Amortization

Repayment of a home loan through monthly payments of principal and interest that are calculated to payoff your loan at the end of a fixed period of time.

Annual Percentage Rate (APR)

The total cost of obtaining a loan including interest, discount points and loan fees, stated as a percentage and expressed as an annual rate.

Appraisal
A report prepared for the benefit of the lender that gives an opinion of the fair market value of the property.

Balloon
A loan with monthly installments of principal and interest that do not fully amortize the loan. The balance of the loan is due in a lump sum at a specified date.

Bridge Loan

Short-term loan to provide temporary financing until more permanent financing is available.

Closing Costs

Expenses incurred to close on a home loan, including origination fee, discount points, title insurance, survey fees, and attorney fees, and pre-paid items, such as tax and insurance escrow payments.

Collateral
Property owned by a borrower that is pledged to a lender in order to secure a loan. Assets pledged to secure the repayment of a loan.

Construction Loan
A short-term, interim loan for financing the cost of construction. The lender advances funds periodically as work progresses.

Construction-Perm Loan
A loan that "rolls over" into an adjustable rate mortgage. This allows for only one closing, and one set of closing costs.

Conventional 15 or 30-Year Fixed Rate
The interest rate is the same for the entire 15 or 30 year home loan term. The term "conventional" means this home loan is not an FHA insured or VA guaranteed home loan program.

Credit Report
A report detailing a borrower's credit history and current credit status.

Debt-to-Income Ratio

Ratio commonly used to determined qualification for a home loan. Compares total monthly obligations plus your home loan payments with your total monthly gross income.

Default

A failure to discharge a duty. The term is most often used to describe the occurrence of an event that cuts short the rights or remedies of one of the parties to an agreement or legal dispute, for example, the failure of the mortgagor to pay a mortgage installment, or to comply with mortgage covenants. Failure to repay a loan according to the terms of the promissory note.

Delinquent

In a monetary context, something that has been made payable and is overdue and unpaid.

Down Payment
The part of the purchase price of a home that the buyer pays in cash. The purchase price minus the down payment equals the loan amount, exclusive of closing costs.

Earnest Money
The money given to the buyer's or the seller's agent to show the buyer is serious about purchasing the home. It will be applied against the down payment. Unless expressly stated otherwise, the earnest money may be forfeited if the sale does not go through.

Equity

The value of property in an organization greater than total debt held on it. Equity investments typically take the form of an owner's share in the business, and often, a share in the return, or profits. Equity investments carry greater risk than debt, but the potential for greater return should balance the risk. The difference between the market value of a property and the balance owed on that property's home loans.

Escrow
The process by which money and/or documents are held by a disinterested third party until the requirements of the escrow have been met. When the requirements have been met, the money and/or documents are turned over.

FHLMC (Federal Home Loan Mortgage Corporation)
Referred to as Freddie Mac, this governmental agency purchases conventional mortgages from insured depository institutions and HUD-approved mortgage lenders.

Fixed Rate Mortgage
A loan in which the interest rate remains the same for the entire term of the loan.

FNMA (Federal National Mortgage Association)
Also known as Fannie Mae; a tax-paying corporation created by Congress to purchase and sell conventional residential mortgages, as well as FHA-insured and VA-guaranteed mortgages.

Good Faith Estimate (GFE)
A document prepared by the lender that tells borrowers the estimated cost they will pay at or before closing. The lender must mail the GFE to the applicant within three business days after the application is received.

Gross Monthly Income
The total amount a borrower earns per month before any taxes or expenses are deducted.

Hazard Insurance

Insurance that compensates the insured for loss on property because of physical damage by fire, wind, or other natural disaster.

Line of Credit

Agreement by a bank that a company may borrow at any time up to an established limit.

Linked Deposit

A deposit in an account with a financial institution to induce that institution's support for one or more projects. By accruing no interest or low interest on its deposit, a foundation essentially subsidizes the interest rate of the project borrowers.

Loan

Money borrowed that must be repaid.

Loan Agreement

A written contract between a lender and a borrower that sets out the rights and obligations of each party regarding a specified loan.

Loan fee

An expense of borrowing deducted proportionately from each loan disbursement.

Loan-to-Value Ratio
The relationship between the amount of your mortgage loan and the appraised value of the property, expressed as a percentage.

Lock-In
An option available that guarantees both your interest rate and discount points. Rate and points will be set whether the market rate goes up or down.

Monthly Housing Payment
The total monthly payment amount involved in paying back a home loan: principal, interest, taxes, hazard insurance, mortgage insurance, and assessments.

Mortgage

A pledge of real estate as security for the repayment of a loan.

Mortgage Insurance (MI)

An insurance policy that insures a lender against a loss if a borrower defaults on his or her loan payments.

Mortgage Insurer
A mortgage insurance company that insures a lender against loss if borrowers default on their loan payments.

Mortgage Note
A promise issued in writing stating that money borrowed for the purchase of a home loan will be repaid at a specific interest rate over a given period of time.

Mortgagee

The lender in a home loan transaction.

Mortgagor

The borrower in a home loan transaction.

Origination Fee
The amount charged by a lender to a borrower for processing, underwriting and completing home loan documents, and distributing loan proceeds.

PITI (Principal, Interest, Taxes, Insurance)
An abbreviation used to indicate your monthly payment.

Point (Discount Point)
A one time charge, charged in lieu of interest, equal to 1% of the principal amount of a home loan.

Preapproval

A process where a lender certifies that a potential borrower has been approved for a certain amount of PITI.

Prepayment Penalties
Some lenders may require the customer to pay special fees or penalties if the loan is paid off early.

Prequalifying
A screening process that estimates the amount of financing a potential borrower might qualify to receive.

Principal balance

The amount owed on a loan or loans at any given time. The principal balance may include capitalized interest.

Private Mortgage Insurance
An insurance policy written by a private company that insures a lender against certain losses if a borrower defaults on his or her loan payments.

Promissory Note

Promise to pay. Written contract between a borrower and a lender that is signed by the borrower and provides evidence of the borrower's indebtedness to the lender. A legally binding contract between a lender and a borrower. The promissory note contains the terms and conditions of the loan, including how and when the loan must be repaid.

Realtor®
A registered trademark of the National Association of Realtors that refers to a real estate agent who is a member of, or is affiliated with, the National Association of Realtors®.

Senior Debt

Debt that must be repaid before subordinated debt receives any payment in the event of default.

Servicing
The procedures related to the collection of home loan payments and the management of escrow accounts.

Subordinated Debt (Junior Debt)

Debt over which senior debt takes priority. In the event of bankruptcy, subordinated debt-holders receive payment only after senior debt is paid in full. A subordination of security interest in property allows another creditor to have the rights to the proceeds of the sale of that property before the claim of the subordinated creditor.

Term

Refers to the maturity or length of time until final repayment on a loan, bond, sale or other contractual obligation.

Title

Evidence of the right to, or ownership of, property.

Title Insurance
A type of insurance that insures against loss brought on by defects in title to real estate.

Title Search
A search of public records to uncover the facts relating to the ownership of real estate.

Truth-in-Lending Act (TIL)

A federal law that requires lenders to disclose, in writing, certain credit terms and conditions of a home loan to the customer.

Underwriting
The process of analyzing information such as a borrower's ability to repay a home loan, the acceptability of the property as security, and the loan rate and term to determine the risk of lending money.