Adjustable Rate Mortgage (ARM)

A mortgage with a fixed interest rate for an initial period (e.g., 5, 7, or 10 years), after which the rate adjusts periodically based on a specific index.
💡 Pro Tip: Understand the potential risks and rewards of ARMs to decide if they align with your financial goals.

Amortization

The process of gradually paying off a loan over time, with each payment reducing both the principal and interest.
💡 Pro Tip: Review your loan’s amortization schedule to track progress toward full repayment.

Annual Percentage Rate (APR)

The total cost of borrowing, including the interest rate and other fees, expressed as a percentage.
💡 Pro Tip: Compare APRs from multiple lenders to identify the best loan offer.

Appraisal

A professional evaluation of a property’s value to determine a fair purchase price and secure the best mortgage terms.
💡 Pro Tip: Request a copy of the appraisal report for your records and future reference.

Ability to Repay (ATR)

A regulatory requirement ensuring that borrowers can afford their mortgage payments based on income, assets, and debts.
💡 Pro Tip: Keep all necessary financial documents organized to streamline the application process.

Closing Costs

Fees paid at the conclusion of a real estate transaction, including appraisal fees, title insurance, and attorney fees.
💡 Pro Tip: Budget 2–5% of the purchase price for closing costs to avoid surprises.

Closing Disclosure (CD)

A document detailing the final terms, fees, and costs associated with your loan.
💡 Pro Tip: Review your CD carefully and ask your lender about any discrepancies before closing.

Debt-to-Income Ratio (DTI)

The percentage of your gross monthly income used to pay monthly debts.
💡 Pro Tip: Keep your DTI below 43% to improve your chances of loan approval.

Down Payment

The upfront portion of the home purchase price paid at closing.
💡 Pro Tip: A larger down payment may reduce your monthly payments and eliminate PMI.

DSCR (Debt Service Coverage Ratio)

A metric used for investment loans that measures income against debt obligations.
💡 Pro Tip: A higher DSCR can lead to better terms for investment loans.

Escrow

A third-party account used to manage property taxes and insurance payments.
💡 Pro Tip: Ensure your escrow account balance is sufficient to cover annual expenses.

Equity

The difference between your home’s market value and the outstanding mortgage balance.
💡 Pro Tip: Use equity wisely for investments, home improvements, or debt consolidation.

FICO Score

A credit score used by lenders to evaluate a borrower’s creditworthiness.
💡 Pro Tip: Aim for a score of 740 or higher to secure the best mortgage terms.

Fixed-Rate Mortgage

A mortgage with a consistent interest rate and monthly payment for the loan’s entire term.
💡 Pro Tip: Choose a fixed-rate mortgage for long-term stability and predictable payments.

Loan Estimate

A document outlining the estimated costs of a mortgage, including interest, fees, and terms.
💡 Pro Tip: Use the Loan Estimate to compare offers from multiple lenders.

Loan-to-Value Ratio (LTV)

The ratio of the loan amount to the appraised property value.
💡 Pro Tip: A lower LTV often results in better interest rates and avoids PMI.

Mortgage

A loan secured by real estate, with various types such as fixed-rate and adjustable-rate.
💡 Pro Tip: Choose a mortgage that aligns with your financial goals and lifestyle.

Origination Fee

A one-time fee charged by lenders to process and underwrite your mortgage.
💡 Pro Tip: Review your Loan Estimate to understand all fees, including the origination fee.

Points

Fees paid to the lender upfront to reduce your loan’s interest rate.
💡 Pro Tip: Calculate the break-even point to decide if paying points makes sense.

Pre-Approval

A lender’s preliminary approval for a mortgage, based on your credit and income.
💡 Pro Tip: A pre-approval letter strengthens your offer in a competitive market.

Principal Balance

The outstanding amount you owe on a loan, excluding interest and fees.
💡 Pro Tip: Paying extra toward the principal can reduce the loan term and total interest costs.

Private Mortgage Insurance (PMI)

Insurance required for loans with a down payment of less than 20%.
💡 Pro Tip: Once you reach 20% equity, request PMI removal to save on monthly costs.

Profit & Loss (P&L)

A financial statement summarizing income and expenses, often used for self-employed borrowers.
💡 Pro Tip: Keep your P&L up to date and consistent with other financial records.

Title Insurance

Insurance protecting against claims on a property’s title, ensuring clear ownership.
💡 Pro Tip: Choose a reliable title company for comprehensive coverage.