Accrued interest is interest earned but not yet paid, adding to the amount owed in a loan. With a traditional (principal and interest) mortgage, the longer you pay down a mortgage the more of your payment is applied toward the principal. Mortgage interest accrues daily and is based on your loan’s principal balance and mortgage rate.Provision in a mortgage that allows the lender to demand payment of the entire principal balance if a monthly payment is missed or some other default occurs.
Adjustable-Rate Mortgage (ARM)
An adjustable-rate mortgage (ARM) is a loan with interest rates that are adjusted periodically based on changes in a pre-selected index. As a result, the interest rate on your loan will rise and fall with increases and decreases in overall interest rates. If interest rates rise, you can expect to see an increase in what you pay monthly as well.
An adjustable-rate mortgage often comes with an interest rate cap, which limits the amount by which the interest rate can change; look for this feature when you consider an ARM loan. Though they do have the potential to raise your monthly payments, an adjustable-rate mortgage can make a big difference in lowering your monthly payments, too. Whether you’re buying your first home or refinancing, an adjustable-rate mortgage is a popular option.
The cost of a property plus the value of any capital expenditures for improvements to the property minus any depreciation taken.
The adjustment period or interval is the time between changes in the interest rate or monthly payment on an adjustable rate mortgage (ARM).
Most ARMs come with adjustment periods of 1, 3, 5, or 7 years. This means your interest rate is fixed for that amount of time. After that, the interest rate can adjust up or down, depending on the market. But there is a cap on how much your rate can adjust either way.
The period elapsing between adjustment dates for an adjustable-rate mortgage (ARM).
Home affordability is an estimate as to how much a person can afford in order to purchase a home. Affordability gives the consumer a possible price that they could be approved for and also gives the amount they will be required to pay for their mortgage payment.
It is important to have an accurate idea of your affordable price range and monthly mortgage payment before you look for a home. Apply for HomeServices Lending Buyer AdvantageTM. Along with your affordability, we’ll show you a variety of home loan options that fit your budget and meet your financial goals.
Mortgage amortization is the process of repayment of a loan with periodic payments of both principal and interest calculated to payoff the loan at the end of a fixed period of time. During the amortization of a mortgage, the loan balance declines by the amount of the scheduled payment, plus the amount of any extra payment. Unlike other repayment models, each repayment installment consists of both principal and interest. If you look at your loan amortization schedule, you’ll typically find a greater amount of the monthly payment is applied to interest at the beginning of your loan, while more money is applied to principal at the end.
The length of time required to amortize the mortgage loan expressed as a number of months. For example, 360 months is the amortization term for a 30-year fixed-rate mortgage.
Annual Percentage Rate (APR)
The Annual Percentage Rate (APR) and Annual Interest Rate are the two interest rates applied to your loan. The Actual Rate is the annual interest rate you pay on your loan (sometimes referred to as the “note rate”), and is the rate used to calculate your monthly payments. The amount of interest you pay, as determined by your Actual Rate, is only one of the costs associated with your loan; there may be others.
A home appraisal is a written analysis of the estimated value of your property. A qualified appraiser who has training, experience and insight into the marketplace prepares the home appraisal report. It demonstrates approximate fair market value based on recent sales in your neighborhood and is required to purchase or refinance your new home or property. A property appraisal like this is generally required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property.
Anything owned of monetary value including real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, etc.).
The transfer of ownership, rights, or interests in property from one person (the assignor) to another (the assignee).
A method of selling real estate where the buyer of the property agrees to become responsible for the repayment of an existing loan on the property.
Balloon mortgage loans are short-term, fixed-rate loans with fixed monthly payments for a set number of years followed by one large final balloon payment for all of the remainder of the principal. Typically, the balloon payment may be due at the end of five, seven, or ten years. Borrowers with balloon mortgage loans may have the right to refinance the loan when the balloon payment is due, but the right to refinance is not guaranteed.
Although HomeServices Lending does not offer balloon mortgage loans, we do offer several comparable options that include fixed-rates and low monthly mortgage payments, without the risk of a balloon payment at the end of the term. Ask your Mortgage Consultant.
Income before taxes are deducted.
