Mortgage Terminology

The mortgage industry has a language all its own, so to help guide you through the lending process, we've put together this mortgage glossary which defines some of the more commonly used terms. If you have any questions, don’t hesitate to contact us.

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

Condition in a mortgage that gives the lender the right to require immediate repayment of the loan balance if regular mortgage payments are not made or for breach of other conditions of the mortgage.

Accrued Interest

Interest earned but not yet paid.

Adjustable Rate Mortgage (ARM)

A mortgage with an interest rate that adjusts based on a financial index, causing interest rates and payments to rise and fall with the market.

Amortization

A monthly repayment schedule in which a loan is repaid in fixed payments of principal and interest.

Annual Percentage Rate (APR)

The annual cost of a loan, expressed as a yearly rate. 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

An initial statement of personal and financial information required to approve your loan.

Application Fee

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

Appraisal

A written estimate of a 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 to render an opinion of market value as of a specific date.

Appraiser

A licensed professional who is qualified to estimate property values.

Appreciation

An increase in financial value of a home.

Asking Price

The amount for which a house is offered for sale.

Asset

Anything of monetary value that a person owns.

Assumable Mortgage

A mortgage contract that can be transferred from one person to another.

B

Balance Sheet

A financial statement that shows assets, debts, and net worth.

Balloon Mortgage

A mortgage contract with low monthly payments that do not increase until the final payment.

Bankruptcy

Proclamation by a court of an individual's or organization's inability to pay debts.

Basis Point

A unit of measure: 1/100th of one percent.

Beneficiary

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

Bill of Sale

A document that transfers ownership of goods from one person to another.

Bi-Weekly Mortgage Payments

A payment plan under which one pays one-half of a monthly payment every two weeks, saving interest substantially over the life of the loan.

Borrower

An individual who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan in full.

Buy-Down

When the seller contributes money that allows the lender to give the buyer a lower rate and payment.

Buyer’s Market

Market conditions that favor buyers. With more sellers than buyers in the market, buyers have ample choice of properties and can negotiate lower prices.

C

Cap

Limits on changes in ARM interest rates or monthly payments, either in an adjustment period or over the life of the loan.

Cash-out Refinance

A refinance for more than the balance of the original mortgage, where the extra money is taken out of the equity in the property.

Certificate of eligibility

Document issued by the Veterans' Administration to qualified veterans that entitles them to VA guaranteed loans.

Certificate of occupancy

Document issued by local government agency stating that a property meets the requirements of health and building codes.

Certificate of reasonable value (CRV)

A property appraisal performed by a VA-approved appraiser that establishes the limit on the principal of the VA loan.

Certificate of Deposit Index

The index used for interest rate changes in ARM mortgages.

Certificate of Title

A document written by the Title Company which states who is the legal owner of a property.

Closing

Meeting between the buyer, seller and lender or their agents at which property and funds legally change hands.

Closing Costs

Expenses paid by the borrower and/or seller during the closing which can include loan origination fee, discount points, attorney's fees, title insurance, appraisals, etc.

Closing Disclosure (CD)

The lender is now responsible for issuing the Closing Disclosure to the borrower. In order to issue an accurate Closing Disclosure, the lender will require receipt of final closing figures from the title company and/or the seller’s attorney reflecting all title and seller charges 10 days prior to consummation. This requirement is being made to meet the delivery timing requirements being enforced. The Closing Disclosure must be received by the borrower no less than 3 Federal business days before consummation.

Closing Statement

A financial disclosure statement that lists the funds received and expected at the closing.

Co-Borrower

Any additional borrower whose names appear on the loan documents.

Co-Signer

A person who signs a loan with another person and promises to pay if the primary borrower doesn’t pay.

Collateral

Assets that back a mortgage loan.

Combined Loan-to-Value (CLTV)

The ratio of the total mortgage liens against the subject property to the lesser of either the appraised value or the sales price.

Commission

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

Commitment Letter

A formal offer to provide the borrower with a mortgage.

Comparables

Similar properties in the same area that have recently sold.

Contingency

A condition that must be satisfied before a contract is legally binding before a sale can close.

Contract of Sale

The agreement between the buyer and seller on the purchase price as well as the terms and conditions of a sale.

Conventional Loan

A mortgage that is not insured by the FHA or the VA.

Convertible ARM

Adjustable Rate Mortgages that have the option of converting to a fixed loan during a given time period.

