A
- Adjustable-rate mortgage (ARM)
- A loan whose rate is fixed for an initial period, then adjusts at set intervals based on an index plus a margin.
- After-repair value (ARV)
- The estimated value of a property once planned renovations are finished; used to size fix-and-flip and renovation loans.
- Amortization
- Paying off a loan through regular payments that cover interest and gradually reduce the principal.
- Amortization schedule
- A table showing how each payment splits between principal and interest over the life of the loan.
- Annual percentage rate (APR)
- The yearly cost of the loan including interest and certain fees, expressed as a rate. Useful for comparing offers.
- Appraisal
- A licensed appraiser's estimate of a home's market value, ordered for the lender.
- Appreciation
- An increase in a property's value over time.
- Assets
- What you own that has value, such as bank balances, investments and real estate.
- Assumable mortgage
- A loan that a qualified buyer can take over from the seller, keeping its existing rate and terms. FHA, VA and USDA loans are often assumable.
B
- Balloon payment
- A large lump-sum payment due at the end of some loans.
- Bank statement loan
- A loan that qualifies self-employed borrowers using 12 or 24 months of bank deposits instead of tax returns.
- Buydown
- Paying an upfront amount to lower the interest rate, either for the whole loan or for the first few years.
C
- Cash-out refinance
- A refinance for more than you owe, with the difference paid to you in cash.
- Clear to close
- The underwriter's final approval; the loan is ready to sign and fund.
- Closing
- The meeting or appointment where you sign the final loan documents and ownership transfers.
- Closing costs
- Fees and prepaid items due at closing, such as lender fees, appraisal, title insurance, recording fees and escrow deposits.
- Closing Disclosure
- The five-page form showing your final loan terms and costs, delivered at least three business days before closing.
- Conforming loan
- A conventional loan within Fannie Mae and Freddie Mac size limits and guidelines.
- Construction-to-permanent loan
- A single loan that funds construction of a home and then converts to a long-term mortgage when it is finished.
- Conventional loan
- A mortgage not insured or guaranteed by a government agency.
- Credit report
- A record of your borrowing and payment history from Equifax, Experian and TransUnion.
- Credit score
- A number summarizing your credit history, used to help set your eligibility and pricing.
D
- Debt-to-income ratio (DTI)
- Your monthly debt payments, including the new housing payment, divided by your gross monthly income.
- Debt-service coverage ratio (DSCR)
- A property's rental income divided by its housing payment; used to qualify investment property loans.
- Deed
- The legal document that transfers ownership of a property.
- Down payment
- The part of the purchase price you pay up front rather than borrow.
- Draw
- A release of construction or renovation funds, usually made after an inspection confirms a phase of work is complete.
E
- Earnest money
- A deposit made with your offer to show you're serious; it's applied toward your purchase at closing.
- Equity
- The difference between your home's value and what you owe on it.
- Escrow account
- An account your servicer uses to collect a share of property taxes and insurance with each payment and pay those bills for you.
F
- FHA loan
- A mortgage insured by the Federal Housing Administration, with flexible credit and down payment guidelines.
- Fix-and-flip loan
- A short-term, business-purpose loan for an investor buying and renovating a property to sell or rent.
- Fixed-rate mortgage
- A loan whose interest rate stays the same for its entire term.
G
- Gift letter
- A signed letter confirming that money toward your purchase is a gift, not a loan.
H
- HECM (reverse mortgage)
- An FHA-insured Home Equity Conversion Mortgage for homeowners 62 and older.
- HELOC (home equity line of credit)
- A revolving line of credit secured by your home equity, usually with a variable rate, that you can draw on as needed.
- Homeowners insurance
- Insurance covering your home and belongings against damage and loss; lenders require it.
I
- Index
- The market rate an adjustable-rate mortgage follows when it adjusts.
J
- Jumbo loan
- A loan above the conforming loan limit for the county.
L
- Lien
- A legal claim against a property as security for a debt.
- Loan Estimate
- The three-page form you receive within three business days of applying, showing your estimated rate, payment and closing costs.
- Loan limit
- The maximum loan size a program allows in a given county.
- Loan-to-value ratio (LTV)
- The loan amount divided by the home's value or price.
M
- Margin
- The fixed percentage added to the index to set an adjustable rate.
N
- Non-QM loan
- A loan outside standard qualified-mortgage rules, such as bank statement, DSCR and fix-and-flip loans.
O
- Origination fee
- A charge for arranging and processing the loan, shown on your Loan Estimate.
P
- Points (discount points)
- Upfront charges paid to lower your interest rate; one point equals 1% of the loan amount.
- Pre-approval
- A lender's conditional commitment after reviewing your credit, income and assets; final approval still depends on the property and underwriting.
- Pre-qualification
- An informal estimate of what you may be able to borrow, usually based on information you provide.
- Principal
- The amount you borrowed, or the part of it still owed.
- Private mortgage insurance (PMI)
- Insurance on conventional loans with less than 20% equity that protects the lender if you default.
R
- Rate cap
- A limit on how much an adjustable rate can change at each adjustment and over the life of the loan.
- Rate lock
- A lender's commitment to hold your interest rate for a set period while your loan is processed.
- Refinance
- Replacing your current mortgage with a new one.
- Reserves
- Savings you'll have left after closing, often measured in months of housing payments.
S
- Servicer
- The company that collects your payments and manages your loan after closing.
T
- Title insurance
- Insurance protecting the lender (and optionally you) against problems with the property's ownership history.
U
- Underwriting
- The lender's review of your file to confirm the loan meets its guidelines.
- USDA loan
- A mortgage guaranteed by the U.S. Department of Agriculture for homes in eligible rural and suburban areas.
V
- VA loan
- A mortgage guaranteed by the U.S. Department of Veterans Affairs for eligible veterans, service members and surviving spouses.
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