Common Terms.

Mortgage loan insured by the Federal Housing Administration (“FHA”).  An FHA Loan requires a minimum down payment of 3.5% and an Up-Front Mortgage Insurance Premium (“UFMIP”) equal to 1.75% of the base loan amount.  In addition to the UFMIP, FHA loans also require annual mortgage insurance premiums that can range from an annualized rate of 0.15% to 0.75%, depending on the mortgage term, loan size and down payment.  While the nominal interest rate on an FHA Loan may be lower than a comparable Conforming Loan, it is important to consider the impact of mortgage insurance and other costs when comparing loan options.

Mortgage loan backed by the US Department of Veterans Affairs (“VA”).  A VA Loan allows for a down payment of as little as 0%.  VA Loans typically require the payment of a Funding Fee that can range from 0.50% to 3.30%, although the Funding Fee may be waived for qualified veterans.   While the Funding Fee represents a real transaction cost, it is typically financed into the loan and often has a limited impact on the monthly payment.  VA Loans do not require mortgage insurance, even for loans with a down payment of less than 20%.

Mortgage loan guaranteed by the US Department of Agriculture (“USDA”).  USDA Loans allow for a down payment of as little as 0% with an up-front, non-refundable Guarantee Fee equal to 1% of the Base Loan Amount and an Annual Fee equal to 0.35% of the unpaid principal balance of the loan.  USDA Loans are subject to household income qualification limits and require that the subject home is located in an elgible rural area.

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

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

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

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

A conventional loan that conforms to the guidelines established by FNMA (“Fannie Mae”) and/or FHLMC (“Freddie Mac”).

The maximum principal loan amount that FNMA and FHLMC are authorized to purchase, as established by the FHFA.  In 2024, the Conforming Loan Limit increased to $766,550 for a 1-unit property.

An exception to the Conforming Loan Limit that applies to certain high cost areas of the country.  This exception is determined on a county-by-county basis and provides the authority for FNMA and FHLMC to purchase loans with a principal loan amount above the Conforming Loan Limit.  In 2024, the High Balance Loan Limit in most Denver Metro Area counties increased to $816,500 for a 1-unit property.

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

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.

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

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.

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

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.

A “Discount Point” or a “Discount Fee” is a fee paid to the lender in exchange for a lower interest rate.  One point is equal to 1.000%.

A measure defined as 0.01%; commonly used when discussing mortgage loans, interest rates, and discount points.  100 basis points equals 1.000%.

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.

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

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.

“Private Mortgage Insurance.”

“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.

“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.

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.

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.

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

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.

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.

When the Appraised Value of the Property is less than the Purchase Price, the difference is commonly known as an “Appraisal Gap.” Because the Lender evaluates the LTV based on the lesser of (a) the purchase price or (b) the appraised value, an Appraisal Gap results in an LTV that is higher than originally anticipated.  Depending on the specific circumstances, an Appraisal Gap may require that loan terms be changed.

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’.