Mortgage Terms to know

Annual Percentage Rate (APR)  
Amount of interest charged on your loan every year.  

Closing Costs   
Fees and expenses that buyers and sellers pay in addition to the purchase price of a property to complete a real estate transaction. Closing costs vary but usually between 2% - 5% of the total purchase price of the home. 

Conventional Mortgage  
A loan not guaranteed or insured by the federal government. These borrowers usually make larger down payments (at least 20%), don’t require mortgage insurance, and are at a lower risk of defaulting on their home loan payment. Conventional loanstend to have stricter down payment and credit requirements than other loan options and conform to Fannie Mae and Freddie Mac guidelines.

Debt-To-Income Ratio (DTI) 
Your debt-to-income ratio (DTI) compares how much you owe each month to how much you earn. Specifically, it's the percentage of your gross monthly income (before taxes) that goes towards payments for rent, mortgage, credit cards, or other debt. 

Discount Points  
Also known as mortgage points. They’re fees homebuyers pay directly to the lender at the time of closing in exchange for reduced interest rates which can lower monthly mortgage payments.  

Federal Housing Administration (FHA)   
Have been around since 1934 and are meant to help first-time homebuyers. The FHA insures the loan, making it easier for lenders to offer the homebuyer a better deal, including lower down payment (as low as 3.5% of the purchase price), low closing costs, and easier credit qualifying.  

Fixed-Rate Mortgage  
One of the most common types of loans. It comes with an interest rate that stays the same for the lifetime of the loan, and provides the borrower with more stability and predictability over the lifetime of their loan.  

Mortgage Lender  
In real estate, the lender refers to the individual, financial institution, or private group lending money to a buyer to purchase property with the expectation the loan will be repaid with interest, in agreed-upon increments, by a certain date.  

Loan Originator  
Also known as Loan Officers, assist the homebuyer with purchasing or refinancing a home. Loan Originators are often employed by larger financial institutions and help borrowers choose the right type of loan, compile their loan application, and communicate with appraisers.  

Mortgage  
Agreement between a borrower and a lender giving the lender the right to the borrower’s property if the borrower is unable to make loan payments (with interest) within an agreed-upon timeline.  

Mortgage Banker  
Works directly with a lending institution to provide mortgage funds to a borrower. They can only obtain funds from a specific institution and are responsible for each part of the mortgage process, including property evaluation, financial due diligence, and overseeing the application process.  

Mortgage Broker  
Shops several lenders, acting as a middle man between lending institutions and the borrower. A broker can compare mortgages from several different institutions, giving the borrower a better deal.  

Mortgage Insurance  
If a homebuyer makes a down payment of less than 20% of the purchase price of a home or is the recipient of an FHA or USDA loan, they’ll usually be required to pay mortgage insurance. It lowers the risk of a lender giving you a loan, but it also increases the cost of the loan.  

PITI  
Stands for principal, interest, taxes, and insurance, and refers to the sum of each of these charges, typically quoted on a monthly basis. This makes up your monthly mortgage payment. 

Pre-Approval  
Before submitting an offer on a home (or even engaging with a real estate agent) you’ll likely be required to get pre-approved. This means a lender has checked your credit, verified your information, and approved you for up to a specific loan amount for a period of up to 90 days.  

Pre-Qualification  
Unlike pre-approval, pre-qualification is more of an estimate of how much you can afford to spend on a home.  

Rate Buydown 
A way to temporarily or permanently lower your interest rate with more money upfront. Points can be purchased to lower the interest rate by a certain percentage. A rate buydown can be purchased by the borrower and in some cases the lender or seller to help close a deal.

Rate Lock  
It allows borrowers to lock in an advantageous interest rate before a real estate transaction closes. A rate lock allows the borrower to lock in that interest rate for a specific period of time protecting them from market fluctuations.  

Refinance  
Replaces an existing loan with a new one. Debt is not eliminated when a borrower refinances. Instead, it typically offers better terms, including a lower interest rate, lower monthly mortgage payments, or a faster loan term.  

VA Mortgage  
A mortgage guaranteed by the Department of Veterans Affairs (VA) that helps veterans, service members, and their families buy, build, or refinance a home. VA loans are offered through private lenders, such as banks and mortgage companies, and are available with more favorable terms than traditional loans.

Click here for a more extensive list of mortgage related terms.