Here are some common mortgage-related terms to help you better understand the lending process.

Adjustable-rate mortgage (ARM)

Also known as a “variable rate,” a type of mortgage in which the interest rate paid on the outstanding balance varies according to a specific benchmark.
Annual percentage rate (APR) – the relationship between a loan’s total finance charge and the total amount financed, expresses as an annual percentage. This total yearly cost includes interest, any discount points paid by the borrower, the loan origination fee, and mortgage insurance costs.

Appraisal

Atrained appraiser’s estimate of the value of a piece of real estate as of a particular date, based on a documented analysis of the property’s features.

Down payment

Money paid at the onset of a purchase to make up the difference between the purchase price and the amount financed in the mortgage.

Escrow

When money or documents are held by a disinterested third party (the escrow agent) on behalf of the parties to a transaction until specified conditions have been fulfilled.

Fixed-rate mortgage

A home loan with an interest rate that remains the same for the life of the loan.

Interest

A fee charged by a lender for borrowing money.

Lien

A claim upon a piece of property for the payment or satisfaction of a debt or obligation.

Lock-in

Also referred to as a “rate lock,” an agreement wher a lender guarantees a loan applicant a particular interest rate if the transaction closes within a specified period.

Mortgage

Alegal document that pledges a property to a lender as security for payment of a debt.

Pre-approval

Indication by the lender of their willingness to grant a loan based on an assessment of the potential loan applicant’s financial standing.

Prequalification

Determining the maximum mortgage payment and loan amount that prospective buyers are likely to qualify for, based on the information provided by the buyer.

Underwriting

The process of evaluating a loan application to determine that level of risk for the lender. Also called “risk analysis” or “qualifying.”

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