TERMS TO KNOW

The mortgage industry is full of terms that are foreign to many people. The following glossary of terms should help you translate the mortgage language into English and help you make sense of the mortgage process.

A-D / E-H / I-P / Q-Z

Appraisal
An expert opinion on the value of a property

Annual Percentage Rate
This is not the note rate applied for, but rather is a government mandated formula that shows the cost of the loan in a yearly rate by using the note rate plus certain other upfront costs

ARM Loan
Adjustable Rate Mortgage. Mortgage characterized by an interest rate that can adjust up or down at certain intervals based on a current index (commonly the 1 year T-Bill) plus a preset margin.

Balloon
Mortgage characterized by level fixed payments for a predetermined time frame followed by either a refinance or adjustment in interest rate

Capital Gains
The tax paid upon certain types of real estate transactions. Contact accountant for specifics (see links for details)

Cash to Close
The amount needed from the borrower at closing. Consists of down payment, closing costs and prepaid items. This amount needs to be in the form of a cashier check made payable to the buyer.

Closing Date
Date stated on the purchase agreement that buyer and seller agree to finalize or close the transaction

Closing Costs
Various costs of setting up and funding the transaction - including closing fee, title insurance, appraisal fees, underwriting fee, mortgage registration tax etc.

Condo/Town Home
Property types that usually have the following characteristics: they are attached, have a homeowners association and dues, the outside maintenance is taken care of by the association, and common areas and amenities available to all owners in the association.

Conventional Financing
Standard, non-government financing.

Credit Bureaus
Agencies that provide compilations of your credit history. The three main credit bureaus are Experian, Trans Union, and Equifax

Credit Report
Report provided by the credit bureaus which shows the history, current status, and profile of an individual

Credit Scores
The number generated by the credit bureaus which is a numerical representation of the subjects credit profile, range is from 450 on the low side to 900 being the highest score possible.

Debt Ratios
Ratio of debt to pretax income, often expressed as a front (housing payment only) or back (all debt) ratios. Ex- $5000 monthly income, $1400 housing payment, $1700 total debt would equal ratios of 28% / 34%.

Discount Points
One point equals one percent of the loan amount. Points are used to lower the interest rate. One point does not equate into lowering the interest rate one percent. Generally lowering the interest rate 1/8 will cost about 1/2 point, although this can vary based on daily pricing. Typically is tax deductible. (see Links and partners for accountant advice)

Down Payment
Difference between loan amount and purchase price.