Mortgage Glossary

Don’t be overwhelmed and confused by all the mortgage specific language. We’ve put together this glossary of terms to help guide you through the mortgage lending process. Feel free to contact us if you have additional questions.

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

A

Acceleration Clause
A contract provision in a mortgage giving the lender the right to require immediate repayment of the outstanding loan balance if certain requirements are not met.

Accrued Interest
Accumulated interest that has not yet been paid.

Adjustable Rate Mortgage (ARM)
A mortgage with an interest rate that adjusts to reflect market conditions, causing interest rates and payments to rise and fall with the market.

Amortization
Paying regularly scheduled fixed payments of principal and interest to pay off debt.

Annual Percentage Rate (APR)
The annual rate charged for borrowing money expressed as a single percentage number. APR takes into account interest, discount points, lender fees and mortgage insurance, so it will be slightly higher than the interest rate on the loan.

Application
Initial documentation of personal and financial information required to be submitted for loan approval.

Application Fee
A fee charged by a lender to cover the initial costs of processing a loan application.

Appraisal
A written estimate of an evaluated property’s current market value, based on recent sales information from similar properties and the current condition of the property.

Appraisal Fee
A fee charged by a licensed, certified appraiser for estimating the market value of a property as of a specific date.

Appraiser
A licensed, qualified professional who has the knowledge and expertise to estimate property values.

Appreciation
An increase in the financial value of a home.

Asking Price
The amount of money requested for a house for sale.

Asset
Anything of monetary value that a person owns.

Assumable Mortgage
A mortgage contract that can be transferred from the current owner to a buyer.

B

Balance Sheet
A financial statement at a particular point in time detailing the balance of assets, debts and net worth.

Balloon Mortgage
A mortgage contract in which a large portion of the borrowed principal is repaid in a single payment at the end of the loan period.

Bankruptcy
A federal court proceeding involving a person or business that is unable to repay outstanding debts.

Basis Point
A unit of measure used in expressing differences of interest rates: 1/100th of one percent.

Beneficiary
A person who receives the proceeds from a trust, will or estate.

Bill of Sale
A certificate of transfer of personal property from one person to another.

Bi-Weekly Mortgage Payments
A payment plan where payments of one-half of a monthly payment are made every two weeks, saving interest substantially over the life of the loan.

Borrower
An individual who applies for and receives a loan from a lender in the form of a mortgage with the intention of repaying the loan in full over the agreed upon timeframe.

Buy-Down
When the seller contributes money that allows the lender to give the buyer a lower rate and payment for the first few years of the mortgage.

Buyer’s Market
Market conditions that favor buyers. With more sellers than buyers in the market, buyers have plentiful properties to choose from and can negotiate lower prices.

C

Cap
An upper limit on the amount the interest rate can increase or decrease for an ARM, either in an adjustment period or over the life of the loan.

Cash-out Refinance
A refinance in which the new mortgage amount is greater than the original, existing mortgage amount, where the extra money is taken out of the equity in the property.

Certificate of Eligibility
A document issued by the Veterans’ Administration to verify a veterans’ eligibility for a VA loan.

Certificate of Occupancy
A document issued by a local government agency certifying a property meets the requirements of health and building codes, indicating it to be in a condition suitable for occupancy.

Certificate of Reasonable Value (CRV)
A property appraisal performed by a VA-approved appraiser that establishes the maximum value on the principal loan amount of the VA loan.

Certificate of Deposit Index
The index used for interest rate changes in ARM mortgages.

Certificate of Title
A state or municipal-issued document written by the Title Company identifying the legal owner of a property.

Closing
Also called settlement, a meeting between the buyer, seller and lender or their agents where property and funds legally transfer.

Closing Costs
Expenses incurred during the process of transferring ownership of a property which are paid by the borrower and/or seller during the closing. These expenses can include loan origination fee, discount points, attorney’s fees, title insurance, appraisals, etc.

Closing Disclosure (CD)
A five-page document listing final details about the mortgage such as loan terms, projected monthly payments and total closing costs.

Closing Statement
A financial disclosure statement detailing the funds received and expected at the closing.

Co-Borrower
Any additional borrower whose names appear on the loan documents and whose income and credit history are used to qualify for the loan.

