Home Equity Mortgage Advice

Learning with Mortgage Lenders in Philadelphia: HELOC vs. Equity Loan

Purchasing a home comes with more benefits than just having a place to live. With a mortgage, each time you pay your monthly payment, you build equity. Equity is a valuable financial asset that can be accessed as a lump-sum loan or a line of credit once you pay off at least 20% of your mortgage. Equity can be used in two different forms, a home equity loan or a home equity line of credit using your home as collateral. Both are highly beneficial but knowing the difference between the two, and when to use one over the other, can make a major difference in your experience. Learn with mortgage lenders in Philadelphia to find out if a HELOC or a home equity loan is right for you.

Home Equity Line of Credit (HELOC)

A home equity line of credit, or HELOC, is a revolving line of credit that has varying interest rates and minimum payment amounts. This form of credit allows homeowners to use their equity as needed up to the preset maximum limit. HELOCs work sort of like credit cards but are instead backed with your home as collateral. Unlike credit cards, both HELOCs and home equity loans generally have more favorable interest rates. HELOCs are broken down into two parts, the draw period and the payback period. The draw period is when the borrower can withdraw funds up to a certain pre-set limit. Once the draw period is over, the repayment period lasts for several more years or until the amount borrowed is repaid in full with interest back to the mortgage lenders in Philadelphia. During the draw period, payments are typically just the interest. During the payback period, borrowers will pay back the interest plus a set amount based on the amount borrowed. 

Home Equity Loan

A home equity loan is similar to a HELOC but instead of having access to a line of credit you receive the loan as one lump sum. It has fixed terms and is also based on the equity in your home. When applying for a home equity loan, the borrower proposes a set amount and, if approved, receives the loan all at once. Both the interest rates and the payments are set at fixed amounts, making the payments predictable. A home equity loan can typically be as high as 80-90% of the home’s appraised value.

Requirements for Eligibility

To gain access to your home’s equity, in either a HELOC or a home equity loan, you must first have paid at least 20% of your mortgage off. In most cases, you will also need a credit score of 600 or above. High-risk mortgage lenders in Philadelphia are available to those with lower credit scores, however, they come with much higher interest rates. Finally, you must be able to prove a stable income for at least 2 years prior to requesting the loan or HELOC. 

Pros and Cons of HELOC

With HELOC, you get to choose how much of your credit line to use. If you are financially disciplined, this is a benefit of a HELOC but, if you are prone to impulse spending, you could potentially overspend your credit limit and risk losing your home. With variable interest rates, your interest rate could decrease if the market or your credit improves. This also means that there is a chance for your interest rates to increase due to changes in your credit or the market. Another pro with a HELOC is the ability to use the line of credit in case of an emergency. Finally, with fluctuating payments, budgeting can become difficult.  

Pros and Cons of Home Equity Loan from Mortgage Lenders in Philadelphia

Home equity loans are based on a fixed amount, making irresponsible spending less likely and making budgeting easier. With other forms of lump sum loans, the interest rates are significantly higher than with a home equity loan. Having a large loan readily available opens your opportunities for investing, home improvement, and anything else that would require a large payment. Adversely, home equity loans are only provided all at once, meaning that if an emergency were to arise, you would not be able to access additional funds. In order to get a lower interest rate for your home equity loan, you would need to refinance. As with HELOCs, you risk losing your home should you default on your payments.   

When To Use a HELOC

As a revolving line of credit, a HELOC can be effectively used to pay off variable expenses. If you want to have a line of credit available for any potential circumstances that would require additional funds, a HELOC is a great reserve for emergencies. HELOCs should be avoided if you cannot control your spending but are highly beneficial financial tools for those that can spend efficiently within a variable budget. If you are thinking about getting another credit card, consider a HELOC, as their interest rates and terms are usually much better for the borrower.

When To Use a Home Equity Loan

A home equity loan is a great option if you are aware of the exact amount that you require for a fixed expense due to the ability to request a certain amount within the capacity of your home’s equity and property value. If you have debt that you wish to consolidate but don’t want to risk more debt by opening up another line of credit, a home equity loan can be used to pay off your existing debt with more favorable terms. With home equity loans, you make payments based on a predetermined monthly amount, making it easier to budget on a fixed income. Be sure to discuss your home equity loan plan with mortgage lenders in Philadelphia to gain a comprehensive understanding. 

Get the Most Out of Your Home Equity With Professional Mortgage Lenders in Philadelphia

Are you interested in getting the most out of your home equity? Federal Hill Mortgage is here to help. Our team of experienced mortgage brokers and lenders will provide you with professional guidance at every step of the mortgage and equity process so that you can get access to better interest rates and more favorable loan terms. As one of the highest-rated mortgage lenders in Philadelphia, we are confident that we can benefit you and your home-buying experience. Call or contact us today to find out the difference that Federal Hill Mortgage can make in all of your mortgage endeavors. 

Home Equity Mortgage Advice

How Do Home Equity Loan Rates in Maryland Work?

Home equity is one of the most versatile and valuable financial tools that one can have at their disposal. To properly use it, and avoid it working against you, a comprehensive understanding of home equity is required. When trying to determine what an appropriate rate is for a home equity loan in Maryland, you must be able to quantify the factors that go into creating these rates. To begin, we will look into what exactly home equity is so that comprehension may be had when breaking down how home equity loan rates in Maryland work.

What is Home Equity?

In short, home equity is the difference between the current market value of your home and the balance remaining on your mortgage. This means that as you make your mortgage payments, the equity of your home increases.  Home equity can also increase if the value of your home increases. The true value of home equity comes when it is utilized as a creditable asset that can allow you to secure a one-time loan. Alternatively, you can use your home equity as a line of credit, called a HELOC.

How Home Equity Loans Work

Home equity loans work by using the equity on your home as collateral for the loan. These loans are provided in one lump sum and are paid back in fixed installments. The interest rates are typically far lower than that of traditional loans such as credit cards. While a home equity loan in Maryland can prove to be a highly advantageous endeavor, it is also a risk that could put the ownership of your home in jeopardy should you default on your loan payments. You are also at risk of having the value of your home decrease meaning that you would owe more than the appraised value of your property. 

How Home Equity Lines of Credit (HELOC) Work

Bethesda MD neighborhood

A home equity line of credit or HELOC operates as a line of credit that lets you borrow money, like a credit card, with a variable interest rate. HELOCs differ from normal home equity loans due to their fluctuating monthly payments and the ability to take out as little or as much as you want. The limit of credit is based on the amount that the equity of your home is worth. HELOCs are preferred for those who want a line of credit available as opposed to a single loan.

Expected Rates

Naturally, these loans have requirements for those looking to take out a home equity loan in Maryland. The majority of lenders require a credit score to be 630 or higher but to qualify for the best rates, a credit score over 700 is preferred. You also must have a debt-to-income ratio of no more than 43% and a verifiable source of income. Also, the equity in your home must be greater than 20% of the home’s total value. The current average rate for a HELOC home equity loan in September 2022 is 6.51% with a range of 5.27% – 9.14% and the average rate for a home equity loan is 7.01% with a range of 6.45% -8.16%.  

Federal Hills’ Home Equity Pro Solution


Home equity is one of the most appealing aspects of home ownership, but what happens when you are prevented from accessing your home equity because of a mandatory refinance? Federal Hill Mortgage has an answer with our Home Equity Pro Solution. Now, you are able to access your equity without having to refinance or change your current mortgage rate. Additionally, you will get to enjoy no out-of-pocket closing costs and no traditional appraisal is required in most cases. We make it possible for you to utilize your home equity and leverage your property investment with Federal Hill Mortgages Home Equity Pro Solution. 

Get the Best Home Equity Loan Rates in Maryland

If you are looking for a mortgage lender and broker to help you secure the lowest home equity loan rates in Maryland, your search ends with Federal Hill Mortgage. Our experts will proficiently guide you through the home equity process and ensure that you get the most out of your property. Apply today to see how we can make your home equity benefit you!

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The Advantages of a Maryland VA Loan

When making a major financial decision such as mortgaging a home, it is important to take advantage of all of the applicable assistance programs available. For our country’s veterans, there exist several benefits that can be applied to a mortgage that will make buying a home much more affordable and easier to secure. Today, we will be going over who is eligible for a Maryland VA loan, the advantages that come with it, and finally, other loan programs available for veterans in Maryland. 

What is a VA Loan?

A VA loan is a loan program where the loan is offered by a private lender, such as a bank or mortgage company, and is guaranteed by the Department of Veterans Affairs. VA loans were created with the purpose of offering affordable home buying options for veterans to mortgage a home after a specific term of service. The VA guarantees a portion of the loan which will allow the lender to offer more favorable mortgage terms. Before getting into the many advantages of a VA loan, one must determine if they fit the criteria for eligibility. 

Who is Eligible for a VA Loan?

Eligibility for a VA loan is not simply attained just from being an active service member as certain credentials have to be met. It can depend on how long you served and when, for example, if service members served for 90 consecutive days during or were active during wartime, served for 181 consecutive days during peacetime, or served for six years in the National Guard or Reserves, then you are eligible. For veterans, minimum service requirements depend on when you served. Refer to the Veterans Affairs website for a detailed list of previous conflicts that the United States was involved in. You can also find the application for a Certificate of Eligibility or a COE on the VA website. Finally, if you are the spouse of a service member who passed away while in the line of duty or due to service-related issues, you also qualify for VA loan eligibility.

Advantages of a VA Loan

There is a long list of benefits and advantages that come with a Maryland VA loan that makes mortgaging a home much more affordable and streamlined. One of the most attractive benefits of a VA loan is that there is no down payment required. Being one of the most difficult initial steps in a mortgage, not having to pay a down payment opens up the possibility of taking on a mortgage for many veterans. Another advantage, and cost reducer, is the ability to defer having to pay mortgage insurance premiums or PMI. When taking out a Maryland VA loan, average interest rates are significantly lower than normal mortgage loans. Having lower interest rates means that the cost of the loan will be much less over the duration of the loan term. Veterans will also enjoy lower closing costs as well as no prepayment penalty. Combine all of these advantages and it is easy to see how a VA loan can easily be an affordable and beneficial financial expenditure.

Other Maryland VA Loan Programs

While the VA loan program offers a multitude of advantageous mortgage benefits, there are other programs in place for veterans that can be utilized to get the most out of your mortgage. While these programs aren’t specifically reserved for veterans, they may still qualify for these programs.

The Maryland Mortgage Program

The Maryland Mortgage Program or MMP, is a 30-year fixed rate home loan for first-time home buyers who are purchasing in Maryland. This program offers competitive rates when compared to other loan terms. To gain full access to the program, applicants must qualify as first-time buyers, however, those not technically considered first-time buyers can still qualify in specific areas in Maryland. This program is intended to assist those who can’t quite afford to purchase their first home as income limits and purchase price caps apply.

Maryland SmartBuy 2.0 Program

The Maryland SmartBuy 2.0 Program assists home buyers that have qualifying student debt in purchasing a home through the Maryland Mortgage Program and deals with homes that are owned by the state of Maryland. It does so by financing up to 15% of the home purchase price for the borrower to pay off their remaining student debt. This helps veterans who have outstanding student debt and are attempting to finance a home. 

Disabled Veteran-Friendly Maryland State Tax Credit For Adaptive Housing 

For veterans with service-related disabilities, the disabled veteran-friendly Maryland State Tax Credit for Adaptive Housing is a program that offers tax breaks for expenses spent on home improvements necessary for adapting the residence to be suitable for the disability. These can include any adaptations to a home that assists in making the disabled person more independent or improving daily functionality. Utilizing this tax credit can add up to immense savings on your annual tax returns.

Property Tax Exemption

Last but certainly not least is the property tax exemption for disabled veterans. This exemption applies to veterans with a service-related disability that is rated 100% by the Veterans Administration. It entails a total exemption from property taxes on the dwelling and surrounding yard. Some un-remarried surviving spouses may also be eligible and spouses of service members who lost their lives in the line of duty indefinitely are eligible.  

Maryland VA Loan to That Help You Succeed

Taking advantage of the many mortgage benefits available for veterans, along with the generous offerings that come with a Maryland VA loan, veterans enjoy a major edge in being able to pay for a mortgage. Using these benefits paves the way for a successful mortgage loan and makes the entire process lighter of a burden on veteran home buyers. When searching for a Maryland VA loan be sure to find a mortgage broker that finds the best deals for you. Federal Hill Mortgage will be by your side every step of the way, ensuring that we secure the best rates for the home of your dreams. Apply now today to get started on your mortgage journey!

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What Are USDA Loans in Maryland?

With the rising cost of homes in the United States, it is highly important to take advantage of every opportunity to lower the cost of buying a home and make the mortgage process easier and a lighter burden on the buyer. When considering taking on a mortgage loan, a hefty down payment, high-interest rates, and a limited selection are all things that might prevent or deter a potential buyer from beginning the process. For qualifying individuals, some programs exist to make mortgaging a home a much more realistic ambition. Today, we will be discussing USDA loans in Maryland, what they are, who is eligible, and the many advantages that come with this program.

What is a USDA Loan?

A USDA loan is part of a Rural Development program by the U.S Department of Agriculture that is meant to assist lower-income families and individuals in being able to afford a mortgage in rural areas. The loan comes from the USDA Rural Development Guaranteed Housing Loan Program and is one of the least known, yet highly advantageous mortgage programs in the country. Want to know know what areas are eligible? The USDA has a useful tool that allows you to look up area maps or input a property address directly to see its eligibility.

Advantages of a USDA loan

The first and most attractive feature of a Maryland USDA loan is that it requires zero down payment. Without having to come up with a lump sum of cash to initiate the mortgage, those who could not regularly afford to take on a mortgage loan now can. There are also no pre-payment penalties for those who decide to pay off their mortgage earlier. You can finance closing costs into your loan as well as receive a lower fixed interest rate. With USDA loans, private mortgage insurance is not used. Instead, the USDA uses two fees, one being an upfront guarantee fee, equal to 1% of the total financed amount, that is due once the buyer has closed on the loan, and an annual fee, equal to 0.35% of the loans current balance, that is included in your monthly mortgage payment. 

