Applying for a mortgage is a big financial decision. The financing process and terminology can be confusing at times for both first-time and repeat homebuyers. Get definitions on mortgage terms that are likely to come up throughout your loan process from our mortgage glossary.
A written estimate of a property’s market value completed by a licensed appraiser.
Certificate of Title
A legal document proving a person’s right to or ownership of a property.
Debt-to-Income Ratio (DTI)
The relationship between an individual’s debt payments to the income he or she earns.
The difference between a home’s fair market value and the outstanding balance of all liens the borrower has on the property.
A financial instrument created in order to store money collected by a lender to pay for property taxes and hazard insurance when they become due by a third party.
Good Faith Estimate
A disclosure from your lender that outlines all of the costs associated in obtaining a mortgage.
Hazard Insurance (homeowner’s insurance)
This insurance should be equal to at least the replacement cost of the property you are purchasing. Replacement cost coverage ensures that your home will be fully rebuilt in case of a total loss. Many homebuyers purchase a homeowner’s insurance policy that includes personal liability and personal property coverage. If the home you are purchasing is near water or in a flood zone, you may need flood insurance as part of your homeowner’s protection. Lenders generally require the first year’s premium to be paid prior to closing, as well as escrowing the monthly breakdown to pay the premium in full when due annually.
Interest Rate Lock
A written agreement in which the lender guarantees a specified interest rate if a mortgage goes to closing within a set period of time.
A legal claim against a property that must be paid off when the property is sold.
Loan-to-Value Ratio (LTV)
The relationship between the principal balance of the mortgage and the appraised value (or sales price, if lower) of the property.
Insurance paid by homebuyers with less than 20 percent equity in their home purchase. This insurance protects lenders against default by the borrower.
Insurance that protects the lender (lender’s policy) or the buyer (owner’s policy) against loss arising from disputes over ownership of a property. Your lender will require that you purchase a lender’s policy. The seller typically purchases an owner’s policy for the buyer.
Truth-in-Lending Act (TIL)
A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the annual percentage rate (APR) and other charges. Your lender should provide you with the Truth-in-Lending statement within three business days of your loan application.
Looking for more information on buying a home? Our Mortgage 101 Handbook is the ultimate guide for First Time Home Buyers.