Mortgage Glossary to Help Your Buying Easier
Buying a home shouldn’t feel confusing or overwhelming—especially when it comes to mortgages. That’s where we come in. We’ve created a growing list of key mortgage terms to help you feel informed, confident, and in control. Don’t see what you need? Let us know, and we’ll add it quickly.
1003 Form
A document required for all mortgage applications that includes the borrower’s income, assets and a description of the home. Also known as the uniform residential loan application (URLA).
1004 Form
A document required for the appraisal. Also known as the Uniform Residential Appraisal Report (URAR).
1025 Form
An appraisal form needed if the subject property is a 2- to 4-unit dwelling, and the borrower is using rental income to qualify.
1073 Form
An appraisal form that is used if the subject property is a condo (attached/detached/site).
1098 Form
A document that your mortgage lender sends you at the end of the year. It shows how much mortgage interest you paid over the past year. For first-time homebuyers, this form is important because you can use the information on it to potentially reduce your taxable income when you file your taxes.
1099 Form
An IRS form used to verify income paid to a self-employed contractor.
A
Acceptance
An agreement to enter into a contract and be bound by the terms of the offer. In relation to mortgages, acceptance typically refers to the buyer’s offer on a home being accepted by the seller.
Acquisition costs
Costs of purchasing a property other than the purchase price. Examples may include attorney fees, title insurance and lender fees.
Addendum
A document used to modify or add to the terms of a purchase agreement. It is typically used to document changes such as sales price adjustments, seller concession changes or conditions related to short-sale transactions. The addendum must be fully executed by all parties involved in the purchase agreement to be valid.
Additional principal payment
Paying more than the scheduled payment amount toward the principal of a loan. This type of payment is typically made to reduce the remaining balance on the loan.
Adjustable-rate mortgage (ARM)
A type of home loan where the interest rate fluctuates periodically under market conditions. You will go through a ‘fixed rate period’ over a specified number of years then your interest rate adjusts routinely over a set period of time for example every six months or every year, following the ‘fixed rate period.’
Adjusted gross income
A person's total income, as reported on his or her IRS 1040 tax return form, after allowable contributions, deductions and expenses.
Adjustment period
The amount of time between interest rate changes on an adjustable-rate mortgage (ARM) after the initial fixed rate ends.
Agricultural property
Unimproved property available for farming activities.
Alimony
A spouse’s court-ordered payments after separation or divorce.
American Land Title Association (ALTA)
An organization that promotes the safe and efficient transfer of ownership of, and interest in, real property.
Amortization
The process of paying off a debt over time through regular payments with a percentage of each payment going to the principal and interest.
Amortization schedule
A mortgage payment timetable showing the amount of each payment and the remaining balance after each payment.
Annual percentage rate (APR)
The cost to borrow money expressed as a yearly percentage. For mortgage loans, it includes the interest rate plus other charges or fees. For home equity lines of credit, the APR is only the interest rate.
Applicant
A prospective borrower who has completed a loan application.
Application
A document submitted by a borrower to a mortgage lender that includes required information to begin the home loan process. The mortgage loan application is sometimes called a 1003 or URLA.
Application fee
A fee charged to a potential borrower to cover initial mortgage processing expenses.
Appraisal
A report determining the fair market value of a subject property. It highlights the condition and quality of a property and how it compares to other homes in the area. This independent assessment is performed by a licensed expert, known as an appraiser. Lenders may require an appraisal to determine how much they will lend a borrower for a specific property. The borrower typically pays for this report.
Appraised value
An opinion of value reached by an appraiser based upon comparable recent sales of homes in the neighborhood and the condition of the property.
Appraiser
An independent third-party qualified to estimate the value of real estate.
Appreciation
An increase in the value of property due to a positive improvement to the property, real estate in the area or inflation.
Approval letter
A document from a lender that outlines the terms and conditions of a mortgage loan. This letter serves as an official statement from the lender indicating that the borrower has been approved for the loan under the specified terms. Also known as a commitment letter.
Arm's-length transaction
Legal slang meaning that no special relationship exists between the buyer and seller and that neither are subject to any pressure or duress from the other party.
Assessed valuation
The value placed on property for taxation purposes.
Assessment
An amount of money charged to a homeowner to cover the cost of new projects and improvements in an area, including sidewalks, speed bumps, public utilities or other special projects.
Assets
Things of value owned by a person (e.g., automobiles, property, savings or retirement fund) that are used to calculate a borrower’s net worth (assets minus liabilities) and determine their ability to afford the down payment and closing costs on a home.
Assumable mortgage
A mortgage loan wherein the outstanding principal can be transferred from the seller to the buyer under the same current mortgage terms. Typically, only some FHA and VA mortgages are assumable.
Attorney fee
A fee charged by a lawyer for title research, contract review and other services.
Automated underwriting system (AUS)
A computer-driven process for informing a loan officer very quickly, sometimes within a few minutes, whether a borrower will be approved, or whether the application will be forwarded to an underwriter. The quick decision is based on information provided by the borrower, which is subject to later verification and other information retrieved electronically, including information about the borrower’s credit history and the subject property.
