Ginnie Mae: A government-owned corporation overseen by the U.S. Department of Housing and Urban Development, Ginnie Mae pools FHA-insured and VA-guaranteed loans to back securities for private investment. Like Fannie Mae and Freddie Mac, the investment income provides funding that may then be lent to eligible borrowers by lenders. Ginnie Mae stands for Government National Mortgage Association (GNMA).
Good faith estimate (GFE): A written estimate of all expected closing fees including pre-paid and escrow items as well as lender charges. It must be given to the borrower, by a potential lender, within three days after submission of a mortgage loan application. By law, brokers and lenders are required to make as accurate an estimate as possible.
Homeowner’s insurance: Provides damage protection for your home and personal property from a variety of events, including fire, lightning, burglary, vandalism, storms, explosions, and more. All homeowner’s insurance policies contain personal liability coverage, which protects against lawsuits involving injuries that occur on and off your property. It is required by most lenders.
HUD: The U.S. Department of Housing and Urban Development. Established in 1965, HUD works to create a decent home and suitable living environment for all Americans by addressing housing needs, improving and developing American communities, and enforcing fair laws.
HUD-1 Statement: Also known as the “settlement sheet,” it is an itemized listing of closing costs. The closing costs can include a commission, loan fees and points, and sums set aside for escrow payments, taxes and insurance. It is signed by both the buyer and the seller, who may share closing costs.
Index: A measurement used by lenders to determine changes to the interest rate charged on an adjustable rate mortgage.
Interest: A rate or fee charged for the use of borrowed money.
Interest rate: Usually expressed as a percentage, it is the amount of interest charged that determines a monthly loan payment.
Lender: An institution, such as a bank or broker, which loans money to be repaid with interest. Learn more about lenders.
Loan: Money borrowed that is usually repaid with interest.
Loan application: The first step in the official loan approval process; this form is used to record important information about the potential borrower necessary to the underwriting process.
Loan-To-Value ratio (LTV): The loan amount divided by either the lesser of the sales price of a property, or its appraised value. The LTV ratio is used during the loan approval period to gauge risk: the higher the LTV ratio, the higher the interest rate, and vice versa.
Lock-in: A guarantee of an interest rate if a loan is closed within a specific time.
Margin: Expressed in percentage points, the amount a lender adds to an index to determine the interest rate on an adjustable rate mortgage.
Mortgage: A lien against real estate given by a buyer or property owner to the lender as security for money borrowed. Essentially, it is a legal agreement that means if the borrower stops making payments, the lender can take possession of the house. (Note: Literal translation is “death pledge.” It comes from Latin: mort [“death”] + gage [“pledge”]).
Mortgage banker: One who originates, sells, and services mortgage loans and resells them to secondary mortgage lenders such as Fannie Mae or Freddie Mac.
Mortgage broker: A firm that originates and processes loans for a number of lenders.
Mortgage insurance: A policy protecting lenders against some or most of the losses that can occur when a borrower defaults on a mortgage loan; mortgage insurance is required primarily for borrowers with a down payment of less than 20% of the home’s purchase price. Also known as PMI (Private Mortgage Insurance).
Mortgage Insurance Premium (MIP): Also known as Private Mortgage Insurance (PMI), a monthly payment by a borrower for mortgage insurance. This protects the lender by paying the costs of foreclosing on a house if the borrower stops paying the loan. Mortgage insurance usually is required if the down payment is less than 20 percent of the sale price.