Yields "Plummet" to Best Level In... 4 trading days...  All the way back on October 2nd (last Friday), intraday lows were 5.151%. In other words, today's rally was definitely nice and definitely worth discussing, but if we're witnessing the inception of anything legitimately exciting here, it's in an embryonic stage as of today. 10yr yields would need to be below 5.0% just over a month from now to confirm a truly big shift. As for drivers, we'd have a hard time reconciling today's friendly reversal without giving some credit to investors "buying the dip" in bond prices (or the supportive ceiling in yields around 5.33-5.35). Additional mid-day gains followed war headlines and a decently strong 30yr bond auction. No major data tomorrow.  Market Movement Recap 01:04 PM Mid-day gains after war-related headlines. Ho-hum Treasury auction, but it would have been strong if not for the rally leading up to it. 10yr at best levels, down 5 bps at 5.622.  MBS up nearly a quarter point. 

Mortgage rates moved lower today at their fastest pace in 3 months with the average top-tier 30yr fixed scenario ultimately falling 0.09%. There were thrills and chills along the way as well. The day actually began with a 0.01% INCREASE versus yesterday's latest levels. This highlights a unique aspect of our rate index which has the ability to change more than once per day in response to mortgage lenders making intraday updates to their rate offerings. In other words, almost every lender lowered their rates today--many of them more than once.  As has often been the case lately, the market movement can't be traced to one standout event. There was certainly some benefit from mid-day headlines regarding the Iran war, but that alone was scarcely sufficient to be labeled as the x factor. A forensic review of the underlying market suggests a meaningful amount of support came from investors "deciding" that bond yields were high enough to be worth some more asset allocation. In other words, investors are less interested in adding bonds to their portfolio if yields are climbing and at risk of climbing more. But at a certain point, yields are high enough to serve as a good entry point for investors to jump back into bond ownership. This phenomenon doesn't necessarily hearken additional downward momentum, but some would say it makes a case that recent ceilings should continue to be supportive unless new data comes to light that is unfavorable for bonds. In the current case, the nearest data with that kind of power would probably be next week's inflation reports on Wed/Thu.  [thirtyyearmortgagerates]

“My friend is an EMT, and she's amazing on trivia night. She's usually the first responder.” The United States is full of trivia. Did you know that part of Florida is in the Central Time Zone? (Fourteen states are in more than one time zone!) Do you know what Brad Pitt, Tom Cruise, Kenau Reeves, and Michelle Pfeiffer have in common? They all can qualify for a HECM (aka, reverse mortgage)! Last time I checked, about 10k people a day turn 62; if you don’t have a HECM division, or a HECM product, your company should consider one. What isn’t so trivial are volumes in our biz, both in dollars and in units. KBW’s Bose George expects mortgage origination volume in 3Q to be down around 10 percent Q/Q. (Currently, the MBA is forecasting 3Q down 8 percent, Fannie Mae is forecasting -7 percent, and agency securitization volume was down 9.3 percent.) “We expect gain-on-sale margins to be flat to down modestly. However, sharp increases in rates can make pipeline hedging more challenging as fallout can come in lower than expected. We are reducing our estimates for the mortgage originators to incorporate these trends, and our forward estimates are also declining to reflect industry volume estimates for 2027.” Buckle up! (Today’s podcast can be found here. This week’s ‘casts are presented by Floify, the mortgage industry’s leading point-of-sale platform. Dynamic Apps, which can be seen at booth 600 during MBA Annual next week, lets lenders create fully customizable loan applications for any loan type, including HELOCs, construction, agricultural lending, non-QM and more, without custom development. Today’s has an interview with Gather Markets’ Wayne Brown on recurring challenges for banks and originators in finding, matching, and efficiently processing CRA-eligible loans, leading to Gather’s focus on using data, technology, and compliance infrastructure to connect the right loans with the right bank buyers.)

Bonds were initially moderately weaker this morning morning in a move that followed oil prices and hawkish Fed comments. Chris Waller said more hikes were needed due to a strong economy, persistently high inflation, and the risk that inflation expectations would become unanchored after 5.5 years above target. This hit the short end of the curve at 4:30am ET and brought Fed Funds Futures for the middle of next year back to yesterday's levels. Oil prices were rising at the same time and were already pushing bonds higher (or the correlation is coincidental, and bonds just "felt like" correcting a bit).  In the last few minutes, 10yr yields made it all the way back to unchanged for reasons unknown, although someone will try to tell you it had to do with Europe and the ongoing bond market volatility there. They're wrong in this case even though Europe has been a factor on several recent occasions. Now it's time to play "name that line." The following chart has 3 lines. One is the 10yr yield. One is oil. One is the implied yield for Fed Funds Rate in June 2027. See if you can guess which is which.  Well, nevermind. It doesn't really matter, right?  Seriously though, the "Waller" caption gives it away. The orange line has to be Fed Funds Futures because it's not nearly as active as the other two (if you didn't already know, there are far fewer trades in Fed Funds Futures than in bonds or oil). The blue line therefore has to be 10yr yields.  Well, it doesn't HAVE TO be, but it's much more likely to be because it moves with Fed Funds Futures whereas the red line does not (i.e. Fed rate outlook is more likely to correlate with the rest of the bond market than with oil prices). 

Full Recovery! The patient looked critical this morning with 10yr yields pushing up to new long-term highs just over 5.36%, but by the early afternoon, there was a full recovery. In fact, most of the recovery arrived after 9:30am ET (and before 11am ET). Any time 9:30am kicks off a big move, we think about things like ETF tradeflows and other money shuffling in the retail investor space. Oil prices also moved lower at that time, but not enough to justify the swings seen in the bond market. The afternoon's 10yr Treasury auction was well-received (as they often are when yields tag long-term highs). The follow-through helped complete the round trip, ultimately leaving yields about 1bp lower by 3pm ET and MBS a few bps higher. Market Movement Recap 10:28 AM Sharply weaker overnight, but recovering a bit now. MBS down about a quarter point and 10yr up 3.6bps at 5.32 01:03 PM Additional recovery after strong 10yr auction. 10yr now up less than 1bp on the day at 5.289 and MBS down only 2 ticks (.06).

It was an exciting day for mortgage rates, and while we technically ended up slightly higher, it could have been much worse. In fact, it WAS much worse earlier in the day, but only for about 30 minutes.  Our daily rate index can be updated throughout the day if mortgage lenders change their rates in sufficient numbers. If we reported only the day's opening rate sheets, top-tier 30yr fixed rates would have been over 7.7%. Almost immediately after those initial rates came out (around 9:30am ET), the bond market started to recover. By 11am, multiple lenders had already improved. There was an additional round of improvement in the afternoon with almost every lender dropping their rates at least once (many of them more than once) by the end of the day. The net effect: today's average top-tier 30yr fixed rate rose only 0.03% versus yesterday to 7.59%--safely under recent highs. 

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If there's been a safe bet to make on isolated rally days over the past 2 months, it's that they'll be soon followed by a return to the prevailing trend toward higher rates. Today fills that role with gusto. We hate gusto--this kind anyway. Unfortunately, this kind of gusto is all we have, and there's no convenient, singular explanation even though many will try to tell you there is. We can tell you that it's not oil, Europe, auctions, war headlines, corporate issuance, fiscal concerns, strong economy, or foreign demand. But at any given point in the uptrend, several of these things may be in play (other than "auction concerns"... that's just something someone says on auction day when they don't know why yields are higher).  Let's pick something to make fun of. The top pick would have to be "auction concerns," but there's no fun way to put that on a chart, so let's use "Treasuries are worried about France."  If someone tells you that today, ask them to clarify whether it's higher or lower French yields that are good/bad for US yields, because all 4 combinations have been argued in the past week:

Today Was "Nice" For Bonds Bonds bucked their prevailing trend and managed to move slightly lower in yield today. Unlike yesterday's session which had no clear correlation with underlying events, today's move traced a drop in oil prices fairly clearly. Some analysts thought that an improvement in French government bonds may have been mildly encouraging as well, but that would require drawing the opposite conclusions from last week's narrative about French bond turmoil benefiting the U.S. as a safer haven. In any event, the rally was too small to merit that much thought. Yields encountered resistance at 5.26%, but could also be broadly finding buying support when yields crest 5.3%. Bottom line, today was "nice," but in and of itself, not enough to suggest a meaningful shift in momentum.  Market Movement Recap 02:57 PM Near best levels. MBS up over a quarter point and 10yr down 3.8bps at 5.269

Mortgage rates actually fell today--something they've done only 7 times since August 25th. While the outright levels remain near the highest since 2003, they're near the lowest in just over a week with top-tier 30yr fixed rates down to 7.56% for the average lender. What gives? Is this a sign that recent upward momentum is starting to wane? It's too soon to conclude such things, but it is somewhat encouraging that yesterday's long-term high was basically right in line with the high seen on September 30th (7.61 vs 7.60). This is the sort of "double top" behavior that some analysts look for when trying to identify momentum shifts. Bottom line: it's too soon to start celebrating. But it's better than the average day of late. [thirtyyearmortgagerates]

