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Mortgage Glossary

Have you heard or read a term that you are unfamiliar with? Our glossary will help you find the answers you need.

Glossary

DTI. Debt to Income Ratio. This is your total current debt reported to credit divided by your qualifying gross income.

APR. Annual Percentage Rate. This is the annual rate charged for borrowing money.

LTV. Loan-to-Value. This is your loan amount divided by your home value.

Appraisal Value. This is the value given to your home by an Appraiser.

HELOC. Home Equity Line of Credit.

1003. This is the form number for a mortgage loan application.

Fixed Rate. This is a rate that does not change during the term of the loan.

Term. This is the timeframe selected for a loan period.

Index. This indicates a variable rate of interest that fluctuates with market changes. Examples are Prime, LIBOR, T-Bill, and CMT.

Amortization. This indicates the loan’s value or schedule over the term.

Balloon Payment. This is a one-time payment of the full remaining loan balance and is typically due at the end of a mortgage term..

Borrower. The individual(s) applying for a loan.

Closing. This term references the scheduled time you, along with a closing attorney or title company, finalize your mortgage loan documents.

Closing Attorney or Agent. The individual(s) who direct and document the closing process and associated paperwork.

Closing Statement. The itemized list of all costs and fees associated with your mortgage loan.

Co-Borrower. Additional borrowers included on the loan application

Conventional Loan. A mortgage offered by a government-backed lender. Examples are Fannie Mae and Freddie Mac.

ARM. An Adjustable Rate Mortgage is fixed for a period of time then may adjust according to a designated market index.

FHA Loan. A mortgage loan offered by the Federal Housing Authority. Visit www.hud.gov for complete details.

VA Loan. A mortgage loan offered by the Veterans Administration for veterans only. Visit www.va.gov for complete details.

Jumbo Loan. A mortgage loan greater than $453,100.

Lien. Money owed on a property.

First Lien Position. The primary loan is recorded to title and takes priority over any other loans associated with the property.

Second Lien Position (also known as a Junion Lien). The loan takes position behind the First Lien and is paid out second in the event of a default.

Title. Official documentation of who owns a property.

Default. Occurs when agreed-upon payments have not been made and the loan defaults.

Earnest Money. Funds pledged by a buyer in good faith to purchase a property.

Equity. The value of the property outside of the debt owed.

Escrow Account. An account established to allow the lender to collect taxes and homeowner’s insurance payments for the borrower.

Flood Certification. This certification indicates whether a property resides within a flood zone and is determined by FEMA.  For details about the national flood insurance program, visit www.fema.gov.

Foreclosure. This occurs when a borrower defaults on his loan, and the lender takes ownership of the property.

Good Faith Estimate. This is a line-item breakdown of fees and costs associated with the loan.

Truth-in-Lending. This discloses the interest rate of the loan amount for which the borrower applies, including total final costs throughout the life of the loan.

Hazard Insurance. This is homeowner’s insurance and is required by all lenders to protect the borrower from loss or damage.

Home Inspection. An evaluation by a certified home inspector to determine the safety and structural integrity of the home.

HOA. Homeowner’s Association. This association typically establishes rules and guidelines within a neighborhood or community to ensure home values and appeal are maintained.

House Flipping. This term is typically associated with home renovation and resell. Flipping means purchasing a home at a reduced price with the intent to sell it at a higher price for profit.

Interest Rate. The rate charged to borrow money from a lending institution.

Intro Rate. A short-term rate typically associated with Adjustable Rate Mortgages. This rate makes the loan type more attractive to customers.

Lender. The bank or mortgage company who is lending the funds for the home loan.

Mortgage Insurance. This type of insurance is required for loan amounts that exceed a certain loan-to-value percentage – typically 80% and above. It is in place to protect the lender should the borrower default on the loan.

Mortgage Insurance Premium (MIP). This is a required fee paid to the FHA for an FHA loan. Visit www.hud.gov for details.

Mortgage Originator. A licensed individual who works with the borrower to structure a mortgage loan.

Power of Attorney (POA). A legal instrument granting one individual the right to act on behalf of another individual.

Prequalification. A review of income, assets, and credit profile by a Mortgage Originator in order to analyze how much home a borrower can afford and whether he can qualify for a mortgage loan.

Processor. A bank or lender representative who assists in confirming documentation for the approval of a loan.

PMI (Private Mortgage Insurance). Insurance in place to protect the lender in the event the borrower defaults on the loan. This type insurance is normally applied when a borrower’s loan-to-value is greater than 80%.

Rate Lock. A short term agreement that holds an interest rate in place.

RESPA (Real Estate Settlement Procedures Act). This federal act was passed in 1974 to protect consumers from hidden fees, costs, and kickbacks.

Refinance. The process in which a consumer seeks to replace a current loan.

Short Sale. A home that is sold for less than the amount owed. This process is used within the mortgage industry to avoid foreclosures in depressed market conditions.

Survey. A legal document that defines boundary lines and limits of construction for a property.

Underwriter. A bank or lending representative who assesses the credit worthiness of a borrower in order to provide approval of a loan application.

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