The process of gradually paying off a loan through scheduled payments that cover both principal and interest over a set period. In the early years of a mortgage, a larger portion of each payment goes toward interest, with the balance shifting toward principal over time.
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Appraisal
A professional assessment of a property's market value conducted by a licensed appraiser. Lenders require an appraisal to ensure the loan amount does not exceed the property's worth. The appraiser evaluates the home's condition, features, and comparable recent sales in the area.
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APR (Annual Percentage Rate)
The total annual cost of borrowing expressed as a percentage, including the interest rate plus fees, points, and other charges. APR provides a more complete picture of loan cost than the interest rate alone and is useful for comparing offers from different lenders.
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ARM (Adjustable-Rate Mortgage)
A mortgage with an interest rate that adjusts periodically based on a market index. ARMs typically start with a lower fixed rate for an initial period (e.g., 5/1 ARM means fixed for 5 years, then adjusting annually). Rate caps limit how much the rate can change per adjustment and over the loan's lifetime.
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CalHFA
The California Housing Finance Agency, a state agency that provides down payment assistance and affordable first mortgages for first-time homebuyers. Programs include MyHome Assistance (up to 3.5% of purchase price) and the Zero Interest Program (ZIP). Borrowers must meet income limits and complete homebuyer education.
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Closing Costs
Fees and expenses paid at the time of closing a real estate transaction, typically ranging from 2% to 5% of the loan amount. These may include origination fees, appraisal fees, title insurance, escrow fees, recording fees, and prepaid items like property taxes and homeowner's insurance.
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Closing Disclosure
A five-page form provided to the borrower at least three business days before closing. It details the final loan terms, projected monthly payments, fees, and closing costs. Borrowers should compare the Closing Disclosure with the original Loan Estimate to identify any significant changes.
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Conforming Loan
A mortgage that meets the guidelines set by Fannie Mae and Freddie Mac, including loan amount limits, credit requirements, and documentation standards. Conforming loans typically offer lower interest rates than non-conforming loans. The conforming loan limit is set annually by the FHFA.
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Conventional Mortgage
A home loan that is not insured or guaranteed by a government agency (FHA, VA, or USDA). Conventional loans follow guidelines set by Fannie Mae and Freddie Mac and typically require higher credit scores and larger down payments than government-backed loans. PMI is required if the down payment is less than 20%.
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Credit Score
A numerical representation of a borrower's creditworthiness, typically ranging from 300 to 850. FICO scores are the most commonly used in mortgage lending. Scores are based on payment history, amounts owed, length of credit history, types of credit, and new credit inquiries. Higher scores generally qualify for better rates and terms.
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Debt-to-Income Ratio (DTI)
The percentage of a borrower's gross monthly income that goes toward paying debts. Lenders use two DTI ratios: front-end (housing expenses only) and back-end (all monthly debts including housing). Most conventional loans require a back-end DTI of 45% or less, while FHA allows up to 50% in some cases.
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Down Payment
The upfront cash payment made by the buyer toward the purchase price of a home. The remaining amount is financed through a mortgage. Down payment requirements vary by loan type: conventional (3-20%), FHA (3.5%), VA (0%), and jumbo (typically 20%+). A larger down payment reduces the loan amount and may eliminate the need for mortgage insurance.
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DSCR (Debt Service Coverage Ratio)
A ratio used in investment property lending that compares a property's net operating income to its total debt service (mortgage payment). A DSCR of 1.0 means the property's income exactly covers the mortgage. Lenders typically require a DSCR of 1.0 or higher. DSCR loans qualify borrowers based on property income rather than personal income.
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Earnest Money
A deposit made by the buyer when submitting an offer to demonstrate serious intent to purchase. Typically 1-3% of the purchase price, earnest money is held in escrow and applied toward the down payment or closing costs at closing. If the buyer backs out without a valid contingency, the seller may keep the deposit.
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Equity
The difference between the current market value of a property and the outstanding mortgage balance. Equity increases as the homeowner makes payments and as the property appreciates in value. Homeowners can access equity through a HELOC, cash-out refinance, or home equity loan.
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Escrow
A neutral third-party account that holds funds and documents during a real estate transaction. During the purchase, escrow protects both buyer and seller until all conditions are met. After closing, an escrow account may be maintained by the lender to collect monthly payments for property taxes and insurance.
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FHA Loan
A mortgage insured by the Federal Housing Administration, designed for borrowers with lower credit scores or smaller down payments. FHA loans require a minimum 3.5% down payment (with a 580+ credit score) and both an upfront mortgage insurance premium (UFMIP) and annual MIP. Popular among first-time homebuyers.
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Fixed-Rate Mortgage
A mortgage where the interest rate remains the same for the entire loan term, providing predictable monthly principal and interest payments. The most common terms are 15 and 30 years. Fixed-rate mortgages protect borrowers from rising interest rates but may start with a higher rate than adjustable-rate mortgages.
