sells them to investors on the open market. Formerly the Federal National Mortgage Association; “Fannie Mae” comes from the acronym FNMA.
An independent federal agency that maintains stability and public confidence in the United States banking system. The FDIC guarantees personal checking and savings accounts at FDIC member banks.
A federal agency that sets standards for construction and underwriting and insures loans made by banks and other private lenders for home building. As part of the U.S. Department of Housing and Urban Development, the FHA does not lend money or plan or construct housing.
FHA loans are insured by the Federal Housing Administration and are designed to make housing more affordable, particularly for first-time home buyers. These loans offer low down payments, low closing costs, and easy credit qualifications.
The most common credit-scoring model used by lenders created by the Fair Isaac Corporation (FICO). According to the FICO model, the higher your score, the less likely you are to default on your loan. Your FICO score is determined by five factors using the information in your credit reports: your payment history, how much you owe on your debts, the length of your credit history, how much new credit you have, and the types of credit you currently have in use.
A fixed-rate mortgage is a loan with an interest rate that doesn’t change over the life of the loan. With a fixed-rate mortgage, your principal and interest payment will never change.
The fixed-rate period is the initial time when your interest rate will not adjust. For example, if you have a 3-year adjustable-rate mortgage, your rate is fixed for the first three years, or the initial fixed-rate period. After that, your rate becomes variable. On fixed-rate loans, the fixed-rate period is the life of the loan (30 year fixed, for example).
Forbearance is when a lender suspends payments on your mortgage to allow you to make up for delinquent payments. Instead of beginning the foreclosure process, your lender may negotiate this option with you if you have missed payments as a result of job loss or other personal misfortune.
Foreclosure, also known as repossession, is the legal process by which a lender takes possession of a home due to the homeowner’s failure to meet the terms of his or her mortgage contract. The mortgaged property may be sold to pay off the loan that’s in default.
A government-sponsored enterprise that buys mortgages from lenders. By selling mortgages to Freddie Mac, lenders can replenish their funds so they can lend money to other borrowers, increasing the money available for new home purchases. Formerly the Federal Home Loan Mortgage Corp; “Freddie Mac” comes from the acronym FHLMC.
A loan in which both principal and interest are paid fully through scheduled installments by the end of the loan term. A fully amortizing payment is the calculated amount that the borrower is required to pay each month to ensure that remaining balance is paid by the end of the loan’s term.
The amount of time during which a loan payment can be made after its due date without incurring a late penalty. The grace period on mortgage payments is usually specified as part of the loan terms and typically lasts one to two weeks after the payment due date.
A graduated payment mortgage lets you start with a low monthly mortgage payment that gradually increases over the first few years of the loan term. This type of mortgage may work best for homeowners who expect their income to increase over the next several years.
Your total income before taxes and expenses are deducted. Lenders use your gross income to qualify you for a mortgage.
A home equity line of credit (HELOC) uses your home as collateral for a loan with an agreed upon maximum amount. You can then draw money from this line of credit for a specified period of time.
A second mortgage that converts home equity into cash. This is typically used for financing home improvements or paying off high-interest debt.
A home loan is a type of credit that you can use to pay for or refinance a home.
A form of property insurance that covers losses and damages to an individual’s house and to assets in the home. Homeowner’s insurance also provides liability coverage against accidents in the home or on the property.
The total amount of money spent on the expenses for your home, including your property taxes, hazard insurance, and monthly mortgage payments.
The rate you are charged during the first interval of an adjustable rate mortgage. Your initial interest rate will most likely come with a cap, which means that your rate won’t increase or decrease more than a specified amount during the life of your loan. The cap protects you from a dramatic increase in your mortgage payment, and it protects your lender from rates dropping too low.
Interest is a fee that a lender charges for allowing you to borrow their money for a specific length of time.
The cost a lender charges you to borrow money. A basic mortgage payment is made up of principal and interest. The amount of interest you owe depends on the interest rate and the loan amount – the lower the interest rate, the less you owe in interest.
An interest rate cap is a consumer safeguard that limits the amount your interest rate on an adjustable rate mortgage can change in an adjustment interval and/or over the life of your loan.
A form of home financing for an amount that exceeds the conforming loan limits set by the Federal Housing Finance Agency (FHFA). Unlike conventional mortgages, it is not eligible to be purchased, guaranteed, or securitized by Fannie Mae or Freddie Mac. Designed to finance luxury properties and/or homes in highly competitive local real estate markets, jumbo mortgages come with unique underwriting requirements and tax implications.
