|
Term |
Definition |
|
Adjustable Rate Mortgage (ARM) |
A mortgage loan subject to changes in interest
rates during the course of the loan term. When
rates change, adjustable-rate mortgage (ARM)
monthly payments increase or decrease at
intervals determined by the lender. The change
in monthly-payment amount, however, is usually
subject to a cap. In hybrid ARMs, the interest
rate is fixed for a period of time – often, 3,
5, 7, or 10 years – and then coverts to an
adjustable rate thereafter. |
|
Amortization |
The gradual repayment of a debt, such as a
mortgage, by installments. |
|
Amortizing Loan |
A loan for which equal payments are due on a
regular periodic basis, usually monthly. The
payments include varying amounts of principal
and interest. These are sometimes called “level
payment” loans, as opposed to deferred payment
loans due only on resale or loans repaid with
unequal periodic payments of principal and
interest. |
|
Annual (Gross) Income |
The total amount of money that a person or
company receives over the course of a year,
before taxes and other deductions. This income
may include, but is not limited to, funds from
employment; interest; dividends; alimony;
disability payments; or public assistance. |
|
Application Fee |
Charge collected by the lender at the time a
would-be borrower applies for a mortgage. This
fee generally covers the cost of the appraisal
on the property and the cost of ordering a
mortgage credit report. |
|
Appraisal |
Estimate of the real or market value of a
property, that is, what the owner could
reasonable expect to get upon sale. Estimates
are usually made by professional real estate
appraisers. |
|
Appreciation |
An increase in the value of property due to
changes in market conditions or other causes. |
|
Assessment Area |
The geographical area served by a lender. The
area is used by the Federal Reserve Board to
evaluate the lender's compliance with the
Community Reinvestment Act and the bank's
record in helping to meet the credit needs of
its community |
|
Below Market Interest Rate Program (BMIR) |
Applies to certain mortgage programs where the
interest rate on the mortgage is below that
charged for conventional financing, in order to
assist low-and moderate-income families rent or
purchase dwelling units. |
|
Capital Gain Or Capital Loss: |
The gain or loss incurred from the sale or
disposition of a capital asset (such as a
property). |
|
Cash-To-Close |
A colloquial term used in the single-family
lending industry to describe the total amount of
cash to be provided by the homebuyer at the real
estate and loan closing. This cash is applied
to pay the down payment, appraisal fee, and
other loan-related fees, recording costs, and
pre-paid real estate taxes and insurance. |
|
Clear Title |
Title to real estate that is free from competing
interests such as old liens or other claims to
ownership. Because having clear title is
generally a requirement to purchase title
insurance, clear title is sometimes interchanged
with “insurable title.” Similarly, because
possession of clear title is necessary to market
or sell a property, the term “marketable title”
can also be synonymous with clear title |
|
Collateral |
Property pledged as security for a debt, for
example, mortgaged real estate. |
|
Consumer Credit Counseling Service |
Consumer Credit Counseling Service (CCCS) is a
nonprofit, community service agency whose
services are open to all members of the
community. CCCS provides free, confidential
budget counseling, community-wide education
programs in money management, debt management
programs for consumers who are overextended and
comprehensive housing counseling |
|
Conventional Financing |
In the low-income housing industry, a term often
used to refer to any loan made with non-subsidy
sources. Among private, single-family lenders,
a term to describe a loan that is made with a
minimum 20% down payment and conventional
underwriting criteria—a maximum 80%
loan-to-value ratio and maximum 28/36
underwriting ratios. See “loan-to-value ratio”
and “underwriting ratios.” |
|
Conventional Loan |
A mortgage loan not insured by FHA or guaranteed
by the VA or by USDA-Rural Development |
|
Credit And Debt Profile |
A credit and debt profile assesses the financial
history of an individual, business, jurisdiction
or other entity. Lenders often require a credit
and debt profile of their borrowers to assess
their credit worthiness and establish loan terms
and interest rates for a home mortgage. |
|
Debt Ratio |
In single-family lending, the percentage of
borrower’s income that will be spent on all
installment debt after a home purchase,
refinancing, or home renovation financing. The
conventional ratio is 36% of income. Some
community reinvestment loan products and insured
loans allow a higher ratio. |
|
Debt Service |
Principal and interest payments on a loan
usually paid monthly. |
|
Debt To Equity Ratio |
The debt to equity ratio is a financial ratio
used to determine whether a government agency,
business, household, or other entity can safely
borrow over long periods of time. The ratio is
calculated by dividing an entity's outstanding
debt by the amount of equity it holds. A high
debt to equity ratio may indicate that an entity
is financing its growth with debt. For
government agencies, debt to equity ratio is
important because it will determine whether it
has a strong or weak bond rating. |
|
Deed |
The document that transfers ownership of a
property. The deed must contain an accurate
description of the property being conveyed, be
signed and witnessed according to the laws of
the State where the property is located, and be
delivered to the purchaser at closing day. |
|
Deed Of Trust |
Similar to a mortgage or security deed, a
document that embodies the agreement between a
lender and a borrower to transfer an interest in
the borrower's land to a neutral third party, a
trustee, to secure the payment of a debt by the
borrower. A deed of trust is an arrangement
among three parties: the borrower, the lender,
and an impartial trustee. In exchange for a loan
of money from the lender, the borrower places
legal title to real property in the hands of the
trustee who holds it for the benefit of the
lender, named in the deed as the beneficiary.
