Glossary of Terms

A

Adjustable-Rate Mortgage (ARM) Loan:

With an ARM loan, a borrower will have an initial fixed term with a stable monthly payment and rate. After the fixed term is up, the borrower’s interest rate will fluctuate based on current housing market conditions.

Appraisal

A report that a borrower completes prior to a purchase or refinance in order to determine the value of their property.

Appreciation

The increase in the value of an asset over time.

Asset

An item of value owned by an individual (i.e., real estate, vehicles, personal property, etc.

B

Bankruptcy

A legal proceeding to relieve a debtor that is unable to repay outstanding debts. All of the debtor’s assets are measured and evaluated, whereupon the assets are used to repay a portion of outstanding debt.

Borrower Paid Mortgage Insurance (BPMI)

A once-monthly insurance payment to your lender required on loans with a down principal below 80 percent. Once 20 percent or more in equity is obtained, BPMI can be canceled.

Budget

An awareness of financial expenditures through the tracking of your spending habits.

Buyer’s Market

A market in which there are more homes for sale than buyers, resulting in lower housing prices.

C

Capital Gain

A profit from the sale of a property, or from holding the property during a period in which its market value is increasing.

Career Stability

The ability to hold a stable job for a continued period of time. A loan may require proof of job stability on part of the applicant.

Cash Flow

The amount of money moving in and out of an account within a month’s time period. If more money is flowing into an account, the cash flow is positive. If more money is going toward expenditures, the cash flow is negative.

Cash-Out Refinance

Taking out a new loan with a larger principal than your current mortgage. This loan can turn equity in your home into cash that can be put toward other financial obligations.

Closing Costs

Fees charged by various parties involved in the home buying process related to the purchase of a home.

Construction Loan

A short-term, interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses.

Consumer Debts

Money that is owed as a result of purchasing goods that do not appreciate in value over time.

Conventional Loan

A mortgage that is not insured through a government program. This type of loan is available with a Fixed-Rate or an Adjustable-Rate and can be used for purchasing or refinancing a home.

Credit

The ability of an individual to obtain a property or other consumer goods before payment, based on the lender’s trust that the payment will be made in the future.

Credit Report

A tool used by lenders to review an individual’s credit history and determine a loan applicant’s ability to carry and repay debt.

Credit Score

A numerical summary of the information contained in your credit report indicating an individual’s ability to repay debts.

D

Debt

The amount of money that an individual has borrowed from a lender with the promise of repayment in the future.

Debt Consolidation

Rolling several separate existing loans into one single loan in order to reduce your monthly payment or interest rate.

Debt-To-Income (DTI) Ratio

The ratio between your gross income and your monthly mandatory debt payments.

Depreciation

A reduction in the value of an asset over time.

Down Payment

An upfront payment made by a home buyer toward the purchase of a property that is not financed within a mortgage.

E

Earnest Money

A deposit made to a seller showing the buyer’s good faith in a real estate transaction. If the seller accepts the offer, the deposit is held in escrow and applied to closing costs when the deal is closed.

Employment History

Documented information containing an individual’s past employers, locations, employment dates, positions held, salary, and duties attended for a given time period.

Equity

The difference between the fair market value of a property and the outstanding balance owed by the home buyers.

Escrow

A third party intermediary who holds and allocates funds, including taxes and insurance, until the completion of a mortgage transaction.

F

Fannie Mae

A tax-paying corporation created by Congress that purchases and sells conventional residential mortgages as well as those insured by FHA or guaranteed by VA. Also known as the Federal National Mortgage Association.

Federal Housing Administration (FHA) Loan

A purchase or refinance loan borrowed through a private lender and insured by the FHA. Mortgage insurance must be obtained through the FHA; however, this loan requires little money down.

FICO® Score

A numerical summary of the information contained in a credit report indicating the individual’s ability to repay debts.

Fixed-Rate Mortgage Loan

A mortgage with a constant interest rate that will not adjust at any point during the life of the loan.

Foreclosure

The legal process by which a lender sells a property after a borrower fails to meet the repayment terms of the loan agreed upon in the loan contract.

Freddie Mac

A quasi-governmental agency that purchases conventional mortgages from insured depository institutions and HUD-approved mortgage bankers. Also known as the Federal Home Loan Mortgage Corporation.

H

HARP Loan

A refinance loan offered to an individual with negative equity.

Home Equity Line Of Credit (HELOC)

A HELOC connects the available equity in your home directly to a line of credit. Your home will be used as collateral if you fail to repay money borrowed.

Home Equity Loan

A loan enabling you to access a portion of the available equity in your home in one single payout at a fixed interest rate with fixed monthly payments.

Home Inspection

An evaluation of the condition of a home by a certified inspector prior to the purchase or refinance of the property.

Homeowners Insurance

A form of property insurance designed to protect your home and possessions inside the home against damage if accidents occur in the structure or on the property.

Housing Expense Ratio

A comparison of housing expenses to before-tax income used by a lender to qualify a borrower in the loan approval process.

I

Income

Total monthly income earned through an individual’s occupation and investments.

