Glossary Of Mortgage Terms

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Adjustable Rate Mortgage (ARM)
The total finance charge (interest, loan fees, points) expressed as a percentage of the loan amount.

Payment of a debt in regular, periodic installments of principal and interest as opposed to interest only payments.

Annual Percentage Rate (APR)
A term used in the Truth-in-Lending Act to represent the percentage relationship of the total finance charge to the amount of the loan. The APR reflects the cost of your mortgage loan as a yearly rate. It will be higher than the interest rate stated on the note because it includes, in addition to the interest rate, loan discount points, fees and mortgage insurance.

A printed form used by a mortgage lender to record necessary information concerning a prospective mortgage.

Application Fee
A sum of money paid towards estimated initial mortgage processing expenses such as appraisal and credit report.

A report made by a qualified person setting forth an opinion or estimate of property value. The term also refers to the process by which this estimate is obtained.

As Separate Property
Ownership in real property which is to be specifically excluded from community property.

Assessed Valuation
The value that a taxing authority places on real or personal property for the purpose of taxation.

A charge against a property for purpose of taxation. This may take the form of a levy for a special purpose or a tax in which the property owner pays a share of the cost of community improvements according to the valuation of his or her property.

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Balloon Mortgage
A loan with a fixed interest rate and monthly payment that becomes due in full, typically after 5 to 7 years.

Balloon Note
A written promise to pay a balloon mortgage's full balance when it due.

Balloon Payment
The final lump-sum payment to pay off a balloon mortgage's balance.

When you hand over your assets to a federal court because you can't pay your debts, and are no longer held responsible for paying off your creditors

Before-tax income
Your income earnings before federal and local taxes are taken out. Also called gross income or pre-tax, is used to calculate your tax bracket and other items that you have to report on your annual income tax forms. You can find your before-tax income on your paycheck.

Blanket mortgage
A loan covering more than one piece of property. Land developers commonly use blanket mortgages when they buy a plot of land and divide it into many separate lots. They spread the mortgage across the entire property rather than over each individual lot.

A person (also known as mortgagor) who receives funds in the form of a loan with an obligation to repay principal with interest.

Money advanced by an individual (builder, seller, etc.) to reduce the monthly payments for a home mortgage either during the entire term or for an initial period of years.

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The limit on how much an interest rate or monthly payment can change, either at each adjustment or over the life of the mortgage.

Cash to Close
Liquid assets that are readily available to be used to pay the closing costs involved in a closing of a mortgage transaction.

The consummation of a real estate transaction. The closing includes the delivery of a deed, financial adjustments, the signing of notes, and the disbursement of funds necessary to complete the sale and loan transaction.

Closing Costs
Money paid by the borrower in connection with the closing of a mortgage loan. This generally involves an origination fee, discount points, appraisal, credit report, title insurance, attorney's fees, survey, and pre-paid items such as tax and insurance escrow payments.

Closing Statement
The financial disclosure statement that accounts for all of the funds received and expected at the closing, including deposits for taxes, hazard insurance, and mortgage insurance.

Additional borrower(s) whose income contributes to qualifying for a loan and whose name(s) appears on documents with equal legal obligations.

Property pledged as security for a debt, such as the real estate pledged as security for a mortgage.

Commitment (Loan)
A binding pledge made by the lender to the borrower to make a loan, usually at a stated interest rate within a given period of time for a given purpose, subject to the compliance of the borrower to stated conditions.

Commitment Fee (Loan)
Any fee paid by a potential borrower to a lender for the lender's promise to lend money at a specified rate and within a given time period.

Commitment Letter
A formal offer by a lender stating the terms under which it agrees to loan money to a home buyer.

Conforming Loan
Conventional home mortgages eligible for sale and delivery to either the Federal National Mortgage Association (FNMA) or the Federal Home Loan Mortgage Corporation (FHLMC). These agencies generally purchase first mortgages up to loan amounts mandated by Congressional directive.

A condition that must be satisfied before a contract is binding. For instance, a sales agreement may be contingent upon the buyer obtaining financing.