B
Balloon mortgage
A mortgage loan in which a large portion of the principal is repaid in a single payment at the end of the loan term.
Balloon payment
A large one-time payment due at the end of the mortgage term that pays off the remaining loan balance.
Bank Statement Loan
A loan product offered to qualifying self-employed borrowers that submit personal or bank statements instead of pay stubs or W-2s to prove income.
Bankruptcy
A legal proceeding in federal court in which a debtor seeks to restructure their obligations to creditors pursuant to the Bankruptcy Code. This generally affects the person’s personal liability for a mortgage debt, but not the lien securing the mortgage.
Basis point (BPS)
A unit of measurement used to indicate changes in interest rates. One basis point is equal to 0.01%.
Biweekly mortgage
A mortgage with payments due every 2 weeks, totaling 26 payments a year.
Blanket mortgage
A type of loan used to fund the purchase of two or more pieces of real property.
Borrower
A mortgage loan applicant.
Break-even point
In the context of a loan amortization schedule, a calculation that helps determine how long it will take for the savings from a lower interest rate to offset the closing costs associated with obtaining the loan.
Buydown
A financing technique where the borrower attempts to get a lower interest rate on a purchase or refinance for the first few years of the loan by paying more upfront.
C
Cash reserves
Extra money some lenders require borrowers to have available after loan closing to hfelp ensure they can make the payments and keep the home.
Cash to close
Money the borrower will bring to the closing to pay the closing costs for getting a mortgage.
Cash-out refinance
A type of refinance that allows homeowners to use the equity in their home to take cash out by obtaining a new mortgage for more than they owe on their existing loan. This larger loan replaces the old one and is repaid over time with interest. Homeowners commonly use the funds for debt consolidation, home repairs or other expenses, often at a lower interest rate than high-interest debts.
Certificate of Eligibility
An official document that proves you are qualified to apply for a Veterans Affairs (VA) loan. This certificate shows lenders that you meet the necessary service requirements to get a VA loan, which often has benefits like no down payment and lower interest rates.
Certificate of occupancy
A document issued by a local municipality that indicates a building is suitable for occupancy.
Change of circumstance (COC)
A situation that requires the lender to provide a revised loan estimate or closing disclosure before closing that describes any changes in fees or other loan terms.
Closed-end mortgage
A type of loan where a lump sum (the principal balance) is provided to the borrower upfront. This loan is to be repaid in equal installments over a specified term. Once the loan is closed, the borrower cannot make any payment plan changes or access any paid-down principal.
Closing
The last step in buying and financing a home. The closing, also known as settlement, is when all parties in a mortgage loan transaction sign the necessary documents. After signing these documents, the borrower becomes responsible for the mortgage loan.
Closing agent
Usually an attorney or title agency representative who oversees the loan closing and witnesses signing of the closing documents. Also known as a settlement agent.
Closing costs
The upfront funds paid, typically by a borrower, when closing on a home. These costs could include: origination charges, appraisal fees, title insurance fees, the down payment and more. A lender must provide an estimate and summary of all costs in the Loan Estimate and Closing Disclosure forms.
Closing date
The date the borrower signs the security instrument and all other related settlement documents.
Closing disclosure
A document that outlines the final details of a mortgage loan, including loan terms, projected monthly payments and closing costs. Lenders must provide this form at least 3 business days before the closing, allowing borrowers to compare it with the initial loan estimate and ask questions. It serves as a comprehensive summary of the mortgage's financial terms.
Closing points
A fee paid directly to the lender in exchange for a reduced interest rate on a home loan.
Co-borrower(s)
Additional named borrower(s) who appear on loan documents and whose income and credit history are used to qualify for the loan. Under this arrangement, all parties have an obligation to repay the loan.
Collateral
Property used to help secure a home loan that the lender can take possession of if the loan isn't repaid by the borrower(s).
Collection
The process used by mortgage servicing companies to pursue payments of past-due mortgage obligations.
Combined loan-to-value (CLTV)
A ratio that is calculated when financing a home with a first mortgage and a home equity line of credit. For example, if the first mortgage is 70% of the home's value and the home equity line of credit is 10% of the home's value, the CLTV ratio is 80%.
Commitment
A promise made by the lender to offer the borrower a home loan, along with stated terms and conditions.
Commitment letter
A mortgage lender's formal letter to a borrower that states their intention to offer the borrower a home loan. Also known as an approval letter.
Comparable properties
Recently sold properties similar to another property whose value is being sought. Also known as a comp.
Compensating factors
Positive characteristics of a borrower's credit that offset negative characteristics that help a borrower when a loan is in underwriting.
Concession/contribution
A discount or incentive a seller gives to a prospective buyer to encourage him or her to purchase a property.
Condition
A loan stipulation that must be met before a home loan can be closed/funded.
Condo
A form of housing where an individual holds title to a specific unit within a larger building or complex, while jointly owning shared common areas like hallways, lobbies, and amenities.
Conforming loan
A mortgage that meets the most current guidelines set by Fannie Mae or Freddie Mac. These mortgages are eligible for sale and delivery to these government-sponsored enterprises.
