Conventional and Government Mortgage Lending

Vocabulary practice covering conventional and government-backed lending, primary and secondary market players, and various mortgage-related regulations.

Fully-amortized loan

A loan that is paid off in equal payments over a set number of years.

Balloon loan

A mortgage, such as an interest-only loan, where the entire amount borrowed is due at the end of the term.

Adjustable-rate Mortgage (ARM)

A loan that specifies a specific time at which the interest rate may change based on an economic index.

Margin

A specific percentage set by the lender at origination, usually between $2\text{\%}$ and $3\text{\%}$, which is added to the index to determine the interest rate.

Note rate

The calculated interest rate of an ARM, established by adding the index plus the margin.

Payment cap

An agreement that ensures a set monthly payment remains the same even if the actual interest rate fluctuates throughout the year.

Income ratio

The portion of a borrower's gross monthly income that may be allotted for housing expense.

Debt ratio

The amount allowed for a borrower's total debt obligation relative to their income.

Conforming loan

A mortgage loan that follows the documentation and underwriting standards set by Fannie Mae and Freddie Mac.

Non-conforming loan

Any loan that falls outside the standards set by Fannie Mae and Freddie Mac.

Jumbo loan

A non-conforming loan that exceeds FNMA/Freddie Mac limits, often characterized by higher interest rates and larger down payments.

Portfolio lender

A lender that retains mortgage loans in its own portfolio rather than selling them on the secondary market.

Private Mortgage Insurance (PMI)

Insurance generally required on loans with less than $20\text{\%}$ down payment, typically protecting the lender on the top $30\text{\%}$ of the loan.

Predatory lender

A lender that literally preys on customers, particularly the elderly, poorly educated, or those who do not speak English.

Promissory note

A signed document required for every mortgage loan that serves as a promise to repay the debt.

Deed of trust

A security instrument that conveys title rights in the property to an assigned trustee to secure repayment for the lender.

Tenants in Common

A form of ownership where each party has a defined interest in the property that may be sold, left in a will, or conveyed.

Joint Tenants with Right of Survivorship

Co-owners who take title at the same time with equal interests and a provision that the interest of a deceased owner passes to the survivors.

Tenancy by the Entirety

Ownership by spouses where the property automatically conveys to the surviving spouse upon death without going through probate court.

Fannie Mae

A secondary market player that purchases government and conventional loan packages and promotes homeownership for all economic levels.

Freddie Mac

A major secondary market entity that establishes qualifying guidelines for conforming loans and promotes homebuyer education.

Ginnie Mae

An agency providing a guarantee insurance program for government loan packages used as collateral for mortgage-backed securities (FHA and VA).

Redlining

The illegal practice of a lender refusing to make loans in certain geographic areas, monitored under the Home Mortgage Disclosure Act.

TRID rule

Regulations requiring lenders to provide a Loan Estimate within $3$ business days of application and a Closing Disclosure at least $3$ days before closing.

Truth in Lending Act (TILA)

A law requiring disclosure of the annual percentage rate (APR) in all advertising and full disclosure of financing elements via Regulation Z.

Taxpayer Relief Act of 1997

A law providing tax benefits by reducing capital gains tax on the sale of a personal residence if the seller lived there for $2$ of the previous $5$ years.

FHA 203(k)

An FHA loan program used for rehabilitation and modernization of regular one-to-four-family owner-occupied dwellings, requiring at least $5,000$ in rehab costs.

VA Loan

A $0\text{\%}$ down mortgage option for veterans and active-duty members, guaranteed by the U.S. Department of Veterans Affairs.

Entitlement

The total amount the VA will guarantee for a loan; the basic amount is $36,000$.

Certificate of Reasonable Value (CRV)

A document provided by an approved VA appraiser showing the property value is equal to or greater than the sales price.

Georgia Dream Homeownership Program

A program providing affordable financing, down payment assistance, and education for low and moderate-income Georgians.

Reverse Annuity Mortgages (RAM)

A loan for homeowners age $62$ and older that allows them to use home equity without repayment as long as they live in the home.

1031 Exchange

A tax strategy allowing an owner of an investment property to exchange it for another like-kind property to defer taxes.