Biweekly Payment Mortgage
A biweekly mortgage program drafts 1/2 of your total mortgage payment out of your bank account every other week. This results in 26 half payments, or 13 full payments each year. Since only 12 payments are required to be made per year, the 13th is applied directly to the principal amount due, thereby reducing the balance faster than if regular payments are made and a substantial savings in interest.
A Bridge Loan is a short term loan that gives you financing between your present financial situation and the time it takes to secure your permanent financing. In essence, it is a second trust that is secured by the borrower's present home to allow for the proceeds to be used to close on a new house prior to the sale of the present home. HomeServices Lending does not offer bridge loans.
A person who is licensed to handle property transactions and acts as a go-between for buyers and sellers.
A buydown, is a mortgage loan with a below-market rate for a period of time, usually one to three years. A borrower may want to buy down mortgage rates because they expect their earnings to go up but want a lower payment right now.
In a mortgage buydown, buyers are essentially paying cash up-front for points, and receiving a reduced interest rate in return. Each point equals one percent of your total loan amount. For example, 2 points on a $200,000 loan will cost $4,000, or 2% of the loan amount. The more mortgage points you pay, the lower the interest rate will be. HomeServices Lending does not currently offer buydown mortgages.Back to the top
Caps (payment caps)
Payment caps are consumer safeguards that limit the amount monthly payments on an adjustable-rate mortgage may change. Payment caps offer borrowers protection from drastically increased payments on their mortgages; however, since payment caps don’t limit the amount of interest the lender is earning, these consumer safeguards may cause negative amortization.
Certificate of Eligibility
Document issued by the Veterans Administration to qualified veterans and that verifies a veteran’s eligibility for a VA guaranteed loan. Obtainable through local VA office by submitting form DD-214 (Separation Paper) and VA form 1880 (request for Certificate of Eligibility).
Certificate of Reasonable Value (CRV)
A document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA mortgage.
A streamlined summary of the loan terms, projected payments and closing cost. Fomerly known as the HUD I Settlement statement.
Compound interest is calculated not only on the initial principal but also on the accumulated interest of prior periods. In other words, compound interest is calculated over the total amount owed, including interest that has been added to the debt. Borrowers will often experience compounding interest during negative amortization when the principal amount of your loan actually increases because the monthly payments are lower than the full amount of interest owed. HomeServicces Lending does not offer negatively amortizing loans.
Consumer Reporting Agency
A company that regularly gathers, files and sells information to creditors to facilitate their decisions to extend credit. The agency gets data for these reports from a credit repository and from other sources.
The consummation (the settlement or closing) is the conclusion of your real estate transaction. It includes the delivery of your security instrument, signing of your legal documents and the disbursement of the funds necessary to the sale of your home or loan transaction (refinance).
A credit report is a detailed summary of your borrowing history. Your credit report shows previous and current credit accounts along with your payment history. Lenders buy credit reports from these agencies when you apply for a loan to determine whether they should take a risk and lend you the money.You have the right to request a free credit report if you have been denied a loan because of poor credit history. Checking your credit report is highly recommended as it allows you to check for inaccuracies and find out why your credit is poor.
Credit scores are based on several different factors including your credit card history, amount of outstanding debt and the type of credit you use. Negative information, such as bankruptcies or late payments, is also used to calculate your credit report score as well as collection accounts and judgments. Too little credit history and too many credit lines with the maximum amount borrowed are also included in credit-scoring models to determine your credit score.
Deed of Trust
A legal document that conveys title to real property to a third party. The third party holds title until the owner of the property has repaid the debt in full.
Failure to meet legal obligations in a contract, including failure to make payments on a loan.
Failure to make payments as agreed in the loan agreement.
This is a sum of money given to bind the sale of real estate, or a sum of money given to ensure payment or an advance of funds in the processing of a loan.
Points are an up-front fee paid to the lender at the time that you get your loan. Each point equals one percent of your total loan amount. Points and interest rates are inherently connected: in general, the more points you pay, the lower your interest rate. However, the more points you pay, the more cash you need up front since points are paid in cash at closing.
