California Mortgage and Home Buying Glossary

First-time home buyers in California often encounter a lot of terminology they’re not familiar with. From ARM to PITI to LTV to DTI, it can be like learning a second language.

Not to worry. Below, we’ve created a glossary of common mortgage and home buying and mortgage related terms for first time buyers in California. We also included a number of hyperlinks that help you learn more about some of these topics and terms.

California Mortgage and Home Buying Glossary

Here are some of the common terms you might encounter when using a mortgage loan to buy a home in California.

A

Adjustable-rate mortgage (ARM): A mortgage with an interest rate that changes periodically based on a specific index.

Amortization: The process of paying off a loan over time through regular payments of principal and interest.

Annual percentage rate (APR): The total cost of a loan expressed as a yearly rate, including interest, fees, and other charges.

Appraisal: An assessment of a property’s value conducted by a licensed appraiser to determine its fair market value.

B

Buyer’s agent: A real estate agent who represents the interests of the buyer in a real estate transaction.

Buyer’s market: A scenario where there is an abundance of properties for sale but fewer buyers, giving home buyers greater negotiating power and potentially leading to lower prices.

Bidding war: A competitive situation where multiple potential buyers make increasingly higher offers for a property, driving up the final sale price.

C

Cash reserves: Extra money a home buyer has in the bank at closing, in addition to the down payment and closing costs. Lenders sometimes require borrowers to have a certain amount of cash reserves in order to qualify for a mortgage.

Closing costs: Fees and expenses associated with the finalization of a real estate transaction, including taxes, fees, and other charges.

Closing Disclosure: A five-page document that outlines the finalized costs the buyer must pay at closing.

Conforming loan: A mortgage that meets the criteria set by government-sponsored enterprises like Fannie Mae and Freddie Mac, including loan amount limits and other requirements.

Contingency: A condition or requirement that must be met for a real estate contract to become binding.

Conventional loan: A mortgage that’s not insured or guaranteed by a government agency, often requiring a higher credit score and down payment compared to government-backed loans.

Credit score: A three-digit number that banks and mortgage lenders use to assess your creditworthiness.

D

Debt-to-income (DTI) ratio: The ratio of a borrower’s monthly debt payments to their gross monthly income.

Down payment: The initial amount of money a buyer pays toward the purchase of a home.

E

Earnest money: A deposit made by the buyer to demonstrate their serious intent to purchase a property.

Equity: The portion of the property’s value that the homeowner owns outright, calculated as the property’s current value minus any outstanding mortgage balance.

F

FHA loan: A government-backed mortgage insured by the Federal Housing Administration, designed to help lower-income and first-time home buyers with more flexible qualification requirements.

Fixed-rate mortgage: A mortgage with a consistent interest rate over the life of the loan.

H

Home inspection: A thorough examination of a property’s condition to identify potential issues.

Homeowners Association (HOA): An organization that manages and enforces rules for a community or condominium complex.

Homeowners insurance: Insurance that protects you in case your home is damaged by fire, theft, or other disasters.

J

Jumbo loan: A type of mortgage that exceeds the conforming loan limits set by the Federal Housing Finance Agency (FHFA), typically used for higher-priced properties.

L

Loan Estimate: A standardized document detailing the estimated costs and terms of the loan, provided by the lender shortly after the borrower applies for the loan.

Loan term: The predetermined length of time the borrower has to repay the loan amount, often expressed in years (e.g., 30-year mortgage).

Loan-to-value (LTV) ratio: A metric that expresses the ratio of the loan amount to the appraised value of a property, used to assess the level of risk in a mortgage transaction.

M

Mortgage: A loan used to purchase a home, with the property as collateral.

Mortgage rate: The cost of borrowing money, expressed as a percentage of the principal amount borrowed.

Multiple Listing Service (MLS): A database used by real estate agents to share property listings.

O

Origination fee: A fee charged by the lender to cover the cost of processing the loan.

P

PITI: Stands for Principal, Interest, Taxes, and Insurance — representing the four components of a borrower’s total monthly mortgage payment.

PMI (private mortgage insurance): Insurance required by lenders when a buyer’s down payment is less than 20% of the home’s value.

Points: Upfront fees paid by a borrower at closing to reduce the interest rate on the mortgage, resulting in lower monthly payments over the life of the loan. Also referred to as mortgage points or discount points.

Pre-Approval: A process in which a lender evaluates a buyer’s financial situation and determines the maximum loan amount they qualify for.

Pre-qualification: A less formal process than pre-approval, where a lender estimates how much money you qualify to borrow.

Property taxes: Taxes that are paid on the value of your home, usually as part of your monthly mortgage payment.

R

Rate lock: An agreement between you and the lender to lock in an interest rate for a certain period of time.

Realtor: A real estate agent who is a member of the National Association of Realtors and adheres to its code of ethics.

S

Seller’s market: A real estate market where demand for homes is high, giving sellers an advantage.

Survey: A detailed map or drawing of a property’s boundaries and features.

T

Title: The legal ownership of a property.

Title insurance: Insurance that protects the buyer and lender against any potential disputes or claims regarding the property’s title.

U

Underwriting: The process of evaluating a borrower’s financial situation and determining the risk of granting a mortgage loan.

V

VA Loan: A mortgage loan guaranteed by the U.S. Department of Veterans Affairs, available to eligible veterans and military service members.

W

Walk-through: A final inspection of the property before closing to ensure that agreed-upon repairs have been made and the property is in the expected condition.

Warranty: A guarantee provided by the seller or builder regarding the condition of certain elements of the property.

Have Mortgage Questions?

Do you have questions about using a mortgage loan to buy a home in California? We can help!

Bridgepoint Funding has been serving home buyers and homeowners across the Golden State for nearly 20 years. Our team has extensive knowledge on all aspects of the mortgage process. Please contact us with any financing-related questions you have, or to apply for a loan.