Glossary

A

Adjustable-rate Mortgage (ARM): A home loan with an interest rate that can change periodically, usually in relation to an index, resulting in fluctuating monthly mortgage payments.

Affordability: The financial capacity of a household to meet financial obligations comfortably, including housing expenses, without financial strain.

Amortization: The process of paying off a loan over time through regular, scheduled payments that cover both principal and interest.

APR (Annual Percentage Rate): A standardized way to express the cost of borrowing, encompassing interest and certain fees, presented as a percentage rate.

B

Basis Points: A unit used to measure changes in interest rates or yields in the financial markets, with one basis point equivalent to one-hundredth of a percentage point.

Breakeven: The point at which the savings from refinancing a mortgage offset the costs associated with the refinancing process.

C

Closing Costs: Fees and expenses linked to finalizing a real estate transaction, including lender fees, appraisal fees, and title insurance.

Closing Attorney: A legal professional who oversees the closing process, ensuring that all legal and financial requirements are met during a real estate transaction.

Closing Documents: The legal paperwork required to complete a real estate transaction, often including the mortgage note, deed of trust, and various disclosures.

Conventional Loan: A mortgage not insured or guaranteed by a government agency, usually requiring a higher credit score and down payment compared to government-backed loans.

Credit Score: A numerical representation derived from a scoring model that utilizes information from an individual's credit history.

D

Debt-to-Income Ratio (DTI): A financial metric that measures the percentage of monthly income dedicated to paying debt, including housing expenses and other obligations.

Down Payment: Initial cash payment made when purchasing a property on credit, reducing the borrowed amount.

E

Escrow: A financial arrangement where a third party holds and manages funds or assets on behalf of two parties until specific conditions are met.

F

Fixed-rate Mortgage: A home loan with a constant interest rate throughout the entire term, resulting in consistent monthly mortgage payments.

Funding Fee: A one-time fee required for certain types of loans, such as VA loans, to help offset the cost of administering the loan program.

H

Home Appraisal: A professional assessment of a property's value, determining its market value for lending purposes.

HOA (Homeowners Association): An organization formed by a community of homeowners to manage and maintain common areas and enforce community rules and regulations.

Home Inspections: Professional evaluations of a property's condition, typically covering structural, mechanical, and safety aspects, to identify potential issues before completing a purchase.

I

Interest Rate: A percentage of a sum borrowed that is charged by a lender for using their money.

Interest Rate Changes: Adjustments in the interest rate of a mortgage or loan, which can occur with adjustable-rate loans, leading to fluctuations in monthly payments. On a fixed rate loan, the rate doesn’t change at any point.

J

Jumbo Mortgage: A home loan that exceeds the conforming loan limits set by government-sponsored enterprises, used typically for higher-priced homes.

L

Loan Amount: Total principal amount borrowed in a loan, including any additional fees or costs rolled into the loan.

Loan Officer: A licensed professional responsible for guiding borrowers through the loan selection, application, and approval process of their mortgage.

Loan Processor: A professional supporting both the loan officer and the borrower in gathering and organizing all the documentation required for a mortgage application and approval process.

LLPA's (Loan-Level Price Adjustments): Fees or adjustments applied to a mortgage loan based on factors such as credit score, loan-to-value ratio, and other risk-related criteria.

M

Monthly Payment: The amount of money required to be paid each month to cover a mortgage or loan payment, including principal, interest, taxes, and insurance (PITI).

Mortgage Fraud: Any misrepresentation, misstatement, or omission in a mortgage application with the intent to deceive the lender and secure approval under false pretenses.

N

NMLS (Nationwide Multistate Licensing System & Registry): A centralized platform for mortgage and financial services professionals to apply for, update, and maintain their licenses to operate in multiple states.

No-cost Mortgage: A loan where upfront closing costs are not paid, but a slightly higher interest rate might be applied to offset these costs.

O

Occupancy: The intended use of a property, denoted by 'primary' for the borrower's main residence and 'second home' for a secondary or vacation property.

P

PITI (Principal, Interest, Taxes, and Insurance): The components of a monthly mortgage payment, including principal (loan amount), interest, property taxes, and homeowner's insurance.

Points: Fees paid to a lender at closing in exchange for a lower interest rate on a mortgage loan.

Private Mortgage Insurance (PMI): Insurance that protects the lender in case the borrower defaults on the mortgage. It's typically required for borrowers who make a own payment of less than 20%.

S

Seller Credit: A financial contribution made by the seller of a property to cover some of the buyer's closing costs or other expenses related to the purchase.

Servicing Company: A company that manages the day-to-day tasks associated with a mortgage loan after it has been originated, including collecting payments, managing escrow accounts, and addressing borrower inquiries.

T

Title Insurance: Insurance protecting the holder from any loss sustained due to defects in the title of a property.

U

Underwriting: The process through which a lender assesses a borrower's creditworthiness and evaluates the risk of offering them a mortgage loan.

V

Verifications of Employment (VOE): Documentation verifying a borrower's employment status and income, often required during the mortgage application process.