This glossary explains common mortgage and real estate words in plain language. The definitions are general. They are not a loan offer, a rate quote, or legal, tax, or credit advice. Which rule applies depends on the loan, and the rules can change. A | B | C | D | E | F | G | H | I | J | L | M | N | O | P | R | S | T | U | V | W A Top Ability to Repay (ATR) Rule A federal rule that requires a lender to make a reasonable, good-faith determination that a borrower can repay the mortgage. The lender documents income, assets, employment, and credit. It is not a promise that the borrower will be approved. Also called: ATR Adjustable-Rate Mortgage (ARM) A mortgage whose interest rate can change on a set schedule after an initial fixed period. It is not a fixed-rate mortgage. How far the rate can move depends on the caps in the note. Learn more: Everything You Want to Know About Adjustable-Rate Mortgages Also called: variable-rate mortgage Amortization The schedule for paying off a loan with regular payments of interest and principal. On a fully amortizing mortgage, early payments are mostly interest and later payments pay down more principal. It is not the home's market value. Annual Percentage Rate (APR) A yearly percentage that shows the cost of the loan, including the interest rate and certain fees. APR is not the note rate. Use it to compare offers. The payment is based on the note rate, not the APR. Learn more: APR vs. Interest Rate: What's the Difference? Also called: APR Appraisal A licensed appraiser's opinion of a home's market value, written as a report. It is not the tax assessor's value, and it is not the price the seller is asking. Learn more: Understanding The Home Appraisal Process Appraisal waiver An offer from an automated underwriting system to proceed without a new traditional appraisal. It is not available on every loan, and a lender can still require an appraisal. Learn more: Understanding The Home Appraisal Process Also called: value acceptance Appreciation An increase in a home's value over time. It can come from the market or from improvements. It is the opposite of depreciation, and it is not cash until the home is sold or refinanced. ARM caps Limits in an adjustable-rate note on how much the interest rate can change. A note can cap the first change, each later change, and the change over the life of the loan. The rate does not move without those limits. Learn more: Everything You Want to Know About Adjustable-Rate Mortgages Also called: adjustment caps Assessed Value The value a local tax authority assigns to a property in order to calculate property taxes. It is not the appraised value and it is not the price a buyer pays. Assumable Mortgage A mortgage that a buyer may be allowed to take over from the seller, including the existing rate. Not every loan can be assumed. The lender and the program have to allow it, and the buyer usually must qualify. Learn more: The Assumable Mortgage: How It Works and Is It Right for You? Automated underwriting A system that evaluates a mortgage application against a set of guidelines and returns a recommendation. The recommendation is not the same as a final approval. A person can still ask for more documents or decline the loan. Learn more: Explaining the Home Loan Process Part 4: Mortgage Underwriting Also called: AUS B Top Balloon Mortgage A mortgage that is not fully paid off by the regular payments, so a large balance is due at the end of the term. Some balloon notes can be reset. Others require the remaining balance to be paid in full. It is not a fully amortizing fixed-rate mortgage. Basis point One one-hundredth of a percentage point, used to describe a change in a rate or a fee. A move from 6.50% to 6.75% is 25 basis points. It is not the same thing as one percent. Also called: bp Bridge Loan A short-term loan used to carry a buyer between the purchase of a next home and the sale of the current one. It is paid off when the longer-term financing, or the sale, comes through. It is also used in commercial lending. It is not a permanent mortgage. Learn more: What is a Bridge Loan & Who Should Get One? Buy Down Money paid up front, often by a seller or a lender, to reduce the interest rate. A permanent buydown lowers the rate for the life of the loan. A temporary buydown lowers it for an early period only. See Temporary buydown. Learn more: Reducing Your Mortgage Rate and Payment With a Buydown Also called: buydown Buyer's Agent A licensed real estate agent who represents the buyer. The buyer's agent is not the seller's agent, even when both work under the same brokerage. Learn more: The Real Estate Buyer’s Agent: Do I Need One? C Top Cash to close The amount of money the borrower must bring to closing, after credits are applied. It is shown on the Closing Disclosure. It is not the same figure as the down payment, because it also includes costs and prepaid items and subtracts deposits and credits. Learn more: What’s Included in Closing Costs? Cash-out refinance A new mortgage that replaces the current one and is larger than the amount owed, so the borrower receives the difference in cash. The cash can be used for other purposes, such as paying off higher-interest debt or paying for home improvements. It is not a rate-and-term refinance. Learn more: The Cash-Out Refinance: Is It Right for You? Also called: cash-out Certificate of Eligibility The VA document that shows a service member, veteran, or surviving spouse has home-loan entitlement. It shows that the person may be eligible for a VA loan. It is not an approval for a specific house or loan amount. Learn more: VA Loan Requirements: Who Qualifies and What You’ll Need Also called: COE Clear to close The lender's notice that the conditions it asked for have been met and the file can be scheduled for closing. It is not a commitment letter, and it is not the funding of the loan. A new issue can still delay closing. Also called: CTC Closing Agent The person or company that handles the closing, including disbursing funds, arranging title insurance, and recording the deed. The closing agent is not the loan officer. In some states this role is an escrow officer, a title company, or an attorney. Also called: settlement agent; escrow officer Closing Costs The fees and prepaid items due to complete the purchase or refinance, apart from the price of the home. They can include lender charges, title charges, taxes, and insurance. They are not the same as the down payment. Learn more: What’s Included in Closing Costs? Closing Disclosure (CD) The final five-page form that lists the loan terms, the projected payments, and the cash due at closing. The borrower receives it before closing. It is the form to compare with the Loan Estimate. It is not the promissory note. Learn more: Explaining the Home Loan Process Part 5: The Closing Process Also called: CD Closing Statement An itemized list of the amounts each side pays and receives at closing. The borrower's required federal form for most mortgages is the Closing Disclosure. A closing statement is the settlement ledger, often prepared by the title or escrow company. Also called: settlement statement Co-borrower A person who applies for the loan with the borrower and is responsible for repaying it. A co-borrower usually also takes ownership. A cosigner agrees to repay if the borrower does not, and does not take ownership. A co-borrower is not defined by having good credit. Learn more: What is a Co-Borrower? Combination Loan One loan that finances construction and then converts to a permanent mortgage when the home is finished. It is also called a construction-to-permanent loan. It is not two separate applications if the permanent financing is built into the same loan. Also called: construction-to-permanent loan Combined loan-to-value (CLTV) The total of the mortgage balances on a home divided by the value of the home, expressed as a percentage. Loan-to-value counts the first mortgage only. CLTV also counts a second mortgage or a HELOC. A drawn HELOC and the full credit line are not always counted the same way. Also called: CLTV Commitment Letter A letter from the lender stating the terms on which it will make the loan. It is still subject to the conditions in the letter. It is not the same as clear to close, and it is not the Closing Disclosure. Comparable Sales Recent sales of similar homes, used to help estimate a home's value. Appraisers use them. They are not the subject home's assessed value. Learn more: Understanding The Home Appraisal Process Also called: comps Condominium A home in which the buyer owns the unit and shares ownership of the common areas. The building or project often has to be approved before a lender will make the loan. A condominium is not the same thing as a planned unit development or a multi-family rental property. Learn more: Your Ownership Roadmap: Condo Pros, Cons and Mortgage Options Also called: condo Conforming Loan A mortgage that meets the loan-size and other standards so Fannie Mae or Freddie Mac can buy it. A loan can be conventional and still be non-conforming if it is too large or does not meet those standards. Conforming is not a synonym for conventional. Learn more: Conforming vs. Non-conforming Loans: Which Is Best for You? Construction Mortgage A loan that pays for building a home, usually in draws as the work is completed. When construction ends, the loan is either converted to a permanent mortgage or paid off with a new loan. See Combination loan. Also called: construction loan Contingency A condition in a purchase contract that lets the buyer cancel and recover the deposit if the condition is not met. Common contingencies include financing, appraisal, inspection, and the sale of the buyer's current home. A contingency is not the same as a denial after the contingency period has ended. Conventional loan A mortgage that is not insured or guaranteed by the FHA, VA, or USDA. It can be conforming or jumbo. Private mortgage insurance may be required. It is not an FHA, VA, or USDA loan. Learn more: What is a Conventional Loan? Credit Score A number that summarizes how a person has used and repaid credit. Lenders use it as one sign of whether a borrower is likely to repay. It is not the same as a credit report, and it is not the only factor in an approval. Learn more: How To Improve Your Credit Score D Top Debt-to-Income (DTI) Ratio Monthly debt payments divided by gross monthly income, shown as a percentage. It counts more than the mortgage. The housing expense ratio counts housing costs only. Learn more: The Debt-to-Income (DTI) Ratio Explained Also called: DTI Deed The legal document that transfers ownership of real estate. It is recorded in the public land records. It is not the promissory note and it is not the mortgage. Deed of Trust A security instrument in which the borrower gives a trustee the power to sell the home if the loan is not repaid. It serves the same purpose as a mortgage in the states that use it. Signing it does not mean the lender holds title while the borrower is paying. Deed-in-lieu of foreclosure A transfer of the home's deed to the lender by agreement, instead of going through foreclosure. The lender has to agree. It is not a short sale, because the home is not sold to a third-party buyer. It does not, by itself, say whether any remaining balance is still owed. Learn more: Deed-in-Lieu of Foreclosure Also called: deed in lieu Default A failure to meet a term of the loan, most often by falling behind on payments. Default can lead to foreclosure if the loan is not brought current or another workout is not reached. Being one day late is not, by itself, the foreclosure. Learn more: Behind On Your Mortgage Payments? Here’s How to Avoid Foreclosure Depreciation A decrease in a home's value. It can come from the market or from damage. It is the opposite of appreciation. Discount Points A fee paid at closing to lower the interest rate. One point is 1% of the loan amount. Points are prepaid interest. They are not the same as an origination fee, and they raise the cash due at closing in exchange for a lower rate. Learn more: Mortgage Origination & Discount Points: Understanding the Basics Also called: points Down Payment The portion of the purchase price the buyer pays up front, rather than borrowing. The amount required depends on the loan program. It is not the same as closing costs or cash to close. Learn more: Do You Need 20% Down to Buy a Home? E Top Earnest Money A buyer's deposit that shows the buyer intends to complete the purchase. It is held in escrow and is usually applied to the down payment or closing costs. It is not the lender's fee. If the buyer cancels under a contingency, the contract says whether it is refunded. Learn more: How Much Do You Really Need to Buy a House? Also called: good-faith deposit Easement A legal right for someone else to use part of a property for a stated purpose. A shared driveway or a utility line is a common example. An easement is not an ownership share. Learn more: All About Easements: How They Affect Your Property Energy Efficient Mortgage (EEM) A mortgage that can include the cost of eligible energy-saving improvements. The cost can be part of a purchase or a refinance. Green mortgage is another name for this idea. Availability depends on the program. Also called: green mortgage Equity The difference between a home's value and the amount still owed on it. Equity is not cash in hand. A home equity loan or a cash-out refinance is one way owners borrow against it. Learn more: A Comprehensive Guide to Home Equity Escrow (pre-closing) The account a neutral third party uses to hold the buyer's funds, the deed, and the instructions until the sale closes. This is the purchase escrow. It is not the monthly tax and insurance account on an existing mortgage. Learn more: The Role of Escrow Accounts in Real Estate Transactions Also called: closing escrow Escrow account An account the servicer keeps to collect money with the mortgage payment and pay property taxes, homeowners insurance, and mortgage insurance when those bills are due. It is not the escrow account used to hold funds for the purchase. See Escrow (pre-closing). The servicer, which may not be the original lender, is the company that maintains it. Learn more: Mortgage Escrow Accounts Explained: Taxes, Insurance and Monthly Payments Also called: impound account Escrow analysis The servicer's review of the escrow account that sets the escrow portion of the next year's payment. It is the review that can change the monthly payment when taxes or insurance change. It is not, by itself, a change to the interest rate. Learn more: Mortgage Escrow Accounts Explained: Taxes, Insurance and Monthly Payments Escrow cushion An extra balance a servicer may hold in the escrow account for bills that come due before the next payments are collected. Federal rules cap how large that cushion can be, and a servicer is not required to collect one. A positive balance can still be below the target. Also called: escrow reserve Escrow shortage The amount by which the escrow balance is below the target balance when the servicer reviews the account. A shortage can increase the monthly payment. It is not the same as a deficiency, which is a negative balance after the servicer has advanced money. Escrow surplus The amount by which the escrow balance is above the target balance when the servicer reviews the account. A surplus can be refunded or left in the account, depending on the amount and the status of the loan. It is not a payment the borrower can request at any time during the year. F Top Fair-Market Value The price a willing buyer would pay a willing seller in the current market, with neither side under unusual pressure. It is an estimate used in appraisal and in conversation. It is not the assessed value. Learn more: Understanding The Home Appraisal Process Also called: market value Fannie Mae A government-sponsored enterprise that buys mortgages from lenders so those lenders can make more loans. Fannie Mae is not the lender on a Pennymac application, and it is not a government agency that insures the loan. It sets standards for the loans it will buy. Learn more: Understanding Fannie Mae and Freddie Mac Also called: Federal National Mortgage Association Federal Housing Administration (FHA) A government agency that insures mortgages made by approved lenders. The FHA does not lend the money. An FHA loan is not a conventional loan, and its mortgage insurance is not private mortgage insurance. Learn more: FHA Home Loans Also called: FHA Fee Simple The broadest form of private ownership of real estate, including the land and the buildings, within the limits of the law. A mortgage does not change fee-simple ownership into something else. The owner may still sell, lease, or will the property, subject to the loan and other recorded claims. Fixed-Rate Mortgage A mortgage whose interest rate stays the same for the entire term. The principal and interest payment does not change because of the market. The total monthly payment can still change if taxes or insurance change. Learn more: Fixed- vs. Adjustable-Rate Mortgage: What's the Difference? Flood Certification A determination of whether a property is in a flood zone that requires flood insurance. The federal flood maps drive the result. The certification is not the insurance policy. Flood insurance A separate policy that covers damage from flooding. A standard homeowners policy does not cover flood. A lender requires flood insurance when the home is in a Special Flood Hazard Area and the loan is covered by the federal flood rules. Forbearance A temporary agreement to pause or reduce mortgage payments. The missed amounts are still owed. Forbearance is not forgiveness, and it is not a permanent change to the rate or the term. See Loan modification. Foreclosure The legal process a servicer uses to take and sell a home when the loan is not brought current. It is the end of the default process, not the first notice. A borrower can still ask about a repayment plan, modification, short sale, or deed-in-lieu before a sale, if the timeline allows. Learn more: Understanding Foreclosure: A Guide for Imperiled Homeowners Freddie Mac A government-sponsored enterprise that buys mortgages from lenders and pools them for investors. Like Fannie Mae, Freddie Mac is not the company that takes the application. A loan it can buy has to meet its standards. Learn more: Understanding Fannie Mae and Freddie Mac Also called: Federal Home Loan Mortgage Corporation G Top Gift Funds Money given to a buyer, usually for the down payment or closing costs, that does not have to be repaid. The gift has to be documented. It cannot be a loan described as a gift. Who may give the gift depends on the loan program. Learn more: Do You Need 20% Down to Buy a Home? Ginnie Mae A government corporation that guarantees timely payment on mortgage-backed securities made up of FHA, VA, USDA, and other government-backed loans. Ginnie Mae does not buy loans the way Fannie Mae and Freddie Mac do, and it is not a government-sponsored enterprise. Also called: Government National Mortgage Association Government Sponsored Enterprise (GSE) A financial company chartered by Congress to support the mortgage market. Fannie Mae and Freddie Mac are the examples in housing. A GSE is not a federal agency, and it is not the lender. Ginnie Mae is a government corporation, not a GSE. Learn more: Understanding Fannie Mae and Freddie Mac Also called: GSE Government-Backed Mortgage A mortgage insured or guaranteed by a federal agency, which reduces the lender's loss if the borrower defaults. FHA, VA, and USDA loans are the common types. The government does not make the loan. A conventional loan is not government-backed. Learn more: Your Home Loan Options Green Mortgages Another name for an energy efficient mortgage: a loan that can include the cost of eligible energy-saving improvements. See Energy Efficient Mortgage. It is not a separate government program under this name on every loan. Also called: energy efficient mortgage; EEM H Top Hard inquiry A credit check that happens when a person applies for credit, and that can affect the credit score. A soft inquiry, such as a person checking their own score, does not. Several mortgage inquiries in a short shopping period are often treated as one inquiry by the scoring models. Also called: hard pull Hazard insurance Coverage for physical damage to the home, such as fire or wind, that the lender requires. It is the dwelling coverage inside a homeowners policy, or a separate dwelling policy. It is not flood insurance, and it is not mortgage insurance. Also called: homeowners insurance, dwelling coverage High-Risk Loan A loose label for a loan that sits outside a lender's standard credit, down-payment, or documentation guidelines. It is not a government loan category, and it is not the defined term “high-risk loan” in the private-mortgage-insurance statute. Home Affordable Modification Program (HAMP) A federal program, ended on December 31, 2018, that helped some homeowners with unaffordable or underwater mortgages change their loan terms and avoid foreclosure. The program is closed. A borrower who needs help now asks the servicer about current retention options. This entry is not an offer of a modification. Also called: HAMP Home Equity Line of Credit (HELOC) A credit line secured by the home. The borrower can draw, repay, and draw again during the draw period, up to the credit limit. The rate is usually variable. A HELOC is not a home equity loan, which pays out a lump sum. Drawing on it can raise the combined loan-to-value. Learn more: Everything You Need to Know About a Home Equity Line of Credit (HELOC) Also called: HELOC Home Equity Loan A second mortgage that pays out a lump sum, secured by the equity in the home. The borrower repays it with a separate payment. It is not a HELOC, and it is not a cash-out refinance of the first mortgage. The rate can be higher than the rate on the first mortgage. Learn more: Everything You Need to Know About Home Equity Loans Home Price Index An index that tracks how prices of single-family homes change in a market. It describes the market. It is not the value of one house. Home Warranty A service contract that helps pay for covered repairs to home systems or appliances. It is not homeowners insurance. A claim is limited to what the contract covers, and the buyer does not have to buy one to get a mortgage. Homeowner's Association (HOA) An organization that manages shared areas in a condominium, townhome community, or subdivision, collects dues, and enforces the community's rules. Dues are a housing cost. They are not property taxes, and they are not included in PITI unless the payment quote says so. Learn more: A Homeowner’s Guide to HOAs Also called: HOA Homeowner's Insurance A policy that covers damage to the home and certain other losses, such as fire. Lenders require it. Flood is not included. The first year's premium is often collected at closing. See Hazard insurance. Learn more: Buying a Home? Here’s What You Need to Know About Homeowners Insurance Also called: homeowners insurance House Flipping Buying a home, improving it, and reselling it in a short time in order to make a profit. Lenders treat a quick resale differently from a typical purchase. It is not, by itself, a loan program. Housing and Urban Development (HUD) The federal department that oversees housing programs, including FHA mortgage insurance, and enforces fair-housing law. HUD is not the lender. An FHA case number and FHA insurance are HUD programs administered through approved lenders. Also called: HUD; Department of Housing and Urban Development Housing Expense Ratio The monthly housing payment divided by gross monthly income, shown as a percentage. The housing payment usually includes principal, interest, taxes, insurance, and any association dues. It is also called the front-end ratio. Debt-to-income includes other debts as well. Also called: front-end ratio I Top Impound Account Another name for the escrow account a servicer uses to pay property taxes and insurance. See Escrow account. It is not the purchase escrow. Learn more: Mortgage Escrow Accounts Explained: Taxes, Insurance and Monthly Payments Also called: escrow account Index and margin The two parts of an adjustable rate after the fixed period: an index that moves with the market, and a margin that is added to it. The note states which index and what margin. Caps can keep the rate from moving as far as the index plus the margin. Learn more: Everything You Want to Know About Adjustable-Rate Mortgages Inspection A buyer's examination of a home, looking for defects in the structure and systems. A lender does not usually require a general home inspection in order to approve the loan. The lender's valuation is the appraisal. An inspection contingency is a contract term, not a loan condition. Learn more: A Home Inspection Checklist for New Buyers Interest Rate The percentage of the loan balance charged for borrowing the money, usually stated as an annual rate. This is the note rate that the principal-and-interest payment is built from. It is not the APR. Learn more: APR vs. Interest Rate: What's the Difference? Also called: note rate Interest Rate Reduction Refinance Loan (IRRRL) A VA refinance of an existing VA loan, with less documentation than a full refinance, used to reduce the rate or the payment. It is also called a VA streamline refinance. It is not a cash-out refinance. A funding fee can still apply. VA loans do not charge monthly mortgage insurance on either the old loan or the new one. Learn more: VA IRRRL Streamline Refinance Also called: VA streamline refinance; VA IRRRL Investment Property Real estate bought to produce rent or a later resale profit, rather than to live in as a primary home. Lenders price and underwrite it differently from a primary residence or a second home. Learn more: How to Build Wealth and Passive Income by Buying Rental Property J Top Joint Ownership Ownership of a property by two or more people. The shares and what happens at death depend on how the title is held. Joint ownership is not always joint tenancy, and it does not always include a right of survivorship. Joint Tenancy Ownership by two or more people in equal shares, with a right of survivorship. If one owner dies, that share passes to the surviving owners rather than through the deceased owner's will. It is one form of joint ownership, not the only form. Also called: joint tenants with right of survivorship Jumbo Mortgage A mortgage larger than the conforming loan limit, so Fannie Mae and Freddie Mac will not buy it as a standard conforming loan. It is a type of non-conforming loan. It is not a government-backed loan. Learn more: Big Possibilities: The Homebuyer’s Guide to Jumbo Loans Also called: jumbo loan Junior Mortgage A mortgage that is paid after a senior, or first, mortgage if the home is sold through foreclosure. A junior mortgage can be a second, third, or later lien. “Second mortgage” is the common name when there is only one loan ahead of it. Learn more: Subordinate Mortgages: Everything You Need to Know Also called: subordinate mortgage L Top Lender Fees Charges the lender collects for making and processing the loan. They appear on the Loan Estimate and the Closing Disclosure. They are not the down payment, and they are not third-party charges such as the appraisal or title policy unless the form says the lender is charging them. Learn more: How Much Do You Really Need to Buy a House? Lender-paid mortgage insurance Private mortgage insurance on a conventional loan where the premium is built into the rate or paid by the lender, rather than billed to the borrower as a monthly premium. The borrower does not see a separate monthly mortgage-insurance charge. The rate is often higher than a loan with borrower-paid mortgage insurance. It is not FHA mortgage insurance. Learn more: What Is Enterprise Paid Mortgage Insurance (EPMI)? Also called: LPMI; enterprise-paid mortgage insurance (EPMI) Lender-placed insurance A policy the servicer buys for the home when the borrower's own hazard insurance has lapsed or was never provided. The cost is charged to the borrower. The policy can cost more than a policy the borrower buys, and it may cover less. It is not mortgage insurance. Also called: force-placed insurance Lien A legal claim against a property that has to be paid or released before the owner can transfer clear title. A mortgage is a voluntary lien. A tax lien or a judgment lien is not. Lien position decides which claim is paid first in a foreclosure. Loan Estimate (LE) The three-page form a lender gives after a mortgage application, showing the rate, the payment, and estimated closing costs. It replaced the Good Faith Estimate for most closed-end consumer mortgages. It is an estimate. The Closing Disclosure has the final figures. Learn more: How Much Do You Really Need to Buy a House? Also called: LE Loan Modification A permanent change to one or more terms of an existing mortgage, such as the rate, the term, or the amount treated as principal. Servicers consider it for a borrower who cannot afford the current payment. It is not forbearance, which is temporary and does not change the note. Learn more: The Loan Modification Guide: Understand Your Options Loan Officer A person who works with a borrower to take a mortgage application and explain the lender's loan options. A loan officer employed by a lender is not a mortgage broker. A broker shops among lenders. This entry does not describe a fiduciary duty. Learn more: Real Estate Agent vs Loan Officer: What's the Difference? Also called: mortgage loan originator Loan-to-Value (LTV) Ratio The loan amount divided by the value of the home, shown as a percentage. On a purchase, value is generally the lower of the price and the appraised value. LTV does not include a second mortgage. See Combined loan-to-value. Learn more: What Is Loan-to-Value (LTV) Ratio? Also called: LTV M Top Manufactured home A home built in a factory to the federal HUD building code and then transported to the site. It is not the same as a site-built home or a modular home. Loan eligibility depends on the home, the land, and whether the home is classified as real estate. Mortgage A loan secured by real estate, and the legal document that gives the lender a claim against the home if the loan is not repaid. In states that use a mortgage, the borrower keeps title and the lender holds a lien. In states that use a deed of trust, a trustee holds the power of sale. The lender does not take title just because the loan is open. Learn more: The Mortgage Loan Process – What You Need to Know From Start to Finish Mortgage Insurance Premium (MIP) The mortgage insurance on an FHA loan. It protects the lender if the borrower defaults. MIP is not private mortgage insurance, and it is not a VA funding fee or a USDA guarantee fee. FHA can charge both an upfront premium and an annual premium. Learn more: The Facts About Mortgage Insurance Also called: MIP; FHA mortgage insurance Mortgage Lender The company that funds the mortgage. The lender may later transfer the right to collect payments to a servicer. The lender is not the same role as the servicer, the broker, or the loan officer. Also called: mortgage originator Mortgage Payment The regular payment on the mortgage. It usually includes principal and interest, and it often includes escrow for taxes and insurance. Association dues and utilities are not part of it unless a quote says so. Learn more: PITI: Understanding Your Mortgage Payments Mortgage servicer The company that collects the payments, manages the escrow account, and answers questions about the loan after closing. The servicer may be the original lender or a company that later receives the servicing. A servicing transfer does not, by itself, change the rate or the amount owed. Learn more: Why Was My Mortgage Sold to Another Company? Also called: servicer Mortgage Servicing Disclosure Statement A disclosure that says whether the lender intends to keep servicing the loan or may transfer it after closing. It is a disclosure about who will collect the payment. It is not the servicing-transfer notice a borrower receives later if the loan is actually transferred. Multi-Family Residence A residential property with two or more separate dwelling units, such as a duplex, triplex, or fourplex. A single condominium or townhome is not a multi-family property just because other people live in the building. Multiple Listing Service (MLS) A database brokers use to share homes listed for sale. It is a broker tool. It is not a public government record, and a home can be for sale without being in the local MLS. Also called: MLS N Top Net Income Income left after taxes and other payroll deductions. Many mortgage guidelines start with gross income, before those deductions. A borrower should not assume the lender will use take-home pay. New Construction A newly built home that has not been lived in. It is underwritten differently from a resale, and the builder's contract is part of the file. It is not a construction loan by itself. Non-conforming Loan A mortgage that does not meet the standards for sale to Fannie Mae or Freddie Mac as a conforming loan. A jumbo loan is one example. Non-conforming is not a synonym for government-backed. Learn more: Conforming vs. Non-conforming Loans: Which Is Best for You? Note rate The interest rate written in the promissory note. The principal-and-interest payment is calculated from this rate. It is not the annual percentage rate. The APR includes certain fees and can be higher than the note rate. Learn more: APR vs. Interest Rate: What's the Difference? Also called: interest rate Notice of Default (NOD) A notice that the borrower is in default and that the foreclosure process is starting. In many states the borrower can still cure the default before a sale. The steps and the timing depend on the state and the loan documents. This entry does not describe one state's calendar. Also called: NOD Notice of Sale (NOS) A notice of the date, time, and place of a foreclosure sale. It comes after the notice of default in the states that use both. It is not the same document as the notice of default. Sale procedures differ by state. Also called: NOS O Top Offer Acceptance The seller's agreement to the buyer's offer, which forms the purchase contract when it is signed and delivered as the contract requires. A spoken “yes” is not enough to sell real estate. The signed written contract is the acceptance that starts the timelines. Origination fee A fee the lender charges to make the loan, often stated as a percentage of the loan amount. It is a lender fee on the Loan Estimate. It is not a discount point, which is paid to lower the rate, though a quote can include both. Learn more: How Much Do You Really Need to Buy a House? Owner's title policy A title insurance policy that protects the owner against covered defects in the title. The lender's policy protects the lender and ends when the loan is paid off. The owner's policy protects the owner. One does not replace the other. Learn more: Title Company Roles in the Homebuying Process Also called: owner's title insurance P Top Pending, Showing for Backup A listing status meaning the seller has an accepted offer and will still look at backup offers. A backup offer does not cancel the first contract. It matters only if that contract ends. Pending, Subject to Lender Approval A listing status meaning the seller has accepted an offer and the sale depends on the buyer's lender approving the loan. If the financing contingency fails, the home can come back on the market. The status is not the same as clear to close. Per diem interest Interest charged for each day from the closing date until the period the first monthly payment covers. It is collected at closing as a prepaid item. It is not a penalty, and it is not the first regular payment. Learn more: What’s Included in Closing Costs? Also called: daily interest; odd days interest PITI The four main parts of a monthly housing payment: principal, interest, taxes, and insurance. A quote that says PITI does not include association dues unless it says so. Mortgage insurance can be part of the payment and is sometimes listed separately. Learn more: PITI: Understanding Your Mortgage Payments Also called: principal, interest, taxes, and insurance Planned unit development (PUD) A community of individually owned homes that share common areas maintained by an association. A PUD home can look like a detached house. The project can still have to be reviewed by the lender. It is not a condominium, where the owner holds the unit rather than the land. Also called: PUD Pre-approval A lender's conditional statement, after reviewing documented income, assets, and credit, of how much the borrower may be able to borrow. It is not a guarantee of a loan. The home, the appraisal, and the final documents still have to meet the lender's conditions. Learn more: Pre-Qualified vs. Pre-Approved: The Differences Explained Pre-qualification An early estimate of how much a borrower might borrow, based on information the borrower provides. It is not a pre-approval. Income and assets may not have been documented yet. Learn more: Pre-Qualified vs. Pre-Approved: The Differences Explained Prepayment penalty A charge for paying off all or part of the mortgage early. Many mortgages do not have one. If the loan has one, it is disclosed on the Loan Estimate and in the note. It is not the same as per diem interest. Primary residence The home the borrower lives in as their main home. It is not a second home and it is not an investment property. Occupancy affects the rate and which programs are available. Also called: owner-occupied; principal residence Prime rate A benchmark rate banks publish, generally tied to the federal funds rate, and used as a reference for some consumer loans. It is not the index in every adjustable-rate mortgage, and it is not a mortgage rate by itself. Also called: prime lending rate Principal The amount borrowed that is still unpaid. In a monthly payment, it is also the portion of the payment that reduces that balance. Interest is the cost of borrowing. Principal is the balance itself. An extra payment to principal reduces the balance. It does not, by itself, change the required monthly payment unless the loan is recast. Learn more: PITI: Understanding Your Mortgage Payments Private Mortgage Insurance (PMI) Insurance on a conventional loan that protects the lender if the borrower defaults. The borrower pays the premium. PMI is not FHA mortgage insurance, a VA funding fee, or a USDA guarantee fee. It is commonly required when the down payment is less than 20 percent. This entry does not state when it can be removed. Learn more: The Facts About Mortgage Insurance Also called: PMI Promissory note The written promise to repay the loan, including the amount, the rate, and the payment. The mortgage or deed of trust secures that promise with the home. The note is not the security instrument. Also called: note Property Taxes Taxes a local government charges on real estate to pay for local services. They are based on the assessed value. They are often collected with the mortgage payment through escrow. They are not association dues. Proration A split of a bill, such as property taxes or association dues, between the buyer and the seller based on the closing date. Each side pays the share for the days they own the home. A proration is not a fee the lender charges. Learn more: What’s Included in Closing Costs? Purchase Agreement The contract in which the buyer and seller state the price and the other terms of the sale. It is the agreement the lender and the title company work from. It is not the loan application. Also called: purchase contract; sales contract R Top Radon A colorless, odorless radioactive gas that can enter a home from the ground. A test is a buyer inspection item. A radon test is not the appraisal, and a lender does not require one on every loan. Rate Lock An agreement that the lender will honor a stated interest rate for a stated number of days. The lock has an expiration date. Extending it can cost money. Not every lock has an up-front fee. A lock is not a promise that the loan will close. Rate-and-term refinance A new mortgage that replaces the current one to change the rate, the term, or both, without the borrower taking substantial cash out. It is not a cash-out refinance. Closing costs may be paid in cash or added to the balance, within program limits. Learn more: When Should You Refinance Your Home? Home Refinancing and Refi Mortgage Loan Options Also called: no-cash-out refinance; limited cash-out refinance Real Estate Agent A person licensed by a state to help clients buy, sell, or lease real estate. An agent works under a broker. An agent is not a Realtor unless the agent is a member of the National Association of Realtors. Learn more: The Real Estate Buyer’s Agent: Do I Need One? Real Estate Broker A person licensed to operate a real estate business and to supervise agents. The broker's license is a higher license than an agent's. A broker may also represent buyers or sellers directly. Real Estate Settlement Procedures Act (RESPA) A federal law that requires mortgage disclosures and sets rules for escrow accounts and servicing. The Loan Estimate, the Closing Disclosure, and notices about who will service the loan come from this body of rules and from the Truth in Lending Act. RESPA is not a loan program. Also called: RESPA Real-Estate Owned (REO) A property that went through foreclosure and is now owned by the lender or investor because it was not sold to a third party at the auction. An REO sale is a sale by that owner. It is not a short sale, which happens before the foreclosure is finished. Learn more: The REO Guide: 10 Steps to Buying a Bank-Owned Home Also called: REO; bank-owned Realtor® A real estate agent or broker who is a member of the National Association of Realtors®. Not every licensed agent is a Realtor®. The word is a membership name, not a license level. Learn more: The Real Estate Buyer’s Agent: Do I Need One? Also called: Realtor Rebate Points A lender credit that lowers closing costs in exchange for a higher interest rate. They are also called negative points. The borrower pays less at closing and more over time. They are the opposite of discount points. Also called: negative points; lender credit from a higher rate Refinance Paying off a mortgage with a new loan on the same property. Borrowers refinance to change the rate, the term, or the loan amount. A refinance is not a second mortgage, which leaves the first loan in place. Learn more: When Should You Refinance Your Home? Home Refinancing and Refi Mortgage Loan Options Repayment plan An agreement to pay the past-due amount over time, along with the regular monthly payment. It brings the loan current. It does not change the rate or the term. It is not a loan modification. Reserves Money a lender wants the borrower to have left after closing, usually enough to cover a stated number of mortgage payments. Reserves are not the down payment, and they are not a repair escrow. The number of months depends on the loan. Right of rescission A borrower's right, on many refinances of a primary home, to cancel the loan within three business days after closing. A purchase loan does not have this right. Some other transactions are exempt. Canceling under this right is not the same as a contract contingency. Also called: right to cancel; three-day rescission S Top Second home A home the borrower occupies for part of the year and that is not a primary residence or a rental investment. Lenders limit how it can be rented and price it differently from a primary home. It is not an investment property. Learn more: Buying a Second Home: What You Need to Know Also called: vacation home Second Mortgage A mortgage recorded after the first mortgage, so it is paid after the first mortgage in a foreclosure. Home equity loans and HELOCs are common second mortgages. A second mortgage is not a cash-out refinance, which replaces the first loan. Using one for a down payment is one use, not the definition. Learn more: Subordinate Mortgages: Everything You Need to Know Seller concession Money the seller agrees to pay toward the buyer's costs. It is a credit at closing, not a reduction that the borrower receives in cash. How much the seller may pay depends on the loan program and the down payment. Also called: seller credit; seller contribution Seller's Agent The real estate agent who represents the seller. The seller's agent is not the buyer's agent. Their duty runs to the seller. Seller's Property Disclosure A form, required by state law in many states, on which the seller lists known defects. It covers what the seller knows. It does not replace an inspection, and the questions on the form differ by state. Senior loan The mortgage in first lien position. If the home is sold in foreclosure, the senior loan is paid before junior loans. It is also called a first mortgage. Also called: first mortgage; senior mortgage Sheriff's Sale A public auction of a property, most often a foreclosure sale. A sale can also result from a judgment lien or a tax lien. The name and the official who conducts it differ by state. Also called: foreclosure auction Short Sale A sale for less than the amount owed, which the lender agrees to accept. It happens before foreclosure is completed. It is not a deed-in-lieu, and an agreement to a short sale does not, by itself, say whether a remaining balance is still owed. Learn more: A Short Sale of Your Home: Is it the Right Choice? Streamline Refinancing A refinance program with less documentation than a full refinance, offered on some existing government loans. FHA, VA, and USDA each have their own version. A streamline refinance is not automatically a cash-out refinance, and it is not available on a conventional loan under those program names. Learn more: What Is Streamline Refinancing? Subordinate mortgage A mortgage that stands behind an earlier mortgage in lien priority. It is repaid after the senior mortgage if the home is foreclosed. “Second mortgage” and “junior mortgage” are the everyday names. Learn more: Subordinate Mortgages: Everything You Need to Know Also called: junior mortgage; second mortgage Subordination clause A term, or a separate agreement, that keeps one lien behind another. It is how a second mortgage can stay in junior position when the first mortgage is refinanced. Priority is not always the order in which the loans were made. Survey A measurement of a property's boundaries and the location of the improvements. A lender or a title company may require one when a boundary, easement, or encroachment question comes up. It is not an appraisal. T Top Tax Deduction An expense the tax law may allow a taxpayer to subtract, which can lower taxable income. Mortgage interest is sometimes deductible, and the rules change. This glossary does not state a dollar amount or tell a reader whether to itemize. A tax advisor is the right source for that. Temporary buydown A buydown that lowers the interest rate for a set early period, after which the rate rises to the note rate. A 2-1 buydown is one example: the rate is lower in year one and year two. The borrower is generally qualified at the note rate, not the reduced rate. It is not a permanent buydown. Learn more: Reducing Your Mortgage Rate and Payment With a Buydown Also called: 2-1 buydown Term The number of years, or the number of payments, over which the mortgage is scheduled to be repaid. A 30-year term and a 15-year term are different terms. The term is not the rate-lock period. Title The legal right of ownership of a property. A deed transfers title. Title insurance protects against covered defects in that ownership. Title is not the loan. Learn more: Title Company Roles in the Homebuying Process Title Insurance Insurance that covers certain ownership claims and title defects that already exist and were not found in the title search. There is a lender's policy and an owner's policy. The lender's policy does not protect the owner. See Owner's title policy. Learn more: Title Company Roles in the Homebuying Process Title Search A review of the public records to see who owns the property and whether liens or other claims are recorded. The search supports the title insurance commitment. It is not a survey, and it does not measure the land. Learn more: Title Company Roles in the Homebuying Process Total Interest Percentage (TIP) The total interest paid over the loan term, shown as a percentage of the loan amount. TIP is not the interest rate and it is not the APR. A longer term raises the TIP even when the rate is lower. Also called: TIP Truth in Lending Act (TILA) A federal law that requires lenders to disclose the cost of credit, including the APR. It is why the rate and the APR appear together in advertisements and on the Loan Estimate. TILA is not a loan program. Also called: TILA U Top U.S. Department of Agriculture (USDA) Loan A mortgage guaranteed by USDA Rural Development for an eligible buyer purchasing an eligible home in an eligible rural area. The program can allow a purchase with no down payment. The buyer still has to meet income limits and the property has to qualify. The USDA guarantee fee is not mortgage insurance. Learn more: What Is a USDA Loan and Who Qualifies? Also called: Rural Development loan; USDA guaranteed loan Under Contract The seller has an accepted purchase contract with a buyer. The home is not sold yet. Contingencies can still cancel the contract. Also called: pending Underwater Mortgage A mortgage on which the balance owed is greater than the value of the home. The loan-to-value ratio is over 100 percent. The comparison is to the current balance and the current value, not automatically to the original loan amount. Also called: negative equity Underwriting The lender's review of the borrower's credit, income, assets, and the property, ending in an approval, a denial, or a request for more information. An automated finding is one input. It is not the whole underwriting decision. Learn more: Explaining the Home Loan Process Part 4: Mortgage Underwriting Upfront Costs The money a buyer needs before and at closing, including the earnest money, the down payment, and closing costs. It is a plain-language total. Cash to close, on the Closing Disclosure, is the figure due at the closing table after credits. Learn more: How Much Do You Really Need to Buy a House? Upfront mortgage insurance premium The FHA mortgage-insurance charge due at closing, separate from the annual premium that is collected over time. It can often be added to the loan amount. It is not private mortgage insurance, and it is not the monthly MIP by itself. Also called: UFMIP; upfront MIP USDA guarantee fee The fee charged on a USDA guaranteed loan for the government guarantee. There is an upfront fee and an annual fee. It is not FHA mortgage insurance and it is not private mortgage insurance. Learn more: What Is a USDA Loan and Who Qualifies? V Top VA funding fee A fee charged on many VA loans to help fund the program. Some veterans are exempt, including many with a service-connected disability. It is not monthly mortgage insurance. The amount depends on the loan and whether the borrower has used a VA loan before. VA loan A mortgage guaranteed by the U.S. Department of Veterans Affairs for an eligible service member, veteran, or surviving spouse. It can allow a purchase with little or no down payment, and it does not charge monthly mortgage insurance. A funding fee may apply. The rate is set by the lender, not promised to be below the market. Learn more: VA Home Loans Also called: Veterans Affairs loan W Top Withdrawn Property A listing the seller has taken off the market. The home is not pending and it is not sold. The seller may later list it again. Need Further Definition? We've provided definitions, but many of these terms and concepts are more complex than a few sentences allow for. If you want to better understand the entries above, don't hesitate to contact a Pennymac Loan Officer. PennyMac Loan Services, LLC does not provide tax, legal or accounting advice. This website has been prepared for general informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