Cost of Funds Index (COFI)

An index that is used to set interest rates in an Adjustable Rate Mortgage.

Counter Offer

A home seller’s response to a buyers offer.

Credit

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

Credit Bureau

The company that gathers information on consumers who use credit.

Credit Report

A report detailing a person’s credit history.

Credit Score

A number that summarizes your credit profile which predicts the likelihood that you’ll repay future debts.

D

Debt-to-Income Ratio

The ratio that results when a borrower's monthly payment obligation on long-term debts is divided by monthly income.

Deed

The legal document that transfers a property from one owner to another.

Deed of Trust

This legal document, in some states, is used in place of, or addition to, a mortgage document to secure the payment.

Default

When a person does not pay on the loan, they are considered in default of the loan.

Deferred interest

Interest added to the balance of a loan when monthly payments are not sufficient to cover it.

Delinquency

Failure to make payments on time.

Department of Veterans Affairs (VA)

Government agency that manages benefits and other issues for veterans of the military.

Depreciation

The decline in value of a property.

Discount Points

Interest prepaid to the lender at closing with each point equal to 1 percent of the loan amount.

Down Payment

The initial amount of money a buyer will pay for a property in addition to the money from a mortgage.

E

Earnest Money

Deposit made by a buyer in evidence of good faith when the purchase agreement is signed.

Eminent Domain

The right of government to take private property for public use after the property owner is paid market value for the property.

Encumbrance

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

Equal Credit Opportunity Act (ECOA)

Federal law requiring creditors to make credit equally available without discrimination 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.

Escrow

The neutral third party that holds money and/or documents until the escrow instructions are fulfilled.

Escrow Account

The account held by the lender containing funds used to pay the tax or insurance on a property.

F

Fair Credit Reporting Act

The Law that protects consumers through federal regulations on the total interest paid over the life of the loan and procedures to repair errors on a person’s credit report.

Fair Market Value

The current price at which a property should sell.

Fannie Mae

The Corporation created by the government that buys and sells conventional mortgages and mortgages that are insured by the FHA or VA.

Federal Housing Administration (FHA)

A division of Housing and Urban Development (HUD) that insures residential mortgage loans 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.

Fixed Rate Mortgage

A mortgage with an interest rate that doesn’t change for the life of the loan.

Foreclosure

The legal process where a lender forces the sale of a property because the borrower could not make the mortgage payments.

Freddie Mac

The agency that purchases conventional mortgages from Housing and Urban Development (HUD) approved bankers.

401(k)

An employer sponsored investment program to set aside tax-deferred money for retirement.

G

Ginnie Mae

The agency of the government that purchases conventional mortgages from HUD approved bankers.

Gross Monthly Income

The total amount earned by a borrower each month.

Guaranty

A promise to pay the debts of another in case of that person’s default.

H

Hazard Insurance

Protects the insured against loss due to fire or other natural disaster 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 repairs to specified parts of a house for a specific period of time.

Homeowners Association

A group of owners who manage the common areas and set the rules- usually found in condominiums or closed communities.

Homeowners Insurance (HOI)

Insurance that covers an individual's home against damages to the house or possessions in the home as well as 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.

HUD-1 Settlement Statement

A standard form that discloses the fees and services associated with closing your mortgage loan.

I

Impound

The portion of the monthly mortgage payment that is held in escrow by the lender to pay for taxes and insurance.

Income Property

A property which is rented out 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

The professional hired to complete an examination of the house on behalf of the buyer.

Installment Loan

A loan that is repaid in equal payments over a particular time period.

Interest

Charge paid for borrowing money.

Interest Rate

The amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets.

J

Joint Tenancy

The ownership of property by two or more persons.

Jumbo Loan

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

Jurisdiction

The area where a property is located.

L

Late Charge

Financial penalty for making a debt payment past the due date.

Lender

A financial institution that lends money to buyers.

Liabilities

Debt and other financial obligations.

Lien

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

Liquid Assets

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

Loan

Money you borrow with a written promise to pay it back later.

Loan Estimate (LE)

The Loan Estimate must be provided to the consumer no later than 3 business days after receipt of a loan application and no later than 7 Federal business days before consummation (closing/disbursement of funds). Federal Business Days are defined as all calendar days except Sundays and legal public holidays.

Loan Officer (LO)

The person who takes applications for loans.

Loan Origination Fees

The fee the lender charges to process a mortgage loan.