The borrower retains equitable title to, and
possession of, the property. |
|
Deferred Payment Loan |
Funds provided to a borrower under terms that
calls for repayment to be delayed for a certain
length of time, until certain circumstances
change, or a certain threshold is met. In
housing programs, deferred payment loans are
often used as a recapture mechanism. In home
ownership programs the loans often become due
when the assisted family sells the home. Under
rental programs the loans often become due if
the affordability requirements are breached. In
most housing programs these loans have an
interest rate of zero percent; in some
communities interest does accrue. |
|
Deferred Payment Second Mortgage Loan |
A non-amortizing loan, usually at 0% interest,
on which no repayments are due until sale or
some other point in the future. They are
usually made by a public or nonprofit agency to
a lower income homebuyer or a developer of
low-income housing. Sometimes called a
“deferred payment loan,” a “DPL,” or a “soft
second mortgage.” |
|
Document Recording Fee |
The fee a government charges for reporting a
real estate purchase or sale in the public
record. Document recording fees are one source
of funding for housing trust funds. |
|
Down Payment Assistance |
Grants or low interest loans given to lower
income homebuyer’s help to fund down payment
and/or closing costs—usually in the range of
$2,000 to $5,000. Less commonly, the term is
used to refer to any second mortgage financing
in any amount. |
|
Downpayment. |
The amount of cash a buyer is required to put up
in order to purchase a piece of property; it is
generally equal to the purchase price less the
amount of mortgage loans used to finance the
purchase. |
|
Easement |
The right of a person, government agency, or
public utility company to use for a specific
purpose public or private land owned by another. |
|
Encumbrance |
A legal right or interest in land that affects a
good or clear title, and diminishes the land's
value. It can take numerous forms, such as
zoning ordinances, easement rights, claims,
mortgages, liens, charges, a pending legal
action, unpaid taxes, or restrictive covenants.
An encumbrance does not legally prevent transfer
of the property to another. A title search is
all that is usually done to reveal the existence
of such encumbrances, and it is up to the buyer
to determine whether he wants to purchase with
the encumbrance, or what can be done to remove
it. |
|
Equal Credit Opportunity Act |
is a United States law (codified at 15
U.S.C. § 1691 et seq.), enacted in 1974, that
makes it unlawful for any creditor to
discriminate against any applicant, with respect
to any aspect of a credit transaction, on the
basis of race, color, religion, national origin,
sex, marital status, or age (provided the
applicant has the capacity to contract); to the
fact that all or part of the applicant’s income
derives from a public assistance program; or to
the fact that the applicant has in good faith
exercised any right under the Consumer Credit
Protection Act. The law applies to any person
who, in the ordinary course of business,
regularly participates in a credit decision,
including banks, retailers, bankcard companies,
finance companies, and credit unions. |
|
Equity |
The market value of real property, less the
amount of existing debt or liens. |
|
Escrow Account |
As used in the housing context, an escrow
account is a separate account into which the
lender puts a portion of each monthly mortgage
payment. An escrow account provides the funds
needed for such recurring expenses as property
taxes, homeowners insurance, mortgage insurance,
etc. Requiring families to make monthly payments
into an escrow account to cover these expenses
is generally viewed as a desirable practice that
helps families manage their housing costs by
spreading the payments for these expenses
throughout the year. |
|
Fair Housing Act |
A federal law that prohibits discrimination on
the basis of race, color, national origin,
religion, sex, familial status, or disability.
