Financing

Adjustable Rate Mortgage (ARM)
A mortgage in which the interest changes periodically, according to corresponding fluctuations in an index. All ARMs are tied to indexes.

Amortization
The loan payment consists of a portion which will be applied to pay the accruing interest on a loan, with the remainder being applied to the principal. Over time, the interest portion decreases as the loan balance decreases, and the amount applied to principal increases so that the loan is paid off (amortized) in the specified time.

Assumable Mortgage
A mortgage that can be assumed by the buyer when a home is sold. Usually, the borrower must "qualify" in order to assume the loan.

Balloon Mortgage
A mortgage loan that requires the remaining principal balance be paid at a specific point in time. For example, a loan may be amortized as if it would be paid over a thirty year period, but requires that at the end of the tenth year the entire remaining balance must be paid.

Construction Loan
A short-term, interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses.

Conventional Mortgage
Refers to home loans other than government loans (VA and FHA).

Credit Report
A report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness.

Down Paymentt
The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.

FHA Mortgage
A mortgage that is insured by the Federal Housing Administration (FHA). Along with VA loans, an FHA loan will often be referred to as a government loan.

First Mortgage
The mortgage that is in first place among any loans recorded against a property. Usually refers to the date in which loans are recorded, but there are exceptions.

Fixed-rate Mortgage
A mortgage in which the interest rate does not change during the entire term of the loan.

Liquid Asset
A cash asset or an asset that is easily converted into cash.

Loan to Value (LTV)
The percentage relationship between the amount of the loan and the appraised value or sales price (whichever is lower).

Lock-in
An agreement in which the lender guarantees a specified interest rate for a certain amount of time at a certain cost.

Mortgage
A legal document that pledges a property to the lender as security for payment of a debt. Instead of mortgages, some states use First Trust Deeds.

Mortgage Insurance (MI)
Insurance that covers the lender against some of the losses incurred as a result of a default on a home loan.

Owner Financing
A property purchase transaction in which the property seller provides all or part of the financing.

PITI
This stands for principal, interest, taxes and insurance. If you have an "impounded" loan, then your monthly payment to the lender includes all of these and probably includes mortgage insurance as well. If you do not have an impounded account, then the lender still calculates this amount and uses it as part of determining your debt-to-income ratio.

Point
A point is 1 percent of the amount of the mortgage.

Pre-approval
A loosely used term which is generally taken to mean that a borrower has completed a loan application and provided debt, income, and savings documentation which an underwriter has reviewed and approved. A pre-approval is usually done at a certain loan amount and making assumptions about what the interest rate will actually be at the time the loan is actually made, as well as estimates for the amount that will be paid for property taxes, insurance and others. A pre-approval applies only to the borrower

Pre-qualification
This usually refers to the loan officer's written opinion of the ability of a borrower to qualify for a home loan, after the loan officer has made inquiries about debt, income, and savings. The information provided to the loan officer may have been presented verbally or in the form of documentation, and the loan officer may or may not have reviewed a credit report on the borrower

Second Mortgage
A mortgage that has a lien position subordinate to the first mortgage.

Two-step Mortgage
An adjustable-rate mortgage (ARM) that has one interest rate for the first five or seven years of its mortgage term and a different interest rate for the remainder of the amortization term.

VA mortgage
A mortgage that is guaranteed by the Department of Veterans Affairs (VA).

Contact one of these local lenders to get started on your mortgage

GMAC Mortgage

Dave Brookins

Wells Fargo

Mortgage Terms to Know