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Common terms

Bi-weekly mortgage
A bi-weekly mortgage is a mortgage in which the borrower makes half of their monthly mortgage payment every two weeks, rather than paying the full payment amount once every month.  So if you paid monthly and your monthly mortgage payment was $1,000, then for a year you would make 12 payments of $1,000 each, for a total of $12,000.  But with a bi-weekly mortgage, you would make 26 payments of $500 each, for a total of $13,000 for the year.  This can help the borrower pay off their mortgage loan sooner and reduces the total amount of interest paid over the life of the loan.).

Borrower A borrower is a person who takes out a loan from a lender.  For a mortgage loan, the borrower often is also referred to as the mortgagor (and the bank or lender the mortgagee).

Conventional loan A conventional loan is a type of mortgage that is not insured or guaranteed by the government.

Debt-to-income ratio A debt-to-income ratio is a factor looked at by lenders when qualifying a borrower for a mortgage loan.  The DTI is a number that lenders use to determine how well a borrower can handle their monthly debts. Your debt-to-income ratio is the number you get when you divide your monthly debt payments by your monthly gross income.  Many lenders will want to see that your DTI is 36% or lower.

Down payment A down payment is that portion of the purchase price of a home that the buyer pays upfront; usually the balance of the purchase price that is needed to buy the home is borrowed from a lender by way of a mortgage loan.

Homeowners insurance Homeowners insurance is a type of property insurance. It protects you from damage (for example, from fire) to your home or possessions. Homeowners insurance also provides liability insurance against claims by people who might be injured due to accidents in your home or on the property.

Interest-only mortgage An interest-only mortgage is a type of loan in which the borrower only pays interest on the principal balance for a set time, usually five to seven years. At the end of the interest-only period, the borrower must either pay the principal back entirely or begin making payments of both principal and interest.

Loan, and Mortgage Loan A loan is money that is borrowed by one person or company from another, under an agreement whereby the borrower promises to re-pay the loan amount to the lender, usually plus interest.  A mortgage loan is a type of loan for buying or financing real estate, where the borrower agrees that if they fail to repay the loan as promised then the lender may sell the real estate in order to recover the un-paid loan amount(s) out of the sale proceeds (in a process called foreclosure).

Loan-to-value ratio (LTV) The loan-to-value ratio (or. LTV) is a factor looked at by lenders when qualifying a borrower for a mortgage loan.  The LTV compares the amount of a loan to the value of the asset being financed:  the amount you are borrowing divided by the price of the property being purchased or financed.  So the LTV is 66.66% on a $300,000 house where the amount being borrowed to purchase it is $200,000 (meaning the down payment is $100,000).  The lower your LTV the easier it will be to qualify for a mortgage loan.  For example, many conventional loans require that your LTV be no higher than 80%.  Of course, the greater your down payment amount, the better/higher your LTV will be.

Payment A payment is an action that transfers money from one person or entity to another. Payments can be made in various ways, such as with physical currency, such as coins or bills, with a check (personal, cahiers, or otherwise) or with electronic forms of payment, such as debit or credit cards or electronic funds transfers (a transfer effected digitally, from one bank account to another).

Real estate Real estate is land, or a parcel of land, either vacant (un-improved) or improved with structures such as a house, apartment building, commercial building, etc. Real estate, especially once it is thus “improved,” can serve as a place of business or residence and can be used to produce income, such as through renting or leasing.  Real estate also can refer to a particular kind of legal interest in a land parcel (whether or not improved), such as ownership or entitlement to occupancy under a lease.

Reverse mortgage A reverse mortgage is a type of loan that allows seniors to borrow against the value of their homes. The loan does not have to be repaid until the borrower moves, sells, or dies.

Step-by-step Guide A step-by-step guide is a guide that takes you through the process of doing something, usually in a series of easy-to-follow, sequential steps.

The Federal Housing Administration (FHA), FHA Loan The Federal Housing Administration (FHA) is an agency of the U.S. government.  An FHA loan is a mortgage loan that is issued by banks and other commercial lenders but guaranteed by the FHA against a borrower’s default.  FHA loans make home ownership more possible for borrowers than it otherwise would be through conventional mortgage loans, because an FHA loan permits relatively low down payments, limits closing costs the borrower pays, and is accessible to borrowers who have a relatively lower credit score.  These features make an FHA loan particularly useful for many first-time homebuyers who have not yet saved enough for the amount of down payments that commercial lenders usually require for a conventional loan.

Veterans Affairs Department (VA), VA loan The Veterans Affairs Department (VA) is an agency of the U.S. government.  A VA loan is a mortgage loan that is available to current and former members of the military (and select military spouses), issued by banks and other commercial lenders, but guaranteed by the VA against a borrower’s default.  VA loans make home ownership more possible for borrowers than it otherwise would be through conventional mortgage loans, primarily because a VA loan does not require any down payment.  Additionally, interest rates offered for VA loans often turn out to be lower than those offered for conventional loans.