The Three USDA Home Loan Programs

Guaranteed USDA Loans

A guaranteed USDA loan is when the USDA partners with local lenders to offer a loan that the USDA insures a portion of the total mortgage should the buyer default on their loan. To be eligible for this type of USDA loan, adjusted household income may not be higher than 115% of the median family income in the area where the house is located. This encourages lenders to be more willing to offer better loan terms to low-income buyers with lower credit scores. 

Direct USDA Loan

With a direct USDA loan, the funds are borrowed directly from the USDA. This is offered to low-income individuals who otherwise wouldn’t qualify for a typical loan from a bank lender. To receive a direct loan from the USDA, one must fall into the low-income category in the area where the home is located. 

USDA Home Improvement Loans

Also designed to benefit low-income households, the USDA Home Improvement loan option helps to fund repairs or improvements to a dwelling. In some cases, the USDA could potentially combine these with grants that you would not have to pay back. 

Who Qualifies for Eligibility?

To qualify for a Maryland USDA loan, you must first be a U.S citizen that has an income that falls below the set “low income” in the area you intend to purchase the home. The main qualification that is needed to qualify for a USDA loan is that the home is located in an area deemed “rural”. This means that metropolitan areas are exempt from USDA loans however, some suburban areas may qualify. The dwelling that the USDA loan is taken out for must be listed as the primary residence of the person signing the mortgage. With all of that taken into consideration, eligibility for a USDA loan is open to a large majority of Americans that live in rural areas and should be utilized accordingly. 

Accessible USDA Loans in Maryland

The benefits of a Maryland USDA loan are immense and the eligibility fits a wide spectrum of potential homeowners. Taking advantage of this loan can make the difference between being able to afford a mortgage or not. Many people who are renters cannot come up with the initial down payment needed to secure a good rate and therefore are stuck renting. Without this obstacle, many Americans in rural areas can attain a mortgage. When shopping around for Maryland lenders, be sure to find one that maintains your best interest throughout the mortgage process. At Federal Hill Mortgage, we guarantee that we will be by your side every step of the way ensuring that you get the best rates available on the home that you desire. Call us or apply now to begin your journey into your new home.

Home Buying Advice Mortgage Advice Mortgage Rates

What You Should Know About an FHA Loan in Maryland

Home buying can be a costly process, requiring strong financial standing and the ability to foot a down payment that usually accounts for 20% of your total home price. However, there are options at your disposal that help make buying a house more affordable. One of the best options is an FHA Loan in Maryland.

What is an FHA Loan?

An FHA loan is a home loan that is insured by the Federal Housing Administration that allows qualifying individuals to make as low as a 3.5% down payment. While the FHA loan is insured by the federal government, the finances are still acquired from private lenders who have differentiating requirements and terms. The two most attractive aspects of an FHA loan are the aforementioned low down payment and the leniency of terms for those with low credit scores. An FHA loan is recommended, but not limited to first-time home buyers due to its low credit acceptance and minimal down payment however, FHA loans require the purchase of mortgage insurance, and the amount that can be loaned is capped. Finding out if an FHA loan in Maryland is right for you means properly understanding all of the aspects that make up an FHA loan and weighing them against your own personal situation.

Maryland FHA Loan Limits

Loan limits differ by county and state as well as how many units are in the dwelling. Be sure to make yourself aware of the loan limits in the county you plan to purchase the dwelling in because it can greatly differentiate between different counties. 

How to Qualify for an FHA loan in Maryland

Qualifying for an FHA loan is mainly based on your credit score and debt to income ratio and is not limited to just mortgages but also refinancing and renovations. To receive the 3.5% down payment you must have a credit score of 580 or higher. To receive a 10% down payment allowance, you must have a credit score of 500 to 579. The FHA loan must be used on a dwelling that is listed as your primary residence. Your debt to income ratio or DTI must be no more than 43% of your monthly gross income as well as at least two years of verifiable employment. Your private lender will determine the property value of the home you wish to purchase as well as verify your credit and income. Finally, the residence must meet HUD guidelines when appraised by an FHA-approved appraiser.

How to Find an FHA-Approved Lender

Finding an FHA-Approved Lender is not difficult, as they can range from large bank corporations to local community banks and independent mortgage lenders. The challenge is comparing the different terms between lenders and deciding which will cost you the least in the long run. Weighing the different mortgage terms offered by the different private lenders is extremely important in order to secure the best mortgage terms possible. Before applying for an FHA loan you should know your budget and have all of your related supporting documents on hand and ready to go. Once you have that figured out you can shop around for lenders and get preapproved to be able to compare different rates and lending terms.

How to Apply for an FHA Loan

The first and most important step is finding a private lender and assembling your documents as previously mentioned as well as checking your debt and credit score. Once you have taken these simple but crucial preliminary steps, filling out the application for an FHA loan is relatively simple. You should apply for your home loan and receive mortgage pre-approval before you begin shopping for property. After you receive confirmation that your FHA application has been accepted you may have an FHA licensed inspector inspect the property.

Other Types of FHA Loans

1. 203k Loan

With an FHA 203k loan, you can fund the purchase of a home as well as renovations all under the same mortgage. There are a few key differences between a regular FHA loan and a 203k loan, the main one being the minimum down payment requirement of 3.5% if your credit score is 580 or higher. Things like appliances and repairs are covered in a 203k loan but luxury items like a pool or a sports court are not. Discuss with your lender to see if your mortgage plans would work well with a 203k loan option.

2. Home Equity Conversion Mortgage (HECM)

A Home Equity Conversion Mortgage or HECM is a reverse mortgage offered by the FHA that allows you to withdraw a portion of your home’s equity, typically without having to pay monthly payments. These loans are usually beneficial to seniors as upon the borrower’s death, their heirs will have to repay either the full loan balance or 95% of the home’s appraised value. From there, they will have 30 days after the notice to buy, sell or turn the home over to the lender. To qualify, you must be 62 years of age or older, own the property outright or have paid a large amount off, and occupy the property as your primary residence. 

3. Energy Efficient Mortgage

The FHA does offer an Energy Efficient Mortgage program to allow borrowers to finance energy-efficient improvements with their FHA-insured mortgage. A borrower only needs to qualify for the loan amount used to purchase the home and does not need to qualify for the portion used to make the energy-efficient improvements. 

4. 245(a) Loan

An FHA 245(a) allows families with a low to moderate income, who are expecting their income to rise, to purchase a home and make monthly payments that start small and gradually rise. This type of loan is perfect for someone who is expecting their income to rise as it allows the initial payments to be affordable and then, as time goes on, the borrower gets to choose how the payments increase. This allows equity to grow rapidly and brings the repayment date closer. Usually, if conducted properly, a 245(a) loan will allow borrowers to pay off their mortgages much quicker and avoid paying more interest. 

FHA Loans Alternatives

Conventional Loan

Conventional loans are the main type of mortgage loans that are not involved with any government entity. There are conforming and non-conforming conventional loans. A conforming conventional loan follows guidelines set by Fannie May and Freddie Mac. A non-conforming conventional loan does not follow these guidelines and can vary as to what they offer and its terms.


A USDA loan is a government program that incentivizes people with moderate to low incomes to purchase homes in rural areas. One of the main reasons people are drawn to a USDA loan is that they require no down payment however, it is required to pay a mortgage insurance premium and an upfront fee.

VA Loan

A VA loan is a mortgage loan that is offered to eligible veterans and active service members and is insured by the Department of Veterans Affairs. VA loans can be extremely beneficial but are limited to those who have served in the military. Some of these benefits include a no down payment option, no private mortgage insurance requirement, competitive rates, and more permissible credit requirements.

Your Go-To Brokers for an FHA Loan in Maryland

As we can see, there is an abundance of options when it comes to taking out an FHA loan in Maryland, and deciding which one is best for you requires extensive knowledge about the available mortgage options and how they will apply to you. With Federal Hill Mortgage, we will be by your side every step of the way, clearly explaining all of your options in order to find which mortgage plan will benefit you the most. Call or contact the expert team at Federal Hill Mortgage to speak with a mortgage specialist and begin your home-buying journey today.

Home Buying Advice Mortgage Advice Mortgage Education

Learn With Mortgage Lenders in Annapolis: Common Myths Debunked

Taking out a mortgage might seem like a complex process for someone who is not educated in the field. This lack of knowledge has led to misconceptions and myths becoming common in the mortgage conversation. While taking on a mortgage is a major undertaking, the process is far from a daunting one. The housing market follows trends and is constantly changing, making the myths stray even farther from the truth as time goes on. Gaining an understanding and discrediting the common misconceptions paints an accurate picture of what the mortgage process actually is. Here’s what you need to know from mortgage lenders in Annapolis.

Pre-Qualified and Pre-Approval are One and the Same

Pre-qualification is a simple questionnaire meant to initiate the lending process while a pre-approval is an in-depth look into your financial situation and your ability to repay a loan on a home. When applying for a loan, the majority of lenders will prefer a pre-approval as it is a more comprehensive look at your financial profile as opposed to a pre-qualification, which is a more general look at your ability to afford the house. Pre-qualification means you qualify for approval and pre-approval means you have already been approved for a certain amount. Mortgage lenders in Annapolis differentiate on what they prefer so be sure to inquire.  

Lender Shopping Hurts Your Credit Score

Shopping around for different Annapolis mortgage lenders is a crucial step to finding the best interest rates available. Multiple inquiries about your credit score do negatively affect it, however, FICO allows 30 days for all inquiries to be counted as one but it is suggested that you do all inquiries within 2 weeks. Securing the best rate is highly recommended when taking out a mortgage.

Renting is Cheaper Than a Mortgage

It is a common misconception that renting is cheaper than a mortgage. In reality, paying rent is merely more simple by comparison as it only requires a monthly payment but when you consider where the money goes, a mortgage is a much better financial option. Paying a mortgage grants the eventual ownership of a home while renting goes straight into the pockets of the landlord. A mortgage is an investment as opposed to rent which is just an expenditure.

You Should Spend as Much as you are Qualified to Borrow

Just because you get approved by an Annapolis mortgage lender for a loan does not mean that it is the ideal amount for you. When considering affordability, try to find a monthly payment that compliments your overall financial status and goals. Only take on an expense that you are comfortable paying every month for 15-30 years.

A 20% Down Payment is Required

While it is true that a 20% down payment will grant you lower interest rates, start with more equity and avoid paying for private mortgage insurance, it is not required. In fact, the average homebuyer put only 12% on average this year. There are down payment assistance options available from state and federal government programs that offer a down payment loan with low-interest rates. USDA and VA loans don’t require any down payments. If you have a credit score over 580, then you qualify for an FHA loan at only a 3.5% down payment. 

Perfect Credit is Required for a Mortgage

Perfect credit grants a homeowner better mortgage terms but perfect and even good credit is not required to take out a mortgage loan. As with down payments, options exist for those with poor credit. Credits as low as 500 can apply for FHA loans and VA loans require a credit of 580 to 660. Apart from your credit score, mortgage lenders in Annapolis will look at your debt-to-income ratio or D.T.I. Most lenders will typically prefer a D.T.I where the cost of the mortgage is no more than 36% of your total debt. 

Find a House First and Then Consider the Mortgage

A common mistake in purchasing a home is finding the home you want and then considering the mortgage. Chances are if you find your home and have not started the mortgage process, it will be sold while you are dealing with the mortgage. Avoid this by getting pre-approved before you begin looking for a house. A pre-approval works as a guarantee that you will be able to fund the purchase by way of a loan as well as give you an idea of what you will be able to afford. 

A 30-year Fixed-rate Mortgage is Always the Best Option

By far, the most popular mortgage option is the 30-year fixed-rate mortgage. Over 75% of buyers chose this option. It may make sense for a variety of individuals to choose the 30-year fixed-rate mortgage, however, other options exist that should be considered. A mortgage plan should be chosen based on the buyer’s financial situation and goals. If one can afford higher monthly payments, a 15-year fixed-rate mortgage can allow buyers to own their home sooner and for less money overall. Discuss all of your available options with your Annapolis mortgage lender in order to pick the best fit for you. 

The Down Payment is the Only Upfront Cost

When purchasing a home, coming up with a down payment is a major expense of the mortgage process but it is often forgotten that there are other costs that must be accounted for when initially taking on a mortgage. Closing costs include all of the changes necessary to process the transactions which typically add up to 1-2% of the sale price. 

 Refinancing is not Worth the Inconvenience

Many people do not understand the benefits that come with refinancing and instead only consider the burden of paperwork that comes with the application process. Refinancing can assist in consolidating debt, cashing out on equity, and even reducing your loan term. Refinancing is an incredible asset in the pocket of the homeowner and should be used accordingly.

Pre-Paying a Mortgage Comes With a Fee

The fees that come with pre-paying a mortgage differ between Annapolis mortgage lenders. A majority of lenders don’t charge a fee for prepayment and those that do typically only charge a fee during the first 3-5 years after closing. Pre-paying a mortgage can save thousands of dollars so it is important to discuss what the lender’s terms are before closing. 

You Cannot be in Debt and Purchase a Home

Being in debt does not mean that you cannot purchase a home. Much more important and revealing is the debt-to-income ratio. Annapolis mortgage lenders will still approve a loan to someone in debt so long as their income outweighs the debt. Typically, lenders prefer that your D.T.I ratio is less than 36%, with no more than 28% going towards paying the mortgage.  This shows that the individual is making an income at a higher rate than their debt thus proving your ability to pay the debt effectively. 

Work With the Right Mortgage Lenders in Annapolis

The common myths attached to mortgage lending result in costly decision-making. Debunking these myths is extremely important due to the fact that they are costing people thousands of dollars. Choosing a mortgage lending plan should be based on your individual financial situation. Formulating this mortgage plan requires someone in your corner with expertise and knowledge. When you’re looking for an Annapolis mortgage lender that retains your best interest, look no further than Federal Hill Mortgage. Contact us today to begin formulating a mortgage plan custom-tailored to fit your individual financial situation!

Mortgage Advice

10 Questions You Should Ask Baltimore Mortgage Lenders

The murky waters of mortgage lending can be difficult to navigate if you are lacking the critical information needed to successfully formulate a mortgage loan plan. There is a wide variety of areas that need to be discussed and explained to ensure that you are getting the best loan possible. It is important to ask questions that will increase your knowledge of what you’re getting into. We have compiled a list of the 10 best questions you should ask Baltimore mortgage lenders in order to develop a proper understanding of your loan terms.

