One of the most daunting aspects of applying for a loan is the terminology lenders toss around. It’s practically its own language.

We try to stay away from excessive industry jargon and talk about the loan process in simple, easy-to-understand terms (call us and see). Hopefully defining a few necessary terms will make traveling through the lending process seem less foreign.

Agreement Of Sale - Contract signed by buyer and seller stating the terms and conditions under which a property will be sold.

Adjustable rate mortgage (ARM) - The interest rate on this mortgage changes each term in good times and bad. This is a good mortgage to have if you don't plan to stay in your home forever. (aka, variable rate mortgage.)

Amortization Schedule - A monthly repayment schedule outlining how a loan will be paid off in fixed payments combining principal and interest.

Annual percentage rate (APR) - The real number to watch. It’s the rate that reflects your mortgage as a yearly rate plus points and other credit cost-- the true cost of your loan. Since different lenders charge different rates for various fees, the APR lets you more easily compare one loan to another.

Appraisal - A written estimate of a property’s current market value, based on recent sales information for similar properties, the condition of the property, and the neighborhood’s impact on future property value.

Assessment - This is another way of saying "local property value for tax purposes." The value of your property is set by a local municipality and assessed according to that value.

Chain of Title - The chronological order of conveyance of a property from the original owner to the present owner.

Closing - The fun part for a new purchase- Where buyer and seller sign a pile of papers and shake hands. Then you can breathe a big sigh of relief. The fun part for a refinance- Where the owner signs another pile of papers and may walk away with money in their pocket and/or a lower rate and a smile on their face.

Contract Of Sale - The agreement between the buyer and seller on the purchase price, terms, and conditions of a sale.

Cost Of Funds Index (COFI) - A common index used in adjustable rate loans based on the weighted-average interest rate paid for deposits by savings institutions that are members of the 11th Federal Home Loan Bank District.

Credit Report - This is a report that tells a lender how well you’ve handled credit in the past. A good credit report makes the process easier. A spotty report means you may be a higher risk.

Debt-To-Income Ratio - A figure, expressed as a ratio, that compares the amount of recurring debt payments a borrower is obligated to make to the amount of their income.

Deed - Legal document by which title to a property is transferred from one owner to another. The deed contains a description of the property and is signed, witnessed, and delivered to the buyer at closing.

Deed Of Trust - Document creating a lien on a property as security for the payment of a debt. In some states, a mortgage is used instead.

Equity - The difference between the current market value of a property and the outstanding mortgage balance.

Equity Loan - A loan based on the borrower's equity in his or her home.

Equity - How much do you own on a property? How much is it worth? The difference (assuming your debt is lower) is the equity. Higher equity makes approving a refinance or second mortgage easier.

Escrow - This is an account held by the lender into which you pay money for tax or insurance payments.
 
Escrow Account - Account held by lender containing funds collected in conjunction with monthly mortgage payments. Also known as impounds, the funds in this account are held in trust by the lender on behalf of the borrower, and are used to pay expenses such as property taxes and homeowner’s insurance.

Estimated Settlement (or Closing) Statement - A document provided by the closing agent a few days before closing, detailing all costs and indicating the final sum the buyer will be required to bring to the closing.

Expense-To-Income Ratio - Also known as Back-End Ratio and Debt-to-Income Ratio. The figure derived by dividing a borrower’s monthly financial obligations by his/her gross monthly income.

FICO Score - A credit evaluation score developed by Fair, Isaac, and Co., used by lenders as one factor in making a loan decision. Some methods of improving a score are to establish and maintain a payment history on credit accounts, keep public records (bankruptcies, judgments, etc.) and collection accounts to a minimum, pay down loans, keep credit cards well below their limits, avoid late payments, and limit applying for new credit.

Fixed Rate Mortgage - The mortgage to have if you plan to keep your house a long time. Its percentage rate stays the same for the life of the loan. Usually 15-, 20- and 30-year increments.

