The Basics

Mortgage Definitions to Tackle the Home Buying Process

Published: January 4, 2021

Updated: June 27, 2024

Mortgage Definitions to Tackle the Home Buying Process

We get it. The last thing you want when buying a home is to feel confused and un-informed while navigating the mortgage process. Luckily for you, we’re experts. We have compiled an ever-growing list of mortgage-related terms that any potential home buyer should know, empowering you to be a confident and educated borrower. Don’t see the term you’re looking for? Let us know and we will get your definition ASAP.

30-Year Fixed Mortgage - A fixed-rate mortgage with the standard loan term of 30 years

15-Year Fixed Mortgage - A fixed-rate mortgage with half the standard 30-year loan term

3/1 ARM - An adjustable-rate mortgage that is fixed for the first three years before becoming adjustable on an annual basis

5/1 ARM - An adjustable-rate mortgage that is fixed for the first five years before becoming adjustable on an annual basis

Adjustable-Rate Mortgage (ARM)- A mortgage with an interest that can be changed over time depending on external factors. Most ARMS start with a period of fixed interest that lasts anywhere from 6 months to 3 years.

Amortization - A breakdown of payments showing how a loan is intended to be repaid.

Annual Percentage Rate - The rate of interest to be paid back to the mortgage lender. It can either be fixed or adjustable.

Assumption - When a person assumes responsibility for paying off a mortgage.

Appraisal - The estimation of the value of the property. Conducted by an appraiser, this process is based both on physical inspection and the sales of comparable properties in recent months.

Balloon Mortgage - A short-term mortgage that includes smaller monthly installments followed by a large lump sum payment at the loan term’s end

Bi-Weekly Mortgage - A bi-weekly mortgage payment model that reduces interest and speeds up a payment timeline. Instead of one monthly payment or twelve payments in a calendar year, a borrower pays half of that every two weeks, adding up to thirteen total payments in a year.

Bridge Loan - A short term loan that is taken out on one property but used to purchase a different property.

Buy-Down - When you get an interest rate that is lower than the standard by paying a lender premium.

Caps - Payment caps often limit how much an interest rate can change on an adjustable-rate mortgage (ARM)

Cash-In Refinance - A refinance in which the borrower pays additional money during the transaction that goes towards their loan and ultimately lowers their owed amount.

Cash-Out Refinance - A refinance that allows you to tap into some of the equity (your stake) in your home if you need some extra cash. You may consider a cash-out refi if you need any home renovations, pay for a large expense, or consolidate debt.

Closing - The last step in the mortgage process where documents are signed and the process is wrapped up.

Closing Costs- The costs a buyer pays during the mortgage process, including attorney fees, recording fees, and any other costs related to mortgage closing.

Construction Mortgage - A mortgage model used when a home is built rather than bought. Money is advanced directly to the builder based on the schedule of construction and is converted to a standard mortgage upon completion of the home.

Conventional mortgage - a mortgage that is not insured or guaranteed by the federal government.

Credit History - A credit history is a record of a borrower's repayment of debts.

Credit Report - A credit report is a record of a person’s payments and loans from a number of sources, including banks, credit card companies, collection agencies, and governments.

Credit Score - A number assigned to a person based on their credit history that indicates their capacity to repay a loan to lenders.

Debt-to-income Ratio - The ratio between monthly payments, including a new mortgage, and the monthly income of a potential borrower. This figure is calculated into a percentage and the higher the percentage, the riskier the loan for the lender.

Down Payment- A large initial payment that a buyer puts down on their new home. Most mortgages require a down payment ranging from three percent to twenty percent of the total home value.

Equity - The difference between the amount owed on a mortgage and the current value of a home. If you owe $100,000 on your mortgage loan and your home is worth $300,000, you have $200,000 of equity in your home.

Escrow - at the closing of the mortgage, the borrowers are generally required to set aside a percentage of the yearly taxes to be held by the lender. On a monthly basis, the lender will also collect additional money to be used to pay the taxes on the home. This escrow account is maintained by the lender who is responsible for sending the tax bills on a regular basis.

Fixed-Rate Mortgage - A mortgage where the interest rate and term of a loan have been negotiated and set for the life of the loan.

Foreclosure - When a bank or lender re-possess a home or property when the borrower has not been repaying the loan.

Good Faith Estimate - An estimate of the closing costs given by the lender. While not an exact amount, it gives buyers a general idea of what to expect.

Homeowners Insurance - Property insurance for a new home. A homeowner must secure this prior to the mortgage closing date.

Loan Officer - The representative of a broker or bank who originates mortgage loans.

Loan Origination - The beginning of the loan process that is kicked off by a borrower submitting a loan application with a lender.

Loan-to-value Ratio (LTV) - A financial calculation done by dividing the amount of a mortgage by the value of the home in question.

Mortgage - A loan used to buy or refinance a home. The loan is then paid back with interest to the lender.

