Loan Terminology

  • Amortization – Payment of a debt in equal installments of principal and interest.
  • Appreciation – The increase in value or price of a property over time.
  • Credit Score – A number between 350 – 850 based on your debts and likelihood of repaying them on time. It’s used by the lender to determine your interest rate.
  • Debt-to-Income Ratio – The ratio of a borrower’s monthly debt payments to his or her monthly gross income. It determines the borrower’s loan amount.
  • Discount Points – The fee associated with the note rate for your loan. One point equals 1% of the loan amount – a $100,000 loan would equal $1,000.
  • Down Payment – The portion of the purchase price a buyer pays in cash at the beginning of the loan.
  • Earnest Money – A deposit given by the buyer to the seller with an offer to purchase.
  • Loan-to-Value Ratio – Loan-to-Value (LTV) is a ratio that divides the home loan value into the property value. For example, if your home is worth $100,000 and you owe $60,000 on your home, then your loan-to-value is 100,000/60,000 = 60%.
  • Mortgage Insurance – Insurance written by a private mortgage insurance company protecting the mortgage lender against loss due to default or foreclosure.
  • Origination Fee – The fee the lender charges to originate the loan. This is typically 1 discount point.
  • PITI – Your monthly home payment, which is comprised of Principal, Interest, Taxes, and Insurance.
  • Principal – The sum of money outstanding upon which interest is payable.
  • Second Mortgage – A mortgage which ranks after a first mortgage in priority.
  • Underwriting – The analysis of risk involved in making a mortgage loan to determine whether the risk is acceptable to the lender. It involves evaluating the property and the borrower’s ability to repay the loan.