Consumer Financial Protection Bureau (CFPB)
A U.S. government agency that regulates the offering and provision of consumer financial products or services under the federal consumer financial laws and educates and empowers consumers to make better-informed financial decisions.
Contingency
A condition that must be met before a contract is legally binding.
Conventional mortgage
Any mortgage that is not insured or guaranteed by a federal government agency such as the Federal Housing Administration (FHA), the Department of Housing and Urban Development (HUD), the Department of Veterans Affairs (VA) or Rural Development (RD).
Convertible ARM
An adjustable-rate mortgage (ARM) that can be converted to a fixed-rate mortgage under specified conditions.
Cooperative (co-op)
In a co-op, the corporation or trust holds title to the property and sells shares of stock representing the value of a single apartment unit to individuals who, in turn, receive a proprietary lease as evidence of title. The co-op owner owns stock in the corporation with exclusive rights to occupy a specified unit in the building.
Credit history
A record of a borrower’s payment behavior that shows his or her ability to repay a loan. Information may include the number and types of credit accounts, how long each account has been open, amounts owed and more.
Credit limit
The maximum amount of money a financial institution extends to a borrower on a revolving credit account, such as a credit card.
Credit report
A report provided by the three credit reporting agencies, Equifax, Experian and TransUnion, detailing information on a person’s credit history. Consumers can request one free copy of their credit report from each of these agencies per year.
Credit reporting
The process where lenders and creditors share a borrower's credit activity with one or more of the three credit reporting agencies.
Credit reporting agency (CRA)
An agency that collects information about credit accounts and uses it to produce credit reports and calculate credit scores. The three main agencies are Equifax, Experian and TransUnion. Also called credit bureaus.
Credit risk
The probable risk of loss resulting from a borrower’s failure to repay a loan.
Credit score
Three-digit number calculated by independent credit reporting agencies Equifax, Experian and TransUnion. Based on information provided by creditors and lenders on the borrower’s history of on-time bill payments, current outstanding debt and their debt-to-credit ratio. Lenders look at the credit score to predict the reliability of a borrower and how likely they are to repay their mortgage.
D
Debt-to-income (DTI) ratio
A borrower’s monthly debt payments divided by their gross moooothly income. This ratio tells lenders how much debt a borrower currently has and helps determine the home loan amount they may qualify for. Also known as expense ratio.
Deed
A legal document that conveys ownership of a property.
Deed of reconveyance
A document issued by a mortgage holder indicating that the borrower is released from the mortgage debt.
Deed of trust
A document that secures a debt, in which a debtor places legal ownership of a real property with a trustee, to be held in the trust until the debt is repaid. As the borrower repays the debt, they keep the actual title to the property and maintain full responsibility over the premises.
Default
The failure to satisfy the terms as agreed in a contract.
Delinquency
A loan payment that is past due.
Department of Housing and Urban Development (HUD)
A government agency that provides housing and community development assistance.
Department of Veterans Affairs (VA)
A government agency that provides federal benefits to veterans, their spouses and their dependents, including home financing.
Deposit
A sum payable as a first installment on the purchase of a home. Also known as earnest money.
Depreciation
A reduction in the value of property due to physical deterioration, wear and tear or other factors.
Disclosure
A legal form that provides information or facts about a mortgage loan. There are multiple types of disclosures.
Discount points
A one-time fee paid at the time of closing to lower the borrower’s interest rate over the life of their mortgage. Typically, one point costs around 1% of the total loan amount. By paying points, the borrower will typically pay more upfront, but less over time.
Down payment
The amount of money a borrower pays upfront toward the purchase of a property. This amount varies and usually ranges from 0%–20% of the home’s purchase price. Typically, the larger the down payment, the lower the total loan amount and monthly mortgage payments will be.
Down payment assistance program
Programs offered by a government housing authority designed to help more families become homeowners by assisting with the cost of the down payment, closing costs or both.
Draw period
The fixed period of time during which a homeowner can access money from a home equity line of credit.
E
Earnest money
A deposit made to a seller that represents the prospective buyer’s intention to purchase the home — this money can generally be applied toward the down payment at closing. Also known as a deposit.
Encroachment
When a homeowner violates the property rights of their neighbor.
Encumbrance
Anything that restricts a homeowner’s ability to transfer title to the property or lessens its value, such as liens, restrictions, easements or encroachments.
End of draw
The point when a homeowner can no longer access funds from a home equity line of credit.
End of term
Refers to the date the outstanding balance on a balloon home equity loan or line of credit becomes due in full. Also known as maturity date.
Equal Credit Opportunity Act (ECOA), 15 U.S.C. §1691 et seq.
This act prohibits creditors from discriminating against borrowers on the basis of race, color, religion, national origin, sex, marital status or age if a borrower receives more income from public assistance, or because a borrower has, in good faith, exercised any right under the Consumer Credit Protection Act.
Equity
The difference between the market value of a home and the amount owed to the lender who holds the mortgage. If a homeowner sells their home, equity is the money they would receive after paying off the mortgage.
Escrow
Funds a lender collects and holds in an account to pay real estate taxes, homeowners insurance, other periodic debts against the property and mortgage insurance (if applicable), on behalf of a borrower. Also known as impounds or reserves.
