Welcome to the glossary section of my blog! Whether you’ve landed here by clicking on a term from another post or stumbled upon this page during your online journey, you’re in the right place. This post serves as a handy reference guide, offering clear definitions for various terms that might not be immediately familiar. Each term is sorted alphabetically, making it easy for you to find what you’re looking for. Think of it as your quick compass to navigate the language used in the mortgage industry. Happy exploring!

A

Application – A standardized form that you complete with your information to make an initial request for a loan.

APR – Annual Percentage Rate – This is the total cost of borrowing money for your loan, expressed as a yearly percentage rate.

ARM – Adjustable Rate Mortgage – An ARM mortgage has a rate that varies over the lifetime of the loan. These loans have strict, set requirements for when an interest rate changes, typically with years in between rate changes. These loans also have maximum interest rates. These loans are more of a gamble than fixed rate loans, but offer better terms during low interest rate periods. They’re also a choice to consider during periods of high interest rates, because they offer the possibility of interest rate reductions in the future without having to pay for a refinance.

C

CD – Closing Disclosure – This is a document that you will receive at least three days before closing. It is like the LE that came before it, except this one is designed to be used at the closing table. The draft that you receive prior to closing is considered to be a more accurate reflection of the costs that you’ll pay for the loan, however, sometimes we can decrease costs even more after the CD has been issued.

Closing Costs – Costs associated with services performed to transfer ownership from one person to another. These costs may include services like realtors and inspectors, mortgage requirements like an appraisal or prepaid interest, or legally required fees such as transfer and prepaid taxes.

COE – Certificate of Eligibility – The COE is a special type of document that is unique to every veteran. Lenders use your COE to determine if you are eligible for a VA loan. Your COE will tell your lender how much of the VA guarantee that you are entitled to, including any properties that have already used some of your eligibility.

D

Down Payment – The amount of money that you are putting down on the home. A down payment will go towards the purchase price of the home, and will reduce the principle amount of a loan by however much you put down. Note that a down payment is not the same as closing costs. You can have a loan with no down payment, but still be required to pay closing costs.

DPA – Down Payment Assistance – Financial assistance that can help you afford the down payment on a home. It typically comes in the form of a grant or loan aimed at helping community growth, and is offered by government agencies, non-profit organizations, and some of my mortgage lenders. Ask me more about DPAs and we can find a program that fits well for your situation.

DTI – Debt to Income – Your “DTI” is a shorthand way of talking about your debt to income, expressed as a percentage. For example, if you make $5,000 per month, and have a total of $2,500 in debt, your debt to income ratio would be 50%. Each different style of loan has its own unique DTI requirements, and some have no DTI requirements.

F

FICO Score – The Fair Issac Corporation – This score, expressed as a number between 300-850, is a single number that reflects how well you utilize credit. There are a couple of different formulas used to calculate a FICO Score; mortgage lenders use the FICO 2, 4, and 5 score models.

FHA – Federal Housing Administration – Founded in 1934 by President Franklin D. Roosevelt in response to the collapsing economy under the great depression, the FHA helps people get home loans by insuring a portion of the loan. Today, FHA loans are a unique kind of loan that offer lower down payments and better terms for borrowers who meet the FHA’s guidelines and requirements.

Foreclosure – The legal process of selling a home to satisfy a debt, typically started after three months of no payments being made. Note that if you’re worried about not being able to make a payment, make sure you contact your lender. Most are happy to defer payments if your situation is reasonable and temporary.

G

GSE – Government Sponsored Entity – As it pertains to the mortgage industry, a GSE is a business that is sponsored by the government to purchase home loan debts from lenders and sell that debt to investors. Their role in the lending industry is very important because they allow lenders to constantly have free capital for originating mortgages. Without GSEs, lenders would not have the capital necessary to run their operations and home loans would be much harder and more expensive to get. Some of the most recognizable GSEs are Fannie Mae and Freddie Mac.

H

HELOC – Home Equity Line Of Credit – A HELOC is much like what it sounds; it’s a line of credit that uses the equity that you’ve built up in your home as collateral. It can be used as a credit card to pay off anything, though typically only for a finite period of time. I’ve written up an entire post about HELOCs, check it out.

L

Lien – A lien is a legal debt that uses a property as collateral. Liens can either be voluntary, like a mortgage or HELOC taken out by the homeowner; or they can be involuntary, such as a contractor placing a mechanical lien on your home because they were not paid for work performed.

LTV – Loan to Value – This figure, expressed as a percentage, shows how much of the value of the home is currently covered by a loan. For example, if you have a $1,000,000 home, and a $800,000 loan, your loan to value percentage will be 80%. As you pay off your loan, the LTV will decrease each month, and your paid off percentage will increase.

P

PITI – Principle, Interest, Taxes, and Insurance – A quick way of expressing certain costs with your loan. When someone says that your PITI cost per month would be $N,NNN, this means that the payment includes your Principle, Interest, Taxes, and Insurance, and does not include other items that may apply, like an HOA payment.

PMI – Private Mortgage Insurance – Lenders often require that your mortgage be insured with a private mortgage insurance company if your LTV (Loan to Value) is below a certain amount. Lenders are legally required to take mortgage insurance off your loan once your LTV reaches 78% or lower. Note that PMI does not apply to FHA, VA, or USDA loans, since the respective agencies offer insurance for the loan.

Pre-Approval – A letter from your mortgage broker (me!) that states how much you’re likely to be approved to borrow from the lender. A pre-approval is based on your stated information, but make sure that you’re honest; all of your statements will be verified during underwriting.

U

Underwriting – Underwriting is the process of verifying that you can pay back the loan, based on requirements set by GSE Finance Companies, like Freddie Mac and Fannie Mae. You’ll submit many documents for review, where the Underwriter will look them over and verify that all of your statements on the loan application are true.

UW – Underwriting OR Underwriter – See definition of Underwriting

V

VA – Veteran’s Administration – The Veteran’s Administration is a branch of government dedicated to our veterans. One aspect of the VA is offering assistance to veterans when they’re purchasing a home. A VA loan has it’s own set of guidelines that are suited well for veterans who are looking to buy their home, like no down payment or credit score requirements.