It applies to both home buying and renting. |
|
Fair Lending |
The prohibition of lenders from practicing
unlawful discrimination against anyone on the
basis of race, color, religion, national origin,
age, sex, marital status, family status,
handicap, receipt of public assistance and good
faith exercise of rights under the Consumer
Protection Act. Fair lending is governed by four
major federal regulators: the Equal Credit
Opportunity (ECOA or Regulation B), Fair Housing
Act, Home Mortgage Disclosure Act (HMDA or
Regulation C), and Community Reinvestment Act (CRA
or Regulation BB) |
|
Fair Market Value |
The hypothetical price that a willing buyer and
seller will agree upon when they are acting
freely, carefully, and with complete knowledge
of the situation. The amount an appraiser
decides a house is worth. The appraiser compares
the house with houses like it that have sold
recently in the same area. The physical
condition of the house also affects its fair
market value. |
|
Fannie Mae Federal National Mortgage
Association |
Federal National Mortgage Association (FNMA).
Both Fannie Mae and Freddie Mac were chartered
by Congress to increase the supply of funds that
mortgage lenders, such as commercial banks,
mortgage bankers, savings institutions and
credit unions, can make available to home
buyers. Fannie Mae and Freddie Mac buy mortgages
from lenders, packaging the mortgages into
securities and selling them to investors. As
Fannie Mae and Freddie Mac will only buy loans
that meet their guidelines, they play an
important role in setting what criteria are used
to evaluate a mortgage application. |
|
Federal Home Loan Bank System |
is a cooperative bank that offers low-cost
financing, community development grants, and
other banking services to help member financial
institutions make affordable home mortgages and
provide economic development credit to
neighborhoods and communities. |
|
Federal Home Loan Mortgage Corporation |
A commonly used name or the Federal Home Loan
Mortgage Corporation, a publicly chartered
corporation that buys residential mortgage loans
from loan originators, typically local banks and
thrift institutions. |
|
Fee Simple Ownership |
Outright ownership of real estate, as opposed to
leasing, lease-purchase arrangements, and buying
a home on land leased from a land trust. |
|
Finance |
although the terms 'credit' and 'finance' are
often used interchangeably they denote related
but distinct concepts. Finance refers to the
manner in which an activity is funded. Credit is
the form of finance when borrowed capital is
used to fund an activity. |
|
First Mortgage Loan |
For a home purchase or a real estate project,
usually the largest loan and one that gives the
lender the most security. In case of
foreclosure and sale, the first mortgage lender
gets the money before any other lender is paid
off. Also called a “first deed of trust” loan
in some areas of the country. |
|
First-Time Home Buyer |
A first-time homebuyer is an individual or
family that has not owned or had ownership
interest in any residence during the last three
years preceding closing. An exception to this
requirement exists only if the home to be
purchased is located in a targeted area. |
|
Fixed-Rate Mortgage Loan |
A mortgage loan for which the interest rate does
not change over time. |
|
Foreclosure |
The process by which a mortgaged property may be
sold when a mortgage is in default. |
|
Gross Monthly Income (GMI) |
Household income as calculated before taxes or
deduction are subtracted. This income may
include, but is not limited to, funds from
employment; interest; dividends; alimony;
disability payments; or public assistance. |
|
Home Buyer Training |
Workshops conducted for groups of prospective
homebuyers. Participants receive training on
the pros and cons of buying a home, credit
issues, the home search, mortgage financing,
special financing (if available), the loan
closing, home maintenance, and other
responsibilities of homeownership. |
|
Home Mortgage Disclosure Act (HMDA) |
The Home Mortgage Disclosure Act requires larger
lending institutions making home mortgage loans
to publicly disclose the location and
disposition of home purchase, refinance and
improvement loans. Institutions subject to HMDA
must also disclose the gender, race, and income
of loan applicants. |
|
Home Program HOME Investment Partnership Program |
A program administrated by the US Department of
Housing and Urban Development which is designed
exclusively to create affordable housing for
low-income households. HOME provides formula
grants to States and localities that communities
use-often in partnership with local nonprofit
groups-to fund a wide range of activities that
build, buy, and/or rehabilitate affordable
housing for rent or homeownership or provide
direct rental assistance to low-income people |
|
Homestead Exemption |
The home of each resident of Georgia that is
actually occupied and used as the primary
residence by the owner may be granted an
exemption from state, county and school taxes
except for school taxes levied by municipalities
and except to pay interest on and to retire
bonded indebtedness. The standard exemption is
$2,000 off of the from the 40% assessed value of
the homestead, but the value of the exemption
can vary based on several factors including age,
military service and some counties have
increased the amounts of their homestead
exemptions by local legislation above the
amounts offered by the State. |
|
Housing Payment Ratio |
In single-family lending, the percentage of a
borrower’s income that will be spent on the
housing payment after a home purchase,
refinancing, or home renovation refinancing.
