A to Z guide

Adjustable-rate mortgage (ARM)  
Type of mortgage loan where the interest rate can change periodically based on market conditions. 

Annual percentage rate (APR) 
The APR represents the total cost of borrowing, including the interest rate and other fees, expressed as an annual percentage. 

Appraisal 
Your lender will verify that you are paying market value for your new home. A certified appraiser will analyze comparable sales in surrounding neighborhoods to ensure your future home meets qualification guidelines. 

Assessed value 
The value assigned to a property by a tax assessor for the purpose of calculating property taxes. 

Attorney review fee 
Some states require an attorney to review the loan documents on behalf of the buyer or lender before closing. 

Buydowns 
For most loans, the buyer will have the option to pay points at the time of closing to buy down their interest rate. Discount points are a “discount” on the current market interest rate. A point is equal to one percent of your mortgage loan amount. Paying discount points makes financial sense for buyers who plan to hold their mortgage for an extended time. Doing so will result in a smaller monthly payment.   

Closing costs 
The fees and charges due at the end of a real estate transaction when the property title is passed to the buyer. While some of these fees are covered by the seller, most are the buyer’s responsibility.   

Courier fee 
The courier fee facilitates the shipping or physical transportation of signed paper documents between the buyer, the seller, the lender, escrow and any other involved party that requires access to the documents.   

Credit report 
As part of the loan application process, your lender will order a tri-merge credit report from all three major bureaus to check your credit history. Your credit score is key to your qualification and interest rate. 

Debt-to-income ratio 
A financial metric that compares a person's monthly debt payments to their gross monthly income. Lenders use this ratio to assess a borrower's ability to repay a mortgage. 

Down payment 
Initial payment made by the buyer when purchasing a home. It is typically a percentage of the total purchase price. 

Earnest money 
A deposit made by the buyer to demonstrate their serious intent to purchase the property. It is typically held in escrow until the closing process is complete. 

Escrow 
A financial arrangement where a third party holds and regulates the payment of funds required for two parties involved in a transaction. In homebuying, escrow is often used to hold the buyer's earnest money deposit until the closing process is complete. 

FHA loan 
A Federal Housing Administration loan, which is a type of mortgage that is insured by the government and allows for lower down payments and flexible credit requirements. 

Fixed-rate mortgage 
A type of mortgage where the interest rate remains the same throughout the entire loan term. 

Loan application 
A written request made by an individual or a business to a financial institution or lender, seeking to borrow a specific amount of money for a specific purpose. It typically includes detailed information about the borrower's financial situation, such as income, assets, liabilities, and credit history. The application may also require supporting documents, such as bank statements, tax returns, and proof of funds. The lender reviews the application to assess the borrower's creditworthiness and determine whether to approve the loan. 

Government transfer fees   
The state or county government may assess a transfer fee to complete a real estate transaction depending on the property’s location. Typically, this fee is calculated based on a percentage, meaning the cost goes up depending on the price of the home. 

Home equity 
The difference between the market value of a property and the outstanding balance on any mortgage or loans secured by the property. It represents the homeowner's ownership interest in the property. 

Loan Estimate 
A document provided by a lender to a borrower that outlines the estimated costs and terms of a mortgage loan. 

Loan-to-value ratio (LTV) 
The ratio of the loan amount to the appraised value of the property. It helps lenders assess the risk associated with a mortgage. 

Mortgage 
A loan used to finance the purchase of a home. 

Mortgage insurance 
Insurance that protects the lender in case the borrower defaults on the loan. 

Market value 
The estimated value of a property based on current market conditions. 

Mortgage rate 
The interest rate charged on a mortgage loan. 

Mortgage term 
The length of time over which the mortgage loan is repaid. 

Discount points 
Fees paid to the lender at closing in exchange for a lower interest rate. 

Mortgage underwriting 
The process of evaluating a borrower's creditworthiness and determining if they qualify for a mortgage loan. 

Non-conforming loan 
A mortgage loan that does not meet the guidelines set by Fannie Mae and Freddie Mac, typically because it exceeds the loan limits or has other unique characteristics. 

Origination fee 
This is a fee charged by lenders to cover the costs of processing a mortgage loan application. It typically includes the cost of underwriting, document preparation, and other administrative expenses. 

Origination credit 
Some buyers may elect to receive a rebate for their chosen interest rate. With this option, you may select an above-market interest rate in exchange for an origination credit.  This credit from the lender cannot be used to refund your down payment. However, it can cover closing costs. In this scenario, your monthly payment is higher, but this can still be a smart choice for buyers who do not have the money to pay the closing costs out of pocket. 

Owners and lenders title insurance 
Title insurance protects the policy owner against undiscovered issues with a property’s title—one of the most common problems being unpaid property taxes. Further, it protects the lender against loss in the event of a title defect. The lender and buyer must purchase separate policies to be covered.   

Principal 
The original amount of money borrowed for a mortgage loan, excluding interest and other fees. It is the amount that the borrower is required to repay over time. 

Pre-paid items 
These items are exactly what the name implies, i.e., a pre-paid payment made in advance of the monies due at closing on your loan. The most common pre-paid items are your homeowner’s insurance and property taxes collected and placed into an escrow account. This is to build reserves and have funds to pay those bills when due. Another pre-paid item is the mortgage interest that accrues between your closing date and the last day of the month. 

Processing fee 
The processing fee covers the service provided by the lender to handle all documentation related to your mortgage application. 

Refinancing 
Refinancing refers to the process of replacing an existing loan with a new one, typically to obtain better terms or interest rates. It is commonly done with mortgages, where homeowners can refinance their current loan to lower monthly payments, lower the loan term or receive cash equity from the home.   

Recording fees 
Recording fees pay to record the new deed and mortgage documents legally.   

Rate lock 
A rate lock is an agreement between a borrower and a lender that guarantees a specific interest rate for a certain period of time. This protects the borrower from potential rate increases during the loan processing period, ensuring they secure the agreed-upon rate. 

Settlement fee or closing fee 
A settlement fee pays to conduct and handle the closing, including documents and dispersing funds. 

Survey fee 
A surveying company is often hired to double-check property lines and confirm the location of shared walls or fences. A survey will confirm that the property’s physical boundaries match the deed.   

Title 
The legal document that establishes ownership of a property. 

Title insurance 
Insurance that protects the lender and/or the buyer against any defects, liens or claims on the title of a property. 

Title-doc prep or title search exam fee 
The document preparation fee is paid to a title company and covers everything that goes into researching a title to ensure that it is clear of liens and title defects. (Note: liens are charges attached to a property title due to unpaid debts).   

Title endorsement fee 
A fee that adds coverage or removes exemptions from title insurance to match a specific property’s unique situation. It covers any necessary changes to the policy. Standard title insurance covers recorded liens not listed on the policy, errors in the deed, and fraudulent deeds but may not include specialized coverage required by the lender.   

Underwriting fee 
A fee you pay to your lender to approve your loan. This fee covers the cost of reviewing and validating your loan qualification.