Mortgage Glossary

1003 Form This is a commonly used mortgage loan application developed by Fannie Mae. It can also be called the Uniform Residential Loan Application.
1031 Exchange The exchange of certain types of property can defer the recognition of capital gains or losses at sale in order to defer capital gains taxes due
Acceptance This is a verbal or written acceptance of an offer to buy a home made by the seller to the buyer
Acre This is a unit for measuring land commonly used in US property sales. One acre is equal to 43,560 square feet.
Adjustable-rate mortgage, or ARM A home loan in which the interest rate changes periodically based on a standard financial index. Most ARMs have caps on how much an interest rate may increase.
Alt-A Mortgage A home loan that is in the middle of prime and subprime
Amoritization Amoritization is the paying off of debt with a fixed repayment schedule in regular installments. For example, a typical amortization schedule for a 15 year loan will include the amount borrowed,tim interest rate paid, and term. The result will be a month breakdown of how much interest you pay and how much is paid on the amount borrowed.
 Annual percentage rate, or APR A standardized method of calculating the cost of a mortgage, stated as a yearly rate, which includes such items as interest, mortgage insurance and certain points or credit costs. Because it includes these other items, it is higher than the interest rate a lender will quote.
Annual Percentage Yield This is the annual interest rate that takes into account the frequency and cost of compunding interest
Appraisal A written report by a qualified appraiser estimating the value of a propert
Appreciation the measureable value that a home or property’s value increases. This value is usually driven by market improvements or renovations.
Assessed Value A value determined by local government assessors and used to calculate annual property or real estate taxes.
Assumable Mortgage A type of mortgage that may be transferred, interest rate and all from seller to buyer.
Assumption Assuming responsbility for a mortgage and its prompt payments
Attorney Fees Fees incurred due to or during closing
Balloon mortgage A loan that offers lower monthly payments for a specific period of time, which usually is anywhere from three years to 10 years. After that, a borrower must pay off the principal balance in a lump sum, or balloon payment. Under certain conditions, the mortgages can be converted to fixed-rate or adjustable-rate loans. Many borrowers either sell their homes before they get to their due dates or refinance their balances into new mortgages. Balloon loans can make sense for borrowers who don’t intend to live in the home long. If plans change however, borrowers will have to pay off or refinance the balance
Balloon payment A lump sum payment that is larger than the other, periodic payments. It pays off the remaining balance of a loan
Bi-weekly mortgage In a typical mortgage, you make one monthly payment or twelve payments over the course of a year. With a Bi-Weekly payment you are paying half of your normal monthly payment every two weeks. This is the equivalent of thirteen regular payments, which in turn will reduce the amount of interest you pay and pay off the loan earlier.
Borrower The person taking out the loan. This person is responsible for making all payments associated with the loan and failure to do so could result in financial and legal repurcussions.
Bridge loan A bridge loan is a short-term loan used until a person or company secures permanent financing or removes an existing obligation. This type of financing allows the user to meet current obligations by providing immediate cash flow. The loans are short term, up to one year, with relatively high interest rates and are usually backed by some form of collateral such as real estate or inventory.
Buy Down A situation in which a seller or lender kicks in a sum of money in order to lower the initial interest rate on a home loan to make a sale more appealing for the buyer.
Buyer’s agent The real estate agent who works on behalf of the buyer.
Cap A maximum monthly payment a borrower may be expected to pay on a loan.
Capital Gain Profit earned on an asset, such as a home or property.
Capital Gain Tax A tax levied against the profit made on the sale of a home and/or property.
Cash In Refinance A type of refinancing where the buyers put down cash in the closing process in order to lower their mortgage balance.
Cash Out Refinance A second mortgage in which the borrower extracts home equity at the same time a refinance deal is made, an alternative to a home equity loan
Certification of Reasonable Value (CRV) This certification applies specifically to VA loans and involves an appraisal issued by the Veteran Administration to determine the value of the property. The loan amount may not exceed this appraised value.
Closing The final step in a loan process when loan documents are signed and the title is transferred.
Closing agent The individual responsible for overseeing the closing process, ensuring all documents are signed and mediating any disputes that arise.This person is usually an attorney from the mortgage company.
