We’ve put together an overview of commonly-used mortgage terms in the glossary below, and have compiled information and tools we use in our offices every day.
A professional estimation on the value of a property as for a sale, assessment, or taxation.
Also known as APR, this is the annual equivalent of an interest rate, typically quoted monthly. It is derived from a government-mandated formula showing the annual cost of a loan using the note rate and other varied upfront costs.
An Adjustable Rate Mortgage (ARM) is characterized by an interest rate that adjusts up or down at intervals based on a current index, (commonly the one-year T-Bill) plus a preset margin.
A mortgage characterized by level fixed payments for a set time frame, followed by either a refinance or adjustment in interest rate. A balloon mortgage does not fully amortize over the term of the note, leaving a balance for the final payment.
The tax paid on certain types of real estate transactions in which the cost amount is lower than the sale amount, as specified by an accountant.
The amount needed from the borrower at closing, typically consisting of down payment, closing costs, and prepaid items. Made payable to they buyer, this amount is paid by cashier’s check only.
Date agreed upon by buyer and seller to finalize or close the transaction, as stated on the purchase agreement.
Varied costs associated with setting up and funding the transaction, including closing fee, title insurance, appraisal fees, underwriting fee, mortgage registration tax, etc.
Property type that includes the following characteristics: attached, has a homeowners’ association and dues, outside maintenance is covered by the association, and has common areas and amenities available to all owners.
Standard, non-government financing.
Agencies that provide compilations of your credit history. The three main credit bureaus are Experian, Trans Union, and Equifax.
Report provided by the credit bureaus that shows the history, current status, and profile of those seeking credit, insurance, employment or to rent or purchase a home.
The numeric representation of a subject’s credit profile, generated by the credit bureaus. Numbers range from a low of 450 to a high of 850.
The percentage of a consumer’s monthly gross income that goes toward paying debts. It’s often expressed as the front-end ratio (housing payment only), and the back-end ratio (payments to all recurring debts). Example: a $5000 monthly income, with a $1400 housing payment, and $1700 total debt, would equal ratios of 28%/34%.
One point equals one percent of the loan amount. Points are used to lower the interest rate, however, one point does not equate to lowering the interest rate one percent. Generally, lowering the interest rate 1/8 will cost about ½ a point, but that varies based on daily pricing. Points are typically tax deductible.
The difference between loan amount and purchase price.
A deposit toward the down payment, submitted with a purchase agreement to prove buyer commitment.
The portion of the monthly payment that is not applied to principal or interest, but is instead used to pay mortgage and homeowners insurance, and property taxes.
Short for the Federal National Mortgage Association, one of the main Government-Sponsored Agencies that sell mortgage-backed bonds to investors. As the ultimate source of loaned funds, Fannie Mae protects its investors by issuing underwriting guidelines that ensure quality lending.
Short for the Federal Home Loan Mortgage Corporation (see Fannie Mae description above).
Government-backed, minimum down, financing program that has a lower mortgage insurance premium and greater credit leeway as compared to conventional minimum down programs. Interest rate, and Principal & Interest payment, remains constant through the life of the loan.
Most common type of financing. Terms range from ten to 30 years.
Rather than locking in a rate, homeowners instead choose to float the interest rate as the market moves up or down.
Required document on all loans. Confirms if the property is in or out of a FEMA designated flood zone.
Generally only applies to new construction. Monies held from the seller to provide payment for repairs or non-completed items.
Document prepared by lender that estimates the various fees and closing costs associated with a home purchase.
Financing provided from government agencies such as Federal Housing Administration (FHA), Veterans Affairs (VA), etc.
Short for Home Equity Line of Credit, this is a second mortgage product, generally characterized by interest only payments and the ability to draw funds, pay back, and redraw funds.
This is a private, professional inspection, initiated by the buyer to confirm that the property is in acceptable condition.
Amount paid by owner of a townhome or condo to cover maintenance services provided by the homeowners’ associations, such as common area upkeep, hazard insurance, garbage, mowing, and snow removal.
Insurance that covers damage or loss to a property. The premium is usually paid into an escrow account held by the mortgage company, who then pays the insurance company once a year.
Document prepared by title company at closing that shows where all of the money in the transaction is coming from, and going to.
Loan with an initial balance greater than $417,000.
Refers to the fact that rates are generally slightly higher on jumbo loans.
Ratio of liens versus value of property or sales price. Example: $80,000 owed on a property worth $100,000 equals an 80% LTV.
Number of days (typically 30-60) during which a promised interest rate cannot be changed.
Choosing to protect a particular rate and program for a specific period of time.
The document signed at closing that is the collateralization of the property to the note or loan.
Insurance that protects the lender against default. Generally the higher the loan-to-value, the higher the monthly premium.
This document is signed at closing and is the promise by the signers to repay the loan according to the terms.
Also known as an activation fee, it is typically one percent of the loan amount, and is a payment associated with the establishment of an account with a bank, broker, or other company providing services for the loan. The fee can be avoided by paying a higher rate and it is typically tax deductible.
At closing, this is money collected/refunded to the borrower to synchronize the closing to the monthly payments.
Money paid upfront to lower the interest rate. The breakeven point (where monthly savings meet/exceed money paid upfront) is usually around 60 payments or five years. In many cases, paying points will pay off as long as you do not sell or refinance your loan before the breakeven point. (Actual breakeven point may vary, so please talk to us about your exact situation). Some niche programs and products may require that points be paid.
A second mortgage closed at the same time as a first mortgage. A piggy back loan is usually taken out to avoid mortgage insurance, jumbo pricing, or to use for future needs.
A monthly escrow payment that stands for Principal, Interest, Tax escrow Insurance (both hazard and mortgage).
This means you have passed the approval process, based on documented income, assets, and credit, and are technically at a stage before actual approval.
A group of items paid at closing, including monies to set up the escrow account and to fund prepaid or odd days interest.
Based on stated income, assets and debt, homeowner is qualified, but not yet verified for a loan.
An option on certain types of loans that says if the mortgage is prepaid within a certain time period, a penalty will be assessed. A benefit of this is that the rate is lower compared to other similar products.
Amount of tax due on a property. Usually it is collected as part of the escrow portion of the monthly payment, with the lender taking the responsibility to pay the escrowed money as the bills comes due.
A contract between a buyer and seller outlining the terms of the sale.
Rate refers to the interest rate. Price refers to the points. This can be confusing as both rate and points are usually referred to in 1/8 percent increments. A good rule of thumb is that often a 1/8 percent in interest rate, reflects a ½ change in points (actual rate and points may vary slightly).
Standard, one unit home, as opposed to a Condo/Townhome with Homeowners’ Association.
An agreement that states the second mortgage lender agrees to stay in second lien position.
A document signed by the borrower’s employer verifying hisf/her position and salary.
[Information above compiled from our experience, and a variety of online resources, including www.prestigpl.com/glossary.]