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Terms You Should Know

Annual Income

The combined yearly income for you and your co-borrower. This includes all income before taxes including, base salary, commissions, bonuses, overtime, tips, rental income, investment income, alimony, child support, etc.

Adjustable Rate Mortgage (ARM)

Mortgages that have interest rates that change over time. Typically starts out at a lower interest rate than a fixed rate mortgage for a set number of years before changing from year to year.

This type of mortgage is sometimes used to get into the home, however, the borrower should consider investigating refinancing options to a fixed-rate mortgage prior to the end of the initial set term.


Person(s) borrowing money for the purchase of a home, who either has or is creating an ownership interest in the property.


Person(s) or entitity purchasing a home or other real property


When all activities involved in the purchase of a home have been completed and the deed is recorded with the Register of Deeds office.

Debt-to-Income Ratio (DTI)

The DTI is expressed as a percentage and is your total “minimum” monthly debt divided by your gross (before taxes) monthly income. The DTI limit for a Conventional Mortgage is generally 36% of your gross monthly income and up to 41% for an FHA or VA Mortgage. A DTI of 20% or below is considered excellent.

Down Payment

The total amount of money a buyer puts down to reduce the amount borrowered for the purchase of a home. The amount of the down payment will depend on the type of loan the borrower is obtaining from the lender.

Due Diligence

Buyers due diligence includes completing the loan application with their lender, obtaining an appraisal, conducting inspections and investigating other information they need to complete the purchase.

Due Diligence Fee

The amount of money a buyer offers to the seller to take his or her home off the market in order for the buyer to conduct their due diligence prior to completing the purchase of the property. These funds are remitted to the seller immediately upon offer acceptance and are NON-REFUNDABLE but are credited back to the buyer at closing.

Earnest Money

The initial amount of money a buyer offers to put down to show the seller that their offer to purchase is in good faith. These funds are remitted to the escrow agent upon offer acceptance and are REFUNDABLE under certain conditions. The funds are credited back to the buyer at closing.

Escrow Account

A special account held by a third party to temporarily hold large sums of money until a particular condition has been met. Typically used in real estate transactions to protect both the buyer and the seller throughout the home buying process.

Mortgage lenders may also require an escrow account be established to hold taxes and insurance payments for a borrower.


The difference between what you owe on your mortgage and what your home is currently worth

Fixed-Rate Mortgage

Loans that have the same interest rate for the entire duration of the loan. This means the principal and interest portion of the monthly payment will remain the same, even for long term loans.

Home Owners Association (HOA)

An HOA is a private organization in a subdivision, planned unit development or condo building that creates and enforces rules for the properties and residents. If you purchase property within a community with an HOA you automatically become a member and are required to pay HOA dues and abide by the rules and guidelines of the community.

Home Owners Association (HOA) Dues

Refers to an amount of money that must be paid by members belonging to an HOA to assist with the cost of neighborhood maintanence and improvements.

Home Owners Insurance

A form of insurance typically required by lenders to protect the borrower and the lender against losses and damages to an individual’s residence in the event of a destructive event.


The fee charged by the lender for the use of their money


An organization, entity or financial institution that lends money for a. mortgage to purchase property.

Lenders may also be investors who own an interest in the mortgage through a mortgage-backed security. In these situations, the initial lender is known as the mortgage originator who then packages and sells the loan to investors. The payments thereafter are collected by a </
loan servicer.


A loan typically used to buy a home or other piece of real estate for which that property then serves as collateral.

Offer to Purchase and Contract (OTP)

The document used to purchase real estate. Upon agreement to the terms by all parties (buyer and seller), the Offer to Purchase becomes a Contract.


The Principal, Interest, Taxes, and Insurance amounts that make up your total monthly mortgage payment.


The original dollar amount borrowed for your mortgage loan.


Meeting between the buyer and/or seller and settlement agent, typically a real estate attorney, to settle all costs involved in the purchase of a property, have any questions answered, loan terms explained and review and sign all necessary documentation.

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