Closing costs Expenses incurred by buyers and sellers when transferring ownership of property. Closing costs normally include an origination fee, attorney’s fee, taxes, escrow payments, title insurance and sometimes discount points. Lenders must provide a loan estimate of closing costs to prospective home buyers
Closing Statement An itemized list of closing costs
Co-borrower If a borrower has bad credit or not enough of a credit history, he or she may need a co-borrower with good credit who agrees to share the responsibility for a home loan so that the primary borrower can recive a loan and purchase a property.
Collateral Property pledged as security to a debt. If the borrower fails to repay the loan, the lender may gain ownership of the collateral and sell it to recover the money
Combination Loan A two stage loan that initially loans out money for the construction of a home and then that loan is replaced with a second, conventional home loan.
Commitment Letter A document between the lender and buyer that lays out the terms of the loan.
Comparable sales, comps In appraising a house, this is the practice of looking at similar home sales prices in the region to come to an accurate appraisal.
Conforming Loan A conventional loan characterized by loan limits that fall within those guidelines laid out by the Government Sponsored Enterprises (GSEs) such as Freddie Mac and Fannie Mae.
Construction Loan Part of a combination loan. This is the initial loan that pays for the construction of a home and is later replaced.
Contingency Common clauses added to real estate agreements that provide rights to the buyer or seller during various stages of the transaction process.
Conventional Mortgage A mortgage that is ffered by a government sponsored entity that usually has a 30 year fixed loan rate. Different from a FHA or VA loan.
Credit Money extended to a borrower from a lender based on a credit history.
Credit Report A tool used by banks to determine your credit worthiness and limit your mortgage amount.
Date of Closing The date upon which all paperwork associated with the property sale transaction is finalized.
Date of Posession The actual date upon which the buyer will move into a home or property; it is usually the closing date, but may be another agreed upon date as well.
Debt Amount of money a borrower owes to the lender.
Debt-to-Income Ratio The ratio of monthly liabilities and housing expenses divided by the monthly gross income of the borrower.
Deed An official public document which establishes property ownership.
Deed in Lieu of Foreclosure A method to avoid foreclosure where the owner deeds the property to the lender.
Deed of Reconveyence A deed or reconveyance is a document issued by a mortgage holder indicating that the borrower is released from the mortgage debt and transfers the property title from the lender, also called the beneficiary, to the borrower, also called the trustor. It contains a legal description of the property and the property’s parcel number and is often notarized. Some states use a satisfaction of mortgage document instead of a deed of reconveyance.
Deed of Trust A document that in some states is used in place of a mortgage. A deed of trust may be held by a third party, similar to a mortgage.
Default The inability of borrower to make regular and consecutive payments on a loan.
Deferred Interest The amount of interest added to the principal loan balance when a borrower pays less than the contractual monthly payment.
Delinquency The failure of the borrower to make monthly mortgage payments on time and in full. This practice can lead to a notice of defautl and eventually foreclosure.
Discount Points This is a measure of interest; 1 point = 1% of the home loan value. Homebuyers may pay points up front, a type of buy-down, in order to lower their overall interest rate and mortgage payment.
Discount Rate The interest rate the Federal Reserve offers to member banks and thrifts.
Down payment The amount of a property’s purchase price that the buyer pays in cash and does not finance with a mortgage. Most mortgage lenders require a cash down payment of 5 percent, 10 percent or 20 percent of the sale price, though some lenders have zero-down mortgage programs. You can often lower your mortgage payment or afford a more expensive house by putting more money down. If you come up with less than 20 percent of the buying price, you may have to obtain private mortgage insurance, or PMI, to protect the lender before your loan is approved
Earnest Money Earnest money is a deposit made to a seller showing the buyer’s good faith in a transaction. Often used in real estate transactions, earnest money allows the buyer additional time when seeking financing. Earnest money is typically held jointly by the seller and buyer in a trust or escrow account.
Equal Credit Opportunity Act This is a federal law that prohibits discrimination by lenders to buyers on the basis of race, religion, national origin, sex, age, marital status or involvement in public assistance programs.
Equity This is the difference between the value of the home and the mortgage loan is called equity. Over time, as the value of the home increases and the amount of the loan decreases, the equity of the home generally increases.
