Mortgage Terminology

Whether you are just starting your search for the perfect home or you’ve already found the right one, you’re going to run across terms used in the mortgage industry that might be confusing. One of our preferred Residential Mortgage Loan Originators, Gil Forcade with Gibraltar Lending, sent us a list of phrases commonly used and their explanations.

Gil is one of our preferred loan originators because he is great about explaining the entire process in a way that makes sense and following through until the deal closes. He is bilingual in English and Spanish and offers a lot of different programs for buyers. All you need to do is send him an email or apply online here!

•  Adjustable Rate Mortgages (ARM): loans with an interest rate and payments that adjust at scheduled dates based on a pre-selected index.
• Amortization: the gradual reduction of debt over the term of the loan, including interest.
• Annual Percentage Rate (APR): the yearly cost of a mortgage including interest and other expenses.
• Appraisal: a written estimate of a property's current market value.
• Cash-Out Refinancing: a refinance transaction where a portion of the equity from a home refinance is converted to funds for the borrower to use.
• Cash to Close: readily accessible cash the borrower will use to pay the closing costs.
• Closing: the conclusion of a real estate transaction when legal documents are signed and funds are disbursed.
• Borrower: one who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan in full.
• Closing Disclosure: a document provided to customers at least 3 business days before closing that shows the actual terms and costs of the loan. These costs may include hazard and/or mortgage insurance premiums and escrow deposits for property taxes.
• Conventional mortgage: a home loan that isn't guaranteed or insured by the federal government.
• Credit Score: a mathematical formula that predicts an applicant's creditworthiness based on credit card history, debt, type of credit, bankruptcies, etc.
• Debt-to-Income Ratio (DTI): used to qualify a consumer for a loan. This reflects the consumer's monthly debt as a percentage of their monthly gross income.
• Down Payment: a percentage of the purchase price paid upfront at closing.
• Equity: the portion of a property's value that belongs to the homeowner and exceeds the current balance of a home loan.
• Escrow: funds a lender collects and holds in an account to pay real estate taxes, homeowners insurance, and mortgage insurance (if applicable), on behalf of a customer.
• FHA Loan: fixed or adjustable rate loans insured by the Federal Housing Administration. These are designed to make housing more affordable, particularly for first-time home buyers.
• Fixed-Rate Mortgages: a mortgage with an interest rate and a payment that doesn't change over the term of the loan.
• Interest Rate: the percentage rate that a lender charges to borrow money.
• Jumbo Loan (Texas): a home loan with an amount that exceeds conforming loan limits imposed by Fannie Mae and Freddie Mac, which in Texas the value is $484,350.
• Loan Estimate (LE): a document delivered or mailed to customers by a lender within 3 business days of the mortgage application. The LE provides an estimate of closing costs and fees as well as loan terms.
• Lock: a lender's guarantee of an interest rate for a set period of time. This protects the borrower against rate increases during that time.
• Points: upfront fees paid to the lender at closing. Typically, one point equals one percent of your total loan amount. The more points you pay, the lower your interest rate.
• Principal: the balance (not counting interest) owed on a loan.
• Private Mortgage Insurance (PMI): insurance to protect the lender in case the borrower defaults on the loan. Typically not required with a down payment of 20% or more of the home's purchase price.
• Refinancing: the repayment of a debt from the proceeds of a new loan using the same property as security.
• Survey: the measurement and description of land by a registered surveyor.
• Title Search: an examination of municipal records to ensure that the seller is the legal owner of the property and that there are no liens or other claims against the property.
• Underwriting: the process of determining the risks involved in a particular loan and establishing suitable terms and conditions for the loan.
• USDA Home Loan: a mortgage loan offered to rural property owners by the United States Department of Agriculture
• Veterans Administration (VA) Mortgage: a mortgage that provides flexible qualifying guidelines for eligible veterans and other eligible borrowers, which may include financing the VA funding fee and obtaining the loan with no down payment. Also, there is no mortgage insurance required.