APR (Annual Percentage Rate): A combination of the total amount of interest payable and the cost of other fees and charges, averaged over the life of a loan, and expressed as a percentage rate.
ARM (Adjustable Rate Mortgage): A mortgage where the interest rate is not fixed on the amount borrowed. That means the rate and payment may increase, depending on the index rate at the time of the scheduled adjustments.
Amortization: The action of repaying your mortgage — both principal and interest — in equal installments spread out over the length of the loan. Amortization makes your payments predictable and easier to budget. Amortization schedules show how payments are applied to principal and interest over the life of a loan.
Appraisal: The process of professionally estimating the value of a property. During the appraisal process, appraisers evaluate the condition of a house’s interior, roof, siding, and foundation. They also examine windows, doors, flooring, plumbing, electrical work, and fixtures.
Assumable Mortgage: A mortgage initiated by an initial buyer for which a new buyer assumes payment responsibilities. Assuming another mortgage might be a good idea if the previous mortgage secured a low-interest rate.
Balloon Mortgage: A mortgage that is not spread out equally over a period of time, but rather the homeowner pays a lump sum at the end of the mortgage period. This type of mortgage may be available if a person is low on cash now and would be unable to make a large monthly payment. A balloon mortgage may make sense for people who anticipate selling the asset quickly or coming into a lot of money before the balloon payment is due.
Bankruptcy: The process of going through court proceedings when you are unable to pay your debts. Bankruptcy is usually removed from credit reports after seven or ten years, depending on the type of bankruptcy that is filed.
Base Loan Amount: The amount a homeowner borrows from a lending institution without additional fees or interest included.
Cash-Out Refinance: The process where homeowners secure a new home loan for a greater amount than is what is actually owed on the home so that the homeowner receives cash to spend on other projects or to pay down non-mortgage debts.
Closing Costs: The amount of money paid to the lender and third parties. The closing costs cover the costs associated with closing the loan.
Conventional Loan: A loan that is not guaranteed or insured by a government agency.
Credit History: Your financial history, which typically includes credit accounts, credit inquiries, public records, and collections.
Credit Score: A number assigned to consumers based on credit history that indicates to lenders how likely a person is to repay a loan.
Debt to Income Ratio (DTI): A person’s total monthly debt divided by total monthly income. Potential lenders use DTI to determine how much money potential customers can afford to borrow.
Discount Points: Fees paid to a lending institution that facilitate a smaller percentage rate on a loan. Point prices can vary from institution to institution.
Down Payment: Paying for part of a home with cash upfront; 20 percent is a fairly common down payment amount.
Equity: The difference between the fair market value and debt owed against the property.
Escrow: An account where a lending institution keeps a portion of a homeowner’s monthly mortgage payments. This money is used to pay property taxes and home insurance when it comes due. There may be a shortage in the escrow account if property taxes rise or the cost of home insurance increases.
Escrow Analysis: A document received by homeowners at least once a year from the lender that shows how much money lenders collected for property tax and home insurance. This document will also show when the lending institution paid those bills on a homeowner’s behalf.
Federal National Mortgage Association (Fannie Mae): Fannie Mae purchases pools of mortgages from lenders and resells them in the form of mortgage-backed and other securities to investors. Purchases are generally restricted to conforming loans, which are loans that meet certain size limits and other conditions.
FHA Mortgage: For many homebuyers who consider owning a home as part of the American Dream, the FHA helps them accomplish their goals of homeownership with very little money down. In fact, many borrowers can get FHA loans with as little as 3.5% down. FHA loans are insured by the federal government with mortgage insurance premiums (FHA MIP) paid for by borrowers.
Fixed-Rate: An interest rate that will not change over time.
Fixed-Rate Mortgage: Borrowing money for your house at a specific interest rate that does not increase or decrease over time.
