Common Lender Terms
- Ability-to-repay rule - The ability-to-repay rule is the reasonable and good faith determination most mortgage lenders are required to make that you are able to pay back the loan.
- Adjustable-rate mortgage (ARM) - An adjustable-rate mortgage, or ARM, has an introductory interest rate that lasts a set period of time and adjusts every six months thereafter for the remaining loan term. After the set time period your interest rate will change and so will your monthly payment. Additional ARM Info
- Amortization - The amount of agreed upon time to pay your balance in full based on regular monthly installments of principal and interest. At the conclusion of the loan term (e.g., 15 or 30 year mortgage), you will own your home free and clear.
- Amount financed - The amount of money you are borrowing less any fees.
- Annual income - Annual income is your pre-tax income earned over a year. Annual income may include income from full-time or part-time work, self-employment, tips, commissions, overtime, bonuses, or other sources.
- Annual Percentage Rate (APR)- An annual percentage rate (APR) is a broader measure of the cost of borrowing money than the interest rate. The APR reflects the interest rate, any points, mortgage broker fees, and other charges that you pay to get the loan. The APR does not have an impact on the monthly payment.
- Appraisal - a report generated by a 3rd party mortgage appraiser advising the present market value of the property. This is the amount used by the bank to determine your eligible loan amount.
- Assets - Bank accounts (Checking , Savings, and CD's), Investments (Stock and Bonds), Retirement, 401k, Etc...
- Cash to Close - the net amount of money needed to complete the transaction. This includes the total closing costs plus down payment minus any prepaid items (i.e. earnest money, prepaid insurance premiums) not included in the loan amount.
- Clear To Close- These three words are the end goal for financing. When you are clear to close it means nothing else is needed and your loan processing is complete. This is the same for purchases or refinances.
- Closing Costs - Fees associated with the purchase of a home that are due at the end of the sales transaction. Fees may include the appraisal, the home inspection, a title search, a pest inspection and more. Buyers should budget for an amount that is 2% to 5% of the home’s purchase price.
- Closing Date - Agreed upon date between buyer and seller to complete the transaction.
- Closing Disclosure (aka. CD) - A Closing Disclosure is a five-page form that provides final details about the mortgage loan you have selected. It includes the loan terms, your projected monthly payments, and how much you will pay in fees and other costs to get your mortgage (closing costs). See Closing Disclosure Explainer for additional info
- Conditions - Items or clarifications required by an underwriter to meet the guidelines of your loan. Once the conditions are met we are one step closer to closing your loan.
- Conventional Loan - A conventional loan is any mortgage loan that is not insured or guaranteed by the government. They can be Conforming or Non Conforming
- Conforming Loan - A conforming loan is a mortgage that meets the dollar limits set by the Federal Housing Finance Agency (FHFA) and the funding criteria of Freddie Mac and Fannie Mae.
- Co-signer - Another individual that will sign to obtain the loan and pledges financial responsibility if you are not able to pay it. They will be a legal co-owner of the property and are not required to occupy the property. They will need to sign off on future transactions concerning the property.(Common cosigners are parents, spouse, fiancé, friends, etc.)
- Credit Score (FICO) - Your credit score (or FICO) is a scale of creditworthiness ranging from 300 - 850, that is used to determine if the lender will lend you money to buy a home. The score is based on info provided by the three major credit reporting bureaus (Experian, Equifax and TransUnion).
- Deed - A deed is a signed legal document that transfers ownership of an asset to a new owner. The purpose of a deed is to transfer a title, the legal ownership of a property or asset, from one person or company to another.
- Debt to Income (DTI) - click for more info
- Down Payment - A percentage of the purchase transaction, the down payment is the money a buyer pays upfront to complete the purchase. It directly lowers the loan amount and monthly payment due by the borrower.
- Earnest Money - This acts as a a good faith deposit for the acceptance of the offer. It is held by the realtor or attorney and gets credited towards your cash to close. The first EM payment is usually due within 1-3 business days of both the buyers and sellers signing the contract.
- Escrows - An escrow account is set up by your mortgage lender to pay certain property-related expenses, like property taxes and homeowner’s insurance. A portion of your monthly payment goes into the account. If your mortgage doesn’t have an escrow account, you pay the property-related expenses directly.