Conventional Mortgage
A mortgage not obtained under a government insured program (such as FHA or VA).

Credit Report
A report detailing an individual's credit history.

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Deed of Trust
An instrument used in many states in place of a mortgage. Property is transferred to a trustee by the borrower (trustor), in favor of the lender (beneficiary) and reconveyed upon payment in full.

The failure to perform an obligation as agreed in a contract.

A loan payment that is overdue but within the period allowed before actual default is declared.

DeMinimus PUD
A PUD in which the common property has less than a 2% influence upon the value of the premises. The 2% rule of thumb is calculated by dividing the dollar amount of amenities by the total number of units. Also see PUD.

A sum of money given to bind a sale of real estate. Also known as earnest money.

A loss of value in real property brought about by age, physical deterioration, functional or economic obsolescence.

Discount Point
Amount payable to the lender institution by the borrower or seller to increase the lender's effective yield. One point is equal to one percent on the loan amount.

Discounted Loan
When the note rate on a loan is less than the market rate, the lender requires additional points to raise the yield on the loan to the market rate.

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Earnest Money
A portion of the down payment delivered with a purchase offer by the purchaser of real estate to the seller or an escrow agency by the purchaser of real estate with a purchase offer as evidence of good faith. Also known as a deposit.

Equal Credit Opportunity Act (ECOA)
A Federal law requiring lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, sex, age, marital status, receipt of income from public assistance programs or past exercising of rights under the Consumer Credit Protection Act.

The ownership interest; i.e. portion of a property's value over and above the liens against it. Equity is the amount of money you'd have if you sold your home today and paid off your mortgage — it includes your down payment, all the payments you've made against the loan's principal and any appreciation in your home's value.

A procedure in which a third party acts as a stakeholder for both the buyer and the seller, carrying out both parties' instructions and assumes responsibility for handling all of the paperwork and distribution of funds.

Escrow account
A neutral account that holds a sum of money, usually until a specific transaction is completed. Lenders often set up a type of escrow account, called an impound account, for you to prepay certain recurring costs: your first 6 months of property taxes, your first 2 months of hazard insurance and your first 2 months of mortgage insurance, if required.

A term that describes a person's ownership of a property. In general, each type of estate specifies your claim on a property, how long the claim will last and the rights that go along with the claim. The two major types of estates are (1) freehold estates, which refer to property owners and (2) leasehold estates, which are for tenants.

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Fair Credit Reporting Act (FCRA)
A federal law which requires a lender who is rejecting a loan request because of adverse credit information to inform the borrower of the source of such information. This law also requires consumer reporting agencies to exercise fairness, confidentiality and accuracy in preparing and disclosing credit information.

Federal Home Loan Mortgage Corporation — FHLMC (FREDDIE MAC)
A quasi-governmental agency 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 bonds to raise funds to finance the purchase of mortgages. Popularly know as Freddie Mac.

Federal National Mortgage Association — FNMA (FANNIE MAE)
A privately owned corporation created by Congress to support the secondary mortgage market. It purchases and sells residential mortgages insured by FHA or guaranteed by the VA, as well as conventional home mortgages.

FHA Loan
A loan insured by the Insuring Office of the Department of Housing and Urban Development; the Federal Housing Administration.

First Mortgage
A real estate loan that has priority over any subsequently recorded mortgages.

Fixed Interest Rate
An interest rate which does not change during the loan term.

Fixed Rate Mortgage
A traditional method of financing a home. The interest rate stays the same for the entire term of the loan — usually 15 or 30 years — so the interest and principal portions of your monthly payment remain the same. Your payments are stable and predictable, but initial interest rates tend to be higher on a fixed-rate mortgage than on adjustable-rate loans. Many fixed-rate mortgages cannot be assumed by a subsequent buyer.

A legal procedure in which property mortgaged as security for a loan is sold to pay the defaulting borrower's debt.

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A sum of money given to a home buyer as a present.