The down payment is the amount of your home’s purchase price you supply up front in cash to get your loan. Historically, the rule of thumb has been to strive for a down payment that’s 20% of your home’s value, since lenders generally do not require private mortgage insurance (PMI) with a down payment of at least 20%. New mortgage programs may allow you to avoid PMI with down payment amounts of less than 20%.
Equity is the difference between the current market value of a property and the total debt obligations against the property. On a new mortgage loan, the down payment represents the equity in your new home. There are three ways to build equity in your home: paying principal on your mortgage, making home improvements and determining if the average market value of your real estate has appreciated over time.
Mortgage escrow accounts are special accounts that a lender uses to hold a borrower’s monthly payments towards property taxes, homeowner’s insurance and mortgage insurance. By distributing these annual fees as components of monthly mortgage payments, you don’t have to worry about getting an exorbitant bill in the mail that you can’t afford. Instead, you pay a portion of the expected fee into an escrow account throughout the year and the lender disburses payment for these fees when they become due.
Fannie Mae is the official name of the Federal National Mortgage Association and is a United States Government-sponsored corporation insured by the Federal Housing Administration (FHA). Fannie Mae’s role in the mortgage lending process is to buy mortgages from lenders and sell them to investors on the open market. This process is essential in replenishing the supply of lend-able money available for new home purchases. Freddie Mac is a similar corporation and is a competitor of Fannie Mae.
FHA loans are loans insured by the U.S. Department of Housing and Urban Development. FHA loans are designed to make housing more affordable, particularly for first-time homebuyers. FHA loans typically permit borrowers to buy a home with a lower down payment than conventional loans or refinance with less home equity. Current FHA loan limits vary depending on home type and home location.
The FICO score is the most common credit-scoring model used by lenders, it is also known as a Fair Isaac score. FICO scores can range from 200 to 900. According to this model, the higher your FICO scoring, the less likely you are to default on your loan. Several factors go in to determining your FICO score, or credit score, including your payment history, amounts you owe, your length of credit history, new credit and types of credit you currently have in use.
A first mortgage is the loan that is in first lien position and takes priority over all other liens. This means that in case of a foreclosure, the first mortgage loan will be repaid before any other mortgages on the property is repaid to the lender.
An additional loan taken out on the property, either at the same time as the first mortgage or several years later is a second mortgage. It is inferior to the first mortgage, usually a smaller amount of money, and in the form of a home equity loan or line of credit.
Fixed-rate mortgages have interest rates that don’t change over the life of the loan and as a result, monthly payments for principal and interest do not fluctuate. Fixed-rate mortgages typically have 15-year or 30-year term (though they can be of any length the borrower and lender agree upon) and with a fixed-rate loan, you have the assurance of knowing that your principal and interest payment never changes.
Fully Amortized ARM
An adjustable-rate mortgage (ARM) with a monthly payment that is sufficient to amortize the remaining balance, at the interest accrual rate, over the amortization term.
The top ratio is calculated by dividing your new total monthly mortgage payment by your gross income per month. Typically, this ratio should not exceed 28%. The bottom ratio is equal to your new total monthly mortgage payment plus your total monthly debt divided by your gross income per month. Typically, this ratio should not exceed 36%Back to the top
The housing expense ratio or housing expense to income ratio, a method used in qualifying borrowers, is the percentage of gross monthly income devoted to housing expenses. There is a top ratio and bottom ratio in configuring what a buyer can afford in housing expenses. The top ratio is calculated by dividing your new total monthly mortgage payment by your gross income per month. Typically, this ratio should not exceed 28%. The bottom ratio is equal to your new total monthly mortgage payment plus your total monthly debt divided by your gross income per month. Typically, this ratio should not exceed 36%.
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An ARM with rates tied to a mortgage rate index, will rise and fall with increases and decreases of that index, and as a result, borrowers will see the effects in their monthly payment. When mortgage loans have an interest rate that is adjustable, the lender must specify how their interest rate changes. The LIBOR index is a daily reference rate based on short-term interest rates charged among banks in a foreign money market.
Initial Interest Rate
The initial interest rate is the rate charged during the first interval of an ARM loan. Initial interest rates are generally subject to caps and can only vary to a degree. Initial interest rate caps are put in place to protect the consumer from payment shock and protect the lender from rates that drop too low.
