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Glossary

Debt

Money owed to another and due to be paid according to a predetermined agreement. Mortgage lenders carefully review your debt to help determine their loan decision. Also referred to as liability.

Debt-to-Income Ratio

Your total monthly debt, divided by gross monthly income and shown as a percentage. Total monthly debt includes monthly mortgage payments as well as student loans, car loans, and credit card payments. Example of an ideal debt-to-income ratio: If debt = ($XXX) and gross monthly income = ($XXX), the Debt-to-Income Ratio equals ($XXX) divided by ($XXX), or (XX%). This indicates that you are well qualified to pay back the mortgage loan. Generally, lenders want a debt-to-income ratio of 36% or under, although some lenders will accept ratios up to 50% if you have a good credit rating. Also called the back-end ratio or total debt ratio.

Default

Failure to make payments as required by the terms of the mortgage loan. Default puts you at risk of losing the property.

Delinquency

When you don't submit payments before the due date and grace period have passed.

Depreciation

A decrease in the value of a property due to negative events such as unfavorable changes in market conditions, or damage to the property.

Discount Points

A percentage of the loan amount paid at closing. For instance, on a $90,000 loan amount, 1 point = 1%, or $900. Points are typically paid to buy down (reduce) the interest rate. Alternatively, in exchange for a higher rate, the lender may pay points to offset a homeowner's closing costs. These are called negative points.

Document Preparation Fee

Lender fee that offsets the cost of processing your loan for closing. Different companies may refer to them by different names, such as processing fees or underwriting fees.

Down Payment

The part of the property purchase price paid in cash, and not financed with a mortgage.

Draw Period

The agreed-upon interval of time when a lender will advance funds to you according to your loan terms.