- Equity - Equity is the amount your property is currently worth minus the amount of any existing mortgage on your property. This determines how much "cash out" you can receive or debt you can consolidate on a refinance. It also determines the limit on a HELOC or HEL.
- Fannie Mae - Fannie Mae purchases mortgages from lending institutions in an effort to increase affordable lending activity at those institutions. Fannie Mae is not a federal agency. It is a government-sponsored enterprise under the conservatorship of the Federal Housing Finance Agency (FHFA).
- FHA Loan - is a home mortgage that is insured by the government and issued by a bank or other lender that is approved by the agency. FHA loans require a lower minimum down payment than many conventional loans, and applicants may have lower credit scores than is usually required.
- FHA Upfront Mortgage Insurance Premium - is a one-time payment due when closing on a home that is financed with an FHA home loan. The UFMIP is 1.75% of the base loan amount.
- Fixed Rate - principal and interest payments remain the same throughout the life of the loan because the interest rate does not change.
- Flood Insurance- Flood insurance covers direct physical loss caused by “flood.” In simple terms, a flood is an excess of water on land that is normally dry. See FEMA for more info
- Freddie Mac - A private corporation founded by Congress, the Federal Home Loan Mortgage corporation's mission is to promote stability and affordability in the housing market by purchasing mortgages from banks and other loan makers
- Government recording charges - Government recording charges are fees assessed by state and local government agencies for legally recording your deed, mortgage and documents related to your home loan.
- Guidelines - the required standards set by the investor, typically Fannie Mae or Freddie Mac, which need to be met in order to clear the loan and provide financing.
- Home equity line of credit (HELOC) - A home equity line of credit (HELOC) is a line of credit that allows you to borrow against your home equity. HELOCs usually have adjustable interest rates and a draw period, usually 10 years, that allows you to borrow and pay back the line multiple times. When the draw period is over the balance is generally paid off over a remaining term disclosed in your closing documents.
- Homeowners Association (HOA) - is an organization, typically made up of elected owners in the same area, that makes and enforces rules and guidelines for a subdivision, planned community, or condominium building.
- Home equity loan - A home equity loan (sometimes called a HEL) allows you to borrow money using the equity in your home as collateral. You receive the money from a home equity loan as a lump sum. A home equity loan usually has a fixed interest rate – one that will not change.
- HOA Dues - If you’re interested in buying a condo, co-op, or a home in a planned subdivision or other organized community with shared services, you usually have to pay condo fees or Homeowners’ Association (HOA) dues. These fees vary widely. Condo or HOA fees are usually paid separately from your monthly mortgage payment. If you do not pay these fees, you can face debt collection efforts by the homeowner’s association and even foreclosure.
- Homeowners Insurance - Provided by a 3rd party company, covers damage to your home, property, personal belongings, and other assets in your home as set forth in your policy.
- Initial adjustment cap - An initial adjustment cap is typically associated with adjustable rate mortgages (ARMs). This cap determines how much the interest rate can increase the first time it adjusts after the fixed-rate period expires. It’s common for this cap to be either two or five percent – meaning that at the first rate change, the new rate can’t be more than two (or five) percentage points higher than the initial rate during the fixed-rate period.
- Interest Rate - The interest rate is the amount a lender charges a borrower and is a percentage of the principal (loan amount). It does not reflect fees or any other charges you may have to pay for the loan. Your monthly payment is directly impacted by the interest rate. The interest rate on a loan is typically noted on an annual basis known as the annual percentage rate (APR)
- Jumbo Loan - is a type of financing that exceeds the limits set by the Federal Housing Finance Agency (FHFA). Unlike conventional mortgages, a jumbo loan is not eligible to be purchased, guaranteed, or securitized by Fannie Mae or Freddie Mac. The present loan limit (except in select high priced areas) is $766,550 for 2024.
- Lenders title insurance - Lender’s title insurance protects your lender against problems with the title to your property-such as someone with a legal claim against the home. Lender’s title insurance only protects the lender against problems with the title. To protect yourself, you may want to purchase owner’s title insurance.
