While nearly all industries have lingo and jargon, not all industries are as likely to impact your life as is the mortgage industry. Basically, if you want to buy a house, you will likely need a mortgage. Knowing a bit about the common acronyms and jargon of the mortgage industry will be helpful during the home buying process.
This list is not in alphabetical order, but rather in the order you are likely to hear to terms.
Consumer: This word refers to you–a person looking to buy a house and needs a mortgage to do so.
Mortgage: A mortgage is a type loan that is secured against real estate, such as a house or a condo. Most consumers obtain one to help to purchase their home. The term ‘mortgage’ is also sometimes used to describe the consumer’s financial documents used to determine if the consumer has the ability to repay the loan.
Pre-qualified: This is a conversation with a loan officer who requests basic information about your income, assets and credit profile. A credit report is often run at this stage, but not always.
Loan Officer: A member of the Lender’s staff whose job it is to help you figure out the best mortgage program for your situation and help you through obtaining a mortgage. All loan officers are registered with the NMLS and a have a unique number that they will provide to you.
NMLS: NMLS refers to the Nationwide Multistate Licensing S All Lenders and Loan Officers will have their own unique NMLS number that you can look up at: www.nmlsconsumeraccess.org and see if there have been any adverse actions noted against them.
Pre-approval: In addition to your credit report, a pre-approval is a much more detailed evaluation of your financial situation. You will be asked to provide pay stubs, bank statements, W-2s, tax returns. All of your documentation (your file) is then given to an underwriter for evaluation and a decision. If a pre-approval is done, the only remaining requirements after it is issued are related to the property you eventually decide to purchase. A pre-approval is rarely done.
Underwriter: A member of the Lender’s staff whose job it is to evaluate consumer’s credit profile, financial situation, and the acceptability of the property, to determine if all items meet the applicable mortgage guidelines and any and all overlays.
Guidelines: These are the basic rules that are in place to determine if a consumer qualifies for a mortgage loan. These are usually established by the Agencies.
Agencies: This term refers to the major entities involved in purchasing and insuring mortgage loans. These agencies are: Fannie, Freddie, FHA/HUD, VA and USDA. These entities establish the basic guidelines or rules to qualify for a mortgage.
Fannie or Fannie Mae: This is not the candy story Fannie May, but the pronunciation of the acronym FNMA. It is short for the Federal National Mortgage Association, a well-known institution in the secondary mortgage market, buys mortgages from banks and other lending institutions to sell to investors. Only those mortgages that adhere to a very strict set of mortgage regulations are purchased, and the FNMA also guarantees repayment of these mortgages in principal and interest with a federal government guarantee.
Freddie or Freddie Mac: This is the pronunciation of the acronym for the Federal Home Loan Mortgage Corporation (FHLMC). It shares a lot in common with Fannie Mae. It is also a government-backed institution in the secondary mortgage market that buys mortgages from banks and other lenders and gives opportunities to individuals with lower incomes to finance home purchases.
FHA/HUD: FHA is the acronym for the Federal Housing Administration, which is a part of HUD, the acronym for the US Department of Housing and Urban Development. FHA provides mortgage insurance on mortgage loans made originated to FHA guidelines by FHA-approved lenders throughout the United States and its territories. It is the largest insurer of mortgages in the world, insuring over 47.5 million properties since its inception in 1934.
VA: The US Department of Veterans Affairs has jurisdiction over all aspects of Veteran benefits and services, including a their mortgage loan program for consumers who are serving or who have served in the US military. It allows for no down payment; or put another way, for 100% of the purchase price to be borrowed.
USDA or Rural Housing: United States Department of Agriculture offer a home loan program for to properties in designated rural areas for families with low to moderate income.
Overlays: This phrase refers to the rules that are above or on top of the guidelines. These are additional rules that a particular Aggregator or Investor has established that must be met before it will purchase a mortgage.
Aggregators: These are the big Lenders, such as Wells Fargo, Chase, BB&T or PennyMac. They are also referred to as Investors. They purchase mortgage loans from smaller banks and brokers, aggregate the loans together, and sell large pools of loans to the Agencies.
Brokers: A mortgage broker acts as an intermediary between banks or other lending institutions and consumers looking to borrow money. The broker helps you to evaluate your financial standing and determine which loan program from lending agencies are best suited your situation.