Mortgage Terms & Definitions
01/05/2023
The home-buying and building process can be an overwhelming so knowing the jargon and terminology will give you a leg up. We’ve compiled a list of terms that you’ll hear throughout your entire journey to home ownership.
- Amortization
- The process of how payments spread out over time. When you make a payment on your mortgage, a percentage of your payment goes toward interest and a percentage goes toward your loan principal.
- The process of how payments spread out over time. When you make a payment on your mortgage, a percentage of your payment goes toward interest and a percentage goes toward your loan principal.
- Annual Percentage Rate (APR)
- The interest rate paid on a loan annually plus any additional lender fees. APR is usually expressed as a percentage.
- The interest rate paid on a loan annually plus any additional lender fees. APR is usually expressed as a percentage.
- Appraisal
- A rough estimate of how much a home is worth. Mortgage lenders require an appraisal before you sign on a home loan. The appraisal assures the lender they aren’t loaning you more than what your home is worth.
- A rough estimate of how much a home is worth. Mortgage lenders require an appraisal before you sign on a home loan. The appraisal assures the lender they aren’t loaning you more than what your home is worth.
- Basis points (BPS or ‘bips’)
- A standard measure for interest rates and other percentages in finance. A single basis point equals 1/100th of 1 percentage point (100 basis points would add up to 1%).
- A standard measure for interest rates and other percentages in finance. A single basis point equals 1/100th of 1 percentage point (100 basis points would add up to 1%).
- Closing
- The last step in buying and financing a home. All parties in a mortgage loan transaction sign the necessary documents. After signing these documents, a borrower becomes responsible for the mortgage loan.
- The last step in buying and financing a home. All parties in a mortgage loan transaction sign the necessary documents. After signing these documents, a borrower becomes responsible for the mortgage loan.
- Closing costs
- Settlement costs and fees paid to a lender in exchange for finalizing your loan. Common closing costs include appraisal fees and loan origination fees.
- Settlement costs and fees paid to a lender in exchange for finalizing your loan. Common closing costs include appraisal fees and loan origination fees.
- Conventional mortgage
- Any mortgage loan that is not insured or guaranteed by the government.
- Any mortgage loan that is not insured or guaranteed by the government.
- Construction permanent loan
- This type of construction loan combines the approval process of a construction loan and a permanent mortgage. It normally consolidates the costs of these loans into one transaction and sets rules to follow to make sure that from construction to permanent, financing remains one transaction.
- This type of construction loan combines the approval process of a construction loan and a permanent mortgage. It normally consolidates the costs of these loans into one transaction and sets rules to follow to make sure that from construction to permanent, financing remains one transaction.
- Debt-to-income ratio (DTI)
- A measure of the relationship of your monthly debt to your monthly earnings before taxes.
- A measure of the relationship of your monthly debt to your monthly earnings before taxes.
- Deed
- The physical document you receive during the closing that proves you own your home.
- The physical document you receive during the closing that proves you own your home.
- Down Payment
- The upfront payment made towards a loan.
- Escrow account
- The account where a lender holds money for property taxes, mortgage insurance, or homeowners’ insurance.
- The account where a lender holds money for property taxes, mortgage insurance, or homeowners’ insurance.
- FHA loan
- A mortgage type insured by the Federal Housing Administration (FHA) that allows more lenient borrowing guidelines than conventional loans.
- A mortgage type insured by the Federal Housing Administration (FHA) that allows more lenient borrowing guidelines than conventional loans.
- Fixed-rate mortgage
- A mortgage that has the same interest rate throughout the term of the loan.
- A mortgage that has the same interest rate throughout the term of the loan.
- Listing agent
- A real estate professional who represents the home seller in a real estate transaction.
- A real estate professional who represents the home seller in a real estate transaction.
- Mortgage lender
- A company such as a bank or credit union that processes, underwrites, and funds a home loan.
- A company such as a bank or credit union that processes, underwrites, and funds a home loan.
- Multiple Listing Service (MLS)
- Privately owned databases that allow real estate professionals to share information with each other about properties for sale.
- Privately owned databases that allow real estate professionals to share information with each other about properties for sale.
- National Multistate Licensing System (NMLS)
- A centralized online database that is used by mortgage and finance regulatory agencies to maintain state licensing programs. A NMLS Unique Identifier is the number permanently assigned for a company, branch, and individual that maintains a NMLS account.
- A centralized online database that is used by mortgage and finance regulatory agencies to maintain state licensing programs. A NMLS Unique Identifier is the number permanently assigned for a company, branch, and individual that maintains a NMLS account.
- Origination fee
- A fee or group of fees paid to a lender for processing and funding a mortgage.
- A fee or group of fees paid to a lender for processing and funding a mortgage.
- Pre-approval
- An assessment of what a mortgage lender might lend you based on a preliminary review of your credit, debt, income, and assets available for a down payment.
- An assessment of what a mortgage lender might lend you based on a preliminary review of your credit, debt, income, and assets available for a down payment.
- Refinancing
- Replacing an existing mortgage with a new mortgage that has more beneficial terms.
- Replacing an existing mortgage with a new mortgage that has more beneficial terms.
- Underwriting
- What happens behind the scenes once a mortgage application is submitted. The process a lender uses to take an in-depth look at credit and financial background to determine if someone is eligible for a loan.
- What happens behind the scenes once a mortgage application is submitted. The process a lender uses to take an in-depth look at credit and financial background to determine if someone is eligible for a loan.
- USDA loan
- A loan program backed and guaranteed by the U.S. Department of Agriculture (USDA) that helps low-to-moderate homebuyers finance homes in designated rural areas of the country.
- A loan program backed and guaranteed by the U.S. Department of Agriculture (USDA) that helps low-to-moderate homebuyers finance homes in designated rural areas of the country.
- VA loan
- A mortgage backed and guaranteed by the U.S. Department of Veterans Affairs (VA) for active duty servicemembers, veterans, and eligible spouses.