Mortgage Definitions and Terms

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• Adjustable Rate Mortgage (ARM) - A mortgage program where the interest rate you receive at the time your home loan closes will change during the life of your loan.

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Common ARMs include 5/1, 7/1, or 10/1. The first number represents the point when your interest rate will start to adjust (in years) and the second number indicates how often the interest rate will adjust (usually in years).

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• Amortization Schedule - Also known as a repayment schedule. A table that breaks down the payments on your home loan, showing you how much of each payment goes towards the principal balance and how much goes towards interest.

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• Annual Percentage Rate (APR) - The annual percentage rate represents the actual yearly cost of your mortgage. The APR includes your interest rate and other costs or fees, such as mortgage insurance. Remember that your APR is not the same thing as your interest rate.

 

• Appraisal - An appraisal is an extensive review of your home which helps you determine its value. An appraisal is based off of the home's overall condition and other factors such as the neighborhood, what similar homes have sold for, and the home’s replacement cost.

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• Automated Underwriting - A computer system that reviews your loan for accuracy and completeness before it’s sent to an underwriter. The automated underwriting system retrieves and reviews data such as your credit history, banking information, and loan application.

 

B

• Borrower - That’s you. The individual(s) who apply for a mortgage in order to buy a home or refinance a current mortgage.​

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• Buydown - A buydown is when you obtain a lower interest rate on your mortgage by paying a fee at closing. That fee can cost anywhere from a few hundred dollars an up, but it depends on the situation. Buying down an interest rate can help you save money and lower your monthly mortgage payment if you're okay paying the upfront fee.

 

C

• Cash to Close - The amount of money that’s required to pay your closing costs and finalize your mortgage. Your cash to close is brought to your loan closing, typically in the form of a check.

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• Closing - This is one of the last and most exciting steps in the home loan process. Closing is where you sign the binding paperwork that transfers ownership of the property and the mortgage to you. 

 

• Closing Costs - These are the fees you pay when you finalize your home loan. They include items like property tax and hazard insurance premiums, title insurance, prepaid interest, and recording fees. Your closing costs at Wasatch Mortgage Solutions will only be around 1.5% of your total loan amount. Other lenders can charge you as much as 3 to 5%.

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• Closing Disclosure - A document that shows you the final numbers on your mortgage including your projected payments, the repayment terms, and your closing costs. Your mortgage lender is required to provide you a copy of your closing disclosure three business days before your closing so you have sufficient time to review the final details.

 

• Co-borrower - An additional borrower whose name appears on all the loan documentation. A co-borrower's income can be used to help you qualify for a home loan, but they will share the responsibility of repaying the new mortgage.

 

​​D

• Debt-to-Income Ratio - This is a comparison of your gross monthly income to your monthly debts. It’s used by loan officers to measure your ability to repay debts and manage your monthly obligations. When calculating your debt-to-income ratio, only certain debts are included, such as your mortgage payment, credit card bills, car payments, and any child support. Your debt-to-income ratio does not include payments for items like utilities, T.V./internet, or a cell phone. 

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• Discount Points - Discount points are similar to a fee. They are an upfront, one-time cost you can pay to get a lower interest rate on your home loan. Discount points can cost anywhere from a few hundred dollars and up, depending on how low of an interest rate you want.​

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• Down Payment - The amount of money that you put towards your home upfront. Your down payment is combined with your new mortgage to fulfill the purchase price on the home you are buying.

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E​

• Equity - The difference between what you owe on a home and its current value. So if your home is currently worth $225,000 and you owe $207,000, then you’ve got $18,000 in equity. The amount of equity in your home gradually increases as you pay down your mortgage. 

 

• Escrow Account - An escrow account is kind of like a bank account. Your money is collected in an escrow account each month. Then when certain bills are due, like property taxes and insurance premiums, that money is used to pay your bills. It’s an easy way to manage your home’s expenses because your mortgage lender takes care of the payments.

 

F

• Fixed Rate Mortgage - A mortgage program where the interest rate you receive at closing will not change at any time between your closing and when you pay off the mortgage.

