Homebuyer Guide  /  Glossary

Glossary: plain-English definitions

Plain-English definitions of the terms you'll hear. Looking for who does what? See the team in Mortgage basics.

On this page Glossary: plain-English definitions More of the guide The six stages Mortgage basics Loan programs The property Credit Income & employment Your situation Money to close & after Foreclosures, short sales & new construction Selling to buy

Glossary: plain-English definitions

  • Amortization: the schedule by which each payment is split between interest and principal. Early payments are mostly interest.
  • APR (Annual Percentage Rate): the yearly cost of the loan including the rate, points and most lender fees.
  • Appraisal: an independent opinion of the home's value, ordered by the lender.
  • AUS (Automated Underwriting System): software lenders use to evaluate a loan file, such as Fannie Mae's Desktop Underwriter.
  • Cash to close: the total you must bring to closing: down payment plus costs and prepaids, minus deposits and credits.
  • Clear to close (CTC): the underwriter has signed off on every condition and the loan is ready for closing.
  • Closing Disclosure (CD): the final statement of your loan terms and costs. You must receive it at least three business days before closing.
  • Conditions: items the underwriter needs before final approval.
  • Contingency: a contract term that lets you cancel under stated circumstances, such as inspection, appraisal or financing.
  • DTI (Debt-to-Income ratio): your monthly debt payments divided by your gross monthly income.
  • Earnest money: your good-faith deposit when the contract is signed.
  • Escrow account: an account your servicer uses to pay your property taxes and insurance from your monthly payment.
  • Equity: the home's value minus what you owe on it.
  • Funding: the moment the lender releases the loan money to the title company or closing attorney. It happens after you sign, and the sale is not final until it does.
  • Gift letter: a signed statement from a donor that money given toward your purchase doesn't have to be repaid.
  • HOA (Homeowners Association): an organization that manages a community and charges dues, which count in your DTI.
  • Loan Estimate (LE): the standardized three-page disclosure of your estimated rate, payment and costs, sent within three business days of applying.
  • LTV (Loan-to-Value): your loan amount divided by the home's value. 5% down is a 95% LTV.
  • MIP / PMI: mortgage insurance. MIP is on FHA loans; PMI is on conventional loans with less than 20% down.
  • PITIA: your full housing payment: Principal, Interest, Taxes, Insurance and Association dues.
  • Points: an up-front fee to lower your rate. One point is 1% of the loan amount.
  • Prepaids: taxes, insurance and interest paid in advance at closing.
  • Principal: the amount you borrowed, not including interest.
  • Rate lock: the lender's commitment to hold your rate for a set number of days.
  • Reserves: funds you have left after closing, measured in months of housing payments.
  • REO (Real Estate Owned): on your application, other property you own. In listings, a home owned by a bank after foreclosure.
  • Seller concessions: costs the seller agrees to pay on your behalf.
  • Servicer: the company that collects your payments and manages your escrow. It may not be the lender that made your loan.
  • Title insurance: protection against problems with the ownership history of the property.
  • Underwriting: the lender's review of your credit, income, assets and the property to decide on the loan.
  • VOE (Verification of Employment): the lender's confirmation with your employer that you work there.
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More of the guide

Mortgage basicsWho does what during a purchase, banks, lenders and brokers compared, how approvals work, how rates and loan terms differ, and how locking a rate works. Start here if the vocabulary is new. Loan programsThe major loan types, the help available to first-time buyers, renovation loans, and how mortgage insurance works on each. The propertyHow the type of home and how you'll use it affect your loan, and the checks that happen on the property itself: inspections, appraisal, insurance and title. CreditWhich score lenders use, how your debts are counted, and how collections, liens and past bankruptcies or foreclosures are treated. Income & employmentHow lenders count each kind of income, what business owners should expect, and how job changes and support payments are treated. Your situationHow to keep your approval intact from application to closing, and what changes when you add a co-borrower, are going through a divorce, or already own a home. Money to close & afterYour Loan Estimate and Closing Disclosure, what you'll pay at closing and where the money can come from, and what happens to your payment afterward. Foreclosures, short sales & new constructionFour purchase types that do not follow the standard playbook, including custom builds. Selling to buyBuying your next home when you have one to sell: which to do first, reaching your equity, and lining up two closings.