Glossary

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The following list are common terms used when discussing residential mortgage loans:

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Adjustable Rate Mortgage (ARM)
Mortgage in which the rate of interest is adjusted at regular intervals based on a standard rate index. Most ARM’s have a cap on how much the rate may increase.

Amortization
The process through which the mortgage debt is altered, usually declining, as payments are made to the lender. “Negative-amortization” occurs when monthly payments are too small to cover either the principal or interest reductions.

Annual Percentage Rate (APR)
The rate of interest to be paid on a loan projected life; sometimes referred to as the “true” rate of interest.

Appraisal
A professional evaluation of the value of a home or other piece of property.

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Cap
A limit on how much a mortgage interest rate may increase or decrease for an adjustable rate mortgage.

Closing Disclosure
The document signed by the borrower at least 3 days prior to closing/consummation and provides the breakdown of the closing costs in comparison to the Loan Estimate.

Conventional Mortgage
A type of mortgage loan that meets the funding requirements for purchase from Fannie Mae and Freddie Mac for the secondary market. Qualifications include but are not limited to a 5% minimum down payment, 620 minimum credit score, and Fixed or Adjustable monthly payment options. Also known as a Conforming Loan.

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Debt-To-Income Ratio
A ratio used by lending institutions to determine whether a person is qualified for a mortgage. Debt-to-income is the total amount of debt, including credit cards and other loans, divided by the total gross monthly income.

Default
Failure to pay the mortgage payments over a specified period of time.

Discount Points
A percentage of the mortgage paid to the lender to lower the interest rate on a loan. One point equals one percent of the mortgage.

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Equity
The difference between the market value of a house and the amount still owed on the mortgage.

Escrow
Money and documents deposited in a trust account to be held by one party for another. Often used by brokers to hold deposit money prior to closing. Also used by lenders to hold money for taxes and insurance on a home.

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Fannie Mae
Federal National Mortgage Association. A government sponsored organization that re-packages mortgages for the secondary market.

Federal Housing Administration (FHA)
The United States Federal Housing Administration. A federal agency providing mortgage insurance (MIP) to FHA-approved lenders. The FHA will pay a specific amount to the lender if an approved borrower defaults on the loan.

Freddie Mac
The Federal Home Loan Mortgage Corporation. A government sponsored organization that re-packages mortgages for the secondary market.

FHA Loan
A loan guaranteed by the Federal Housing Administration. FHA issues specific guidelines for mortgages.

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HUD
The United States Department of Housing and Urban Development. A government agency created to increase homeownership and affordable rental opportunities for low-income individuals.

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Intent to Proceed
Once you have received a Loan Estimate and you intend to proceed with the application you will execute an Intent to Proceed. NRL will honor the terms of the Loan Estimate for only 10 business days. If you decide to move forward more than 10 business days after you receive a Loan Estimate, NRL can revise the terms and estimated costs and provide you with a revised Loan Estimate.

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Loan Estimate
The disclosure that details the closing costs associated with the loan. The Loan Estimate replaced two other disclosures on October 3, 2015, the Good Faith Estimate (GFE) and the Truth In Lending (TIL) disclosure.

Loan-To-Value Ratio (LTV)
The amount of the loan divided by the purchase price of the house. If a refinance, the loan is divided by appraised value.

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Margin
A set number of percentage points a lender adds to the index to determine the interest rate for an ARM.

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Mortgage Insurance Premium
Mortgage insurance premium (MIP) is an insurance policy used in FHA loans. FHA assesses an "upfront" MIP (UFMIP) at the time of closing and an annual MIP that is calculated each month as part of your mortgage payment.

Mortgage Insurance (MI)
Insurance designed to cover the lender should the borrower default on the loan. Depending on the lender, this may be required by the lender.

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PITI
PITI stands for principal, interest, taxes and insurance - the components of the monthly housing expense. Principal – the portion of the monthly payment that is used to reduce the loan balance. Interest is the fee charged for borrowing money. Taxes refer to the property taxes paid by the homeowner. Insurance refers to homeowner’s insurance – insurance purchased by the borrower and required by the lender, to protect the property against loss from fire and other hazards. Taxes and Insurance that are included in the monthly mortgage payment are held in an Escrow account by the lender who then pays the full amount when they come due.

Prepayment Penalty
A fee imposed on a borrower who pays off a mortgage before it is due.

Prequalification
A process by which a potential homebuyer qualifies for a home mortgage before making an offer on a house.

Principal
The amount of the loan.

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Second Mortgage
An additional mortgage on a property. It often carries a shorter term and a higher interest rate than the original mortgage.

Secondary Mortgage Market
The market where mortgage lenders sell primary mortgages in order to raise funds to originate more mortgage loans. Investors include Fannie Mae and Freddie Mac.

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Title Company
A company that searches for titles and insurance claims.

The Total Interest Percentage (TIP)
Is a new disclosure required by Congress in the Dodd-Frank Act. The TIP tells you how much interest you will pay over the life of your mortgage loan, compared to the amount you borrowed. The total interest percentage is calculated by adding up all of the scheduled interest payments, then dividing the total by the loan amount to get a percentage. The calculation assumes that you will make all your payments as scheduled. The calculation also assumes that you will keep the loan for the entire loan term.

Truth In Lending Act
A federal law that requires lenders to reveal all the terms of the mortgage.

TRID
TILA-RESPA Integrated Disclosure. A rule created by the CFPB (Consumer Financial Protection Bureau) with the authority of the Dodd-Frank Act that brought a wave of changes to the mortgage industry on October 3, 2015. Changes included the integration and formation of new disclosure forms, new terminology, new timeline requirements, and new definitions for loan-specific terminology.

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USDA loans
Also known as the USDA Rural Development Guaranteed Housing Loan Program, this offers mortgage loans for properties designated as rural areas by the United States Department of Agriculture.

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VA Funding Fee
A one-time closing cost fee that is applied to most veterans using their eligibility. This fee may be rolled into the loan amount or paid for at closing. The VA Funding Fee is waivable and variable in certain circumstances.

VA Loan
A loan guaranteed by the Veterans Administration.