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What’s that mean? Explaining mortgage lending terms

There are many terms you may only hear when you are buying a house or applying for a mortgage loan. Most people don’t buy houses often, so it’s understandable if you don’t know all of the specific terms typically used by your Realtor or mortgage loan officer. Below are a few words and phrases you may hear during your home buying process and their definitions.

Annual percentage rate (APR)

APR is the rate of interest charged on a loan, expressed as a percentage of the loan amount. Points – An amount a borrower pays to the lender at closing to lessen the interest rate. Every point is equal to one percent of the loan amount.

Debt to income ratio

A ratio calculated by dividing a borrower’s monthly debt by their total monthly income, usually expressed as a percentage. Appraisal – A written estimate used to determine the value of your property based on information on recent sales of similar properties.


Equity is the difference between the current market value of a property and the total debt obligations against the property. On a new mortgage loan, the down payment represents the equity in your new home.

Loan estimate

A loan estimate is a form that you receive after applying for a mortgage that clearly outlines the terms and features of your loan. The loan estimate helps the borrower understand the exact costs and terms of the loan.

Clear to close

The point at which the underwriter had reviewed and given approval on all the documents required to fund your loan and the lender is now ready to close the loan.

Adjustable rate mortgage (ARM)

An ARM is a home loan with a variable interest rate. With an ARM, the initial interest rate is fixed for a specified period of time. After that, the interest rate applied on the outstanding balance resets periodically, as outlined in the loan agreement. An ARM may be a smart financial choice for homebuyers who are planning to keep the loan for a limited period of time.

Construction loan

A short term loan to pay for the construction of a home. These are usually designed to provide periodic disbursements to the building as it progresses.

Conventional loan

A mortgage not insured by FHA or guaranteed by the Department of Veterans Affairs (VA).

Down Payment

A down payment is money that a buyer pays as a portion of the total purchase price, taking out a loan to finance the remainder. Depending on the borrower and the type of purchase, down payments may be as low as 0 percent or as high as 50 percent of the total purchase price.

Earnest money

Earnest money is a deposit buyers make to sellers to demonstrate their commitment to purchase the home.

It’s important to understand the details of your loan and home purchase, so be sure to ask your loan officer if you have any questions. Our Mortgage Loan team will walk you through every step of the process, so you feel confident and comfortable from pre-approval to closing.