Government National Mortgage Association (Ginnie Mae): Ginnie Mae is a government-owned corporation that guarantees bonds backed by home mortgages that have been guaranteed by a government agency, mainly the Federal Housing Administration and the Veterans Administration.
Grace Period: A period of time after a payment is due where no late fees are collected. For mortgages, the period is usually 15 days.
Inspection Fees: Fees that are typically paid after an offer is made on a property to an inspector who makes sure the property does not have any hidden problems.
Interest Rate: The rate of interest that is charged on a loan. The interest rate and APR are not the same.
Jumbo Mortgage: A loan for a high-priced or luxury property that exceeds the conforming loan limit, which is set annually by the Office of Federal Housing Enterprise Oversight based on increases and decreases in house prices and other factors.
Lender Title Insurance: Insurance the mortgage lender purchases to cover potential legal issues involving a property’s title during a refinance.
Loan Estimate: A document created by a lending institution and given to a borrower that shows the real cost of a loan over time. A loan estimate helps borrowers understand the details of a loan, and also compare costs between lenders.
Late Fee: An amount charged to a borrower for not making a payment on time.
Loan Origination Fee: A fee charged by a lending institution to a borrower for going through the process of taking out a loan.
Loan to Value Ratio (LTV): The amount owed on a loan divided by the estimated value of the property.
Mortgage: A product offered by a lending institution that allows a homeowner to borrow money to purchase a property, and then repay over time.
Mortgage Application Fee: One of the multiple fees potentially charged by a lending institution to a homeowner to cover the cost of applying for the loan.
Mortgage Company: A lending institution or bank that lends money to individuals to buy property.
Mortgage Payment: An amount of money transferred to a lending institution each month that covers principal, interest, and other charges and fees for a home, like taxes, insurance, mortgage insurance, etc.
Mortgage Insurance: Purchased by the homeowner. Mortgage insurance is to protect lenders in case of default.
Owner Title Insurance: Insurance the home buyer purchases to cover potential legal issues involving a property’s title.
Paid in Full: The loan status of homeowners who have no remaining financial obligation to a lending institution because an entire debt has been paid.
Payoff: Payoff, like “paid in full,” indicates complete repayment of a loan.
Pre-Approval: The process that precedes taking out a mortgage, which includes the lender and mortgage applicant working together to determine what types of loans are available to the applicant. During the pre-approval process, the lender runs the homebuyer’s credit, and the buyer submits the required information and documents.
Pre-Qualify: A simple cursory review of your financial situation that is much less thorough than a loan pre-approval.
Primary Residence: The home of primary residence. Typically, it is where the homeowner lives.
Private Mortgage Insurance (PMI): Purchased by the homeowner, private mortgage insurance makes it easier for a lending institution to give you a loan because it covers some of the risks. PMI is often required when a homeowner puts less than 20 percent down on a home. PMI only applies to conventional loans.
Quit Claim Deed: A legal document that allows a homeowner to transfer property to another person.
Rate: The rate of interest charged on a mortgage.
Release of Lien: A formal document indicating that the owner of the mortgage no longer has a lien on the property.
Refinance: To get a different loan for the same property. Homeowners usually refinance to get a lower interest rate or to get cash-out.
Short Sale: Failing to receive enough money from the sale of a property to cover the amount owed on it.
Survey Fee: A fee collected at closing to cover the cost of a professional survey. Surveys are not required in all states.
Title Search: The process of investigating a piece of real estate to see if there are any other claims to that property.
Underwriting: The process through which the lender determines the risk for lending money is an acceptable one. Typically an underwriter will review the application, appraisal, income documents, and credit report, along with other documents as required by the loan type to determine eligibility.
Value, Appraised: The value of a property at a specific point in time determined by a professional appraiser.
Value, Estimated: Attempting to determine the value of a home without a formal professional appraisal.
Value, Actual (Fair Market Value): How much a property would sell for given normal market conditions.
VA Mortgage: A mortgage loan offered to U.S. military veterans.