The Federal Housing Administration (FHA) runs several programs to promote home ownership. In most cases, FHA loans are mortgages obtained with the help of the FHA. With a small down payment, buyers can purchase a home. FHA loans make it easier for people to qualify for a mortgage, but they’re not for everybody. An FHA loan is a loan insured against default by the FHA. In other words, the FHA guarantees that a lender won’t have to write off a loan if the borrower defaults – the FHA will pay. Because of this guarantee, lenders are willing to accept a lower down payment. Learn More
Banks and other private mortgage companies make a special type of home loan to veterans of the US Armed Services. A portion of each loan is guaranteed by the Veterans Administration (VA), and protects the lender’s investment if the borrower defaults. Learn More
USDA provides house assistance to help low to moderate income households to obtain housing for use as primary residence in rural areas. Learn More
Simply stated, a “conforming” loan is a home mortgage that meets or “conforms to” guidelines set by Fannie Mae or Freddie Mac. The designation is important because if a loan meets the guidelines, i.e., is a “conforming loan,” the lender will be able to sell that loan to Fannie Mae or Freddie Mac. Learn More
A mortgage is considered jumbo when it exceeds $417,000 (in most counties across the USA) which is the conforming limit set by Fannie Mae and Freddie Mac. Fannie and Freddie are the federally chartered companies that provide funding to retail mortgage lenders. Learn More
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- Additional Principal Payment
A way to reduce the remaining balance on the loan by paying more than the scheduled principal amount due.
- Adjustable-Rate Mortgage (ARM)
A mortgage with an interest rate that changes during the life of the loan according to movements in an index rate. Sometimes called AMLs (adjustable mortgage loans) or VRMs (variable-rate mortgages).
- Adjusted Basis
The cost of a property plus the value of any capital expenditures for improvements to the property minus any depreciation taken.
- Adjustment Date
The date that the interest rate changes on an adjustable-rate mortgage (ARM).
- Adjustment Period
The period elapsing between adjustment dates for an adjustable-rate mortgage (ARM).
The gradual repayment of a mortgage loan, both principal and interest, by installments.
- Amortization Term
The length of time required to amortize the mortgage loan expressed as a number of months. For example, 360 months is the amortization term for a 30-year fixed-rate mortgage.
- Annual Percentage Rate (APR)
The cost of credit, expressed as a yearly rate including interest, mortgage insurance, and loan origination fees. This allows the buyer to compare loans, however APR should not be confused with the actual note rate.
A written analysis prepared by a qualified appraiser and estimating the value of a property.
- Appraised Value
An opinion of a property’s fair market value, based on an appraiser’s knowledge, experience, and analysis of the property.
Anything owned of monetary value including real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, etc.).
The transfer of a mortgage from one person to another.
An assumable mortgage can be transferred from the seller to the new buyer. Generally requires a credit review of the new borrower and lenders may charge a fee for the assumption. If a mortgage contains a due-on-sale clause, it may not be assumed by a new buyer.
- Balance Sheet
A financial statement that shows assets, liabilities, and net worth as of a specific date.
- Balloon Mortgage
A mortgage with level monthly payments that amortizes over a stated term but also requires that a lump sum payment be paid at the end of an earlier specified term.
- Balloon Payment
The final lump sum paid at the maturity date of a balloon mortgage.
- Biweekly Payment Mortgage
A plan to reduce the debt every two weeks (instead of the standard monthly payment schedule). The 26 (or possibly 27) biweekly payments are each equal to one-half of the monthly payment required if the loan were a standard 30-year fixed-rate mortgage. The result for the borrower is a substantial savings in interest.
- Bridge Loan
A second trust that is collateralized by the borrower’s present home allowing the proceeds to be used to close on a new house before the present home is sold. Also known as “swing loan.”
- Buy Down Mortgage (2/1)
The 2/1 Buy Down Mortgage allows the borrower to qualify at below market rates so they can borrow more. The initial starting interest rate increases by 1% at the end of the first year and adjusts again by another 1% at the end of the second year. It then remains at a fixed interest rate for the remainder of the loan term.
Borrowers often refinance at the end of the second year to obtain the best long term rates; however, even keeping the loan in place for three full years or more will keep their average interest rate in line with the original market conditions.
