If you are new to the home buying process or need to brush up on the key mortgage terms used in the space, take a look at the glossary of words below. We hope this helps you in your home buying journey.
Amortization Period:
The length of time it will take the borrower to completely repay the mortgage loan. The shorter the amortization period, the lower the interest rate.
Ex: 15 years or 30 years. Read more here.
Annual Percentage Rate (APR):
The is a more comprehensive measure of the total cost of your mortgage which includes other fees and charges. Read more here
Closing Costs:
The cost to either the seller or the buyer of transferring the title of a home from the seller to the buyer. Read more here.
Closing Disclosure:
A five-page form that finalizes details of a mortgage loan issued by the lender to the borrower at least three days before closing a mortgage loan. Read more here
Credit Score:
A number between 300 and 850 associated with a borrower’s credit history used by the lender to determine the ability of the borrower to pay back the loan. Read more here
Debt to Income Ratio (DTI):
A personal financial measurement used by banks that compares an individual’s monthly debts to their monthly income. Bank are more likely to approve you for a loan if you have a lower DTI ratio. Read more here
Discount Points:
Also known as mortgage points, fees paid at closing of your mortgage for a lower interest rate. Read more here
Down Payment:
The difference between the home price and the mortgage amount the home buyer pays the home seller for the closing to occur. Read more here
Escrow:
A process used to regulate payments between two parties. A trusted third party holds the transaction amount until all terms of the agreement are met by both parties, then releases the payment amount to the seller. Read more here
Foreclosure:
The process of a lender taking ownership of a property if the borrower of a mortgage fails to keep up with their monthly mortgage payments. Read more here
Homeowner Association (HOA) Fees:
A neighborhood property fee to help the community maintain and improve common grounds such as playgrounds, swimming pools, tennis courts, etc. Read more here
Interest Rate:
A percentage of the borrowed amount or principal charged by a lender for the borrower to use the lender’s money. This is the primary cost of your mortgage. Read more here
Lender Credits:
Amounts that decrease the upfront costs of your mortgage but likely result in a higher interest rate. Read more here
Loan Estimate:
A three-page form you receive from a lender after applying for a mortgage that details important information such as estimated interest rate, monthly payment, total closing costs of the loan, etc. Read more here
Loan Officer:
A representative of a financial institution who helps borrowers acquire a loan. They are the borrower’s primary contact with the bank. These representatives may also have different titles such as mortgage broker or mortgage consultant. Read more here
Mortgage:
A loan secured by the collateral of a property for a financial institution to lend money to a home buyer. Read more here
Mortgage Insurance:
An insurance policy paid by borrowers with low down payments to offset the increased default (non-payment) risk associated with low down payment mortgages. Read more here
Mortgage Payment:
The monthly payment to the lender which repays the principal and pays the lender interest. Read more here
Mortgage Term:
The length of time your mortgage loan has legal effect. After this time has expired, the borrower must either renew the mortgage, pay off the balance, or renegotiate the terms.
Origination Fees:
A fee charged by the lender paid at closing. Read more here.
Property taxes:
A real estate tax based on the value of the property, levied by local governing authorities. Read more here
Real Estate Agent:
A licensed professional seeking a home buyers best interest in the home buying process. Generally, a real estate agent earns a commission equal to a percentage of the home purchase price.
Refinance:
Going through the loan process again for a new loan or a lower interest rate on an existing loan.
We know home buying has some complicated key mortgage terms, so we hope this helped. Let us know if you have any other questions. If you want to learn more, you can read some of our articles.