Income Security

The degree to which your annual income will provide you with financial stability.

Interest Rate

The annual percentage of the principal owed on a property. Individual as well as economic factors will impact one’s interest rate on a mortgage loan.

Investment

An appreciating asset that is purchased in order to generate future wealth.

Investment Home

A property purchased for the purpose of increasing your financial well-being. Investment homes can be rented out to increase immediate cash flow or sold in the future after it has appreciated in the housing market.

J

JUMBO Loan

A loan program available to an individual wishing to receive a loan greater than $417,000.

L

Landlord

A homeowner who rents out an investment property to tenants in order to increase financial well-being

Lender Paid Mortgage Insurance (LPMI)

A lender pays for your mortgage insurance in exchange for a higher interest rate on your mortgage loan.

Living Expenses

The amount of money needed to sustain a certain level of living, including basic needs such as housing, health, clothing and transportation. Living expenses do not include recreational expenses.

Loan Product

A type of loan account (i.e., Conventional, FHA, VA, etc.). Each loan product is unique from the others and varies in capabilities for every individual loan case.

Loan Term

The length of the life of a mortgage loan.

Loan Type

Range from Fixed-Rate to Adjustable-Rate mortgage loans.

Loan-To-Value (LTV)

The percentage of the appraised property value that is borrowed from a lender. A down payment of 20 percent would create a Loan-To-Value of 80 percent.

M

Market Trend

The direction in which the housing market moves in a particular direction over time.

Market Value

The current amount that a property can be sold for in the housing market.

Monthly Payment

The amount a borrower pays each month toward principal and interest of a mortgage loan.

Mortgage

A loan used to finance the purchase of real estate.

Mortgage Bank

An institution that lends money to borrowers with whom they are in a loan agreement. All funding and lending decisions come from within the mortgage bank.

Mortgage Broker

An institution that represents mortgage banks to their clients. All funding and lending decisions come from the partnering mortgage banks.

Mortgage Insurance

Compensates your lenders or investors for their loss if you fail to repay your mortgage. Mortgage insurance is generally required on loans that have a Loan-To-Value higher than eighty percent.

Mortgage Lender

An individual or company that provides loans to borrowers who need aid in financing the purchase of a home.

O

Oregon Bond

A subsidized loan program available to Oregon Residents who wish to purchase a new home.

Out-of-Pocket Costs

Expenses coming out of an individual’s personal funds to pay for up-front costs associated with the purchase of a property.

P

Pre-approval

The process of evaluating your debt, income, savings and other applicable factors to estimate what you can afford in the housing market and if you will be able to obtain the necessary funding.

Prepaids

Expenses a home buyer pays at closing that are necessary to create an escrow account.

Pre-qualify

See Pre-Approval.

Primary Residence

The dwelling where you usually live.

Principal Balance

The portion of your original loan amount that remains unpaid.

Private Mortgage Insurance

Compensates your private mortgage lender for their loss if you fail to repay your mortgage. Private mortgage insurance is generally required on loans that have a Loan-To-Value higher than eighty percent.

Property Tax

A tax assessed on real estate by the local government.

Purchase Agreement

A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

Q

Qualifying Income

Any income in addition to your realized income that you can support and provide evidence of through acceptable third-party documentation.

R

Rate

See Interest Rate.

Realized Income

Your perceived annual income that is available to you for use.

Refinance

The process of paying off one loan with the proceeds from a new loan using the same property as security.

Renovation Loan

A loan in which additional funding is allotted toward home improvement in addition to the initial amount of the purchase or refinance loan.

Reserves

The amount of money left in a borrower’s possession after settlement.

Reverse Mortgage

Often used as a retirement tool, a Reverse Mortgage is available to those of 62 years of age and older who wish to purchase or refinance a home with no monthly mortgage payment.

Risk Factor

Factors seen as dangerous by a lender that can possibly complicate the approval process and increase your interest rate.

S

Second Home

A property that you own in addition to your primary residence that is far in distance; for most it is a resort type of area.

Second Mortgage

A loan placed simultaneously or any time after your first mortgage that requires a second monthly payment in addition to your original loan. A Second Mortgage allows you to access cash from the equity in your home to use in a financially beneficial way.

Seller’s Market

A market in which there are more buyers than homes for sale, resulting in higher housing prices.

Subsidized Loan

A loan in which the interest accrued is paid by a third party.

Sweat Equity

An increased value in a property as a result of restoration and home improvement by the homeowner.

T

Tax

A contribution for the support of the government required of all persons within the domain of that government.

Tax Benefit

An allowable deduction on a tax return intended to reduce financial burden.

Tax Deduction

An expenditure that can be deducted from an individual’s taxable income.

Tax Return

A return of excess taxes paid during a given tax year.

Transaction Fee

The fee a lender charges you for assisting in the sale or purchase of a property.

U

USDA Loan

A no down payment home loan available to individuals purchasing a property in specified low-density population areas.

V

VA Loan

A reduced requirement loan program available to veterans and members of the armed services for the purchase or refinance of a home.

Vacation Home

A dwelling separate from an individual’s primary residence that is used for recreational purposes.