To improve your understanding of the mortgage process, use this glossary of basic terms.
Adjustable Rate Mortgage (ARM): A loan that begins with a fixed interest rate for a given period of time. After a predetermined period of time, the interest rate may go up or down, changing your mortgage payment accordingly.
Amortized Loan: A loan that is paid off over time with the initial payments primarily credited to the loan's interest and the later payments primarily credited to principle.
Appreciation: A rise in value of your home.
Annual Percentage Rate (APR): The APR is the annual cost of your loan including interest, loan discount, fees, and credit costs.
Contingency: When drafting the contract, either the buyer or the seller may include conditions that must be met in order for the sale to be complete. These conditions could range from issues involving the inspection, the selling of your current home, or financing.
Earnest Money: Money deposited to prove the buyer is sincere in their offer.
Escrow: A special account created by the lender in which money is held to pay taxes and insurance.
Fannie Mae: A private corporation dedicated to buying FHA and VA home loans from banks and other lenders.
FHA: The Federal Housing Administration, which is a part of the U.S. Department of Housing and Urban and Development. The FHA insures federal loans made by lenders such as NBKC.
FICO (Fair Isaac Credit Organization): The FICO score is a term often used interchangeably with the credit score. The credit score is one factor among many used when evaluating creditworthiness.
Fixed-Rate Mortgage: This loan's interest rate does not change over the life of the loan. A 30-year fixed mortgage is the most common type of loan.
Good Faith Estimate: The lender provides this document to show the buyer the estimated closing costs and fees associated with the home purchase. The Good Faith Estimate also shows estimated monthly payment with principle, interest and escrow included.
Income-to-Debt Ratio: A comparison of a buyer's income to their house payment and their other debt.
Loan Closing: Usually, both the buyer and the seller sign closing papers at a title/escrow company. The loan closing date is the final step of a home sale and is scheduled during negotiation. During the closing, the deed and title is transferred and all financial documents are signed.
Mortgage Insurance Premium (MIP): Mortgage insurance protects the lender in the event the purchaser defaults on the loan. Depending on the loan, there may be an upfront premium and/or an annual premium rolled into your financing. It's commonly known as PMI or Private Mortgage Insurance.
Points: Points are also called origination fees paid at the time of closing to repay lender for originating the loan. Discount points are paid at the time of closing to in exchange for a lower interest rate.
Pre-Approval: Verified information that tells the buyer how much home they can afford.
Underwriting: A process whereby the entire loan is reviewed and creditworthiness is evaluated.
VA Loan: A loan guaranteed by the Department of Veterans Affairs. Borrowers must meet the VA Loan eligibility requirements to qualify for a loan.