An ARM is a loan with an initial fixed interest period that later adjusts at set intervals. For example, a 5/1 ARM has a fixed rate for the first 5 years and then adjusts annually based on market rates. ARMs usually start with lower interest rates but can change, leading to unpredictability.
Amortization is the process of paying off your loan’s principal and interest. An amortization schedule shows all the payments needed to pay off the loan over time.
APR is your interest rate plus any additional fees, such as closing costs, expressed as an annual rate. It provides a clear picture of the total cost of your mortgage.
An appraisal is an unbiased estimate of your property’s market value by a licensed professional. Lenders require appraisals to ensure the loan amount does not exceed the home’s value.
Appreciation is the increase in your home’s value over time, influenced by factors like renovations or market changes.
Basis points are a unit of measure equal to 0.01%. They are used to clearly specify interest rate changes without ambiguity.
A cash-out refinance replaces your existing mortgage with a new one for more than what you owe, turning home equity into cash. It’s useful for paying off debt or funding home improvements.
Cash reserve is savings set aside for emergencies, like job loss. Lenders often require you to have at least 2 months of mortgage payments saved.
Cash to close is the total amount needed on closing day, including your down payment, fees, pre-paid taxes, homeowner’s insurance, and any applicable HOA fees. This is usually paid via wire transfer or a certified check.
This is when the homebuying process is finalized. Funds in escrow and the loan amount are transferred to the seller, and all outstanding costs, such as taxes and HOA fees, are settled.
The final step in buying a home. All fees listed in the closing disclosure are paid, funds are transferred to the seller, and documents are signed to transfer ownership to the buyer. The mortgage loan is signed, and the title deed is registered in the buyer’s name.
A closing disclosure (CD) is a document from the lender with final details about the mortgage loan, including terms, monthly payments, fees, and closing costs. You should receive the CD at least 3 business days before closing to compare it with the loan estimate.
A co-applicant is someone whose income and credit history are added to the loan application alongside the primary borrower, often to help qualify for the mortgage.
A co-borrower is a spouse whose income and credit history are included in the loan application with the primary borrower.
Collateral is an asset accepted as security for a loan. In a mortgage, the home is the collateral. If loan payments aren’t made, the lender can repossess the property.
A comparable sale, or comp, is a recently sold property with similar features in the same area. Appraisers use comps to estimate a home’s fair market value.
Condominium insurance (HO-6 policy) protects the interior of a condo unit. Common areas are covered by the condo association’s policies. Check the association’s bylaws for specific insurance requirements.
A condo is a privately-owned unit in a multi-unit development. Owners share interest in common areas like elevators and gyms, maintained through monthly HOA fees.
A conforming loan meets mortgage limits set by the FHFA, which vary by property size and location. These loans must follow Fannie Mae and Freddie Mac guidelines. Loans exceeding these limits are non-conforming (jumbo loans) and may have additional requirements.
A contingency is a condition in a purchase contract that must be met by either party before the sale is finalized. It protects both parties and often includes clauses allowing buyers to back out if financing or inspections fall through.
A conventional mortgage is not insured by the federal government and is backed by private lenders. It’s the most common type of home loan. If the down payment is less than 20%, private mortgage insurance (PMI) is required.
In a co-op, owners don’t own their units outright but hold shares in a corporation that owns the building. Shareholders pay fees covering maintenance and operations, managed by a governing board.
A credit check is when a lender reviews your financial history with credit agencies to assess your creditworthiness. It can be a soft check (no impact on your credit score) or a hard check (which can temporarily lower your score).
A credit score (FICO score) reflects your financial history, ranging from 300 to 850. A high score indicates timely debt repayment.
Credits or lender credits are funds provided by the lender to lower your closing costs in exchange for a higher interest rate.
DTI measures your monthly debt against your gross monthly income. It’s used to determine how much you can afford in a monthly mortgage payment.
Default occurs when a borrower fails to make mortgage payments, risking foreclosure and potential repossession of the property by the lender.
Depreciation is the decrease in an asset’s value over time.
A down payment is the cash you pay upfront toward a home purchase, typically 5–20% of the selling price. Less than 20% down usually requires PMI.
Earnest money is a deposit showing the buyer’s intent to purchase. Held in escrow until closing, it becomes part of the down payment or is forfeited if the contract falls through.
Equity is the difference between the amount owed on a property and its market value.
Escrow is a third-party account holding funds between parties. Used for buyer deposits during transactions and for property taxes and insurance premiums collected with mortgage payments.
Fannie Mae, or the Federal National Mortgage Association, buys mortgages and sells debt to investors, ensuring affordable housing options and fair lending practices.
