Annual percentage rate (APR):

Appraisal: A report made by a qualified, licensed appraiser setting forth an opinion or estimate of value. The term also refers to the process by which this estimate is obtained.

Balloon Mortgage: A mortgage with periodic installments of principle and interest that, at the end of such a period, do not fully amortize the loan. The balance of the mortgage due is usually paid as a lump sum at a specified date.

Buydown: A sum of money paid to the lender at closing to reduce the borrower’s out-of-pocket monthly payment.

Cap: A limit placed on payments, interest rates and/or the balance of the loan. Caps can limit increases by either a dollar amount or a percentage.

Closing: A meeting between borrower and lender in which transfer of ownership is accomplished, funds and deed are exchanged, and all loan documents, including promissory note and mortgage, are signed.

Condominium: A form of ownership of real property. The purchaser receives title to a particular unit and a proportional interest in a certain common areas. A condominium generally defines each unit as a separate owned space limited to the interior surfaces of the perimeter walls, floors and ceiling.

Credit Score: Assigned numbers issued by the three different credit reporting agencies which assign a numerical value with your given credit history. The numbers are often averaged or the middle of three is used in determining your ability to repay the loan. The higher your score, the better your credit appears.

Gross Income: Normal annual income of an individual, including regular pay, overtime and bonus pay before taxes are deducted.

Escrow Account: An account held by a lending institution to which the borrower pays monthly installments for property taxes, property insurance, private mortgage insurance and other special assessments. The lending institution disburses this money once the particular bill comes due.

Federal National Mortgage Association (Fannie Mae): A privately owned corporation created by congress to support the secondary mortgage market. It purchases and sells residential mortgages insured by the Federal Housing Administration (FHA) or guaranteed by the Veterans Administration (VA), as well as conventional mortgages.
Gift Letter: A letter or affidavit that indicates that part of a borrower’s down payment is supplied by relatives or friends in the form of a gift and that the gift does not have to be repaid.

Hazard Insurance: A broad form of casualty insurance coverage for real estate that includes protection against loss from fire, certain natural causes, vandalism and malicious mischief.

Loan-To-Value: The ratio, expressed as a percentage, of the amount of the loan (numerator) to the value of the selling price of real property (denominator).

Mortgage Insurance or Private Mortgage Insurance (PMI): Insurance written by an independent mortgage guaranty insurance company that protects the lender against the loss incurred by a mortgage default, thus enabling the lender to lend a higher percentage of the sales price.

Points: An amount typically equal to one percent of the principle amount of a note. Loan discount points are one-time charges assessed at closing by the lender to decrease the rate of interest charged on the mortgage loan.

Prepayment Privilege: The right given a borrower to pay all or part of a debt prior to it’s maturity. The mortgagee cannot be compelled to accept any payment other than those originally agreed to.

Qualifying Income Ratio: Income analysis used by lenders in deciding whether to offer the borrower a loan. The analysis compares the amount of gross income from the borrower to the amount of total monthly obligations (credit card payments, personal loans, car loans ect…).

Title insurance Policy: A contract by which the insurer, usually a title insurance company, indicates who has legal title and agrees to pay the insured specific amount of any loss caused by clouds, claims or defects of title to real estate, where the insured has an interest as owner, mortgagee, or otherwise.

Verification of Deposit: A form sent to each depository listed on the loan application to verify the funds of the borrower at such institution.

Verification of Employment: A form sent to the borrower’s employer to verify the borrower’s employment and employment history.