USDA: United States Department of Agriculture: Rural Housing Service (RHS): Agency within the USDA. Located within the Department’s Rural Development mission area, RHS operates a broad range of programs to provide: homeownership options to individuals. Also know as RHS, 502 Guaranteed or RD – Rural Development.
Single Family Housing Guaranteed Loan Program (SFHGLP): “502 Guaranteed Program” The USDA 502 Guaranteed program assists approved lenders in providing moderate income households the opportunity to own adequate, modest, decent, safe and sanitary dwellings as their primary residence in eligible rural areas. The 502 program provides a 90% loan note guarantee to approved lenders in order to reduce the risk of extending 100% financing mortgages to eligible rural home buyers. The program is also commonly known as the USDA, Rural Housing, Rural Development or “RD” program.
Adjustable Rate: An interest rate that changes periodically in relation to an index. Payments may increase or decrease accordingly. USDA does not permit adjustable rate (ARM) terms. Only 30 year fixed rate loans.
Amortization: A repayment method in which the amount you borrow is repaid gradually though regular monthly payments of principal and interest. During the first few years, most of each payment is applied toward the interest owed. During the final years of the loan, payment amounts are applied almost exclusively to the remaining principal.
Annual Percentage Rate: Also known simply as APR, this is the cost of credit on a yearly basis, expressed as a percentage. Required to be disclosed by the lender under the federal Truth in Lending Act, Regulation Z. Includes up-front costs paid to obtain the loan, and is, therefore, usually a higher amount than the interest rate stipulated in the mortgage note. Does not include title insurance, appraisal, and credit report.
Application: An initial statement of personal and financial information is required to approve your loan. Applicants will need recent income documents, asset documents, and a copy of a valid ID.
Appraisal Fee: Fee charged by an appraiser to render an opinion of market value as of a specific date. Required by all lenders and banks to obtain USDA financing. For USDA loans, the appraisal fee is generally $500-$700
Appraised Value: An opinion of a property’s fair market value, based on an appraiser’s knowledge, experience, and analysis of the property.
Assumption of Mortgage: The agreement of a purchaser to become primarily liable for the payments on a mortgage loan. Unless otherwise specified by the lender, the seller may remain secondarily liable for payments. Assumptions are not permitted with USDA loans.
Cap: The maximum allowable increase, for either payment or interest rate, for a specified amount of time on an adjustable-rate mortgage.
Cash Out Refinance: Receiving money back when refinancing your present mortgage. Only permitted for homeowners that have sufficient equity to do so. USDA does not permit cash out on any refinance programs.
Ceiling: The maximum allowable interest rate over the life of the loan of an adjustable-rate mortgage.
Closing Costs: Any fees paid by the borrowers or sellers during the closing of the mortgage loan. This normally includes an origination fee, discount points, attorney’s fees, title insurance, appraisal, survey, and any items which must be prepaid, such as taxes and insurance escrow payments.
Contract of Sale (purchase): The agreement between the buyer and seller on the purchase price, terms, and conditions necessary to both parties to convey the title to the buyer.
Credit Risk Score: A credit score measures a consumer’s credit risk relative to the rest of the U.S. population, based on the individual’s credit usage history. The credit score most widely used by lenders is the FICO® score, developed by Fair, Issac and Company. This 3-digit number, ranging from 350 to 850, is calculated by a mathematical equation that evaluates many types of information that are on your credit report. Higher FICO scores represent lower credit risks, which typically equate to lower interest rates and better terms. In general, credit scores are critical in the mortgage loan underwriting process.
Delinquency: Failure to make mortgage payments on time.
Deed of Trust: Used in many western states, the agreement is used to pledge your home or other real estate as security for a loan. Similar to a mortgage.
Discount Points: The amount paid either to maintain or lower the interest rate charged. Each point is equal to one percent (1%) of the loan amount (i.e., one point on a $100,000 mortgage would equal $1,000)
Down Payment: The difference between the purchase price and that portion of the purchase price being financed. Most lenders require the down payment to be paid from the buyer’s own funds. Gifts from related parties are acceptable and must be disclosed to the lender.
Effective Interest Rate: The cost of credit on a yearly basis expressed as a percentage. Includes up-front costs paid to obtain the loan, and is, therefore, usually a higher amount than the interest rate stipulated in the mortgage note. Useful in comparing loan programs with different rates and points.
Encumbrance: A claim against a property by another party that usually affects the ability to transfer ownership of the property.
Equity: The difference between the fair market value (your home’s appraised value) and the outstanding mortgage balance you owe.
Fixed Interest Rate: An interest rate that is fixed for the term of the loan – generally 15 or 30 years. Payments as well are fixed at one amount. USDA loans are all 30-year fix rates.
