Finding a Mortgage Loan in Wisconsin

Mortgage Glossary

Definitions of different terms used in the mortgage business

• Adjustable Rate Mortgage (ARM)
  A mortgage loan or deed of trust which allows the lender to adjust the interest rate in accordance with a specified index periodically and as agreed to at the inception of the loan.
• Amortization
  A calculation that shows the periodic payments of both principal and interest over the life of the loan from start to maturity. The amortization shows how the loan balance declines by the amount of the total scheduled payment, the amount of any extra payment, and how each payment is allocated between principal and interest. The scheduled payment less the interest equals amortization.
• Annual Percentage Rate APR
  One of two interest rates associated with a loan. The Annual Percentage Rate (APR) includes the interest and any additional costs or prepaid finance charges you might pay. Additional costs that are considered in the APR include prepaid interest, private mortgage insurance, closing fees, points, etc. The APR represents the total annual cost of credit with all charges included. It will usually be slightly higher than the Actual Interest Rate because it includes these additional costs, assuming you keep the loan to maturity.
• Appraisal
  A written analysis of the value of your home. An appraisal is performed and prepared by a licensed professional, using objective criteria, to set an estimated property value. The appraisal will determine an approximate fair market value based on recent sales of similar homes in your area. New mortgages and most refinancing packages require an appraisal as part of the loan process.
• Closing Costs
  Also known as "settlement costs," these represent fees for services that must be performed in order to process and close your loan. Examples include title fees, recording fees, appraisal fee, credit report fee, pest inspection, attorney's fees, taxes, and surveying fees. Closing costs vary by geographic location.
• Conforming Loan
  A mortgage loan that meets all requirements to be eligible for purchase by federal agencies such as Fannie Mae and Freddie Mac.
• Debt to Income Ratio (DTI or DR)
  The comparison of your debt payments (PITI, car, credit card payments, etc) divided by your gross (before-tax) monthly income.
• Federal Housing Administration (or FHA) Mortgage
  A low down payment loan that is insured against loss by the Federal Housing Administration. The borrower pays an insurance premium and the loan amount is usually limited.
• Good Faith Estimate
  Written estimate of the closing costs the borrower can expect at closing. Lenders are required to provide this disclosure to the borrower at different points throughout the loan process.
• Loan-to-Value Ratio (LTV)
  The percent of the appraised value of the property that the lender is willing to lend. For example, if a home is appraised at $200,000 and the lender has an 80% loan-to-value ratio, the most you could borrow would be $160,000 (200,000 x .80).
• Mortgage Insurance
  Insurance to protect the lender in the event that the loan defaults. Mortgage insurance is generally not required if you make a down payment of at least 20% of the home's appraised value. FHA and VA loans have different insurance guidelines and are designed to accommodate low or no down payment options.
• Pre-approval
  The process of determining how much money you will be able to borrow for a new mortgage or refinance before you actually apply for a loan. A pre-approval includes a preliminary screening of a borrower's credit history. Information submitted during pre-approval is subject to verification at application.
• PITI -- Abbreviation for principal, interest, taxes and insurance - the components of the typical monthly mortgage payment.