Key Takeaways: Pre-qualification gives you an early estimate of how much you may be able to borrow Pre-approval verifies your finances and provides a more accurate view of your borrowing power Pre-approval can help you set a realistic budget and show sellers you’re a qualified buyer Neither pre-qualification nor pre-approval guarantees final mortgage approval If you’re considering buying a home, people may tell you that you need to be “pre-qualified” or “pre-approved.” These terms relate to your mortgage and are two distinct steps in the loan process. Let’s explore what these two words mean, why they matter and common misconceptions about each process. What Does It Mean to Be Pre-Qualified? Being pre-qualified means a lender has assessed your general financial picture and, as a result, has given you an idea of how much of a mortgage you could potentially qualify for. The key word here is “idea.” A pre-qualification is a ballpark estimate primarily based on self-reported financial information. For example, the lender will ask you about your income but typically won’t ask for pay stubs or your W-2 form. They may also do a soft credit check that won’t affect your credit score. Pre-qualification processes vary by lender and are often done over the phone or online. Why Get Pre-Qualified? Pre-qualification is a relatively informal step but can be important, especially at the early stage of your home search. It’s particularly beneficial for first-time homebuyers, as it gives you a clearer picture of what you can afford and helps set realistic expectations. A pre-qualification can help you: Get an informed estimate of how much you may be able to borrow Give you insights into your potential home budget Understand your possible mortgage options What Does It Mean to Be Pre-Approved? A pre-approval is a contingent approval from your lender that you'll receive a loan for a certain amount. It's a preliminary assessment of your financial situation, typically done before you're actively shopping for a home. Think of it as a green light from your lender, indicating that they’re likely to approve your loan as long as the home meets their requirements and your financial circumstances remain the same. The Key Differences Between Pre-Qualification and Pre-Approval While a pre-qualification is an excellent starting point to understand your budget and where you stand regarding potential financing, it’s important to follow up with a pre-approval. The difference is that a pre-approval takes things a step further by providing a more accurate assessment of your borrowing power. Getting a pre-approval involves the following: Completing your lender’s official pre-approval application Submitting recent pay stubs, tax returns, bank statements and other financial records Authorizing a credit review, which may involve a soft or hard credit inquiry depending on the lender and stage of the process Verifying your financial information and creditworthiness Once all documents are submitted and information is verified, you’ll receive a pre-approval stating the loan amount you qualify for. Which Option Should You Pursue? Whether you should get a pre-qualification or pre-approval really depends on where you are in your home-buying journey. When Pre-Qualification Is Sufficient Starting to think about buying a home? Wondering if you’re financially prepared? Trying to determine your possible loan options? Getting pre-qualified can give you a ballpark estimate of your potential borrowing power based on the financial information you provide. It’s usually a quick and straightforward process that uncovers valuable insights into your budget. When Pre-Approval is Necessary Getting a pre-approval is a smart move if you're actively searching for a home and want to be ready to make an offer. It involves a more detailed review of your financial situation. Being pre-approved gives you a more accurate view of your numbers, allowing you to submit an offer with increased confidence. Plus, it shows sellers you are a qualified and credible buyer. Some lenders, like Pennymac, will allow you to lock your interest rate upon pre-approval. With Pennymac Lock & Shop, you can lock your interest rate before you get into a contract with a seller, protecting yourself from future rate increases. This could save you thousands of dollars in the lifetime cost of your new mortgage. And if rates go down after locking, you can reduce to the lower rate.1 Common Misunderstandings Let’s clear up some common myths and misunderstandings surrounding pre-qualifications and pre-approvals so you know what to expect as you embark on your home search. Pre-Approvals and Pre-Qualifications Are Synonymous As discussed above, both pre-approvals and pre-qualifications relate to home loans but mean different things. A mortgage pre-qualification is a rough estimate of how much you could borrow. A pre-approval is a contingent approval of a specific loan amount. A Mortgage Is Guaranteed Pre-approval and pre-qualification offer no guarantees that your mortgage will be approved. A pre-qualification is a preliminary loan estimate based on information that has been unverified by your lender. While a pre-approval is more official, it’s conditional. A mortgage may ultimately not be approved for a variety of reasons, such as: If the home inspection reveals serious issues, the lender may be hesitant to finance the entire loan amount Underwriting problems, such as discrepancies in your financial information If the appraisal comes in lower than the purchase price Significant changes to your financial situation Your mortgage is actually not completely finalized until closing. This is the day you pay your closing costs and down payment, sign all your paperwork and get the keys to your new home. A Pre-Approval Is the Same as a Conditional Approval While a pre-approval is a provisional approval for a certain loan amount, it is not the same as a conditional approval . Pre-approval occurs early in the mortgage process, before you have located a specific home you wish to buy. Conditional approval comes after you’ve signed a contract to purchase a home. It’s closer to the final loan approval. However, the underwriter can still deny the loan if the conditions aren't met or if your financial situation changes. All Lenders Follow the Same Process While there are general similarities in how lenders manage pre-qualifications and pre-approvals, there may be variations. Required documentation may be more or less extensive Some lenders may perform a soft credit inquiry for a pre-qualification, while others may not check credit at all Lenders may use the terms “pre-qualification” and “pre-approval” interchangeably. It’s essential to understand exactly what you’re receiving when working with your lender. Do Pre-Qualification and Pre-Approval Affect Your Credit Score? Neither pre-qualification nor a Pennymac Pre-Approval will impact your credit score. Pre-qualification doesn’t require a hard credit check, and Pennymac uses a soft credit pull for pre-approval. Once you lock your rate on a Pennymac loan, a hard credit inquiry is required and may temporarily lower your credit score by five points or less. Other lenders may perform a hard credit inquiry earlier in the pre-approval process. As long as you pay bills on time and keep your credit utilization rate low, your score will likely increase within a few months. Pre-Qualification vs. Pre-Approval FAQs Have more questions about mortgage pre-qualification and pre-approvals? Here are some frequently asked questions to help you prepare for your next home-buying steps. What Documents Are Required for a Pre-Qualification vs. a Pre-Approval? Pre-qualification is an informal process where lenders typically accept self-reported financial information. They may ask you to provide an overview of your income, debts and assets, which can often be done verbally or through a simple form. No official documents are required, but having this information handy can help you give more accurate estimates. A pre-approval is a more formal process and requires submitting official documents to verify your finances, creditworthiness and debt. You’ll need: Recent pay stubs Bank statements Tax returns Statements for additional assets such as stocks, bonds, IRAs and 401(s) In addition, your lender may conduct a hard credit inquiry. How Long Does It Take To Get Pre-Qualified vs. Pre-Approved? Pre-qualification is usually a quick process, often completed in as little as 30 minutes, through an in-person meeting, phone call or online session with a lender. Pre-approval, however, involves a more thorough review of your financial situation and credit history, which naturally takes longer. To expedite your pre-approval, gather all necessary documentation beforehand. Find Out Your Mortgage Borrowing Power If you’d like a clearer idea of how much money you may be able to borrow on a home loan, check out the Pennymac mortgage calculator . And, if you have other questions about how to get started finding the right home for you or getting a Pennymac Pre-Approval, talk to a Pennymac Loan Expert today! 1Lock & Shop: Lock & Shop Program allows consumers with a purchase mortgage Pre-Approval from Pennymac to lock a rate prior to locating a property. The program requires a non-refundable fee of $595 due at the time of the rate lock. Consumers with a purchase mortgage Pre-Approval from Pennymac must meet appropriate underwriting conditions to obtain a mortgage loan. Consumers may choose between a 60-day, 75-day or 90-day lock period. Consumers must initiate a mortgage loan application for a specific property and be under purchase contract for the property at least 30 days prior to lock expiration in order to extend the locked rate. All rate lock extensions are subject to Pennymac’s standard rate lock extension fees. After the rate lock and subject to favorable market conditions, consumers may be eligible for a one-time reduction in rate once the loan application for a specific property has been initiated (0.50 % maximum reduction in interest rate allowed). Eligible loan products are Conventional Fixed, Conventional ARM, FHA Fixed and VA Fixed. Program excludes Jumbo, refinance, third-party and in-process loans. Program subject to termination in Pennymac’s sole discretion and without notice.

