Glossary
Mortgage Basics
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- Acceleration Clause
- A loan provision that lets the lender demand the full balance right away if you break certain terms, like missing payments.
- Adjustable-Rate Mortgage (ARM)
- A loan with a rate that is fixed for a set period, then adjusts at regular intervals based on a market index.
- Adjustment Period
- How often the rate on an ARM can change after the initial fixed period, such as every six months.
- Amortization
- Paying off a loan through regular payments that cover both interest and principal over time.
- Amortization Schedule
- A table showing how each payment is split between principal and interest, and your remaining balance.
- Annual Percentage Rate (APR)
- The yearly cost of a loan including the interest rate plus certain fees, shown as a percentage. It helps you compare offers.
- Application Fee
- A fee some lenders charge to process your loan application.
- Appraisal
- A licensed professional's estimate of a home's market value.
- Appraised Value
- The value of a property stated in the appraisal report.
- Appreciation
- An increase in a property's value over time.
- Assets
- Things you own that have value, such as cash, investments, retirement accounts and property.
- Assumable Mortgage
- A loan that a buyer can take over from the seller, keeping its existing terms. Some FHA, VA and USDA loans are assumable.
B
- Balloon Mortgage
- A loan with smaller payments for a set time, then one large payment of the remaining balance.
- Bankruptcy
- A legal process for people who cannot repay their debts. It affects credit and mortgage waiting periods.
- Biweekly Payments
- Paying half your monthly payment every two weeks, which adds up to one extra full payment per year.
- Bridge Loan
- A short-term loan that helps you buy a new home before your current home sells.
- Buydown
- Paying money upfront to lower the interest rate, either permanently or for the first few years.
C
- Cap
- A limit on how much an ARM's rate or payment can change at one time or over the life of the loan.
- Cash Reserves
- Money left in your accounts after closing, often measured in months of mortgage payments.
- Cash-Out Refinance
- A refinance for more than you owe, so you receive the difference in cash.
- Certificate of Eligibility (COE)
- A document from the VA confirming that a veteran or service member qualifies for a VA loan.
- Clear to Close
- The underwriter's final approval, meaning your loan is ready to close.
- Closing
- The meeting where the loan documents are signed, funds are paid and ownership transfers.
- Closing Costs
- Fees and expenses paid at closing, such as lender fees, title insurance, appraisal and recording fees.
- Closing Disclosure
- A five-page form you receive at least three business days before closing showing final loan terms and costs.
- Co-Borrower
- A second person who applies for the loan and shares responsibility for repaying it.
- Co-Signer
- Someone who agrees to repay the loan if you do not, without necessarily being on the title.
- Collateral
- Property pledged as security for a loan. For a mortgage, the collateral is the home.
- Comparable Sales (Comps)
- Recent sales of similar nearby homes used to estimate a property's value.
- Conforming Loan
- A loan that meets Fannie Mae and Freddie Mac guidelines, including the conforming loan limit.
- Conforming Loan Limit
- The maximum loan amount Fannie Mae and Freddie Mac will buy, set each year by county.
- Contingency
- A condition in a purchase contract that must be met, such as financing, inspection or appraisal.
- Conventional Loan
- A mortgage not insured or guaranteed by a government agency.
- Credit Report
- A record of your borrowing and repayment history from a credit bureau.
- Credit Score
- A number, usually 300 to 850, that summarizes your credit risk.
D
- Debt-to-Income Ratio (DTI)
- Your total monthly debt payments divided by your gross monthly income.
- Deed
- The legal document that transfers ownership of a property.
- Deed-in-Lieu of Foreclosure
- Voluntarily transferring your home to the lender to avoid foreclosure.
- Default
- Failing to make loan payments or meet other loan terms.
- Delinquency
- Being behind on your loan payments.
- Discount Points
- Upfront fees paid to lower your interest rate. One point equals 1% of the loan amount.
- Down Payment
- The part of the purchase price you pay in cash, not borrowed.
- Due Diligence
- The research and inspections a buyer completes before finalizing a purchase.
E
- Earnest Money
- A deposit made with your offer to show you're serious. It's usually applied toward your down payment or closing costs.
- Encumbrance
- Any claim against a property, such as a lien or easement.
- Equity
- The difference between your home's value and what you owe on it.
- Escrow
- An account or neutral party that holds money or documents until conditions are met.
- Escrow Account
- An account your servicer uses to collect and pay your property taxes and homeowners insurance.
F
- Fannie Mae
- The Federal National Mortgage Association, a company that buys mortgages from lenders and sets conventional loan guidelines.
- FHA Loan
- A mortgage insured by the Federal Housing Administration, known for low down payments and flexible credit.
- FICO Score
- The most widely used type of credit score, created by the Fair Isaac Corporation.
- First-Time Homebuyer
- Generally, someone who hasn't owned a home in the past three years.
- Fixed-Rate Mortgage
- A loan with an interest rate that stays the same for the entire term.
- Flood Insurance
- Insurance covering flood damage, required for homes in certain flood zones.
- Forbearance
- A temporary pause or reduction in payments during a hardship.
- Foreclosure
- The legal process a lender uses to take back a property after the borrower defaults.
- Freddie Mac
- The Federal Home Loan Mortgage Corporation, which buys mortgages from lenders like Fannie Mae.
- Funding Fee
- A one-time fee charged on most VA loans to help fund the program.
G
- Gift Letter
- A signed letter stating that money given for your home purchase is a gift, not a loan.
