Common Mortgage Terms
Home purchasing and refinancing can sometimes appear daunting, but with the right tools and experts on your side—the process can be quick, easy, and educational. Not sure where to get started? We’ve compiled a list of the most common mortgage words and acronyms along with their definitions below.
General Mortgage Terms
| Term | Definition |
| Clear to Close (CTC) | Your loan has been approved by the underwriter and all conditions have been met. Your lender can now move on to schedule a closing date with the title company. |
| Combined Loan to Value (CLTV) | This is the ratio of all secured loans on the property in connection to the value of the property. |
| Co-Borrower | A secondary borrower where both parties have equal legal obligations. In some cases, a secondary borrower can be used to help the initial borrower qualify for the loan. |
| Credit Report | The official summary of an individual’s financial history including their current credit status. |
| Debt-to-Income Ratio (DTI) | This ratio calculates the percentage of your monthly income in comparison to your monthly debt. |
| FICO Score | A credit rating system is used to help determine a borrower’s ability to repay a loan and the possible risk on the loan. |
| Fixed Rate Mortgage | A mortgage with a set interest rate and monthly payment that does not change over the life of the loan. |
| Float Down | An option offered by a lender allowing the borrower to re-lock the interest rate on a loan if the interest rates go down. Lenders typically charge for this option, and it can typically be requested only once. |
| Homeowners’ Association (HOA) | An organization in a subdivision or planned community that makes and enforces any agreements or restrictions for the properties it is associated with. |
| Loan to Value (LTV) | A comparison between the mortgage amount and the value/sale price of the property being mortgaged. LTV ratio = mortgage amount / property value |
| Payment | The monthly amount borrowers pay to lower their loan amount. This amount is also used to determine how large of a mortgage the borrower can have. |
| PITI | Principal, Interest, Taxes, and Insurance combined. |
| Property Inspection Waiver (PIW) | Also known as an appraisal waiver when a home loan is underwritten without the need of an appraisal. |
| Term | In real estate, the length of time it takes to pay a mortgage in full. |
Loan Programs
| Term | Definition |
| Certificate of Eligibility (COE) | An official document from the Department of Veteran Affairs that confirms eligibility for a VA loan program |
| Construction Loan | A short-term loan used to finance the building of a home or other real estate project. |
| Conventional Loan / Conventional Mortgage | Conventional loans have their own terms based on their institution; they are not issued by the Federal Housing Administration (FHA) or the Veterans Administration (VA). |
| Federal Housing Administration (FHA) | An agency of the U.S. Department of Housing and Urban Development (HUD) meant to encourage improvements in housing standards. FHA’s main activity is to insure residential mortgage loans made by banks and private lenders. The FHA sets standards for construction and underwriting but does not lend money or build houses. |
| Interest Rate Reduction Refinance Loan (IRRRL) | The US Department of Affairs (VA) generally lowers the interest rate by refinancing an existing VA home loan with minimal documentation or requirements to do so. |
| Qualified Mortgage | A loan with terms and restrictions that make it more likely that a borrower can afford the monthly payments. |
| VA Funding Fee | A set amount added to every VA purchase loan or refinance, dependent on factors such as the borrower’s service, the down payment, and whether the veteran has a previous VA loan. |
| VA Mortgage | A loan offered to active or veteran military members and qualifying spouses. |
| Qualifying Ratios | Tools a lender uses to determine a borrower’s ability to repay a loan. |
| Underwriting | Mortgage underwriting is the process a lender uses to determine if the risk of offering a mortgage loan to a particular borrower is acceptable and is a part of the larger mortgage origination process. |
Costs
| Term | Definition |
| Basis Points (BPS) | A unit of measurement for interest rates and other percentages in lending and finance. One basis point is equal to 1/100th of 1% |
| Cash to Close | In real estate, the amount of money needed to pay costs and fees to close a loan. |
| Closing Costs | Fees and expenses buyers pay in addition to the down payment to secure their home loan. |
| Escrow | A legal agreement made and agreed to by both the buyer and lender to have a third party temporarily hold onto substantial amounts of money until specific conditions (like paying off your mortgage) are met. The purpose of an escrow account is to protect both the buyer and lender by making sure funds are paid out to the right individuals |
| Points/ Closing Points / Discount Points / Prepaid Interest | Lenders typically offer a mortgage interest rate with no discount points but can lower that rate if the buyer pays an up-front fee. Each discount point is equal to 1% of the loan amount borrowed. |
| Private Mortgage Insurance (PMI) | A type of insurance borrowers are required to pay if they purchase or refinance a home with less than 20% in equity. After reaching 20 –22% in equity, PMI is removed. |
Refinance Specific
| Term | Definition |
| Equity | The difference between the borrower’s mortgage and their home’s fair market value. |
Purchase Specific
| Term | Definition |
| Down Payment | An initial sum paid at the time of purchase to finalize their home purchase. |
| Pre-Approval | The process a lender goes through to verify a buyer’s financial history and offer an estimate on the loan amount, type, and terms the potential buyer may qualify for. |
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