Amortization: The gradual repayment of a mortgage loan, both principal and interest, by installments.
Annual Percentage Rate (APR): The cost of credit, expressed as a yearly rate including interest, mortgage insurance, and loan origination fees. This allows the buyer to compare loans. APR should not be confused with the actual note rate.
Debt-To-Income (DTI) Ratio: The ratio of monthly liabilities and housing expenses divided by the monthly gross income of the borrower.
Equity: The amount of financial interest in a property. Equity is the difference between the property’s fair market value and the amount still owed on the mortgage.
Escrow Account: An escrow account is funded each month as part of your total monthly payment. Lenders use it to make property tax and insurance payments for you. Items such as mortgage and flood insurance may also be paid from the account.
First-Time Homebuyer: Typically defined as someone who has not owned another property at any time during the three years prior to the date of the application.
Loan To Value (LTV): The relationship between the principal balance of the mortgage and the appraised value (or sales price if it is lower) of the property. For example, a $100,000 home with an $80,000 mortgage has a Loan-to-Value (LTV) of 80%.
Mortgage Insurance Premium (MIP): MIP is the mortgage insurance required for FHA loans, which are backed by the Federal Housing Administration. MIP is required on all FHA loans, regardless of the size of your down payment. FHA loans require both an upfront mortgage insurance premium (UFMIP) and an annual premium payment, or annual MIP.
Private Mortgage Insurance (PMI): Mortgage insurance provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders require PMI for loans with an LTV above 80%.
Points: Also known as discount points, they lower your interest rate in exchange for an upfront fee.
Rate Lock: A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate and lender costs for a specified period of time.