Mortgage Terminology

Buying a house is already confusing enough, right? And then you start talking to your Realtor, loan officer, title agent, lawyers, insurance agents and more.
The terminology they use when communicating with you can be baffling, especially for first-time homebuyers.

To help you better understand what everyone is talking about we put together a list of the most frequently used terminology with easily understood explanations.

Amortization

Amortization is the payment of a debt in equal installments of principal and interest.

Appreciation

Appreciation is the increase in value or price of a property over time.

Assessment

A tax or charge levied against a property by the government, typically to pay for local improvements, e.g., sidewalks, curbs, or sewers.

Buydown

Funds paid to the lender by the borrower or third party for the purpose of reducing the interest rate of the loan for a specified period of time.

Credit Score

A credit score is a number between 350 and 850 that is based on your debts and likelihood of repaying them on time. The lender uses your credit score to determine the interest rate on your loan

Debt-to-income ratio

A debt-to-income ratio is the comparison of a borrower’s monthly debt payments to the borrower’s monthly gross income, and it ultimately helps to determine the final loan amount.

Discount points

Discount points represent the fee associated with the note rate for your loan. One point equals one percent of the loan amount. For example, one point on a $100,000 loan would equal $1,000.

Down payment

A down payment is the portion of the purchase price that a buyer pays in cash at the beginning of the loan.

Earnest money

Earnest money is a deposit given by the buyer to the seller with the buyer’s offer to purchase the seller’s property.

Equity

The difference between the current market value of a property and the principal balance of all outstanding loans.

Float

Between application and closing, a borrower may choose to “play the market” by electing to float the interest rate. Floating is essentially choosing not to lock the interest rate. Since it is the borrower’s responsibility to lock his or her rate before closing, choosing to float is considered risky and may result in a higher interest rate.

Loan Estimate (LE)

An estimate of charges that a borrower is likely to incur in connection with the loan.

Loan to value ratio

Loan-to-value (LTV) is a ratio that divides the home loan value into the property value. For example, if your home is worth $100,000 and you owe $60,000, then your loan-to-value ratio is 100,000 divided by 60,000, or 60 percent.

Mortgage insurance

Mortgage insurance is written by a private mortgage insurance company to protect the mortgage lender against loss due to default or foreclosure.

Origination Fee

The fee imposed by a lender to cover processing expenses in connection with lending money.

PITI

PITI is an acronym for the principal, interest, taxes, and insurance that make up your monthly payment.

Prequalification

The process of establishing a borrower’s qualification for a loan of a particular amount based on income and expenses. Pre – qualification does not guarantee that the loan will be approved.

Principal

Principal is the sum of money outstanding on your loan upon which interest is payable.

Title Search

An examination of city, town, or county records to determine the legal ownership of real estate.

Underwriting

Underwriting is the analysis of risk involved in making a mortgage loan to determine whether the risk is acceptable to the lender. It involves evaluating the borrower’s ability to repay the loan.