26 Real Estate and Mortgage Terms from A – Z

26 Real Estate and Mortgage Terms from A – Z

The home buying process is filled with all kinds of jargon and industry-specific real estate and mortgage terms. You’ll encounter acronyms like “APR,” “DTI,” and “LTV,” and new phrases like “escrow account” and “fixed-rate” can add confusion, too.

Need help understanding all this new terminology?

Here are 26 real estate and mortgage terms you’ll need to know as you embark on your journey to buy a house

APR

APR, or Annual Percentage Rate, is the total annual cost you’ll pay to take out your loan. It includes your interest and any fees you’ll owe and is expressed as a percentage on your loan estimate.

Basis Point

A single basis point amounts to .01%. You can purchase basis points to lower your loan’s interest rate. This is often called “buying points” or “buying down your rate.”

Closing Costs

These are the total fees you’ll owe on closing day. They include costs associated with your lender and loan origination, your appraisal, any insurance that’s required, and fees for recording and reviewing your mortgage. These typically amount to around 3% to 5% of your loan amount.

DTI

Debt-to-income ratio, or DTI, is a mortgage term to describe one measure that lenders use to evaluate your risk and financial capabilities as a borrower. To calculate your DTI, you take your total monthly debts (car loan payments, student loan payments, and your new mortgage payment) and divide it by your monthly income. Most lenders want a DTI of 43% or lower. 

Escrow Account

Escrow accounts are used to hold funds to be paid at a later date. Your mortgage servicer, for example, will use your escrow account to hold money for your property taxes and home insurance premiums. You’ll pay into the account as part of your monthly payment, and the servicer will use the money to pay your tax and insurance bills when they come due each year.

Fair Market Value

This is how much a property would likely sell for on the current market. It’s determined by an appraisal, which is usually ordered by your lender before closing. 

Good Faith Estimate

This is a document that breaks down the estimated costs of your loan. It’s also called a Loan Estimate.

Homeowners Insurance

Sometimes called hazard insurance, homeowners insurance is an insurance policy that covers damage to your property. Most lenders require it before you can close on your loan, so this is almost certainly a mortgage term you will encounter.

Interest Rate

The is the cost to take out a loan. Mortgages come with either fixed or adjustable interest rates. Fixed rates are consistent for the entire loan term, while adjustable rates can fluctuate over time.

Jumbo Loan

These are loans that exceed the current conforming loan limits set by the Federal Housing Finance Agency. They’re typically used for higher-priced homes or homes in costlier housing markets.

Kick-out Clause

Sellers may include a kick-out clause in their sales contracts. It allows them to continue showing their house and “kick out” the buyer if they get a better offer.

LTV

Your loan-to-value ratio, or LTV, reflects how big your mortgage loan is compared to your home’s actual value. Lenders will use LTV to evaluate your risk as a borrower and to set your interest rate.

Mortgage Insurance

Mortgage insurance is required on FHA loans and on conventional mortgages with down payments under 20%. This mortgage term is a policy designed to protect the lender if you fail to make your payments. You may pay it upfront at closing, monthly as part of your mortgage payment, or both. 

Non-conforming

Jumbo loans are also called non-conforming loans. These mortgages that don’t conform to the guidelines set by Fannie Mae and Freddie Mac.

Origination Fee

This is a fee charged by mortgage lenders at closing. It covers the various processing expenses they incur for issuing your loan. Generally, it amounts to between 0.5% and 1% of your total loan balance.

Pre-approval

Pre-approval is the first step in the mortgage process. This mortgage term indicates that you’ve been conditionally approved for a mortgage loan, as well as the amount that you can likely borrow. 

Qualifying Ratios

These are various calculations that lenders use to determine whether you qualify for a mortgage or not. DTI is one example of a qualifying ratio. 

Rate Lock

Rate locks allow you to “lock in” your interest rate while your lender processes your loan. It protects you from any rate increases and guarantees you your initially quoted rate for a certain period of time — usually 30, 60, or 90 days.

Settlement

This is another term for closing. You’ll also receive settlement statements that indicate your total costs of the loan before closing day.

Term

The term is how long your loan lasts. The most common mortgage loan is the 30-year mortgage, which means you’ll pay your balance off over the course of 30 years.

Underwriting

Underwriting is the lender’s process for evaluating your application and financial scenario and ensuring you meet the requirements for your loan. Loan underwriters look at your employment, income, debts, assets, credit report, and more.

Variable-rate

This is another mortgage term for “adjustable-rate,” meaning an interest rate that can fluctuate over time. Variable-rate loans tend to be better options for buyers who only plan to be in their homes a short while.

Warranty

Warranties cover repairs to certain areas of your house. If you’re buying a new house, your home builder will usually include a one-year warranty on your home and its systems. On existing homes, you can purchase separate warranty policies for various warranty providers.

“X”

If you or someone in the transaction is unable to write, you can simply sign your legal documents with “X” to indicate you agree to the terms.

Year-end Statement

Every year, your mortgage servicer will send you a year-end statement indicating the balance on your escrow account, as well as any expenses the funds have been used to cover. In some cases, you may get an escrow refund if your account has an overage.

Zero-down Mortgage

These are mortgage loans that allow you to roll the closing costs into your loan balance. This option is most common when you’re refinancing an existing mortgage. 

Get Help

Have more questions? Need more real estate and mortgage terms explained? Get in touch with an Embrace loan officer today.

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