Key Takeaways: Mortgage applications typically require income, asset, debt and employment documentation Self-employed applicants may need additional records, such as business tax returns and profit-and-loss statements Lenders use these documents to verify your financial information and assess borrowing eligibility Gathering paperwork early can help you spend less time tracking down documents later Whether you're buying a home or refinancing, there's one step every borrower shares: gathering the financial documents needed for a mortgage review. Lenders use these records to verify your income, assets, debts and employment history before making a lending decision. Getting organized early can help streamline the home loan application process and make it easier to respond to document requests as they come up. Income and Asset Documents Your lender will request documents to establish that you have the financial means to pay off your new mortgage alongside your other living expenses and long-term debts. Required documents can vary by lender and your personal circumstances, such as your employment type, but the following is a checklist of documents lenders typically ask for. Pay stubs W-2 forms and/or 1099 statements Any self-employment documents Statement of assets Pay Stubs Most lenders require pay stubs from the past two to three months to verify current employment and income. For borrowers employed by a company, pay stubs are typically the easiest way to provide proof of earnings. If a portion of your income comes from bonuses, overtime, commissions or other variable pay, your lender may request additional documentation. W-2 Forms and 1099 Statements Gather income documents from the past two years, including: W-2 forms (for salaried and hourly employees) 1099 forms (for independent contractors and certain self-employed individuals) Federal tax returns Lenders use these documents to confirm income, review earnings trends and gain a more complete picture of your financial situation. Self-Employment Documents If you are self-employed or own 25% or more of a business, you may need additional documentation to verify your income. Document requirements can vary based on your business structure and loan type, but may include: Business tax returns from the past two years Personal tax returns from the past two years Profit-and-loss statements Bank statements Proof of business operations such as a business license, Articles of Incorporation or operating agreement Statement of Assets Lenders review your assets to confirm you have the funds needed to close and to assess your overall financial stability. Be prepared to provide documentation for: Checking and savings accounts, typically for the most recent two months Retirement and investment accounts Down payment funds, including where the money is currently held Closing cost funds, if they are held in separate accounts Required reserves, which are funds remaining after closing that can cover future mortgage payments Any large deposits, if requested by the lender Gift funds, if applicable, along with a signed gift letter explaining: The gift amount The relationship between the donor and the buyer The address of the home being purchased A statement that the funds are a gift, not a loan that needs to be paid back Other Income Paperwork In certain situations, your lender may ask you to submit additional income-related documents: Child support payments: If you intend to use child support payments as income to qualify for your loan, then you will need to provide documentation of the child support arrangement. Many lenders require you to demonstrate that the payments will continue for a specified period after closing. Spousal support payments: If spousal support is part of your qualifying income, a divorce decree or similar court document may be required to verify the payment amount, terms and expected duration. Rental property income: In most situations, rental income can be counted toward qualifying income if it is documented on your tax returns. Lender requirements vary, so confirm what documentation is needed before applying. Debt Documents Existing debt can affect your loan amount, approval and available mortgage options. Lenders review your debts and current financial commitments alongside your income and assets to calculate your debt-to-income (DTI) ratio and determine how much you may be able to borrow. The following documents help assess your outstanding obligations. Credit report Statements of outstanding debt Letters of explanation Credit Report Your credit history is an important factor in both getting approved for a mortgage and the rate you are offered. The most competitive interest rates are generally reserved for those with the strongest credit profiles. While your lender will obtain your credit report directly, it is always best to know your credit score and understand what appears on your credit report before you apply for a loan. You can request free copies of your credit reports from the three major credit bureaus at AnnualCreditReport.com and review them for accuracy before your lender does. You may also want to consider: Paying down account balances, if possible Avoiding new credit accounts or incurring additional debt during the application and loan underwriting process Taking steps to correct anything on your credit report that is inaccurate or outdated Statements of Outstanding Debt Your lender will see your existing debts via your credit report, but you will still need to provide documentation of your current outstanding financial obligations, such as: Existing mortgage Car loans Student loans Home equity lines of credit or home equity loans Credit cards Letters of Explanation A derogatory mark or tax lien on your credit report helps to explain why certain items appear in your financial history. Depending on your situation, your lender may ask for a letter of explanation and supporting documentation to clarify: Credit inquiries Employment gaps Large deposits Late payments Tax liens or other derogatory credit events Other items that require additional context Prepare for the Application Process If you’re thinking about applying for a home loan, a little preparation now may help you avoid unnecessary delays later. Familiarize yourself with the typical documentation needed Check for any situation-specific documentation requirements Organize the paperwork in advance Keep digital copies readily available. Once you begin speaking with a lender, ask which documents apply to your unique situation and whether any additional paperwork may be required. In some cases, lenders can obtain certain information directly with your authorization, which can reduce the amount of documentation you need to provide yourself. Home Loan Application Documents FAQs Do Lenders Need Bank Statements for a Mortgage Application? In most cases, yes. Lenders typically review bank statements to verify your assets, down payment funds, closing cost funds and, if required, cash reserves. Can a Lender Ask for More Documents After I Apply? Yes. It's common for lenders to request additional documentation during the review process to clarify your income, assets, debts or other financial information. Do Self-Employed Borrowers Need Extra Home Loan Documents? Often, yes. Self-employed applicants typically need to provide additional records, such as business tax returns, profit-and-loss statements or other documentation used to verify income. Get Started With Pennymac If you’re ready to buy a home or refinance, a Pennymac Loan Expert can help you determine which documents you'll need and answer any questions along the way. Whether you're a first-time homebuyer, self-employed or returning to the mortgage process after several years, personalized guidance can help simplify the process.