- Lifetime adjustment cap - A lifetime adjustment cap is typically used with adjustable rate mortgages (ARMs). This cap determines how much the interest rate can increase in total, over the life of the loan. For example, if this cap is five percent, that means the rate can never be five percentage points higher than the initial rate. Some lenders may have a different or higher cap.
- Loan Amount - This is the amount you are borrowing. It is the purchase price minus your down payment.
- Loan Estimate (LE)- The Loan Estimate is a combination of the Good Faith Estimate (GFE) and Truth In Lending Statement (TIL). It shows the details of the loan that the lender expects to offer you should you decide to move forward. Loan Estimate Explainer
- Loan To Value (LTV) - The loan-to-value (LTV) ratio is a measure comparing the amount of your mortgage with the appraised value of the property. The higher your down payment, the lower your LTV ratio. Mortgage lenders may use the LTV in deciding whether to lend to you and to determine if they will require private mortgage insurance.
- Mortgage Note - is a legal document for the loan contract between the lender and borrower when purchasing real estate. Once signed by both parties, this document is legally binding and includes details such as the loan terms, the monthly payment amount, the interest payment, and penalties incurred for late or missed payments.
- Mortgage Term - The term of your mortgage loan is how long you have to repay the loan. For most types of homes, mortgage terms are typically 15, 20 or 30 years.
- Origination Fee- An origination fee is what the lender charges the borrower for making the mortgage loan. The origination fee may include processing the application, underwriting and funding the loan, and other administrative services. Origination fees generally can only increase under certain circumstances.
- Owner's title insurance - Owner’s title insurance provides protection to the homeowner if someone sues and says they have a claim against the home from before the homeowner purchased it.
- PITI(A) - Principal, Interest, Taxes, Insurance, and Association Dues (as applicable). This is your total monthly payment for your home.
- Planned Unit Development (PUD) - a small community that can contain many types of single-family homes, like townhomes or condominiums. Everyone who lives in a PUD home is part of a homeowners association (HOA) which is run by a board of directors usually made up of individuals from the community.
- Points (Discount Points, Mortgage Points) - A fee paid directly to the lender in exchange for a reduced interest rate. 1 point is 1% of the loan amount.
- Power of Attorney- Someone that you appoint on your behalf to complete your transaction. Typically it is a spouse or family member.
- Prequalification - A conditional estimate for credit provided based on general criteria given by the borrower. General review of credit, stated assets and income are input for Automated underwriting decision which is the catalyst for providing this letter. If your file was not fully underwritten by an underwriter, this is the letter you will be provided. It is the most common letter used to submit an offer.
- Preapproval - Like a prequalification but it requires full documentation to be reviewed and verified by an underwriter. This process takes more time to obtain but it ensures the seller that your info has been reviewed by underwriters.
- Prepaid Items - Prepaid items are commonly homeowner's insurance, mortgage interest, and property taxes you pay at closing when you buy a home. The taxes and insurance go into your escrow account for future payment due which the bank pays on your behalf.
- The mortgage interest is a per diem amount from the closing date through the end of the month. It allows for future interest to begin in full at the start of the month following closing which results in your fist full payment being due 1 month after that. For example close on April 20 (pay 10 days of mortgage interest, no payment in May first payment due on June 1.
- Prepayment Penalty - A prepayment penalty is a fee that some lenders charge if you pay off all or part of your mortgage early. If you have a prepayment penalty, you would have agreed to this when you closed on your home. Not all mortgages have a prepayment penalty.
- Principal (Balance) - The amount of a mortgage loan that you have to pay back . Your monthly payment includes a portion of that principal. When a payment on the principal is made, the borrower owes less, and will pay less interest based upon a lower loan size.
- Private Mortgage Insurance (PMI) - a type of mortgage insurance you might be required to buy if you take out a conventional loan with a down payment of less than 20 percent of the purchase price.
- Property Taxes - Property taxes are taxes charged by local jurisdictions, typically at the county level, based upon the value of the property being taxed. Often, property taxes are collected within the homeowner’s monthly mortgage payment, and then paid to the relevant jurisdiction one or more times each year. This is called an escrow account. If the loan does not have an escrow account, then the homeowner will pay the property taxes directly.
- Real Estate Owned (REO) - Other homes you own whether there is a mortgage on it or not. This includes properties that you may have co-signed on.
