Appraisal: a licensed appraiser comes to the property and inspects it for an unbiased professional opinion of the fair market value.
APR (Annual Percentage Rate): the truest cost of a home loan. Per the Truth in Lending Act, all mortgage lenders must disclose their APR. In the mortgage industry, APR may include fees such as documentation fees, private mortgage insurance and more.
ARM (Adjustable-Rate Mortgage): a type of mortgage loan characterized by interest rates that automatically adjust or fluctuate in concert with certain market indexes. Generally, an ARM begins with an introductory or initial interest rate, which then may rise or fall, but monthly payments may or may not exceed the arm loan cap.
Closing costs: real estate transaction-related fees payable by the buyer and seller at closing.
Closing Disclosure: a five-page document provided by the Lender or Settlement/Escrow Agent delivered to the home buyer 3 days before Closing.
Conforming loan: a conventional loan characterized by loan limits that fall within those guidelines laid out by the Government Sponsored Enterprises (GSEs) such as Freddie Mac and Fannie Mae.
Construction loan: a short-term loan for new home construction that is supplanted with a conventional long-term home loan. See combination loan.
Combination loan: a transaction consisting of two separate loans for the same borrower by the same lender. The initial loan is used to finance the construction of a new home; upon completion of construction, the loan is repaid by a second loan, which is a permanent mortgage on the home.
Conventional mortgage: a mortgage offered by any one of the Government Sponsored Enterprises, different from an FHA and VA loan.
(DTI) Debt-To-Income: the calculation of your cumulative debt divided by your income.
Escrow account: a separate account held by a mortgage lender out of which required property bills, separate from the loan payment, are made. Property taxes and insurance are examples of costs paid out of escrow. Sometimes called an “impound account.”
FHA loan: loans extended by FHA-approved lenders and insured by the Federal Housing Administration (FHA)- designed to assist borrowers unable (for various reasons) to get the approval necessary for conventional home loans.
Fixed rate mortgage: a mortgage that has an interest rate that never changes over the life of the loan.
Homeowner’s insurance: protects the value of the home for both lender and borrower. Homeowner’s insurance typically covers damage incurred to the home. Most mortgage lenders require borrowers to carry a form of insurance.
Loan Commitment: document issued by the lender once the loan has been approved.
Loan Estimate: an itemized list of anticipated loan costs and closing fees passed from a lender to a potential borrower within three days of an application for a home loan.
Origination fee: a fee, calculated as a small percentage of the loan amount, charged by a mortgage lender for processing the work associated with your loan. This fee is similar to the fee that a realtor charges for selling your home.
Pre-approval: the process in which a home buyer works with a lender to determine how much home he or she can afford.
Rate Lock: a short-term agreement by a lender to “hold” a certain interest rate on a mortgage while the buyer negotiates a sale transaction during the mortgage process.
VA Loan: a VA loan is a mortgage loan guaranteed by the US Department of Veteran Affairs (VA). The VA Loan was designed to offer long-term financing to eligible American veterans or their surviving spouses.