When the seller, builder or buyer pays an amount of money up front to the lender to reduce monthly payments during the first few years of a mortgage. Buydowns can occur in both fixed and adjustable rate mortgages.
Limits how much the interest rate or the monthly payment can increase, either at each adjustment or during the life of the mortgage. Payment caps don’t limit the amount of interest the lender is earning and may cause negative amortization.
- Certificate of Eligibility
A document issued by the federal government certifying a veteran’s eligibility for a Department of Veterans Affairs (VA) mortgage.
- Certificate of Reasonable Value (CRV)
A document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA mortgage.
- Change Frequency
The frequency (in months) of payment and/or interest rate changes in an adjustable-rate mortgage (ARM).
A meeting held to finalize the sale of a property. The buyer signs the mortgage documents and pays closing costs. Also called “settlement.”
- Closing Costs
These are expenses – over and above the price of the property- that are incurred by buyers and sellers when transferring ownership of a property. Closing costs normally include an origination fee, property taxes, charges for title insurance and escrow costs, appraisal fees, etc.
Closing costs will vary according to the area country and the lenders used.
- Compound Interest
Interest paid on the original principal balance and on the accrued and unpaid interest.
- Consumer Reporting Agency (or Bureau)
An organization that handles the preparation of reports used by lenders to determine a potential borrower’s credit history. The agency gets data for these reports from a credit repository and from other sources.
- Credit Report
A report detailing an individual’s credit history that is prepared by a credit bureau and used by a lender to determine a loan applicant’s creditworthiness.
- Credit Risk Score
A credit score measures a consumer’s credit risk relative to the rest of the U.S. population, based on the individual’s credit usage history. The credit score most widely used by lenders is the FICO® score, developed by Fair, Issac and Company. This 3-digit number, ranging from 300 to 850, is calculated by a mathematical equation that evaluates many types of information that are on your credit report. Higher FICO® scores represents lower credit risks, which typically equate to better loan terms. In general, credit scores are critical in the mortgage loan underwriting process.
- Deed of Trust
The document used in some states instead of a mortgage. Title is conveyed to a trustee.
Failure to make mortgage payments on a timely basis or to comply with other requirements of a mortgage.
Failure to make mortgage payments on time.
This is a sum of money given to bind the sale of real estate, or a sum of money given to ensure payment or an advance of funds in the processing of a loan.
In an ARM with an initial rate discount, the lender gives up a number of percentage points in interest to reduce the rate and lower the payments for part of the mortgage term (usually for one year or less). After the discount period, the ARM rate usually increases according to its index rate.
- Down Payment
Part of the purchase price of a property that is paid in cash and not financed with a mortgage.
The amount of financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on the mortgage.
An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the deposit of funds or documents into an escrow account to be disbursed upon the closing of a sale of real estate.
- Escrow Disbursements
The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.
- Escrow Payment
The part of a mortgagor’s monthly payment that is held by the servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due.
- Fannie Mae
A congressionally chartered, shareholder-owned company that is the nation’s largest supplier of home mortgage funds.
- FHA Mortgage
A mortgage that is insured by the Federal Housing Administration (FHA). Also known as a government mortgage.
- FICO Score
FICO® scores are the most widely used credit score in U.S. mortgage loan underwriting. This 3-digit number, ranging from 300 to 850, is calculated by a mathematical equation that evaluates many types of information that are on your credit report. Higher FICO® scores represent lower credit risks, which typically equate to better loan terms.
- First Mortgage
The primary lien against a property.
- Fixed-Rate Mortgage (FRM)
A mortgage interest that are fixed throughout the entire term of the loan.
- Fully Amortized ARM
An adjustable-rate mortgage (ARM) with a monthly payment that is sufficient to amortize the remaining balance, at the interest accrual rate, over the amortization term.
A government-owned corporation that assumed responsibility for the special assistance loan program formerly administered by Fannie Mae. Popularly known as Ginnie Mae.
- Housing Expense Ratio
The percentage of gross monthly income budgeted to pay housing expenses.
- HUD-1 statement
A document that provides an itemized listing of the funds that are payable at closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow amounts. Each item on the statement is represented by a separate number within a standardized numbering system. The totals at the bottom of the HUD-1 statement define the seller’s net proceeds and the buyer’s net payment at closing.