Co-Signer
A person who signs a loan with another person and promises to make payment on the other person’s debt if the primary person defaults.

Collateral
Property or other assets that a borrower offers a lender to secure a loan.

Combined Loan-to-Value (CLTV)
The ratio used to determine the risk of default by borrowers when more than one loan is used. The percentage is calculated by adding the two loan amounts and dividing by the home’s value.

Commission
Money paid to a real estate agent or broker by the seller.

Commitment Letter
A formal letter from the lender promising to provide the borrower with a mortgage under certain terms and conditions.

Comparables
An abbreviation for “comparable properties” are properties with similar characteristics in the same area of the subject property that have recently sold. Comparables help the appraiser determine the approximate fair market value of the subject property.

Contingency
A condition that must be satisfied before a contract is legally binding for a sale to close.

Contract of Sale
The legal contract between the buyer and seller agreeing on the purchase price, terms and conditions of a sale.

Conventional Loan
A mortgage not insured by a government program, such as the FHA or VA.

Convertible ARM
Adjustable Rate Mortgages with the option to convert to a fixed loan during a given time period.

Cost of Funds Index (COFI)
An index used to set and determine interest rates in certain Adjustable Rate Mortgages.

Counter Offer
A home seller’s offer made in response to a buyers offer.

Credit
The ability of a person to borrow money, or buy goods by making payments over time.

Credit Bureau
The company that gathers information on consumers relating to the credit ratings of those who use credit.

Credit Report
A report detailing a person’s credit history including previous and current credit accounts and payment history.

Credit Score
A number assigned to a person indicating their capacity to repay future debts.

D

Debt-to-Income Ratio
The ratio comparing a person’s total monthly recurring debt payments divided by gross monthly income. This is used to measure an individual’s ability to manage monthly payment and repay debts.

Deed
A legal document transferring a property title from one owner to another.

Deed of Trust
A legal document used in some states in place of a mortgage document. This involves a third party who holds the title until the owner of the property has repaid the debt in full.

Default
Failure to meet legal obligations, including failure to make payments on a mortgage loan.

Deferred interest
Interest added to the principal balance of a loan when minimum monthly payments are less than the contractual terms of the loan. This allows for a scheduled payment to be made that is less than the interest due.

Delinquency
Failure to make payments on time.

Department of Veterans Affairs (VA)
A government agency that manages benefits and other issues for veterans of the military.

Depreciation
A reduction in the value of a property.

Discount Points
Up-front prepaid interest to the lender at the time of closing with each point equal to 1 percent of the total loan amount.

Down Payment
The up-front money paid in cash to make up the difference between the purchase price and loan amount.

E

Earnest Money
A deposit made by a buyer towards their down payment in evidence of good faith when the purchase agreement is signed.

Eminent Domain
The right of a government to take private property for public with payment of compensation.

Encumbrance
Something that limits the ownership of a property such as claims, liens or unpaid taxes.

Equal Credit Opportunity Act (ECOA)
Federal law enacted in 1974 making it unlawful for any creditor to discriminate based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs.

Equity
The percentage of property value held by the owner determined by the current fair market value of the property divided by the amount of existing liens.

Escrow
A neutral third party that holds money and/or documents towards property taxes, homeowner’s insurance or mortgage insurance until the escrow instructions are fulfilled.

Escrow Account
An account held by the lender containing funds used to pay the tax or insurance on a property which the borrower pays as part of the monthly mortgage payment.

F

Fair Credit Reporting Act (FCRA)
A federal law protecting consumers against unfair, inaccurate credit reporting through federal regulations that promote accuracy, fairness and privacy for data used by consumer reporting agencies.

Fair Market Value
The current selling price for a property.

Fannie Mae
The Corporation created by the government that buys and sells conventional mortgages and mortgages that are insured by the FHA or VA from lenders and sells them to investors on the open market.

Federal Housing Administration (FHA)
A federal agency, part of Housing and Urban Development (HUD), that insures residential mortgage loans made by private lenders and sets standards for underwriting.

Federal Trade Commission (FTC)
The government agency that monitors credit bureaus.

FHA Loan
A loan insured by the Federal Housing Administration designed to make housing more affordable, specifically for first-time homebuyers.