1. What Can I Afford?

 A common mistake that first time home buyers often make is taking out a mortgage that they cannot afford. Financial situations can quickly change and successfully paying off a mortgage requires a stable income. Be sure to meet with your lender before your real estate agent to discuss how much you can afford to pay for a house. Generally, 25% of your net income should be allocated towards paying for your mortgage. Another way you can find out what you can afford is by getting pre-qualified for a mortgage. This allows you to see exactly how much you will be able to borrow. 

2. How Much Will My Down Payment Be?

After gaining a sense of what you can afford, the next step is to ask your mortgage lender how much down payment you will need. The industry standard is 20%, however, it is not always required. Alternative options include FHA loans VA loans. FHA loans are mortgage insurance backed mortgage loans. VA loans apply to veterans and are offered by the United States Office of Veterans Affairs. Amount of down payment is crucial to discuss with your lender. Situations vary and different percentages of down payments will benefit buyers in ways unique to the individual. 

3. Which Type of Mortgage Best Suits My Situation?

With a variety of different types of mortgages available, you should ask Baltimore mortgage lenders to discuss all of the potential options available to their buyers. With the available array of mortgages, a professional lender will be able to pair buyers with the best possible fit to their budget and financial situation. 

4. What is My Interest Rate and My APR?

Likely the most important aspect of mortgage lending is the interest rate and annual percentage rate. Your interest rate can either be adjustable or fixed. With an adjustable rate, make sure you know how much it will be adjusted and how often. Find out the lowest interest rate percentage that you qualify for and be sure to ask about any additional fees. The APR will contain these fees and potential discount points which should definitely be discussed. Gaining an understanding of what your rate entails is key to mapping out a successful mortgage loan.

5. What Can I Do to Make My Rate Lower?

Administrator business man financial inspector and secretary making report, calculating balance. Internal Revenue Service checking document. Audit concept

Any reputable lender should be willing to discuss steps you can take to lower your rate. Your rate is initially determined by credit score, amount of down payment and type of mortgage; however, it can be positively or negatively impacted by a slew of factors prior to taking out the mortgage. Be sure to take the necessary steps to lower your interest rates and discuss with your lender what these options could entail.

6. What Will My Monthly Payment Be?

A solid understanding of what your monthly expenses towards the mortgage will allow for buyers to know what to expect and map out their monthly finances. Ask your mortgage lender about any potential penalties and how much your monthly rate is subject to change. Monthly payments are the backbone of a mortgage and should be regarded as highly important. If your lender cannot provide exact increases in monthly payment, ask for an estimate and to list potential causes for a rise in payment. 

7. How Long Will It Take Until My Loan Closes?

In preparation for a mortgage loan, the inevitable end of the mortgage must be considered and a target time frame should be established. By formalizing a desired timeline, buyers and lenders can properly formulate a plan with an idea of a predetermined loan close date. This will make the end of the loan a foreseeable goal and give buyers a period of time where they should be hyper vigilant on doing things that will negatively affect their credit. 

8. Can You Provide an Estimate of What My Closing Costs Would Be?

Before you take out a mortgage be sure to have your lender make you aware of closing costs and other third party fees associated with your loan. This will be due at signing and the sooner you are made aware of them, the better prepared you will be. Professional Baltimore mortgage lenders will be able to provide accurate estimates and compile known closing costs.

9. Do I Have to Pay for Mortgage Insurance?

Mortgage insurance is typically determined by the down payment amount and will generally be required for down payments less than 20%. If you are required to pay mortgage insurance, ask exactly how much this will end up costing you and how much more of a down payment you need to avoid paying it. 

10. Will I Have to Pay for An Interest Rate Lock?

An interest rate lock is an important tool available to buyers when dictating the fluctuation of interest throughout the mortgage term. While an interest rate lock prevents the rate from increasing it also nullifies the chance of it decreasing. Ask your lender if an interest rate lock would benefit you and if they will charge you for implementing one.  

When choosing a mortgage lender it is essential to choose one that will discuss every aspect of your mortgage loan with you and explore all possibilities. It is equally important as a buyer to ask for insight on all of the areas that you are lacking information in. Buying a house is a massive undertaking and should be treated with due diligence. Informing yourself by asking Baltimore mortgage lenders these questions will allow you to make educated decisions regarding your mortgage and asking the right questions assists in broadening your understanding of your loan terms.

At Federal Hill Mortgage, we are committed to a transparent and informative relationship with all of our clients. Our expert team of mortgage professionals will make every effort to facilitate an overall understanding of your mortgage. Contact us today to find out the difference that Federal Hill Mortgage can make on your home buying experience.

Applying for a Loan Mortgage Advice

Questions to Ask Philadelphia Mortgage Advisors

Searching for the perfect home in Philadelphia can be a very exciting endeavor, but add in fluctuating mortgage rates and different lenders and the process transforms into a rather overwhelming task. But it doesn’t have to be. As Philadelphia mortgage advisors, we understand the intricacies of the mortgage process and are here to guide our clients through these unchartered waters. Our goal is to streamline each step and provide valuable knowledge, expert guidance and mortgage resources. 

Whether you are a first-time home buyer or refinancing your current mortgage in Philadelphia, it is important to also conduct your own initial research, to ensure you are well informed and confident in every decision you make. Here are some common questions to ask your Philadelphia mortgage advisors to help you get started with confidence and ease.   

1. What Type of Loans are Best for Me?

With a variety of different loan options to choose from, your Philadelphia mortgage advisors will begin by evaluating your current situation and learning your wants to formulate the best plan for you. Long-term-fixed-rate loans are common with most new homebuyers, however, there are other options available such as adjustable-rate loans, interest only loans, and negative amortization loans. When meeting with your mortgage lender, ask them to thoroughly explain all the loans available to you and what repayment would look like overtime. Getting a complete picture of your loan options, allows you to make an informed and educated decision.             

2. What Are the Additional Costs Associated With This Loan?

Most monthly mortgages will consist of three parts: the principal, interest, and taxes / insurance. It is important to discuss with your mortgage advisor the additional taxes and fees included with the loan, to determine if the monthly rate is feasible for you. Each Philadelphia mortgage advisor is different and will be able to offer different rates on loans and the additional fees, so be sure to shop around. 

3. What Documents Are Needed to Apply?

Before submitting your application, you will want to discuss with your loan advisor what exactly they will need from you and what the process will entail. Generally speaking for most loan applications you will need to provide proof of identification, detailed financial information, income statements, tax returns, and undergo a credit check. 

4. Is Mortgage Insurance Required? 

Not all loans will require mortgage insurance. This will change depending on the type of loan and the amount you use for a down payment. When meeting with potential Philadelphia mortgage brokers, ask them to explain your different loan options, detailing which loans will require mortgage insurance and how the insurance is calculated. If insurance is not something you were expecting, ask your mortgage advisor if there are changes you can make to change the need for insurance. 

5. Do You Provide Underwriting Services In-House?

Once your Philadelphia mortgage advisor gathers all the necessary documents and information, they will either verify the information in-house or contract the task out to another firm. Be sure to ask your advisor if they will be handling the underwriting in-house and to ask them what exactly that entails and what the timeline is once the documents are submitted. At Federal Hill mortgage, we believe in complete transparency and open communication when it comes to finding you the right mortgage. Walking our clients through each step of the process and making sure they are updated, are two of our top priorities, because we think being in the know is just better.  

6. Am I Eligible to Be Pre-Qualified? 

In Philadelphia there is currently a shortage of homes for sale, meaning with low supply and high demand, houses go quickly and for higher than asking price. For this reason, you will want to ask your Philadelphia mortgage officer if you are able to be pre-qualified. This process only requires a few financial documents and gives you financial insight into what type of mortgage you can afford. Being pre-qualified simplifies the process once you put an offer on a home.   

7. How Much Down Payment is Required? 

A 20% downpayment is the usual rate, however, it isn’t always the case. Depending on if you’re well-qualified, you could pay substantially less. You may also pay less if you qualify for government-backed loans such as FHA or VA loans. In some cases though, that may mean you have to find private mortgage insurance and have to pay a higher monthly payment. When meeting with your Philadelphia mortgage officer, it is important to know all your options when it comes to your loan and down payment, so don’t be afraid to ask.    

8. What Will My Interest Rate and Annual Percentage Be? 

Deciding which mortgage broker in Philadelphia to go with is a very important decision. Each broker will be able to offer you different interest rates and with varying annual percentages (APR). Take the time to consider all the options in front of you and ask your broker for all the information on how the rate was calculated for you and what the monthly payment would be. At Federal Hill Mortgage, we take the time to fully explain to all of our clients the breakdown of the financial part of things so they can choose the best loan that fits their life.  

9. How Much Time Should I Expect for Loan Processing?

Each mortgage lender in Philadelphia will have varying loan processing times. The time is affected by what services are available in-house or need to be contracted out, whether all the documents that are needed are present, and other factors like firm resources. As mortgage brokers, we understand at Federal Hill Mortgage that this can be a very stressful time for clients, not knowing what could be coming next. This is why we like to communicate the whole time while we process your loan, so you are always informed and at ease. 

Overall, these questions are a great place to start if you are looking for a mortgage broker in Philadelphia. When beginning the home buying process, it is important to first establish what your goals are and to do foundational research so you can meet with prospective mortgage brokers with confidence. 

For more information on mortgage advisors in Philadelphia, contact Federal Hill Mortgage. We would love to partner with you for your mortgage journey! 

First-Time Buyers Mortgage Advice Mortgage Education

Comprehensive Mortgage Dictionary

Click on the letter below to navigate to that section.



Abstract of title

Abstract of title is a written history of all transactions and documentation related to the titling of a property. This can include information like foreclosures, liens, loans, selling history, and more. 

What This Means for You:

These are the records that will help inform you about the history of a property when you are looking to purchase. 


The agreement you as the buyer make, or the seller makes with you, entering you into a contract for the purchase.

What This Means for You: One of the late stage processes that brings you that much closer to securing your new home. 

Account termination fee

Sometimes also referred to as a prepayment fee, this is a fee that may be assessed if you pay off your loan ahead of the planned schedule. 

What This Means for You: Lenders do this to help recoup money they would’ve earned from interest payments over time. So, if you plan on paying off your loan early, it’s important to inquire about the Account Termination or Prepayment Fee and assess whether it will save you money as opposed to simply paying the interest. 

Additional principal payment

Also known as a principal-only payment, an additional principal payment is a payment you as the borrower make that exceeds your regular monthly payment, and can help you pay off your loan earlier over time. Payments on a mortgage deal in two terms, the principal and the interest. In the early days of your mortgage term, payments often go towards your interest. By paying towards your principal when just starting out with a loan via additional principal payments, you can help reduce the amount of interest that accrues on the total principal over time.

What This Means for You: Depending on the scenario, additional principal payments may be the right or wrong choice for you. Always make sure to check about prepayment fees and other fees that may be assessed for additional principal payments. Also, ensure you have the correct budget to make these payments financially viable.  

Adjustable-rate mortgage (ARM)

Adjustable-rate mortgages are easiest to understand through their difference to traditional fixed-rated mortgages. In a fixed rate mortgage, your interest rate will remain the same over the entire term of the mortgage. For an adjustable-rate mortgage, you typically have an interest rate locked in for a limited time. Then after that period, your mortgage willbe periodically adjusted to match market shifts in interest rates. Typically, an adjustment cap is applied that limits how high or low a interest rate can go within a single adjustment period.

What This Means for You: Adjustable-rate mortgages may make sense for some buyers more than others. By conferring with your mortgage broker, you can determine if it’s right for you to play the interest market in hopes of securing a lower interest rate over time. 

Adjustment cap

The limit set on how much the interest rate of an adjustable-rate mortgage can fluctuate (either up or down) within a given adjustment period. 

What This Means for You: Adjustment caps help protect both you and the lender. It ensures that you can’t be stuck with an excessive, abnormal jump in interest rate, but also that your rate can’t fall to an extremely low rate that would be unfair to the lender.

Adjustment date

This is the date when your interest rate will change when you have an ARM. 

What This Means for You: Always pay attention to your adjustment dates and market trends so you can have a better sense of whether your rate will increase or decrease. 

Adjustment period

This refers to the period in between adjustment dates when you will be paying the agreed rate set during at the adjustment rate for an adjustable-rate mortgage (ARM).

What This Means for You: Understanding your adjustment period and timelines associated with an ARM will help you better navigate its complexities and ensure rate hikes don’t come as too much of a surprise. 

Affordability analysis

Similar to prequalification, an affordability analysis takes a basic look at the state of your financials in relation to a property. It includes a survey of income, debt, assets, and more. 

What This Means for You: An affordability analysis is a quick way to help you, and a lender, understand what properties are in your price range and what loan amount you may be able to afford without having yet applied to a full loan. 


Put simply, amortization is the technical term for paying off a loan through scheduled payments. 

What This Means for You: Amortization also represents the gradual shift from mostly paying off interest at the start of your mortgage term to then making payments to the principal amount borrowed. Sticking to your schedule and hitting your monthly payments is key to keeping your amortization on track. 

Amortization table or schedule

The given timetable laid out for you that identifies how your amortization will be paid, often giving a timeline for instance, every month for 30 years.

What This Means for You: An amortization table also helps identify when you’ll be paying which part of your loan, outlining when payments go to interest and when they go to the principal amount. 

Amortization term

The amount of time required to pay off, or amoritize, your loan. This can very from loan to loan.

What This Means for You:  Always confer with your broker or lender about the amoritization term, and allow them to help you explore loan options that might be better suited to your situation. For instance, while 30-year mortgages are the most popular, they may not be the absolute best choice for every single person. 

Annual adjustment cap

The amount within a given year that the interest rate of your adjustable-rate mortgage can increase or decrease. 

What This Means for You: An annual adjustment cap helps ensure that you won’t see an extreme spike in your interest rate within a given year.

Annual percentage rate (APR)

Your APR represents the broader cost of borrowing outside of just the interest rate. It includes your annual mortgage payments, as well as loan origination fees, points, mortgage insurance, and any other fees you may have to pay in addition to regular mortgage payments. For this reason, the APR is often reflected as being higher than interest rate. 