Key Takeaways Jumbo loans exceed the conforming loan limits set by the Federal Housing Finance Agency (FHFA) and can be used for purchases and refinances, including cash-out refinances Choosing between a jumbo and a conforming loan depends on your financing needs, qualifications and available funds Conforming and jumbo loans differ in loan limits, down payment requirements and qualification standards Jumbo loans are designed for homebuyers and homeowners who need financing above conforming loan limits, whether they're purchasing a higher-priced home or refinancing an existing mortgage. But what is a jumbo loan, and how do jumbo loan requirements differ from those of a conforming mortgage? Below, we’ll cover current jumbo loan limits, the qualifications lenders look for and how jumbo financing compares with a conforming mortgage, so you can decide whether this type of home loan is right for you. What Is a Jumbo Loan? A jumbo loan, also known as a jumbo mortgage, is a non-conforming home loan with an amount that exceeds the conforming loan limit set by the FHFA. A borrower may want to consider a jumbo home loan when a conforming loan won't provide enough financing for a home purchase, refinance or cash-out refinance. Jumbo loans can be used to purchase or refinance a range of property types, including: Single-family homes (attached/detached) Planned unit developments (attached/detached homes with a homeowners association) Condominiums One- to two- unit primary residences and investment properties One-unit second homes or vacation homes While jumbo loans are typically associated with higher-priced homes, they're increasingly common in areas where home values exceed local conforming loan limits. What is a Jumbo Loan? Take me to the series What is a Jumbo Loan? Take me to the series Jumbo Loan Limits The Federal Housing Finance Agency (FHFA) sets conforming loan limits each year, and those limits can vary depending on where you're buying a home. If your loan amount exceeds the applicable limit for your area, you'll typically need a jumbo mortgage. The conforming loan limit for 2026 for a one-unit property is: $832,750 in most counties Up to $1,249,125 in certain high-cost housing markets Not sure what limit applies where you're buying? Your mortgage lender can help you determine the current county loan limit, or you can look it up using the FHFA conforming loan limit values map. How to Qualify for a Jumbo Loan Because jumbo mortgages involve larger loan amounts than conforming mortgages, qualification requirements are often more stringent. Borrowers generally need to meet certain credit, asset and income requirements to qualify. High Credit Score Your credit score is an important factor in any mortgage application, but you’ll typically need a higher credit score to qualify for a jumbo loan compared to a standard conforming loan. A credit score of 700 or higher is common for many jumbo mortgage programs. Higher scores may improve your chances of qualifying and could help you secure more favorable loan terms. Cash Reserves Lenders generally require borrowers to have assets available after closing to cover several months of mortgage payments. Depending on the loan amount, some jumbo loan programs may require up to 24 months of reserves. Debt-to-Income Ratio Your debt-to-income ratio tells lenders how much of your monthly income goes to debt. A low ratio can demonstrate that you have more room in your budget to take on a mortgage payment. Many jumbo loan lenders look for a DTI ratio of 45% or less, although some programs may allow a higher DTI (up to 50%) for well-qualified borrowers. Documentation and Appraisal Requirements To show your qualifications for a jumbo loan, you will likely need to show more documentation than for a typical mortgage loan. You may be asked to show up to two years’ worth of tax returns, W-2s and more. Some lenders also require a second appraisal. Jumbo Loans vs. Conforming Loans A jumbo loan is considered a non-conforming loan. Most mortgages are financed with conforming loans, which differ from jumbo loans in a few key ways: Loan limits. Conforming loans fall within the loan limits established by the Federal Housing Finance Agency (FHFA) and meet the guidelines set by Fannie Mae and Freddie Mac. Jumbo loans exceed those limits and are used when a borrower needs financing above the conforming loan threshold. Down payments. Jumbo loans often require a minimum 20% down payment, compared to the lower percentages allowed with conforming loans. That being said, qualified borrowers may be able to secure a Pennymac jumbo loan with as little as 10.01% down on loan amounts up to $2 million. Larger loan amounts generally require a larger down payment. Interest rates. Jumbo loan rates are set by individual lenders and may differ from conforming loan rates. Market conditions, lender guidelines and borrower qualifications influence rates. Closing costs and fees. Jumbo loans can have higher closing costs and fees than a conforming loan. Is a Jumbo Loan Right for You? A jumbo loan may be a good fit if you're purchasing or refinancing a property that requires financing above the conforming loan limit for your area. Depending on the lender and loan program, jumbo financing may be available for loan amounts well above conforming limits, including up to $3.5 million through Pennymac. Before choosing a jumbo mortgage, consider whether: Your financing needs exceed the conforming loan limit for your area You have a solid credit history and a stable income source You have enough funds available for a down payment, closing costs and any required cash reserves You've compared jumbo loan options with other available financing solutions Jumbo Loan FAQs What Are Common Jumbo Loan Requirements? Common jumbo loan requirements include a strong credit history, stable income, cash reserves, a manageable debt-to-income ratio and sufficient funds for a down payment and closing costs. Is a Jumbo Home Loan a Conventional Loan? Yes. Jumbo loans are considered conventional mortgages, but they are also classified as non-conforming loans because they exceed FHFA conforming loan limits. Are Jumbo Loan Rates Higher Than Conforming Loan Rates? Not always. Jumbo loan rates can be higher, lower or similar to conforming loan rates depending on market conditions, lender guidelines and borrower qualifications. Since qualification requirements and loan terms can differ, it's a good idea to review your options with a mortgage professional. Contact a Pennymac Loan Expert, who can help you compare loan programs and determine whether a jumbo loan is the right mortgage for your goals.

Many homeowners look for ways to make the most of their monthly budget, build long-term wealth and fund their personal goals. Refinancing your mortgage is a path that can potentially help you do all three. Whether you’re looking to lower your interest rate, change your loan type or access your home’s equity, refinancing your mortgage can create new opportunities to save or better fit your current financial goals. This guide explains what refinancing is, how it works, the costs involved and the loan options available. It also provides the insights you need to decide whether refinancing is the right move for your financial situation. Key Takeaways Refinancing replaces your existing mortgage with a new loan featuring updated terms You can refinance to lower your interest rate, change your loan duration or access home equity Understanding closing costs and qualification requirements helps you choose the right option for your situation What Is Mortgage Refinancing? Refinancing means taking out a new home loan to replace your existing mortgage. You still own the same home, but your loan terms change. The new mortgage pays off the original debt entirely. Moving forward, you make a single monthly payment based on the interest rate and timeline of your new loan. How Does Refinancing Work? The refinancing process is similar to applying for your original mortgage. It involves several steps: Application: You begin by submitting an application to the lender. Documentation: You will need to provide financial documents, such as proof of income and assets. Lender review: The lender will review your application and documentation, including your credit score, income and debt-to-income (DTI) ratio to ensure you qualify. Documentation requirements and qualification criteria can vary by loan type. Approval and closing: Once approved, you will review the new loan terms and sign the final paperwork to close on the new loan. After closing, the lender uses the funds from your new mortgage to pay off your old one. Your new payment schedule will begin shortly after. Types of Mortgage Refinancing Different situations call for different loan options. Lenders offer a range of solutions designed to help you meet your needs and make the most of your mortgage. Traditional Refinance (Rate-and-Term) A traditional rate-and-term refinance changes the interest rate, loan term or both. Homeowners often use this option to secure a lower interest rate and reduce their monthly payment. You can also use a traditional refinance to change your loan type. For example, switching from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage gives you consistent monthly payments. If you currently have a Federal Housing Administration (FHA) loan, refinancing to a conventional loan may allow you to eliminate monthly mortgage insurance if you have at least 20% equity and meet qualification requirements. Cash-Out Refinance A cash-out refinance replaces your current mortgage with a new, higher-balance loan. You receive the difference between the two loan amounts in cash. Homeowners frequently use these funds for home improvements, education expenses or debt consolidation. Tapping into your home equity this way typically provides funds at a lower interest rate than most credit cards or personal loans. Streamline Refinance Unlike a traditional rate-and-term refinance, which requires full documentation and an appraisal, a streamline refinance is a simplified mortgage refinance designed to help borrowers improve their loan terms, such as lowering their interest rate or changing loan type, usually with less paperwork and fewer requirements. It reduces documentation and underwriting, often making the process faster and easier, but it still involves closing costs. The primary streamline programs available include: FHA Streamline Refinance Designed for borrowers with an existing FHA loan, an FHA Streamline Refinance helps lower your rate and monthly payment or switch from an adjustable-rate mortgage to a fixed-rate home loan. It allows you to refinance often without a new home appraisal and with limited income documentation, depending on your current loan servicer. VA IRRRL (Interest Rate Reduction Refinance Loan): A VA IRRRL helps eligible veterans with an existing VA loan lower their interest rate and monthly payment. The process typically requires no home appraisal, income verification or out-of-pocket closing costs.* USDA Streamlined-Assist Refinance: Created for current USDA loan holders, a USDA Streamlined-Assist Refinance helps lower your interest rate and your monthly payment through a simplified process. It eliminates the need for an appraisal and offers more flexible documentation requirements, with eligibility tied to a monthly payment reduction of at least $50. If you qualify for these programs and your primary goal is to lower your payment or rate, these loans may be worth exploring. Why and When to Refinance Refinancing can help you reduce costs, change how your loan is structured or access funds from your home equity. The right timing depends on your financial situation and how your current loan compares to today’s options. You may want to consider refinancing if: Interest rates have dropped: Monitoring market trends can help you secure a lower rate. Even a small reduction can lead to savings over time. Your credit score has improved: If your credit has strengthened since you first obtained your mortgage, you may qualify for more favorable rates and terms. Your loan no longer fits your situation: Refinancing can allow you to change your loan type or modify your term to better align with your current needs. You have built enough home equity: A cash-out refinance lets you turn a portion of that value into cash you can use for a variety of expenses or to consolidate debt. Benefits and Considerations of Refinancing Refinancing can offer financial benefits, but it’s important to weigh them against the potential tradeoffs. Understanding both sides can help you decide if a new loan makes sense for your situation. Refinancing can offer several potential benefits, depending on the type of loan: Lower monthly payments: A lower interest rate or longer term can make payments more manageable. Faster loan payoff: A shorter term can help you build equity more quickly and reduce total interest paid. More predictable payments: Refinancing from an adjustable-rate mortgage (ARM) to a fixed-rate loan locks in your interest rate for the life of the loan, protecting you from future rate increases and providing greater budget stability. Access to home equity: A cash-out refinance unlocks your home equity, providing you with funds to consolidate high-interest debt, improve your home or cover big-ticket expenses like a wedding or college tuition. Potential to remove mortgage insurance: Because FHA loans typically carry mortgage insurance for the life of the loan, switching to a conventional loan once you've built at least 20% equity can eliminate that monthly premium — often a meaningful, ongoing savings. At the same time, there are tradeoffs to consider: Upfront closing costs: Refinancing typically involves closing costs. You can pay them out of pocket or roll them into your loan, though doing so increases your balance and total interest paid. Higher total interest over time: Extending your loan term — such as moving from a 15-year to a 30-year mortgage — can lower monthly payments but increase total interest paid. Less home equity: A cash-out refinance lets you access equity but increases your loan balance, leaving you with less equity and more debt. Break-even timeline: It may take 2–3 years of savings to recover closing costs. Selling or moving before then could result in a net loss. Amortization schedule reset: Refinancing into a new 30-year loan restarts the amortization schedule, extending your payoff date and shifting early payments toward interest. However, Pennymac offers options to keep your remaining term so you can refinance without extending your timeline. What Does It Cost to Refinance? Closing costs for a refinance generally range between 3% and 6% of the loan amount. These expenses cover the services provided by your lender and other third parties. Depending on the type of loan, typical refinancing fees include: Application and underwriting fees Home appraisal fees Title search and insurance fees Origination fees You can ask your lender to roll these closing costs into the loan balance to avoid paying cash up front. Keep in mind that financing your closing costs increases your total loan amount and your monthly payment. Requirements to Qualify for a Refinance Lenders will review several financial factors before approving your refinance. The specific requirements can vary by loan type, but lenders generally look for: A strong credit score: A higher score can help you qualify for better interest rates. A healthy debt-to-income (DTI) ratio: This compares your monthly debt payments to your gross monthly income. A solid payment history: Lenders want to see that you have consistently made payments on your current mortgage. Sufficient home equity: Home equity is calculated as the difference between your home’s value and your remaining loan balance. It’s especially important for a cash-out refinance. Most lenders require you to maintain a certain level of equity in your home after refinancing, which varies by loan type. For example, conventional loans typically allow you to borrow up to 70% to 80% of your home's value, meaning you must retain 20-30% equity. FHA cash-out refinances cap borrowing at 80% LTV, requiring at least 20% equity to remain. VA cash-out refinances offer the most flexibility for eligible veterans and service members. VA program rules permit borrowing up to 100% of your home's appraised value, though most lenders set a lower cap. At Pennymac, VA cash-out refinances are currently limited to 90% loan-to-value, including any financed VA funding fee, meaning you retain at least 10% equity. Limits vary by loan amount and are subject to VA, investor and lender requirements. FAQs About Refinancing Does refinancing hurt your credit? Applying for a refinance requires a hard inquiry on your credit report. This inquiry causes a slight, temporary drop in your credit score. Continuing to make your regular payments on time helps your score recover within a few months. How often can you refinance? Homeowners can technically refinance multiple times. Some loan types enforce a waiting period of six months to a year before you can refinance again. Keep in mind that frequent refinancing generates repeated closing costs that can negate your potential savings. How long does refinancing take? Many refinance loans can take 30-45 days to close, but there are exceptions if your finances are complex or you’re refinancing at a particularly busy time of year. Submitting your documentation promptly and responding quickly to lender requests helps keep the process moving smoothly. Do you need an appraisal? Most traditional and cash-out refinances require a new appraisal to verify the property's current market value. Streamline refinance programs for FHA and VA loans generally waive the appraisal requirement. Is Refinancing Right for You? Taking time to review your financial situation can help you decide if refinancing makes sense for you. One helpful step is calculating your break-even point to see how long it will take for your monthly savings to cover the closing costs — especially if you plan to move or sell in the near future. Ready to discover how a new home loan could benefit you? Connect with a Pennymac Loan Expert to explore your options today. *No out-of-pocket cost refinance options are available to qualifying borrowers. Does not apply to taxes, insurance, or pre-paid interest. Refinancing your existing loan may result in your total finance charges being higher over the life of your loan.