A mortgage that is protected by the Federal Housing Administration (FHA) or by private mortgage insurance (MI) in case you default on your loan.
The fee a lender charges for permitting the borrower to use their money for a specific length of time.
A basic mortgage payment is made up of principal and interest. The principal is how much money you borrow from the lender. The interest rate is the cost the lender charges you, the borrower, for borrowing that money, which is secured by a property. The amount of interest you owe the lender depends on the interest rate and the loan amount – the lower the interest rate, the less interest you owe.
Interest Rate Ceiling
This is the highest interest rate that you can receive under an adjustable-rate mortgage..
Interest Rate Floor
The interest rate floor is the lowest interest rate that you can receive under an adjustable-rate mortgage.
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Penalty paid by a borrower when a payment is made after the grace period.
Lifetime Payment Cap
Consumer safeguard that limits the amount the interest rate on an adjustable rate mortgage loan (ARM) can change over the life of the loan. See Caps.
A cash asset or an asset that is easily converted into cash.
A sum of borrowed money (principal) that is generally repaid with interest.
The Good Faith Estimate (GFE) and Truth in Lending (TIL) disclosure -- formerly provided when you applied for a home loan -- have been replaced by the Loan Estimate. The consolidated Loan Estimate clearly outlines the terms and features of your loan, as well as what can and can't be change.
Loan-to-Value Ratio (LTV)
The loan-to-value ratio is the percentage of the loan amount to the appraised value (or the sales price, whichever is less) of the property. The loan-to-value ratio and down payment are different ways of expressing the same set of facts. The loan-to-value ratio is calculated by taking the amount to be borrowed divided by the value of the home. The loan to value ratio is used to qualify borrowers for a mortgage, and the higher the LTV, the tighter the qualification guidelines for certain mortgage programs become. Low loan-to-value ratios are considered below 80%, and carry lower rates since borrowers are lower risk. Lenders are more likely to consider people with poor credit and financial history who have a low LTV.
Lock or Lock-In Period
A mortgage lock period is a set period of time that a lender will guarantee an interest rate. This lock-in protects you against market increases during that period of time. A lock period is typically a short window of time during which you must close on your loan, likely between 15 and 60 days.
Most lenders will lock your interest rate after you complete your mortgage application. That way, the plan you reviewed with your banker will be the same as the papers you sign at closing.
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A mortgage margin is the percentage difference between the index for a particular loan and the interest rate charged. It is a number predetermined by the lender, a fixed percentage point that is added to the index to compute the interest rate. A lender’s margin remains fixed for the entire term of the loan. Your lending company is required by law to disclose the index to which your loan is tied, the margin they will tack on to your rate as well as any rate or payment caps that apply.
Maturity is the date in which the principal loan balance is due. At the point when your mortgage has reached maturity, your interest and principal is paid for in its entirety. Most loans are processed under the assumption that you will keep it to the date on which the principal balance of a loan becomes due and payable.
Monthly Mortgage Payment
A monthly mortgage payment typically contains four parts called the PITI (principal, interest, taxes, and insurance). If your lender does not handle your taxes and insurance or you make these payments separately, then your monthly mortgage payment consists of only principal and interest.
A mortgage is the actual legal document by which real property is pledged as security for the repayment of a loan, but generally speaking the word “mortgage” encompasses several different loan options for purchasing or refinancing a home or tapping in to your home’s equity.
A Mortgage Banker is an individual or lending company that originates and/or services mortgage loans. Your Mortgage Banker will explain all the key features and benefits to each of our different mortgages, and ultimately help to determine which one best suits your financial goals. A company that originates mortgages exclusively for resale in the secondary mortgage market.
A mortgage broker is an individual or company that arranges financing for borrowers. The mortgage broker matches lenders with borrowers who meet the lenders criteria. The mortgage broker does not fund the loan but they do receive a payment from the lender for their services.
Mortgage brokers can be helpful in finding a good loan, but you will pay more in both fees and interest rates when you utilize this service. You'll often hear that a mortgage broker is your only option when you have bad credit, are self-employed or possess other financially complicating factors that could make getting a loan difficult. This is not true.