What This Means for You: Federal Truth in Lending Act requires that every consumer loan agreement disclose the APR. Because lenders are required to abide by this law, APR can be a valuable metric for comparing costs of a total loan from lender to lender. 

Application fees

The fees you may have to pay for different financial services. These are typically non-refundable.

What This Means for You: Application fees may crop up all throughout your mortgage journey. Budgeting for the mortgage process should include some cash set aside for these fees. 

Appraisal or appraised value

When purchasing a home, an appraisal will be set up to create an informed estimate of the real property value. A professional appraiser is brought in to inspect the current property, weigh the sale price against the current market, and uses other data to generate a property value based off the information.

What This Means to You: There’s two important factors you need to remember. The first is that typically as the borrower, you will be paying appraisal fees, which can sometimes be hundreds of dollars depending on the market. Secondly, if the property is appraised for less than its sale value, the transaction may be delayed or cancelled entirely at the discretion of the lender. 

Appraisal contingency

Typically, an appraisal contingency is a requirement within a sales contract that means a property must be appraised for an amount equal to or exceeding the selling price. 

What This Means for You: If the appraisal contingency is not met, the property may not qualify for a loan from the lender.


Appreciation refers to the process of your property growing in value over time as opposed to losing value (depreciation). Several factors may be responsible for appreciation, including remodeling and additions, value of the land to external developers, location, and more.

What This Means for You: Appreciation is advantageous for you as the owner. If you hope to resell, you can likely get more than you paid. Investors often gamble on properties in less desirable areas that they believe may soon appreciate in value. If your property appreciates in value, you may be able to increase the amount that can be taken out with a second mortgage or home equity line of credit. 

Approved term:

The full number of months within which your loan is expected to be repaid. This will give you guidance on your payment schedule and clearly define the loan term for all parties:

What This Means for You: Use the approved term to help you budget over time and ensure you meet mortgage payments each month. 

Assessed value

Sometimes mistaken for the appraised value, the assessed value is delivered by a professional tax office. It is their way of determining what you will pay in property taxes based off their value assessment.

What This Means for You: Before purchasing a property, look for information about the area you’re buying in and the rough value of the home you’re purchasing to help you predict and plan for property taxes. Property taxes should always be factored into your annual home expenses budget. 


Assignment refers to the process of transferring the rights of a contract to another individual. This may include transferring your loan during a sale or changing the names of the contract holder in the case of a remarriage or death in the family. 

What This Means for You: Always consult with your broker and lender when considering changing the assignment of a loan to ensure you fully understand the consequences of the decision. 

Assumable loan

A specific kind of loan whereby the mortgage and its terms are transferable to other parties. This situation most commonly occurs during a home sale, but can result from other scenarios as well. Not all loans are assumable. 

What This Means for You: It’s important to confer with your mortgage broker and lender to determine whether or not the loan you’re acquiring is assumable for parties in the future. This may effect your decisions on prospects of resale, for instance. 


Balance Sheet

A financial statement that is dated and displays your assets and liabilities. 

What This Means for You: A balance sheet is an effective way to understand your finances at a glance.   

Balloon loan

A non-standard type of loan where a borrower takes out a short-term loan, typically 5-7 years but has access to an interest rate as if the loan term was much longer. At the end of this loan period, a balloon payment of the entire principal amount is due. 

What This Means for You: When a balloon payment is due, you may seek a new loan, sell the property, or pay the remaining amount in cash. However, the refinance rate on balloon loans may be higher than usual. Balloon loans appeal particularly to those who want low monthly payments and plan to sell in the near future. 

Base rate

A standardized benchmark for interest rates used to determine how variable interest rates (such as for an adjustable-rate mortgage) should be calculated. 

What This Means for You: The base rate changes with market forces. If you have a loan with a variable rate attached, it’s valuable to monitor the trends so you anticipate any increase or decrease in payments. 

Basis point

A financial calculation term that refers to 1/100th of of 1%. 

What This Means for You: While this is technical lingo, it is commonly used as it factors into how your interest rate is calculated. 


In mortgaging, bonds typically refer to a bond secured by a mortgage. They are backed by some form of real estate holding or real property

What This Means For You: Mortgage bonds insulate the investor, as if the bond is defaulted on the bondholder could sell the property attached to the bond to recoup their investment. 

Break even point

Your break even point is understood at the point when total income equals total expenses (thus evening out). 

What This Means for You: In the mortgage world, you’ll most commonly encounter this term when you seek out a refinance. In this context, the break even point determines how long it will take you to recoup the closing costs on a refinance. To get an accurate result, it’s important to tally up all fees you will pay during the process, including origination fees, discount point fees, application fees, underwriting fees, appraisal fees, and more. 

Bridge loan

A short-term loan that helps “bridge” the gap between a concluding loan and the start of another. Bridge loans are commonly used when you are purchasing a new home but have not yet sold your current home, and thus don’t have the funds available for the purchasing costs. 

What This Means for You: Bridge loans are especially useful if you’re buying in a competitive market, and find a home you want to purchase before you’ve been able to sell. While amount varies, bridge loans may entitle you to borrow up to 80% of both your home’s appraised value and the value of the home you’re hoping to buy. 


Brokers serve the role of facilitating loans between borrowers and lenders, working as a sort of match-maker to ensure the relationship is mutually beneficial to both parties. A broker does not lend directly, but rather works as an independent third party. 

What This Means for You: Brokers can help you acquire a more favorable mortgage rate by working directly on your behalf with the lender. When negotiating your loan, it can be valuable to have someone that serves as a third party and helps navigate the process. 

Broker fees

Broker fees are paid to your brokerage agent for their services, separate from regular lending fees. 

What This Means for You: Broker fees should be factored into your budgeting for the loan process. Fees typically range 0.50 percent to 2.75 percent of the loan principal, with a federal cap on fees at 3%. 


Buydown is a prepayment method where the interest rate over the loan term is reduced by paying more costs up front. This is typically achieved by purchasing discount points that help pay off the initial interest on the loan, reducing the total rate that can accrue over time. 

What This Means for You: Buydowns may be an effective method for buyers who have more cash up front and would like to save over time. 


Call option

A contractual clause included in loans that allows lenders to request the outstanding amount on your debt at any point during the loan term. Essentially, this allows lenders to call and request the money that was lent.

What This Means for You: Call options are typically seen in the contracts of borrowers in poor financial standing, so the lender may include this provision to protect themselves from buyers reneging on their payment agreements. 


The limit set on how much the interest rate on a variable rate loan can change within a given period of time. 

What This Means for You: commonly, you’ll deal with caps when you have an adjustable-rate mortgage. Caps help stop the interest from skyrocketing too much in a short period of time, protecting you, but they also help protect the lender from seeing the mortgage rate sink too far. 

Cash available for closing

See cash to close. Another term for cash to close. 

Cash to close

The cash a borrower is expected to have available at closing to insure they can pay all associated closing costs and fees. 

What This Means for You: There are a variety of items you’ll need to pay at closing, including down payment, insurance fees (including title insurance and mortgage insurance where needed), appraisal fees, broker fees, attorney fees and more. Careful budgeting is required to insure you have enough to afford all associated costs. 

Cash-out refinance

In a cash out refinance, the amount for your new loan will exceed the principal amount of the loan it is replacing. This allows borrowers to access extra cash through the refinance. The lender will determine the exact amount of cash you can receive. 

What This Means for You: If you seek a cash-out refinance, it’s important to remember that the interest rate is typically higher than that of a rate-and-term refinance, where the loan amount is the same as your first loan. 

Ceiling rate

The ceiling rate protects you as the borrower from an interest rate exceeding a specified amount. While there may be ceiling rates for fixed-rate mortgages, they are more commonly seen within the context of variable interest rate loans such as adjustable-rate mortgages. In this context, the ceiling rate establishes the highest interest rate a lender can charge you in a given adjustment period. 

What This Means for You: Ceiling rates are a good thing for you as a borrower. They help insulate you from interest rate risk, where rates rise exponentially and as such, your variable-rate mortgage spikes to an unfair amount in a short period of time. 

Certificate of eligibility

An important document that confirms the veteran or active duty status of a borrower seeking a government-backed Veterans Affairs (VA) loan

What This Means for You: There are different requirements depending on your service status you’ll need to meet to attain a certificate of eligibility. As outlined by the VA, active duty service members will need a statement of service signed by a commanding or personnel officer. For veterans, you will need discharge or separation papers to confirm veteran status. National guard, reserve and other members may have different requirements to attain a certificate of eligibility.  

Certificate of reasonable value (CRV)

Issued by the Department of Veterans Affairs, a CRV defines the maximum value of a loan offered by the VA for a given property. This number is established by an independent VA appraisal.

What This Means for You:  A CRV is a crucial document for those taking out a VA loan. Typically, if the CRV amount exceeds the cost of the property, that means the VA will grant a loan for the full purchase price of the property.

Certificate of title

A certificate of title is a statement that identifies the legal owner of a real property. 

What This Means for You: A certificate of title is an official government document, you can have titling companies or attorneys help you procure it. 

Chain of title

Much like the title history you’d find on a car, a chain of title identifies all events associated with a piece of land or a real property. This could include sales, foreclosures, defaults of the loan, and more. 

What This Means for You: The chain of title is a valuable piece of documentation that helps you get a clearer view on the history of a property. 

Clear title

Again similar to a car, a clean title means there are no disputes or legal challenges affecting a property, such as a lien. A home with a clean title is ready for legal sale. 

What This Means for You: If a property doesn’t have a clean title, proceed with caution and speak to both a mortgage broker and an attorney before attempting to move forward with purchasing the property. 


A crucial step in your mortgage process, the Close is when your loan is finalized and your documents are signed. 

Typically, the right of rescission period lasts three days, and funds may not be available until after that period passes. This is the period when you have the option to rescind the loan agreement. 

What This Means for You: Many details of the process for how you Close can differ based on the property or transaction type. Always confer with your broker and lender to ensure you understand every piece of the contract and your rights to rescind before signing. 


When an item is Closed, you do not need to take any more action on that item. 

What This Means for You: This could refer to your completion status during different steps of the mortgage process. 


Closing on a mortgage centers around when you and all the associated parties with a loan meet and sign all necessary documents. See also: settlement.

What This Means for You: This is one of the final steps in your mortgage process. Ensure all the necessary information is lined up for a successful closing. 

Closing costs

Closing costs are all of the fees and other costs you have to pay when closing on a loan. As highlighted by Investopedia, closing costs typically range from 3-6% of a home’s purchase price. Some items that may be a part of closing costs include: attorney’s fees, titling fees, appraisal fees, discount points, and mortgage insurance among other charges as well. Closing costs can be a significant chunk of change and they are vital to plan for. 

What This Means to You: For buyers in Maryland, expect to pay a hefty sum in closing costs. Maryland averages $11,876 for closing costs, one of the highest in the county. Be aware that certain items such as homeowners insurance, escrow payments, and property taxes are not calculated into your closing costs. 

Closing date

The date when your closing documents are signed. Mark it on your calendar!

Closing Disclosure (CD)

A crucial document for your closing process. It discloses all of the information on the procedures of your closing and terms of your loan, such as purchase price, interest rate, loan term, an estimate of insurance and property tax costs, closing costs, and other information. 

​​What This Means for You: Your Closing Disclosure is one of the most important documents in the mortgage process. It outlines everything you’re agreeing to before closing on a loan. To ensure you have enough time to process all the information, there is the important Closing Disclosure 3-day rule. This means you will have at least three days at minimum to fully review your Closing Disclosure before you sign. 

Closing statement

A document identifying the final details of a real estate transaction. It will list all of the costs, and identify the buyers and sellers. 

What This Means for You: Your closing statement is a useful document you should keep for your records. 


An additional borrower that signs onto a loan agreement, and thus assumes equal responsibility for repayment of the loan.

What This Means for You: Co-borrower scenarios are common in the instance of married companies that want to have equal share of the loan responsibility, but there are other scenarios where co-borrowing may be common as well. 


In the realm of property ownership, coinsurance refers to the provision included in some home insurance policies that owners have their property insured to its full value, or close to its full value. 

What This Means for You: If you fail to insure your property to the satisfactory amount, you may be subjected to fees by the property insurance company. 


This term refers to assets you as the borrower use to secure the terms of loan in the event of a failure to pay. These assets can be anything, including a home, car, business properties or equipment, and more. 

What This Means for You: The most common form of collateral you encounter is the home you are purchasing. If you default on your loan (fail to pay), your loaning institution will enter into a process called foreclosure, where they take control of your home and auction it off to a new buyer. It’s crucial to always make your mortgage payments. If you struggle with making payments, inquire about mortgage assistance from the federal or state government. 


The process of an agency attempting to collect on delinquent loan payments or other bills.

What This Means for You: Often when a bill or loan goes to collection, the original institution that controlled it has outsourced the delinquent payment to a debt collection agency who’s sole goal is to collect these delinquent payments. Avoid the hassle of collections by paying bills on time. 

Combination Loan

Combination loans are two loans granted to the same borrower from the same institution. Combination loans may serve different purposes, for instance a loan to fund the construction of a new home and then the loan for the purchase of that home. Othertimes, combination loans are used for borrowers who can’t afford the 20% down payment on a property.

What This Means for You: Combination loans may benefit borrowers in certain situations, and they may also be disadvantageous for other borrowers. Always consult with your broker and lender to get a clear view of what options fit your own needs best. 

Combined liens

The accumulated remaining balance of all mortgage transactions on a property. Combined liens can be used to determine a property’s value during an appraisal. 

What This Means for You: It’s important to ensure you have access to as much documentation as possible for a given property before moving forward with any transaction involving it. 

Combined loan-to-value ratio (CLTV)

The ratio of all loans associated with a property against its principal value. It is an effective way for lenders to help determine a buyers risk of default when issuing multiple loans on one single property. 

What This Means for You: Lenders use a few different methods to determine your CLTV, including the amount left on your original loan, and the drawn amount on a home equity line of credit. 

Commitment letter

An official letter from a mortgage lender stating that you have been approved for a loan. This letter is delivered after an approval process, and while it is not a guarantee of a loan, it is an identification that you qualify.

What This Means for You: Commitment letters are important because they can be furnished to sellers to show your financial capability to purchase, giving you a leg up over non-approved buyers shopping for the same home, and allowing you to move forward with the purchase process. 