FHA Loan: More appropriately termed “FHA Insured Loan.” A loan for which the Federal Housing Administration insures the lender against losses the lender may incur due to your default. FHA loans require a min 3.5% down payment and are one of the most popular loan options in the US.
Good Faith Estimate: A written estimate of closing costs and fees which a lender must provide you within three days of submitting an application.
Grace Period: The period of time (generally 15 days) during which a loan payment may be paid after its due date but not incur a late penalty. Such late payments may be reported on your credit report.
Gross Income: For qualifying purposes, the income of the borrower before taxes or expenses are deducted.
Guarantee Fee USDA: One-time fee paid to USDA Rural Development. Currently, the Guarantee fee as of 2023 is 1.0% for purchase and refinance transactions, the fee can be included in the borrower’s final loan.
Home Equity Loan: More commonly known as a HELOC – this is a fixed or adjustable rate loan obtained for a variety of purposes, secured by the equity in your home. Interest paid is usually tax -deductible. Often used for home improvement or freeing of equity for investment in other real estate or investment. Recommended by many to replace or substitute for consumer loans whose interest is not tax-deductible, such as auto or boat loans, credit card debt, medical debt, and education loans.
Hazard Insurance or Home Insurance: A contract between the purchaser and an insurer, to compensate the insured for loss of property due to hazards (fire, earthquake, hail damage, etc.), for a premium.
HUD 1 Settlement Statement: A form utilized at loan closing to itemize the costs associated with purchasing the home. Used universally by mandate of HUD, the Department of Housing and Urban Development.
Index: A number, usually a percentage, upon which future interest rates for adjustable rate mortgages are based. Common indexes include the Cost of Funds for the Eleventh Federal District of banks or the average rate of a one year Government Treasury Security.
Interest Rate: The periodic charge, expressed as a percentage, for use of credit.
Loan to Value Ratio (LTV): A ratio determined by dividing the sales price or appraised value into the loan amount, expressed as a percentage. For example, with a sales price of $200,000 and a mortgage loan of $160,000, your loan to value ratio would be 80%. Loans with an LTV over 80% may require Private Mortgage Insurance (PMI) defined below.
Lock Interest: A commitment you obtain from a lender assuring you of a particular interest rate or feature for a definite time period. Provides protection should interest rates rise between the time you apply for a loan, acquire loan approval, and, subsequently, close the loan and receive the funds you have borrowed.
Margin: An amount, usually a percentage, which is added to the index to determine the interest rate for adjustable rate mortgages. Again, this only applies to ARM loans.
Mortgage Banker: Originates mortgage loans, loaning you their funds and closing the loan in their name.
Mortgage Broker: As do mortgage bankers, takes loan applications and processes the necessary paperwork. Unlike a mortgage banker, brokers do not fund the loan with their own money but work on behalf of several investors, such as mortgage bankers, banks, or investment bankers.
Mortgage Insurance (MIP or PMI): Insurance purchased by the borrower to ensure the lender or the government against loss should you default. MIP, or Mortgage Insurance Premium, is paid on government-insured loans (USDA, FHA or VA loans) regardless of your LTV (loan-to-value). Should you pay off a government-insured loan in advance of maturity, you may be entitled to a small refund of MIP. PMI, or Private Mortgage Insurance, is paid on those loans which are not government-insured and whose LTV is greater than 80%. When you have accumulated 20% of your home’s value as equity, your lender may waive PMI at your request.
Mortgage Loan: A loan that utilizes real estate as security or collateral to provide for repayment should you default on the terms of your loan. The mortgage or Deed of Trust is your agreement to pledge your home or other real estate as security.
Mortgagee: The lender in a mortgage loan transaction.
Mortgagor: The borrower or home buyer in a mortgage loan transaction.
PITI: Principal, interest, taxes, and insurance, which comprise your monthly mortgage payment.
Prepayment Penalty: Also known as an “early payoff penalty” A fee paid to the lending institution for paying a loan prior to the scheduled maturity date. This does not apply to any government-backed home loans.
Qualifying Debt Ratios: Comparisons of a borrower’s debts and gross monthly income.
Right to Rescission: The legal right to void or cancel your mortgage contract in such a way as to treat the contract as if it never existed. Right of rescission is not applicable to mortgages made to purchase a home, but may be applicable to other mortgages, such as a refinance.
Servicing a Loan: The ongoing process of collecting your monthly mortgage payment, including accounting for and payment of your yearly tax and/or homeowners insurance bills.
Title: The written evidence that proves the right of ownership of a specific piece of property.
Title Insurance: Protection for lenders or homeowners against financial loss resulting from legal defects in the home title.
Underwriting: The process of verifying data and approving a loan. USDA loans are unique in the fact that they go through a two-step approval process. First the lender, and last the USDA office.
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