Glossary of Terms

Adjustable Rate Mortgage (ARM): A mortgage where the interest rate can change.

Annual Percentage Rate (APR): The actual interest rate after adding all prepaid interest charges.

Balloon mortgage: A lump sum payment that will be due at the end of the loan term.

Closing: A meeting to finalize the purchase of a property. At the meeting, the buyer signs the mortgage documents and pays all cash amounts due.

Closing costs: Costs related to closing (finalizing) your purchase or refinancing of a property. They include expenses such as points, taxes, title insurance, mortgage insurance, commissions, and loan fees.

Conventional loan: Any mortgage that is not insured or guaranteed by the federal government. Federally backed loans include Federal Housing Administration (FHA), Veterans Administration (VA) and U.S. Department of Agriculture Rural Development loans (formerly Farmers Home Administration or "FmHA" loans).

Credit report: A report that shows your credit history and your current debts.

Debt-to-income ratio: The percentage of your monthly income that goes to pay your debts.

Deed of trust or mortgage: A legal document that authorizes the sale of your home by someone else if you fail to keep up your payments.

Down payment: The part of the purchase price that the lender requires be paid in cash by the borrower.

Equity: The difference between the market value of your home and the amount you still owe, plus any liens against the property.

Escrow: The holding of documents and money by a neutral third party prior to or following the closing.

Fixed-rate mortgage: A mortgage in which the interest rate remains the same for the entire term of the loan.

Foreclosure: The legal process to seize a property if you fail to keep up your payments.

Good Faith Estimate (GFE): An itemized list of the estimated closing costs. By law, lenders or brokers must provide this list within 3 business days of receipt of the application.

Home equity loan: Any mortgage loan that is not used to finance the purchase of the home.

Interest: A fee charged to borrow money. The interest rate is a percentage of the total amount borrowed.

Lien: A legal claim filed against your home.

Mortgage: A home loan.

Origination fee: One of the fees that a lender or mortgage broker may charge for processing a loan application.

Overage: A fee hike designed to give more profit to the lender. Lenders and loan officers sometimes increase their fees to individual customers, then split the extra profit. Some lenders do not allow overages. When you apply for a loan, be sure to ask, "Do you charge overages?"

Points: Fees described as percentages. For example, "2 points" equals 2% of the loan amount.

Prepayment penalty: A fee charged if you pay off a loan before it is due. Not all loans have a prepayment penalty. If you have poor credit, your loan is more likely to include a prepayment penalty.

Refinancing: The process of paying off one loan with the proceeds from a new loan secured by the same property.

Settlement Statement ("the HUD-1"): The final accounting statement that shows all monies received by the escrow agent and how those funds were disbursed.

Three-day right of rescission: The three-day period after document signing that allows you to cancel a refinance transaction on your home.

Title: A legal document establishing the right of ownership.

Title insurance: Insurance to protect the lender or the buyer against loss arising from disputes over ownership of a property.

Truth in Lending Disclosure: A legally-required document that shows the loan amount, interest rate, required payments, and total amount of interest that will be paid over the life of the loan.