Understanding the
Mortgage Process
To understand the mortgage process better, use this glossary to learn the basic terms. The loan professionals at National Bank Of Kansas City do their best to help customers with their mortgage questions, so if after reading the glossary you want to learn more, please call us at 1-800-375-8096.
Adjustable Rate Mortgage (ARM) – A loan that starts with a fixed interest rate for a given period of time. After a predetermined period of time, the interest rate can go up or down, changing your mortgage payment accordingly.
Amortized Loan – A loan that is paid off over time with the initial payments going mostly toward interest while the later payments go mostly toward principle.
Appreciation – A rise in value of your home.
Annual Percentage Rate (APR) – The APR is the annual cost of your loan including interest, loan discount, fees, and credit costs.
Contingency – When drafting the contract, either the buyer or the seller may include conditions that must be met in order for the sale to be complete. These conditions could range from issues involving the inspection, the selling of your current home, to financing.
Earnest Money – Money deposited to prove the buyer is sincere in their offer.
Escrow – A special account set up by the lender in which money is held to pay for taxes and insurance.
Fannie Mae – A private corporation dedicated to buying FHA and VA home loans from banks and other lenders.
FHA – Stands for the Federal Housing Administration, which is a part of the U.S. Department of Housing and Urban and Development. The FHA insures federal loans made by lenders such as National Bank Of Kansas City.
FICO (Fair Issac Credit Organization) – A FICO score is a term often interchangeable with credit score. The credit score is one factor among many used when evaluating creditworthiness.
Fixed-Rate Mortgage – The interest rate does not change over the life of the loan. A 30-year fixed mortgage is the most common type of loan.
Good Faith Estimate – The lender provides this document to show the buyer the estimated closing costs and fees associated with the home purchase. The Good Faith Estimate also shows estimated monthly payment with principle, interest and escrow included.
Income to Debt Ratio – A comparison of a buyer’s income to their house payment and their other debt.
Loan Closing – Usually, both the buyer and the seller sign closing papers at a title/escrow company. The loan closing date is the final step of a home sale and is scheduled during negotiation. During the closing, the deed and title is transferred and all financial documents are signed.
Mortgage Insurance Premium (MIP) – Mortgage insurance protects the lender in the event the purchaser defaults on the loan. Depending on the loan, there may be an upfront premium and/or an annual premium rolled into your financing. It’s commonly known as PMI or Private Mortgage Insurance.
Points – Points are also called origination fees paid at the time of closing to repay lender for originating the loan. Discount points are paid at the time of closing to in exchange for a lower interest rate.
Pre-Approval – Verified information that tells the buyer how much of a home they can afford.
Underwriting – A process whereby the entire loan is reviewed and creditworthiness is evaluated.
VA Loan – A loan guaranteed by the Department of Veterans Affairs. Borrowers must meet the VA Loan eligibility requirements to qualify for a loan.
