Definitions for a few of the mortgage terms used on this website.
5/1 ARM
A 5-year ARM, also known as a 5/1 ARM, is a loan with a fixed rate for the first five years. After that, it has an adjustable rate that changes once each year for the remaining life of the loan. Because the interest rate can change after the first five years, the monthly payment may also change.
conforming loan
A conforming loan is a mortgage that conforms to Fannie Mae and Freddie Mac guidelines. The most well-known guideline is the size of the loan, which as of 2018 was generally limited to $453,100 for a single family home. Other guidelines include the loan-to-value ratio, debt-to-income ratio, credit history, and other documentation requirements.
conventional loan
A conventional loan is a mortgage that is not guaranteed or insured by any government agency, including the Federal Housing Administration (FHA), the Farmers Home Administration (FmHA) and the Department of Veterans Affairs (VA). It is typically fixed in its terms and rate.
fees and points
Origination fees and discount points charged by the lender at settlement. One point equals one percent of the loan amount.
FRM
A fixed-rate mortgage (FRM) is a fully amortizing mortgage loan where the interest rate on the note remains the same through the term of the loan, as opposed to loans where the interest rate may adjust or “float.” As a result, payment amounts and the duration of the loan are fixed.
Fannie Mae
The Federal National Mortgage Association (FNMA), commonly known as Fannie Mae, is a United States government-sponsored enterprise (GSE) and, since 1968, a publicly traded company.
Founded in 1938 during the Great Depression as part of the New Deal, the corporation’s purpose is to expand the secondary mortgage market by securitizing mortgages in the form of mortgage-backed securities.
This allows lenders to reinvest their assets into more lending and in effect increasing the number of lenders in the mortgage market by reducing the reliance on locally based savings and loan associations.
Its brother organization is the Federal Home Loan Mortgage Corporation (FHLMC), better known as Freddie Mac.
Freddie Mac
The Federal Home Loan Mortgage Corporation (FHLMC), known as Freddie Mac, is a public government-sponsored enterprise (GSE), headquartered in Tysons Corner, Virginia. Freddie Mac makes homeownership and rental housing more accessible and affordable.
Operating in the secondary mortgage market, Freddie Mac keeps mortgage capital flowing by purchasing mortgage loans from lenders so they in turn can provide more loans to qualified borrowers. Their mission is to provide liquidity, stability, and affordability to the U.S. housing market.
HomeReady® Mortgage
Offered by Fannie Mae, the HomeReady mortgage is designed to help lenders confidently serve today’s market of creditworthy low- to moderate-income borrowers.
interest rate
The interest rate a lender would charge to lend mortgage money to a qualified borrower exclusive of the fees and points required by the lender.