Comparables (comps)

Comparable properties to the one you intend to sell, typically similar in location, size, amenities, and more. Comps are used to help determine a reasonable price to list the home on the market. 

What This Means for You: Comps help real estate agents value your home. Finding relevant comps is a useful step in the selling process. 

Compound interest

Roughly, interest earned on interest. Specifically a type of investment account where you earn interest that grows or compounds over time as opposed to simple interest where you only earn interest on the principal loan amount. 

What This Means For You: Compound interest can be a great way to earn additional money from an investment. 

Conforming loan

Mortgages that meet the standard guidelines of Fannie Mae or Freddie Mac. This is so the loans, following underwriting and funding, can be securitized and sold on the investor market. 

What This Means For You: Conforming loans may have more stringent requirements to meet than non-conforming loans, especially in terms of items like debt-to-income ratio (DTI) and credit score, but they also may allow you to pay less mortgage insurance or for a shorter period of time, saving you money over the lifespan of the loan. 

Construction loan

Short term, high-interest loans that help fund the new build of a residential home. Lenders make payment directly to builders during the progression of construction.

What This Means for You: Construction loans typically only last one year, so it’s important that you work with a builder that can keep the project on track. 


Sometimes known as a contingency clause is a stipulation that requires a property to be purchased within an amount of time specified by the home seller. The period typically lasts 30-60 days. A contingency helps ensure that a property can be returned to the market if you can’t secure a loan in time. 

What This Means for You:

Contractual Payment

A contractual payment is simply the amount you’ve agreed to pay each month for your mortgage as outlined in your loan contract. You’ll pay the contractual payment every month over the agreed term (time of a loan). 

What This Means for You: A contractual payment is presented as a total number, but may include payments for several different aspects of the mortgage loan including paying on the principal, the interest, homeowners insurance, tax, and mortgage insurance if applicable to you. 

Conventional loan

A conventional loan is one not backed by a government agency as opposed to a non-conventional or government backed loan. Most standard loans you take out from private lenders will be conventional loans. If you however have an FHA, VA, or USDA loan, among others, you instead have a government-backed loan. 

What This Means for You: Conventional loans can be divided into conforming and non-conforming loans. Conforming loans meet the standards set by Fannie Mae and Freddie Mac and can be securitized and sold on the mortgage investment market. 

Convertible ARM

A type of adjustable-rate mortgage where you as the borrower may have the option to convert the loan to a fixed-rate mortgage under certain conditions.

What This Means for You: To confirm this possibility, it’s important to inquire about a convertibility clause within your ARM agreement. 


Conveyance is the process of transferring ownership of a property to another party via its title and deed. 

What This Means for You: Conveyance may crop up in a number of circumstances, most commonly when buying and selling a property but also in cases such as a family death and more. An instrument of conveyance (a title, deed, or contract) is the legal document used to facilitate and legitimize this process. 


As a opposed to a co-borrower, a co-signer assumes equal responsibility for repayment of a loan, but does not reap the equity built by the loan. 

What This Means for You: Most commonly, you’ll encounter co-signing in scenarios where a parent co-signs for a child who does not currently have the right financial portfolio to secure a loan on their own. 

Cost of Funds Index (COFI)

An index that is utilized to determine the benchmark for interest rates that apply to variable-rate mortgages such as for adjustable-rate mortgages.

What This Means for You: As outlined by Freddie Mac, the COFI is “calculated ​​as the sum of the monthly average interest rates for marketable Treasury bills and for marketable Treasury notes, divided by two, and rounded to three decimal places.”


An agreement made within a mortgage or home loan that stipulates how the property can be used, typically barring certain uses under the threat of foreclosure. 

What This Means for You: Always check mortgage or deed agreements for covenants. They’re usually set out by neighborhoods or communities. Please keep in mind that discriminatory covenants (barring homeownership on the basis of race, religion, gender identity, or national origin) are illegal, and if you encounter a home with a discriminatory covenant, it’s important to report it to your local housing authority. 

Credit bureau

Credit bureaus collect and aggregate your credit information to generate reports and a credit score. This information is used by lenders to determine your creditworthiness and ability to repay loans. There are three major reporting agencies: Equifax, Experian, and TransUnion.

What This Means for You: Each year, you are entitled to one free credit report from each of the three major reporting bureaus. To get yours, simply go to

Credit limit

The maximum amount an institution can lend to you on one line of credit. 

What This Means for You: Your credit limit is a useful way of determining the max loan you’ll be able to afford from any given institution. 

Credit monitoring service

Credit monitoring helps you keep track of activity on your credit cards and credit accounts to monitor for fraudulent activity. 

What This Means for You: Credit monitoring is an essential part of ensuring your credit health stays where it needs to be. 

Credit report

Your credit report is a record of your credit transactions, debt payments, and any other details associated with your credit It is a valuable way a lender will determine your creditworthiness and ability to repay your loan. 

What This Means for You: Monitoring your credit report is a great way to keep track of your financial health and spot problem areas that need addressing before you take on a loan.

Credit risk

Credit risk is assessed from a lender as the likelihood that you as the borrower will not be able to repay your loan as agreed. 

What This Means for You: Speak with your bank, broker, and lender about ways to lower your credit risk and help ensure you will appear to lenders as a borrower.

Credit score

Your credit score is an aggregated number used to identify your trustworthiness as a borrower. Credit scores take into account a variety of factors, including paying your credit bills on time, paying off debt, and the frequency of loans you take out.

What This Means for You: There are a variety of ways you can lower your credit score, from consolidating debt to scheduling automatic payments for your monthly credit bills. 


The entity to which offers credit to you, or is considered the person or entity to which you owe money.

What This Means for You: Creditors come in all varieties, from banks and lenders to credit card companies and in-house lenders.


Your estimated ability to repay a loan to a lending institution.

What This Means for You: Creditworthiness factors in several elements, including your credit score, to make a determination about your likelihood to repay your loan. 


Curtailment payments are extra payments you make on your loan to help reduce the principal amount of your loan, and in turn lower the interest over time. 

What This Means for You: Always check to see if prepayment fees will apply for paying your mortgage off ahead of time. 


Debt consolidation

The process of consolidating loans into one debt payment. Debt consolidation is often used to eliminate high interest loans faster. 

What This Means for You: A common method for home owners is taking out a home equity line of credit because of its low interest rate and consolidating it with higher interest rates loans to reduce the overall interest rate. 

Debt-to-income ratio

Debt-to-income ratio (DTI) is a measurement of your cumulative monthly payments (for instance, insurance payments, student loan payments, car loan payments, medical debt payments) tallied against your monthly income. It’s a useful metric to see if you will be able to afford taking on a mortgage paymen.

What This Means for You: While the amount may vary by location and circumstance, the recommended DTI ratio is 36% or under for most buyers (meaning only 36% of your monthly income goes to existing payments). 


A legal document that transfers ownership of a real property from the buyer to the seller. 

What This Means for You: The deed is the legal document that idenitifies your right to ownership, while titling is simply the process of acquiring a deed and the concept of ownership it instills. 

Deed of trust

An agreement signed at the closing of a mortgage loans stating you as the borrower agree to pay back the loan in full to the bank. 

What This Means for You: Deeds of trust are considered a “secured mortgage transaction,” and in some states they are used in place of traditional mortgages. 


Defaulting on your loan results when you fail to make mortgage payments on time, or otherwise violate terms of the loan agreement. Defaulting has severe consequences, including foreclosure on your home and seizure by the bank. 

What This Means for You: Defaulting can be extremely detrimental to your long term financial health and having a foreclosure on record can affect your ability to get another home loan in the future. Pay your monthly payments on time to avoid defaulting. 


If you fail to make payments on time, the payment will be considered delinquent by the lender. 

What This Means for You: Delinquency can lead to defaulting on your loan, and set the stage for foreclosure to take place. 

Discount points

See: Points

Down payment

The amount you put down in cash on your home loan. Down payments are a requirement for most types of mortgages. While the amount needed to be put down ranges, commonly the benchmark is 20% of the total loan value. 

What This Means for You: While 20% is required for most conventional loans, many government-backed loan options help lower the down payment to make mortgages more accessible. FHA loans, for example typically have a down payment amount of 3.5% while many VA loans require no money down at all. 


In construction loans, a draw is when you take out an advanced payment from the loan to pay contractors working on the project. 

What This Means for You: Drawing may be necessary to keep construction projects on track and ensure workers are satisfied. 

Due-on-sale provision

A clause in some mortgage contracts stipulates that if the property you have a loan on is sold, the lender is owed full repayment of the loan. 

What This Means for You: On the other hand, assumable mortgages are mortgages where you are able to transfer over the loan to the buyer of the property.


Earnest money

Sometimes referred to as a good faith deposit, earnest money is cash put down as deposit on a property to show you are serious in your intentions to buy.

What This Means for You: Earnest money may not be necessary in every scenario, but is popular in competitive buying markets. The specific amount will depend on the real estate market you’re buying in. If you’re working with an agent, get their insight on if earnest money is necessary and how much you should put down. 


Any type of lien, liability, or legislation that affects a property title and limits its usage or saleability in some way.

What This Means for You: Encumbrances are commonly thought of as a negative, however this is not universally the case. Nearly every property in the country is under an encumbrance of some kind. For instance, zoning laws that restrict residential properties from being used as commercial properties in certain areas are common. Mortgage liens result when you take out a mortgage as a home, restricting aspects of resale until you’ve repaid your loan. Other encumbrances, such as liens placed due to delinquent mortgage payments, are more serious. 

Equal Credit Opportunity Act (ECOA)

The ECOA is a federal law that aims to eliminate discriminatory lending practices, criminalizing the act of denying a loan or other types of credit to an individual on the basis of race, gender, sexual orientation, religion, or national origin. 

What This Means for You: Institutions that violate the ECOA may be prosecuted by the Department of Justice. The Consumer Financial Protection Bureau is responsible for enforcing compliance and investigating complaints of discriminatory lending practices.


Equity is the difference between what you owe on your mortgage and the fair market value of your home. Equity raises the more of your mortgage that you pay off, or if the value of your home increases. 

What This Means for You: Equity is one of the essential wealth building tools you have at your disposal. There are several ways you can use equity. You can use equity to access a larger down payment if you decide to move and purchase a home. A reverse mortgage allows you to save for retirement using your equity. And there are several loan options you can take to get cash on hand against your equity, such as a Home Equity Line of Credit (HELOC). 


Escrow refers to funds held by a third party to protect the interests of both parties in a financial transaction until certain conditions are met or a certain amount of time has lapsed. 

What This Means for You: Escrow will be required for different aspects of most real estate transactions. 

Escrow account

An account created at no charge to you to hold escrow funds. Generally, there are two types of escrow accounts used for different purposes. The first is to hold your earnest money deposit on a home, and protect your interests in the event that the transaction falls through. The second type of escrow account is typically established for your home insurance and taxes. This is set up by the lender and you deposit each month into the account as part of your mortgage payments.

What This Means for You: When you deposit earnest money in an escrow account, the amount will be held until the transaction closes. On the day of closing, the funds will be released and applied towards your down payment. 

Escrow analysis

A period analysis to ensure that your escrow account retains the proper amount of funds to meet upcoming payments for insurance and property taxes.

What This Means for You: Escrow analysis helps ensure your escrow account is properly funded and that you’ll be able to make payments, helping you avoid possible non-payment fees. 

Escrow overage

An escrow overage occurs when you pay more than is necessary into your escrow account. Typically, this occurs when your mortgage company has miscalculated the cost of insurance and taxes. 

What This Means for You:  An escrow overage is greatly preferable to an escrow shortage, and when it occurs your mortgage lender will send you an overage check to make up the difference. 

Escrow shortage

An the opposite end from an overage, a shortage occurs when your account doesn’t have enough funds in it to meet your insurance and tax payments. Similarly to an overage, a shortage usually occurs due to a miscalculation by the mortgage company. It is much more common than an overage, as your taxes and insurance may be more than initially thought. 

What This Means for You: If you have an escrow shortage, reach out to your lender to determine the best course of action. Typically, you will have payment options to make up the shortage either in a lump sum or a monthly payment plan. 

See the How do you apply my home loan payment? FAQ in the Making mortgage payments section on our FAQ page.


Fair Credit Reporting Act (FCRA)

A federal law mandating that credit reporting agencies supply accurate, accessible credit information and requiring the provision for free annual credit reports. The law governs the conduct of credit reporting agencies.

What This Means for You: The FCRA helps protect you as a consumer, ensuring information is accurate when listed on your credit report, giving you the right to contest information you believe is inaccurate, and allowing you to access an annual report from each of the three major reporting agencies, Equifax, TransUnion, and and Experian. You can go to this website to access yours. 

Fair market value

The fair market value of your home is typically its selling price, assuming external factors and circumstances don’t affect the sale amount. To generate this number, an appraisal is required. 

What This Means for You: Remember that as the buyer, you’ll be responsible for appraisal fees and should be rolled into your buying budget. 

Fannie Mae

Federal National Mortgage Association is one of two federally established and backed mortgage companies. Fannie Mae, like Freddie Mac, does not originate its own loans. However, it does guarantee and back loans for the purpose of buying and selling them on the mortgage securities market. They help secure loans from financial institutions across the country, making loans more affordable as smaller lenders assume less risk. 

What This Means for You: Loans that are available to be backed by Fannie Mae or Freddie Mac are called conforming loans, and while they may have more stringent requirements to qualify for, conforming loans typically come with lower interest rates. 

Federal Housing Administration (FHA)

An agency of the Department of Housing and Urban Development, the FHA provides a variety of mortgage services. Their main responsibility is to provide mortgage insurance on loans made by FHA-approved lenders. These loans are known as FHA loans, and are a form of government backed loans. 

What This Means for You: FHA loans can be a great option for buyers, especially first time buyers who may struggle to come up with a full 20% of the purchase price for a down payment. 

Fee Simple

A fee simple is a term that refers to a property owner’s complete and total ownership of a piece of land. This is a technical term you may encounter during the mortgage process. 

What This Means for You: In the case of fee simple, you have the right to sell or pass down the property however you like. However, despite total ownership of the property, you are still subject to government rules regarding taxes, land use, etc. Fee simple can help understand the difference between a property with a loan on it vs. one that is fully paid off. 

