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Real Estate Glossary

Pre-Approval Terms

Debt-to-Income Ratio (DTI): This ratio compares your monthly expenses to your monthly gross income.

Pre-qualification: A Pre-qualification is when a lender looks at your creditworthiness to evaluate how much house you can afford. To get pre-qualified, all you need to do is let your lender know your income, assets and how much debt you have. Using that information, your lender will determine how much you will likely be approved for. Without actually verifying the information, there is no guarantee you will actually be approved for that amount.

Pre-Approval: A Pre-approval is when a lender verifies your income, assets and how much debt you have and determine how much you can borrow, how much you could pay each month and your interest rate. Being pre-approved does not guarantee you the loan. You will still need to go through the underwriting process and wait for the final approval. Being pre-approved shows your intent to purchase and your realtor can begin showing you houses within your pre-approved loan amount.

Common Application Process Terms

Addendum: An additional document that is used to modify an original contract/purchase agreement.

Contract/Real Estate Purchase Agreement: A purchase agreement is a binding contract between the seller and a buyer, used to outline the terms and details of the sale of a home.

Closing Disclosure (CD): A form that provides the details about the mortgage loan including loan terms, projected monthly payments, and how much will be paid in fees and other cost to obtain the loan.

Funds to Close: Funds to close is a term referred to the amount of money required in order to close on your loan.

Earnest Money: A deposit made by a potential home buyer to show that they are serious about purchasing a property.

Escrow: Fees are paid to an Escrow company for being a neutral third party to handle the property transaction, exchange of money and other important documents.

Home Inspection: A thorough assessment by a professional inspector of the structural and mechanical condition of a property.

Home Ownership Education Course: An interactive online course to help homebuyers receive valuable tools that will help them successfully navigate through the home buying process. It includes financial and credit management, shopping for a home, purchase procedures and maintaining the home.

Loan Estimate: A loan estimate provides a summary of the costs and terms associated with closing on a mortgage. It offers data that helps compare loan offers from multiple lenders including total costs of third-party services, annual percentage rate (interest rate including fees and the amount of interest that will be paid over the loan term, expressed as a percentage of your total loan amount)

Manufactured Housing: A dwelling that has been constructed off site, with a permanent chassis, to assure the initial and continued transportability of the home.

Mortgage: A mortgage is a type of loan that you utilize when you want to purchase or refinance a home.

Rate Lock: Once a rate is locked, it means the interest rate won’t change between the offer and the closing, as long as you close in the specified time frame and there are no changes to the application.

Real Property: All property of a fixed, permanent, or immovable nature such as land and buildings.

Reconveyance: A Reconveyance is the transfer of a title to the borrower after the mortgage has been fully paid. The Reconveyance request, original deed of trust and original note are all sent to the title company to process the lien release with the county.

Refinance: Refinancing your home means that you are getting a new mortgage to replace the original one. Homeowners refinance for multitude reasons including to get a lower interest rate, cash out their equity and more.

Common Loan Terms

Amortization: Paying off a debt over time in equal installments. Part of the payment goes towards principal and part goes towards interest.

Combined Loan to Value (CLTV): The comparison of the amount owed on a mortgage, and any other loans secured by the collateral, to the market value of the asset.

Draw Period: A draw period refers to the amount of time you can withdraw funds from your home equity line of credit or HELOC, up to the maximum approved limit. Equity: Equity is the difference between your home’s current fair market value and how much you owe on the loan.

Loan To Value (LTV): The comparison of the amount owed on a mortgage to the market value of the asset.

Repayment Period: After your draw period ends, your HELOC transitions into the repayment period. You will no longer have access to funds and repayment of the loan starts depending on the terms and conditions of your HELOC.

Closing Costs Terms

Appraisal: An appraisal is typically required to confirm the fair market value of your home.

Closing Cost: Closing costs are fees for the services and expenses required for you to finalize your mortgage/ close on your house.

Homeowners Insurance: Lenders require a homeowner policy to protect your home against damage and potential catastrophic losses.

Mortgage/Discount Points (buy down rate): Fees paid to the lender at closing to reduce the interest rate on your mortgage. Buying down your interest rate can be beneficial if you want to lower your monthly mortgage payments.

Origination Fees: These are fees for processing and underwriting your loan.

Prepaids: Expenses or items that the buyer pays at closing before they are technically due. This is a way to “pre-fund” an escrow account to make sure the funds are available when the bill comes due (i.e., Property Taxes, Homeowners Insurance and Mortgage Interest).

Private Mortgage Insurance: PMI is a type of insurance required by mortgage lenders, if your down payment is less than 20% of your home’s purchase price. PMI protects the lender against potential losses if you are unable to repay your loan.

Property tax: A tax that is paid on property owned by an individual or legal entity.

Reserves: Savings/Asset balances that are available after the mortgage loan has closed. These are regarded as emergency funds in the event of income loss or unemployment that assures the lender you will be able to continue making the mortgage payment.

Title Insurance: Title Insurance helps protect you and your lender from financial loss if there is a problem or defect with the title.