Fixed Rate Mortgage
A mortgage loan with an interest rate that does not change throughout the life of the loan.

Foreclosure
The legal process where a lender forces the sale of a property to pay off a mortgage loan that is in default because the borrower could not make the mortgage payments.

Freddie Mac
The government-sponsored agency that purchases conventional mortgages from Housing and Urban Development (HUD) approved bankers.

G

Ginnie Mae
The government agency that purchases conventional mortgages from HUD approved bankers.

Gross Monthly Income
An individual’s total amount of income earned each month prior to taxes or expenses deducted.

Guaranty
A promise to pay the debts for someone else in case that person defaults.

H

Hazard Insurance
Protects the insured against loss due to fire or other natural disasters in exchange for a premium paid to the insurer.

Home Inspection
A professional evaluation of the structural and mechanical condition of a property.

Homeowners Warranty
A type of insurance that covers home repairs and replacements to specified parts of a house for a specific period of time.

Homeowners Association (HOA)
An organized group of owners, usually found in condominiums or closed communities, who manage the common areas and enforce rules.

Homeowners Insurance (HOI)
Insurance that protects an individual’s home and possessions inside the home against damages or accidents in the home or on the property.

Housing and Urban Development (HUD)
A U.S. government agency established to implement federal housing and community development programs; oversees the Federal Housing Administration.

I

Impound Account
An account held by the lender containing funds used to pay the tax or insurance on a property which the borrower pays as part of the monthly mortgage payment.

Income Property
A property purchased to earn income through renting for money.

Index
A rate used to compute the index on an adjustable rate mortgage (ARM).

Inflation
The increase in the general price level of goods and services.

Inspector
A professional hired to complete an examination of a house on behalf of the buyer.

Installment Loan
A loan that is repaid in equal payments over a specific period of time.

Interest
A fee charged for borrowing money.

Interest Rate
The amount charged to borrow money from a lender, expressed as a percentage of the principal loan.

J

Joint Tenancy
The ownership of property by two or more persons.

Jumbo Loan
A mortgage loan amount larger than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation.

L

Late Charge
A financial penalty paid by a borrower for making a debt payment past the due date.

Lender
An organization that lends money to buyers to purchase a home.

Liabilities
Debt and other financial obligations.

Lien
A legal claim made by one person on the property of another for payment of a debt.

Lifetime Cap
A limit on the amount the interest rate or monthly payment can increase or decrease over the life of the loan, for an adjustable-rate mortgage (ARM).

Liquid Assets
Assets that can be quickly converted to cash such as stocks and bonds.

Loan
Money borrowed with a written promise to pay it back later with interest.

Loan Estimate (LE)
This explains the important details about a borrower’s loan including the estimated interest rate, monthly payment and total closing costs for the loan. The Loan Estimate will be provided within three business days of receiving the application.

Loan Officer (LO)
The person who takes applications for loans.

Loan Origination Fees
The fees charged by the lender to process a mortgage loan.

Loan to Value Ratio (LTV)
The percentage of the loan amount to the appraised value the property.

Lock-In Rate
A lenders guarantee of an interest rate for a set period of time.

M

Margin
For an adjustable-rate mortgage (ARM), the amount that is added to the index to determine the interest rate on each adjustment date, as stated in the note.

Market Value
The price that a property can be sold for.

Market Rate
The average rate charged by lenders for a loan, based on the market.

Mortgage
A legal document that creates a lien on a property as security for the repayment of a debt.

Mortgage Banker
A company that originates and services mortgages to buyers and then sells the mortgages to the secondary mortgage market.

Mortgage Broker
An intermediary person who qualifies a borrower for a mortgage for a fee.

Mortgage Insurance (MI)
Insurance that protects the lender if a borrower defaults on their mortgage loan. MI is usually required if the down payment is less than 20% of the purchase price.

Mortgage Lender
A lender that provides funds for a mortgage and controls the whole mortgage process, from application to underwriting to funding your mortgage, which makes for fast turnaround times and reliable financing.

Mortgage Note
A legal document that obligates a borrower to repay a loan at a stated interest rate during a specified period of time. A mortgage note contains many of the important loan elements, such as loan amount, interest rate, due dates, late charges and the terms of a mortgage.