FHA home loan

FHA loans are insured by the Federal Housing Administration, and are intended to help give more access to borrowers for whom large down payments and stringent loan qualifications may make home buying inaccessible. 

What This Means for You: If you qualify, FHA loans allow you to purchase a how with a downpayment as little as 3.5%. Credit score requirements are also lower than many conventional loan options. On the other hand, FHA loans do have caps on how much you can take out based on a lending ceiling set by the FHA. The market where the property is located, and property type, all affect how large the loan can be. 


The Fair Isaac Corporation is well known for utilizing a formula to analyze credit worthiness. This is commonly know as your FICO score,  which can range between a low of 300 and a high of 850. When your rate is higher, you are considered a more attractive borrower. Your credit score can be raised by paying credit bills on time, making loan payments on time, and not taking out too many loans simultaneously.

What This Means for You: Your credit score is a crucial factor in analyzing your worthiness as a borrower. Ensuring you make payments on time will help raise your credit and allow you to access a better loan.

Finance charge

A finance charge (for instance an interest rate), that is assessed to you as the borrower when accessing the credit of a financial institution.

What This Means for You: The Truth In Lending Act requires all lenders to disclosure a full list of fees, including finance charges. 

Fixed-rate mortgage

A mortgage where your interest rate stays the same over the life of the loan. Fixed-rate mortgages are the most common form of mortgage loan, and come with different terms (or lengths of time). These can include 15, 25, or 30 year mortgages, which are the most common.

What This Means for You: Fixed-rate mortgages are a more stable alternative to adjustable-rate mortgages, where your interest rate goes through periods of adjustment based off the current market rate. 

Fixed-rate option (Fixed-Rate Loan Option)

An option available for some Home Equity Line of Credit (HELOC) loans where you may be able to lock in fixed rate for an additional fee. 

What This Means for You: As opposed to a traditional HELOC, when you have a fixed-rate option you aren’t shut off from access to additional credit. 

Floating rate

Also known as a variable rate or adjustable rate, a floating rate is a type of loan where your interest rate will go through adjustment periods. During these adjustment periods, your interest will be raised or lowered depending on market conditions. There are caps that determine how high or low a floating rate can vary in any given adjustment period. 

What This Means for You: Floating rate mortgages may benefit certain scenarios, while being less advantageous for others. They work better for short term loans or when you plan to sell in the near future so you can take advantage of low rates within the market. 

Flood certification

Also called a flood determination and certification, this is a document that determines whether or not a property is located within a FEMA-designated flood zone or not.

What This Means for You: Depending on the determination, a flood certification may lower the property value, or require you to pay more in insurance fees to protect from possible flood damage. 

Flood insurance

Insurance purchased to protect from possible flood damage. In federally identified flood hazard zones, flood insurance is often a legal requirement for property ownership. 

What This Means for You: It’s important to consult with your realtor and mortgage broker if purchasing a house in a flood hazard zone is a good investment. Flood zones may 

Forbearance and forebearance agreements 

If a short-term crisis affects your ability to make mortgage payments, you may into enter forbearance, or a forbearance agreement. During forbearance, your payment amount may be reduced or paused. When you enter into a forbearance agreement, your lender agrees to not take legal action, such as a foreclosure, against your property in exchange for a payment plan or structure to bring your current on your mortgage payments over time.

What This Means for You: While payments may be paused, it’s important to remember that interest will still accrue during forbearance. 


Foreclosure may occur when you default on your loan (fail to make payments). Foreclosure is a legal process that gives lenders the right to evict you and reclaim the home based on the unpaid loan. Foreclosures may make it more difficult to obtain a loan in the future. 

What This Means for You: On average, four payments are missed before foreclosure is initiated. However, this can vary greatly by lender, market, and other factors. Avoiding forclosure is crucial, so if you’re having trouble making payments discussing forbearance, government assistance, and deferred payments may be crucial. 


Forfeiture of an asset occurs when you violate an obligation or legal agreement. 

What This Means for You: Forfeiture can result from several scenarios, including land use violations, violation of will terms, or as an agreement to avoid foreclosure, which is a more costly process for you and the lender. 

Form 1098

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A legal tax form that reports the amount of interest and points paid during the previous year.

Freddie Mac

The Federal Home Loan Mortgage Corporation is a government-established agency responsible for securitizing mortgages, as well as selling and buying them on the secondary mortgage market. They are one of two federally-founded companies that serves this role, along with Fannie Mae.

What This Means to You: Like Fannie Mae, Freddie Mac helps provide more affordable loans to you by securing loans from thousands of lenders across the country, providing them with more security and incentive to provide more affordable mortgages. 

Funding date

The official date when funds are released from a loan for the borrower to access. 

What This Means for You: Keeping track of your funding date will help you manage your mortgage closing process. 


Good faith estimate (GFE)

A detailed document your lender must provide you with when you apply for a reverse mortgage. It includes all estimated costs of the mortgage to give you an accurate estimate of mortgage expenses. 

What This Means for You: A good faith estimate does not require you to accept a loan offer. In fact, it is valuable to use your GFE to shop around for the best mortgage rate. 

Government loan

A loan insured through a federal agency to provide greater loan access for more Americans. Government-backed loans are insured through either the Federal Housing Administration, Department of Veterans Affairs, or the US Department of Agriculture. 

What This Means for You: Government-backed loans are designed to help buyers who may not qualify for traditional loans, or have trouble meeting down payment obligations. A primary hallmark of government backed loans is reduced down payments, such as a 3.5% down payment for FHA loans or nothing down for VA loans. 

Government National Mortgage Association (GNMA or Ginnie Mae)

Overseen by the Department of Housing and Urban Development, Ginnie Mae guarantees timely payments on mortgage-backed securities. Ginnie Mae helps stabilize the mortgage market and allow for more affordable housing across the nation.

What This Means for You: Unlike Fannie Mae or Freddie Mac, Ginnie Mae is managed directly by the US government to help ensure stability and availability of more affordable housing. 


Home equity line of credit (HELOC)

A second mortgage than can provide up to 85% of the equity amount in your home. To generate how much loan you can get, lenders will look at the current value of your home against what you currently still owe on your loan. The difference between these two numbers is your equity. HELOC’s typically have a 30 year term, with a 10 year draw period (where you can access funds) followed by a 20-year repayment period where you reimburse the lender.

What This Means for You: HELOCs are popular among homeowners looking to take on large home renovation projects. It’s important to weight the pros and cons of a HELOC, as it essentially serves as a second mortgage. Discuss with your broker and financial planner if a HELOC is a financially viable option for you. 

Homeowners insurance

Insurance that protects your home from natural disaster, house fire, and other damage. Homeowners insurance may also cover liability (if someone is injured in your home), theft and vandalism, and more. 

What This Means for You: Homeowners insurance is a crucial part of your home-owning journey, and is not something you should pass up on. While not required by law, in most circumstances you will be contractually obligated by your mortgage agreement to purchase homeowners insurance. This is so lenders can protect their investment in the event of a disaster.

House hacking: The process of purchasing an investment property, occupying a unit, and renting out the other units to tenants to mitigate your own mortgage costs and generate passive income. 

What This Means for You: House hacking has become a popular way for buyers to start their property investment journey as it both provides a place to live while providing long-term income. 


An acronym for the US Department of Housing and Urban Developement. This federal agency serves a variety of roles, from administering the Federal Housing Administration to overseeing Fannie Mae and Freddie Mac. 

What This Means from You: HUD provides a variety of housing services for US citizens, from providing low income housing to securing FHA loans so you can access lower borrowing standards and access lower down payment structures. 


Impound account

An account where escrow funds are placed by a lender.

What This Means for You: See impounding.


The process of collecting and placing (or impounding) funds from a borrower into an escrow account by the lender. These funds are then used to pay property taxes and insurance costs on your home.

What This Means for You: Impound accounts and impounding typically costs you nothing, and is simply a safeguard set up by the lender to ensure there are enough funds to pay necessary taxes and insurance. 


Any form of profit generated from wages, compensation, commission, dividends, investment income, or any other form of money you earn or generate. 

What This Means from You: Income is a key indicator of your ability to pay off your loan and is something lenders look thoroughly at. Having a consistent form of income is important to illustrating for lenders you will be able to sustain payments on your loan. 

Income property

See investment property. 


In the mortgage industry, index refers to a benchmark rate used determine interest rates for adjustable or variable rate loans in a given adjustment period. 

What This Means for You: When you have an adjustable-rate mortgage, the you should keep an eye on the index rate so you can try to anticipate how your rates might change in a given adjustment period and plan for them. 

Inflation rate

A general increase in prices for goods and services over time, usually represented by a percentage. 

What This Means for You: Inflation can affect the cost of nearly everything, from consumer goods such as groceries to housing prices and services such as appraisal, inspection, and more. A variety of macro and microeconomic factors can affect inflation. 

Initial advance

The first advanced disbursement of funds from a loan.

What This Means for You:  Your initial advance may be funds that go towards your initial mortgage payments at closing. 

Initial draw amount

The initial amount you can draw from a Home Equity Line of Credit (HELOC) or construction loan at closing times.

What This Means for You: The initial draw amount will be negotiated directly with your lender. 

Initial rate

An opening rate for an adjustable-rate mortgage, sometimes called a teaser rate, that is lower than standard rate. This is offered as a means to incentivize you to sign on. 

What This Means for You: The initial rate may remain for a varied period of time, from a few months to a few years. It will be adjusted back to the higher mean rate during the first adjustment period. 


A credit check that appears on your credit report acknowledging that potential lenders have pulled your credit. 

What This Means for You: There is a misconception that all inquiries can adversely affect your credit score. However, soft credit inquiries for processes like pre-approval rarely do this. However, if you are having inquiries for multiple loan types at once, this may cause your score to drop as it is considered negative borrower behavior. 

Installment loan

A taken out in a lump sum and then repaid to the lender in installments. Technically, all mortgages are a form of installment loans where you have the purchase price of a house provided for you and you pay it back in monthly installments.  

What This Means for You: A variety of personal finance loans function as installment loans. 


Insurance refers to the process of paying a third party a monthly fee to have them protect your assets in the event of accident, theft, or other adverse events. 

What This Means for You: Insurance can be purchased for a variety of investments, from cars and motorhomes to expensive electronics. In the real estate industry, mortgage lenders require you to purchase homeowners insurance to protect their investment in the property. 

Insurance binder

A temporary proof of coverage provided by an insurance company showing that you have purchased coverage for a potential home. An insurance binder is replaced by the actual policy once you close on a home.

What This Means for You: An insurance binder is helpful as it informs potential lenders that you have completed your obligation to acquire homeowners insurance. 

Insured mortgage

An insured mortgage protects the lender in the event that you default on your mortgage. 

What This Means for You: Some borrowers may confuse an insured mortgage with homeowners insurance, which protects your property in the event of disaster or accident. An insured mortgage, however, is for the benefit of the lender, not the borrower. 

Interest accrual rate

A rate at which interest accrues on the principal amount of a mortgage. 

What This Means for You: An interest accrual rate is primarily used to determine monthly payments you’ll make on your mortgage. 

Interest-only loan

A type of non-conforming loan where you as the borrower begin the loan term by only paying down on the interest of the loan. After this initial period, typically 5-10 years, you begin making payments on both the interest and the principal. 

What This Means for You: Because they are non-conforming (not backed by Freddie Mac or Fannie Mae), interest-only loans may be hard to come buy. Most typically also include a form of rate adjustment, where your interest rate may change after the locked-in interest only period you began the loan with. 

Interest rate

The annual amount a lender charges a borrower on the principal of their loan. Interest rates are typically expressed as a percentage. 

What This Means for You: Interest rates are one of the fundamental components of mortgage expenses. They can be thought of as the fee a lender charges you for access to their funds. Interest rates are influenced by a variety of market factors, and can go up and down from day to day, though they tend to follow general trends of raising or lowering. Most borrowers hope to buy when interest rates are low, but this also means the housing market is likely more competitive. Additionally, your creditworthiness and general finances affect the interest rates you can access. 

Interest rate cap

During adjustment periods for adjustable-rate and variable rate mortgages, an interest rate cap 

determines how high a mortgage rate can be raised. 

What This Means for You: The interest rate cap helps protect you as the borrower from facing an astronomical hike in your interest rate during a single adjustment period. The benchmark rate is determined by the mortgage market, so a rate cap serves to mitigate extenuating fluctuations that can happen.

Investment property

A property purchased for the specific purpose of generating passive income through tenancy. Investment properties are a growing method of wealth investment.

What This Means for You: Investment properties can be a single house rented out, or multi-family apartment buildings with hundreds of units. Like a traditional property, most investment properties require mortgage loans for buyers to afford. The terms and requirements of these loans may differ from those when you are seeking a house to live in. 


Jumbo loan

Jumbo loans are a type of non-conforming loan that exceed the loan limits set by the FHA. These loans are not able to be securitized or guaranteed by Freddie Mac or Fannie Mae. Because they’re non-conforming, jumbo loans are harder to get than traditional mortgages. 

What This Means for You: Primarily, jumbo loans are used to purchase luxury properties or to compete in highly competitive local markets. Because of their unique status, jumbo loans often come with different requirements to qualify for one, as well as unique stipulations within the loan agreement itself. 


No entries for this letter.



Your outstanding debts, whether short term (like a car loan) or long term (like a mortgage).

What This Means for You: Lenders will look at your outstanding liabilities to determine your debt-to-income ratio when applying for a mortgage. 

Liability insurance

See: Homeowners insurance


A legal term for a creditor or lender’s claim to your property for outstanding debts. 

What This Means for You: A lien can be either a neutral or bad thing. When you take out a mortgage, you will have a lien on your home until it is fully paid off with the lender. Liens entitle lenders to initiate foreclosure proceedings if you fail to make payments on time. 

Lien holder

The entity responsible for placing a lien on your property. 

What This Means for You: Commonly, your bank or lender will place the lien when it comes to a lien on your home. 

Lifetime adjustment cap

Similar to other adjustment caps, a lifetime adjustment cap dictates how high a rate can raise on during your loan. In this case, it doesn’t just determine the maximum during a given adjustment period but throughout the course of the entire loan term. 