FHA loans are government-backed and promote affordable, easy-to-qualify-for home loans, available through approved lenders. Suitable for first-time buyers with less credit history, requiring a minimum credit score of 500 and a 3.5% down payment.
The Fair Isaac Corporation (FICO) generates credit scores from information collected by Experian, Equifax, and TransUnion. Scores range from 300 to 850, assessing your likelihood to pay bills on time. Higher scores indicate more favorable borrowers.
A fixed-rate mortgage has a constant interest rate for the loan’s life. Offered in terms like 10, 15, 20, 25, and 30 years, it provides predictable monthly payments. Shorter terms usually have lower interest rates but higher monthly payments.
Flood certification determines if a property is in a flood zone, based on FEMA maps. Required by lenders, it indicates if special flood insurance is needed.
Flood insurance covers water damage from flooding. Required if your home is in a flood zone, premiums vary by risk level.
Foreclosure is when a lender repossesses a home due to the borrower defaulting on the mortgage.
Freddie Mac, or the Federal Home Loan Mortgage Corporation, funds smaller mortgage banks by buying loans, ensuring affordable housing for low-income buyers and renters.
A gift letter shows money given by family or partners for down payments or closing costs, confirming it doesn’t need to be repaid and won’t be counted as debt.
A home inspection examines a home’s condition before purchase. It’s the buyer’s responsibility to arrange and pay for it to uncover potential issues.
An HOA manages rules, regulations, and maintenance of a community’s common areas. Fees are collected monthly or annually.
Homeowners insurance protects against loss or damage from events like fire or theft. Lenders require it to ensure you can pay off the loan if something happens to your home.
The interest rate is the cost of borrowing money, shown as a percentage. Consumer mortgages usually use simple interest, calculated on the principal amount. Interest rates are quoted alongside APR, which includes lender fees.
An investment property is real estate bought to generate profit through rental income or resale. It typically has higher interest rates and down payment requirements.
A jumbo loan is a home loan exceeding the Federal Housing Administration (FHA) limit. Not guaranteed by Fannie Mae or Freddie Mac, it poses more risk to lenders. The maximum limit varies by location.
A lien is a legal claim on a property until the debt is paid. For home loans, the lender holds a lien on the home, giving them the right to seize it if the loan isn’t repaid.
Listing agents represent sellers in property transactions. They handle negotiations and meet with potential buyers on the seller’s behalf.
The loan-to-value (LTV) ratio assesses loan risk by dividing the loan amount by the home’s appraised value. High LTV ratios often require private mortgage insurance (PMI). Typically, if the LTV ratio is higher than 0.8, lenders require private mortgage insurance (PMI) to offset the higher risk of default.
A loan commitment is a letter from a lender promising to fund a loan under specific terms, issued after application review and underwriting.
A Loan Consultant, or Mortgage Expert, is your primary contact until you lock a rate, after which a Processing Expert takes over.
A loan estimate details the interest rate, term, monthly payment, and closing costs of your loan. Lenders must provide it within three days of your application. At Better Mortgage, it’s delivered online within minutes.
A Loan Processor, or Processing Expert, prepares your mortgage application and documentation for the Underwriter, ensuring all information is accurate and complete.
The loan term is the time period over which the loan is repaid.
Market value is the price a property would sell for on the open market, determined by an appraiser based on its condition and comparable sales.
Also know as Loan Consultant, guides you through the mortgage process, helping you understand loan options and requirements until you lock in a rate.
MIP is required for FHA loans, protecting the lender if the borrower defaults. It includes upfront and annual premiums and differs from PMI for conventional loans.
A mortgage note is a document signed at closing detailing the loan’s terms, including the amount borrowed, interest rate, and repayment schedule.
Negative amortization occurs when your monthly payments don’t cover all the interest, causing your loan balance to increase over time. The unpaid interest is added to the principal, resulting in interest being charged on a higher balance each month.
Nonconforming loans don’t meet Fannie Mae and Freddie Mac guidelines, making them higher risk with higher interest rates. Common types include jumbo loans, FHA loans, USDA loans, and VA loans, which are designed for those who may not qualify for conforming loans.
A notice of default is a public announcement that a borrower is behind on mortgage payments, starting the foreclosure process. If the borrower resolves the issue within 14 days, foreclosure proceedings stop; otherwise, the process continues, impacting the borrower’s credit score.
The occupancy date is when you can move into your new home, which may not align with the closing date due to title deed recording requirements.
Origination fees are one-time costs paid to a lender for processing your home loan.
Owner-occupancy means living in the home you own. If you don’t plan to live there, the home is considered an investment property, which may affect loan options and rates.