- Hybrid ARM (3/1 ARM, 5/1 ARM, 7/1 ARM)
A combination fixed rate and adjustable rate loan – also called 3/1,5/1,7/1 – can offer the best of both worlds. A lower interest rates (like ARMs) and a fixed payment for a longer period of time than most adjustable rate loans. For example, a “5/1 loan” has a fixed monthly payment and interest for the first five years and then turns into a traditional adjustable rate loan, based on then-current rates for the remaining 25 years. It’s a good choice for people who expect to move or refinance, before or shortly after, the adjustment occurs.
The index is the measure of interest rate changes a lender uses to decide the amount an interest rate on an ARM will change over time. The index is generally a published number or percentage, such as the average interest rate or yield on Treasury bills. Some index rates tend to be higher than others and some more volatile.
- Initial Interest Rate
This refers to the original interest rate of the mortgage at the time of closing. This rate changes for an adjustable-rate mortgage (ARM). It’s also known as “start rate” or “teaser.”
The regular periodic payment that a borrower agrees to make to a lender.
- Insured Mortgage
A mortgage that is protected by the Federal Housing Administration (FHA) or by private mortgage insurance (MI).
The fee charged for borrowing money.
- Interest Accrual Rate
The percentage rate at which interest accrues on the mortgage. In most cases, it is also the rate used to calculate the monthly payments.
- Interest Rate Buydown Plan
An arrangement that allows the property seller to deposit money to an account. That money is then released each month to reduce the mortgagor’s monthly payments during the early years of a mortgage.
- Interest Rate Ceiling
For an adjustable-rate mortgage (ARM), the maximum interest rate, as specified in the mortgage note.
- Interest Rate Floor
For an adjustable-rate mortgage (ARM), the minimum interest rate, as specified in the mortgage note.
- Late Charge
The penalty a borrower must pay when a payment is made a stated number of days (usually 15) after the due date.
A person’s financial obligations. Liabilities include long-term and short-term debt.
- Lifetime Rate Cap
For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can increase or decrease over the life of the loan. See cap.
- Line of Credit
An agreement by a commercial bank or other financial institution to extend credit up to a certain amount for a certain time.
- Liquid Asset
A cash asset or an asset that is easily converted into cash.
A sum of borrowed money (principal) that is generally repaid with interest.
- Loan-to-Value (LTV) Percentage
The relationship between the principal balance of the mortgage and the appraised value (or sales price if it is lower) of the property. For example, a $100,000 home with an $80,000 mortgage has an LTV of 80 percent.
The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.
The date on which the principal balance of a loan becomes due and payable.
- Monthly Fixed Installment
That portion of the total monthly payment that is applied toward principal and interest. When a mortgage negatively amortizes, the monthly fixed installment does not include any amount for principal reduction and doesn’t cover all of the interest. The loan balance therefore increases instead of decreasing.
A legal document that pledges a property to the lender as security for payment of a debt.
- Mortgage Banker
A company that originates mortgages exclusively for resale in the secondary mortgage market.
- Mortgage Insurance
A contract that insures the lender against loss caused by a mortgagor’s default on a government mortgage or conventional mortgage. Mortgage insurance can be issued by a private company or by a government agency.
- Mortgage Insurance Premium (MIP)
The amount paid by a mortgagor for mortgage insurance.
The borrower in a mortgage agreement.
- Negative Amortization
Amortization means that monthly payments are large enough to pay the interest and reduce the principal on your mortgage. Negative amortization occurs when the monthly payments do not cover all of the interest cost. The interest cost that isn’t covered is added to the unpaid principal balance. This means that even after making many payments, you could owe more than you did at the beginning of the loan. Negative amortization can occur when an ARM has a payment cap that results in monthly payments not high enough to cover the interest due.
- Net Worth
The value of all of a person’s assets, including cash.
- Non Liquid Asset
An asset that cannot easily be converted into cash.
A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.
- Origination Fee
A fee paid to a lender for processing a loan application. The origination fee is stated in the form of points. One point is 1 percent of the mortgage amount.
- Owner Financing
A property purchase transaction in which the party selling the property provides all or part of the financing.
- Payment Change Date
The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM) or a graduated-payment mortgage (GPM). Generally, the payment change date occurs in the month immediately after the adjustment date.
- Periodic Rate Cap
A limit on the amount that the interest rate can increase or decrease during any one adjustment period, regardless of how high or low the index might be.