What This Means for You: A lifetime adjustment cap helps protect you in the event that mortgage rates continue to rise. After a certain point, your rate will not be able to rise anymore for the life of the loan.

Line of credit

A line of credit is extended by a lender for a borrower to use, and is typically borrowed against the value (equity) of their home.

What This Means for You: Lines of credit are commonly seen in Home Equity Lines of Credit (HELOC), and are commonly used for home renovations or other similar ventures. 

Loan commitment

A formal document indicating that you of the borrower have agreed to the loan terms and commit to meet them under penalty of foreclosure. 

What This Means for You: A loan commitment is one of the final steps in your closing process, and indicates that you are ready to take on the loan. 

Loan Estimate (LE)

A standardized form intended to give you a transparent understanding of what kind of loan you may qualify for. You submit your name, income, social security number, property address, estimated property value and desired loan amount, and a lender is then required to deliver a loan estimate to you.

What This Means for You: Loan estimates are required to be standardized to reduce predatory or unscrupulous lending practices, and make it easier for you as the borrower to understand and compare loan offers.

Loan modification

A change applied to one or more aspects of a loan agreement.

What This Means for You: Either you or the lender may request loan modifications depending on the circumstances.

Loan origination

There are two ways this term is commonly used. The first is a more broad definition that applies to the complete process of a lender taking your application, and originating a loan option from the information you’ve given. The term is also used to discuss the role of mortgage brokers, who help originate loans from different lenders for you.

What This Means for You: Always be sure to get clarity on how the term is being used if you don’t understand the context in which its being given. 

Loan term

See: Term

Loan-to-value ratio (LTV)

A measure meant to compare the value between the amount of your mortgage and the appraised value of your home. When you put more down on your principal through a larger down payment, you have a lower loan to value ratio, which is considered a positive. 

What This Means for You: When you have a higher loan to value ratio, you may be required to purchase mortgage insurance, which can be costly. 

Lock period

A lock period determines the amount of time before closing a loan when you can lock in an interest rate. This allows you to have some leeway with which rate you may be able to lock in depending on the market. 

What This Means for You: The lock period rangers from lender to lender, but typically allows for 60-90 days to make your decision. 


Manufactured housing

A home that is constructed fully at a separate location and then moved to a new location. 

What This Means for You: While mobile homes are the most commonly thought of form of manufactured housing, not all manufactured homes are mobile and many “mobile homes” are too expensive to move once attached to water and electricity lines. 


Margin refers to the percentage points added or subtracted from a adjustable-rate mortgage during adjustment periods.

What This Means for You: Margin is expressed as a percentage for clarity on both sides. 

Maturity date

The final date at which your loan must be repaid, including the principal, interest, and fees. 

What This Means for You: While it may seem far away, it’s important to always keep an eye on your maturity date and stay on track for all payments to avoid any issues when that date arrives. 

Mobile home

See: Manufactured Home

Modular home

Modular homes are a cheaper home alternative, where the house is assembled on site from prefabricated pieces, and is made to appear like a custom new build home.

What This Means for You: Modular homes have grown more popular in some areas across the country thanks to their ease of construction. 


A legal document that indicates a loan agreement for a home between you and a lender. The lender provides up-front financing for you to purchase a home, and you pay this agreement off in installements over a set term. The most common mortgage is a 30-year fixed rate mortgage.

What This Means for You: While 30-year fixed-rate mortgages are the most common type of home loan, there are a vast number of options to explore with your broker and lender. 

Mortgage insurance

Mortgage insurance helps protect lenders from scenarios where a borrower defaults. Mortgage insurance is commonly required if you cannot pay 20% down on a loan.

What This Means for You: This can be the downside of government-backed loans. While they allow you to put less down, you will often be required to pay mortgage insurance. 

Mortgage points

See: Points

Mortgage type

Generally, there are three common types of loans you may encounter. The conventional loans come in two varieties, conforming and non-conforming. Conforming loans are the most common type of loan, and are able to be guaranteed and securitized by Fannie Mae and Freddie Mac. Conventional non-conforming loans are those that do not fit the standards Fannie Mae and Freddie Mac, and thus cannot be guaranteed. An example of these is a jumbo loan. This loan type can be more expensive because of the risk associated with it. The final category of loans are government-backed loans. These are loans insured by a federal agency, including FHA, VA, and USDA loans. Government-backed loans exists to help potential borrowers who may struggle to meet the requirements of a conventional loan, or cannot meet down payment standards.

What This Means for You: An advantage of working with a mortgage broker is that they can help you sift through the wide variety of loans out there, and guide you to the option that best fits your financial and buying needs. 

Multi-family property

Multi-family properties have multiple units where tenants can live. They can be duplexes, condo buildings, apartment buildings and more. 

What This Means for You: Multi-family properties are a good form of investment property for those looking to expand their portfolio into real estate. 


Negative amortization

If your monthly payments are not enough to also cover the full interest, you may experience negative amortization. This that the interest is added on to the loan, meaning the amount you owe will continue to increase because you are not reducing the interest.

What This Means for You: To avoid the costly effect of negative amortization, always try to ensure you have enough funds to cover your full monthly payments. 

No closing cost loan

A loan where you are not required to pay up front for closing costs on your closing date. Instead, the closing costs are added to the principal or interest of the loan and are paid off over time.

What This Means for You: If you’re struggling to meet all of the closing costs, it may be worth exploring a no closing cost loan with your lender. 

Nonconforming loan

See: Jumbo loan

Nonowner occupied

A property where the owner is not currently living or occupying. Usually used to differentiate types of rental properties.

What This Means for You: If you are a property investor, any property you own but do not occupy will be considered nonowner occupied. Some owners will purchase a property and live in it while renting other units out (see house hacking). 


A legal document identifying the agreed upon terms between the borrower and lender for a mortgage agreement.

What This Means for You: Your mortgage note will include the necessary information about your loan and serves as a binding agreement between you and the lender. 

Note rate

The interest rate identified within the mortgage note.

What This Means for You: Your note rate will be the previously agreed upon interest rate for your mortgage. 

Notice of default

A formal written notice to a borrower that a default has occurred and that legal action may be taken.


Option ARM

An option adjustable-rate mortgage (ARM) allows borrowers to choose between several types of payments. Borrowers can choose between a 30-year full rate, a 15-year higher interest rate loan, or interest only payments.

What This Means for You: An option ARM may be a viable option if you want flexibility on how you pay off your loan. 


Origination refers to the process of your lender working with you to craft and deliver a mortgage loan. Alternatively, there are originators such as mortgage brokers who facilitate the origination process for you. 

What This Means for You: The mortgage process can be complicated which is why many borrowers choose to work with loan originators to help the navigate. 

Origination fee

A fee charged by a broker or lender institution for the process of origination. This cost is usually presented as a percentage of the mortgage amount. 

What This Means for You: Origination fees are yet another closing cost you need to prepare for and ensure you can meet when your closing date aririves. 


A property currently occupied by the owner of the property. 

What This Means for You: This may refer to investment properties where the owner also lives (house hacking) or simply refer to any home you own that you also occupy. 


Payment cap

A payment cap limits how much a monthly payment can be raised by during any given monthly payment period. They’re typically seen in conjunction with rate caps for adjustable-rate mortgages (ARMs) that cap how high a rate can raise annually or within a given adjustment period. 

What This Means for You: Payment caps help protect you in the event that rates skyrocket rapidly.

Payment change date

For borrowers that have an adjustable-rate mortgage, a given payment change date is when your rate will adjust. Typically your lender provides 30 days notice ahead of the change date to inform you of the incoming adjustment. 

What This Means for You: Paying attention to your payment change date is crucial to properly managing your mortgage payments and avoiding payment jumps your were unaware of. 

Per diem interest

The amount of interest accrued on a mortgage per day. 

What This Means for You: Typically, per diem interest is used to charge interest on the loan for the days in between your closing date and the official start date of the mortgage loan. Inquire with your lender about their per diem interest policies. 


An acronym for principal, interest, taxes and insurance. Sometimes called a monthly housing expense, this is a way to comprehensively understand the expenses you’ll have to pay on your home each month. 

What This Means for You: PITI can be a valuable way to budget for your home expenses, ensuring you cover all of your bases and understand your monthly payments. 


Points (also called mortgage points) are fees you pay to a lender at closing to help lower your overall interest rate, often referred to as “buying down the rate.” Typically, each point costs 1% of the total mortgage. So, for a $500,000 loan, you’d pay $5,000 for one point.

What This Means for You: When you purchase a mortgage point, it usually lowers your overall interest rate by 0.25 percent. Points are advantageous because they help reduce the total interest that can accrue long term on your mortgage. 


A starting process where a borrower submits financial information so that a lender can deliver an estimated loan amount they qualify for. This estimation will be listed in a Letter of Pre-Approval, which can be used to show sellers creditworthiness and your intention of moving forward with the purchase of a property.

What This Means for You: Pre-approval is a valuable tool for borrowers. It allows you to more accurately shop for homes by having a cursory understanding of the loan amount you may qualify for. However, it is important to remember that pre-approval is not a guarantee of a loan. 

Prearranged refinancing agreement

An agreement between a lender and a borrower where the lender agrees to incentives such as reduced mortgage costs on a later refinance transaction to make the initial mortgage more appealing.

What This Means for You: If you work with a lender that you like and trust, a prearranged refinancing agreement may be a good way to access a more affordable refinance down the line.

Preforeclosure sale

See: Short sale

Prepaid expenses

Expenses separate from closing costs paid ahead of time on your mortgage. These may include initial escrow deposit, homeowners insurance premium, real estate property taxes and mortgage interest.

What This Means for You: Buyers sometimes get prepaid expenses mixed up with closing costs. It’s always important to consult with your lender to ensure every fee is accounted for and listed ahead of time. 

Prepaid interest

Also called interim interest, prepaid interest accrues during the period between signing your loan and your first mortgage payment. 

What This Means for You: Prepaid interest is charged upfront by the lenders as part of your closing costs. 


A form of payment where you exceed the monthly payment, reducing the total principal amount to shorten a loan’s term and pay it off in fewer years. 

What This Means for You: Prepayment can be advantageous if you have the budget to make increased payments. However, be aware that depending how quickly you pay off your loan, you may be required to pay a prepayment penalty. 

Prepayment penalty

A penalty you may face for paying your mortgage off ahead of its agreed upon term (paying it off early). Prepayment penalties usually don’t kick in when you simply make higher monthly payments on occasion to reduce your overall principal. Instead, they’re usually seen when you pay off large portions of your mortgage at a single time.

What This Means for You: Not all mortgage lenders require pre-payment penalties. Check with each lender you’re interested in to see their prepayment penalty policy.


See: Pre-approval

Prime rate

An interest rate charged by banks when working with their “best” clients for loans. Best is defined by a borrower with an extremely low likelihood of default who thus represents a safer bet for the mortgage lender. 

What This Means for You: Generally, prime rates are the lowest amount of interest a lender is willing to charge a borrower, allowing the best qualified borrowers to access the most affordable rates. 

Principal & interest

These two terms will commonly appear in your mortgage discussions. Principal is the full amount of a mortgage loan you take out. Interest is a percentage of the principal over time as a sort of service fee from lenders for allowing you to access their funds.

What This Means for You: Paying down the principal can help reduce your interest as it reduces the total dollar amount the interest can be charged on, for instance a 3.85% average annual interest rate on a $500,000 loan vs. the same interest rate on a $400,000 loan. However, it is important to ensure you still pay 

Principal balance

The remaining balance of left on your mortgage. This number does not include interest or other fees. 

What This Means for You: Monitor your principal balance to get a good understanding of your loan timetable and analyze steps you can take to pay down the principal faster.

Principal payment

Each month, your mortgage payments go to both the principal and the interest. A principal payment refers to the part of your payment that lowers the principal amount. 

What This Means for You: Always keep in mind that the principal payment is only one part of what you will owe within a given month. 

Private mortgage insurance (PMI)

See: Mortgage insurance

Processing fee

A fee assessed by lenders for the act of processing loan agreements. 

What This Means for You: Processing fees can greatly vary depending on your particular lender. Always confer with your lender to get a full picture of all fees that are associated with your loan. 

Purchase agreement

An agreement between the buyer and seller of a property that outlines details of the property purchase including things like purchase price, title transfer details, date of the transaction, and more. 

What This Means for You: A purchase agreement is an important legal document that you will want to keep with your other mortgage documents. 


Qualifying ratios

A method of calculating if a borrower qualifies for a loan from a financial institution as part of the underwriting process. Underwriting is the process of accepting liability on the part of the lender. A qualifying ratio uses different metrics such as debt-to-income ratios and the housing expense ratio to determine the viability of a given borrower.

What This Means for You: Qualifying ratios are one of the most important determinations in your loan eligibility. However, they’re generally made up of different information you will have already submitted to your lender throughout the application process. 



Also referred to as an interest rate, a rate is the amount of interest you are required to pay annually on the principal balance of your loan. It is expressed as a percentage of the total loan amount. 

What This Means for You: Rates come in different forms and functions. The most popular rate is called a fixed-rate, and is locked in when you sign your mortgage. Through the life of that mortgage, the interest rate you pay will be the same through the life of the loan. Alternatively, you may get an adjustable-rate or variable-rate mortgage, where the interest rate is locked for a shorter amount of time before interesting into a series of adjustment periods where the rate is matched to the current market rate. 

Rate cap

See: Interest rate cap

Rate lock

An agreement made between lender and borrower that your interest rate on your mortgage will not be changed between an offer and closing. Typically, rate locks can be made available for 30, 45, or 60 days depending on the lender and specific agreement. 

What This Means for You: While rate locks can be advantageous, there are some things you should consider. If your transaction ends up taking longer, you may need to pay a fee to extend the offer. Alternatively, if rates go down between your lock and closing date, you will still be obligated to sign at the agreed to rate. 

Rate reduction option loan

A form of a loan that hybridizes a fixed-rate mortgage with an adjustable-rate mortgage. In this loan, borrowers may be able to access a lower interest rate if average rates fall below a specific amount in a given year. You can then lock in this rate for the remainder of your loan. 

What This Means for You: Reduction-option loans are less common, but may still be worth considering if you believe the market is headed in a fortuitous direction. 

