Mortgage Lingo

If you are interested in buying a house, you may feel intimidated with how earning a mortgage works. Or, maybe you are not familiar with the process at all. Either way, there’s plenty of mortgage lingo you’ll encounter along the way. So, here is a guide to some terms that will help you during the mortgage process.

mortgage lingo

Amortization

Home loan amortization is the process of how payments spread out over time. When you make a payment on your mortgage, a percentage of your payment goes toward interest and a percentage goes toward your loan principal.

Annual Percentage Rate (APR) 

The yearly cost of a mortgage including interest and other expenses or charges such as private mortgage insurance and points expressed as a percentage. 

Appraisal

An appraisal is a rough estimate of how much your home is worth. Mortgage lenders require that you get an appraisal before you sign on a home loan. The appraisal assures the lender that they aren’t loaning you more money than what your home is worth. 

Assets

In the context of a mortgage, an asset is anything that you own that has a cash value. Some examples of assets include:

  • Checking and savings accounts
  • 401(k) and IRA accounts
  • Stocks
  • Bonds
  • Mutual funds

Closing Costs

Closing costs are settlement costs and fees you pay to your lender in exchange for finalizing your loan. Some common closing costs include appraisal fees, loan origination fees and pest inspection fees. 

Closing Disclosure

A Closing Disclosure is a document that tells you the final terms of your loan. This document includes your interest rate, loan principal and the closing costs you must pay. 

Debt-to-Income Ratio (DTI)

Your debt-to-income ratio is equal to your total fixed, recurring monthly debts divided by your total monthly gross household income. Mortgage lenders look at your DTI when they consider you for a loan to make sure that you have enough money coming in to make your payments. 

Deed

A deed is the physical document you receive that proves you own your home. You’ll receive your deed when you close on your loan.

Down Payment

Your down payment is the first payment you make on your mortgage loan. 

Fixed-Rate Mortgages

A type of mortgage where the interest rate and monthly payment amount doesn’t change over the term of the loan. So, if the current market interest rate falls below your fixed rate, you should contact your mortgage expert to discuss the benefits of refinancing. 

Mortgage Term

Your mortgage term is the number of years you’ll make payments on your loan before you fully pay off your mortgage and own your home outright.


Preapproval

A preapproval is a document that tells you how much you can afford to take out in a home loan. Many lenders consider the preapproval to be the first step in getting a mortgage. When you apply for a preapproval, your lender will ask you about your credit score, income, assets, and other financial information. Your lender will then use these details to tell you how much you qualify for in a home. 

Principal

Your principal balance is the amount that you take out in a loan. Your principal balance shrinks as you make payments on your loan over time.

Bottom Line

Mortgages can be difficult to navigate and learning the common terminology is the first step to fully understanding your loan to complete the home buying process. So, when you read through contracts with this mortgage lingo, be sure to know what each word entails!