This includes payments of loan principal,
interest, real estate taxes, and insurance
(called PITI). |
|
Income Eligibility Limit |
The highest income level at which a household
qualifies for participation in a subsidy
program. In most housing programs, income limits
are expressed as a percentage of the area median
income, as determined by HUD. |
|
Insurable Title |
A clear title is a signal that a property can be
purchased without worrying about old liens or
owners coming back to assert claims to the
property. This status is also referred to as an
'insurable title," since the property owner can
get title insurance to protect against losses if
there was an error in checking the title
history; and as a "marketable title," since
having a clear title facilitates marketing and
selling a property. |
|
Interest |
percentage charged over the life of a loan for
the use of the money to purchase property. Both
the principal and interest usually are paid in
monthly installments throughout the life of the
loan. |
|
Interest Rate |
The annual percentage of the principal amount
payable for the use of borrowed money. |
|
Layered Financing |
Financing for an affordable housing project that
includes several subsidy sources (for example,
HOME, CDBG, and Tax Credits). |
|
Lien |
A document recorded in public records that
represents a debt owed whose payment is secured
by the property as collateral. Examples of
liens include: a recorded mortgage deed, a lien
for unpaid taxes, and a mechanic’s lien
representing construction work on a property
that was not paid for. |
|
Loan |
Loans are often referred to as debt financing
and must be repaid according to a fixed payment
schedule, generally with interest. |
|
Loan Guarantees |
A pledge by a third party that, in case of
default by the borrower, promises to repay all
or a portion of the borrowed amount. State and
local governments and non-profit intermediaries
are often sources of loan guarantees, with the
Federal Housing Administration (FHA) being one
of the most well known. |
|
Loan-To-Value Ratio |
loan amount and the appraised value of a
property that money is being borrowed for. For
instance, if a proposed loan equals 85% of
appraised value, the loan-to-value ratio is
85%. For community reinvestment programs,
lenders will sometimes lend up to 95% or 97% of
value, typically only if mortgage insurance is
provided. The maximum ratio for conventional
loans is 80%. |
|
Low- And Moderate-Income |
Low- to moderate-income working families are
defined as those households earning at least the
full-time minimum wage (nationally $10,712) up
to 120 percent of the local area median income |
|
Median Family Income (MFI) |
also referred to as Median Household Income, is
commonly used to provide data about geographic
areas and divides households into two equal
segments with the first half of households
earning less than the median household income
and the other half earning more. The median
income is considered by many statisticians to be
a better indicator than the average household
income as it is not dramatically affected by
unusually high or low values |
|
Median Income |
This is a statistical number set at the level
where half of all households have income above
it and half below it. The U.S. Department of
Housing and Urban Development Regional Economist
calculates and publishes this median income data
annually in the Federal Register. |
|
Mortgage |
A legal document used to ensure payment of a
debt by transferring an interest in real
property to the lender. Mortgages are commonly
associated with residential home loans. In that
case, the buyer may give the lender a mortgage
with the purchased home as collateral to secure
the repayment of funds loaned to purchase the
home. (See also Security Deed--in Georgia,
security deeds are used more commonly than
mortgages) |
|
Mortgage Banker |
A lender who originates loans for sale to other
investors. The mortgage banker generally
continues to service the loans. |
|
Mortgage Insurance |
Insurance provided by a private institution or
public agency that insures a lender in whole or
in part from losses due to a default on a loan.
Lenders typically require mortgage insurance
only for loans that are not considered
conventional (see “conventional financing”).
