Mortgage Glossary

PITI

PITI is an acronym for principal, interest, taxes, and insurance. Most monthly residential mortgage payments include these items.

Point

A point is one percent of the dollar amount of the mortgage loan. For example, if your loan amount is $150,000, a point is $1,500. By paying points, you can generally lower the loan's interest rate, however, not all lenders allow this. Points may be paid by the buyer or the seller, or split between them.

Pre-approval

A written agreement from a mortgage lender to grant a loan for a home purchase. The pre-qualification is based on the lender's careful investigation and evaluation of the potential homebuyer's income, credit history, employment history, personal assets, and debts. Pre-approval assures the seller that a buyer's offer is valid. It also speeds up the buying process because, once an offer is made, there is no need to wait while the buyer finds a loan.

Pre-qualification

An informal calculation to estimate the approximate amount of money a homebuyer can afford to spend on a home purchase. The pre-qualification, performed by a realtor or a potential homebuyer, compares the potential buyer's income and assets to the buyer's debts. A pre-qualification helps the realtor focus the home search on homes within a certain price range.

Prepaid Items

Costs paid at closing for taxes, interest, and insurance. Because prepaid items are recurring costs that don't relate to the acquisition of the property itself, they can't be financed.

Prepayment Penalty

This is a fee that may be charged if you repay all or part of your mortgage loan before the due date. FHA insured loans and some loans made by state chartered banks do not allow prepayment penalties.

Pre-qualification

An evaluation of a potential borrower's financial status to determine the size and type of mortgage available to him/her.

Principal

1) Principal is the original amount of a loan, excluding interest. Interest is charged based on the unpaid principal of a loan or credit account. 2) The remaining balance of a loan, excluding interest.

Private Mortgage Insurance (PMI)

Insurance written by a private company protecting the mortgage lender against financial loss occasioned by a borrower defaulting on the mortgage.

Property Tax

Property tax is the money you pay to your local and state government for the pleasure of owning property within their jurisdiction.

Qualifying Ratios

Calculations that are used in determining whether a borrower can qualify for a mortgage. They consist of two separate calculations: a housing expense as a percent of income ratio, and total debt obligations as a percent of income ratio.

Real Estate Settlement Procedures Act (RESPA)

RESPA is a federal law that requires disclosure of all known and/or estimated settlement costs a homebuyer will have to pay. You'll get this information after you apply for a loan and again when you go to settlement.

Real Property

Land and objects permanently attached to it, such as buildings and fences. In some states, this term is synonymous with the term "real estate."

Refinancing

Refinancing is defined as repaying a debt with the proceeds of a new loan, using the same property as collateral. For example, you pay off your original mortgage with a new one. Most of the time, people refinance to take advantage of a lower interest rate to lower their monthly payments.

RHS Loan

This is a home mortgage loan that is guaranteed by the Rural Housing Service.