Glossary
Amortization – The payment of a mortgage loan through monthly installments of principal and interest. The monthly payment amount is based on a schedule that will allow you to own your home at the end of a specific time period (for example 15 years) Initially, most of the payment goes to interest but over time more and more of the payment goes towards principal until it is all paid off.
Annual Percentage Rate (APR) - The APR is a calculation based on a government formula designed to reflect the true annual cost of borrowing, expressed as a percentage. It includes the interest, points, mortgage insurance, and other various fees associated with the loan. The rate is also adjusted for the time value of money, meaning that dollars paid by the borrower early on carry a heavier weight than dollars paid years later. An important note, the APR is calculated on the assumption that the loan completes its full term, and is therefore potentially deceptive for borrowers who intend to sell early.
Appraisal - A report that estimates the property’s fair market value based on an analysis of the sales of comparable homes in the same area. An appraisal is required by your lender and must be made by a qualified appraiser.
Balloon Mortgage - A mortgage that typically offers low rates for an initial period of time (usually less than 10 years), and then requires that the balance is due. The loan is typically amortized as if it would be paid over a thirty year period to keep monthly payments low. Because of the uncertainty of finding replacement financing when the balloon payment is due, we do not offer this type of mortgage. All of our loan products are Fixed Rate.
Closing Costs - Costs that the borrower must pay at the time of closing, in addition to the down payment. There are two categories of closing costs, "non-recurring closing costs" and "pre-paid items." Non-recurring closing costs are any items which are paid just once such as origination fees, discount points, attorney’s fees, credit report, title insurance and survey. “Pre-paids” are costs which recur during your loan, like property taxes and homeowners insurance. Your lender will estimate the amount of non-recurring closing costs and prepaid items on the Good Faith Estimate which must be issued to you within three days of receiving a home loan application.
Credit scoring - an unbiased way of deciding who should receive credit. Weights or scores are associated with your personal credit attributes, such as your income, debt and the time spent at your current address. These scores are added to give a total credit score. The total credit score is a prediction of how likely a person with that score is to default on their loan.
Good Faith Estimate - A written estimate provided by the lender of the closing costs a borrower is likely to pay at settlement. This estimate must be provided to all loan applicants within three business days after a loan application is received.
Hazard Insurance - Insurance to protect the homeowner and the lender against physical damage to a property from fire, wind, vandalism, and certain other natural causes. Mortgage lenders often require the borrower to carry an amount of hazard insurance on the property that is at least equal to the amount of the loan amount.
Loan to Value Ratio (LTV) - The loan amount divided by the value of the property expressed as a percentage. Value is defined as the lower of sales price or appraised value of the property. Generally, the lower the LTV the more favorable the terms of the programs offered by lenders.
Origination Fee - The fee that a lender charges you for processing a loan. It is usually expressed as a percentage of the loan amount. Unlike points, the origination fee doesn’t impact the interest rate. It doesn’t usually include fees for appraisals, credit reports, inspections or loan document preparation.
PITI - Stands for principal, interest, taxes and insurance which are the four components of your monthly mortgage payment. The payments of principal and interest go directly towards repaying the loan while the taxes and insurance (homeowner’s and PMI) goes into an escrow account to be paid on your behalf when they are due.
Prepayment Penalty - A fee charged by a mortgage lender to a borrower who wants to pay off part or all of a mortgage loan in advance of schedule. The charge is generally expressed as a percent of the loan balance at the time of prepayment, or it can be a specified number of months interest. It is not allowed for FHA or VA loans.
Underwriting - The process of analyzing a loan application to determine the amount of risk for the lender making the loan. Underwriting involves evaluating the borrower’s creditworthiness and the property itself and then selecting the appropriate loan term and interest rate.
VA or CalVet Loan - A loan backed by the U.S. Department of Veterans Affairs (VA) or the State of California. These loans are made to honorably discharged veterans or their un-remarried widows or widowers. They require low or no down payment and offer low interest rates.
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