Escrow account
An account in which a lender holds escrow money on behalf of the borrower.
Escrow agent
A person or organization that ensures the terms of the loan transaction are carried out on behalf of all parties.
Escrow analysis
Analysis of an escrow account performed at least once a year to ensure the correct amount of money is being collected for taxes and insurance. These amounts will change over the life of the loan.
Escrow payment
The portion of a homeowner's monthly mortgage payment that is held by a lender or servicer to pay property taxes and insurance, including mortgage insurance and hazard insurance, on the homeowner's behalf.
Escrow waiver
A process that allows the borrower to opt out of combining property tax and homeowners insurance payments with their mortgage payments to the lender. This can lower the borrower’s overall closing costs as the lender will not have to collect future tax and insurance payments at the time of closing. The borrower will then be responsible for paying these fees directly, rather than the lender doing so on their behalf.
Exposure
The dollar amount of funds or percentage of a portfolio invested in a particular type of security, market sector or industry, which is usually expressed as a percentage of total portfolio holdings.
F
Fair Credit Reporting Act (FCRA), 15 U.S.C. § 1681
This Act was enacted to promote the accuracy, fairness and privacy of consumer information contained in the files of consumer reporting agencies. The FCRA regulates the collection, dissemination and use of consumer information, including consumer credit information.
Federal Home Loan Mortgage Corporation — FHLMC (Freddie Mac)
A federal corporation created by Congress that purchases conventional mortgages in the secondary mortgage market from insured depository institutions and HUD-approved mortgage bankers. It sells participation sales certificates secured by pools of conventional mortgage loans, their principal, and interest guaranteed by the federal government through the FHLMC. It also sells Government National Mortgage Association (GNMA, or "Ginnie Mae") bonds to raise funds to finance the purchase of mortgages. Also known as Freddie Mac.
Federal National Mortgage Association — FNMA (Fannie Mae)
A taxpaying corporation created by Congress to support the secondary mortgage market. It purchases and sells residential mortgages insured by the Federal Housing Administration (FHA) or guaranteed by the U.S. Department of Veterans Affairs (VA) as well as conventional home mortgages.
FHA home loan
A mortgage that is insured by the Federal Housing Administration (FHA). Also known as a government loan. FHA mortgage insurance protects the lender (not the borrower) if a borrower defaults on the FHA loan. This insurance enables a lender to provide loan options and benefits often not available through conventional financing.
First adjusted payment
The payment due each month on an adjustable-rate mortgage after the initial fixed rate ends. Interest rate adjustments may increase or decrease the amount due.
First mortgage
The original mortgage taken on a property which has priority over all other liens or claims in the event of default.
Fixed interest rate
An interest rate that remains the same throughout the life of the loan.
Fixed-rate mortgage
A type of home loan where the interest rate stays the same for the entire length of the loan. This means your monthly payments will always be the same amount. It's a good option if you prefer stability and want to know exactly what your payments will be each month.
Floating interest rate
An interest rate that fluctuates for a short period of time until a mortgage applicant locks it in.
Flood certification
A document that indicates whether or not the subject property is located within a designated flood zone.
Forbearance
An agreement between the borrower and the lender to temporarily pause or reduce the borrower's mortgage payment.
Foreclosure
The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.
G
Gift letter
A written explanation stating that money was given to a homebuyer, free and clear of any obligation to repay it, as a gift for the purchase of a house.
Government National Mortgage Association — GNMA (Ginnie Mae)
Created in 1968 by an amendment to Title III of the National Housing Act (12 U.S.C 1716 et seq.). This federal government corporation is a constituent part of the Department of Housing and Urban Development. Among other governmental functions, it guarantees securities backed by mortgages that are insured or guaranteed by other government agencies.
Gross income
Total income before any expenses are deducted.
H
Hard credit pull
Typically, this is an inquiry by a lender to receive a borrower's official credit score as part of an application for credit. These checks can negatively impact the credit score and remain on a credit report for up to 2 years. Hard inquiries are used to evaluate and make a determination about how likely a borrower is to pay back a loan. Also known as a hard inquiry or hard check.
Hazard insurance
Protects a property owner against damage to a property due to certain hazards such as fire, severe storms or other natural events.
High-ratio loan
Mortgage loan with a loan-to-value higher than 80 percent. Calculated using the loan amount divided by the lower of the sales price or appraised value.
Home Equity Line of Credit
A revolving line of credit that allows homeowners to access cash based on their home equity, typically used for large expenses or debt consolidation. Borrowers can draw funds multiple times during a specified draw period. HELOCs are typically secured by the home, functioning as a second mortgage.
Home Inspection
A detailed review of a property’s condition by a professional inspector. Homebuyers may be required to get a home inspection before finalizing a real estate transaction. This can help make an informed decision based on a comprehensive property condition report detailing any issues or potential liabilities.
Home Mortgage Disclosure Act (HMDA)
Federal legislation that requires certain types of lenders to compile and disclose data on where and to whom their mortgage and home improvement loans are being made.
Home Valuation Code of Conduct (HVCC)
A set of federal guidelines designed to make the home appraisal process more reliable by prohibiting loan originators and real estate agents from selecting or paying appraisers.
