Glossary of Mortgage & Lending Terms

Below is a glossary list of mortgage terms that is simplified so you can better understand the overall mortgage process as well as any specific mortgage terms that you may be unfamiliar with.

Glossary

Glossary

Abstract of title

It’s like a biography of a property. It tells you everything that’s happened to it – who owned it, sold it, what happened while they had it. It starts from when the property was first given out and continues till today.

Acceptance

When a buyer or seller agrees to a deal, they’re “accepting” the terms. It’s like saying “yes” to a contract.

Account termination fee

If you have a special type of loan called a “home equity line of credit,” and you decide to pay it off within the first 5 years, you might be charged a fee. It’s a bit like a cancellation fee.

Additional principal payment

It’s paying extra money on your loan to lower the total amount you owe faster. This can save you money in the long run because you’ll pay less interest.

Adjustable-rate mortgage (ARM)

This is a type of home loan where your interest rate can change over time. It might start low and then go up, but there’s usually a limit on how high it can go. It’s like having a flexible rent that can change over time.

Adjustment cap

It’s a rule that sets a limit to how much your variable interest rate can increase or decrease during a certain period. It’s a safeguard to prevent your rates from drastically changing too quickly.

Adjustment date

This is the day your interest rate could change if you have an adjustable-rate mortgage. It’s like a scheduled “check-in” for your interest rate.

Adjustment period

It’s the time in between the “check-ins” for your interest rate if you have an adjustable-rate mortgage.

Affordability analysis

This is a simple test to see if you can afford to buy a home. It looks at your income, debts, available money, the type of loan you want, the likely taxes and insurance costs for the home, and estimated closing costs.

Amortization

This is how your debt decreases over time. At the beginning of your loan, most of your payment goes to the interest. Towards the end, your payments mostly reduce the remaining amount you owe. It’s like slowly chipping away at a large block of ice.

Amortization table or schedule

It’s like a roadmap of your loan payments, showing how much of each payment goes towards the loan itself (principal) and how much goes towards the interest. It helps you understand how much of the loan you’ll pay off during your mortgage term.

Amortization term

This is the total time it will take you to fully pay off your loan, usually counted in months. For instance, if you have a 15-year mortgage, the amortization term is 180 months.

Annual adjustment cap

This is the maximum amount your variable interest rate can increase or decrease in a year. It’s like a speed limit for your interest rate changes.

Annual percentage rate (APR)

This is like the “real” interest rate, as it includes not only the interest you pay but also other charges like insurance, closing costs, discount points, and loan origination fees. It gives you a better idea of the total cost of your loan. It’s mandatory for lenders to tell you the APR, which makes it easier for you to compare different loans.

Application fees

These are fees you need to pay when you apply for your loan, which can include costs for checking your credit or estimating your property’s value. Unfortunately, these fees are usually non-refundable.

Appraisal or appraised value

This is a professional’s best guess of how much your property is worth. This usually happens when you’re applying for a loan secured by your home.

Appraisal contingency

This is a safety clause in a sales contract that says your home must be valued at a certain price (usually what you’ve offered) or more.

Appreciation

This is when your property grows in value over time. This growth can depend on things like where your home is, its condition, and the selling prices of similar homes nearby. As your home appreciates, the amount of equity you have in it also increases, which can allow you to borrow more against it.

Approved term (after approval)

This is how long it will take you to pay off your loan, and it helps determine how much you’ll pay each month, your repayment schedule, and the total amount of interest you’ll pay over the life of your loan. See also: Term.

Approved term (before approval)

Just like the approved term after approval, this is an estimate of how long it will take you to pay off your loan. It’s used to calculate your potential monthly payments, repayment schedule, and the total amount of interest you could pay over the life of the loan.

Assessed value

This is the value given to your property by a tax assessor. This value is used to figure out how much you owe in property taxes.

Assignment

This is when you transfer a contract or a right (like the terms of a loan) from yourself to someone else.

Assumable loan

Some loans allow you to transfer them to a new owner if you sell your home. That means the new owner continues to pay off the loan under the same terms. This can be an attractive feature, but there might be a fee for this kind of transfer.

Balance Sheet

Think of it as a snapshot of your financial health on a certain date. It lists what you own (assets), what you owe (liabilities), and the difference between the two, which is your net worth.

Balloon loan

This is a loan that offers lower monthly payments for a certain period, and then asks you to make a big final payment. It’s like paying the minimum on a credit card, then having to pay off the remaining balance all at once.

Base rate

It’s a reference interest rate used as a starting point to price different types of loans, like adjustable-rate mortgages, car loans, or credit cards.

Basis point

It’s a tiny measure used in finance, equal to 1/100th of a percent. So, 50 basis points of $200,000 would be 0.50% or $1,000.

Bond

A bond is like an IOU where you lend money to a company or government, and they promise to pay you back with interest on a certain date. A real estate bond is similar but is usually backed by a mortgage or a deed of trust.

Break even point

It’s when what you earn equals what you spend. It can also refer to how long it will take to recover the cost of buying discount points on a mortgage. For example, if you paid $3,600 for discount points to lower your interest rate, and that reduces your monthly mortgage payment by $100, it would take 3 years to break even.