Good Faith Estimate - Written estimate of costs the borrower will pay at closing, provided by a lender within three days of loan application.

Hazard Insurance - A policy that protects the insured against loss due to fire or certain natural disasters in exchange for a premium paid to the insurer. Also known as Home Owner’s Insurance or fire insurance.

Home Equity Loan - An additional mortgage secured by the equity in the home. All funds for this loan are disbursed at closing. (In contrast, see Home Equity Line Of Credit).

Home Equity Line Of Credit - A revolving line of credit secured by the equity in the home. Unlike a Home Equity Loan, these funds may be drawn and repaid like a credit card.

LIBOR (London Interbank Offered Rate) - The interest rate charged among banks for short-term Eurodollar loans, and a common index for adjustable rate mortgages.

Lock (or Lock In) - A lender's guarantee of an interest rate and related points for a set period of time, usually between loan application and loan closing. Protects borrower against rate increases during that time.

Mortgage Broker - A person or entity that arranges financing for borrowers, but places loans with lenders rather than funding them with the broker’s own money.

Mortgage Insurance - Insurance purchased by a buyer to cover the lender’s risk of loss. Mortgage Insurance is generally required by lenders when the down payment is less than 20% of the purchase price.

Mortgagee - Us. The lender.

Mortgagor - You. The borrower or homeowner.

No Doc Loan - A loan for which neither income, employment, or assets are stated on application. Borrowers must have a perfect credit history.

No Ratio Loan - This loan program is offered for borrowers who have a strong asset base and perfect credit history; the loan application must be fully completed except for any reference to income.

Note - Legal document stating the terms of a debt and a promise to repay it.

Origination Fee - It’s our fee to oversee the transaction in its entirety.

Per Diem Interest - Interest calculated per day. Depending on the day of the month on which closing takes place, borrower pays interest from the date of closing to the end of the month. The first mortgage payment of a loan is generally due on the first of the following month.

PITI - Abbreviation for Principal, Interest, Taxes, and Insurance, the components of a monthly mortgage payment; also called Monthly Housing Expenses.

Points - Probably one of the more confusing terms in lending. A point is 1% of your loan (if you’re borrowing $100,000, one point is $1,000). Points are, actually, up-front interest payments. The goal of paying points is to buy down your interest rate and secure a lower monthly payment.

Principal - It’s the amount of debt, not counting interest, left on a loan.

Private Mortgage Insurance (PMI) - This is something common for first-time home buyers. If you have, say, less than 20% of the loan amount for a down payment, you may be required to carry private mortgage insurance.

Recording Fees - More fees? Afraid so. This is a fee charged for recording a real estate transaction with your town, making the mortgage, note and deed part of the public record.

Recision - The cancellation of a mortgage loan, permitted by law within three days of signing when the loan is not used to purchase a home.

Servicing - This is everything a lender does to keep a loan in good standing- collection of and disbursements of payments, taxes, insurance, and the like.

Survey - When guys in orange vests - registered land surveyors - go to the property and take measurements with which to draw an accurate map.

Sweat Equity - Say you install new kitchen tiles yourself. Or you replace some windows. Or you install a new toilet. What you improve increases the value of your home. That extra value is "sweat equity."

Title (aka Deed) - A paper that says you legally own a property.

Title Insurance - A protection policy in case there’s a dispute about who actually owns a property, when two or more parties claim they have title.

Title Search - This is when someone actually goes to the registry of deeds and looks into the history of a particular piece of property to figure out who owns it, and if anyone can lay claim to it.

Truth-In-Lending Act - Federal law requiring written disclosure of the terms of a mortgage by a lender to a prospective borrower within three business days of application.

Underwriting - This is when a lender makes the actual decision to lend you money or not. It’s nothing personal. Just business. They look at your credit, employment, assets, property appraisal, and other factors.They judge how good a risk you are, and then they, hopefully, approve your loan.