Accessory Dwelling Unit (ADU): A secondary residential structure located on the same parcel as a primary home, such as a guest cottage, basement apartment, or repurposed garage.

Amortization: The schedule of paying off a loan via regular installments. Each payment covers a portion of the interest and reduces the principal balance over the life of the loan.

Annual Percentage Rate (APR): A broad representation of the cost of borrowing per year. It combines the interest rate with other finance charges and fees to show the total annual expense.

Appraisal: A professional assessment of a property's fair market value. Lenders utilize this report to confirm that the real estate sufficiently collateralizes the requested loan amount.

Asset Depletion: A method of qualifying for a loan by using liquid wealth to calculate a monthly income stream, rather than relying on standard salary documentation.

Bridge Loan: Short-term financing used to bridge the gap between the purchase of a new property and the sale of an existing residence.

Closing Costs: The settlement fees paid at the end of a real estate transaction. These typically include title insurance, appraisal fees, lender charges, and prepaid taxes or insurance.

Closing Disclosure (CD): A formal document provided three days before loan signing that outlines the final terms, monthly payments, and total funds required at closing.

Condo Questionnaire: A specific document completed by a homeowners association to verify the financial and legal health of a complex, ensuring it meets lending guidelines.

Conventional Loan: A mortgage that is not backed by a government agency. These loans usually adhere to the financing standards set by Fannie Mae or Freddie Mac.

Debt-to-Income (DTI) Ratio: A metric comparing your recurring monthly debt to your gross monthly income, used to assess your ability to manage additional monthly payments.

Down Payment: The upfront cash portion of the home purchase price. This amount establishes your initial equity in the property at the start of the mortgage.

Down Payment Assistance (DPA): Localized programs or grants designed to help eligible buyers cover the initial costs and hurdles of purchasing a home.

DSCR (Debt Service Coverage Ratio) Loan: A financing solution for real estate investors where loan approval is based solely on the property’s rental income relative to its debt obligations.

Earnest Money: A preliminary deposit provided by the buyer to demonstrate a sincere commitment to the purchase agreement.

Equity: The financial interest you hold in a property, calculated as its current market value minus any outstanding mortgage balances or liens.

Escrow Account: A neutral account managed by the lender to collect and pay property-related expenses, such as homeowners insurance and property taxes.

FHA Loan: A government-backed mortgage insured by the Federal Housing Administration, designed to help borrowers with lower credit scores or smaller down payments.

FICO Score: A credit rating used by lenders to evaluate your financial reliability and determine the interest rates or loan products for which you qualify.

Fixed-Rate Mortgage: A loan featuring an interest rate that remains constant throughout the entire term, ensuring your monthly principal and interest payments never change.

Foreclosure: The legal mechanism by which a lender takes possession of a property after the borrower fails to maintain the agreed-upon payment schedule.

Gift Funds: Monies provided by a relative or approved source to help with a home purchase, documented by a letter stating the funds are not a loan and require no repayment.

Home Equity Line of Credit (HELOC): A revolving source of credit secured by the equity in your home, allowing you to borrow funds as needed for significant expenses.

Homeowners Insurance: A required insurance policy that protects both the owner and the lender against financial losses resulting from property damage or liability.

Homestead (Exemption): A legal provision for a primary residence that can reduce the assessed value for property tax purposes and offer protection from certain creditors.

HOA Fees: Mandatory monthly or annual dues paid to a community association for the maintenance of shared amenities, landscaping, and building exteriors.

Investment Purchase: The acquisition of real estate intended to generate profit through rental income or appreciation, rather than serving as the buyer’s primary home.

Jumbo Loan: A mortgage that exceeds the conforming loan limits set by federal housing agencies, often used for luxury properties or high-cost real estate markets.

Loan Estimate (LE): A three-page form provided after application that details the estimated interest rate, monthly payment, and total closing costs for the loan.

Loan-to-Value (LTV) Ratio: A calculation used by lenders to assess risk, comparing the total loan amount to the appraised value of the property.

Manufactured Home: A factory-built residence transported to a permanent site. These homes must meet specific HUD codes to qualify for traditional mortgage financing.

Mortgage Insurance (PMI / MIP): A policy that protects the lender against loss if the borrower defaults. It is generally required when the down payment is less than twenty percent.

Multifamily: A residential property consisting of two to four individual units. These can often be financed under standard residential lending guidelines rather than commercial ones.

Non-QM (Non-Qualified Mortgage) Loan: A flexible lending option for borrowers with unique financial situations, such as self-employed individuals using bank statements for income verification.

Owner Occupied: A property used as the borrower's main residence. These loans typically feature the most competitive interest rates and lower down payment requirements.

PITI: An acronym representing the four components of a monthly mortgage payment: Principal, Interest, Taxes, and Insurance.

Pre-approval: A formal evaluation by a lender that determines the specific loan amount a borrower is qualified to receive based on a comprehensive credit and income review.

Principal: The original amount of money borrowed or the remaining balance of the loan, excluding interest and other fees.

Rate Buy Down: The process of paying additional points or fees at closing to obtain a lower interest rate for a specific period or the life of the loan.

Recast: A mortgage feature where a large principal payment is made, and the lender re-calculates the remaining monthly payments based on the lower balance at the current rate.

Refinance: The replacement of an existing mortgage with a new loan, typically performed to secure a lower interest rate, change the loan term, or cash out equity.

Reserves: Liquid assets that remain in a borrower's account after the loan closes, acting as a financial cushion to ensure future mortgage payments can be met.

Second Home: A property occupied by the owner for a portion of the year for vacation or social purposes, distinct from a primary residence or a rental property.

Seller Credit (Concession): A financial contribution provided by the seller to the buyer at closing to help cover the costs of the transaction.

Short Sale: A transaction where a lender allows a property to be sold for less than the remaining mortgage balance to prevent the need for a foreclosure.

Survey: A professional drawing illustrating the legal property boundaries, easements, and the location of structures on a specific piece of land.

USDA Loan: A government-insured mortgage offering zero down payment options for properties located in designated rural and suburban areas.

VA Loan: A benefit-driven mortgage for veterans and active military members that requires no down payment and features no monthly private mortgage insurance.

 

 1031 Exchange: A tax-deferred strategy allowing real estate investors to sell a property and reinvest the proceeds into a new like-kind property without immediate capital gains taxes.