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Mortgage Glossary

The mortgage process comes with a language all its own. Learn the meaning of unfamiliar words and terminology with this handy glossary.

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Amortization
The repayment of a loan over time by installments, dealing with how much of your payment goes toward interest and how much is paid toward principal

 

Annual percentage rate (APR)
The actual interest rate you pay on your mortgage, including fees, points and other costs associated with the loan

 

Appraisal
A comprehensive report that determines the value of a property based on a number of factors

 

Closing
The last step in the loan process where documents are signed at a title company or attorney’s office

 

Closing Costs
The fees associated with purchasing a property that are not included in the purchased price, typically origination fees, discount points, appraisal fee, survey, title insurance, legal fees, real estate fees, prepayment of taxes and insurance and real estate transfer taxes

 

Construction Loan
A short-term loan to finance the construction of a new residence, business or investment property, typically converted to a conventional loan after construction

 

Conventional Loan
A mortgage that is not guaranteed or insured by a government entity such as the Federal Housing Agency (FHA) or Veterans Affairs (VA)

 

Credit Report
A detailed report that includes vital information about you and your credit history, compiled through credit reporting agencies

 

Debit-to-Income Ratio
The ratio of your liabilities (monthly bills and living expenses) versus your gross monthly income

 

Deed
An official public document that establishes property ownership

 

Down Payment
A portion of money paid at the beginning of a loan to demonstrate commitment to the purchase

 

Earnest Money
Money paid to the seller by the buyer as a pledge to complete a real estate transaction

 

Escrow
A fund administered by a third party and used to pay taxes and insurance for a mortgage transaction

 


Equity
The value of a property, minus any money owed against it

 

Fixed-rate Mortgage
A mortgage with a fixed interest rate that will not adjust at any point during the life of the loan

 

Foreclosure
The process by which a bank or lender sells a property after a borrower fails to meet the repayment terms of the loan

 

Home Equity Line of Credit
A loan that allows you to borrow money from the equity in your home, based on a certain maximum draw amount

 

Interest
The fee charged to the borrower for the use of the borrowed money

 

Home Inspection
A limited, non-invasion examination of the condition of home that is completed by a third party prior to selling

 

Lien
A legal claim or hold on a piece of property

 

Market Value
The price a seller can expect to receive for the sale of a property

 

Origination Fee
A percentage of the mortgage loan charged by the lender for completing the loan process

 

Points
An up-front fee you pay for obtaining a mortgage; one point equals 1% of the loan value

 

Pre-Approval
The process through which a borrower evaluates the credit of a potential lender and determines the maximum amount they would be willing to lend

 

Principal
The unpaid balance on your mortgage loan

 

Private Mortgage Insurance (PMI)
Extra insurance that a lender requires when a buyer obtains a loan for more than 80% of the home’s value

 

Refinance
The act of replacing the existing loan on your property with a new one

 

Title
The official document that states who owns a piece of real estate property

 

Title Insurance
Insurance taken out to protect both the borrower and the lender in case of a title dispute

 

Title Search
Research conducted on a property prior to the sale to make sure there are no existing liens against it

 

Underwriting
The process a lender uses to determine a borrower’s eligibility for a loan

 

Warranty Deed
Indicates that there are no past liens or disputes against the property and the holder has the right to sell

 

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