Loan Terminology

Below are some common mortgage terms that are used throughout the home-financing process.

ANNUAL PERCENTAGE RATE (APR)

This is your annual cost of the loan represented as a percentage. APR allows homebuyers to compare different mortgage programs based on their annual cost.

LOAN-TO-VALUE RATIO (LTV)

To calculate this ratio, the lender divides the mortgage amount by the purchase price or the appraised home value. LTV helps assess the lender’s risk of the loan.

CLOSING DISCLOSURE

This form is a statement of final loan terms and closing costs. You must receive this form from your lender at least 3 days before your closing. You can compare this document with your Loan Estimate.

ORIGINATION FEE

This is the fee that a lender charges to prepare the documents related to a borrower’s mortgage.

DEBT-TO-INCOME RATIO (DTI)

Lenders use this ratio to determine if a borrower can afford their monthly mortgage payment. DTI is calculated by dividing the borrower’s monthly debts by their pre-tax monthly income.

PRINCIPAL, INTEREST, TAXES AND INSURANCE (PITI)

The monthly mortgage payment expected from the borrower.

DOWN PAYMENT

This is the portion of the purchase price that the buyer pays.

PRIVATE MORTGAGE INSURANCE (PMI)

The borrower is required to pay for PMI when LTV is over 80 percent.

FIXED-RATE MORTGAGE

With this type of mortgage, a borrower’s interest rate stays “fixed” and will not change during the life of the loan.

RATE LOCK

This is a written commitment between you and the lender to hold a certain interest rate for a specified period of time.

LOAN ESTIMATE (LE)

A detailed estimate of the total costs, given to the borrower 3 days after the lender receives their application. The lender’s origination fee, points, escrow, title insurance, appraisal fee, taxes, and other expenses should be included.

TITLE

This is a document that states a real estate transaction
took place and establishes the buyer as the legal and
exclusive owner of the property.

TITLE INSURANCE

This type of insurance provides a real estate owner or lender with protection against any loss or
damage they may experience if any claims against the title are made.

TRUTH IN LENDING ACT (TILA)

Legislation that covers credit transactions (mortgages, credit cards, student loans, auto loans, etc.) and requires creditors to provide clear and accurate costs/terms to the borrower to help them make informed financing choices.

Cherry Creek Mortgage Co., Inc. NMLS #3001. An equal housing opportunity lender. NMLS #493951. All Rights Reserved. Some loan products may not be available in all states. Terms, rates, and fees subject to change. Please speak with one of our loan originators for more detail.