A guide to some of the common terminology and acronyms used in the mortgage process.
Adjustable Rate Mortgage (ARM): A mortgage in which the interest rate adjusts periodically based on movements in an index, such as the one year treasury rate.
ALTA Title Insurance: A title insurance policy that insures the mortgage against any future claims to title.
Annual Percentage Rate (APR): An overall interest rate based on all costs involved with the loan, such as lender fees, points, and mortgage insurance.
Appraisal: An estimate of the property value, generally based on comparable sales.
As-Built Survey: A drawing of the property and all structures, improvements, easements, and other features.
Cash Out Refinance: A refinance in which the borrower obtains more than a small amount of funds back at closing.
Closing: A meeting between borrower and the settlement agent (generally a title company), where final loan documents are signed and monies disbursed.
Closing Costs: Charges from the lender, title company, insurance company, recorder's office, and others to provide services that facilitate the mortgage.
Closing Disclosure (CD): Standardized document that spells out all costs, monthly payment, and other information about the final terms of the loan.
Condominium: A property owned as a group, with common grounds.
Credit Score: A numerical score given to an individual that helps determine credit worthiness. These come from Trans Union, Equifax, and Experian.
Debt Ratio: Monthly obligations divided by gross monthly income.
Deed: Legal document that conveys title to a property.
Deed of Trust: Legal document that pledges real property to secure a mortgage.
Discount Points (Points): Additional money paid at closing to purchase a better interest rate.
Down Payment: Funds paid up front to make up the difference between the purchase price and the mortgage amount.
Earnest Money: Funds given by a buyer as part of a purchase agreement to bind the transaction or assure payment.
Easement: An interest in property, owned by someone other than the person in title, which grants specific limited use or privilege.
Equity: The difference between market value and current indebtedness.
Escrow Officer: Neutral third party, typically a title company, which facilitates the closing.
Escrow Account: Funds held by the lender to pay for repairs after closing, or for recurring expenses such as property taxes and insurance.
Fannie Mae (FNMA) / Freddie Mac (FHLMC): Quasi-government agencies that set guidelines for and invest in conventional mortgages.
Federal Housing Authority (FHA): The division of the Department of Housing and Urban Development that sets guidelines for and insures FHA mortgages.
Fixed Rate Mortgage: A mortgage with a set interest rate for the entire term of the loan.
Flood Insurance: Mandatory insurance for some homes that are built in a designated flood zone.
Gift Funds: Money given to the borrower by someone else to pay for down payment or closing costs.
Hazard Insurance: Also known as homeowner's insurance, a policy that protects the property from specific losses such as fire or windstorms.
Home Inspection: An inspection of the property's physical condition.
Investment Property: Property owned for the purpose of income, not as a primary residence.
Loan Estimate: Standardized document that spells out all costs, monthly payment, and other information about the proposed loan.
Mortgage Insurance: Money paid to insure the loan against loss, typically required on any loan with less than 20% down payment. Also known as Mortgage Insurance Premium (MIP) or Private Mortgage Insurance (PMI).
Multi-Unit: A property with more than one living unit, such as a duplex, triplex, or fourplex.
Owner's Title Insurance: A title insurance policy that insures the new property owner against any future claims to title.
Power of Attorney: A legal document that gives one person authority to act on another's behalf.
Preapproval: A stage of qualifying where the borrower's income, assets, and credit have been approved by an underwriter.
Preliminary Title Report (Prelim): The title report generated at the beginning of the transaction process.
Prepaids: Interest, taxes, and insurance paid up front.
Prequalification: A stage of qualifying where the loan originator has reviewed the borrower's credit, assets, and income.
Prequalification Letter: A letter written by a loan originator that documents review of credit, assets, and income -- and the originator's determination that the buyer qualifes for the loan.
Primary Residence: The borrower's home that they occupy as their principal place of residence.
PITI: Principal, interest, taxes, and insurance -- the complete monthly payment on a mortgage.
Processor (Loan Processor): The individual who packages the loan presented by the loan originator for submission to the underwriter, confirming details and verifying numbers.
Purchase and Sale Agreement (Purchase Contract): The agreement made between buyer and seller of a property, containing the details of the sale.
Rate and Term Refinance: A refinance with the purpose of lowering interest rate, loan term, or monthly payments.
Quit Claim Deed: A legal document that transfers any interest or claim to a property from one party to another party. This transfer does not give any warranty as title is passed.
Rate Lock: Securing the interest rate on the mortgage for a specific length of time.
Reserves: Funds left over in depository accounts after closing.
Second Home: Vacation property which is not used as investment property.
Servicer: The entity (usually a bank) which collects payments and manages the escrow account for a closed mortgage.
Underwriter: The individual who reviews the loan file and confirms that all aspects meet investor requirements.
Veteran's Administration (VA): The government entity which sets guidelines for and insures VA mortgages.
VA Funding Fee: The fee charged by the Veteran's Adminstration for usage of the VA loan benefit.
Verification: A form, usually written, used to confirm numbers on employment, rent, or bank balances.
Warranty Deed: A legal document that transfers any interest or claim to a property from one party to another party. The original owner warrants that they hold clear title and the right to transfer the title.
Well / Septic Testing: Tests done to confirm the adequacy of private water and/or sewage systems.
Zoning: The type of use allowed on a property, established by the local governing authority.
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