Gift Letter
A written explanation signed by the individual giving the gift stating, "This is a bona fide gift and there is no obligation expressed or implied to repay this sum at any time."

Good Faith Estimate
An estimate of the total costs to get a loan when buying or refinancing a home. After you apply for a loan, a lender or broker is required by law to give you a Good Faith Estimate within 3 days. The costs will include lender and broker fees, loan-related fees, and third-party fees, such as the title insurance and appraisal. Most of these fees must be paid on the closing date, the day when the sale or purchase of a home is completed.

Gross Monthly Income
Total monthly income earned before tax and other deductions.

Guarantee Mortgage
A loan guaranteed by someone other than the lender or borrower

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Hazard Insurance
A contract whereby an insurer, for a premium, undertakes to compensate the insured for loss on a specific property due to certain hazards (i.e. fire).

High-Ratio Loan
Mortgage loans in excess of 80 percent of the loan amount divided by the lower of the sales price or appraised value.

Home Equity Loan
A loan that allows home owners to borrow against the equity in their property. Home equity loans have a fixed interest rate and payment for usually 10 to 15 years. Since these loans are riskier than mortgages for lenders, the interest rates are higher.

Homeowners' Association Dues
The fees imposed by a condominium or homeowners' association for maintenance of common areas.

A document that gives a breakdown of the costs that the buyer and seller pay at closing. The lender, broker, escrow agent or attorney can prepare the HUD-1, which is also called a closing statement and settlement statement.

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Insured Loans
A loan insured by HUD-FHA or a private mortgage insurance company.

Consideration in the form of money paid for the use of money. Also a right, share or title in property.

Interest Rate
The percentage of an amount of money which is paid for its use for a specified time.

Interest Rate Cap
The limit on how much the interest rate on an adjustable rate mortgage (ARM) can go up or down.

Investment Property
Real estate owned with the intent of supplementing income and not intended for owner occupancy.

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Judgment Lien
A court decision that allows certain creditors to place a claim on a property.

Jumbo loan
Any loan that allows you to borrow more than an amount set by the Federal National Mortgage Association

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A rental agreement between a landlord and a tenant that lasts for an agreed period of time.

Any debt that you are responsible to (re)pay.

A legal claim or attachment against property as security for payment of an obligation.

Loan Commitment
A written promise to make a loan for a specified amount on specified terms.

Loan-To-Value Ratio (LTV)
The ratio between the amount of a given mortgage loan and the lower of sales price of appraised value.

Lock-In Rate
A lender's guarantee for a specific interest rate on a loan. Until you request a rate lock, a loan's interest rate quoted by either a lender or broker is apt to change due to market fluctuations. Once you've settled on a rate, the lender usually guarantees the rate for 15, 30, 45 or 60 days.

Lock Period
The amount of time that a lender will guarantee a loan's interest rate. Once you've locked in an interest on a loan, the lender will guarantee that rate for a certain period of time, usually for 30, 45 or 60 days (Normally, the longer the lock period, the more points that you have to pay up-front since the lender is taking a greater risk when they guarantee a rate for a long time).

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A document that pledges your property as security for a loan's repayment.

Mortgage Insurance (MI)
An insurance contract that protects the lender against loss if a borrower can't repay a loan

A formal term for the borrower in a mortgage agreement.

Mutual Mortgage Insurance (MMI)
A contract that protects a lender in case a borrower defaults on a FHA mortgage. If you have a loan that's insured by the Federal Housing Administration (FHA), you'll be required to give monthly payments for MMI. So, if you default on a loan, the lender has two ways to get their money back — sell your property or ask for repayment from the FHA, which will use the money collected from MMI.

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Negative Amortization
When the amount that you owe on a loan increases despite regular monthly payments. This typically happens with an adjustable rate mortgage (ARM) that has a payment cap. This means that your monthly payment can only increase up to 7.5% from the last adjustment period.

Non-Conforming Loans
Any loan that allows you to borrow over a certain amount set by the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac).

A written promise to pay back money at a specific time.