Mortgage Interest - A calculated percentage of a full mortgage loan that is charged as interest

Origination Fee - A fee paid to a lender at the beginning of the mortgage process. This may include an application fee, appraisal fee, fees for all the follow-up work and other costs associated with the loan.

Par Rate - The standard interest rate determined by an underwriter.

Points - Fees paid directly to the lender at closing in exchange for a reduced interest rate. This is also called “buying down the rate,” which can lower your monthly mortgage payments.

Principal - The amount of money still owed on a mortgage. The principal amount goes down when borrowers make regular monthly or bi-weekly payments.

Private Mortgage Insurance - A type of insurance that protects lenders in case of a borrower not paying back their loan. If the borrower is paying less than 20% in a down payment, the lender will likely require them to take out PMI.

Rate and Terms Refinance - A kind of refinance that changes either the rate, term, or both rate and term of a mortgage loan. Unlike a cash-out refinance, there is no advancing of money.

Real Estate Tax Deduction - When taxes paid on personal property and real estate are deducted from federal income taxes.

Refinancing - When a person trades their old mortgage for a new one with different agreements. This can mean a lower rate, new terms, or the ability to cash out on the equity of your home.

Tax Break - A reduction in your taxes that comes from the government

Truth in Lending - Federal mandate meant to shield consumers from potential fraud. The regulations include proper disclosure of rates, advertising guidelines, and other protections within the lending process.

Underwriter - The person who handles the insurance risk side of things for a loan process.

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The BasicsJune 20, 2024

Why UMortgage? Unlocking Business Growth With America's Most Innovative Mortgage Company

The local mortgage broker is pivotal to their community’s positive homebuying experiences. That’s why UMortgage has created a platform that enables brokers to thrive with an innovative tech stack, valuable resources, and a community of support from industry leaders and fellow Loan Originators. With a track record of record exponential growth since its foundation in 2020, it’s no surprise that the nation’s top Loan Originators are using the power of the UMortgage platform to serve homebuyers in their local communities. What’s helped UMortgage achieve this growth and what sets it apart in the mortgage industry is its active leadership, innovative tech stack, and community of support. Read more about the benefits of UMortgage below to learn more about the platform that’s helped hundreds of mortgage professionals across the country take control of their business growth and become their community’s trusted mortgage advisor. UMortgage’s Active Leadership To grow year after year in a housing market with record-high interest rates and dwindling demand requires experienced leadership to guide through the market headwinds. UMortgage has assembled executive and sales leadership teams that set the platform apart. At the helm, UMortgage President & CEO, Anthony Casa, is characterized by a profound dedication to creating a supportive ecosystem for Loan Originators. He understands the pivotal role these professionals play in the mortgage process and has thus prioritized the cultivation of an environment where they can thrive. Under his guidance, UMortgage has become a beacon of support, offering tools, resources, and a community that empowers Loan Originators to exceed their potential. Supporting him in these endeavors is a highly experienced executive leadership team driving process efficiency and creating a culture of excellence. UMortgage’s Sales Leadership team features some of the top-producing Loan Originators and leading Branch Managers within the mortgage industry. The image above features multi-time Scotsman Guide Top Originators, HousingWire award winners, and National Mortgage News Top Producers. Loan Originators are offered the opportunity to learn from these experienced professionals through daily Sales Huddles, internal training opportunities, and in-person development events hosted alongside UMortgage’s lender partners. Started in the summer of 2023, Loan Originators have the exclusive opportunity to be coached in small-group settings by these sales leaders through Level Up Sales Coaching—a first-of-its-kind coaching program that teaches new sales strategies, tracks sales activities, and uses peer-to-peer learning to expand on the strategies that work. Originating in the Modern Age with an Innovative Tech Stack The tech-centric modern era requires a modern approach to home loans. At UMortgage, our Loan Originators have access to fully online mortgage origination software that allows them to work from anywhere. With ARIVE, UMortgage Loan Originators can pull pre-approvals, upload important loan documents, track their active loans and pre-approvals as the clients move through their pipeline, and send automated updates to agents and borrowers of their loan status through each step. Speaking on the benefits that this digital origination software has had on his business, Andrew Cady, UMortgage Branch Manager, said, “For me, the technology was one of the biggest differentiators when I moved over from the retail model. You can run side-by-side loan comparison quotes and generate fee sheets in a matter of seconds. The speed and intuition of the tech stack have been a game changer that’s had an immediate positive impact on my business.” UMortgage also offers its Loan Originators an innovative sales tracking app that allows them to monitor their sales activities, track their current leads, and ensure that they’re nurturing their client and agent relationships. Leaning on a Community of Support UMortgage is proud to have a winning culture in place that has created a community of support across the entire organization. With more than 300 Loan Originators currently using the UMortgage platform, mortgage professionals at any experience level can lean on their fellow LOs to discover new sales strategies and business tactics. Beyond its growing team of LOs, UMortgage boasts a best-in-class in-house Operations team that handles your loan files with speed and precision from disclosures through the loan’s funding. With average turn times of 16 days from TRID to clear-to-close and an industry-leading 95 net promoter score, you can trust that your clients’ mortgages are in safe hands throughout the process so you can focus on building relationships and generating new leads. Running a successful business goes beyond your loans, though. When you join UMortgage, you have the assurance of a tech team to make sure your systems are firing on all cylinders, a compliance team to assist with license transfers and regulations, and an HR team to help you get the most out of your benefits. Finally, your ability to get in front of new clients and prospective partners is crucial to your success as a broker. UMortgage’s award-winning Marketing team offers a wide range of branded content to grow your social media presence, educate your network on the nuances of the mortgage process, host events, share your full suite of lenders and loan products, and nurture your relationships with clients and agents. Since it was founded in 2020, the UMortgage platform has become the best place for mortgage professionals to take their businesses to the next level. If you’re a broker looking to modernize your business with a relationship-based approach, register here for the Loan Originators Powered by UMortgage call on Thursday, June 27th at 2pm ET.