 Escrow An account in which a neutral third party holds the documents and money in a real estate transfer until all conditions of a sale are met. Also, an account in which money for property taxes and insurance is held until paid; money is added to the account every time a mortgage payment is made
Fair Market Value The price of a property in the current market.
Fannie Mae A private mortgage corporation that began as a government subsidized entity in the late 30s. Today Fannie Mae, along with Freddie Mac, is a government sponsored enterprise (GSE) and together they are responsible for setting annual conforming loan limits and assuring that most Americans are able to finance a home. Fannie Mae is commonly known as a secondary mortgage market and lends to mortgage lenders which in turn extend mortgages to borrowers
Federal Funds Rate The interest rate banks charge one another for overnight use of excess reserves
FHA Federal Housing Administration
FHA Loan This is a program that started during the Great Depression which allows low income borrowers to qualify for mortgages as long as they fit certain requirments set by the FHA who insures them.
First Time Buyer Someone who has not owned property before and is buying a home and gaining a mortgage for the first time.
 Fixed-rate mortgage A home loan in which the interest rate will remain the same through the life of the loan, most often 15 years or 30 years, but sometimes 10, 20, 40 and even 50 years. Forty- and 50-year mortgages make monthly payments more affordable, but come with considerable drawbacks. For more information about the dangers involved, read the Bankrate features, ” 40-year mortgage often a risky choice” and ” 50-year mortgages: low payments, low equity.”
Flood Certification In most real estate cases a lender will require a flood certification before making a loan on a home. In areas where a property falls in a flood zone, the borrower may be required to purchase standalone flood insurance before a mortgage and/or home loan is approved.
Foreclosure The legal process by which a homeowner in default on a mortgage is deprived of interest in the 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
Freddie Mac Like Fannie Mae, Freddie Mac is a government sponsored enterprise which is responsible for maintaining mortgage market stability and helpign assure Americans can buy homes. This is a secondary mortgage market meaning they lend to lenders who then lend directly to borrowers.
Good faith estimate, or GFE A written estimate of expected closing costs that a lender must provide a prospective home buyer within three days of the home buyer submitting a mortgage loan application. Brokers and lenders are required by law to make as accurate an estimate as they can
Graduated Payment Mortgage This is a system meant for young couples whose incomes should increase over time. In this system, there is a negative amoritization mortgage with flexible payment options that gradually increase over time until they level off.
Hard Money Loan a mortgage of last resort for borrowers who’s credit is so poor they cannot obtain financing in the normal market.
HARP Loan This is a refinance loan offered to those with negative equity.
Hazard Insurance Another name for homeowners insurance.
High Risk Loan A loan set to high risk borrowers (those with poor credit histories) who can’t get loans through traditional avenues
Home Equity The value of a property minus any existing liens.
Home Equity Line of Credit A line of credit that will use the value of the property as collateral.
Home Inspection a comprehensive and exhaustive examination of a home by a licensed inspector. Often required as part of a mortgage and home loan process.
Home Inspection Contingency Clause A clause added to an offer letter that gives the buyer certain rights pending home inspection. A buyer may ask the seller to repair defects discovered during the home inspection or even request release from the offer to buy in light of a home inspection.
Home Loan The actual amount of money a buyer owes the lender when purchasing a home
Home Price Index Tool which provides historical data on home prices in a certain region.
Homeowners Association An association attached to a home (house, condo, apartment etc.) that establishes certain rules an owner must comply ith to live there. Usually these rules include a collection of neighborhood dues for landscaping maitenance ad membership in recreation or athletic facilities.
Homeowners insurance An insurance policy that includes hazard coverage, covering loss or damage to property, as well as coverage for personal liability and theft
House Flipping The purchase of a property at a reduced market rate for the purpose of quickly renovating or “flipping” the property and then selling it as an increased price.
Housing Co-op This is a real estate corporation where buyers own a share of real estate holdings and can reside in a co-op unit. Shareholders do not have mortgages, but instead pay on a cut of the shares and earn equity in the lng run.