- Good Faith Deposit
- Another name for earnest money.
- Grace Period
- The time after a payment's due date before a late fee is charged.
- Gross Income
- Your income before taxes and deductions.
H
- Hazard Insurance
- Insurance that protects your home against damage like fire and storms. Often called homeowners insurance.
- HELOC
- A home equity line of credit, a revolving credit line secured by your home's equity.
- Home Equity Loan
- A fixed loan secured by your home's equity, often called a second mortgage.
- Home Inspection
- A detailed review of a home's condition by a professional inspector.
- Homeowners Association (HOA)
- An organization that manages a community and collects dues from owners.
- Housing Ratio
- Your monthly housing payment divided by your gross monthly income, also called the front-end ratio.
I
- Index
- A market benchmark used to set the rate on an adjustable-rate mortgage.
- Interest
- The cost of borrowing money, paid to the lender.
- Interest Rate
- The percentage a lender charges on the loan balance each year.
- Interest-Only Loan
- A loan that lets you pay only interest for a set period before principal payments begin.
J
- Jumbo Loan
- A loan larger than the conforming loan limit.
L
- Late Charge
- A fee added when a payment is made after the grace period.
- Lender Credit
- Money from the lender to help pay closing costs, usually in exchange for a higher rate.
- Lien
- A legal claim against a property for an unpaid debt.
- Loan Estimate
- A three-page form you receive within three business days of applying, showing estimated loan terms and costs.
- Loan Officer
- The licensed professional who helps you choose a loan and guides you through the process.
- Loan Term
- The length of time you have to repay the loan, such as 15 or 30 years.
- Loan-to-Value Ratio (LTV)
- The loan amount divided by the home's value, shown as a percentage.
- Lock-In Period
- The length of time a rate lock is guaranteed.
M
- Margin
- The fixed percentage added to the index to set an ARM's rate.
- Mortgage
- A loan used to buy or refinance real estate, secured by the property.
- Mortgage Broker
- A licensed professional who connects borrowers with multiple lenders.
- Mortgage Insurance Premium (MIP)
- Mortgage insurance charged on FHA loans, paid upfront and yearly.
- Mortgage Note
- The written promise to repay the loan, listing its terms.
N
- Negative Amortization
- When your payment doesn't cover all the interest, so the unpaid interest is added to your balance.
- NMLS
- The Nationwide Multistate Licensing System, which licenses mortgage companies and loan officers.
O
- Origination Fee
- A lender fee for creating and processing your loan.
P
- PITI
- Principal, interest, taxes and insurance, the four parts of a typical mortgage payment.
- Points
- Upfront fees tied to your loan, usually discount points that lower your rate.
- Pre-Approval
- A lender's written statement of how much you can likely borrow, based on verified information.
- Pre-Qualification
- An early estimate of how much you might borrow, based on information you provide.
- Prepaid Items
- Costs paid at closing in advance, such as interest, insurance and property taxes.
- Prepayment
- Paying extra toward your loan principal before it's due.
- Prepayment Penalty
- A fee some loans charge for paying off the loan early. Most home loans today don't have one.
- Principal
- The amount you borrowed, or the remaining balance not counting interest.
- Private Mortgage Insurance (PMI)
- Insurance that protects the lender on conventional loans with less than 20% down.
- Promissory Note
- A signed promise to repay a debt under specific terms.
- Property Tax
- A tax charged by local governments based on a property's assessed value.
- Purchase Agreement
- The written contract between buyer and seller for the sale of a home.
R
- Rate Lock
- A lender's promise to hold your interest rate and points for a set time.
- Real Estate Agent
- A licensed professional who helps people buy or sell property.
- Recording Fee
- A fee charged by the county to officially record your deed and mortgage.
- Refinance
- Replacing your current mortgage with a new one.
- RESPA
- The Real Estate Settlement Procedures Act, which requires disclosures and bans kickbacks in the closing process.
- Reverse Mortgage
- A loan for homeowners 62 and older that turns home equity into cash without monthly mortgage payments.
S
- Seller Concessions
- Money the seller agrees to pay toward the buyer's closing costs.
- Servicer
- The company that collects your payments and manages your loan after closing.
- Short Sale
- Selling a home for less than the loan balance, with the lender's approval.
- Streamline Refinance
- A simplified refinance for existing FHA or VA borrowers with less paperwork.
- Survey
- A drawing that shows a property's boundaries and improvements.
T
- Title
- Legal ownership of a property.
- Title Insurance
- Insurance that protects the lender and owner against problems with the property's ownership history.
- Title Search
- A review of public records to confirm the seller owns the property and to find any liens.
- TRID
- The TILA-RESPA Integrated Disclosure rule, which created the Loan Estimate and Closing Disclosure forms.
- Truth in Lending Act (TILA)
- A federal law requiring lenders to disclose loan costs, including the APR.
U
- Underwriting
- The process of reviewing your income, assets, credit and property to approve the loan.
- USDA Loan
- A mortgage backed by the U.S. Department of Agriculture for homes in eligible rural and suburban areas.
V
- VA Loan
- A mortgage guaranteed by the Department of Veterans Affairs for eligible veterans, service members and spouses.
- Verification of Employment (VOE)
- A lender's confirmation of your job and income, usually close to closing.
W
- Walk-Through
- A final visit to the home before closing to make sure it's in the agreed condition.
Z
- Zoning
- Local rules that control how land and buildings in an area can be used.