Your Guide to Better Understanding the Housing Industry Lingo

Amortization: the total amount of time to pay off a loan balance.

 

Application Fees: nonrefundable fees paid when you apply for your credit. These expenses may incorporate charges such as a credit report or a property appraisal.

 

Appraisal: an estimate of a property’s value.

 

Appreciation: the increase in value of an asset over time.

 

APR (Annual Percentage Rate): the APR includes all the home purchase costs.

 

ARM (Adjustable-Rate Mortgage): a loan that starts with a fixed interest rate, and after a certain period, that rate can increase or decrease periodically.

 

          Initial Cap: the maximum amount the interest rate can adjust the first time after the fixed period.

          Periodic Cap: the maximum amount the interest rate can adjust from one adjustment period to the next.

          Lifetime Cap: the maximum amount the interest rate can adjust over the life of the loan.

 

Assessed Value: A public tax assessor will calculate the estimated value of your home or land. This will be the amount on which the property tax is based.

 

Balloon Mortgage: A balloon mortgage is a loan with an initial period of low or no monthly payments. At the end, the borrower must pay off the entire balance in a lump sum.

 

Basis Points: One basis point is equal to 1/100th of 1%. A fee of 25 basis points of $100,000 would be 0.25% or $250.

 

Broker: A broker is a person or firm who arranges transactions between a buyer and a seller for a commission when the deal is completed. 

 

CD (Closing Disclosure): a document that provides critical information about your loan, such as the interest rate, monthly payments, and closing costs. The lender must give you this document at least three business days before you close on the loan, and the information should match the Loan Estimate you received when you applied.

 

Clear Title: a title without any lien or levy from creditors or other parties that would question legal ownership.

 

Closing Date: The date that you sign your new loan documents.

 

CLTV (Combined Loan-to-Value): all loan amounts owed on a property vs its appraised value.

 

Closing Costs: fees paid at the closing of a real estate transaction. Usually, expenses over and above the price of the property.

 

Closing: the last step of homebuying, also called the settlement. You sign all the necessary documents to finalize the sale and take responsibility for the mortgage loan.

 

Co-Borrower: any additional borrower whose name appears on loan documents and whose income and credit history are used to qualify for the loan. Under this arrangement, all parties involved must repay the loan.

 

Collateral: an asset (usually a car or home) pledged as security for repayment of a loan, to be forfeited in the event of a default.

 

Comparables (Comps): homes located in the same area, which are also very similar in size, condition, and features to the house that you are trying to buy or sell.

 

DTI (Debt-to-Income): the comparison of your monthly debt payments to your monthly income before taxes, expressed as a percentage. Many mortgage lenders prefer this figure, including a mortgage payment, to be no higher than 36 percent.

 

Deed: a legal document regarding the ownership of property or legal rights.

 

Down Payment: the amount of cash you can put toward the purchase price of a home. Down payments often range from 3 to 20 percent of the home price.

 

Earnest Money: a deposit to a seller representing a buyer’s good faith to buy a home.

 

Escrow Account: a third party that holds an asset or funds before they are transferred from one party to another.

 

Fixed-Rate Mortgage: the interest rate stays the same through the loan term.

 

Flood Insurance: a type of property insurance that covers a dwelling for losses sustained by water damage, precisely due to flooding caused by heavy or prolonged rain, melting snow, coastal storm surges, blocked storm drainage systems, or levee dam failure. It is required by law when a property is in a special flood hazard zone.

 

GFE (Good Faith Estimate): the estimated costs for a mortgage loan.

 

HELOC (Home Equity Line of Credit): a lender agrees to lend a certain amount over a period, where the collateral is the borrower’s equity home.

 

Jumbo Loan: a type of financing where the loan amount is higher than the conforming loan limits set by the Federal Housing Finance Agency (FHFA).

 

Liabilities: A person’s debts or financial obligations. Liabilities include long-term and short-term debt and potential losses from legal claims.

 

Lien: a right to keep possession of property belonging to another person until a debt owed by that person is discharged.

 

LTV (Loan-to-Value): the loan amount owed on a property vs its appraised value.

 

Mixed-Use Property: property that is used both for residential and commercial purposes.

 

Notice of Default: a notification given to the borrower stating that they have not made their payments on time or otherwise are in default on the mortgage contract.

 

PITI (Monthly Mortgage Payment): principal, interest, taxes, and insurance.

 

PMI (Private Mortgage Insurance): a lender’s protection if a borrower defaults on a mortgage and the home is foreclosed. PMI is usually required until the borrower owns 20% of the property.

 

PPI (Prepaid Interest): the interest that a borrower pays before the first scheduled debt repayment.

 

Points: also known as discount points, are fees paid directly to the lender at closing in exchange for a reduced interest rate. This is also called “buying down the rate,” which can lower monthly mortgage payments. One point costs 1 percent of your mortgage amount (or $1,000 for every $100,000).

 

Pre-Qualification: a process whereby a loan officer takes information from a borrower and makes a tentative assessment of how much the lending institution is willing to lend them.

 

Recast: an ARM converted into a fixed-rate mortgage.

 

Refinance Loan: paying off an existing mortgage to obtain a new mortgage (usually with a lower interest rate).

 

Reserves: savings balances that will be there after you close on your home purchase. They’re considered emergency funds, meaning you can still afford your mortgage if you lose your job after your home purchase.

 

Rolling Lates: late payments that carry on into the following months. 

 

Seasoned Loan: a loan usually becomes seasoned after paying a mortgage for one year.

 

Subject Property: the property that you intend to obtain a loan for.

 

Suspension: a loan application is neither accepted nor denied.

 

Term: the length of a loan (example: 15, 20 or 30 years).

 

UFMIP (Up-Front Mortgage Insurance Premium): up-front mortgage insurance is an insurance premium collected, typically on Federal Housing Administration (FHA) loans, when the loan is initially made. Though similar, it is not quite the same as private mortgage insurance (PMI), which a conventional private mortgage lender collects each month when a buyer’s down payment on a home is less than 20% of the purchase price. Up-front mortgage premiums are added to a pool of money used to help entities, such as the FHA, insure loans for specific borrowers.

 

Underwriting: the lender reviews submitted documents to verify the borrower’s finances and other factors related to the home, such as the title search and appraisal, then decides to approve or deny the loan.