Also known as a mortgagee, a lender is a bank or mortgage company that offers home loans or other types of credit.
A legal right granted by an owner of property, by a law or otherwise acquired by a creditor. A lien serves to guarantee an underlying obligation, such as the repayment of a loan. If the underlying obligation is not satisfied, the creditor may be able to seize the asset that is the subject of the lien.
A professional who represents the seller and helps sell their home. Listing agents handle a variety of tasks on the selling end, but their most important concern is marketing the home to potential buyers.
An initial statement of the personal and financial information required to apply for a loan.
The amount of a loan that is left to be paid. The loan balance is equal to the loan amount minus the sum of all prior payments to the loan’s principal.
A federal crime that occurs when consumers try to qualify for a loan by giving false information.
A lending risk assessment ratio that financial institutions and others lenders examine before approving a mortgage. Typically, assessments with high LTV ratios are generally seen as higher risk and, therefore, if the mortgage is approved, the loan generally costs the borrower more to borrow. Additionally, a loan with a high LTV ratio may require the borrower to purchase mortgage insurance to offset the risk to the lender.
A set period of time that a lender will guarantee a specific interest rate. Lock-ins protect you against rate increases during that period of time. A lock period typically lasts 15 to 60 days. To keep the mortgage rate you’ve locked, you must close your loan during that time.
The maximum amount of money you can get back from your mortgage transaction based on the loan information provided and the amount of equity you have in your home.
The largest mortgage payment for which you qualify based on the information you provided. The maximum payment includes the four major components of a typical mortgage payment: taxes, insurance, loan principal, and interest.
The amount you pay toward your mortgage debt each month. If you have an escrow account, your mortgage payment probably contains four parts: principal, interest, taxes, and insurance. If you don’t have an escrow account, then your monthly mortgage payment likely consists of only principal and interest.
A loan used to purchase or refinance a home. Secured by the collateral of real estate property, a mortgage obligates the borrower to pay back the loan with a predetermined set of payments.
The Mortgage Bankers Association (MBA) is a national organization that represents the real estate finance industry. All aspects of real estate finance hold membership in the MBA, including mortgage companies, mortgage brokers and commercial banks. The MBA promotes fair lending practices and works to ensure that residential and commercial real estate markets are healthy.
An individual or company that arranges financing for borrowers. A mortgage broker matches lenders with borrowers who meet the lenders’ criteria. Mortgage brokers don’t fund loans, but they do receive payment from lenders for their services.
Mortgage brokers can be helpful in finding a good loan, but you will pay more in both fees and interest rates if you use a broker.
Private mortgage insurance (PMI) protects your lender if you default on your loan. With conventional loans, you’re generally required to pay PMI if you make a down payment of less than 20% of the home’s appraised value. FHA and VA loans have different insurance guidelines. PMI payments are generally included in your monthly mortgage payment.
The act of paying down your loan’s principal balance. Early loan payoff can save you money that otherwise would have gone to interest.
A certified witness who validates signatures on official documents. Notaries must obtain licensing and become certified in the state where they are employed. A notary can authenticate the signing of contracts between individuals and the government, or between two individuals. For example, a notary would verify the signatures on a deed.
A legal document that obligates you to repay a loan at a stated interest rate during a specified period of time. The agreement is secured by a mortgage, a deed of trust, or another security instrument.
Per diem interest is interest calculated per day. Depending on the day of the month on which closing takes place, you will have to pay interest from the date of closing to the end of the month. Your first mortgage payment will probably be due the first day of the following month.
A second mortgage or home equity loan that closes at the same time as the first mortgage. Homeowners sometimes use a piggyback mortgage to lower the loan-to-value ratio of the first loan, enabling them to avoid paying private mortgage insurance.
See Discount Points.
Pre-approval is the process of determining how much money a prospective home buyer or refinancer is eligible to borrow prior to applying for a loan. If you’re getting pre-approved, your lender will ask about your income and assets and check your credit.
Taxes, insurance, and assessments paid in advance of their due dates. These expenses are included in your closing costs.
Interest that’s paid at closing. When you get a mortgage, you’ll usually pay prepaid interest to cover interest charges that accrue between your closing date and the period covered by your first payment.