HUD loan A type of loan available to HUD homebuyers that goes toward fixing up a home. The loan is subsequently absorbed into the mortgage. The term “HUD loan” is often confused with “FHA loan.”
Impound Account See escrow account definition.
Initial Interest rate, introductory The interest rate at which the Adjustable Rate Mortgage starts.
Interest-only mortgage An adjustable-rate mortgage that allows borrowers to pay only the interest for a specified period of time. Interest-only mortgages are considered risky
Interest Rate This is the rate charged for use of money in a loan. Interest rates may be fixed or variable
Investment Property Real estate bought for use as an investment as opposed to private residental use. Often these types of properties are rented and give the owners opportunity for profit in the long run.
Islamic Mortgage A type of mortgage that avoids the payment of interest which is prohibited under Islamic law.
Joint Ownership A type of ownership where two people equally own the home or property, this is the common method of ownership for spouses.
Joint Tenancy A type of property ownership where two or more people share.
Jumbo mortgage A mortgage that exceeds the conforming limit. The single-family limit changes annually and the current limit is always posted on Bankrate. Rates on jumbo mortgages tend be one-eighth to one-quarter of a percentage point higher than comparable conforming mortgages. You can check the rates of both types of loans on Bankrate’s mortgage search tables.
Lender The bank or finance company that award home loans to the borrower or property buyer.
Lender Fees These fees are typically tied in with closing fees and are meant to cover costs incurred by the ender over the course of the loan process.
Lender Overlay Set of guidelines in addition to those required by Freddie Mac, Fannie Mae or FHA
Lender Paid Mortgage Insurance The lender pays for your mortgage insurance in exchange for a higher interest rate on your mortgage.
Lien A legal right granted by the owner of 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.
Loan Money lent from a financial insttution to creditworthy borrowers over a specific period of time with a particular interest rate.
Loan Officer Representative of a bank or lender who initiates the mortgage on their behalf.
Loan Origination Initiation of home loan process whereby a borrower submits their information to a bank or lender in order to get a loan.
Loan Processor The indidividual responsible for handling all the paperwork needed to close your loan.
Loan-to-Value The percentage of appraised property value that is borrowed from a bank or lender. A down payment of 15% creates a loan to value of 85%.
Margin The amount of percentage points, or spread, added to the index to come up with the rate your adjustable-rate mortgage will charge after each adjustment.
Maturity typically applied to the term of a home loan or mortgage; the life span of a mortgage; for example, a 15-year loan matures in 15 years, the period of time in which the debt must be paid off.
Mortgage A temporary loan used to finance the purchase of a property or home.
Mortgage Broker The entity that acts as a go-between between a homebuyer and mortgage lender, handling paperwork and finally effecting a mortgage. A broker does not make direct loans to buyers, but works to find the best deal and finally collects fees as part of the mortgage process.
Mortgage Calculator These are online financial tools that help potentila buyers estimatin what type of mortgage they can afford by plugging in various financial criteria
Mortgage Company This is the brokerage company or direct lender who gives out home loans.
Mortgage Discount Points A form of prepaid interest so that the buyer can lower the interest rate of their mortgage at closing.
Mortgage Due Date The date each month when a mortgage payment is due for the entire duration of the loan.
Mortgage Insurance When buyers take out a mortgage with less than a certain dollar percentage to put down on the loan, lenders require them to pay mortgage insurance, a monthly premium that is added to the mortgage. This protects the lender should a buyer default on the home loan.
Mortgage Insurance Premium A required 1.5% fee added into a FHA loan, paid at closing.
Mortgage Lender The institute that gives out loans in order to get interest income or sells them on the secondary market.
Mortgage Originator The actual company that gives out the mortgage.
Mortgage Payment The amount a borrower pays every month to slowly pay back their loan.
Mortgage Rate The interest rate associated with your mortgage.
Mortgage Rate Lock The option of securing one mortgage rate for the entire term of your mortgage so that it does not change.
Mortgage Term The length of your mortgage. The most common terms are 30 or 15 years.
Negative Amoritization This happens when a mortgage payment is below the interest only payment threshold and so the difference is added to the principal balance of your loan.
Ninja Loan No Income No Job Assets loan. This is a no doc loan where it doesn’t require the borrower to have income, assets or job verification.