Mortgage Payoff
The act of paying down a mortgage loan principal ahead of the amortization schedule.

Mortgage Servicer
The company that is responsible for collecting mortgage loan payments.

Mortgagee
The lender in a mortgage loan transaction.

Mortgagor
The borrower in a mortgage loan transaction.

N

Net Worth
The value of a person’s assets minus all of their liabilities or debts.

Note
Legal document that obligates a borrower to repay a debt at a stated interest rate during a specified period of time.

Notice of Default
Written notice to a borrower that a default has occurred and legal action may be taken.

O

Offer
Legally presenting a seller with a contract to purchase real estate.

Origination Fee
A fee charged by a lender to cover the administrative costs of processing a loan.

Owner Financing
A loan in which the seller provides all or part of the financing in the sale of real estate, rather than a bank.

P

Payment History
Part of the credit report which records late and on-time payment patterns.

PITI
An acronym used to describe the four components of monthly housing expenses “Principal, Interest, Taxes, and Insurance.”

Points
Up-front prepaid interest to the lender at the time of closing with each point equal to 1 percent of the total loan amount.

Power of Attorney
Legal document authorizing one person to act on behalf of another for all legal or financial matters.

Pre-Approval
An evaluation of a potential borrower by a lender to determine how much money they are eligible to borrow prior to applying for a loan.

Prepayment
A full or partial advanced repayment of the principal before the due date.

Prepayment Penalty
A fee charged to borrowers for paying ahead on their mortgage.

Pre-Qualification
The process of finding out how much money a borrower can afford to borrow to purchase a home.

Principal
A loan balance that is still owed to the lender, not including interest.

Private Mortgage Insurance (PMI)
Insurance that protects the lender if a borrower defaults on their mortgage loan. PMI is usually required if the down payment is less than 20% of the purchase price.

Property Tax
A government tax based on the market value of a property.

Purchase Agreement
A contract signed by a buyer and seller stating the terms and conditions of a home sale.

R

Realtor/Real Estate Agent
A state licensed real estate professional who represents a buyer or seller in a real estate transaction in exchange for a commission; a member of the National Association of Realtors.

Real Estate Settlement Procedures Act (RESPA)
A federal law that gives consumers the right to review information about loan settlement costs after applying for a loan and again at loan settlement. These guidelines provide acceptable practices and fees in real estate transactions.

Refinance
The process of paying off one loan with the proceeds from a new loan secured by the same property. This usually is done to secure better loan terms than a current loan, such as a lower interest rate.

Rescission
The cancellation of a contract, permitted by law within three days of signing a mortgage not used to purchase a home.

S

Secondary Mortgage Market
The market into which primary mortgage lenders sell the mortgages they make to obtain funds to originate more new loans.

Second Mortgage
An additional mortgage placed on a property with subordinate rights to the first mortgage.

Seller’s Market
When the housing market conditions favor sellers because there are more buyers than sellers in the market. This gives sellers the negotiating power.

Servicing
The collection of mortgage payments from borrowers and related responsibilities.

Simple Interest
Interest calculated only on the principle balance.

T

Term
The period of time that covers the life of the loan, usually in years.

TILA-RESPA Integrated Disclosure Rule (TRID)
The TILA (Truth-in-Lending Act) and RESPA (Real Estate Settlement Providers Act) Integrated Disclosure Rule integrates 4 existing required disclosures: the initial TIL (Truth-in-Lending), GFE (Good Faith Estimate), final TIL, and HUD-1 and combines them into 2: the LE (Loan Estimate) and the CD (Closing Disclosure).

Title
A document that indicates ownership of a property, as well as rights of ownership and possession of the property.

Title Insurance
Insurance that protects the lender (lender’s policy) or buyer (owner’s policy) against loss due to disputes over property ownership.

U

Underwriting
A step in the loan process to determine the risks involved in a particular loan and establish terms and conditions for the loan.

V

VA Loan
A home loan available to veterans with little or no down payment and guaranteed by the U.S. Veterans’ Administration.

Verification of Deposit (VOD)
A document signed by the borrower’s bank or other financial institution that verifies the borrower’s account balance and history.

Verification of Employment (VOE)
A document signed by the borrower’s employer that verifies the borrower’s position and salary.

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