Real Estate Settlement Procedures Act (RESPA)

A federal law that requires proper disclosure of all information related to a settlement or closing agreement by the lender. It was enacted to help protect you as the buyer from untoward actions as well as hidden fees and provisions. 

What This Means for You: In addition to settlement and closing disclosures, lenders are also required to inform you of your rights under consumer protection laws, and limits excessive usage of escrow accounts. 


Sometimes called a mortgage recast, reamortization occurs when you pay a lump sum to bring your total principal down. Your lender may then reamortize the loan, where you have lower monthly payments because the principal has gone down but your interest rate and loan term remain the same. 

What This Means for You: Recasting your mortgage can help reduce monthly payments, but you should also ensure that you won’t be subject to any prepayment fees, which sometimes occur when you pay too much on your loan at once or when you pay off the total loan early. 

Recording fee

A charge, typically applied by a registrar of your local or county government. This fee is paid for the process of recording your real estate transaction, such as the change on a title or deed to a property. The person who conducts this process is called the recorder.

What This Means for You: While recording fees are typically significant, they should still be factored into your overall closing cost budget. 

Reduced documentation

A loan option for borrowers with non-traditional financial situations. Typically, you can acquire a reduced documentation loan when by providing some proof of income but not its source. In these scenarios, lenders tend to put a higher emphasis on credit score. 

What This Means for You: Typically, reduced documentation borrowers have non-traditional streams of income such as self-employment or investment-based incomes. 


When you refinance, you utilize a new loan to pay off the balance of your existing loan, and take on a new loan term. Borrowers typically refinance to lower their overall monthly payments and shorten the remaining loan term. 

What This Means for You: Refinancing can be useful for a variety of scenarios. Typically, borrowers are interested in reducing monthly payments or loan term, but refinancing may also allow you to tap into home equity to assist with financial emergencies, or so you can fund remodeling projects.

Rehab Loan

Rehab loans allow borrowers to purchase dilapidated or damaged properties, and helps fund both the purchase and rehabilitation process of the property. 

What This Means for You: Unlike a fix-and-flip loan, intended for property investors, rehab loans are typically granted for borrowers who plan to occupy the property they plan to occupy or are currently occupying. Rehab loans may also be available in the form of refinancing, helping you cover the costs when a disaster or other situations have caused significant damage to your home. 

Repayment period

The given period you have to repay a loan back to the lender. This is typically established within the loan agreement and is typically called the “term.”

What This Means for You: Repayment periods can vary from loan to loan. Always communicate with your lender about what it means for you. 


The cancellation of a mortgage contract. 

What This Means for You: Typically, you have a set period of time where you can cancel an agreement with a lender, though this may vary from institution to institution. 


Money set aside by you as the borrower, separate from your down payment and closing costs, that can cover unforeseen expenses and financial circumstances. 

What This Means for You: Some lenders may require proof of reserves before proceeding with the lending process. The amount may vary but typically you’ll be required to have enough for at least two mortgage payments. 

Right of first refusal

An agreement between two parties where the seller of a property is required to give anothe party the first opportunity to purchase before offering it to other buyers. 

What This Means for You: The specific scenario where this situation occurs can vary widely by county or locality. One common scenario is that owners of rental properties may be required to offer tenants the opportunity to purchase a property before selling to other investors. 

Rural housing loan

Also called a USDA loan, rural housing loans are administered by the US Department of Agriculture and help provide loans to buyers who want to purchase properties in qualifying rural areas across the country. 

What This Means for You: Rural housing loans come with several incentives, such as lowered down payment requirements, for low to moderate income buyers who qualify. 


Second home

A secondary home, such as a vacation home, only occupied part time by an owner.

What This Means for You: Second homes may be subject to different mortgaging requirements due to the residency status of the owner. 

Secured loans

Loans where the borrower securitizes the loan through collateral assets, such as real estate, or vehicles. 

What This Means for You: Secured loans may make it easier to get lower interest rates. However, if you default on your loan, the lender can seize your securitized assets as collateral to cover the loan expenses. 


When you take out a loan on a property, it serves as a security for lenders. If you fail to pay back your loan, they may foreclose on the property and resell it to recoup their investment. 


The completion of an agreement for a property purchase which sets in motion loan funds to be distributed. 

What This Means for You: Always confer with your lender to better understand the period between settlement and when loans will be distributed.

Settlement agent

The person responsible for overseeing and finalizing the legal obligations of a settlement on a property.

What This Means for You: A settlement agent can be a number of different parties, but are usually attorneys that help ensure every legal statute of transferring property ownership is correctly met. 

Settlement costs

See: Closing costs

Short sale

An alternative sometimes offered to foreclosure. In this scenario, a lender allows a borrower to list the property that is being foreclosed on for sale as a form of loan repayment. In this scenario, the lender has agreed that the borrower has experienced financial hardship and thus is willing to accept less than the full loan amount in return. 

What This Means for You: Not all lenders accept short sale options. Speak with your lender about their short sale policies ahead of purchase. 

Single-family residence

A residence not integrated into any other structures, also known as a detached residence. Single-family homes often are built in specifically zoned areas where they are separated from commercial or multi-family housing units. 

What This Means for You: The type of residence you purchase may entitle it so specific purchase incentives depending on your area. 

Start rate

The first rate you’re given for an adjustable-rate mortgage (ARM). Typically, this rate is lower at the beginning to help incentivize you to sign on. Also called an intro rate.

What This Means for You: While the start rate can be tantalizing, keep in mind that after an adjustment period you may not have the same low rate. 

Swing loan

See: Bridge loan



The lifetime of your loan, or in other words the total number of years you will be expected to pay off your mortgage. 

What This Means for You: Mortgage terms are one of the fundamental aspects of a mortgage agreement that you will be negotiating. The most common mortgage term is 30 years, which typically offers lower, more stable monthly payments. Another common term is 15 years, which is an accelerated schedule that typically requires higher monthly payments. 

Third-party fees

These fees are charged by external parties involved in the mortgage process, such as for appraisals or credit reports. 

What This Means for You: Third-party fees are an integral part of your closing costs, and should be factored into your total budget for closing. 


A document that specifies ownership of a property. Titles are transferred during the purchase process to identify a change of ownership. 

What This Means for You: You may be responsible for the fees that come with changing the information on your title with your local recorder. 

Title company

A title company investigates the status of a property’s title and establishes if there are inconsistencies with its history.

What This Means for You: Finding a reputable title company is important to ensure a transparent and timely process. 

Title insurance

Title insurance helps protect you from inconsistencies or issues that may be discovered during the titling process. 

What This Means for You: When you have title insurance, the titling agency works to remedy problems that may arise. 

Total expense ratio

See: Debt-to-income ratio

Transaction fee

A fee that is applied when you draw on a line of credit. 

What This Means for You: Transaction fees can range by the type of lender or type of credit you’re currently accessing. 

Treasury index

See: Prime rate


If you have a deed of trust as opposed to a mortgage, you will encounter a trustee. The trust is tasked with holding on to the title of your property until the mortgage is paid off.

What This Means for You: The trustee serves a vital role in the foreclosure process. When you are foreclosed upon with a deed of trust, the lender does not need to go through the courts to complete the foreclosure. 

Truth in Lending Act

A federal law intended to help protect borrowers from predatory or unfair lending practices. Primarily, it determines what information has to be disclosed by lenders and credit companies. Additionally, it illegalizes loan originators from receiving kickbacks for steering borrowers towards loan options with more unfavorable rates or stipulations. 

What This Means for You: The Truth in Lending Act is vital in protecting you from unfair lending practices. However, it does not govern the rates lenders are able to charge you. 


Unapplied Funds

If you don’t make full payments on your mortgage, the funds might instead be put into a separate part of your account as unapplied funds.

What This Means for You: If you’re making partial payments at a small time, you need to direct your lender to apply these funds to your account.


The underwriter is responsible for approving or denying your loan based off of the available information and the standards of the lender.

What This Means for You: Your underwriter holds an important role in the loan process. To meet lending standards, it’s important to confer with your broker to ensure you have all of the necessary information. 


The underwriter for your lender undergoes a process where they review and verify your assets, income, debt, and property details to make an educated decision about whether or not to grant you a loan. 

What This Means for You: The timetable for underwriting is partially determined by how quickly you are able to submit all of the necessary documentation needed for them to make their relationship. 

Uniform Residential Loan Application (1003)

This is a standardized form published by Fannie Mae and also utilized by Freddie Mac. Because of its high pedigree, this is the application form many lenders across the country utilize when you seek a loan. 

What This Means for You: While not required for every single mortgage type or from every lender, this will generally be the form you utilize when seeking a conforming loan. 

Unpaid Principal Balance

A portion of the loan that is outstanding to your lender, or in other words, the portion of your loan left to be paid back.

What This Means for You:  Your unpaid principal balance only represents one part of your outstanding mortgage payments, as it does not factor in interest still owed on that remaining balance. As such, it’s important to not get misled into thinking the unpaid principal balance is the only money left that you owe. 

Unsecured lines of credit

A form of credit loan not backed by collateral, such as a home or other asset. 

What This Means for You:  Because they don’t protect risk to the lender, unsecured lines of credit often come with much higher interest rates than secured lines of credit. 

Upfront costs

Costs you incur and are required to be paid at the start of your mortgage process. The most common form is an application fee. Some lenders may have you pay a portion of closing costs upfront, but this is less common. 

What This Means for You: Budgeting for a mortgage involves various stages where you must plan payments. Upfront costs are just one form of these charges outside of the expense associated with the loan itself. 


VA loan

A government-backed loan administered by the Department of Veterans Affairs that allows active-duty service members, veterans, and surviving spouses to get loans with small or no down payments.

What This Means for You: To prove your validity for a VA Loan, you must acquire a Certficate of Eligibility from the VA to deliver to your lender.  

Vacation home

A second property that is occupied by the owner for part of the year. Vacation homes are different from rental properties and not eligible for loans targeted specifically to investment properties. 

What This Means for You: While they are not considered income-generating properties, you may be able to rent out your vacation property for some of the year depending on local statutes. 

Variable rate

Also known as an adjustable rate, a variable rate applies to a specific type of loan where your interest rate will be locked into for a set amount of time, typically 3-5 years, before going through adjustment periods and fluctuating based on the market interest rate annually. 

What This Means for You: Variable rate loans can be advantageous for those hoping to acquire favorable rates when they’re low. However, they can also become expensive if rates rise during adjustment periods.



An annual tax form that outlines your earnings in a given year, as well as the taxes withheld by your employer. 

What This Means for You: Your W-2 is used in the mortgage process to verify your income for lenders, so it’s important to have addressed any inconsistencies you may believe are present. 


An inspection conducted prior to settlement of your contract that ensures the condition of the property has not been altered since the initial agreement. 

What This Means for You: Your final walkthrough is important, and should be conducted carefully to ensure you take into account every detail of the property’s condition. 

Windstorm insurance

A specialized kind of insurance sometimes contractually stipulated for properties in certain areas subjected to high winds, wind storms, and other similar hazards.

What This Means for You: When looking at homes in coastal areas especially, be sure to inquire about windstorm insurance requirements. 


No entries for this letter.


Year-end statement

A statement that outlines your payments throughout the year that also identifies the outstanding balance on your loan. It records interest, points, and property taxes. 
What This Means for You: This statement is most commonly used to incorporate home payments into your annual tax filing.


No terms for this letter.

Mortgage Advice Mortgage Rates Real Estate Advice

A Look At The Maryland Housing Market 2022

Since the start of the pandemic, the housing market has been a chaotic buying environment, especially for first-time buyers. Early on, low rates led to an extremely competitive market where bidding wars and homes going far above the asking price were not uncommon. With the new year well underway, we wanted to take some time to analyze the state of the Maryland housing market and help you make your buying goals for 2022.

How Did We Get Here?

When the pandemic was first felt, there were concerns that a market crash may follow as buyers employ caution during uncertain times. However, that was quickly proven wrong as low-interest rates contributed to a run on the limited housing market in Maryland. If you’ve been hoping to buy over the last year, you may have encountered the challenges that come with a limited market, especially in hot buying areas such as Frederick or Columbia. Low rates can feed into bidding wars, cash transaction incentives, buyers taking on additional fees, and other challenges. If you were seeking to buy over the past year, you may have encountered these scenarios. The good news is that we may have a more accessible market on the horizon.

Where The Maryland Housing Market is Today

The housing market across the state remains hot according to both our experience and the available data. In 2021, homes only spent 7 days on average on market, as opposed to the 11 days spent in 2020. As that article by Norada highlights, buyers may still be stepping into competitive markets due to lower inventory across the state. As such, the median home price in the state rose 9.4% in 2o21, from $330,000 in 2020 to $361,000 in 2021. The situation gets more difficult when we look at active inventory, with only “6,447 units whereas in 2020 it was 10,385 units for sale.” These challenges have discouraged some homebuyers, however, there may be help on the horizon in the form of stabilizing mortgage rates that make for a more fair market for buyers.

Current Rates in the Maryland Housing Market

The average 30-year fixed-rate mortgage has risen to over 4.0% for the first time since the pandemic began in March 2020. On the surface, this may seem counterintuitive for buyers who would like the get the most affordable rate when purchasing a home. But low rates can help contribute to the situation we’ve seen over the last two years with high competition making it more difficult for average buyers to get in on the housing market. When rates stabilize, they can help cool off buying booms. What this means for you is that you may be able to find houses with fewer bidding wars or special conditions such as more down. This overall makes for a fairer houses process for buyers of all means.

What’s the Outlook for 2022?

As of now, it’s still difficult to determine exactly. The hope is that as rates continue to stabilize, the market will follow suit. However, in an era where pandemic fluctuations still persist and have the potential to create substantial slowdowns for the building material industry, it’s hard to know for certain. Another hope is that the price hike for home prices that was experienced in markets across the country will slowly begin to taper out as demand evens. Recently, the chief economist of predicted a price rise of 2.9%. While this is still an increase in price, it pales in comparison to the raise of over 9% Maryland saw in 2021.

As of now, it’s important to keep home buying expectations in check and be a prepared buyer. A great way to do that is by working with the right mortgage brokers to help you break into a competitive market. Being pre-approved, for instance, is a great way to help you appeal as a buyer. The team at Federal Hill Mortgage wants to help you get there. Apply today to get started.

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