Homeowners association (HOA)
A private organization that manages and maintains a residential community, including most condominiums and planned developments. It enforces rules to protect property values, collects dues for upkeep of common areas and amenities and is governed by an elected board of residents. Membership is typically required for homeowners in the community. HOA fees can vary based on location and services provided.
Homeowners insurance (HOI)
Insurance to protect a home against damage from fire, hurricanes and other catastrophes. Usually, homeowners insurance also covers against theft and vandalism, as well as personal liability in case someone is hurt or injured on the property.
Housing and Economic Recovery Act (HERA)
Federal legislation enacted in 2008 to address the sub-prime mortgage crisis. It was intended to restore confidence in Fannie Mae and Freddie Mac by strengthening regulations and injecting capital into the two large U.S. suppliers of mortgage funding.
Housing expense ratio
The ratio comparing housing expenses to before-tax income that's used by lenders to qualify customers for a mortgage.
I
Impounding
When the borrower puts money into an account that is specifically used to ensure payment of property taxes and insurance premiums. Also known as escrow.
Index
A published interest rate, such as the prime rate, that lenders use to establish interest rates charged on mortgages.
Inspection
An objective and unbiased visual examination of the physical condition, structure and various systems of a property from the foundation to the roof.
Intent to proceed
A form the borrower signs when they have decided on a lender and agree to move forward with the loan.
Interest
The amount a borrower owes a lender for the use of borrowed money.
Interest rate
The cost of borrowing money from a lender, expressed as a percentage of the loan amount (principal). A higher interest rate results in higher overall payments over the life of the loan.
Interest rate cap
This applies to an ARM and limits how much the interest rate may increase per adjustment period (see Lifetime Cap).
Interest rate floor
The lowest interest rate that can be charged on an adjustable or variable interest rate loan or line of credit.
Interest rate range
The lowest to highest interest rates available for a particular loan or line of credit.
Interest-only payments
This type of payment is applied only to the interest part of a loan and the principal balance is not reduced. Once the interest-only period ends, the payments will adjust to include principal and interest resulting in a higher monthly payment.
Interim interest
The interest accrued between the date a loan closes and the end of the month, which is paid at the time of closing.
Investment property
Real estate property owned with the intent to earn income, either through rent, future resale, or both.
J
Joint tenancy
A property owned by more than one person, each with equal rights and obligations.
Judgment
Final determination by a court of law regarding the rights and claims of the parties to a legal action.
Jumbo loan
Also known as a non-conforming loan. The amount of the loan exceeds standards that would make it eligible for sale to Fannie Mae and Freddie Mac. Certain geographical areas have temporary conforming loan limits higher than typical conforming limits. Lenders may charge additional fees and place certain restrictions due to the large loan amounts.
L
Land acquisition loan
A mortgage loan made for the purpose of purchasing unimproved land.
Late charge
The penalty a borrower must pay when a payment is made after its due date or courtesy period.
Lender-paid mortgage insurance (LPMI)
When the down payment is less than 20% of the home’s value, the lender can pay the insurance costs upfront, in which its cost is included in the interest rate. This helps provide protection against financial loss. Although the interest rate is slightly higher with LPMI, this option usually results in a lower monthly payment and a potential tax deduction. (Consult your tax advisor.)
Liabilities
A person’s debts, monies owed or other financial obligations.
Liability coverage
Provides coverage for expenses incurred due to property damage or bodily injury occurring on the property.
Lien
A legal right granted by the owner of the property, by a law or otherwise acquired by a creditor. A lien serves to guarantee an underlying obligation, such as the repayment of a loan. If the underlying obligation is not satisfied, the creditor may be able to seize the asset that is the subject of the lien.
Lifetime cap
The limit on how much an interest rate can increase above the initial interest rate over the life of an ARM or variable-rate home equity line of credit.
Limited partnership
A form of business ownership with at least two partners — one who is fully liable for business debts and one who is only liable up to their initial investment.
Line of credit
An agreement between a lender and a customer that specifies the size and terms of an amount of money that can be borrowed. In a home equity line of credit, the line of credit is secured by the borrower’s home.
Liquidity
The degree to which an asset can be quickly bought or sold.
Loan conditions
Terms and requirements in a loan agreement, including loan amount, interest rate and other enforceable conditions.
Loan estimate (LE)
A document that contains important details, such as estimated rate, monthly payment and closing costs for a loan. The LE must be delivered by a lender within 3 business days from the date of the mortgage application.
Loan modification
An agreement to revise the terms of a mortgage to help a borrower bring their mortgage current or reduce their mortgage payment.
Loan purpose
The underlying reason for a requested loan, usually for a purchase or refinance.
Loan-to-value (LTV) ratio
A percentage that compares the loan amount borrowed to the property's appraised value. Lenders use LTVs to evaluate loan risk, determine mortgage eligibility and set payment requirements. A higher LTV may lead to higher interest rates and the need for mortgage insurance, increasing monthly payments. For example, a loan amount of $150,000 for a home valued at $200,000 would have an LTV ratio of 75%.
Lock expiration date
The date on which the interest rate that's “locked in” expires, allowing the rate to then fluctuate.