 

• Foreclosure - When the possession of a property is taken away from the homeowner because they did not keep up on their mortgage payments over an extended period of time.

 

H

• Homeowners Insurance - Insurance that provides financial protection in the event of an accident or disaster involving your property. So if a storm were to damage your roof, your homeowners insurance provider would help you pay for the cost to repair your roof. 

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I

• Interest Rate - A number that describes the amount of interest you’ll be charged by your mortgage lender for borrowing their money, typically displayed as a percentage.​

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• Interest Rate Lock - A guarantee that you’ll receive a certain interest rate for a specific amount of time. You can typically lock an interest rate for 15, 30, 45, or 60 day periods. Locking your interest rate protects you from the constant interest rate changes that occur.

 

• Investment Property - A property that’s used to generate income, typically through rental or resale, instead of being used as a residence for the owner.

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L

• Loan Estimate - A document that shows you the main details of a mortgage you’ve recently requested. The loan estimate includes information like your estimated interest rate, monthly payment, and closing costs. You should receive a loan estimate within three business days of submitting an application to a loan officer.

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• Loan-to-Value (LTV) - A ratio that describes the size of your loan compared to the value of the home, typically expressed in a percentage. For example if your loan amount was $180,000 and the home’s value is $200,000, then your loan-to-value would be 90%.​

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M

• Mortgage Broker - A local business with one goal, getting you a great mortgage. While banks focus on multiple financial products, mortgage brokers put all their effort and energy into finding you the best home loan by offering more choices, better interest rates, and lower fees.

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• Mortgage Insurance - A protection policy for the mortgage lender in the event that your mortgage defaults. Mortgage insurance is required on all FHA and USDA home loans. It’s also required on conventional home loans when your down payment is less than 20% of the purchase price.

 

• Mortgage Lender - A mortgage lender is a licensed organization that provides the money to fund your mortgage.

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O

• Origination Fee - A fee that’s charged for helping you complete your mortgage. Some loan officers charge high origination fees so make sure to verify the amount upfront, that way you won’t pay too much.

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P

• Payoff - A document that shows you the amount you need to pay to satisfy the terms of your current mortgage.

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• Pre-Approval - Have you ever wondered how much mortgage you can afford? Getting pre-approved answers that question. Essentially a pre-approval gives you a safe budget to spend on a new home that’s based off of your current financial situation. To get pre-approved you’ll complete a mortgage application and provide documentation to verify your income, credit history, and work history. This information will help your loan officer give you a legitimate estimate of how much home you can afford.

 

• Pre-Qualification - Getting pre-qualified helps you see how much home you can afford without taking an in depth look at your current financial situation, making it less concrete than a mortgage pre-approval. A pre-qualification is an estimate that's only based off of the information you provide your loan officer.

 

• Principal Balance - The outstanding balance still owed on your mortgage. This does not include interest or any other fees that might still be owed.

 

• Property Taxes - Taxes you pay each year that are based on the total value of your property, including your home and the land it sits on. Your property taxes are typically collected by your local government and used to repair roads, maintain the community, or make other improvements. Property tax amounts vary by community, making it important to get a property tax estimate before you purchase a new home.

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R

• Reverse Mortgage - A reverse mortgage is a mortgage program that allows homeowners who are 62 or older to turn the equity in their home into cash. Instead of making monthly mortgage payments, a homeowner using a reverse mortgage receives monthly cash installments which are taken from the equity built up in their home.

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S

• Short Sale - A short sale occurs when the money made from selling a home is not enough to cover all the current debts against that property.

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T

• Title - Documentation that shows you are the legal owner of a property.

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U

• Underwriting - An extremely important part of the home loan process. During underwriting an underwriter compiles and reviews your documents to make sure they are accurate and meet all of the loan’s qualifications and guidelines.

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• Underwriting Conditions - Underwriters often request to see more information before they can approve your loan, these are called conditions. An underwriter might request to see more documentation on a bank account or ask for an explanation of something that appeared on your credit report. Conditions are normal and you shouldn’t be concerned, but you should try to quickly provide any additional documentation that the underwriter requests.