- PITI Reserves
A cash amount that a borrower must have on hand after making a down payment and paying all closing costs for the purchase of a home. The principal, interest, taxes, and insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a predefined number of months (usually three).
A point is equal to one percent of the principal amount of your mortgage. For example, if you get a mortgage for $165,000 one point means $1,650 to the lender. Points usually are collected at closing and may be paid by the borrower or the home seller, or may be split between them.
The process of determining how much money you will be eligible to borrow before you apply for a loan.
- Prepayment Penalty
A fee that may be charged to a borrower who pays off a loan before it is due.
- Prime Rate
The interest rate that banks charge to their preferred customers. Changes in the prime rate influence changes in other rates, including mortgage interest rates.
The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.
- Principal Balance
The outstanding balance of principal on a mortgage not including interest or any other charges.
- Principal, Interest, Taxes, and Insurance (PITI)
The four components of a monthly mortgage payment. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the monthly cost of property taxes and homeowners insurance, whether these amounts that are paid into an escrow account each month or not.
- Private Mortgage Insurance (PMI)
Mortgage insurance provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require MI for a loan with a loan-to-value (LTV) percentage in excess of 80 percent.
- Qualifying Ratios
Calculations used to determine if a borrower can qualify for a mortgage. They consist of two separate calculations: a housing expense as a percent of income ratio and total debt obligations as a percent of income ratio.
- Rate Lock
A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate and lender costs for a specified period of time.
- Real Estate Agent
The sale of real estate on behalf of the property owner.
- Real Estate Settlement Procedures Act (RESPA)
A consumer protection law that requires lenders to give borrowers advance notice of closing costs.
A real estate broker or an associate who is an active member in a local real estate board that is affiliated with the National Association of Realtors.
The noting in the registrar’s office of the details of a properly executed legal document, such as a deed, a mortgage note, a satisfaction of mortgage, or an extension of mortgage, thereby making it a part of the public record.
Paying off one loan with the proceeds from a new loan using the same property as security.
- Secondary Mortgage Market
Where existing mortgages are bought and sold.
The property that will be pledged as collateral for a loan.
- Seller Carry-back
An agreement in which the owner of a property provides financing, often in combination with an assumable mortgage. See owner financing.
An organization that collects principal and interest payments from borrowers and manages borrowers’ escrow accounts. The servicer often services mortgages that have been purchased by an investor in the secondary mortgage market.
- Standard Payment Calculation
The method used to determine the monthly payment required to repay the remaining balance of a mortgage in substantially equal installments over the remaining term of the mortgage at the current interest rate.
- Total Expense Ratio
Total obligations as a percentage of gross monthly income including monthly housing expenses plus other monthly debts.
- Treasury Index
An index used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. Based on the results of auctions that the U.S. Treasury holds for its Treasury bills and securities or derived from the U.S. Treasury’s daily yield curve, which is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market.
A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the annual percentage rate (APR) and other charges.
The process of evaluating a loan application to determine the risk involved for the lender. Underwriting involves an analysis of the borrower’s creditworthiness and the quality of the property itself.
- VA Mortgage
A mortgage that is guaranteed by the Department of Veterans Affairs (VA). Also known as a government mortgage.
Whether applying for a new mortgage or refinancing your existing mortgage, having the items below prepared before you make your next move, will help simplify the process.
Here are the items that your Envision Capital Mortgage Loan Officer will need to start the process. If you have a question regarding any of these items or believe that you may have difficulty providing one or more of them, rest easy as you will not be banished to Loan-Applicant jail. We are here to help and can answer any of your questions (minus the whole meaning-of-life thing) and can give you alternatives and ideas on how to get your hands on those allusive W2s from last year that your dog must have eaten.
1. Current/Past Residences
Gather your residential addresses for the last two years. If you have rented, jot down the names and contact information of landlords.
Where do you work? We will need the name, address, and telephone number for any employers you have had over the past two years.
Speaking of work, we will also need copies of your paystubs for the past 30 days or at least two pay periods. Printing them from an online source is just fine, as are the good old hard-copy rip and tear variety. We are not partial to either, but do like fresh-baked chocolate chip cookies and long walks on the beach.
4. W2s and Tax Returns
Now the fun stuff! W–2 forms. We will need your last two years of W2s. If you are self–employed, earn commissions, overtime, or bonuses, you are extra lucky and we will need personal and/or corporate complete tax returns from the past year.