Loan to Value Ratio (LTV)

The percentage of the property’s value that is borrowed.

Lock-In Rate

A lenders guarantee of an interest rate for a set period of time.

M

Market Value

The price that a property can be sold for.

Market Rate

The average rate charged by lenders for a loan.

Mortgage

A document that creates a lien on a property as security for the payment of a debt.

Mortgage Banker

A company that writes mortgages to buyers and sells mortgages to other bankers.

Mortgage Broker

A person who finds a mortgage for a buyer for a fee.

Mortgage Lender

A lender that provides funds for a mortgage.

Mortgage Loan

A loan for which real estate serves as collateral to provide for repayment.

Mortgage Note

A legal document that obligates a borrower to repay a loan at a stated interest rate during a specified period of time.

Mortgage Rate

The cost or the interest rate you pay to borrow the money to buy your house.

Mortgage Servicer

The financial institution or entity that is responsible for collecting your mortgage loan payments.

Mortgagee

The lender in a mortgage loan transaction.

Mortgage Insurance

An insurance contract that will pay the lender should the borrower default on the mortgage loan.

Mortgagor

The borrower in a mortgage loan transaction.

N

Net Worth

The value of all the person’s assets minus all his/her debts.

Note

Legal document that obligates a borrower to repay a debt.

Notice of Default

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

O

Offer

Legally presenting the seller with a contract to purchase.

Origination Fee

A fee that a lender charges for evaluating and processing the loan.

Owner Financing

A purchase in which the seller provides all or part of the financing in the sale of real estate.

P

Payment History

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

PITI

Acronym used to describe monthly housing expenses “Principal, Interest, Taxes, and Insurance.”

Points

Interest prepaid to the lender at closing with each point equal to 1 percent of the loan amount.

Power of Attorney

Legal document authorizing one person to act on behalf of another.

Pre-Approval

An agreement from a lender to loan a buyer a particular amount of money.

Prepayment

A full or partial payment of the principal before the due date.

Prepayment Penalty

Charge for paying ahead on a mortgage.

Pre-Qualified

A buyer who has been preliminarily approved for a loan but is not guaranteed.

Principal

The amount of debt on a loan that does not include interest.

Private Mortgage Insurance (PMI)

Insurance purchased by a buyer on a conventional loan when a down payment is less than 20 percent of the purchase price to protect the lender against default.

Property Tax

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

Purchase Agreement

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

R

Realtor

A real estate professional who is a member of the National Association of Realtors.

Real Estate Broker

An agent representing a buyer or seller in a real estate transaction.

Real Estate Settlement Procedures Act (RESPA)

A law that governs acceptable practices and fees in real estate transactions.

Rescission

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

Refinance

The process of paying off one loan with the proceeds from a new loan secured by the same property.

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

A subordinate mortgage made in addition to a first mortgage.

Seller’s Market

Market conditions that favor sellers. With more buyers than sellers in the market, sellers have the negotiating power as demand exceeds supply.

Servicing

The collection of mortgage payments from borrowers and related responsibilities.

T

Term

The number of years until a loan is due to be paid in full.

TILA-RESPA Integrated Disclosure Rule (TRID)

The rule integrates 4 existing required disclosures [the initial TIL (Truth-in-Lending), GFE (Good Faith Estimate), final TIL, and HUD-1] under TILA (Truth-in-Lending Act) and RESPA (Real Estate Settlement Providers Act), into 2 disclosures: the Loan Estimate (LE) and the Closing Disclosure (CD). The Consumer Financial Protection Bureau (CFPB) is implementing this rule to give the consumer more time to fully understand the charges for a particular loan and to decide whether they believe they can afford the loan. The new forms use clear language and have been designed to make it easier for consumers to locate key information: interest rate, monthly payments and costs to close. The rule applies to most closed-end consumer mortgages. This will include Construction-only loans and loans secured by vacant land or by more than 25 acres. It does not apply to HELOCS, Reverse Mortgages, mortgage secured by a mobile home or by a dwelling that is not attached to real property (i.e. land). There is a partial exemption for certain transactions associated with housing assistance loan programs.

Title

A document that gives evidence of ownership of a property, as well as rights of ownership and possession.

Title Insurance

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

Truth-in-Lending Disclosure Statement (TIL)

A federal law requiring written disclosure of the terms of a mortgage (including APR and other charges) by a lender to a borrower after application.

U

Underwriting

The process of verifying data and evaluating a loan application for approval.

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.