Loan Terminology
| Term | Main definition |
|---|---|
| Adjustable-Rate Mortgage (ARM) | A mortgage loan with an interest rate that can change periodically after the fixed term such as 5 years or 7 years of the loan based on the adjustment period. |
| Amortization | |
| Annual Percentage Rate (APR) | The annual cost of a mortgage loan, stated as a percentage of the loan amount. It |
| Appraisal | A professional opinion of the market value of a property. |
| Asset | An item of value that you own. |
| Automated Underwriting | A computer-based method that lenders use to process loan applications and to recommend whether to approve the loan (Tied to Fannie Mae and Freddie Mac). |
| Buyer | A broker or real estate agent who represents only the buyer. |
| Clear Title | |
| Closing Costs | Fees and expenses paid by you and the seller for the purchase, sale, or financing of the property. |
| Closing Disclosure | A document required by the Regulating Governing Bodies that itemizes all charges relating to loan. It also shows the annual percentage rate and finance charges with other important facts about your loan. |
| Conforming Loan | A type of conventional loan that meets the loan limits and underwriting guidelines established by Fannie Mae and Freddie Mac. These tend to have lower interest rates but more stringent approval guidelines. |
| Contingency Addendum | A legally binding clause added to a purchase agreement that states specific conditions must be met within a set amount of time. These conditions if unmet can void the contract. |
| Conventional Loan | Any mortgage that is not government insured or guaranteed. These loans have more favorable terms but also carry more stringent requirements (such as higher FICO requirements) |
| Debt-to-Income Ratio (DTI) | The maximum percentage of your gross monthly income that can be spent on the mortgage payment and all other debts. |
| Deed | A legal document that formally transfers ownership of property from the seller to you. |
| Down Payment | The amount you pay for your home which is not financed with the mortgage loan (20% or more to avoid PMI) |
| Earnest Money Deposit | A deposit made at the time of the purchase agreement to demonstrate to the seller that you |
| Equity | The amount of ownership you have in your home. It |
| Escrow Account | A special account used to hold monthly payments toward annual property taxes, homeowner insurance, and, if applicable, mortgage insurance. |
| FHA Loan (Federal Housing Administration) | A government insured loan that features flexible credit standards and a low minimum down payment comes with a mortgage insurance premium (MIP). |