5. Basic Assets
Now that you’ve made the money, and given some of it to Uncle Sam, we need to see where you are keeping it. Please provide copies of your last two months’ bank statements. Checking and savings, if you have both, and copies printed from your online account will generally work. In the words of Rod Tidwell in Jerry Maguire, “Show me the money”.
6. Additional Assets
Plan on using fortune from far-off places in your transaction, like IRA funds or the sale of that stock your brother-in-law pressured you into buying after two glasses of eggnog at the family holiday party? Sounds great to us, but we will need statements from those accounts as well.
All silliness aside, we are serious about getting you the loan that is the best fit for your situation. If you have questions or concerns about any of the items referenced in this checklist, just ask! Additional items are likely to be required from the lender and we will be keeping you up-to-speed throughout the process to make it go as smooth as possible.
1. Step one-get pre-approved with a qualified mortgage professional
At Envision Capital, we will not only tell you how much you can get approved for, but we’ll also work with you to establish a payment you are comfortable with. Just because you are qualified for a larger amount, does not mean you need to spend it all. We’ll as that you provide specific documents for pre-approval. Click here for the most current checklist of items to bring to your initial meeting with your Envision Capital mortgage professional.
2. Interview and select your real estate agent
Often, real estate agents are selected because they are an acquaintance or someone your family has worked with. However, there are many things to consider when selecting a real estate agent.
Do they know the area you want to look in?
Are they primarily a listing agent or a buyer’s agent?
Are they part of a team or will you just be working with them?
Face it, you are most likely going to spend a lot of time with this person, you want to make sure that you select the correct agent. Find someone with good references, someone that specializes in what you are looking for and most importantly, someone you can trust. At Envision Capital, we have worked with hundreds of agents and can help make recommendations on the right fit for you.
3. House Hunting
Sometimes this goes quickly and sometimes it can take months. Often times finding your home is as much about figuring out what you don’t want, as well as what you do. Your ideas in terms of style of home, price range, or location could change greatly during your home search.
4. The offer
After scouring the area looking for your own personal hidden gem, it is time to put in an offer! Working carefully with your real estate agent and mortgage professional, you will determine how much to offer, what your payments will be and what, if any, concessions you would like the seller(s) to make. Also, your agent will help you negotiate with the seller(s) to reach a final accepted offer on your new home.
5. Get a home inspection
One of the best investments you can ever make is a home inspection. Not all homes are in perfect condition. In fact, most inspections lead to at least a couple of small concerns. The important thing is making your purchase with full knowledge, and if necessary, asking the sellers to make a few small improvements on your behalf prior to closing. If you need a recommendation for a licensed home inspector, ask your mortgage or real estate professional.
6. Meeting with your mortgage professional
Now that your offer is accepted and the inspection has gone well, it’s time to apply for your mortgage. Remember all those loan options you reviewed with your Envision Capital mortgage professional? Now it’s time to use the guidance you received to choose the loan that best fits your needs and budget.
7. Purchasing home owners insurance
Prior to closing on your new home, you will need to purchase one year of homeowners insurance up front. In the future, your insurance will probably be included in your mortgage payment in what is called your escrow account. However, you will need to provide proof of a year’s worth of insurance up front for your mortgage company. Many people obtain this insurance through the same agent as their car insurance as many times discounts can be obtained.p>
8. Final walk through
This is one last chance to view your new home prior to closing. Your real estate professional will bring you through to make sure that the home is in the same condition as the last time you viewed it and more importantly, that any requested repairs from your inspection have been made.
It’s time to sign some paperwork! If all has gone smoothly, the only things you will need to bring to closing is your driver’s license and of course, a pen. Closing usually takes about an hour and when you leave, you should be the proud owner of your new home, keys in hand!
Step by Step Mortgage Qualification Process
1. Meet with an Envision Capital Mortgage professional
2. Bring in necessary documents
3. Get pre qualified/approved
4. Put offer in on home
5. Sign loan application for property
6. Submit loan to mortgage lender
7. Provide any additional documents requested
8. Bank funds your mortgage
Want to get an idea of what your home is worth or if the neighborhood you’re considering fits within your budget? Under the graph below, fill out the “Find Another Address” box. For home valuation data, enter a full address in your search. For neighborhood affordability data, enter only the city and state.