So you’re buying or selling a house.  We all know it can be confusing enough without any other external help, but what the heck is everybody talking about when they use all kinds of terminology, lingo, acronyms, and abbreviations that just plain make no sense in plain English at all?  From A to Z, here’s a basic guide to some of the most commonly used lingo in the home lending field.

APR – Stands for annual percentage rate.  Most simply, this is the rate of yearly interest paid on a home loan.

ARM – Stands for adjustable rate mortgage.  Basically, a home loan can have a fixed locked in interest rate or it can fluctuate along with the day to day market.  When it fluctuates, it’s considered an ARM.

Aggregator – An entity that buys mortgages usually from originating banks and lenders and then pools them together and resells them to a second party as a less risky group.

Alt-A – This term has been more frequently used lately with the current troubles in the mortgage market.  Alt-A generally means the loan is riskier than prime mortgages but still made to buyers with reasonably good credit.  They’re attractive to lenders because of the combination of relatively decent credit of the borrower and the increased interest rate versus prime rate loans.

Balloon – A balloon type loan is usually a short term mortgage, often 5 years, in which the borrower makes regular payments until the end of the 5 years when the remainder or balloon is due.

Conventional Mortgage – Either fixed rate or adjustable rate mortgages that fit into the standard Fannie Mae or Freddie Mac loan guidelines.  A conventional mortgage because of its conforming standards is easily repackaged and resold.

Default – When a borrower does not make required payments on the loan, the loan is considered to be in default.

Discount Points – Prepaid interest paid on a loan upfront instead of throughout the length of a mortgage.  One point is usually equivalent to one percent of the loan amount and lowers the interest rate often by a quarter or eighth of a percentage.

Fannie Mae – A government supervised company that guarantees and buys mortgages fitting in to its terms and conditions.

Freddie Mac – Similar to Fannie Mae, Freddie Mac is another publicly traded but government backed organization designed to increase homeownership in the U.S.

FHA – An FHA loan is a loan that’s insured by the U.S. Federal Housing Administration.  It guarantees mortgages for lower income borrowers who fit into the program’s guidelines.

First – A first mortgage holder is the lien holder on a mortgage that has first rights to the property if the borrower defaults.

HELOC – A HELOC or home equity line of credit is a secondary loan made against the equity available in a home.  The terms can vary from lender to lender, but usually involve variable interest rate based payments on the borrowed amount.

Interest Only – A type of home loan (usually an ARM) that allows the borrower to only repay the interest portion of the payment instead of the principal and interest for a certain pre agreed upon period of time.

Jumbo – A Jumbo mortgage is a mortgage that exceeds the value limits of the Fannie Mae and Freddie Mac programs, increasing the risk factor because of a lack of government guarantee.

No Doc – A type of mortgage where the borrower doesn’t disclose their income or assets as part of the loan application process.  Also, employment isn’t confirmed with a no-doc.  Usually credit history alone is used to determine loan worthiness.

Origination – The setup process of a home loan or mortgage that not only sets all of the terms, interest rates, and so on, but also legally secures the mortgage with the real estate property.

Piggyback – Usually refers to the type of home loan in which a first mortgage and a home equity loan are utilized in a complementary fashion in order to avoid the need for private mortgage insurance.

Private Mortgage Insurance – Commonly referred to as PMI, private mortgage insurance is normally required by mortgage lenders when the borrower is financing more than 80% of the value of the property.

Prime Rate – The prime rate is an interest rate offered to those who are considered to have the best credit worthiness.  Even so, lenders can have their own specific criteria for offering their prime rate.

Stated Income Mortgage – A borrower’s income is not verified by the mortgage lender, although some other details are.  Typically used by those who are self employed or have alternative streams of income.  Interest rates are typically higher than prime for stated income mortgages.

Subprime Mortgage – A higher interest rate home loan made to those who don’t qualify for more conventional loan programs because of increased risk factors or damaged credit.

VA Loan – The VA loan is a mortgage program offered by the U.S. Department of Veterans Affairs intended to assist vets purchase homes by insuring mortgages that abide by their terms.

Tags:home loan home loan lending mortgage