Adjustable Rate Mortgage (ARM)

A mortgage in which the interest rate is adjusted periodically according to a pre-selected index.
 

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.
 

Buydown

Money advanced by an individual (builder, seller, etc.) to reduce monthly payments for a home mortgage either during the entire term or for an initial period of years.
 

Closing

The last step in the loan process where documents are signed.
 

Closing Costs

These are fees associated with finalizing the purchasing of a property that are not included in the original purchased price. Purchased prices typically include origination fees, discount points, appraisal fee, title insurance, legal fees, real estate fees, prepayment of taxes and insurance, and real estate transfer taxes.
 

Collateral

Property pledged as security for a debt, such as the real estate pledged as security for a mortgage.
 

Conforming Loan

Conventional home mortgages eligible for sale and delivery to either the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac). These agencies generally purchase first mortgages up to loan amounts mandated by Congressional directive.
 

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.
 

Debt-to-Income Ratio

The ratio of your liabilities (monthly bills and living expenses) divided by 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 money paid by the borrower for the use of the money lent.
 

Home Inspection

A limited, non-invasive 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.
 

Loan to Value Ratio

The ratio between the amount of a given mortgage loan and the lower of sales price or appraised value.
 

Market Value

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

Non-Conforming Loan

Loans not eligible for sale to Fannie Mae or Freddie Mac due to various reasons including loan amount, credit outside normal underwriting guidelines.
 

Origination Fee

A fee charged for the processing of the application and documentation of the loan.
 

Points

Points, also known as “discount points,” are fees paid directly to the lender at closing in exchange for a reduced interest rate. This is also called “buying down the rate,” which can, in turn, lower your monthly mortgage payments. A point is equal to 1% of your mortgage amount (or $1,000 for every $100,000).
 

Pre-qualification

The process through which a lender evaluates the credit of a potential borrower 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. This insurance can be removed once your loan balance reaches 80% of the home’s value at the request of the borrower.
 

Refinance

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

Servicing

Loan servicing refers to the administrative aspects of a loan from the time the proceeds are dispersed to the borrower until the loan is paid off. Loan servicing includes sending monthly payment statements, collecting monthly payments, maintaining records of payments and balances, collecting and paying taxes and insurance (and managing escrow funds), remitting funds to the note holder, and following up any delinquencies.
 

Title

A title is the legal way of saying you own a right to something. For real estate purposes, the title refers to ownership of the property, meaning that you have the rights to use that 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 show any existing liens against subject property that need to be paid off during closing.
 

Underwriting

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

Warranty Deed

A deed is the legal document that transfers title from one person to another.