Borrowers pay the premiums. The Federal Housing
Administration (FHA-part of HUD) provides many
kinds of mortgage insurance, as does the
Veterans Administration (VA) and many private
insurers, who provide what is called “private
mortgage insurance (PMI). |
|
Mortgage Interest Deduction |
The mortgage interest deduction is a tax break
for homeowners. Homeowners with deductions that
are large enough to warrant itemizing can deduct
the amount of interest on their mortgage when
they file their taxes. The mortgage interest
deduction is the largest subsidy for housing in
the United States. |
|
Mortgage Loan |
A loan secured by a mortgage deed, meaning the
property owner has agreed to give the property
to the lender if monthly payments are not made,
so the property can be sold to pay off the
loan. First deed of trust loan means the same
thing. |
|
Mortgagee |
The lender in a mortgage loan transaction |
|
Mortgagor |
The borrower in a mortgage loan transaction |
|
Non-Amortizing Loan |
A non-amortizing loan, usually at 0% interest,
on which no repayments are due until sale or
some other point in the future. They are
usually made by a public or nonprofit agency to
a lower income homebuyer or a developer of
low-income housing. Sometimes called a
“deferred payment loan,” a “DPL,” or a “soft
second mortgage.” |
|
Non-Recourse Loan |
A type of mortgage loan in which the lender’s
remedies in the event of the borrower’s default
are limited to foreclosing the mortgage; the
borrower is not personally liable. |
|
Note |
A document signed by a borrower agreeing to pay
the lender a specific amount of money over a
given period of time according to specified
terms and conditions. Also referred to as a
Promissory Note.. |
|
Origination |
Once a lone has been underwritten, the act of
processing the loan through closing, providing
the loan funds and setting the loan up for
servicing. |
|
Origination Fee: |
The fee charged by a lender to prepare loan
documents, make credit checks, inspect and
underwrite a property; usually computed as a
percentage of the face value of the loan. |
|
Overpayment |
The extent to which gross housing costs,
including utility costs, exceed 30 percent of
gross household income, based on data published
by the Census Bureau. Severe overpayment exists
if gross housing costs exceed 50 percent of
gross income. |
|
Parcel |
The basic unit of land entitlement. A designated
area of land established by plat, subdivision,
or otherwise legally defined and permitted to be
used, or built upon. |
|
PMI - Private Mortgage Insurance |
Insurance provided by a private institution or
public agency that insures a lender in whole or
in part from losses due to a default on a loan.
Lenders typically require mortgage insurance
only for loans that are not considered
conventional (see “conventional financing”).
Borrowers pay the premiums. The Federal Housing
Administration (FHA-part of HUD) provides many
kinds of mortgage insurance, as does the
Veterans Administration (VA) and many private
insurers, who provide what is called “private
mortgage insurance (PMI).” |
|
Prequalification |
The process of assisting a homebuyer in
determining if they qualify for conventional
and/or subsidy loans. This typically involves a
credit check, verifying income and asset
information, and evaluating debt, income, and
credit information in relation to lender
underwriting standards. The process typically
determines if a borrower has good enough credit
to borrow, and approximately how much can be
borrowed at certain interest rates and loan
terms. |
|
Principal |
The currently unpaid balance of a loan, not
including interest. |
|
Principal, Interest, Taxes, And Insurance
(PITI) |
Principal, Interest, Taxes, and Insurance; the
monthly payment on a mortgage typically includes
an amount toward each. |
|
Promissory Note |
A document signed by a borrower agreeing to pay
the lender a specific amount of money over a
given period of time according to specified
terms and conditions. Also referred to as a
Promissory Note.. |
|
Property Tax |
A government levy based on the market value (as
assessed by the county assessor’s office) of
property, such as real estate. |
|
Purchase Agreement |
a written proposal by a buyer to purchase real
estate that becomes binding upon acceptance by
the seller. |
|
Real Estate Transfer Tax |
State and/or local taxes that are assessed on
real property when ownership of the property is
transferred between parties. Real estate
transfer tax revenue is sometimes used to fund
state or local housing trust funds. |
|
REO - Real Estate Owned. |
Property that is owned by a lender, usually
acquired through a foreclosure, or through a
deed in lieu of foreclosure. |
|
RESPA Real Estate Settlement Procedures Act |
RESPA requires that lenders give all borrowers
of federally related loans an estimate of
settlement costs and a HUD-prepared booklet with
information about real estate transactions,
settlement services, cost comparisons, and
relevent sonsumer protection laws |
|
Second Mortgage: |
A mortgage that has rights secondary to the
first mortgage, i.e., the proceeds from a
foreclosure sale must pay the first mortgage
before any funds can go to repay the second
mortgage. |
|
Secondary Financing |
A term used to describe any financing used in
conjunction with first mortgage loans from
