Mortgage Terms


Adjustable Rate Mortgage (ARM):

This is a loan with a interest rate that fluctuates with the market. This can be extremely beneficial if you are purchasing a property that you do not plan in staying in for the life of the loan because the initial interest rate is usually lower than that of a fixed loan.


A payment plan that gradually reduces debt over a period of time. For positive amortization, this payment includes both principal and interest so at the end of your loan term, you will own the property free and clear (as long as this is the sole lien on the property).

Annual Percentage Rate (APR)

This is a measurement of the cost of credit to the borrower. It includes the interest rate, points, and other charges specific to your lender.


This is the first step in the process of obtaining a mortgage and includes important information that is needed by the lender to make a credit decision. An complete application is composed of a borrower’s name, subject property address, social security number, estimated property value, monthly income, and desired loan amount.


This is performed by a professional, and licensed individual who determines the fair market value of the subject property.

Cash-Out Refinance

A type of refinance that occurs when you refinance your property for a loan amount higher than what you currently owe. That way, you will receive the excess cash.


Also known as settlement. This is the last step in the mortgage process and is when ownership actually transfers from seller to buyer. Parties at settlement usually include buyer, seller, settlement agent, and realtor. For a refinance, ownership stays the same but the original lender is repayed of existing debt.

Conforming Mortgage

This is a loan that can be purchased by Fannie Mae and Freddie Mac. Both of these companies are goverment sponsored enterprises whose goal is to increase the supply of money available for mortgage lending and increase the money available for new home purchases. They pool mortgages together to sell them as a mortgage backed securities to investors on the open market.

Credit Report

Your credit report is generated using information reported by three credit reporting bureaus: Equifax, Experian, and TransUnion. This includes important detailed information bearing on the credit worthiness, including the borrower’s credit history.


Failure of the borrower to honor the terms of the loan agreement.

Down Payment

This is the cash amount that is paid by the borrower upfront, and not part of the mortgage. This can be calculated by subtracting loan amount from the purchase price. Different loan programs require different minimum down payments.


The difference between the value of the home, and the balance of outstanding loans on the property.


Escrow accounts are often set up during the mortgage process. The borrower will add a specified amount of taxes and insurance to their regular monthly mortgage payment, which is then paid by the lender when those payments come due.

Fannie Mae (FNMA)

Fannie Mae, or more formally Federal National Mortgage Association, is a Government Sponsored Enterprise that purchases home loans from lenders. They finance their purchases mainly by packaging mortgages into pools, and then issuing securities against the pools. The securities are guaranteed by the agencies.

FHA (Federal Housing Administration) Mortgage

FHA loans are government loans to help borrowers qualify for a mortgage. They are available with a down payment as low as 3.5% and sometimes offer more favorable terms than conventional loans for borrowers with lower credit scores. The Department of Housing and Urban Development (HUD) is responsible for the oversight and guidelines of these loans.

FICO (Fair Isaac Corporation) Score

Your FICO Score is computer generated system that calculates your score based on the data in your credit report. The following five categories help dictate your score: payment history, amounts owed, length of credit history, new credit, and type of credit used.

Fixed Rate

Contrary to an Adjustable Rate, a Fixed Rate is when the interest rate remains the same for the life of the loan. Terms range from 10 to 30 years in 5 year increments.


Float is the opposite of a locked rate. This allows the interest rate and points to fluctuate with the changes in market conditions. The rate can be locked up to a few days before closing. If you think rates might drop, and you are willing to take a risk, it may be worth floating the rate.


A legal process where the lender acquires possession of the property securing a mortgage loan when the borrower defaults.

Freddie Mac (FHLM)

Freddie Mac, or more formally Federal Home Loan Mortgage Corporation, is a Government Sponsored Enterprise that purchases home loans from lenders. They finance their purchases mainly by packaging mortgages into pools, and then issuing securities against the pools. The securities are guaranteed by the agencies.