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Forbearance
A temporary agreement between a lender and borrower to reduce or suspend mortgage payments during a period of financial hardship. Forbearance does not erase the debt; missed payments must be repaid through a repayment plan, loan modification, or added to the loan balance.
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Foreclosure
The legal process by which a lender takes possession of a property when the borrower fails to make mortgage payments. Foreclosure can severely damage the borrower's credit and result in the loss of the home. California primarily uses non-judicial foreclosure, which takes approximately 120 days from the notice of default.
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Good Faith Estimate (GFE)
A document previously provided by lenders estimating all costs associated with a mortgage loan. Since 2015, the GFE has been replaced by the Loan Estimate form, which must be provided within three business days of receiving a loan application. The Loan Estimate includes estimated interest rate, monthly payment, and total closing costs.
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HELOC (Home Equity Line of Credit)
A revolving line of credit secured by the equity in your home. HELOCs have a draw period (typically 5-10 years) during which you can borrow and repay funds, followed by a repayment period. Interest rates are usually variable. NetCORE Lending offers HELOCs up to 90% LTV.
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Jumbo Loan
A mortgage that exceeds the conforming loan limits set by the Federal Housing Finance Agency (FHFA). In high-cost areas of California, jumbo loans start above the conforming limit. They typically require higher credit scores (700+), larger down payments (20%+), and more extensive documentation.
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Loan Estimate
A standardized three-page form that lenders must provide within three business days of receiving a mortgage application. It details the estimated interest rate, monthly payment, total closing costs, and other loan terms. The Loan Estimate replaced the Good Faith Estimate in 2015.
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LTV (Loan-to-Value Ratio)
The ratio of the mortgage loan amount to the appraised value of the property, expressed as a percentage. For example, a $400,000 loan on a $500,000 home has an 80% LTV. Lower LTV ratios indicate more equity and generally qualify for better rates. LTV above 80% on conventional loans requires PMI.
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Mortgage Insurance (MI / PMI / MIP)
Insurance that protects the lender if the borrower defaults on the loan. PMI (Private Mortgage Insurance) is required on conventional loans with less than 20% down and can be removed once equity reaches 20%. MIP (Mortgage Insurance Premium) is required on FHA loans for the life of the loan in most cases.
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NMLS (Nationwide Multistate Licensing System)
A centralized licensing system for mortgage loan originators and companies in the United States. Every licensed mortgage professional and company has a unique NMLS number that consumers can use to verify credentials and check regulatory history. NetCORE Lending's NMLS# is 1484338.
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Non-QM (Non-Qualified Mortgage)
Mortgage loans that do not meet the Consumer Financial Protection Bureau's definition of a Qualified Mortgage. Non-QM loans serve borrowers with non-traditional income documentation, such as self-employed individuals, business owners, and gig workers. Includes bank statement loans, DSCR loans, P&L loans, and ITIN loans.
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Points (Discount Points)
Prepaid interest charges paid at closing to reduce the mortgage interest rate. One point equals 1% of the loan amount. For example, one point on a $400,000 loan costs $4,000. Paying points (buying down the rate) can lower monthly payments and total interest paid over the life of the loan.
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Pre-Approval
A formal commitment from a lender to provide a mortgage up to a specified amount, based on verified income, assets, credit, and employment. Pre-approval involves a credit pull and document review, making it stronger than pre-qualification. A pre-approval letter shows sellers you are a serious and qualified buyer.
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Pre-Qualification
An informal estimate of how much a borrower may be able to borrow, based on self-reported financial information. Pre-qualification typically does not require a credit pull or document verification. It provides a general idea of budget but is not a guarantee of loan approval.
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Principal
The original amount of money borrowed in a mortgage, or the remaining balance owed on the loan excluding interest. Each monthly mortgage payment includes a portion that goes toward reducing the principal and a portion that covers interest. Over time, an increasing share of each payment is applied to principal.
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Refinance
The process of replacing an existing mortgage with a new loan, typically to obtain a lower interest rate, change the loan term, or access home equity (cash-out refinance). Refinancing involves closing costs and a new application process. It makes financial sense when the savings outweigh the costs within a reasonable timeframe.
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Title Insurance
Insurance that protects the buyer and lender against losses arising from defects in the property's title, such as liens, encumbrances, or ownership disputes. A title search is conducted before closing to identify potential issues. Owner's title insurance is optional but recommended; lender's title insurance is required.
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Underwriting
The process by which a lender evaluates a loan application to determine the borrower's creditworthiness and the property's value. The underwriter reviews income, assets, credit history, employment, property appraisal, and title report to make a final approval or denial decision.
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VA Loan
A mortgage guaranteed by the U.S. Department of Veterans Affairs, available to eligible veterans, active-duty service members, National Guard/Reserve members, and certain surviving spouses. VA loans offer no down payment, no PMI, and competitive interest rates. A VA funding fee applies but can be financed into the loan.
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