Sometimes it may seem like we speak our own language, but don't worry - this glossary will help you keep up with the waddle.

Common Terms

Government-Backed Loans

FHA Loan

Mortgage loan insured by the Federal Housing Administration (“FHA”).

VA Loan

Mortgage loan backed by the US Department of Veterans Affairs (“VA”).

USDA Loan

Mortgage loan guaranteed by the US Department of Agriculture (“USDA”).

Conventional Loans

FHFA

The “Federal Housing Finance Agency” is a government organization established to oversee the activities of FNMA and FHLMC.

GSE

“Government Sponsored Enterprise.” While there are several GSEs that operate in support of housing finance; the most commonly referenced are FNMA and FHLMC.

FNMA

The “Federal National Mortgage Association”, aka “Fannie Mae”.

FHLMC

The “Federal Home Loan Mortgage Corporation” aka “Freddie Mac”.

Conforming Loan

A conventional loan that conforms to the guidelines established by FNMA  and/or FHLMC.

Conforming Loan Limit

The maximum principal loan amount that FNMA and FHLMC are authorized to purchase, as established by the FHFA.  The Conforming Loan Limit is established on a county-by-county basis.  In 2019, the Conforming Loan Limit for a 1-unit property was $484,350 in most parts of the country.

High Balance Loan Limit

An exception to the Conforming Loan Limit that applies to certain high cost areas of the country.  This exception provides the authority for FNMA and FHLMC to purchase loans with a principal loan amount above the Conforming Loan Limit.

Loan Qualification

LTV

The “Loan-to-Value” ratio is used to express the principal loan amount relative to the market value of the underlying property.

CLTV

The “Combined-Loan-to-Value” ratio is used to express the combined principal loan amount of all mortgage loans (typically a 1st lien mortgage and a 2nd lien mortgage) relative to the market value of the underlying property.

DTI

The “Debt-to-Income” ratio is used to express a borrower’s monthly debt obligations as a percentage of their gross monthly income.

Seasoning

Commonly used to describe the amount of time that funds have been on deposit in a bank account.  Funds that have recently been deposited into a bank account may not meet “Seasoning” requirements, implying that the original source of the deposit must also be verified in order for the investor to satisfy federal Anti-Money Laundering requirements.

Reserves

Cash or other liquid assets that could be made available to make mortgage payments if a borrower’s regular monthly income is interrupted.

FICO

A credit scoring system used to rate the creditworthiness of a borrower based on a variety of factors, including payment history, credit utilization, and credit capacity.  In the United States, there are three (3) primary credit reporting bureaus that capture an individual’s credit history and publish FICO scores that are referenced in the mortgage lending process.  The credit scores used by mortgage lenders are based on algorithms specifically intended to predict mortgage credit quality, and are often different from the FICO scores used to obtain consumer credit or personal inquiry services such as Credit Karma.

Loan Economics

Discount Point

Fees paid to a lender in exchange for a lower interest rate. One “Discount Point” is equal to 1.00% of the principal loan amount. Also commonly referenced in the context of ‘Paying Points,’ or ‘Buying Down the Rate.’

Basis Point

A measure defined as 0.01%; commonly used when discussing mortgage loans, interest rates, and discount points.  100 basis points equals 1.00%.

APR

The “Annual Percentage Rate” is a benchmark measure of the cost to you of borrowing money, expressed as an interest rate.  In general, the APR reflects not only the interest rate, but also discount points, origination fees, and other costs associated directly with obtaining a loan.  For that reason, the APR is usually higher than your interest rate.

Loan Payments

P&I

The “Principal and Interest” portion of the mortgage obligation.

Mortgage Insurance

Commonly referred to as “MI.”  Mortgage insurance represents an insurance policy issued by a mortgage insurance company for the benefit of the lender.  In the event of a qualified borrower default, the insurer would reimburse the lender for losses attributable to the default.  Mortgage insurance is typically required by a lender if the LTV is greater than 80% of the market value of the property.

PMI

“Private Mortgage Insurance.”

BPMI

“Borrower Paid Mortgage Insurance.”  Mortgage insurance that can be paid as an upfront lump sum, or as an additional monthly payment.  Subject to satisfying certain conditions, BPMI may be removed from the loan.

LPMI

“Lender Paid Mortgage Insurance.”  Costs of the mortgage insurance are built into the interest rate charged by the lender.  Consequently, LPMI MAY NOT be removed from the loan.

Escrow Account

An account held by the mortgage servicer to fund periodic payments made by the servicer to third parties on behalf of the borrower, most often for Property Taxes and Hazard Insurance.

Escrow Payments

The monthly payment required to ensure that the escrow account is fully funded by the time a periodic payment is due.  Escrow payments are subject to change based on changes in property taxes or the cost of hazard insurance.

PITIA

The “Principal, Interest, Taxes, Insurance and Association Dues” which is generally used to represent a borrower’s total monthly housing expense.

Other Miscellaneous Items

Title Insurance

Title insurance represents an insurance policy issued by a title insurance company to protect the lender (in the case of “Lender’s Title Insurance”) or the owner (in the case of “Owner’s Title Insurance”) against legal challenges asserting claims of an ownership interest in the subject property or the fraudulent transfer of ownership interests.

Hazard Insurance

Commonly referred to as “Homeowner’s Insurance” or “Property Insurance.”  Hazard Insurance is required by lenders to insure the physical structure of the home that is collateral for the mortgage.  The premium is commonly paid through an escrow account established by the lender for the benefit of the borrower.  The borrower is free to choose which insurance provider they would like to use, although certain minimum policy requirements apply.

Waddle

A group of penguins on land is called a “waddle”.  A group of penguins in the water is called a ‘raft’.  A large group of penguins may also be referred to as a ‘colony’ or a ‘huddle’.  A place where large numbers of penguins nest and/or breed is called a ‘rookery’.

90 Madison Street

Suite 202

Denver, CO  80206

303.284.2592

       

NMLS # 1768342