Key Mortgage Terms
As if mortgages weren’t confusing enough, there are all sorts of big words and vernacular that we don’t use in day-to-day life. To help clarify some of these terms we have created this mini mortgage glossary. If you come across a term you don’t see in this glossary, give us a call. We would be more than happy to assist.
Adjustable Rate Mortgage – A loan in which the interest rate changes/adjusts over its lifetime.
Amortization – the process through which an obligation is paid off gradually with periodic payments of principal and interest.
Annual Percentage Rate (APR) – a reflection of the effective interest rate when accounting for all of the fees associated with the loan (Origination, Escrow, etc.).
Appraisal – A report completed by a certified appraiser using property inspection and comparative market analysis to determine a property’s value. (This is a necessary part of underwriting.)
Balloon Payment – A lump sum payment due at a certain period during the life of the loan (typically at the end).
Closing Costs – Processing fees the buyer and seller pay to service providers when you close on your loan.
Closing Disclosure – a five-page form that provides final loan terms and closing cost details about the mortgage loan you have selected.
Credit Report – This is a report which is generated to display an individual’s creditworthiness based on current and past borrowing history. The report contains both overall scores ranging from 350-850 and their current debt obligations and open credit lines.
Debt To Income (DTI) – Generally outlined as a ratio/percentage, this is the total amount of monthly debt payments divided by the monthly income he or she receives.
Declarations – Several statements the borrower must attest to when applying for a mortgage.
Deed – the legal document that is used to convey ownership, or title, of a property.
Discount Points – Fees that the client pays to secure a lower-than-market interest rate.
Down Payment – An initial amount of money that the borrower pays upfront when buying something on credit.
Earnest Money Deposit (EMD) – Funds that a buyer puts into escrow ahead of closing to show they are serious about completing the transaction. This money can become forfeited if the buyer does not perform to the agreed-upon times in the contract.
Escrow – a neutral third party that holds assets or funds before they are transferred from one party to another.
Fixed Rate Mortgage – A loan in which the interest rate does not change over its lifetime.
Homeowners Association Dues (HOA Dues) – An additional homeowner obligation required on certain properties which are collected and managed by a 3rd party company.
Home Equity – The market value of your home subtracted by all the liens against the property.
Impound Account – An elective account that can be set up where your property taxes and homeowners Insurance are paid alongside your monthly mortgage payment.
Interest – The amount of money the lender collects for lending the borrower funds.
Interest Rate – The percentage you pay to borrow money from a lender. This rate can be fixed(same through the duration of the loan) or variable(can change depending on the market).
Loan Contingency – Clause in the RPA that allows buyers to cancel the contract without penalty and receive a refund of their earnest money deposit if they are unable to secure a loan/mortgage.
Loan Estimate – Overview of important loan terms and costs associated with the transactions.
Loan To Value (LTV) – Outlined as a percentage, this is the loan amount divided by the value of the property.
Mortgage Insurance – Insurance that protects the lender against default on home loans. Typically, this insurance is needed on purchases with less than 20% in down payment.
Pre-Approval – Evidence that an individual will qualify for a mortgage based on a credit report and supporting documentation provided by the applicant.
Prepayment Penalty – A fee the lender charges should a loan be paid off early by the borrower.
Pre-Qualification – Expectation that an individual will qualify for a mortgage based on a lender’s initial conversation with the applicant where the applicant discloses their general financial circumstances.
Principal – The outstanding amount of money borrowed at any point during a loan’s lifetime.
Property Taxes – A tax the government and local municipalities levy on homeowners.
Recasting – Resetting the outstanding principal balance on a loan through a large lump sum payment.
Residential Purchase Agreement (RPA) – The standard contract form that Realtors generally utilize to outline all the details of a purchase/sale transaction.
Title – refers to the ownership of the property and includes the right to use and sell the property.
Underwriting – The stage in which the lender verifies income, assets, debt, and property details using documentation to determine the client’s creditworthiness and decide if the loan will be approved for funding.
At Bluefire Mortgage Group, we are here to answer any questions you may have about home financing. Feel free to contact us at (760) 930-0569 and one of our loan advisors will be happy to assist you.