ERIEBANK simplifies the

mortgage process.

Pre-Qualify Now

Apply Now

Adjustable Rate Mortgage (ARM) – A mortgage in which the interest rate is adjusted periodically based on the preselected index. Also called a variable-rate mortgage.

 

Adjustment Interval – For an adjustable rate mortgage, the time between changes in the interest rate charged. The most common adjustment intervals are one, three or five years.

 

Amortization – The repayment of debt in equal payments over a specified period of time. The payments are structured so that the borrower pays both interest and principal with each equal payment.

 

Annual Percentage Rate (APR) – The interest rate which reflects the cost of a mortgage as an annual rate. It must be calculated by using a formula set by federal law and disclosed to the borrower to aid in comparing different credit plans. This rate is usually higher than the stated loan rate for the mortgage because it takes into account points, origination fees, or mortgage insurance charged by a lender.

 

Application Fee – The fee charged by the lender to the borrower for applying for a loan. Payment of this fee does not guarantee that a loan will be approved.

 

Appraisal – The determination of property value by an appraiser based on recent sales information of similar properties.

 

Broker – A person who works between two parties to negotiate a contract, such as a mortgage broker or real estate broker.

 

Cap – For an ARM, a cap is a limit placed on the increase or decrease of the interest rate or monthly payments.

 

Closing Costs – Fees paid by the borrower when property is purchased or refinanced. Closing costs typically include an origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge, and other miscellaneous costs. These costs usually total about 2 percent to 5 percent of the mortgage amount.

 

Commitment – A written letter of agreement between a lender and a borrower to loan money at a future date subject to the completion of paperwork or meeting specified conditions.

 

Construction Temporary Loan – A short-term loan used for financing the construction cost of a home in which the lender makes payments to the builder at periodic intervals as the work progresses.

 

Construction Permanent Loan – Similar to a construction temporary loan; however, this option contains built-in permanent financing allowing for a one-time closing.

 

Conventional Loan – A mortgage neither insured by the FHA nor guaranteed by the VA.

 

Credit Report – A report to a prospective lender documenting the credit history and current status of a borrower’s credit standing.

 

Debt-to-Income Ratio – The ratio, expressed as a percentage, which results when a borrower’s monthly payment obligation is divided by the gross monthly income.

 

Deed – A legal document which affects the transfer of ownership of real estate from the seller to the buyer.

 

Down Payment – Money paid by a buyer to make up the difference between the purchase price and the mortgage amount. Down payments are usually 5 percent to 20 percent of the sale price on conventional loans.

 

Earnest Money – A deposit paid by a potential homebuyer to a real estate agent or property seller upon bid acceptance that indicates their intention to purchase the house.

 

Equity – The amount of a property that is actually owned by the homeowner, versus the amount still owed on its mortgage.

 

Escrow – Money, property, a deed, or a bond put into the custody of a third party for delivery to a grantee only after the fulfillment of the conditions specified.

 

Federal Home Loan Mortgage Corporation (FHLMC) – Also known as Freddie Mac; a quasi-governmental agency that purchases conventional mortgages from insured depository institutions and approved mortgage bankers.

 

Federal National Mortgage Association (FNMA) – Also known as Fannie Mae; a tax-paying corporation created by Congress that purchases and sells conventional residential mortgages as well as those insured by FHA or guaranteed by VA. This investor makes mortgage money available and more affordable.

 

First Time Home Buyer – Typically most lenders recognize a first time home-buyer as someone who has not had ownership interest in their primary residence for at least three years. Some programs provide special benefits for first time home-buyers.

 

Fixed-Rate Mortgage – An interest rate that does not change during the loan term.

 

Foreclosure – A legal procedure in which real estate is sold by the lender to pay a defaulting borrower's debt.

 

Gross Monthly Income – Total monthly income before taxes and other deductions.

 

Index – A number used to determine the interest rate for an ARM. The index is generally a published number or percentage, such as the average interest rate or yield on Treasury bills. A margin is added to the index to determine the interest rate that will be charged on the ARM.

 

Inspection – A thorough review of the home's structural and mechanical condition performed by a qualified home inspector hired by the buyer. A satisfactory home inspection is often included as a contingency in the offer to purchase.  There are several inspection options to choose from and are paid for by the buyer to ensure they are aware of any potential conditions or costs that may be necessary for improvements.

 

Lender – The bank, mortgage company, or mortgage broker offering the loan. Many institutions only originate loans and then resell the obligation to third parties.

 

Loan-to-Value Ratio – The ratio between the amount of the mortgage loan and the lower of the sales price or appraised value.

 

Margin – The percentage a lender adds to the index rate to determine the interest rate.

 

Market Value – The highest price that the buyer would pay and the lowest price the seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.

 

Mortgage – A conditional transfer or pledge of real property as security for the payment of a debt.

 

Origination Fee – The fee imposed by a lender to cover certain processing expenses in connection with making a loan.

 

PITI – An acronym for principal, interest, taxes, and insurance – the four components that comprise a monthly mortgage payment.

 

Points – The borrower can purchase points in exchange for a lower interest rate. One point is equal to one percent of the loan amount and can decrease the interest rate by 1/8 to 1/4 percent.  This can be beneficial if you are looking for a way to reduce monthly mortgage payments.

 

Prepayment – The ability to pay off the remaining balance of a loan before its original maturing date.

 

Principal – The amount of debt, not counting interest, left on a loan.

 

Private Mortgage Insurance (PMI) – Insurance to protect the lender in case of default. PMI is typically charged to the borrower when the Loan-to-Value Ratio is greater than 80%.

 

Refinancing – The repayment of a debt from proceeds of a new loan using the same property as security.

 

Title – A document that gives evidence of the ownership of property.

 

Title Insurance – A policy, usually issued by a title insurance company, which insures the buyer and/or lender against errors in the title search. The cost of the policy is usually a function of the value of the property and is often paid by the buyer and/or seller.

 

Title Search – An examination of municipal or county records to determine the legal ownership of real estate, usually performed by a title company or attorney.

 

Underwriting – The "behind-the-scenes" process of reviewing a loan application to verify all information given and evaluate the borrower's ability to repay to determine whether the borrower qualifies for the loan for which they have applied.

Learn the Lingo

(Mortgage Definitions)

Helpful tools and resources.

Mortgage
Calculator

Choosing Your

Mortgage

Mortgage
Process

All About

Closing Costs

Mortgage Loan
Application Checklist

Learn the Lingo (Mortgage Definitions)

FAQs (Frequently Asked Questions)

Brought to you by

ERIEBANK has a variety of loan options to choose from:


Bridge Loan  |  First Time Home Buyer  |  Construction Loan   |  Conventional Loan  |  Home Equity Loan

MEMBER

FDIC

NMLS ID# 410748