A pest inspection checks for active or previous infestations as part of the due diligence process. Costs can be covered by either the buyer or seller.
PITI stands for Principal, Interest, Taxes, and Insurance—the four components of a monthly mortgage payment.
A planned unit development (PUD) is a designed community with townhouses, detached homes, or condos, along with public spaces and commercial properties.
Points, or mortgage points, are fees paid to lower your interest rate. One point equals 1% of the loan amount and can reduce the rate by up to 0.25%.
A pre-approval letter from a lender states the amount you’re approved to borrow, based on verified information, and is an important step in the home shopping process.
Prepaid costs are payments made at closing for upcoming expenses like homeowners insurance, property taxes, and mortgage interest, often held in an escrow account.
A prepayment penalty is a fee charged when you pay off your mortgage early. Better Mortgage loans have no prepayment penalties, so you can pay off or refinance anytime without extra costs.
A primary residence is where you live most of the year. It could be a house, condo, co-op, or even a boat, but you can only have one primary residence. Loan rates are usually lower for primary residences, and the interest may be tax-deductible.
The principal is the amount you borrowed for your home loan, not including taxes, interest, or insurance. If you borrowed $250,000, your principal is $250,000.
PMI is insurance required if you put less than 20% down on a conventional loan. It protects the lender if you default. PMI can be canceled once you have 20% equity in your home. The cost is based on factors like credit score, loan-to-value ratio, and property type.
A purchase contract is a legal agreement between a buyer and seller. Once both parties agree and sign, it becomes binding, provided all terms are met. Some states allow agents to draft contracts, while others require lawyers.
Qualifying ratios help lenders decide if you qualify for a loan. It includes the housing expense ratio (PITI payments should be no more than 28% of gross monthly income) and the debt-to-income ratio (total debt payments should be no more than 36% of gross monthly income). This is known as the 28/36 rule.
A rate lock guarantees the interest rate offered by the lender for a specific time period (e.g., 30, 45, or 60 days). Better offers an online rate lock to protect you from rising interest rates.
Real estate agents are licensed professionals who help buyers negotiate and purchase homes. Better Real Estate has a network of top-rated local agents to guide you through the process.
Refinancing is applying for a new home loan to replace an existing one. Homeowners refinance to change the rate or term (rate/term refinance) or to take cash out of their equity (cash-out refinance).
A secondary home is a vacation home you control and use for personal use, not as a full-time rental or timeshare. It must be suitable for year-round occupancy.
Settlement costs (or closing costs) are fees paid to complete the sale of a property. These may include origination fees, credit report fees, appraisal fees, property taxes, and recording fees, depending on the lender.
A short sale occurs when a homeowner sells their home for less than the mortgage balance. If the lender agrees, the homeowner may still owe the remaining balance after the sale. A 4-year waiting period is required to qualify for a new mortgage after a short sale.
A survey is a drawing that outlines property boundaries, structures, and features. It confirms land boundaries and is typically held by the county tax collector. Surveys are part of closing costs when buying a home.
A termite letter is a document from a professional inspector certifying that the property is free of termites and wood-boring insects. This inspection is part of closing costs and can be paid by either the buyer or seller.
Third-party fees are costs not paid to the lender but necessary to complete the property sale. These may include credit report, appraisal, survey, recording fee, and transfer taxes.
Title refers to the legal ownership of property. It is recorded for tax purposes and ensures the deed holder is the legal owner.
Title insurance protects against financial loss from past issues with property ownership, like back taxes or liens. Lenders require title insurance to protect their interest until the loan is paid off. Borrowers can also buy title insurance for personal protection.
Title vesting defines property ownership, tax liability, and legal responsibilities. It can indicate multiple owners for a single property.
Transfer taxes are real estate taxes paid at closing to transfer the property deed from seller to buyer. These can be levied at city, county, state, and sometimes federal levels.
An underwriter assesses your loan application and property appraisal to determine if you qualify for a home loan.
Underwriting is the evaluation process of a home loan application and property appraisal, ending in an approval or denial.
VA loans offer favorable terms and qualifying guidelines for active military, veterans, and eligible spouses, backed partly by the federal government.
A verified pre-approval letter gives a clear idea of your affordability, based on verified information and a hard credit check.
A walk-through is the final property inspection by the buyer before closing to ensure agreed conditions and repairs are met and no new issues have arisen.
A wire transfer is an electronic transfer of funds between banks, used for large transactions like earnest money deposits, down payments, or mortgage refinancing. Domestic transfers are usually same-day; international transfers take about 2 days.
A year-end statement summarizes your mortgage account’s payments, taxes, and interest for the previous year, sent by January 31. It is also known as form 1098 for tax purposes.