Top 15 Mortgage Terms You Should Understand When Buying a Home in Charlotte

When it's time to buy a home, you want to make sure you understand the process. One of the smartest things you can do is hire a good local real estate agent to help you. However, you want to take things a step further and have a basic understanding of what you're getting into.

A big part of the home buying process is getting pre-approved and approved for your mortgage. When you're going through this process, there are certain terms you should understand. Here are 15 of the top mortgage terms every Charlotte home buyer should understand.


Every mortgage will require an appraisal. This report is a written estimate of the value of the home based on the current market conditions. Most lenders will have a list of approved appraisers they use for appraisals.

The goal of an appraisal is to show the lender the current market value of the home being used to secure the financing.

APR (Annual Percentage Rate)

The APR is the real cost of borrowing money from the bank. It will include the interest over the life of the loan, along with the cost to secure the financing. Compared to the interest rate, the APR shows a more complete picture of what you're paying.

When you start searching for a lender and a mortgage, make sure you compare both the APR and the interest rate. Fees can vary quite a bit from one lender to another and you must look at the full picture, not just the interest rate.

Closing Costs

The hard costs you will need to pay to secure the loan are known as closing costs. These may include origination points, lawyer fees, recording fees, title fees, an appraisal fee, a home inspection fee, and other fees. Closing costs go beyond the down payment and often run between 2% and 4% of the mortgage amount.

Debt To Income Ratio

A major factor in getting approved for a mortgage is your debt to income ratio. This ratio takes your gross income and divides it by the monthly consumer debt you have. The consumer debt will include all debts showing up on your credit report, along with the cost of the new mortgage.

It's common for mortgage programs to allow a 41% to 43% debt to income ratio. Some programs may be stricter than this, while others may be a bit more lenient.


An escrow is very important when it comes to your mortgage. Often, you will make a payment above the actual mortgage payment amount, which includes the money for your property taxes and your home insurance. The additional amount for insurance and taxes is held in an escrow account. Then, when the time comes to pay these bills, your mortgage company will handle the payment from the escrow account.

It's important to note when you pay off your mortgage, any remaining money in your escrow account is yours to keep.

FICO Score

Another major factor in getting approved for a mortgage is your FICO score. More commonly, this is known as your credit score. FICO stands for Fair Issacson Corporation and provides three scores from the major credit bureaus. Your FICO score will directly impact your interest rate and your eligibility for the mortgage.

Loan Originator

The first point of contact you have during the loan process is known as your loan originator. This person may also be called a loan officer or a mortgage originator.

Loan Program

The program you qualify for is known as a loan program. Most lenders offer several loan programs as one size certainly doesn't fit all. Some programs are very simple and straight forward, while others may be a bit more complicated to understand.

The type of loan program you choose will depend on your qualifications and your situation. Some will require more money down or more equity built into the home at the time of purchase.

Loan To Value Ratio

The loan to value ratio is the ratio between the money you are putting into the deal and the money you are financing. For example, if you're putting 10% down, you have a 90% loan to value ratio. This is another factor used during the qualification process.

Principal Payment

When you make your mortgage payment there will be an amount going towards the principal balance and an amount going towards interest. The Principal payment is the amount going toward the principal balance of the mortgage.

PMI (Private Mortgage Insurance)

If you don't put 20% down or have 20% equity built up in the home when you make your purchase, you will likely pay PMI. This insurance protects the lender in the event you default on the loan. It's often added to the monthly mortgage payment.


After you've filled out your loan application, the mortgage process moves on to the processor. This person will help to double check all documentation and package the loan for submission to underwriting.

Title Insurance

An insurance policy issued to protect you and the bank from any title issues is known as title insurance. You will pay for this policy as a one-time fee to secure the mortgage. Along with the required title insurance, you can buy an optional owner's title insurance to cover you in the event of title issues.

Variable Rate

A variable rate is also known as an adjustable rate. This type of loan program often starts with a fixed rate for a set number of years before the rate will adjust based on a specific financial index. Often, a variable rate mortgage will have a lower rate compared to a fixed rate mortgage.


The most critical part of the lending process, underwriting is the department approving your mortgage for funding. They will look at the creditworthiness, the income, and the assets to make the final call to approve you for funding.

These are just a few of the many mortgage terms you will likely hear as you go through the home buying process. If you're buying a home in Charlotte and you understand these 15 terms, you'll be ahead of the game compared to many first-time home buyers.


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