What is an Adjustable Rate Mortgage (ARM)?
An ARM is a mortgage that has a fixed interest rate for a period of time and then adjusts periodically
in relation to an index. The rates for an ARM are typically lower than a 30-year fixed mortgage.
What is the term "amortization"?
Amortization is a method where the loan amount is repaid gradually though regular monthly payments of
principal and interest. During the first years of the loan, the majority of the payment is applied
toward the interest owed. During the final years, most of the payment is applied to the remaining principal
What is the Down Payment?
The down payment is the amount of the cash available to purchase a home. Some loan programs require
the down payment to be from the buyer's own funds and some allow for the down payment to be a gift.
What is an Escrow Account?
An escrow account is an account held by the lender to pay your annual property taxes and hazard insurance.
What is a Fixed Rate Mortgage?
A fixed rate mortgage has an interest rate that does not change for the life of the loan. The principal
and interest payments as well are fixed.
What is a Good Faith Estimate?
The good faith estimate is a document the lender provides that outlines the loan program, interest
rate, monthly payment, and the closing costs.
What is a Home Equity Line of Credit?
A "HELOC" is typically a second mortgage that allows you to borrow funds up to a predetermined amount.
You can use the line of credit similarly to a credit card by borrowing and paying back the funds.
The rates for lines of credit are usually based on the Prime rate. Prime rate is an adjustable rate
that is dictated by the Federal Reserve.
What is Hazard Insurance?
Hazard Insurance is homeowner's insurance policy that insures the dwelling and contents.
What is an Interest-Only loan?
With an interest-only loan, your monthly mortgage payment is just the interest payment and does
not reduce the principle loan balance. Interest-only programs are often used for investment
properties or for people who are not trying to build equity in their property. This program can
lower your monthly payment.
What is Loan to Value (LTV)?
The loan to value calculation is based on the amount of the loan divided by the lower of the sales
price or appraised value of the house. It is expressed as a percentage.
What is Mortgage Insurance?
Mortgage insurance is insurance purchased by the borrower that insures the lender if you should default
on the loan. Mortgage insurance is required for all loans where the LTV of the first mortgage is greater
than 80%. This can be avoided by putting at least 20% down or combining a first and second mortgage.
What is the term PITI?
A typical mortgage payment is made up of your Principal, Interest, Tax, and Insurance payment.
What are Qualifying Ratios?
Qualifying ratios are also known as Debt-to-Income ratios. It compares the borrower's monthly debt
to their gross monthly income.
What is Underwriting?
Underwriting is a review process to determine all information included in your loan application is
accurate and approval of the loan. Underwriters review documentation such as bank statements, paycheck
stubs, tax returns, etc.