conventional financing institutions—for example,
a down payment grant, a deferred payment loan,
or an amortizing second mortgage loan. |
|
Security Deed |
In a financed purchase of real estate, a
document signed by borrower at the time of
closing in order to protect the lender in case
borrower fails to make payment on the note. The
document transfers legal title to the lender for
period of the note. A secuity deed is similar
to a mortgage but it enables the lender to
foreclose on the underlying property without
going to court making the foreclosure processes
quicker. Security deeds, rather than mortgages,
are used in Georgia. |
|
Settlement |
Closing- The occasion where the sale of real
estate and/or the making of a loan is
finalized. Sometimes called “settlement.” |
|
Silent Second Mortgage |
An important technique for making homeownership
affordable while recycling public dollars, a
silent second mortgage is a secondary home loan
issued by a home-buying program to supplement a
family's primary mortgage that does not need to
be repaid until the home is resold (or in some
cases, refinanced). Because no payments are due
on the loan until the home is resold or
refinanced, it has the same effect as a grant on
housing affordability for a purchaser. But
because the loan is repaid upon resale, the
funds can be recycled to help the next
homebuyer. When used as part of a shared equity
strategy, silent second mortgages are known as
shared appreciation loans. Also referred to as
a "soft second" |
|
Soft Second Mortgage Program |
A non-amortizing loan, usually at 0% interest,
on which no repayments are due until sale or
some other point in the future. They are
usually made by a public or nonprofit agency to
a lower income homebuyer or a developer of
low-income housing. Sometimes called a
“deferred payment loan,” a “DPL,” or a “soft
second mortgage.” |
|
Subordinated Loan |
In single-family mortgage lending, a second or
third mortgage loan with a lien that is
subordinate to a first or second mortgage loan.
In the event of default and foreclosure,
subordinated loans are repaid only after other
debts with a higher claim have been satisfied.
(See “mortgage loan” and “lien.”) |
|
Subprime |
Subprime mortgages are made to borrowers with
poor credit histories who do not qualify for
prime interest rates. To compensate for the
increased credit risk, subprime lenders charge a
higher rate of interest. |
|
Subsidize |
To assist by payment of a sum of money or by the
granting of terms or favors that reduce the need
for monetary expenditures. Housing subsidies may
take the forms of mortgage interest deductions
or tax credits from federal and/or state income
taxes, sale or lease at less than market value
of land to be used for the construction of
housing, payments to supplement a minimum
affordable rent, and the like. |
|
Subsidized Housing |
A generic term covering all federal, state or
local government programs that reduce the cost
of housing for low- and moderate-income
residents. Housing can be subsidized in numerous
ways—giving tenants a rent voucher, helping
homebuyers with downpayment assistance, reducing
the interest on a mortgage, providing deferred
loans to help developers acquire and develop
property, giving tax credits to encourage
investment in low- and moderate-income housing,
authorizing tax-exempt bond authority to finance
the housing, providing ongoing assistance to
reduce the operating costs of housing and
others. |
|
Title |
The legal basis of the ownership of property,
also a document serving as evidence of ownership
of property, such as the certificate of title |
|
Title Insurance |
Insurance through a title company to protect the
owner or lender from loss if title to the
insured property proves imperfect. |
|
Title Search |
The process of examining official county records
to determine whether an owner's rights in real
property are good.
A title search is conducted to discover whether
there are any defects in the ownership of a
particular tract of land. An Abstract of Title,
prepared by the examiner subsequent to such an
investigation, is a condensed history of the
title to the land. |
|
Underwriting |
The process of evaluating a loan application to
determine if it meets credit standards and any
other special requirements (as with special loan
products for low-income borrowers). The
underwriting process determines whether or not a
loan will be approved, and on what terms and
conditions. |
|
Underwriting Ratios |
Criteria used by lenders to determine how large
a loan a prospective borrower can afford. The
housing payment ratio (for “front” ratio) is the
maximum percentage of monthly household income
that can be paid for principal, interest, taxes
and insurance (PITI). The installment debt
ratio (or “back” ratio) is the maximum
percentage of income that can be paid for total
installment debt (including PITI, car loans,
etc.). Ratios for conventional loans are 28%
for PITI, and 36% for all installment debt,
often expressed as 28/36. Many special loan
products allow ratios of 33/38 or even higher
increasing the amount of the monthly payment
and, thus, the amount that can be borrowed. |
|
Variable-Rate Mortgage Loan |
A mortgage loan for which the interest rate may
change over time in relationship to some index
such as the market price of long-term U.S.
Treasury obligations. |