No-fee mortgage A sales tactic to attract buyers who may be unable to pay out of pocket closing fees. Typically a no-fee or no-cost mortgage is bundled with a slightly higher interest rate that more than makes up the difference in so-called “no fees” over the life of the loan.
Notice of Incomplete Application (NOIA) A form sent to the buyer that indicates missing or incomplete loan application information. Buyer must provide all required information for the lender to complete the application process.
Offer A verbal and written statement buy a buyer to a seller commiting to purchasing their property or home.
Option Arm A type of home loan that gives borrowers four different payment options including but not limited to negative amoritization.
Origination Fee When applying for a mortgage loan, borrowers are often required to pay an origination fee to the lender. This fee may include an application fee, appraisal fee, fees for all the follow-up work and other costs associated with the loan.
Par Rate The interest rate that a buyer qualifies for assuming there is no manipulation.
Payment Cap For an adjustable rate mortgage, this is the maximum payment amount a buyer could ever be expected to pay per month.
Payment Shock A sudden, large increase in the monthly mortgage payment due to an adjustment in the ARM or through refinancing.
Piggyback Loan A second mortgage “piggybacked” onto a first mortgage and used in lieu of mortgage insurance. Cost effectiveness of a piggyback loan depends on current market factors.
PITI The monthly housing expense expressed as a combiantion of the principal, interest, taxes, and insurance.
Point Factored into the loan’s APR, a point equals 1 percent of a mortgage loan. Some lenders charge “origination points” to cover expenses of making a loan. Some borrowers pay “discount points” to reduce the loan’s interest rate
Portable Mortgage A type of mortgage that may be carried by the borrower from one home purchase to the next, portable.
Power of Attorney This is a legal document that grants an individual the right o act on behalf of another. This is most often used when someone dies and the person with their power of attorney now makes the legal decisons regarding their mortgage.
Preferred Lender A mortgage lender that is recommended by a broker.
Pre-paid Costs or Fees These include Property Taxes, Homeowner’s Insurance, and Mortgage Interest that will accrue between the closing date and month-end. Property Taxes and Homeowner’s Insurance are collected to put into your Escrow Account so that you have enough reserves to pay these bills then they are due.
Prepayment penalty This is a fee charged to borrowers who pay a loan off faster than the prescribed payment schedule. Some prepayment penalties can add up to thousands of dollars, so they’re worth asking about. Many states place limits on prepayment penalties. Make sure to call your state banking commission to see if prepayment penalties are allowed where you live and, if so, how large they can be.
Pre-qualification This is the process where buyers find out how big of a home loan they can get approved for from a lender which helps them in their homebuying process.
Primary Mortgage Market These are direct lenders.
Prime Loan A loan whose limits conform to the guidelines set out by Fannie Mae or Freddie Mac. THese are uaullsy awared to borrowers with good credit.
Principal The amount of debt, excluding interest, left on a loan.
Principal Balance The amount that is currently owed on home loan.
Private mortgage insurance, or PMI An insurance policy that protects the lender against default on loans by providing a way for mortgage companies to recoup the costs of foreclosure. PMI is usually required if the down payment is less than 20 percent of the sale price. Home buyers pay for the coverage in monthly installments. PMI should be terminated when the home buyer has built up 20 percent equity in the property.
Processing Fees Lender fees that are associated with creating the loan or mortgage, these are usually tied in with closing fees.
Property Address The actual address of the property or home being bought.
Property Taxes Annual local taxes charged to the homeowner based on the value of a property.
Property Valuation The same as an appraisal.
Qualified Mortgage A mortgage that mees with the new underwriting guidelines set out by the CFPB.
Quit Claim Deed A document that releases one party in a home title from any responsibility and grants all responsibility to another. Commonly used for spouses or in family situations in which more than one individual has an interest in a mortgage or property title.
Rate Commitment Option This is the same as a rate lock.
Rate Lock A short-term agreement by a lender to “hold” a certain interest rate on a home loan while the buyer negotiates a sale transaction. Also, Rate commitment option.
Real Estate Investment Trust Securities or mutual funds that invest directly in real estate.
Real Estate Settlement Procedures Act (RESPA)
Real Estate Tax This is the same as Property Tax.