Private mortgage insurance, or PMI, is insurance that protects lenders if you default on your loan. With conventional loans, mortgage insurance is generally required if you do not make a down payment of at least 20% of the home’s appraised value. (Note, however, that FHA and VA loans have different insurance guidelines.)
Mortgage insurance payments are generally included in your monthly mortgage payment and may be tax-deductible (please check with your tax advisor).
Mortgage Insurance Premium (MIP)
The amount paid by a mortgagor for mortgage insurance.
The borrower in a mortgage loan transaction.
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A loan payment schedule in which the outstanding principal balance of a loan goes up rather than down because the payments do not cover the full amount of interest due. The monthly shortfall in payment is added to the unpaid principal balance of the loan. HomeServices Lending does not offer negative amortization loans.
Legal document obligating a borrower to repay a loan at a stated interest rate during a specified period of time. The agreement is secured by a mortgage or deed of trust or other security instrument.
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A loan origination fee (also referred to as points) is a fee that is charged by a lender to cover the administrative costs of processing a loan. The origination fee is used in the calculation of the annual percentage rate, varying from 0.5% to 2% of the loan amount. For example, an origination fee of 2% on a $200,000 loan is $4,000. Whenever a transaction as heavily documented as a mortgage is arranged, there are inevitably costs and fees associated with ensuring the paperwork is processed correctly. All mortgage lenders are required by law to present a good faith estimate that includes origination and lender fees and closing cost information so the borrower are prepared for the expense.
A property purchase transaction in which the party selling the property provides all or part of the financing.
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Payment Change Date
The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM). Generally, the payment change date occurs in the month immediately after the adjustment date.
Periodic Payment Cap
A limit on the amount that payments can increase or decrease during any one adjustment period.
Periodic Rate Cap
A limit on the amount that the interest rate can increase or decrease during any one adjustment period, regardless of how high or low the index might be.
PITI and PITI Reserves
PITI is the abbreviation for Principal, Interest, Taxes and Insurance, the components of a monthly mortgage payment. Payments of principal and interest go directly towards repaying the loan while the portion of the PITI payment that covers taxes and insurance (homeowner’s and mortgage, if applicable) go into an escrow account to cover the fees when they are due.
Borrowers are advised when purchasing a new home to maintain a PITI reserve, which is a specific amount of cash you will want to have on hand after making a down payment and paying all closing costs.
A point is equal to one percent of the principal amount of your mortgage. For example, if you get a mortgage for $165,000 one point means $1,650 to the lender.Points usually are collected at closing and may be paid by the borrower or the home seller, or may be split between them.
Mortgage prepayment is full or partial repayment of the principal before the contractual due date. Borrowers will often take advantage of loan prepayment to save on interest in the long run; the most popular form of prepayment is through refinancing to lock in a lower interest rate. Some lenders will attach prepayment penalties to loans in exchange for a lower interest rate to discourage borrowers from refinancing. HomeServices Lending does not have products with this feature.
The process of determining how much money you will be eligible to borrow before you apply for a loan.
Prime rate, also called “prime”, is the prime interest rate that commercial banks charge their best or most credit-worthy clients, which are usually prominent and stable business clients who aren’t very likely to default on a loan.
The likelihood or risk of default is mainly what determines the interest rate a bank will charge a borrower. The prime rate is not the same as the loan rate that’s charged on personal property loans; however, the prime lending rate is often used in calculating mortgages and other variable rate loans. Mortgage rates and consumer loans are generally higher than the prime interest rates because an individual borrower is more likely to default on a loan than a stable business borrower, such as a large corporation.
Principal (Principal Balance)
A loan's balance still owed to the lender or the loan amount borrowed from the lender, excluding interest.
Private Mortgage Insurance (PMI)
Private mortgage insurance, or PMI, is insurance that protects the lender in case you default on your loan. With conventional loans, mortgage insurance is generally not required if you make a down payment of at least 20% of the home’s purchase price. (Note, however, that FHA and VA loans have different insurance guidelines.) Private mortgage insurance is generally included in your monthly mortgage payment and may be tax-deductible (please check with your tax advisor).
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Mortgage qualifying ratios compare your gross income to your housing expenses and non-housing expenses to determine how much you can afford to borrow. Lenders use your qualifying ratio for the loan approval process.