PurchaseMay 20, 2021

Are you ready to buy?

To buy or not to buy, that is the question. Let us guess, you’ve spent your entire adult life going from rented apartment to rented apartment, and you’re starting to wonder if now is the time to bite the bullet and buy a house. Think of the space you’d have! And the yard! You could finally get that dog you’ve been thinking about! We get it. Buying a house sounds like a dream come true, but at the same time, it’s an enormous responsibility. There are three main checkboxes you want to tick before you can be confident that now is the right time for you to buy a house. Finances Maybe you’ve got the cash on hand to buy a home without taking out a loan. More likely though, you are hoping to make a down payment and get a 15 or 30-year mortgage. That’s a great plan, but it’s crucial to figure out if it’s feasible. Before applying for a loan, set aside some time to go through your finances and make sure you have a good understanding of your debt-to-income ratio (DTI) and your credit score. As everyone always says, knowledge is power, and knowing where you stand financially is the first step to being ready to buy a home! Personal Equally as important as understanding your finances is knowing your priorities. Yes, owning a house would be very fun and exciting, but it’s also a huge commitment. You have to have a serious talk with yourself, and if applicable, the person you’d be buying a home with. Do you want to settle down in one spot for a while? Most people recommend that anyone who buys a home should intend to live in it for at least five years. Real Estate isn’t a great short-term investment, so it’s best to be committed for a while. Make sure you are ready to take on the financial responsibility of monthly payments, knowing that it might mean spending a little less on “fun” activities. We want you to take these considerations seriously; we want you to make an educated decision! The Housing Market At the time this blog post is being written, the housing market is booming. While house prices are on a bit of a steady incline, mortgage rates are the lowest we’ve seen in 50 years. But, things change, and rates will vary depending on your location as well. Connect with a local real estate agent and figure out what the housing and mortgage markets are up to in your area. It’s good to know what kind of financial climate you’d be walking into. With these three things in mind, you should be able to determine if now is the right time for you to buy a home. The answers you find will provide you with a sound basis of internal and external deliberation and consideration. Happy house hunting!

The BasicsJanuary 6, 2021

Mortgage Made Easy: Taking The Step To Buy a Home

So, you wanna talk about mortgages? Well, you came to the right place. Let us break it down for you. First things first, what IS a mortgage? A mortgage is a legal contract between you and a lender. It outlines your promise to pay back all the money you borrow for a house, plus interest. If you break that promise, the lender has the right to repossess your home and sell it in foreclosure. Money, as you might have imagined, plays a massive role in the mortgage process. The big four money keywords are as follows: principal, down payment, and interest, and term. The principal is the amount of money you borrow from the bank to pay for the house. You could also think of the principal as the loan. An easy way to think about the principal is this: Principal = purchase price – down payment Now let's talk down payments. A down payment is the amount of your own money that you put towards the house right away. It's an upfront payment that determines how much your principal will be. Now we have interest. Interest is the amount of money the bank charges to give you the loan. In most instances, it’s referred to as an interest rate and comes in a percentage. Interest rates can depend on a lot of things, but the big-ticket item is your credit score. The better your credit score, the lower the bank’s risk; therefore, the lower the interest rate. Finally, the term of a loan is the length of time you have to pay it off. Most loan terms are either 15 or 30 years. The longer the term, the lower the monthly payments. In addition to those big four terms, there are some smaller items to understand: taxes and insurance. Owning a home comes with all new kinds of payments, such as property tax (which goes towards public services, schools, and infrastructure) and homeowners’ insurance (basically a security blanket in case of emergency, just like health insurance). In some instances, you may even need to pay for mortgage insurance. As you can see, a mortgage loan is a big and sometimes confusing commitment. But luckily for you, we are here to walk you through it! Still curious? Get a quote and see what your mortgage loan could look like!