Lock-in period
A set number of days during which the interest rate is secured and not subject to market fluctuation.
Loss payable clause
A provision in an insurance contract for payment of a claim to someone, other than the insured person, who holds an insurable interest in the insured property.
M
Manufactured Home
A type of prefabricated housing that is largely assembled in factories, built on a chassis and wheels, then transported to a site. These homes are built to federal standards and offer an affordable homeownership option.
Margin
The set percentage the lender adds to an established index to determine the interest rate of an ARM or variable-rate home equity line of credit.
Market price
The amount a home can be bought or sold for in current market conditions.
Market rate
The standard interest rate that lenders charge for conventional loans.
Market value
The amount a willing buyer would pay and a willing seller would accept, assuming each is fully informed and under no pressure to act, for property or other assets.
Maturity date
The date when a loan's final payment or loan balance must be paid in full to the lender.
Maximum interest rate
The highest interest rate and monthly principal and interest payment amount allowed. Also known as maximum monthly payment.
Modular house
A type of housing built in sections in a factory and then transported to a permanent site where it is constructed on a foundation (excludes manufactured homes).
Monthly payment
The amount of principal and interest paid each month on a home loan, sometimes including real estate taxes, homeowners insurance, and, if applicable, mortgage insurance.
Mortgage
A type of loan specifically used to purchase real estate. Mortgages are typically repaid over 15 to 30 years. The monthly mortgage payment usually includes both principal loan payments and interest but may also include property taxes and homeowners insurance.
Mortgage banker
A company, individual or institution that originates mortgages. Mortgage bankers use their own funds, or funds borrowed from a warehouse lender, to fund mortgages.
Mortgage commitment
An agreement between the lender and borrower detailing the terms of a mortgage loan such as interest rate, loan type, term and amount.
Mortgage forbearance agreement
An agreement between the lender and a delinquent borrower in which the lender agrees not to exercise their legal right to foreclose on a mortgage and the borrower agrees to a mortgage plan that will, over a certain time, bring the borrower current on his or her payments.
Mortgage insurance
A policy that protects lenders by reducing their risk when providing loans, allowing borrowers to qualify for financing with a down payment of less than 20%. It is typically required for conventional, FHA and USDA loans. While it helps borrowers access loans they might not otherwise obtain, it temporarily increases a borrower’s payments as it is typically included in the monthly fees and closing costs.
Mortgage note
A written agreement to repay a sum of money at a stated interest rate for a specific term when the note is secured by a property.
Mortgagee
The lender in a mortgage that is secured by real property.
Mortgagor
The borrower of a mortgage loan that grants the lender an interest in the property.
N
Nationwide Mortgage Licensing System and Registry (NMLS)
A mortgage licensing system operated by state financial regulators. Its purpose is to streamline the licensing process, improve supervision and increase transparency in residential lending.
Negative amortization
A loan payment schedule in which the outstanding principal balance goes up, rather than down, because the payments do not cover the full amount of interest due. The unpaid interest is added to the principal balance.
Neighborhood Stabilization Program (NSP)
A program established by Congress designed to provide funds to assist buyers in purchasing foreclosed and abandoned homes in targeted areas for the purpose of stabilizing communities and property values.
New principal balance
The recalculated loan amount after a loan modification. The new principal balance may include previously unpaid interest charges or fees.
NMLS unique identifier (NMLS ID)
A number permanently assigned by the Nationwide Mortgage Licensing System and Registry that identifies a registered residential loan originator.
Non-conforming loan
A loan that doesn’t meet the guidelines established by Fannie Mae or Freddie Mac due to the loan amount, insufficient credit, underwriting guidelines or other factors.
Note
A written acknowledgement and agreement to repay a sum of money plus interest for a specific term. When the note is secured by a property, it's called a mortgage note.
O
Offer/purchase contract
An agreement between a buyer and seller of a property that states the price and terms of the sale. Also known as an agreement.
Open-end mortgage
A mortgage with a provision that the outstanding loan amount may be increased upon mutual agreement of the lender and the borrower.
Origination
The entire process of working with a borrower to complete a mortgage, from application through underwriting to final loan closing.
Origination charge
Compensation (other than discount points) that the lender receives for processing a loan application and putting the loan in place.
Owner occupancy
The borrower(s) intend to live in the home.
P
Package mortgage
A loan secured by real estate wherein the personal property and furniture are included in the purchase price of the house.
Payoff
The amount necessary to pay a loan in full.
Payoff figures
The calculation of numbers required to pay a loan in full.
Personal property
Usually considered property that can be moved from one location to another, as opposed to real property.
Planned unit development (PUD)
The process of developing buildings in a well-planned manner, usually including housing, schools, recreation, commercial and industrial areas. May also be a subdivision with individually owned lots and homes in operation with a homeowners association.
Plans and specifications
All the drawings and specifications for construction of a building or project, including architectural, engineering, mechanical and electrical drawings along with a description of materials to be used.
Power of attorney
A legal document outlining the authority to act for another person in legal or financial matters.