Homeowner’s Insurance

This is also known as Hazard Insurance. It is purchased by the borrower, but often required by the lender. This policy protects the homeowner against loss from fire and other hazards. You are free to choose your homeowner insurance provider.

Jumbo Mortgage

A mortgage larger than the maximum eligible for purchase by the two federal agencies, Fannie Mae and Freddie Mac.


The right of a creditor to claim the collateral in the event of default. If there are multiple liens, the claim of the lender holding the first lien will be satisfied first.

Locked Rate

When you lock in a rate, you are guaranteed that rate at closing. Even if rates climb between the time the rate is locked and your loan is closed, you are still guaranteed that initial locked rate. There is also a lock period which determines how long the rate is good for. Typically, the longer the lock period, the higher the rate.

LTV (Loan To Value)

The loan amount divided by the lesser of the sales price or the appraised value.


The document promising a lender a specified property as security or guarantee towards payment of a debt that is specified to be repaid over a set period of time.

Mortgage Insurance

Mortgage insurance protects is put into place to protect against losses on low down payment loans. In case of default, a mortgage insurer would pay a claim to the holder of the mortgage. Fannie and Freddie loans require mortgage insurance for all loans with an LTV higher than 80%.

Non-Conforming Mortgage

A non-conforming mortgage is used to describe a type of loan that does not meet Fannie Mae’s or Freddie Mac’s guidelines. Loans typically fall into this category because they exceed the loan limit set by the two agencies.


The legal promissory document stating that the borrower must pay back the specified loan over a certain amount of time.


PITI stands for Principal, Interest, Taxes, and Insurance. This makes up the main portion of your monthly mortgage payment.

Private Mortgage Insurance (PMI)

PMI allows for borrowers to purchase homes when putting less than 20% down. This protects the lender against loss in case of default. There are different ways this can be structured such as lender paid MI, monthly, or upfront MI.


A point, or basis point, is a frequently used unit of measure for interest rates and other mortgage charges. One basis point equals .01%.

Pre-Approval Letter

A commitment made by a lender to make a mortgage loan to a specified borrower based on the collected information, but dependent on underwriting approval.


The amount owed on the loan, not including interest. This portion of the monthly payment reduces the loan balance.


A step in the mortgage process which comes before underwriting. In this stage, the file with all information relating to the transaction is compiled and maintained.


When a client refinances, they are paying off their original loan with a new one. There are a few reasons someone would consider refinancing: lower interest rates, lower monthly payments, new loan term, or a cash-out refinance.


This is the process by which a mortgage bank or servicing firm collects the timely payment of interest and principal from borrowers.

Short Sale

An agreement allowing the borrower to sell their property and remit the proceeds to the lender. The sales price on the short sale is lower than what you owe on the property, but you avoid foreclosure.


The period of time the loan payments are divided up against. Most common is the 30-year loan term.


This is a step in the mortgage process when a professional reviews all of the collected data of the borrower and makes a credit decision.

VA Mortgage

VA stands for Veterans Administration. This type of loan is offered to Military Veterans and if eligible.

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NMLS ID 1558861

This is not a commitment to lend. Terms and conditions of programs, products and services are subject to change. All loans are subject to credit approval and property appraisal. Certain restrictions may apply on all programs.   First Home Mortgage Corporation of America, First Home Mortgage Services, and First Home Mortgage Company of Maryland are d/b/a's of First Home Mortgage Corporation. First Home Mortgage Corporation is licensed in Connecticut, Delaware, District of Columbia, Florida, Georgia Residential Mortgage Licensee (Lic. #23135), Indiana, Kentucky, Maine, Maryland, Massachusetts Mortgage Lender and Broker (Lic. #MC71603), Michigan, New Hampshire, Licensed by the New Jersey Department of Banking and Insurance, North Carolina, Pennsylvania, Rhode Island Licensed Lender and Broker, South Carolina, Tennessee, Vermont, Virginia, West Virginia. Equal Housing Lender. First Home Mortgage Corporation NMLS ID #71603 ( Privacy Policy.

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