Prep for the housing market when you know these terms
Jumping into the real estate world brings a language all its own. Here’s a list of a key mortgage terms and easy-to-understand definitions to help you navigate the home loan process and find a loan that’s right for you.
Adjustable Rate Mortgage (ARM)
A mortgage where the interest rate can fluctuate after an initial fixed-rate period (usually 3, 5, 7, or 10 years). This can result in higher or lower monthly payments over time.
Amortization
The process of spreading out the repayment of a loan over time, including both principal and interest in each monthly payment.
Annual Percentage Rate (APR)
The total cost of borrowing money over a year, including the interest rate and certain fees. It's a more accurate representation of the loan cost than just the interest rate.
Appraisal
An unbiased professional evaluation of a property's fair market value. When ordered in connection to a home purchase or refinance, this helps lenders determine how much they are willing to loan for the desired property.
Assessed value
The value a local government places on a property for tax purposes. This may or may not be the same as the market value.
Balloon loan/payment
A loan with lower monthly payments for a set time followed by a large final payment due at the end of the loan term to repay the remaining balance.
Closing costs
These are fees paid by the buyer, and potentially the seller, during a home sale closing that may be paid out-of-pocket or financed into the loan amount. These can include origination fees, appraisal fees, title fees, taxes, and more.
Combined Loan-to-Value ratio (CLTV)
A ratio that compares the unpaid principal of the borrower’s first and second mortgages (if applicable) to the appraised value of the home. It affects your loan eligibility and possibly the interest rate you pay.
Down payment
A portion of the home’s purchase price paid upfront by the buyer, typically between 3.5% to 20%. This reduces the amount borrowed and may change your loan options.
Earnest money
A deposit made by the buyer as a sign of good faith to show the seller their true intention to purchase. This is typically held by a neutral third party until closing.
Escrow
A neutral third-party account that holds funds to pay property taxes and homeowner's insurance. Some lenders may require your monthly payment to include deposits into this account so the lender can submit payment on your behalf for taxes and insurance directly out of escrow each year.
Fixed-Rate Mortgage
A mortgage where the interest rate remains constant over the life of the loan. This provides predictable monthly payments.
Inspection
A thorough examination of a property by a qualified professional to identify any potential problems with the structure, systems, or safety.
Mortgage calculator
An online tool that helps you estimate monthly mortgage payments based on factors like loan amount, interest rate, and loan term.
Mortgage payment
The monthly payment to a lender which includes principal and interest. Depending on the loan type, it may also include escrow for property taxes and homeowner's insurance.
Mortgage Term
The length of time it will take to repay a mortgage loan in full.
Origination fee
A fee charged by the lender for processing a mortgage application.
Preapproval
A lender’s preliminary agreement to lend a specific amount of money for a mortgage based on the borrower’s stated income, credit score, and debt-to-income ratio. A preapproval letter carries more weight than a prequalification because the lender has verified the borrower’s information.
Private Mortgage Insurance (PMI)
An insurance policy typically required for conventional loans with a down payment of less than 20%. It protects the lender in case the borrower defaults on the loan.
Refinance
The process of obtaining a new mortgage loan to replace an existing one, often to take advantage of lower interest rates or get cash out by tapping into the home’s available equity.
Title/Deed
A title is the legal right to ownership of a property. Title companies research the property's history to ensure there are no outstanding claims or liens on the property before issuing a clean title. The deed is a tangible document granting ownership.
Ready to get started on your home loan? Get a quote today! If you have any questions, reach out to one of our friendly, trusted, and knowledgeable mortgage advisors.