- Refinance- Mortgage refinance is when you take out a new loan to pay off and replace your old loan. Common reasons to refinance are to lower the monthly interest rate, lower the mortgage payment, or to borrow additional money. When you refinance, you usually have to pay closing costs and fees.
- Reserves - These are assets that you hold in excess of your monthly obligations.
- Right of Rescission- The right of rescission refers to the right of a consumer to cancel certain types of loans. If you are buying a home with a mortgage, you do not have a right to cancel the loan once the closing documents are signed. However, if you are refinancing a mortgage, you have until midnight of the third business day after the transaction to rescind (cancel) the mortgage contract.
- Title Agent / Company - a third party that works on behalf of both the lender and the buyer. They provide a title search to look for title defects including public record errors, unknown liens as well as possible forgeries and are responsible for completing the process of recording the transaction with the appropriate governing bodies.
- TILA RESPA Integrated Disclosure (TRID) - It's a federal consumer-protection law that requires lenders to disclose certain types of key information to borrowers.
- Total interest percentage (TIP) - The Total Interest Percentage (TIP) is a disclosure that tells you how much interest you will pay over the life of your mortgage loan assuming you make minimum monthly payments. Any overpayment of principal reduces the TIP.
- Underwriters - The decision makers on the file. They match your information to the applicable guidelines then make a determination to lend or not.
- USDA Loan- The Rural Housing Service, part of the U.S. Department of Agriculture (USDA) offers mortgage programs with no down payment and generally favorable interest rates to rural homebuyers who meet the USDA’s income eligibility requirements.
- VA loan - A VA loan is a loan program offered by the Department of Veterans Affairs (VA) to help servicemembers, veterans, and eligible surviving spouses buy homes. The VA does not make the loans but sets the rules for who may qualify and the mortgage terms. The VA guarantees a portion of the loan to reduce the risk of loss to the lender. The loans generally are only available for a primary residence.
Common Realtor/Attorney Terms
- Acceptance - The ideal response from the seller regarding the offer to purchase their property. If they accept you are under contract.
- Attorney Review - If you are in an attorney represented state this is typically a 5 business day window following a signed purchase contract. It enables the lawyers for both buyer and seller to review all terms in detail.
- Back Up Offer - A backup offer is one made on a home where the seller has already accepted an offer. The backup puts the buyer in line to buy the home if the accepted offer falls through.
- Broker - A broker is a person or firm who arranges transactions between a buyer and a seller. This may be done for a commission when the deal is executed. A broker who also acts as a seller or as a buyer becomes a principal party to the deal.
- Buyer's Agency Fee - The fee or commission paid to a buyer's agent or brokerage for finding and managing a home purchase for a buyer.
- Commissions - is the income a real estate agent earns at the end of a transaction for their services, usually paid by the seller.
- Comparable Properties (aka. Comps) - homes in a given area that have sold within the past 12 months that a real estate agent and appraiser uses to determine a home’s value. They share similar attributes to the home being purchased.
- Contingencies - "subject to certain conditions being met" most commonly sale of existing home or employment contract finalization.
- Contract - The legally binding agreement between the buyer and seller in good faith. The contract comprises an offer, acceptance, consideration, legal capacity, and legality of purpose.
- Counteroffer - Another seller response to the original offer with differing terms for the buyer to decide on. The most common counteroffer is a change in the offer price. If the buyer accepts the terms of the counter offer, the property is then under contract.
- Days On Market - this is the number of days that this listing has been available for purchase.
- Due Diligence - a period of time between an accepted offer and closing. It gives the buyer time to get an appraisal, a title search, perform property inspections and more.
- Inspection - An evaluation performed by a licensed home inspector to look for any defects or problems with the property. This includes all buildings, and systems in a home. Inspection occurs when the home is under contract or "In Escrow".
- Offer - The initial amount presented by the buyer to the seller to purchase their property
- Purchase Price - The agreed upon cost of the property per the offer and acceptance.
- Survey - A survey is a drawing of your property showing the location of the lot, the house and any other structures, as well as any improvements on the property.
- Under Contract - When the buyer and seller agree on all terms and commence towards completing the transaction and transferring ownership.
