Basic Financing Concepts
This is the most common type of loan used to buy real estate.
What is a mortgage loan?
A loan with equal payments over its term.
What is a fully amortized loan?
This is the process of evaluating a borrower’s creditworthiness.
What is underwriting?
The cost of borrowing money expressed as a percentage.
What is interest rate?
Government agency that insures FHA loans.
What is the Federal Housing Administration (FHA)?
This term refers to borrowing money that must be repaid with interest.
What is a loan?
A loan where only interest is paid during the term.
What is an interest-only loan?
The first step where a borrower formally requests a loan.
What is a loan application?
A loan payment that includes both principal and interest.
What is a mortgage payment?
Agency that guarantees VA loans.
What is the Department of Veterans Affairs (VA)?
The difference between a property’s market value and what is owed on it.
What is equity?
A loan not insured or guaranteed by government agencies.
What is a conventional loan?
A document showing a borrower’s income, debts, and assets.
What is a financial statement or credit report?
Extra fees paid to lower the interest rate on a loan.
What are discount points?
The market where existing mortgages are bought and sold.
What is the secondary mortgage market?
This document outlines the borrower’s promise to repay the loan.
What is a promissory note?
A loan insured by the FHA.
What is an FHA loan?
The ratio comparing monthly debt payments to income.
What is debt-to-income ratio?
Interest calculated only on the principal balance.
What is simple Interest?
Two major entities that buy mortgages in the secondary market.
What are Fannie Mae and Freddie Mac?
The lender’s claim against property used as security for a loan.
What is a lien?
A loan backed by the VA for eligible veterans.
What is a VA loan?
The stage where the lender agrees to fund the loan.
What is loan approval or commitment?
Interest that is added to the principal and then earns interest itself.
The process of converting loans into securities for investors.
What is mortgage securitization?