Pre-approval
A preliminary review of a buyer’s credit information and other documents to determine if they qualify to purchase a home. Demonstrates a buyer’s commitment to purchasing a home to sellers and their real estate agents. Factors such as credit history, employment, income, debt-to-income ratio and assets and liabilities help lenders determine the loan amount a borrower could qualify for.
Pre-paids
The portion of the loan closing costs which must be paid in advance to cover taxes, interest, insurance and any special assessments.
Pre-payment fee
A fee that some lenders charge if the borrower pays off the loan earlier than originally agreed in the lending contract. Also known as a penalty.
Pre-qualification
An estimate of how much money a lender is willing to lend a prospective homebuyer based on a borrower’s current income and debt.
Preliminary title report
Shows the conditions under which a title insurance company will issue a title binder or title commitment.
Primary residence
The home the borrower(s) live in day-to-day. Typically, the property must be occupied for the majority of the year to be considered a primary residence.
Principal balance
The amount owed on a loan, not including interest, fees or taxes.
Principal payment
The portion of the mortgage payment that reduces the outstanding balance of a loan.
Private mortgage insurance (PMI)
Insurance written by a private company that protects a mortgage lender against loss if the borrower defaults on the loan. PMI is only required if a borrower does not put 20% down and can be removed once 20% of the loan has been paid off.
Processing
The act of ensuring that the loan application and supporting documentation are in order and ready to be reviewed by a lender.
Property usage
Describes a homeowner’s use of a property (e.g., primary residence, second home, vacation home or a rental property).
Purchase agreement
A legally binding agreement between a buyer and seller that governs the purchase and sale of a property. It defines the terms of the transaction and the conditions under which a sale will occur.
Q
Qualifying ratios
Guidelines used by lenders to determine how much money a person is qualified to borrow. The two main qualifying ratios are debt-to-income and the housing expense ratio.
Quitclaim deed
A legal document that releases a person’s interest, title or claim in a property.
R
Rate and term refinance
A type of refinance that allows homeowners to replace their current mortgage with a new one, typically at a lower interest rate and/or a different loan term, potentially resulting in lower monthly payments. This option is especially beneficial if interest rates have decreased or if the home's value has increased. Typically, a seasoning period of 6–12 months may be required before refinancing.
Rate buydown
An option for homebuyers to lower their mortgage interest rate by paying an upfront fee at closing that could save money over the life of the loan. The buydown amount is determined by a point system, where each point can lower the interest rate by a certain percentage, resulting in lower monthly payments.
Rate cap
A limit placed on the amount of interest that lenders can charge on a loan or line of credit.
Rate lock
An agreement between a homebuyer and a lender that guarantees the interest rate on the mortgage will stay the same until the loan closes. Upon agreement, the lender will honor the rate lock while the buyer completes the homebuying process, protecting the homebuyer from rising interest rates. For example, if you lock in a rate at 3.5% for 60 days, even if rates go up to 4% during those 60 days, you'll still get the 3.5% rate.
Re-payment period
The time during which principal and interest payments will repay the outstanding balance of a loan.
Real assets
Actual tangible assets such as real estate or real property.
Real estate agent
A person who connects buyers and sellers for real estate transactions and represents them in legal negotiations. They work with buyers to find a home by helping them tour different properties.
Real estate owned (REO)
Describes foreclosed property that is owned by a bank due to a borrower not making mortgage payments over a period of time.
Real Estate Settlement Procedures Act (RESPA)
A federal law requiring lenders to provide home loan borrowers with information on known or estimated settlement costs. It also establishes guidelines for escrow account balances and prohibits anyone from giving or accepting a fee, kickback or anything of value in exchange for referrals of settlement service business involving a federally related mortgage loan.
Real estate/property taxes
Taxes assessed on real property and usually based on the property's value.
Real property
Any fixed type of property, typically land and buildings that are immovable.
Refinance
The process of obtaining a new mortgage to replace an existing one, often sought when interest rates drop to achieve lower monthly payments. Homeowners may also refinance to access their home equity for debt consolidation, home repairs or other expenses. Home value appreciation may also prompt refinancing. Refinancing may have specific requirements, such as a seasoning period for the current mortgage.
Reissue (refinance) rate
A reduced rate for title insurance that a borrower may be eligible for on a refinance. The reduced rate may be applicable if the property was previously insured within a certain number of years.
Rescission period
The 3-day period following closing when the borrower has the right to cancel the transaction. This right was set forth by the Truth in Lending Act (TILA).
Retail lender
An entity that lends money to individuals. Examples of retail lenders include banks, credit unions, savings and loan institutions and mortgage bankers.
Revolving line of credit
Funds that are always available to a borrower for a specified amount of time. As borrowed funds are repaid, they can be withdrawn again.
S
Satisfaction of mortgage
This lender-issued legal document verifies that a mortgage has been fully paid.
Seasoning period
The minimum time frame, typically 6–12 months, that homeowners must wait after the close of the loan before refinancing. This period varies by loan type and lender guidelines and includes specific payment requirements for eligibility in transactions like cash-out refinances.
Second home
An additional residence that a homeowner visits or lives in for specified times each year. Also known as a vacation home or weekend home.
Second mortgage
An additional mortgage taken out on a property while the current mortgage is still in effect.
