Glossary

APR (Annual Percentage Rate) - An interest rate that reflects the cost of a mortgage in terms of a yearly rate which is composed of the note rate and the costs associated with the loan (e.g. points and other fees).

Broker Fee - Fee paid for broker services which is usually a percentage of loan amount and can only be paid at closing. This fee is included in the calculation of APR.

Conventional Loan - A private sector loan, one that is not guaranteed or insured by the U.S. government. Loans insured by FNMA and FHLMC are also conventional loans.

Discount Point - Discount point is paid to reduce the interest rate on a loan. Usually a percentage of loan amount this fee is included in the calculation of APR and paid at closing.

Down Payment - Usually referred to as a percentage, it’s the portion of a home's purchase price that is paid from personal money (partial amount as initial deposit and balance at closing). It is calculated by deducting loan amount from purchase price.

DTI (Debt to Income Ratio) - A ratio of housing and non-housing expenses to gross income used to qualify for a mortgage loan

Earnest Money Deposit - Money put down by a potential buyer to show that they are serious about purchasing the home; it becomes part of the down payment if the offer is accepted, is returned if the offer is rejected, or is forfeited if the buyer pulls out of the deal. During the contingency period the money may be returned to the buyer if the contingencies are not met to the buyer's satisfaction.

Escrow - Funds held in an account to be used by the lender to pay for home insurance and property taxes. The funds may also be held by a third party until contractual conditions are met and then paid out.

GFE - An estimate of all closing fees including pre-paid and escrow items as well as lender charges; must be given to the borrower within three days after submission of a loan application.

HUD-1 - Also known as the "settlement sheet or "closing statement" it itemizes all closing costs; must be given to the borrower at or before closing.

Jumbo Loan (Or non-conforming loan) - is a loan that exceeds Fannie Mae's and Freddie Mac's loan limits. Freddie Mac and Fannie Mae loans are referred to as conforming loans.

LTV (Loan-to-value ratio) - A percentage calculated by dividing loan amount by the price or appraised value of the property being purchased or refinanced.

PITI (Principal, Interest, Taxes, & Insurance) - The four components of a monthly mortgage payment; principal and interest go towards loan repayment and taxes and insurance (homeowner's and other like mortgage & flood, if applicable) go into an escrow account to cover the fees when they are due.

Prepaid Finance Charge - Charges made in connection with the mortgage loan and paid by borrower usually at closing (e.g. Discount Points, PMI, FHA Insurance, Tax Service Fee, etc.).

Prepaids - Sums paid at closing and put into an escrow account to cover the costs of property taxes, hazard insurance, private mortgage insurance, and special assessments.

PMI - Private Mortgage Insurance; privately-owned companies offer mortgage insurance programs for qualified borrowers with down payments of less than 20% of a purchase price.

Negative Amortization - This occurs when the monthly payments do not cover all of the interest cost. The interest cost that isn't covered is added to the unpaid principal balance. This means that even after making many payments, you could owe more than you did at the beginning of the loan.

Qualifying Ratios - Guidelines to determine how much money a homebuyer is qualified to borrow. They typically include a maximum housing expense to income ratio (28% to 34%) and a maximum total monthly expense to income ratio (36% to 45%).

Survey - A property diagram prepared by a licensed surveyor that indicates legal boundaries, easements, encroachments, rights of way, improvement locations, etc.

Title Insurance - Insurance that protects against loss from disputes over ownership of a property. A policy may protect the mortgage lender and/or the home buyer.

Title Search - A search of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims against the property.