We realize that the mortgage loan industry is not the most customer-friendly of them all when it comes to understanding and knowledge. At Lincoln Lending, the education aspect of the business is as important as anything else we do. We realize that some customers might not be interested in "learning how the watch works", but for those that do, we have put together this glossary for home lending terms.
Appraisal - An unbiased determination of a property’s value. A professional assesses the value of a home based on its location, condition, size, layout, etc. The appraised value can be impacted by the sale of other similar properties, the current real estate market, repairs needed, etc.
Appreciation - The increase in the value of property over time.
Certificate of Eligibility - A confirmation from the Veteran’s Administration that the borrower has met the minimum requirements for VA loan eligibility.
Closing - A meeting to officially transfer ownership of the home. All parties meet to review and sign title and mortgage documents.
Closing costs - Closing costs are the actual costs of getting a house and home loan (lender fees, title fees, county tax, state tax, appraisal, survey, home inspection, pest inspection, etc.).
Conventional loan - A loan that is not offered or secured by a government agency like the Federal Housing Administration or Veteran’s Administration.
Cosigner - A cosigner is someone who promises to pay off a buyer’s debt if the buyer stops making payments.
Credit Bureau - National organizations that collect information about a person’s credit history and creates credit reports based on specific algorithms or formulas. The three major credit bureaus are Equifax, Experian and TransUnion.
Credit score - These are ratings by independent companies based on your credit history, total debt and other factors. Credit scores can range from 300 to 850. The higher the score, the more confident a lender can be that the borrower will be able to repay a loan.
Debt to Income Ratio (DTI) - This is the amount of all your monthly debt divided by your gross monthly income.
Derogatory marks - These are negative items in your credit report. This could include seriously late payments, bankruptcies, legal judgments, etc.
Down payment - The down payment is a percentage of the total purchase price of your home. You pay this amount out-of-pocket when you buy the home. The required minimum down payment varies, but is usually 0% to 5% of the home’s purchase price. There are several programs offering down payment assistance for first-time homebuyers.
Equity - This is the appraised value of the home, minus the amount owed on the mortgage or other property debt.
Escrow - Your lender may set up this account to pay your mortgage insurance and property taxes for you. The amounts are built into your mortgage payments and then held in an escrow account until it is time to pay them.
FHA - Federal Housing Administration
Funding Fees - This is a one-time fee paid to the Department of Veteran’s Affairs to help offset the costs of a VA loan guarantee. The amount is based on your service, down payment and whether you’ve had a VA loan before.
Home inspection - A home inspection helps identify potential problems in the home. This includes areas like heat and air, plumbing, electrical, windows, structural issues, etc. The inspector creates a written report of findings for the potential buyer.
HOA - Home Owners Association - An organization that maintains a housing developments grounds and facilities. The HOA often charges fees or dues to homeowners in the development.
HUD - Housing and Urban Development
Minimum Property Requirements (MPRs) - Specific standards set by the Veteran’s Administration to ensure Veterans’ home are safe, sanitary and structurally sound.
Mortgage - A loan to buy real estate. The property is then used as security to pay off the loan if the borrower defaults on the debt.
PMI - Private Mortgage Insurance - This insurance helps protect the lender if there is a foreclosure on the home and the property is worth less than the remaining debt.
Pre-approval - After you complete a mortgage application, your lender will review detailed information about your finances. The lender will determine the amount and interest rate of your loan.
Prepaids - Prepaids are items like property taxes and home insurance that are separate from your home loan. These are usually out-of-pocket expenses required when you close on your new home.
Prequalifying - This is based on an overview of information the buyer provides to the lender. The lender will review your income, debts and assets to determine if you are qualified to borrow money and how much your loan could be.
Property Taxes - Taxes paid to the city, county and state based on a percentage of the property value.
PUD - Planned Unit Developments - These are planned communities that can contain different types of properties and amenities for use by property owners. This can include homes, parks, pools, playgrounds, etc.
Residual Income - The amount of money that remains after your pay other bills, including water, gas, electric, daycare, car payments, etc.
Title insurance - This protects the buyer and lender if there are any problems that occur during the transfer of the title or property. The title company verifies that the seller does own the property and has the right to sell it. Then they work with an underwriter who agrees to protect you if a problem does occur.
Underwriter - Underwriters review a buyer’s financial information to decide how much risk is involved in the loan. They will verify you will be able to afford the mortgage payments buy checking your credit, debt, down payment, etc.
USDA - United States Department of Agriculture
VA - Veterans' Administration
VA Home Loan - A loan guaranteed by the Veterans' Administration as a benefit earned from military service.