Key Takeaways: The Federal Reserve sets a target range for short-term interest rates, not mortgage rates Broader market conditions shape mortgage rates Fixed and adjustable-rate loans respond differently to rate changes Fed decisions can influence borrowing costs over time Knowing how rates work can help you plan your next move What Is the Federal Reserve? The Federal Reserve, often called the Fed, is the central bank of the United States. It plays a key role in keeping the financial system running smoothly and the economy on stable ground. What Does the Federal Reserve Do? The Fed helps shape economic conditions by managing how money flows through the economy. Some of its core responsibilities include: Setting a target range for the federal funds rate: The Fed sets a target range for this rate, which is the interest rate banks charge each other for very short-term loans. Promoting stable prices: It works to keep inflation at a manageable level so the cost of goods and services doesn’t rise too quickly. Supporting employment: The Fed aims to foster conditions that encourage job growth and a steady labor market. Maintaining financial stability: It monitors the banking system and helps prevent disruptions that could impact the economy. How the Federal Reserve Influences Mortgage Rates The Federal Reserve doesn’t directly set mortgage rates, but its decisions help shape the broader interest rate environment. Short-Term Rates Set the Foundation When the Fed adjusts the target range for the federal funds rate, it shapes broader short-term interest rates and influences banks’ borrowing and lending costs. Those changes impact how financial institutions price loans and investments, which in turn affects borrowing costs across the economy. Market Expectations Drive Mortgage Rates Mortgage rates are more closely tied to longer-term factors, like bond yields and inflation expectations. In particular, they often move in line with the yield on 10-year U.S. Treasury notes or mortgage-backed securities (MBS), which reflect how investors view future economic conditions and Fed policy. Fixed Vs. Adjustable-Rate Mortgages: How Each Responds to Fed Changes Not all home loans respond to rate changes in the same way. The impact depends on the type of mortgage you have or are considering. Here’s how the two most common options compare: Fixed-rate mortgage: Your interest rate stays the same for the life of the loan. That means your principal and interest payment remains steady, even as rates shift in the broader market. Adjustable-rate mortgage (ARM): Your rate starts fixed for a set period, then adjusts at regular intervals based on current market conditions. As rates change, your monthly payment can go up or down. Because of their structure, ARMs tend to respond more quickly to changes tied to short-term rates. Fixed-rate mortgages are influenced more by longer-term trends, making them less sensitive to short-term shifts. How Fed Decisions Can Affect Homebuyers When the Fed changes its benchmark interest rate, it can influence the overall rate environment. In turn, this can affect mortgage pricing and how much home you can comfortably afford. Lenders use current market conditions, along with your financial profile, to determine the rate you’re offered. Mortgage rates can move lower when investors shift toward safer assets like mortgage-backed securities, which can reduce the cost of funding home loans. When rates are lower, you may qualify for a higher loan amount or see a lower monthly payment. Lower rates can also increase buyer demand and put upward pressure on home prices in certain markets. When rates rise, your buying power can tighten. Monthly payments may be higher, but home-price growth may cool in some markets, depending on local supply and demand. A pre-approval can help you understand how much you may qualify to borrow and give you a clearer sense of your homebuying budget as rates change. How Fed Policy Impacts Homeowners For homeowners, the impact of Fed decisions comes down to the type of loan you have. Fixed-Rate Mortgage If you have a fixed-rate mortgage, your payment stays consistent. Your interest rate and monthly principal and interest payment won’t change just because rates move in the broader market. ARM If you have an adjustable-rate mortgage, your loan typically has two phases. The first is a fixed introductory period when your rate stays stable. After that, the rate can adjust periodically, within limits set by your loan. Those adjustments are influenced by market-wide rate movements, including changes tied to Fed policy. As rates shift, your monthly payment could go up or down. What Should You Do When The Fed Changes Rates? When rates change, you don’t need to act right away — but it’s a good time to check how the change might affect you. If You’re Planning to Buy a Home Changes in interest rates — whether up or down — can affect both your estimated monthly payment and the price range you may qualify for, especially if you haven’t locked a rate yet. It may help to: Revisit your budget to understand what monthly payment feels comfortable and how it aligns with your goals Check in on your pre-approval if you have one Run a few what-if scenarios with a mortgage calculator to see how different rate levels could impact your numbers If You’re Considering Refinancing A change in interest rates can be a good prompt to review your current mortgage. You may want to compare your existing rate and terms with what’s available now and explore whether refinancing could help you lower payments or shorten your loan term. If You Have an Adjustable-Rate Mortgage (ARM) If your loan is approaching an adjustment, understand how your rate and payment could change. If you anticipate staying in your home long term, it may also be worth exploring whether refinancing into a fixed-rate mortgage makes sense. A fixed rate can offer more predictable payments and added stability. A Common Misconception About the Fed and Mortgage Rates Many people assume mortgage rates move directly and immediately with the Fed. In reality, the relationship is more complex. A Fed rate cut doesn’t automatically mean mortgage rates will drop, and rates don’t always change right after a Fed announcement. Markets often adjust ahead of time based on expectations, so mortgage rates may shift before the Fed makes an official move. Frequently Asked Questions Does a Fed Rate Cut Mean Mortgage Rates Will Drop? Not always. Long-term market conditions and investor expectations influence mortgage rates. A Fed rate cut can play a role, but it doesn’t guarantee lower mortgage rates. How Quickly Do Mortgage Rates Respond to Fed Changes? There’s no set timeline. Rates may move before, during or after a Fed decision, depending on how markets respond. What Fed Changes Mean for Your Next Step The Federal Reserve contributes to the broader interest rate environment, even though it doesn’t set mortgage rates directly. Knowing how those pieces connect can make it easier to plan your next step, whether you’re buying a home, refinancing or reviewing your existing loan. If refinancing is on your radar, a Pennymac Loan Expert can help you explore whether current rates could lower your monthly payment. Refinancing your existing loan may result in your total finance charges being higher over the life of your loan.

PennyMac Financial Services, Inc. (NYSE: PFSI) (Pennymac) today announced “Welcome Home,” the second season of its “Bring It Home” video series, giving homebuyers and homeowners tools and information for every stage of the process. As the Official Mortgage Provider of Team USA, Pennymac paired its loan experts with Team USA athletes who are Pennymac homeowners, answering on camera the questions buyers ask most. “Our ‘Welcome Home’ expert led, athlete hosted video series was created to simplify and personalize expert mortgage guidance,” said Scott Bridges, Chief Consumer Direct Production Officer at Pennymac. “Team USA athletes understand the relentless pursuit of a goal and the importance of coming home to a place of their own.” The first five episodes — “How Much Mortgage Can I Afford?”, “What’s Needed to Buy a Home,” “All About Refinancing,” “First-Time Homebuyer” and “All About Home Equity” — cover the circumstances everyday homeowners navigate, from a first purchase to making the most of a home they already own. They feature Pennymac homeowners: three-time U.S. Olympic medalist freeskier Alex Ferreira, five-time U.S. Paralympic medalist snowboarder Brenna Huckaby, and U.S. Olympic gold medalist speedskater Erin Jackson. “Of all the goals I’ve worked toward, becoming a homeowner ranks as one of my proudest,” said Brenna Huckaby, five-time U.S. Paralympic medalist, Para Snowboard. “Getting there came with a lot of questions, which is exactly why I love this series: it answers them with honest, easy to understand conversations and makes homebuying feel attainable. As a Pennymac homeowner, I had that kind of guidance for myself, and now this video series puts it within reach for everyone watching.” The sixth and final episode (“Non-Traditional Income”) focuses on borrowers with variable or non-traditional income, exploring how they can prepare to qualify for a mortgage and pursue homeownership on their own terms. Variable income is a familiar reality for Team USA athletes, whose earnings are often seasonal and sponsorship-based. Those circumstances also led Pennymac to create the Welcome Home: Athlete Mortgage Program, a first-of-its-kind lending offering that provides dedicated loan officers, tailored home loan benefits and homeownership education. All 6 new episodes join Pennymac’s “Home Team Training Center,” a growing library of educational tools and guidance for Team USA athletes and everyday homebuyers and homeowners. Audiences can view the first three episodes now and follow the season as new episodes roll out on Pennymac’s website and YouTube channel. For more information please visit www.pennymac.com/WelcomeHomeSeries.