Secondary mortgage market
The market where lenders and investors buy and sell existing mortgages.
Section 203(k) loan program
HUD's primary program for the rehabilitation and repair of single-family properties. A 203(k) loan is a first mortgage that covers the costs of rehabilitation and purchase or refinance of an eligible property. The goals of the Section 203(k) loan program are community and neighborhood revitalization and expanded opportunities for homeownership for low- and moderate-income families. Also known as a renovation loan.
Securitization
The process of taking a liquid asset, or group of assets, and transforming them into a security through financial engineering.
Security
The collateral used to secure the repayment of a loan.
Security instrument
A mortgage deed or deed of trust that shows a pledge of an asset as collateral.
Security interest
A claim on collateral to obtain a loan.
Seller contributions
Money that a seller agrees to pay towards the buyer's closing costs, saving the buyer money upfront on the home purchase. This can make buying a home more affordable, especially for first-time homebuyers.
Settlement costs
Costs associated with the closing of a mortgage loan, such as origination fees, discount points or payments for title insurance, surveys, attorney services and taxes. Also known as closing costs.
Short sale
When net proceeds from selling the property will fall short of the debts secured by liens against the property.
Single Family Residence
A detached residential building designed to house one household or family. This is the most common type of home purchase—a standalone house that's not connected to other homes.
Site value
The worth of vacant land without improvements.
Soft credit pull
A request for an estimate of a borrower's credit score that does not appear on their credit report or affect their credit score like a hard credit pull does. These pulls will report basic personal information and a summary of their credit scores and are used to evaluate and make an initial estimation about how likely a borrower is to pay back a loan. Also known as a soft inquiry or soft check.
Subdivision
An area of land, improved or unimproved, divided into plots for sale.
Subordinate
A loan in a second lien position. Also known as a second mortgage.
Survey
The measurement of boundary lines to determine the exact amount of land that a homeowner owns.
T
Tax lien
A legal claim against a property for unpaid taxes.
Term
The length of time when a loan or home equity line of credit must be paid in full.
Title
A document that shows legal ownership of a property.
Title insurance
Protects a buyer's or lender’s financial interest in real property against loss due to title defects, liens or other matters.
Title insurance company
A company that performs title searches to protect a buyer and lender against a loss that could result from a title dispute.
Title insurance policy
A legal agreement made by the insurer, usually a title insurance company, to pay the insured party for losses relating to claims against title.
Title search
Reviewing documents evidencing the history of a piece of real property to determine relevant interests in and regulations concerning that property.
Transfer tax
A transaction fee when the title of a property changes hands.
Truth in Lending Act (TILA)
A federal law requiring full disclosure of credit terms in a standardized manner for easier comparisons between lending terms and financial institutions.
U
U.S. Department of Agriculture (USDA) home loan
A government-backed mortgage program offered by the USDA to assist low- to moderate-income borrowers in purchasing, constructing or repairing homes in rural and suburban areas. Benefits typically include no down payment, competitive interest rates, lower mortgage insurance costs and flexible credit score requirements.
Underwriter
Someone who reviews the application, documentation and property information before making a loan decision.
Underwriting
The process of deciding whether a loan should be approved or denied. It requires the verification of a borrower’s information and assessment of their creditworthiness.
Uniform Electronic Transactions Act (UETA)
Guarantees that electronic record keeping and electronic transactions are as enforceable as documents previously requiring ink signatures.
Uniform residential loan application (URLA)
A standard mortgage application form used by borrowers to apply for a home loan. The URLA requests information about the borrower's income, assets, liabilities and a description of the property they plan to buy, among other things. Also known as the 1003 Form.
Upfront mortgage insurance premium (UFMIP)
This is required for all FHA loans, and it is typically financed into the mortgage loan amount or paid by the borrower at closing.
V
Variable rate
An interest rate that changes periodically in relation to an index.
Veterans Affairs (VA) home loan
A home loan partially backed by the U.S. Department of Veterans Affairs (VA) and issued by private lenders. It is available to active and veteran service personnel, their spouses and those meeting specific eligibility criteria. Key benefits of VA loans typically include no down payment, no mortgage insurance, no pre-payment penalties, lower interest rates and more flexible credit standards. However, borrowers may need to pay a VA funding fee. VA loans can be used for various property types and limit closing costs.
W
W2
IRS form that reports annual wage earner income.
Warehouse lending
A line of credit given to a loan originator to pay for a mortgage the borrower used to purchase a property. The life of the loan generally extends from its origination to the time it is sold into the secondary market, either directly or through securitization.
Warranty deed
A deed that guarantees a clear title to the buyer of a real property.
Wholesale lender
Lenders that don't work directly with borrowers. Instead, they offer their loans through loan originators working with mortgage brokers. The loan originator shops around to find the mortgage terms and rates that are the right fit for their borrowers. The wholesale lender then underwrites and funds the loan.
Y
Yield to maturity
The lender's percentage of annual return on actual funds loaned, assuming that the loan will be paid in full at maturity.
Z
Zoning ordinance
Local laws that establish building codes and usage regulations for properties in a specified area. This creation of districts specifies different types of property uses, such as commercial or residential.