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Frequently Asked Questions
of MORTGAGE TERMS
Loan payment by equal periodic payments calculated to pay off the debt at the end of a
fixed period, including accrued interest on the outstanding balance. Most loans are
amortized over 30, 20 or 15 years.
The costs associated with procuring and funding a mortgage loan. These may include one or
all of the following: an origination fee, discount points, appraisal fee, title search and
insurance, survey, taxes, deed recording fee, credit report charge and other miscellaneous
costs. Closing costs usually are about 3 percent to 5 percent of the mortgage amount.
Equal Credit Opportunity Act (ECOA)
A federal law that requires lenders and other creditors to make credit equally available
without discrimination based on race, color, religion, national origin, age, sex, marital
status or receipt of income from public assistance programs.
Federal National Mortgage
Also known as Fannie Mae. A tax-paying corporation created by Congress that purchases and
sells conventional residential mortgages as well as those insured by FHA or guaranteed by
VA. This institution, which provides funds for one in seven mortgages, makes mortgage
money more available and more affordable.
FHA Mortgage Insurance
A fee (up to 3 percent of the loan amount) paid at closing, or a portion of this fee added
to each monthly payment of an FHA loan to insure the loan with FHA. On a $75,000 30-year
fixed-rate FHA loan, this fee would amount to either $2,250 at closing or an extra $31 a
month for the life of the loan. In addition, FHA mortgage insurance requires an annual fee
of 0.5 percent of the current loan amount.
A published interest rate against which lenders measure the difference between the current
interest rate on an adjustable rate mortgage and that earned by other investments (such as
one- three-, and five-year U.S. Treasury Security yields), which is then used to adjust
the interest rate on an adjustable mortgage up or down.
A loan which is larger (more than $322,700 and less than $700,000)
than the limits set by the Federal National Mortgage Association and the Federal Home Loan
Mortgage Corporation. Because jumbo loans cannot be funded by these two agencies, they
usually carry a higher interest rate.
Prepaid interest and expenses necessary to create an escrow account or to adjust the
seller's existing escrow account; can include taxes, hazard insurance, private mortgage
insurance and special assessments.
Private Mortgage Insurance (PMI)
In the event that you do not have a 20 percent down payment, lenders will allow a smaller
down payment - as low as Zero percent in some cases. With the smaller down payment loans,
however, borrowers are usually required to pay private mortgage insurance.
The steps and operations a lender performs to keep a loan in good standing, such as
collection of payments, payment of taxes, insurance, property inspections, and the like.
A measurement of land, prepared by a registered land surveyor, showing the location of the
land with reference to known points, its dimensions, and the location and dimensions of
A policy, usually issued by a title insurance company, that
insures a lender or homebuyer against errors in the title search. The cost of the policy
is usually a function of the value of the property, and is often borne by the purchaser
The decision whether to make a loan to a potential homebuyer based on credit, employment,
assets, and other factors and the matching of this risk to an appropriate rate and term or