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Origination Fee
A fee or charge for work involved in evaluating, preparing and submitting a proposed mortgage loan. The fee is limited to 1 percent for FHA and VA loans.

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Percentage Point
One percent of the loan or a measure of the interest rate.

PITI (Principal, Interest, Taxes, and Insurance)
The most common components of a monthly mortgage payment.

An amount equal to 1 percent of the principal amount of the investment or note. The lender assesses loan discount points at closing to increase the yield on the mortgage to a position competitive with other types of investments.

Preliminary Title Report
The results of a title search by a title company prior to issuing a title binder or commitment to insure clear title.

Primary Residence
A residence which the borrower intends to occupy as the principal residence.

Principal Balance
The remaining balance due on a debt, exclusive of accrued interest.

Private Mortgage Insurance
Insurance written by a private company protecting the lender against loss if the borrower defaults on the mortgage.

The preparation of a mortgage loan application and supporting documentation for consideration by a lender or insurer.

PUD (Planned Unit Development)
A planned combination of diverse land uses, such as housing, recreation, and shopping in one contained development or subdivision. A major feature of a PUD includes areas of common land for use by the housing unit owners; the association of unit owners generally owns, pays fees, and maintains the common areas. Also see DiMinimus PUD.

Purchase Contract (Agreement/Offer)
An agreement between a buyer and seller of real property, setting forth the price and terms of the sale. Also known as a sales contract.

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Qualifying ratios
Guidelines used by lenders to evaluate a home buyer's borrowing potential.

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Rate Lock Option
An agreement guaranteeing an individual a specified interest rate on a loan provided the loan is closed within a set period of time.

Real Assets
Real estate or real property owned by an individual of business.

Real Estate Settlement Procedures Act (RESPA)
A federal law requiring lenders to provide home mortgage borrowers with information on known or estimated settlement costs. It also establishes guidelines for escrow account balances.

Real Property
Land and that which is affixed to it.

The repayment of a debt from the proceeds of a new loan using the same property as security.

Regulation Z
A federal law that requires a lender to give borrowers the annual percentage rate (APR). The APR helps borrowers compare one loan to another since it factors in not only the interest rate but also all the fees and closing costs that you need to pay. APR, though, is not always the best measure of comparison since not all the lenders include the same fees and closing costs. Regulation Z is also called the Truth-in-lending act.

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Satisfaction of Mortgage
The recordable instrument issued by the lender verifying full payment of a mortgage debt.

Second Home (Vacation Home, Weekend Home)
A residence other than the borrower's primary residence which the borrower intends to occupy for a portion of each year. Must be suitable for year-round occupancy.

Secondary Mortgage Market
A market where existing mortgages are bought and sold. It contrasts with the primary mortgage market where mortgages are originated.

In lending, the collateral given, deposited, or pledged to secure the payment of a debt.

Settlement Services
Services provided by the lender at the closing of a loan.

The measurement and description of land by a registered surveyor.

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The time limit within which a loan must be repaid.

The legal evidence of ownership rights to real property.

Title Insurance Policy
A contract in which an insurer, usually a title insurance company, agrees to pay the insured party a specific amount for any loss caused by defects of title on real estate in which the insured has an interest as purchaser, mortgagee, or otherwise.

Title Search
An examination of public records to disclose the past and current facts regarding the ownership of a given piece of real estate.

Truth-in-Lending Act
A Federal law requiring full disclosure of credit terms using a standard format. This is intended to facilitate comparisons between the lending terms and financial institutions.

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Analysis of risk and setting of an appropriate rate and terms for a mortgage on a given property for given borrowers.

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VA Loan
A loan that is partially guaranteed by the Veterans Administration and made by a private lender.

Verification of Deposit (VOD)
A document from a bank vouching for the balance of a person's checking and savings accounts.

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Wraparound Mortgage
A type of financing where the seller carries the buyer's loan. The contract is made between the buyer and seller with the lender's approval.

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Zero Point Option
An option which allows the borrower to opt to pay a slightly higher loan interest rate in lieu of paying the loan origination points generally charged for the particular loan product.

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