The Federal Housing Administration usually requires your monthly mortgage payment to be no more than 29 percent of your monthly gross income (before taxes) and the mortgage payment combined with non-housing debts should not exceed 41 percent of your income.
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A Protection of the borrowers rate just in case rates rise during the time a borrower applies for the loan and the time the loan closes.
Real Estate Agent
A person with a state license to represent a buyer or a seller in a real estate transaction in exchange for a commission. Most agents work for real estate brokers or accredited Realtors®. A real estate agent who is a member of the National Association of Realtors can call themselves a Realtor®
Real Estate Settlement Procedures Act (RESPA)
The Real Estate Settlement Procedures Act (RESPA) is a federal law that gives consumers the right to review information about loan settlement costs after you apply for a loan and again at loan settlement. RESPA guidelines oblige lenders to provide these disclosures at various times in the transaction. As part of RESPA regulations, this procedure helps to outlaw kickbacks that increase the cost of settlement services for consumers.
A recording fee is money that is paid to a government agent for entering the sale of a property into the public records.
Since buying and selling real estate is heavily documented, there are inevitably added costs and fees for preparation, recording and filing that must take place in order to make the transaction legal. In addition to the mortgage recording fee, there are other fees to be prepared for at closing like attorney’s fees, underwriting and more.
The lender is required by law to disclose recording fees as well as any other closing costs or fees in writing before closing. This document is known as a Good Faith Estimate, created to prepare borrowers for the cost expected of them at closing.
Mortgage refinancing is the process of paying off one loan with the proceeds from a new loan secured by the same property. Mortgage refinancing is usually done to secure better loan terms than your current loan, like a lower interest rate or lower monthly payment.
As interest rates rise, homeowners with adjustable-rate mortgages may consider refinancing a mortgage to lock-in a fixed rate and prevent increases in your monthly payment. Mortgage refinancing can also help you gain more flexibility in your budget or lower your monthly payments and open up funds for other necessities like paying off high-interest debt or making home improvements.
High-interest debt from credit cards or auto loans can be consolidated with your current mortgage into one low payment each month. Home refinancing can also be used as an alternative to a home equity loan or line of credit to access cash when you need it, known as a cashout refinance loan. Paying off one loan with the proceeds from a new loan using the same property as security.
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This refers to the address of the property being pledged as security for your loan.
A mortgage servicer is the party that homeowners pay their mortgage payments to each month. The mortgage servicer, or loan servicer, is in charge of processing the mortgage payment and crediting the borrower’s loan account. In addition, servicers oftentimes maintain a borrower’s escrow account. In these instances, loan servicers ensure that payment for the homeowner’s property taxes and insurance fees are disbursed when they become due.
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Fees paid to a third party for services requested by the lender on your behalf.
This is the total amount you will have paid over the life of the loan for principal, interest and prepaid finance charges, assuming you keep the loan to maturity and made only the required monthly payments.
Acronym for TILA (Truth-in-Lending Act) RESPA (Real Estate Settlement Procedures Act) Integrated Disclosures. The Good Faith Estimate and initial Truth-in-Lending disclosure have been combined into a new form called the Loan Estimate. The HUD 1 Settlement Statement and the final Truth-in-Lending disclosure statement have been combined into another new form called the Closing disclosure.
The Federal Truth-in-Lending Act (TILA) is a law requiring written disclosure of the terms of a mortgage (including the APR and other charges) by a lender to a borrower after application. The Truth-in-Lending Act is designed to protect consumers and to ensure clear disclosure of key terms of the loan as well as any costs or fees involved. The Truth-in-Lending Act also requires the right of rescission period.
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Also known as a government mortgage. A VA Loan (also known as a Veterans Affairs Loan) is a mortgage loan guaranteed by the U.S. Department of Veterans Affairs. The VA home loan was created to make housing affordable for eligible U.S. veterans and members of the military. VA home loans are available to veterans, reservists, active-duty military personnel, and surviving spouses of veterans with 100% entitlement. Eligible veterans may be able to buy a home with no down payment, refinance up to 100% of the home’s value and pay no private mortgage insurance.