BLUE ARROW'S LEARNING HUB

Welcome! This is a place for you to learn all you need to know about mortgage lending so you can move forward home buying with confidence. We are here to help you achieve your home and financial goals, and believe the more education around lending lets you make smart decisions for you and your family.

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lending dictionary

the basics

Abstract Exam

A fee related to the title insurance required by the lender. A public record search exam is done to insure that both you and the lender are aware of any liens or encumbrances that could affect the property. For our comparison purposes, an abstract exam fee is considered to be a third party fee and may be included in the title insurance fee by some lenders.

Acceleration Clause

A provision in a mortgage that gives the lender the right to demand payment of the entire principal balance if a monthly payment is missed.

Credit Bureau

An organization that gathers, records, updates and stores financial and public records of individuals who have been granted credit and provides this information to lenders and other authorized users for a fee. The 3 major credit bureaus are Equifax, Experian and TransUnion.

Credit score

A statistical number that evaluates a consumer's creditworthiness and is based on credit history.

DTI – Debt-To-Income

The percentage of a Borrowers monthly gross income that goes toward paying debts; including the new mortgage payment.

Down Payment

The amount of cash you pay toward the purchase of your home to make up the difference between the purchase price and your mortgage loan. Down payments often range between 3% and 20% of the sales price.

LTV- Loan-to-Value

A ratio used to express the principal loan amount relative to the market value of the property.

Mortgage

A mortgage is a loan from a bank or financial institution that helps the borrower purchase a property. Mortgage payments are usually monthly and consist of four components: principal, interest, taxes and insurance.

Mortgage Insurance

Insurance policy issued by a Mortgage Insurance Company for the benefit of the lender to reimburse them for losses attributable to a qualified borrower default. Mortgage Insurance is commonly required by a lender if the down payment is less than 20% of the value of the property.

P&I

Principal and Interest payment

PITI Payment

Principal, Interest, taxes, and Insurance payment

PITIMI

Principal, Interest, Taxes, Insurance and Mortgage Insurance payment

PMI

Private Mortgage Insurance. An insurance policy that protects the lender/investor against loss resulting from default on a mortgage loan. Many times putting less than 20% down will result in “PMI” being added to the loan or monthly payments

TYPES OF LOANS

Conforming loan

A loan that conforms to (or follows) the Fannie Mae/Freddie Mac guidelines.

Conventional Loan

A mortgage loan that is not insured by a government agency. A conventional loan can be for conforming or non-conforming loan amounts.

FHA Loan

Federal Housing Administration insures this loan. Requires as little as 3.5% down payment.

FNMA (Fannie Mae)

Federal National Mortgage Association, a government-sponsored enterprise that buys and securitizes mortgages for resale in the secondary market.

Government-Backed Loan

A mortgage loan insured by the FHA, VA, or USDA

Jumbo loan

Also known as a nonconforming loan. The loan amount exceeds the guidelines (rules) for sale to Fannie Mae/Freddie Mac.

USDA

United States Department of Agriculture insures this loan. Requires as little as 0% down, and is designed for rural areas.

VA

US Department of Veterans Affairs guarantee's this loan. Requires as little as $0 down, it is designed for active military, and military Veterans. Each veteran receives information that determines their VA eligibility.

transACTION TERMS

APR- Annual Percentage Rate

The annual cost of a loan to a borrower. Like an interest rate, the APR is expressed as a percentage. Different from an interest rate- it includes other charges or fees (such as mortgage insurance, closing costs, discount points and loan origination fees) to reflect the total cost of the loan.

Appraisal

An informed estimate of the value of a property. A certified professional appraiser usually performs the appraisal and delivers a report detailing the features of the home and how it compares to other property in the market. Not to be confused with a property inspection.

BPMI- Borrower Paid Mortgage Insurance

This is typically a lump-sum (or 1-time) mortgage insurance that is paid by the borrower. This typically is instead of the monthly mortgage insurance.

CLTV- CombineD loan to value

A ratio used to show the total principal loan amount of all mortgage loans relative to the market value of the property. For example, a property value is $100,000 and the total loan amounts equal $80,000; then the CLTV would be 80%.

Cash to closing

The amount a homebuyer needs in cash at the closing of the loan. This amount includes down payment and closing costs together.

Closing Disclosure

A closing document which provides key information such as interest rate, monthly payments, and costs to close the loan. Consumers are required to receive this form no later than 3 business days before they close on the loan.

Discount Points/Buy-down

Found in a transactions closing costs, it is an additional cost to purchase a lower interest rate. 1 “point” = 1% of the loan amount. For example, 1 point on a $200,000 loan amount would be a cast of $2,000

Down Payment

The amount of cash you pay toward the purchase of your home to make up the difference between the purchase price and your mortgage loan. Down payments often range between 3% and 20% of the sales price.

Earnest Money

A deposit made toward a down payment as a sign of good faith. The deposit is typically made when a purchase agreement is signed

Escrow impound account (or escrow account)-

Typically refers to an account set up by a lender in which funds to pay for real estate taxes and homeowners insurance are deposited as part of the borrower's monthly mortgage payment, then disbursed as tax and insurance payments come due.

Hazard Insurance

Also known as “Homeowners Insurance” It’s an insurance policy required by lenders that protects a homeowner and lender against the costs of damage from fire, vandalism, smoke and other causes. When you take out a mortgage, the lender will require you to take out hazard insurance to protect the property.

Inspection

An informed reporting of the condition of the property. A certified professional will perform and deliver the report that will include conditions and functionality of the major syastems of the property. This can include the roofing system, sewer/septic system, water/well systems, appliances, HVAC, Plumbing, Electrical, foundation, etc...

Interest rate

The proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding. This is used to calculate your monthly payments

LPMI –Lender Paid Mortgage Insurance

This is a lump-sum mortgage insurance that is paid by the lender and rolled into the APR. This is instead of the monthly mortgage insurance.

LTV- Loan-to-Value

A ratio used to express the principal loan amount relative to the market value of the property.

Origination fee

A cost charged by a lender to cover processing and/or underwriting expenses in connection with making a mortgage loan. Usually a percentage of the amount loaned (often 1%). The origination fee is stated in the form of points

Processing fee

A fee charged by a lender to cover the costs for any processing expenses to obtain a mortgage loan. May also be housed under origination fees.

Property taxes

Taxes levied on real estate by governments, typically on the state, county and local level. When you purchase a home, you'll need to factor in property taxes as an ongoing cost.

Reserves

A source of liquid assets that is not needed immediately, but is available if required. (an example would be the ability to withdraw from an account to make the mortgage payments if the need came about).

Seasoning

A period of time that funds have been deposited in a bank account. Funds on deposit need to meet a ‘seasoning’ requirement to use for the transaction. The term can also defined as a period of time that a homeowner has owned their existing property.

Title Insurance

Title insurance protects property buyers, homeowners, and mortgage lenders from financial loss sustained from errors on a title to a property.

Under Contract

A binding agreement that exists between a buyer and a seller involving a property. The contract will have defined parameters that all parties must meet to complete the contract and ultimately finalize the transaction

Underwriting fee

A fee charged by a lender to cover the costs for underwriting expenses to obtain a mortgage loan. May also be housed under origination fees.