The full or partial repayment of your loan’s principal balance before the contractual due date. The most popular form of prepayment is through refinancing to lock in a lower interest rate. Some lenders will attach prepayment penalties to loans in exchange for a lower interest rate to discourage borrowers from refinancing.
The process of finding out how much money you can likely afford to borrow. Mortgage prequalification is based on several factors, including how much income you have and how much in liquid assets and liabilities you have. Prequalification occurs before you actually apply for a loan and gives you an estimate of what you could afford.
The part of the loan’s balance still owed to the lender, or the loan amount borrowed from the lender, excluding interest.
Property taxes, also known as real estate taxes, are assessed on your property by your local government (e.g., city, county, village or township) for the various services provided to you. When you pay property taxes each year, you’re paying for necessities such as police and fire department services, garbage pickup and snow removal.
A purchase agreement, also known as an agreement of sale or sales agreement, is a contract between a buyer and a seller that states the terms and conditions for the sale of a property. This document states the purchase amount and may also include stipulations such as which appliances stay in the house and when the buyer will take possession of the home.
A real estate agent is a person who is licensed to represent a buyer or a seller in a real estate transaction in exchange for a commission. Most agents work for a real estate broker or an accredited REALTOR.
The Real Estate Settlement Procedures Act (RESPA) is a federal law that gives you the right to review information about your closing costs after you apply for a loan, and again at closing.
A REALTOR is a real estate agent who is a member of the National Association of REALTORS.
Mortgage refinancing is the process of paying off one loan with the proceeds from a new loan secured for the same property. Mortgage refinancing is usually done to secure better loan terms than your current loan, like a lower interest rate or a lower monthly payment.
A reverse mortgage (also known as a home equity conversion mortgage) is a loan that allows you to get money from the equity in your home without having to make monthly payments. As time goes on, your debt will increase and your home’s equity will decrease. The amount you receive from a reverse mortgage depends on your age and the value of your home. You must be at least 62 years of age to qualify for a reverse mortgage.
A mortgage servicer, or loan servicer, is the party that you pay your mortgage payments to each month. The mortgage servicer is in charge of processing your mortgage payment and crediting your loan account. In addition, servicers usually maintain your escrow account.
Simple interest is calculated on a principal sum, rather than compounded on the accumulated interest of prior months or the total amount owed. A simple interest mortgage is a loan that calculates interest daily.
Tax liens are claims that are imposed on property to secure payment of taxes. While personal debt follows you wherever you go, tax liens on real estate stay with the property. This means that the property owner is responsible for payment even if the tax delinquency was incurred by a prior owner. Tax liens can be paid in a variety of ways, including through an escrow account. If the lien goes unpaid for a long time, the property may be seized and sold at a property tax sale.
The term of a loan is the period of time between the loan closing and the day full repayment is due. For example, a 30-year fixed-rate loan has a term of 30 years.
The actual document that shows you own a property. Individuals who have legal ownership in a property are considered “on title” and will sign the mortgage and other documentation.
A title company insures titles to property and conducts closings on real estate transactions. Title companies also handle the transfer of funds among the parties.
TransUnion is one of the “big three” largest credit bureaus in the United States (along with Equifax and Experian).
The federal Truth-in-Lending Act (TILA) is a law requiring that a lender disclose the terms of a mortgage (including the APR and other charges) in writing. TILA is designed to protect consumers and ensure clear disclosure of the key terms of the loan, as well as any costs or fees involved. The act also requires the right of rescission period for certain types of loans.
The U.S. Department of Housing and Urban Development (HUD) is the government agency established to implement federal housing and community development programs. HUD oversees the Federal Housing Administration, regulates Fannie Mae and Freddie Mac, and watches over all aspects of the housing and real estate market to protect consumers.
The process of determining the risks involved and establishing suitable terms and conditions for a particular loan. Mortgage underwriting includes a review of the potential borrower’s credit, employment history and financial statements, as well as a judgment of the quality of the property.
A mortgage loan guaranteed by the U.S. Department of Veterans Affairs. The VA home loan was created to make housing affordable for eligible U.S. veterans and members of the military. VA home loans are available to veterans, reservists, active-duty military personnel, and surviving spouses of veterans with 100% entitlement. Eligible veterans may be able to buy a home with no down payment, refinance up to 100% of the home’s value and pay no private mortgage insurance.
A tax form that reports the wages you’ve earned and the taxes withheld by your employer.
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