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Glossary of Terms
Any venture as important as buying a home should start with the right foundation. Knowing the language and terms used by bankers and mortgage companies is one of the first and most important steps to coming out on top. The terms listed on this page are the most important to know, our list of terms has been written to reflect the most current definitions used.
Amenity: a feature of the home or property which serves as a benefit to the buyer but that is not necessary to its use.Amortization: The repayment of a mortgage loan through monthly installments of principal and interest.
Annual Percentage Rate (APR): the APR shows the cost of a loan by calculating it using a standard formula.
Application: This is the first step in the official loan approval process; it is used to record important information about the potential borrower necessary to the underwriting process.
Appraisal: a document that gives an estimate of a property's fair market value.
Appraiser: a qualified individual who uses his experience and knowledge to prepare the appraisal estimate.
ARM: Adjustable Rate Mortgage; a mortgage loan subject to changes in interest rates.
Balloon Mortgage: a mortgage that typically offers low rates for an initial period of time (usually 5, 7, or 10) years. After this time period elapses, the balance is then due or is refinanced by the borrower.
Borrower: a person who has been approved to receive a loan and is obligated to repay it and any additional fees according to the terms.
Budget: a detailed record of all income earned and spent during a specific period of time.
Cap: a limit on how much a monthly payment or interest rate can increase or decrease.
Closing: this is the time at which the property is formally sold and transferred from the seller to the buyer.
Closing costs: customary costs above and beyond the sale price of the property that must be paid to cover the transfer of ownership at closing.
Commission: an amount that is collected by a real estate professional as a fee for negotiating the transaction..
Conventional loan: a private sector loan, one that is not guaranteed or insured by the U.S. government.
Credit history: history of an individual's debt payment.
Credit report: a record that lists all past and present debts and the timeliness of their repayment.
Credit bureau score: a number representing the possibility a borrower may default.
Deed: the document that transfers ownership of a property.
Default: the inability to pay monthly mortgage payments in a timely manner or to otherwise meet the mortgage terms.
Delinquency: failure of a borrower to make timely mortgage payments under a loan agreement.
Down payment: the portion of a home's purchase price that is paid in cash and is not part of the mortgage loan.
Earnest money: money put down by a potential buyer to show that he or she is serious about purchasing the home; it becomes part of the down payment if the offer is accepted, it is returned if the offer is rejected, or is forfeited if the buyer pulls out of the deal.
Equity: an owner's financial interest in a property; calculated by subtracting the amount still owed on the mortgage loon(s)from the fair market value of the property.
Fair Housing Act: a law that prohibits discrimination in all facets of the homebuying process on the basis of race, color, national origin, religion, sex, familial status, or disability.
Fair market value: the hypothetical price that a willing buyer and seller will agree upon when they are acting freely, carefully, and with complete knowledge of the situation.
Fixed-rate mortgage: a mortgage with payments that remain the same throughout the life of the loan because the interest rate and other terms are fixed and do not change.
Foreclosure: a legal process in which mortgaged property is sold to pay the loan of the defaulting borrower.
Home inspection: an examination of the structure and mechanical systems to determine a home's safety; makes the potential homebuyer aware of any repairs that may be needed.
Home warranty: offers protection for mechanical systems and attached appliances against unexpected repairs not covered by homeowner's insurance; ,overage extends over a specific time period and does not cover the home's structure.
Inflation: the number of dollars in circulation exceeds the amount of goods and services available for purchase; inflation results in a decrease in the dollar's value.
Interest: a fee charged for the use of money .
Interest rate: the amount of interest charged on a monthly loan payment; usually expressed as a percentage.
Lease purchase: assists low- to moderate-income homebuyers in purchasing a home by allowing them to lease a home with an option to buy; the rent payment is made up of the monthly rental payment plus an additional amount that is credited to an account for use as a down payment.
Lien: a legal claim against property that must be satisfied When the property is sold
Loan: money borrowed that is usually repaid with interest.
Loan-to-value (LTV) ratio: a percentage calculated by dividing the amount borrowed by the price or appraised value of the home to be purchased; the higher the LTV, the less cash a borrower is required to pay as down payment.
Margin: an amount the lender adds to an index to determine the interest rate on an adjustable rate mortgage.
Mortgage: a lien on the property that secures the Promise to repay a loan.
Mortgage banker: a company that originates loans and resells them to secondary mortgage lenders like :Fannie Mae or Freddie Mac.
Mortgage broker: a firm that originates and processes loans for a number of lenders.
Offer: indication by a potential buyer of a willingness to purchase a home at a specific price; generally put forth in writing.
Origination: the process of preparing, submitting, and evaluating a loan application; generally includes a credit check, verification of employment, and a property appraisal.
Origination fee: the charge for originating a loan; is usually calculated in the form of points and paid at closing.
Pre-approve: lender commits to lend to a potential borrower; commitment remains as long as the borrower still meets the qualification requirements at the time of purchase.
Pre-qualify: a lender informally determines the maximum amount an individual is eligible to borrow.
Principal: the amount borrowed from a lender; doesn't include interest or additional fees.
Real estate agent: an individual who is licensed to negotiate and arrange real estate sales; works for a real estate broker.
REALTOR: a real estate agent or broker who is a member of the NATIONAL ASSOCIATION OF REALTORS, and its local and state associations.
Refinancing: paying off one loan by obtaining another; refinancing is generally done to secure better loan terms (like a lower interest rate).
Settlement: another name for closing .
