Diving into the realm of buying/selling a home or applying for loans can be a scary maneuver. There is money on the line and tons of jargon that you don’t know or understand is tossed around. We’re here to deﬁne the commonly-used jargon within the mortgage, loan, and real estate industry.
Appraisal – a professional estimate of how much your home is worth. Appraisals are required before signing a new home loan and assure the lender that they are loaning you a suﬃcient amount of money.
Closing Costs – expenses incurred in the transfer of real estate in addition to the purchase price – examples: appraisal fee, title insurance
Co-borrower – someone who applies for a loan or line of credit with another borrower and assumes the same responsibilities for the loan and payments
Credit Score – A person’s record of debt repayment in a numerical value. Each scoring modeling is used to illustrate and predict credit behaviors. Examples of credit models used in mortgages are FICO, Equifax, and Transunion
Debt-to-Income Ratio – your total monthly debt including housing divided by your total income Total Debt / Income = Ratio% – your total ﬁxed, recurring monthly debts divided by your total monthly gross household income. Your DTI ratio is used to calculate if you have enough money to make payments.
Downpayment – the amount you pay to obtain a property in additional to your loan
Escrow account – an account that holds money for the purpose of paying taxes and insurance or other related charges that pertain to the property
Equity – the difference between the fair market value of your home and your outstanding mortgage balances
Home Inspection – different from an appraisal. Appraisals determine the value of your home, a home inspection will bring attention to the problems with the home (electrical, structural integrity, damages, etc.)
Interest Rates – the amount that is charged for a loan or purchase made on credit, typically expressed as an annual percentage of the loan or credit balance.
Mortgage – an agreement between the borrower and a mortgage lender to buy or reﬁnance a home without having all the funds upfront
Pre-approval – a lender’s conditional agreement to lend a speciﬁc amount of money to a homebuyer under a speciﬁed set of terms.
Pre-qualiﬁcation – a process that determines how much the borrower may obtain for the purchase of a home. A prequaliﬁcation is not a commitment to lend.
Reamortize – to take the remaining balance of a mortgage loan and establish a new period of amortization after which the principal balance will be zero
Recast – a mortgage recasting, or loan recast, is when a borrower makes a large, lump-sum payment toward the principal balance of their mortgage, and the lender, in turn, reamortizes the loan. This means that your loan is reduced to reflect the new balance.
Reﬁnance – beneﬁcial for the borrowers, creates a more convenient payment schedule, lower interest rates, or different terms.
Underwriting – The lender’s process of deciding whether to make a loan to a potential borrower based on credit, employment, assets, and other factors and the matching of this risk to an appropriate rate, term, and loan amount.
Walk through – the ﬁnal inspection that ensures that the property is in the same condition as at the time the offer contract was written
We hope that we provide you with a glossary of terms to better understand the process of loans and home buying/selling. As always, if you have any questions, give us a call at (402) 991-5153 or drop a message on our website.