Glossary
Understand key mortgage and real estate terms.
A
- Adjustable-Rate Mortgage (ARM)
- A loan whose interest rate is fixed for an initial period and then adjusts periodically based on a market index.
- Amortization
- Paying off a loan through scheduled payments of principal and interest over time.
- Annual Percentage Rate (APR)
- The yearly cost of a loan including interest and certain fees, expressed as a percentage.
- Appraisal
- A professional estimate of a property's market value.
- Assumable Loan
- A mortgage that can be transferred to a new buyer under its existing terms, subject to approval.
B
- Balloon Payment
- A large lump-sum payment due at the end of some loan terms.
C
- Cash-Out Refinance
- A refinance for more than you owe, giving you the difference in cash.
- Closing
- The final step where documents are signed and ownership transfers.
- Closing Costs
- Fees and expenses paid at closing, beyond the down payment.
- Closing Disclosure
- A form provided at least three business days before closing that details final loan terms and costs.
- Conforming Loan
- A loan that meets Fannie Mae and Freddie Mac guidelines, including loan limits.
- Contingency
- A condition in a purchase contract that must be met for the sale to proceed.
- Credit Score
- A number summarizing your credit history that lenders use to assess risk.
D
- Debt-to-Income Ratio (DTI)
- Monthly debt payments divided by gross monthly income.
- Discount Points
- Upfront fees paid to lower your interest rate.
- Down Payment
- The portion of the purchase price paid upfront rather than borrowed.
E
- Earnest Money
- A deposit made with an offer to show good faith to the seller.
- Equity
- The difference between your home's value and what you owe on it.
- Escrow
- A neutral third party or account that holds funds or documents, such as for taxes and insurance.
F
- FHA Loan
- A mortgage insured by the Federal Housing Administration with flexible qualification guidelines.
- Fixed-Rate Mortgage
- A loan whose interest rate stays the same for the full term.
G
- Gift Letter
- A signed letter confirming money from a relative or other donor is a gift, not a loan.
H
- HELOC
- A home equity line of credit, a revolving credit line secured by your home.
- Homeowners Insurance
- Insurance covering damage to your home and liability; required by lenders.
I
- Interest Rate
- The cost of borrowing money, expressed as a percentage of the loan.
J
- Jumbo Loan
- A mortgage larger than conforming loan limits.
L
- Loan Estimate
- A form you receive within three business days of applying that outlines estimated terms and costs.
- Loan-to-Value (LTV)
- The loan amount divided by the property's value.
- Lock-In (Rate Lock)
- A lender's commitment to hold an interest rate for a set period.
M
- Mortgage Insurance (MI/PMI)
- Insurance that protects the lender, often required with less than 20% down.
N
- NMLS
- The Nationwide Multistate Licensing System, which licenses mortgage companies and loan officers.
O
- Origination Fee
- A fee charged by the lender for processing a loan.
P
- Pre-Approval
- A lender's conditional estimate of how much you can borrow after reviewing your finances.
- Prepaid Items
- Costs paid at closing in advance, such as property taxes, insurance and interest.
- Principal
- The amount borrowed, or the remaining balance not including interest.
- Property Tax
- A tax assessed by local government based on a property's value.
R
- Refinance
- Replacing your current mortgage with a new one.
- Reverse Mortgage
- A loan for homeowners 62+ that converts home equity into cash without monthly mortgage payments.
T
- Title Insurance
- Insurance protecting against problems with a property's ownership history.
U
- Underwriting
- The lender's review of your application, credit, income, assets and property to approve the loan.
V
- VA Loan
- A mortgage guaranteed by the Department of Veterans Affairs for eligible service members and veterans.
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