Key Takeaways REO homes are bank-owned properties that did not sell at a foreclosure auction Bank-owned homes may offer lower purchase prices but often require repairs and are typically sold as-is Buyers can often finance REO purchases using conventional, FHA or VA loans Thorough inspections, title reviews and lender pre-approval are important steps when buying an REO property If you’re in the market for a new home, a bank-owned property can be a good option under the right circumstances. When you take the time to understand the Real Estate Owned (REO) process, you might uncover some special opportunities unique to this type of home purchase. While foreclosed and bank-owned homes often require more renovations — and a different type of negotiation — than other options on the market, they can also come at a significant discount. If you’re willing to work through some of the nuances of the post-foreclosure market, you can set yourself up for a great deal. What Is a Real Estate Owned Home? REO, which stands for Real Estate Owned, refers to a property whose ownership has been transferred to a bank or lender after foreclosure. These properties are also commonly referred to as bank-owned homes. Many REO homes are sold “as is,” which means buyers may need to handle repairs or renovations after closing. However, they may also be priced competitively compared to traditional listings. What Is an REO Foreclosure? An REO foreclosure is the stage that follows the foreclosure process, when a home becomes lender-owned after failing to sell at a foreclosure auction. Once the lender takes ownership, the property is usually prepared for resale through standard real estate channels. For buyers, REO foreclosures can offer a more familiar buying experience than auction properties, often including inspections, financing options and the ability to work with a real estate agent. What Is a Foreclosed Home? A foreclosed home is a property that a lender has repossessed due to the homeowner’s failure to make mortgage payments. When a borrower defaults on their mortgage — typically involving a failure to make payment for more than 120 days without any reasonable resolution — the lender initiates legal proceedings to take property ownership through foreclosure. The home is then typically sold at a public auction to recover the outstanding loan balance. If it doesn’t sell at auction, the property becomes Real Estate Owned (REO) by the lender, who will market and sell it to minimize losses. How REO Homes, Foreclosures and Bank Owned Homes Differ A foreclosed home does not automatically become an REO property. It may pass through pre‑foreclosure, short sale and a foreclosure auction first; if it doesn’t sell, only then does it become Real Estate Owned (REO) under the lender’s ownership. Although REO homes are often called foreclosures, they are technically post‑foreclosure properties. Here’s a breakdown of the different stages of distressed properties: Pre-Foreclosure (Short Sale) Properties Homeowners in financial distress may sell the property for less than the mortgage balance, with lender approval. This is called a short sale. Financing is typically accepted, but the process requires negotiations between the buyer, seller and lender, which can be lengthy and uncertain. To avoid any unwelcome surprises, buyers should first thoroughly inspect the property. Foreclosure Auction When a homeowner defaults, the property may be sold at a public foreclosure auction. These homes are sold “as-is” to the highest bidder, often requiring immediate payment via cash or cashier’s check. Buyers assume responsibility for any liens or occupants and typically cannot inspect the interior before purchase. Bank-Owned (REO) Properties If a property doesn’t sell at auction, it becomes Real Estate Owned (REO) by the lender. Buyers can purchase a post-foreclosure home through traditional real estate channels, often with financing options available. These types of homes are still sold as-is, but lenders may address some major issues to improve marketability. The asking price may be below market value to facilitate a quick sale, so the lender may be less willing to negotiate further on that amount. However, this can vary depending on market conditions and how long the property has been in the bank’s inventory. The process may also take longer due to bank procedures. Each purchasing method has its own set of advantages and challenges. Prospective buyers should conduct thorough due diligence and consult real estate professionals to manage these complex transactions. Pros and Cons of Buying Bank Owned Homes Purchasing a bank-owned home can be a great opportunity, but it does require careful planning and awareness. Like any other home-buying option, REO properties can come with their own set of benefits and drawbacks. Advantages Significant savings potential. REO properties are often priced below market value because lenders are motivated to sell and avoid holding inventory. Investment and profit opportunities. Buyers who have the ability to fix up the property at a good value can either transform the home into an ideal living space or benefit from selling the property for a strong return on investment once the repairs are completed. The seller is highly motivated to make a deal. In most cases, you would be dealing with a highly motivated lender who wants to get rid of the property as soon as possible (especially if it’s been on the market for more than 30 days). Things to Consider Repairs may be significant and expensive. REO properties may have been vacant for extended periods, leading to maintenance issues or damage. Consider the cost to fix the home and deduct it from the apparent initial savings to see if it’s still beneficial for you to buy. Competition can be strong. Bank-owned properties often attract investors and cash buyers, creating a competitive environment. Pricing can vary. The ultimate price may be influenced by factors such as property condition and the bank’s history with the home, requiring thorough evaluation and planning. The process may take longer. REO purchases can involve additional lender review and approval steps, which can extend the timeline. How to Buy Foreclosed Homes in 10 Steps The process for buying an REO home is similar to the standard home-buying process, but there are a few key exceptions to keep in mind. Whether you’re buying the home to live in or as an investment, these 10 steps should help set you up for success with bank-owned properties. Step 1: Browse Available REO Properties Before you get too deep into the process, it’s best to first look at the properties available in your target market or price range. There are several ways for prospective homebuyers to browse available REO properties: Multiple Listing Service. Lenders and real estate agents often use the Multiple Listing Service to list REO properties, making it easy to find options from multiple lenders in one place. Real estate agent. A real estate agent will be able to find REO offerings from multiple lenders in your desired area. Online services. Other online services offer tools to look up foreclosures by specific characteristics or in certain areas. Some of these tools are free to use, while others may charge a fee. Step 2: Find a Lender and Discuss REO Financing Once you’ve found a property you’re interested in, talk to a lender about your financing options. This is particularly important because of the timing of the REO home-buying process. Lenders are motivated to sell and want to get these homes off their books, so the more prepared you are with financing, the better. Getting pre-approved by the lender that owns the REO property can help speed up the process. Pre-approval shows the lender that you’re most likely financially qualified, increasing the likelihood they’ll accept your offer. Step 3: Find a Real Estate Buyer’s Agent Who Knows REO Homes A buyer’s agent is a great partner for helping you find the best properties at the best possible prices. They'll use their expertise to guide you through every stage. Your agent should also be able to tell you if you need to hire anyone else, such as an attorney or an inspection service, depending on your state and situation. Moreover, if you’re focused on buying a bank-owned property, look for a buyer’s agent who is knowledgeable about REO transactions. An expert can help you navigate lender negotiations, estimate repair costs, manage strict timelines and steer you through each step of the process. Step 4: Refine Your List of Bank-Owned Properties Once you’re working with a buyer’s agent, you can start narrowing down your list of REO properties. The following are some major factors to consider: The home’s listing price Repairs required Location (proximity to a school, workplace, or other desired area) Number of bedrooms and bathrooms Quality of the neighborhood and surrounding areas Community resources in the area, such as parks, gyms, places of worship, etc. Lender-specific contingencies or requirements Once you’ve considered your must-haves, refine your list based on more nice-to-have features like a large yard, a finished basement or an in-ground pool. Then, share your favorite homes with your agent, who can set up tours for properties at the top of your list. Step 5: Get an Appraisal on Your Ideal Property Some REO homes go for a great price, but buying a bank-owned home is not an automatic bargain. An REO property may be discounted based on an undesirable location or severe damage, or it can be overpriced based on comparable sales in the area or the lender’s desire to recoup the money spent. Either way, consider getting an appraisal to know how the true value compares to the asking price. An appraisal will help you get an objective estimated value, which you can compare to the bank’s asking price to see if the price is fair. During the appraisal, a licensed appraiser will take inventory of major systems (i.e., HVAC, plumbing) and the home’s structural integrity and check the prices of comparable homes in the area. Note: An appraisal, which aims to estimate a home's true value, is different from a home inspection, which aims to take inventory of current and potential issues. While an appraisal will help you decide whether or not the asking price is fair, an inspection will help you understand the repairs and renovations needed. Both are critical for a bank-owned home. Step 6: Make an Offer Once you’ve found a property that’s right for you, it’s time to make an offer. Your agent will help you decide what kind of offer is likely to be accepted, put your offer together, and submit it to the lender. Depending on the lender, you may need to submit special contract forms or paperwork. It’s also common to attach an earnest money deposit check to your offer. This check (commonly 1-2% of the purchase price) is a commitment to follow through with the sales process and is usually held in an escrow account until the purchase is finalized. Make sure to consider the inspection when making your offer. You may opt to make the offer contingent on inspection, so you’re protected if the inspection uncovers significant (and potentially dangerous) issues. If necessary repairs are well-documented, you can use that documentation to make your case for a lower offer. Talk to your agent to understand your options when it comes to inspection contingencies. Step 7: Have the Property Inspected An inspection is essential when buying any home, but it’s especially critical for bank-owned properties. While REO homes are typically sold “as is,” meaning the buyer is responsible for repairs, buyers are still able to inspect the property. However, the seller likely won’t cover repairs or reduce the price based on the inspection findings. An inspection can uncover issues that may impact your decision, including: Structural damage Major repair needs Non-permitted renovations Damage caused by vacancy or neglect An REO home may have been vacant for weeks or months, or neglected due to the homeowner’s financial trouble. Additionally, the previous owners may have removed items or damaged the property before vacating. It’s also possible that the property has gone through non-permitted renovations. With that in mind, you should be 100% sure you know what needs to be fixed before finalizing the loan. A home inspection is the best way to take a thorough inventory of needed repairs. Factor these repair costs into your overall budget to better understand what the home will cost you (and whether it’s still a good deal after accounting for repair expenses). In some cases, the lender may already have an inspection report available. If so, request a copy and review it carefully to decide whether it provides enough detail for your decision. Step 8: Negotiate Details Negotiating with a lender for a bank-owned home is different from negotiating with a homeowner. On the plus side, dealing with a bank instead of a homeowner means you don’t have to worry about emotional attachments to the home influencing the seller’s decision. Banks typically take longer to respond to an offer (or a question) than a homeowner because several individuals or companies must review the offer. When the lender does respond, they’ll expect you to react quickly to keep the process moving. Banks are also more likely to present a counteroffer because they must demonstrate they tried to get the best possible price for the property. In addition, the lender may ask you to sign a purchase addendum (which you should thoroughly review with your real estate agent or lawyer). Your final offer may be contingent on corporate approval. Step 9: Finalize Your Loan and Verify Title Status Once you’ve submitted an offer, several things will happen simultaneously: the home inspection, negotiations with the bank and the loan application process. During this time, you’ll be filling out paperwork and sharing information with your lender to ensure your loan fits the offer you’ve submitted. Now is also the time to verify the status of the title to ensure the property is free of liens or legal issues. The bank typically clears the title before selling a bank-owned home, but you can never assume this is the case. Before closing, make sure to: Contact the lender to confirm whether the title has been cleared Ask whether the lender already has a title company handling the process Hire a title company yourself if you’re expected to complete the title search independently If needed, hire a title company to run a full, insured title search before closing the deal. Step 10: Closing Once all the paperwork is complete, you’ve wired in your down payment, and your loan funds are in place, it’s time to close. Closing on an REO property is similar to any other closing, with a few notable exceptions. Strict timelines. Scheduling the closing date may be less flexible, as the lender or bank will want to finalize the sale as quickly as possible. More paperwork. The REO home closing process often involves more documentation, including bank addendums with specific terms that often vary from standard agreements. At the closing, you and the lender representative will sign the documents necessary to transfer the house into your name and finish your mortgage. After you’ve signed everything and the money goes to the right place, you’ll get the keys and a new title: homeowner. Financing Bank-Owned Homes Unlike foreclosure auction properties, REO homes may allow buyers to use traditional financing options, depending on the property’s condition and loan requirements. However, the process can still involve additional paperwork, lender review and longer approval timelines. Get pre-approved early. Pre-approval shows lenders you’re a serious buyer and can help strengthen your offer in competitive REO situations. Banks selling REO properties may move quickly once they receive a qualified offer with strong documentation. Cash offers may close faster, but a strong pre-approval can still make a financed offer competitive. Explore available loan options. Depending on the property and your qualifications, financing may include conventional, FHA or VA home loans. Understand how property condition affects financing. Deferred maintenance, safety concerns or missing systems may limit financing eligibility or require repairs before closing. Consider renovation financing if repairs are needed. Renovation loans may allow eligible buyers to roll repair costs into the mortgage instead of paying them fully out of pocket. Tips for Buying an REO Property Ready to pursue a bank-owned home? Position yourself for a successful REO property purchase with these tips. Perform due diligence. Avoid rushing into a purchase without a thorough inspection. Remember that bank-owned homes are sold as-is, so it’s essential to understand the property’s condition. Review the listing details and ask for a history of the home, including past maintenance and repairs. Conduct a title search to ensure no liens or legal issues will follow you after the sale. Read the fine print. Carefully review all documents, including any bank-required addendums, as they may include restrictions or special terms. Hire a knowledgeable real estate agent. A real estate agent experienced with bank-owned properties can guide you through the unique aspects of these transactions. Be realistic about costs. Many buyers overlook repair and closing costs, which can quickly add up. Get quotes for major repairs before committing to purchase and incorporate costs into your budget. Exercise patience. The process may take longer than expected, so maintain open communication with all parties involved. Frequently Asked Questions About Bank-Owned Homes What does real estate owned mean? Real estate owned (REO) refers to a property that a lender or bank has taken ownership of after an unsuccessful foreclosure auction. These homes are sometimes called bank-owned properties and are often listed for sale through a real estate agent. Is an REO foreclosure the same as a foreclosure? Not exactly. A foreclosure is the legal process that happens when a homeowner falls behind on mortgage payments, while an REO property is a home the lender owns after the foreclosure process is complete and the property does not sell at auction. How do you buy bank-owned homes? You can buy bank-owned homes through a real estate agent, online listings or lender-owned property marketplaces. Buyers typically tour the property, make an offer and complete financing just like a traditional home purchase, although some REO homes may be sold as-is. Is an REO Home the Right Fit for You? Buying a foreclosed home as an REO property can be an excellent opportunity for homebuyers or investors to find a good deal — but only if you’re willing to be patient and thorough. Dealing with a lender rather than an individual seller may mean slower response times and a more complex negotiation process. Still, it can lead to a potentially great investment if you’re properly prepared. Contact a Pennymac Loan Expert to discuss your options today.

Key Takeaways: PITI stands for principal, interest, taxes and insurance, which are the primary components of a monthly mortgage payment Property taxes, homeowners insurance, mortgage insurance and HOA dues can significantly affect your total monthly housing costs Estimating your full mortgage payment before making an offer can help you set a realistic homebuying budget Buying a home can be one of the most rewarding (and largest) investments you will ever make. Estimating your monthly mortgage payment well in advance of purchasing can help you make smart budgeting decisions. Many prospective buyers find it valuable to calculate a home’s monthly mortgage payment — before making any serious commitment — to gauge whether it’s a good fit for their budget. Read on to learn more about mortgage payments, including what PITI and PITIA are and what your payments cover. What Is a Mortgage Payment? A mortgage payment is the amount you pay each month toward your home loan. The exact amount depends on several factors, including: Loan amount: Larger loans generally result in higher monthly payments. Loan term: Shorter loan terms typically have higher monthly payments than longer terms. Interest rate: Higher interest rates generally increase monthly payments. Depending on your loan and property, your monthly payment may also include additional housing-related costs, such as property taxes, homeowners insurance and homeowners association (HOA) dues. What Is PITI? The acronym PITI stands for the four core components of a monthly mortgage payment, specifically: Principal Interest Taxes Insurance Changing any of these four factors will affect your estimated monthly payment. You may also see PITIA. The "A" stands for association dues. While association dues are not part of every home purchase, if applicable, they do affect your total monthly housing costs. Here’s a closer look at each component of PITIA. Principal The principal is the amount you borrow from the lender. For example, if you have a $200,000 mortgage, the principal is $200,000. Each mortgage payment includes a principal payment, which reduces your loan balance. Interest Interest is what a lender charges for borrowing money. Your interest rate is one of the factors that determine your monthly mortgage payment. In general, lower rates result in lower payments, while higher rates result in higher payments. Early in the loan term, a larger portion of your payment goes toward interest, while a smaller portion goes toward principal. As the loan balance declines, more of each payment is applied to principal and less to interest. If you make extra principal payments, you may reduce the total amount of interest you pay over the life of the loan. Let's look at a $200,000 mortgage with a 30-year fixed rate of 6%. For simplicity, this example excludes taxes and insurance. The estimated monthly payment for the loan is $1,199. Here’s how that amount breaks down between principal and interest over the first few years of a mortgage: Timeframe Principal Interest Month 1 $199 $1,000 Month 24 $223 $976 Month 48 $252 $947 This pattern continues throughout the life of the loan, with principal making up a larger share of each payment as the loan balance declines. Taxes The “T” in PITI refers to your property taxes. These are taxes assessed by government agencies and are used to fund municipal services such as water treatment, road maintenance and public schools. It is common for lenders to set up an escrow account for property taxes, in which the lender collects a monthly payment designated for your taxes and holds the total until your annual taxes are due. Your annual property taxes are divided by 12 and added to the monthly principal and interest amount you are paying. Property taxes can vary greatly by area (and in some regions, they can be quite costly), and they may increase over the years. As soon as you identify a property you are interested in, it’s crucial to determine the exact local rate before making an offer. Using our example of a $200,000 mortgage with a 30-year fixed rate and 6% interest, here's how different property tax rates could affect the monthly payment. Property Tax Rate Annual Property Tax Monthly Mortgage Payment Breakdown 2% $4,000 $199 principal + $1,000 interest + $333 property tax = $1,532 4% $8,000 $199 principal + $1,000 interest + $667 property tax = $1,866 Insurance Homeowners Insurance Homeowners insurance, sometimes referred to as property insurance, is typically required by lenders and helps protect the property against covered losses such as fire, storms and other unexpected events. In many cases, homeowners insurance premiums are collected as part of the monthly mortgage payment and held in escrow. Mortgage Insurance Mortgage insurance is different from homeowners insurance and is not required for every borrower. Depending on your loan type and down payment amount, you may be required to pay mortgage insurance. Conventional home loans may require private mortgage insurance (PMI) when the down payment is less than 20% FHA loans typically require mortgage insurance premiums (MIP) Costs vary based on factors such as the loan amount, down payment, loan type and borrower qualifications For example, if a borrower purchases a $250,000 home with a conventional loan and makes a 15% down payment, PMI could add roughly $50 to $150 or more to the monthly mortgage payment. FHA loans calculate mortgage insurance differently, but MIP will also increase the total monthly payment. Association Dues Association dues are common in many condominium communities, townhome developments and neighborhoods governed by a homeowners association (HOA). These fees help maintain shared amenities, common areas and community services. Unlike principal, interest, taxes and insurance, HOA dues are often paid separately and may not be included in your lender-serviced mortgage payment. However, they should still be factored into your total monthly housing costs when determining affordability. HOA dues can range from a few dollars a month to several hundred dollars or more, depending on the community and amenities offered. Preparing for Your Mortgage Payment Understanding everything that goes into your monthly mortgage payment is a crucial early step in the homebuying process. Before making an offer, take time to: Review property taxes, insurance quotes and HOA dues, if applicable Estimate your full monthly housing payment, including principal, interest, taxes, insurance and any applicable association dues (PITIA) Use a mortgage payment calculator to see how changes to your down payment, loan amount and interest rate can affect your monthly payment Build a budget based on your total monthly housing costs When you’re ready to take the next step, begin your online home loan application, or connect with a Pennymac Loan Expert to learn more. Mortgage Payment FAQs What Is Included in a Mortgage Payment? A typical mortgage payment includes principal, interest, property taxes and homeowners insurance. In some cases, it may also include mortgage insurance and homeowners association (HOA) dues collected through an escrow account. What Does PITIA Mean? PITIA stands for Principal, Interest, Taxes, Insurance and Association dues. It’s a shorthand way to describe all the main housing costs that can be included in or associated with your monthly mortgage payment. What Are Principal and Interest? Principal is the amount of money you borrow to buy the home. Interest is the cost you pay to the lender for borrowing that money, usually expressed as a percentage (the interest rate) of your loan balance.

