Glossary of commonly used terms
Adjustable Rate Mortgage (ARM): A type of mortgage where the interest rate can change over time, typically tied to an index such as the US Treasury Bill.
Amortization: The process of paying off a mortgage loan over time through regular payments that include both principal and interest.
Annual Percentage Rate (APR): The annual cost of a mortgage, including interest, fees, and other charges, expressed as a percentage.
Appraisal: An evaluation of a property's value, typically performed by a licensed appraiser.
Balloon Mortgage: A type of mortgage where the borrower makes smaller payments over the life of the loan, with a large lump sum payment due at the end of the loan term.
Bridge Loan: A short-term loan used to finance the purchase of a new property before the sale of the borrower's current property.
Closing Costs: The costs associated with the purchase of a property, such as appraisal fees, title insurance, and attorney fees.
Credit Score: A numerical value that represents a borrower's creditworthiness, based on their credit history.
Down Payment: The amount of money a borrower must pay upfront as a percentage of the purchase price of a property.
Equity: The difference between the value of a property and the outstanding mortgage balance.
Escrow: A neutral third party that holds funds and documents related to a real estate transaction.
FHA Loan: A type of mortgage that is insured by the Federal Housing Administration, designed to make homeownership more accessible to borrowers with lower credit scores or down payments.
Fixed-Rate Mortgage: A type of mortgage where the interest rate remains the same over the life of the loan.
Home Inspection: A thorough examination of a property's condition, performed by a licensed inspector.
Homeowner's Insurance: Insurance that protects a borrower's home and personal property from damages or losses.
Interest: The cost of borrowing money, typically expressed as a percentage of the loan amount.
Lender: An organization or individual that provides mortgage loans to borrowers.
Mortgage: A loan used to purchase a property, secured by the property itself.
Mortgage Broker: A professional who helps borrowers find and secure mortgage loans from lenders.
Mortgage Insurance: Insurance that protects the lender in the event of a borrower defaulting on their loan.
Point: A fee paid at closing, typically expressed as a percentage of the loan amount.
Pre-Approval: A process where a lender evaluates a borrower's financial situation and determines the maximum loan amount they are eligible for.
Principal: The amount of the loan not including interest.
Private Mortgage Insurance (PMI): Mortgage insurance that is not provided by the government but rather by private mortgage insurance companies.
Refinance: The process of paying off an existing mortgage with a new loan, typically with a lower interest rate or different loan terms.
Title: The legal document that proves ownership of a property.
Title Insurance: Insurance that protects the lender (and sometimes the borrower) against losses from defects in the title to a property.
Underwriting: The process of evaluating a borrower's financial situation and determining the risk of default on a loan.
VA Loan: A type of mortgage that is guaranteed by the Department of Veterans Affairs, designed to help veterans and active military members purchase homes.
Reverse Mortgage: A type of loan that allows homeowners 62 or older to convert a portion