Debt-to-income ratio (DTI)
Used to qualify a consumer for a loan, DTI reflects the consumer's monthly debt and debt-related costs, such as taxes, fees, and insurance premiums as a percentage of their monthly gross income.
Mortgage Glossary
Down payment
A percentage of the purchase price paid upfront at closing.
Amortization
Gradual payment of a debt in regular, periodic installments of combined principal and interest over a specified period of time.
Closing costs
Money paid by or for the borrower at the closing of a home loan. Examples include an origination charge, discount points, and fees for required third-party services, taxes, and government recording fees.
Closing Disclosure
A document provided to customers at least 3 business days before closing that shows the actual terms and costs of the loan. These costs may include hazard and/or mortgage insurance premiums and escrow deposits for property taxes.
Credit score
A three-digit number that indicates your creditworthiness that is based on information provided by your creditors and lenders. Credit scores are calculated by the credit reporting agencies.
Equity
The portion of a property's value that belongs to the homeowner and exceeds the current balance of a home loan. For example, if the property value is $100,000 and the current loan balance is $75,000, then the homeowner has $25,000, or 25% equity in the home.
Fixed-rate mortgage
A mortgage with an interest rate and monthly principal-and-interest payment amount that remains the same for the life of the loan.
Gift letter
A written explanation, signed by the individual giving the gift, stating that money was given to a homebuyer as a gift without any obligation to repay it.
Interest rate
The cost a customer pays to a lender for borrowing funds over a period of time expressed as a percentage rate of the loan amount.
Loan-to-value (LTV) ratio
The current loan amount compared to the value of the property, expressed as a percentage. For example, a loan amount of $150,000 for a home valued at $200,000 would have an LTV ratio of 75%.
Lock period
A set number of days during which the interest rate is secured and not subject to market fluctuation.
Preapproval
A preapproval letter shows that a mortgage applicant has been preapproved for a specified mortgage amount based on a preliminary review of credit information and other documents.
Annual percentage rate (APR)
The cost to borrow money expressed as a yearly percentage. For mortgage loans, excluding home equity lines of credit, it includes the interest rate plus other charges or fees. For home equity lines, the APR is just the interest rate.
Principal
The amount borrowed or the remaining unpaid balance of a loan excluding unpaid accrued interest; also refers to the portion of the monthly payment that reduces the outstanding balance of a loan.
Private mortgage insurance (PMI)
Insurance written by a private company protecting the mortgage lender against loss resulting from a mortgage default.
Rate lock
An agreement between the borrower and lender that holds the interest rate range, points, and term of the loan for a specific time period.
Underwriting
Analysis of risk and setting of appropriate rate and terms for a mortgage on a specific property for specific borrowers.
Appraisal
A report that states an estimate or an opinion of the property value as determined by a qualified independent third-party known as an appraiser. The term also refers to the process for obtaining the estimated value of the property.
Biweekly Mortgage
A mortgage with payments due every two weeks, totaling 26 payments a year.
Break-even point
The point at which a revenue or gain is equal to total expenses.
Buydown
Loan transaction that involves fees paid by a person (builder, seller, etc.) to reduce the monthly payment amount for a home loan, either for the entire loan term or for an initial period of years.
Cash-out refinancing
A refinance transaction where a portion of the equity from a home refinance is converted to funds for the borrower to use.
Cash to close
Readily accessible cash the borrower will use to pay the closing costs for getting a mortgage.
Closing
Typically, the final step in obtaining a home loan. The closing includes delivering a deed, signing loan documentation, and disbursing funds necessary to complete the sale and loan transaction. Also known as "settlement."