At Cardinal Financial, we know that buying a home is a big decision and one that comes with many questions and unfamiliar terms. We want to make sure that you feel comfortable throughout the entire buying process so we have put together a list of popular mortgage terms to assist you during this experience. If you have additional questions, please don’t hesitate to ask one of our Mortgage Specialists.
A verbal or written acceptance of an offer to buy a home, made from the seller to the buyer.
Adjustable rate mortgage (ARM)
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 not exceed the ARM loan cap.
The process of a loan’s value over a period of time. Often amortization is laid out on an amortization schedule or measured by an amortization calculator.
Annual Percentage Rate (APR)
The measure of the cost of credit stated as a yearly rate; includes such items as the stated interest rate, plus certain charges. APR may include fees such as documentation fees, private mortgage insurance and more.
A type of mortgage that may be transferred, interest rate and all, from seller to buyer.
A mortgage in which the borrower’s monthly payments are amortized over a longer period than the actual term of the mortgage. As a result, at the end of the loan term, the borrower must pay off the remaining balance with a single lump sum payment or refinance the loan.
The individual or individuals extended a loan and mortgage for the purchase of a house and/or property. Borrower is responsible for making all payments and fees associated with the loan over the life of the loan. Legal Mortgagor.
A situation in which a seller or lender kicks in a sum of money in order to lower the initial interest rate on a home loan to make a sale more appealing for the buyer.
For an Adjustable-Rate Mortgage (ARM), a limitation on the amount the interest rate or mortgage payments may increase or decrease.
Certificate of Title
The attorney’s written opinion establishing the status of title for a property as reflected on the public records. The certificate does not address issues not on record and offers no protection unless the writer of the certificate was negligent.
The formal documented sale of a home and/or property that includes signing all documents associated with the exchange and payment of required closing fees. A closing agent usually oversees this process.
Real estate transaction related fees payable by the buyer and seller during a closing. A wide variety of fees may be included, such as title search, attorney’s fees, origination fees, documentation fees and more.
A document from a lender to a borrower that officially lays out the terms of a 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.
Any one of a number of common clauses added to real estate agreements that provide buyer or seller rights during various stages of a transaction.
A report with documentation of the borrower’s credit history and current status of credit.
Debt-to-Income Ratio (or DTI)
The relationship between a borrower’s total monthly debt payments (including proposed housing expenses) and his or her gross monthly income; this calculation is used in determining the mortgage amount that a borrower qualifies for.
An official and public document that establishes property ownership.
Inability of borrower to make regular and consecutive payments on a loan.
The measure of loss in value of a home or property. Depreciation could be driven by poor economic factors or property damage.
Discount Points (or POINT)
A measure of interest; 1 point = 1% of the home loan value. Homebuyers may pay points at time of closing in order to lower or “buy down” their overall interest rate and mortgage payment.
A sum of money usually put up by the buyer when an offer on a home or property is made. The purpose of earnest money is as a token of good faith, a symbol that the buyer is seriously pursuing purchase.
The measurable value of a home or property above and beyond that owed on a loan. A value upon which many homeowners often borrow.
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.”
A private mortgage corporation that began as a government subsidized entity in the late 30s. Today Fannie Mae, along with Freddie Mac, is a government sponsored enterprise (GSE) and together they are responsible for setting annual conforming loan limits and assuring that most Americans are able to finance a home. Fannie Mae is commonly known as a secondary mortgage market and lends to mortgage lenders which in turn extend mortgages to borrowers.
Federal Housing Administration.
Loans extended by FHA-approved lenders and are typically designed to assist borrowers unable for various reasons to get the approval necessary for conventional home loans.
A home loan borrower who has never taken out a mortgage before; often qualifies for various discounts and first-time buyer perks.
Fixed Rate Mortgage
A conventional mortgage that is outfitted with a fixed interest rate over the life of the loan. Monthly payments are the same from month to month.
The repossession of a home and/or property by a lender in the event of borrower loan default or the inability to meet mortgage agreements.
In concert with Fannie Mae, Freddie Mac is a leading government sponsored enterprise (GSE) and is responsible for maintaining reasonable mortgage market stability, this assuring that Americans are able to purchase homes. Freddie Mac is a secondary mortgage market, meaning the corporation lends to lenders, which in turn extend mortgage products directly to borrowers.
Good Faith 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. This is a required step in the loan application process per the Real Estate Settlement Procedures Act.
The pledge of one party to pay a debt or fulfill a responsibility contracted by another if the original party neglects to pay or perform according to terms of the contract.
Also known as homeowner’s insurance; extra insurance taken out on a home that protects the borrower and lender in the event of damage. Usually covers the value of the home.
A comprehensive and exhaustive examination of a home by a licensed inspector. Often required as part of a mortgage and home loan process.
Home Inspection Contingency Clause
A clause added to an offer letter that gives the buyer certain rights pending home inspection. A buyer may ask the seller to repair defects discovered during the home inspection or even request release from the offer to buy in light of a home inspection.