Mortgage Lingo - Part 2: Another 15 terms & phrases you ought to know

Last week we brought you the first of a two-part series: the ultimate guide of mortgage terms, 15 home financing acronyms, phrases and descriptors that will come in handy while you're considering buying a house and how you'll pay for it. Now, we'll cover the back end of the alphabet with 15 more! Enjoy!

16 – Jumbo Loan

Jumbo loans are mortgages with higher balance amounts exceeding the conforming loan limit set by Fannie Mae and Freddie Mac – which is currently $726,200. In some high-priced markets in the US, the minimum financing threshold starts at $1,089,300. They're designed to finance homes in higher-priced real estate markets — which is just about everywhere these days! 

17 – Loan-To-Value Ratio (LTV)

LTV is a figure that lenders use to assess the risk when approving loans and also when determining the interest rate they'll offer. To calculate an LTV, the lender divides the loan amount by the property's assessed value. So, if you buy a home priced at $350,000 and have $35,000 to put toward the down payment, your mortgage loan amount would need to be $315,000, resulting in an LTV of 90%. If you can make a bigger down payment, you may snag a lower interest rate since mortgage lenders associate lower LTVs with fewer risks.

18 – Pre-approval

Don't be fooled into thinking that a mortgage pre-approval and a pre-qualification are the same. Both represent your ability to get a mortgage, but a pre-approval is stickier. An underwritten pre-approval means the lender has reviewed your credit history and financial information and has issued preliminary approval for a specific dollar amount. It's a guarantee to a potential seller that any offer you make is legit. 

19 – Principal, Interest, Taxes, Insurance (PITI)

“PITI” is a dreadful acronym, which is why many lenders try not to say it. But it is important — it stands for the components of a monthly mortgage payment: Principal, Interest, Taxes and Insurance. “Principal” is the balance of the loan that you still owe. “Interest” is the amount you pay to the lender for the privilege of borrowing money. “Taxes” refer to the local and state property taxes you pay as a property owner. And finally, “Insurance” refers to property insurance and, possibly, the private mortgage insurance you may need to take out to protect the lender if you default. All four of these things combined make up your monthly mortgage payment. 

20 – Points

A point, aka a discount point, is prepaid interest, with each one equal to 1% of your total loan amount. Paying for points is a way to reduce the loan's interest rate — the more points you buy, the lower your rate. Just remember that because you're basically paying interest in advance, points must be satisfied at closing.

21 – Private mortgage insurance (PMI)

PMI is essentially an insurance policy the borrower pays to protect the lender against loan default. It's a way for mortgage companies to recoup the costs of foreclosure. If you've been preapproved for a specific amount but don't have enough cash to make a 20% down payment, many lenders will still approve your loan application — but — you'll have to take out private mortgage insurance. It typically averages 0.5% of your loan amount annually and is added to the monthly mortgage payment. Most lenders will let you out of paying PMI once your LTV is 80% or less.

22 – Rate Lock

Mortgage interest rates can change daily. We're sure you noticed rates climb from very low to pretty high, all within a few months last year. To guard against this, you'll want to lock in a good rate when you see it. A mortgage rate lock means that the interest rate your lender quoted you won't change between the offer and the closing date as long as you can close within an agreed-upon time frame — typically 30 to 60 days or longer — and there are no changes to your application.

23 – Refinance (Refi) 

Simply put, refinancing is the process of replacing your current mortgage with a new one, generally with terms different from the original. Mortgage refinancing provides new money to the borrower and is used to pay off the original mortgage. Also called a refi, it allows borrowers to get a better interest rate, resulting in a lower monthly mortgage payment, among other benefits. You may only want to refi if the rates have gone down, though: the goal here is to shave time off your mortgage or shave the monthly payment*.

24 – Second Mortgage

Some people mistake a second mortgage for mortgage refinancing, but they're very different. A second mortgage is a loan taken out on a home that's already mortgaged. This is done to draw cash from a property to use for other expenses. It doesn't replace the first mortgage.

25 – Seller Concession

It's been a seller's market for the past few years, so you don't hear about seller concessions much anymore. But as home prices have increased just about everywhere, seller concessions may come back into vogue as sellers want to make a sale in a tough housing market. Seller concessions are when a property owner offers a prospective buyer an incentive to make purchasing the property more attractive. What's allowed can vary by state, but they typically have included paying for part of the attorney fees, closing costs, home appraisal costs, interest rate points, origination fees or title insurance.

26 – Title & Title Search

A title is physical, recorded proof that you own a property. It's a document registered with the local government when a home transfers from one party to another. A title search is a complete review of all records on the home to make sure that the property wholly belongs to the seller and that there are no other claims against this property (like from a divorce or inheritance.) or other charges such as mortgages or liens.

27 – Title Insurance

You'll see the term “title insurance” when looking at your proposed closing costs. It's purchased to protect you — and the lender — against claims that may have been missed in the title search (see above). Unlike auto or home insurance, you don't make monthly payments for title insurance. Instead, you pay for it at closing and it covers you for as long as you're the homeowner.

28 – Underwriting

With home financing, underwriting is the process of vetting applicants and calculating their level of risk concerning the amount they are looking to borrow. Underwritten approvals are based on borrower credit, income and other factors and are conducted by a mortgage underwriter, who typically works for the lender in conjunction with your loan officer. Basically, it's the lender's way of assuring that it's a safe bet that you're likely to pay back the loan in full and without issue.

29 – USDA Loan 

A USDA Loan is a flexible, government-guaranteed home financing program with no down payment. The Department of Agriculture started this program in 1991 to promote homeownership in rural communities. It's geared towards buyers who have trouble coming up with a down payment and who have low to moderate incomes, meaning a combined household income cannot be more than the median income for your area. These days the program has extended to some suburban neighborhoods not far from urban areas.

30 – VA Loan

VA Loans are mortgages for veterans and active-duty military service personnel. And they're guaranteed by the US Department of Veterans Affairs. They came into being in 1944 to help WW2 vets realize the American dream of homeownership. With a VA Loan, qualified vets and/or their surviving spouses can get 100% financing — meaning no money down. 

Want to know more?

Need further details on any of the terms above (or any of the terms we highlighted in Part 1)? Ask a mortgage professional in your area. We've got loan officers in all 50 states to answer your questions about home ownership and get you started toward pre-approval! 

*By refinancing your existing loan, your total finance charges may be higher over the life of the loan.