Refinance The process by which a borrower/homeowner may negotiate a lower interest rate on a mortgage thereby lowering monthly payments. They may choose to work with their current lender or refinance with another lender.
Remaining Balance This is the current balnce owed on a home. To find this you take your total mortgage value and subtract any payments you have made.
Remaining Term The amount of time left on your loan.
Repayment Schedule This is the schedule that lays out how the mortgage will be repaid. it usually specifies a day each month on which a payment is due and lays out how long these payments will last.
Reverse Mortgage A type of mortgage designed for homeowners over 62 years of age; gives them access to home’s equity in cash payments, frees up money they may use for other important costs or to make needed home repairs. Since reverse mortgages are typically structured as loans, these payments are not typically considered income.
Right of Rescission A law detailed in the Truth in Lending Act (TILA) that gives a borrower the right to cancel a new line of credit or home equity loan with a new lender. It also allows a borrower the ability to cancel a refinance transaction done with another lender other than the current mortgage within three days of closing.
Sales Contract A legal contract for the exchange of services or property between the seller and the buyer/borrower. It details an agreed upon value in money that the borrower will pay the seller.
Second Mortgage Also known as a home equity loan, a second mortgage gives borrowers flexibility to access the cash equity in their home, usually useful for other high-dollar expenses such as auto and college loans.
Secondary Mortgage market The segment of the mortgage and real estate securities market that deals in the investment of mortgages; not direct mortgage lenders.
Seller’s agent  A selling or listing agent who is employed by a real estate firm. The agent works with the seller to determine an appropriate sale price for the home and then markets the property.
Settlement Costs Prior to closing, the attorneys involved in the mortgage closing will meet to determine the final costs that are associated with the loan. These settlement costs are given to all parties so that they will be prepared to pay the closing costs that have been agreed upon
Short Refinance  A transaction in which the lender agrees to refinance the borrower’s home to the current market value. The lender will pay off the difference after refinancing the loan.
Short Sale Useful tool for lenders and homeowners when foreclosure could be a worst-case scenario. In a real estate short-sale lenders give homeowners permission to discount the home value (an outstanding loan balance) to effect a quick sale, thereby averting foreclosure.
Speculative Home Market One in which investors snatch up homes for quick re-sale hoping to cash in on improving markets; considered risky by some.
Sub-prime loan A high-risk loan packaged with non-conforming loan limits and interest rates that make it possible for homebuyers with poor credit to qualify for a mortgage.
Survey This is a formal survey of your property that helps to establish property lines and define any limits in terms of construction etc. that could limit the value of the property. In most cases, lenders will require buyers to have a survey done.
Swing Loan This is the same as a bridge loan.
Tenancy in Common One or more individuals have the property title but ownership is divided up at various percentages.
Title The official document showing the ownership of the property.
Title Company A company that specifically deals with all issues relted to the title including insurance and searches.
Title insurance A policy that guarantees that an owner properly has title to a property and can legally transfer title to someone else. Should a problem arise, the title insurer pays any legal damages. A policy may protect the mortgage lender, the home buyer or both.
Title Search Research on a property title before it is exchanged to determine if they are any existing liens on the property or any other issues that may impede sale.
Truth in Lending This is a federal mandate that all lenders must follow. There are several important parts to the Truth In Lending regulations including proper disclosure of rates, how to advertise mortgage loans and many other aspects of the lending process. These regulations were put into place to protect consumers from potential fraud.
Two-step mortgage A home loan that features a fixed rate and payment for an initial period, followed by one adjustment, then a fixed rate and payment for the remainder of the loan term. Two-step mortgages go by confusing names such as 2/28, 5/25 or 7/23. A 7/23, for example, has an initial fixed period of seven years, an adjustment and then 23 more years of payments following the adjustment.
Underwriter The company or service that evaluates a borrower’s creditworthiness prior to loan and mortgage approval.
VA Loans Special, discounted, home loans designed for military veterans.
Warranty Deed Indicates no past liens or disputes against the property; the holder of the property deed has the right to sell it to another.
Yield Spread Premium The commission that mortgage brokers recieve from banks and lenders by originating loans.