Home Mortgage Blog
Understanding Mortgage Terminology Guide
Buying a home can be a confusing process, especially for the first time you do it. There are many terms and acronyms used throughout the transaction that you may not be immediately familiar with. Luckily, when you work with the Marketplace Home Mortgage terminology guide you can always count on your Loan Officer to help you through the process and answer any questions that you may have about the mortgage terminology guide.
To get a head start on understanding the mortgage process, take a look at the mortgage terminology guide below. By learning more about these words and phrases, you will be better prepared to navigate a mortgage transaction. If you have any questions, never hesitate to reach out to your Marketplace Home Mortgage Loan Officer. Not connected with an MHM Loan Officer yet? Find one in your area and reach out today.
Understanding Mortgage Terminology Guide
A commonly used mortgage loan application developed by Fannie Mae. Sometimes called the Uniform Residential Loan Application.
Adjustable Rate Mortgage (ARM)
A type of mortgage loan characterized by interest rates that automatically adjust or fluctuate in concert with certain market indexes. Generally, an ARM begins with an introductory or initial interest rate, which then may rise or fall, but monthly payments may not exceed the ARM loan cap.
The individual or individuals extended a loan and mortgage for the purchase of a house and/or property. The borrower is responsible for making all payments and fees associated with the loan over the life of the loan.
The formally documented sale of a home and/or property that includes signing all documents associated with the exchange and payment of required closing fees. A closing agent usually oversees this process.
A mortgage offered by any one of the Government sponsored entities, different from an FHA or VA loan. These are typically 30-year fixed-rate loans.
A sum of money usually put up by the buyer when an offer on a home or property is made. The purpose of earnest money is as a token of good faith, a symbol that the buyer is seriously pursuing the purchase.
The measurable value of a home or property above and beyond that owed on a loan. A value upon which many homeowners often borrow.
At the closing of the mortgage, the borrowers are generally required to set aside a percentage of the yearly taxes to be held by the lender. Monthly, the lender will also collect additional money to be used to pay the taxes on the home. This escrow account is maintained by the lender who is responsible for sending the tax bills on a regular basis.
Loans extended by FHA (Federal Housing Administration) approved lenders. These loans are typically are designed to assist borrowers who are unable to get approval for conventional home loans.
Fixed Rate Mortgage
A conventional mortgage that is outfitted with a fixed interest rate over the life of the loan. Monthly payments are the same from month to month.
A type of loan available to HUD homebuyers that goes toward fixing up a home. The loan is subsequently absorbed into the mortgage. The term “HUD loan” is often confused with “FHA loan.”
A type of high-risk loan, or non-conforming loan, in which the “jumbo” loan amount is higher than that of a conventional loan limit.
Lender, Mortgage Lender
The bank or finance company that directly awards home loan or mortgage money to a borrower or homebuyer. Legal-mortgagee.
A pre-approval provided by Marketplace Home Mortgage. When a buyer is Marketplace Approved the underwriting process is completed up front to eliminate surprises at the end. Marketplace Approved offers are also enhanced by an On-Time Closing Guarantee*. If we are unable to close your purchase on or before your scheduled closing date, we will pay your first mortgage payment up to $1,500 P&I and the seller of the property will also be paid $5,000.
The entity that acts as a go-between between a homebuyer and mortgage lender, handling paperwork and finally effecting a mortgage. A broker does not make direct loans to buyers but works to find the best deal and finally collects fees as part of the mortgage process.
When buyers take out a mortgage with less than a certain dollar percentage to put down on the loan, lenders sometimes require mortgage insurance, a monthly premium that is added to the mortgage. This protects the lender should a buyer default on the home loan.
Mortgage Insurance Premium, MIP
A required fee added into an FHA loan paid at closing.
Mortgage Terminology Guide
A lender that is closely affiliated with a brokerage based on reputation and other industry factors. A mortgage lender that is recommended by a broker. Marketplace Home Mortgage is the Preferred Lender of many brokerages across the US.
Pre-Approval & Pre-Qualification
Pre-qualification is the process by which a homebuyer may find out how much of a home loan he or she would be approved for with a lender. This is usually just an estimate based on preliminary information concerning income, debts, assets. A pre-approval, on the other hand, is a stronger, more reliable evaluation of necessary documentation. At Marketplace Home Mortgage our clients are pre-approved (Marketplace Approved®) by a certified underwriter to ensure that they know how much they can really afford, eliminating problems later on.
Private mortgage insurance, PMI
A type of insurance many homebuyers are required to purchase, particularly when they are unable to put down a certain dollar amount on the loan; protects the lender in the event of borrower default.
A fair market value of property performed by a licensed appraiser; takes into account not only condition, but also the value of similar local properties or comparable sales.
A short-term agreement by a lender to “hold” a certain interest rate on a home loan while the buyer negotiates a sale transaction. Also, Rate commitment option.
Real Estate Settlement Procedures Act (RESPA)
This act passed in 1974 reeled in hidden costs, fees and kickbacks that had become widespread among real estate entities. Per this act, all fees and costs must be disclosed to both buyers and sellers.
The process by which a borrower/homeowner may negotiate a lower interest rate on a mortgage, thereby lowering monthly payments. They may choose to work with their current lender or refinance with another lender.
A type of mortgage designed for homeowners over 62 years of age; gives them access to home’s equity in cash payments. Frees up money they may use for other important costs or to make needed home repairs. Since reverse mortgages are typically structured as loans, these payments are not typically considered income.
a high-risk loan packaged with non-conforming loan limits and interest rates that make it possible for homebuyers with poor credit to qualify for a mortgage.
A title company typically handles all tasks associated with the property title, including insurance and search.
Insurance taken out on the property title that protects both borrower and lender in the event of a title dispute.
The company or service that evaluates a borrower’s creditworthiness prior to loan and mortgage approval.
Special, often discounted, home loans designed exclusively for military veterans.
This mortgage terminology guide and definitions were compiled from Mortgage terminology guide Calculator.
“Glossary of Mortgage Terms.” Mortgage Calculator, www.mortgagecalculator.org/helpful-advice/glossary.php.