Key Takeaways: Assumable mortgages allow buyers to take over a seller's existing home loan and its terms FHA and VA loans are the most common types of assumable mortgages Buyers typically need lender approval and may need to cover the seller's equity with cash or additional financing Assuming a mortgage may offer savings when the existing loan has a lower interest rate than current market rates Most homebuyers get a brand-new mortgage at today’s rates. But there’s another option that can benefit both buyer and seller in the right conditions: the assumable mortgage. Instead of taking out a new loan, the buyer takes over the seller’s existing one — sometimes at a much lower interest rate. What Is an Assumable Mortgage? An assumable mortgage is a type of home financing that lets a buyer take over the seller’s existing mortgage, including its original terms. This can be appealing in certain rate environments, but there are a few important details to understand. With an assumable mortgage, the buyer may take on: The existing interest rate The current loan balance The remaining repayment period Because the loan is being transferred, the buyer typically needs to meet the lender’s requirements and receive approval before the assumption can move forward. This option can be especially attractive when the seller’s mortgage rate is lower than current market rates. In that scenario, the buyer may benefit from more favorable monthly payments compared to taking out a new loan. That said, there’s usually a gap to cover. Buyers are generally responsible for paying the seller for any equity built up in the home. Equity is the difference between the home’s current value and the remaining mortgage balance, and it’s often paid in cash or financed separately. What Is an Assumable Loan? An assumable loan is a mortgage that can be transferred from a home seller to a buyer, allowing the buyer to take over the existing loan rather than secure a new one. Not all mortgages are eligible for assumption. Even if a mortgage is assumable, the lender still needs to review and approve the buyer before the transfer can be completed. Which Types of Mortgages Are Assumable? The loans that most often qualify for assumption are VA and FHA loans, which are backed by the federal government. Assumable FHA Loans Federal Housing Administration (FHA) loans qualify for assumption because they’re free from the restrictions of due-on-sale clauses that are common in conventional mortgages. The due-on-sale clause requires the full balance of the loan to be paid upon transfer of property ownership. FHA Mortgage Assumption Requirements Buyers wishing to assume an FHA mortgage typically must meet the lender’s credit and income guidelines. Many lenders look for scores in the high-500s to low-600s range. Similar to a conventional loan, your debt-to-income ratio, including the assumed loan’s payment, cannot exceed 43% (although in special circumstances, it can go as high as 50%). Assumable VA Loans The United States Department of Veterans Affairs (VA) has long offered one of the best home loan programs available for qualifying veterans, active military and their dependents. VA loans often qualify for mortgage assumptions. VA Mortgage Assumption Requirements To qualify for a VA mortgage assumption, keep the following in mind: You must meet all VA standards for creditworthiness and income, and the assumption must be approved by both the VA and the lender All mortgage obligations are assumed by the buyer, up to and including the obligation to repay the VA should you default on the loan You will be responsible for paying a “VA funding fee” equal to 0.5% of the current loan balance (only the principal amount) If you’re considering secondary financing, the VA has specific rules about how second liens can be structured, which you can discuss with your lender Conventional Mortgages and Assumable Loans Under certain circumstances, conventional mortgages can also be assumable, but most of those loans contain a due-on-sale clause, making the loan ineligible for assumption. How Does Mortgage Assumption Work? Wondering how an assumable mortgage works? Here’s a step-by-step look at the process so you know what to expect. Step 1: Find a Home With an Assumable Mortgage Look for properties where the seller is open to transferring their existing mortgage. FHA and VA loans are often assumable, while many conventional loans are not. Step 2: Review the Existing Loan Terms Go over the current mortgage details, including the interest rate, remaining balance and repayment period. Compare these terms to today’s market to see if they offer an advantage. Step 3: Calculate the Seller’s Equity Buyout Determine the gap between the home’s value and the remaining loan balance. This is the amount you’ll typically need to pay the seller. Step 4: Explore Additional Financing, If Needed If you don’t have enough cash to cover the equity, you may need secondary financing. Lenders often limit how much of the home’s value can be financed. Step 5: Apply for Mortgage Assumption With the Seller’s Lender Work with the seller and their lender to start the assumption process. This includes submitting an application and required documentation. Step 6: Provide Financial Documents Be prepared to share income and asset information, such as pay stubs, bank statements and tax forms, to show you can take over the loan. Step 7: Obtain Lender Approval The lender will review your application and confirm whether you meet their requirements to assume the mortgage. Step 8: Complete Appraisal and Title Review, If Required Some transactions may involve an appraisal or title check to confirm the home’s value and ensure there are no issues with ownership. Step 9: Finalize the Purchase and Assumption Documents Once approved, you’ll complete the transaction by paying the seller the agreed amount and signing the documents to take over the mortgage. Assumable Mortgage Pros, Cons and Key Considerations When considering an assumable mortgage, you’ll want to weigh the advantages and potential drawbacks of this type of loan, as well as other important factors. Advantages Potential Savings From Assuming A Lower Rate In the right circumstances, you could save tens of thousands of dollars on an assumed mortgage since you’re effectively grandfathered in on what could be more favorable terms secured when the original loan was obtained. Potential Ability To Afford A Higher-Priced Home The money saved from an assumable mortgage may allow you to afford a more expensive home. Lower Closing Costs Closing costs for an assumable mortgage are typically lower than other types of home loans. Potential Drawbacks Limited Availability Not all mortgages are assumable. If you have your heart set on an assumable mortgage, finding a suitable property with an assumable loan can be challenging. Larger Upfront Equity Buyout Buyers must typically cover the seller’s equity — the difference between the home’s purchase price and the remaining loan balance — either in cash or through additional financing. Assumption Fees And Other Closing Costs While closing costs can be lower with an assumed mortgage, you still need to budget for these costs and other fees. A lender may charge an assumption fee FHA closing costs are typically between 2 and 6% of the home’s sale price The VA charges a funding fee of 0.5% of the principal loan balance If you’re assuming the loan of an inherited property, it may be within your rights to avoid an assumption fee. Be sure to consult with an estate attorney if questions arise. Other Considerations Mortgage Payments Must Be Current No matter the loan type, all mortgage payments must be current at the time of closing. You should plan to provide funds necessary to clear any outstanding payments before you can assume the loan. The buyer or seller can bring the loan to good standing. Lender Approval is Required Even if the homebuyer and seller agree on an assumable mortgage, the lender ultimately has the final authority to decide whether the buyer can assume the seller’s current mortgage. Home Equity Matters The seller’s equity plays a significant role in determining whether assuming a loan is a practical option for a buyer. Since the buyer typically needs to cover this amount upfront — either in cash or through additional financing — it can greatly influence affordability and the overall viability of the loan assumption. Secondary Financing May Require Coordination If you end up borrowing from more than one lender to complete the mortgage assumption, be sure that each lender is informed of all loan activity for the home. Each lender may require slightly different information, so prepare for varying requests during the financial evaluation process. Qualifying for an Assumable Mortgage Loan Qualifying for an assumable mortgage loan involves meeting the lender’s requirements to take over the existing loan. Use this checklist to understand what’s typically needed: Creditworthiness: A solid credit history that shows responsible borrowing Income stability: Steady, verifiable income to support ongoing payments Debt-to-income (DTI) ratio: A manageable balance between monthly debt and income Loan type requirements: Meeting specific guidelines tied to FHA, VA or other loan programs Lender approval: Final review and sign-off from the current loan servicer Be prepared to provide: Pay stubs Bank statements W-2s or tax returns Ability to cover the seller’s equity: Funds or financing to bridge the gap between the home’s value and remaining loan balance The Cost of Mortgage Assumption The cost of an assumable mortgage can vary depending on several factors, such as: Down payment or equity buyout. A homebuyer must typically cover the difference between the seller’s loan balance and the home’s purchase price, which can be a significant upfront cost. Assumption fee. Lenders may charge a fee for processing the mortgage assumption. Closing costs. Although typically lower than with a new loan, there may still be costs associated with title checks, transfer fees and other administrative expenses. Appraisal. While sometimes optional, an appraisal could be required or requested. In this case, the buyer would likely need to pay for it. Secondary financing costs. If additional financing is needed to cover the seller’s equity, there may be added costs such as interest, fees or closing expenses tied to that loan. Assumable Mortgage Example Take a look at the following assumable mortgage example scenario to see how this type of mortgage works and how it might help you save money. Let’s say you’re buying a home and you’d like to assume the mortgage on the home, appraised at $230,769 with a current remaining principal loan balance of $203,249. This means you would take over the payments on the remaining $203,249 and enjoy the original terms allotted to the assumed mortgage. That still leaves $27,520 that must be paid in cash to the seller, which you can settle during the loan assumption transaction, much like a traditional down payment. If you cannot produce that entire cash amount to assume the loan, you may be able to secure an additional personal loan to cover a portion of the difference. Keep in mind, however, that in most cases, lenders who provide secondary financing will typically want to make sure that no more than 85 to 90% of the total appraised value of the home is being financed. Here’s an example comparison of a standard new FHA mortgage on a home selling for $230,769 versus an assumed FHA mortgage on the same home, with a lower fixed interest rate and five years already paid on the term. New FHA mortgage: A new 30-year FHA loan for a home priced and appraised at $230,769, with a principal loan balance of $222,692 (after the buyer put a minimum of 3.5% down, or approximately $8,077) with a fixed interest rate of 6.25%, will result in monthly payments of $1,371.15 (principal and interest only, excluding property taxes and insurance) totaling $493,615.06 over the life of the mortgage. Assumable mortgage: The assumption of a 30-year FHA loan with 25 years left on the term for a home selling for $230,769 with a remaining principal balance of $203,249 at the original interest rate of 2.5% results in a monthly payment of $911.81 and an approximate total loan cost of $273,543.07 (paid over 25 years).   New 30-Year FHA Mortgage Assumable FHA Mortgage Savings Principal Loan Balance $222,692 $203,249 N/A Interest Rate 6.25% 2.5% N/A Down Payment $8,077 $27,520 N/A Monthly Payment(s) $1,371.15 $911.81 $459.34 Total Loan Cost (principal + interest) $493,615.06 $273,543.07 $220,071.99 Note: The example above does not include mortgage insurance. Mortgage Insurance (MI) may change depending on the LTV. Ask your loan officer for more information. As illustrated above, if you’re able to assume an eligible loan with an interest rate significantly lower than what is available on the market and have the ability to put down the additional cash to cover the equity owned by the seller (or obtain secondary financing), your savings could be substantial. In the example scenario, your monthly mortgage payments for the 25 years remaining on the assumed loan would be $911.81. Compared to a new FHA loan with a higher market rate, this would result in a monthly savings of $459.34, or $220,071.99 saved over the entire life of your mortgage. It is also worth noting that the less equity a seller has in their home, the more attractive an assumable mortgage may be to a buyer. For example, if that same assumable loan had an unpaid principal balance of $215,000, you’d only be responsible for a $15,769 difference instead of $27,520. Special Circumstances for Assuming a Mortgage An assumption can also come up through inheritance, divorce or foreclosure. Federal protections may let heirs assume an inherited loan, a divorcing spouse keeping the home may need to qualify with the servicer, and a home in foreclosure can sometimes be assumed once the past-due balance is brought current. These situations are case-specific — an estate attorney or the loan servicer can confirm your options. Important Considerations for Sellers If you’re planning to sell your home and offer an assumable mortgage, here are some important things to keep in mind. Not All Mortgages Are Assumable Not all mortgages are assumable, so check with your lender to see if yours qualifies. FHA and VA loans are generally assumable, while conventional loans may or may not be, depending on the specific terms. Be Sure to Protect Your VA Entitlement If you have a VA loan and want to offer a VA loan assumption, your VA entitlement remains intact as long as the buyer is VA-eligible. If a buyer who is not VA-eligible assumes your VA loan, you would lose your VA entitlement, as it would be tied to that original loan. Is a Mortgage Assumption the Right Move? An assumable mortgage could be a smart move when the existing loan’s interest rate is lower than current market rates, the seller’s equity is manageable and the lender approves the assumption. If you’re considering purchasing a home with an FHA or VA mortgage, ask the seller if their loan might be assumable and connect with their lender to explore the possibility. Assumable Mortgage Frequently Asked Questions Are conventional mortgages assumable? Most conventional mortgages are not assumable, as they typically include a “due-on-sale” clause that requires the loan to be paid off when ownership transfers. Some exceptions may apply, but they’re uncommon and depend on the lender’s specific terms. Do you need lender approval for an assumable mortgage? Yes, lender approval is usually required to assume a mortgage, even for loans that allow it. The lender will review the buyer’s credit, income and financial profile before agreeing to the transfer. What are the costs of assuming a mortgage? Costs can include an assumption fee, closing costs and any required appraisal or title-related expenses. In addition, the buyer typically must cover the difference between the seller’s remaining loan balance and the agreed purchase price, either in cash or with additional financing, and may incur fees and interest tied to any secondary loan. Is an assumable mortgage a good idea? It can be beneficial if the existing loan has a lower interest rate than current market rates, potentially lowering monthly payments. However, the upfront costs and qualification requirements should be weighed against other financing options. Questions about your existing mortgage or looking to buy a home soon? We’re here for you. Connect with a Pennymac Loan Expert to explore your home loan options today.

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