THE ULTIMATE MORTGAGE GLOSSARY
By Jessica Hudson | April 1, 2024
ARM (Adjustable-Rate Mortgage):
Also referred to as a variable-rate mortgage, the interest rate fluctuates - or adjusts - over time to reflect market conditions.
Amortization:
Mortgage value over a period of time, specifically the schedule for loan repayment. The percentage of the monthly mortgage payment going toward interest typically decreases while principal increases as time progresses.
Annual Percentage Rate (APR):
The annual percentage rate (APR) expresses the cost of the loan on a yearly basis and is denoted as a percentage. While the interest rate tells you how much interest you'll pay based on your principal loan amount, The APR gives you more information about the actual cost of the loan, reflecting interest charges as well as points and other fees.
Appraisal:
An unbiased report on the value of a home in the fair market, performed by a trained and licensed individual.
Closing Costs:
Payments that cover the expenses and fees associated with finalizing a mortgage and completing a real estate transaction.
Closing Disclosure (CD):
A five-page form that provides final details about the mortgage loan you have selected. It includes the loan terms, your projected monthly payments, and how much you will pay in fees and other costs to get your mortgage.
Conforming Loans (Conventional Loan):
A mortgage loan that conforms to Fannie Mae and Freddie Mac guidelines. For 2019 the current standard loan limit is $484,350 for a single family home. Certain counties have higher limits based on median home value.
Deed:
A document that legally transfers ownership of a property from one person to another. The deed is recorded on public record with the property description.
Deed of Trust:
Security measure for which you pledge your home as a security for a loan. If you default on the loan, your lender can foreclose on the home.
Discount Points (Points):
Percentage-based fee, essentially prepaid interest, that the buyer pays at closing. Each point is equal to 1% of your total loan amount, and it's a way to lower your monthly mortgage payment.
Down Payment:
Amount of a home's purchase price that the buyer pays at the time of purchase. Lenders typically require a specific down payment in order for a borrower to qualify for a mortgage, though these amount vary by loan type.
Earnest Money:
Buyer's deposit made to a seller as a sign of good faith. Typically about 1% of the property's purchase price, this money serves as a sign of "good faith" to follow through with the sales process.
Escrow Account (Impound Account):
A financial account set up by a lender to collect property taxes, homeowner's insurance, and mortgage insurance. Borrowers make monthly payments, and the lender then pays those bills on the buyer's behalf.
Fixed-Rate Loan:
A loan in which the interest rate doesn't fluctuate, but rather remains consistent for the life of the loan.
FHA Loan:
These loans are insured by the Federal Housing Administration. FHA loans are designed to make housing more affordable, particularly for the first-time home buyers. These loans offer low down payments (3.5%) and east credit qualifications.
Homeowner's Insurance:
Insurance policy that protects you from incurring costs related to damage to your home, such as a fire. Lenders typically require the first year to be paid in full at closing.
Interest Rate:
The rate, which fluctuates according to various economic forces, that is the measure of the price at which money can be borrowed.
Interest Rate Reduction Refinance Loan (IRRRL):
Program available to homeowners with a VA-guaranteed home loan. Also known as "VA Streamline Refinancing," it offers no credit qualifications and requires less documentation. A VA IRRRL loan also waives the mortgage insurance requirement, regardless of loan-to-value ratio.
Investment Property:
Property - land or building - held to earn rental money for a return on the investment, and likely appreciation.
Jumbo Mortgage:
Non-conforming mortgage used to buy a higher-priced property.
Lien:
A claim by one person or entity on the property of another. Commonly, this is security for money owed, created by the lender when you buy a property. Liens also include obligations not met or satisfied, judgements, unpaid taxes, materials, or labor.
Loan Estimate (LE):
Formerly known as the "Good Faith Estimate", a document that includes a breakdown of the approximate payments due at the closing of a mortgage loan. It helps borrowers compare costs of loans from different lenders.
Lock Period:
Typically 15-60 days, lock periods are set amounts of time during which the interest rates buyers have been promised cannot be made any higher. To extend the lock period, there is typically a cost.
Loan-to-Value (LTV):
A ratio that expresses the amount of a first-mortgage lien as a percentage of a property's total appraised value. For example, if a borrower wants $100,000 to buy a home worth $120,000, the LTV ratio is $100,000/$120,000 or 83%.
Mortgage:
A lien or claim against real property given by the buyer to the lender as security for money borrowed.
Non-Confirming Loan:
A five-page form that provides final details about the mortgage loan you have selected. It includes the loan terms, your projected monthly payments, and how much you will pay in fees and other costs to get your mortgage.
PITI (Principal, Interest, Taxes, Insurance):
Components of a monthly mortgage payment.
Pre-Qualification:
Initial step in the mortgage process of the lender assessing your overall financial picture to then give you an idea of the mortgage amount for which you qualify.
Principal:
The balance of the loan outstanding. This is the amount upon which the interest payment is computed.
Private Mortgage Insurance:
A form of insurance that lenders generally require when borrowers make down payments that are less than 20%; in other words, when their loan-to-value (LTV) percentage is greater than 80%.
Rate Lock:
Guarantee that the lender will lock in at a certain interest rate until closing to protect you from fluctuations in the mortgage market. The rate lock has a deadline - typically 60 days or less.
Refinance:
Paying off one mortgage with a new loan secured by the same property, usually to obtain more favorable terms.
Reserves:
This refers to the amount of liquid assets that a borrower has after paying the down payment and closing costs.
Second Mortgage:
A second mortgage is a lien taken out on a property that already has one mortgage. in the case of a foreclosure, the lender who holds the second mortgage gets paid only after the lender holding the first lien mortgage is paid.
Streamline Refinance:
These programs typically let borrowers bypass many traditional mortgage requirements by offering minimal credit scoring requirements, no new appraisal, easier income and asset verification, and limited paperwork.
Survey:
A measurement description of land prepared by a registered land surveyor. Typically, it shows the property dimensions and its location relative to known landmarks, plus the location and dimensions of any improvements.
Term:
Length of time, usually in years, over which a mortgage is repaid.
Underwriting:
Process where a lender analyzing your finances to either approve or deny your loan.
Upfront Costs:
Costs to buy your home, aside from the mortgage. These include the down payment, earnest money, and closing costs.
U.S. Department of Agriculture (USDA) Loan:
Zero-down-payment mortgages for rural and suburban home buyers issued through the USDA Rural Development Guaranteed Housing Loan Program sponsored by the U.S. Department of Agriculture.
Veteran Affairs (VA) Loans:
U.S. Department of Veteran Affairs' loan for military service members. These loans require little to no down payment and no mortgage insurance, and interest rates are often below market.