Bridge loan

It’s a short-term loan used when you’re buying a new home but haven’t sold your old one yet. It fills in the gap between when your old mortgage ends and your new one begins.

Broker

A broker is like a matchmaker between you and a lender or another party. They arrange the deal but don’t actually lend the money themselves.

Broker fees

These are charges for a broker’s services in helping you buy or sell property or arrange a mortgage.

Buydown

This is when a lender or homebuilder pays some of your mortgage interest up front to lower your monthly payments, usually for the first few years of the loan. It’s like paying a part of your bill in advance to get a discount on future payments.

Call option

This is a rule that lets your lender ask for the full loan amount to be paid back at once, usually after a certain period of time or for a specific reason.

Cap

This is a limit on how much the interest rate on your loan can increase. It helps to protect you from sharp increases in your monthly payments. For example, if your mortgage has a cap, your payments can’t increase above that limit.

Cash available for closing

This is the money you have ready to cover your down payment and closing costs. It doesn’t include any money that needs to be kept in reserve or that comes from certain sources if your lender has specific rules about this.

Cash to close

This is the cash you need to bring to the closing of the loan. It usually includes your down payment and closing costs.

Cash-out refinance

This happens when you take out a new mortgage that’s larger than your old one, plus any other loans you have on your home, and the costs of getting the new loan. The leftover money is given to you in cash.

Ceiling rate

This is the highest possible interest rate you could pay on a loan with a variable interest rate or an adjustable-rate mortgage (ARM).

Certificate of eligibility

This is a document given by the government that shows a veteran is eligible for a VA (Veterans Affairs) loan.

Certificate of reasonable value (CRV)

This is a document given by the VA that says what the maximum value and loan amount can be for a VA loan, based on an approved appraisal.

Certificate of title

This is a statement that says who legally owns a piece of property. It’s given by a company or lawyer that has checked the public records.

Chain of title

This is a record of all the documents that have affected who owns a property, starting with the oldest document and ending with the most recent one.

Clear title

A clear title is one that doesn’t have any issues, like debts or legal problems, that would prevent the property from being sold.

Close

This is when you sign all the paperwork for your loan. Depending on the situation, you might have a three-day period during which you can cancel the deal.

Closed

This is a term used to say that no more action is needed on something, like a task or a case.

Closing

This is a meeting where you, and possibly a few other people, sign, date, and notarize all the documents for your loan.

Closing costs

These are the expenses you need to pay to get your loan and transfer the property from the seller to you. They’re usually about 3% of the loan amount.

Closing date

This is the day you’ll sign all the paperwork for your new loan.

Closing Disclosure (CD)

This is a document you get at least three days before closing. It gives important information about your loan, like the interest rate, monthly payments, and costs to close the loan.

Closing statement

This is a report that shows all the money that was paid by and given to the buyer and seller when a piece of real estate is sold.

Co-borrower

This is someone else who takes on the same responsibility as you to pay back the loan. They have the same rights to the loan money as you do.

COBRA (Consolidated Omnibus Budget Reconciliation Act)

This law says that if a company has more than 20 employees, it has to let employees who leave (unless they were fired for very bad behavior) continue to get group health care coverage for 18 months. But, the employees have to pay for this themselves.

Coinsurance

This is a way of sharing the risk of insurance between the insurance company and the person who’s insured. How much each side pays depends on the relationship between the amount of the insurance policy and a certain percentage of the real value of the insured property when the loss happened.

Collateral

This is something valuable, like a car or house, that you promise to give to the lender if you can’t pay back your loan.

Collection

These are the actions taken to try and get a late loan payment, and if needed, to start the legal process of foreclosure.

Combination Loan

This type of loan combines a standard mortgage with a home equity second mortgage. The aim is to borrow up to 80% of your property’s value in one go, with one down payment. It’s made up of a first mortgage (70%), a second mortgage (10%), and a down payment (20%).

Combined liens

The total outstanding balance of all mortgages on a property. It helps determine how much equity you have when you consider the appraised value of the property and the total outstanding loans.

Combined loan-to-value ratio (CLTV)

This ratio shows the unpaid principal amount of your first mortgage, plus your credit limit if you have a home equity line of credit, against the appraised value of your home. It’s expressed as a percentage.

Commitment letter

A letter from a lender that states they will lend a certain amount of money under specific terms.

Comparables (comps)

These are properties similar to the one you’re considering for a mortgage. They are similar in size, location, and amenities and have recently been sold. Comparables help appraisers determine the market value of a property.

Compound interest

This is interest paid on the original amount of the loan and also on any interest that has added up and not yet been paid.

Conforming loan

A mortgage loan that follows the standard rules set by Fannie Mae and Freddie Mac.

Construction loan

A short-term loan that covers the cost of building a house. The lender makes payments to the builder as the work progresses.

Contingency

This is a condition that needs to be met before the sale of a home can happen. For example, the house must pass an inspection and the buyer needs to be approved for a loan.

Contractual Payment: First Mortgage

This is the required monthly payment for your home loan. It may include principal, interest, homeowners insurance, mortgage insurance, and property taxes.

Contractual Payment: Home Equity Line of Credit

This is the amount you owe each month on a home equity line of credit. It can change based on how much of the line you’ve used and the terms of your loan agreement.

Conventional loan

A home loan that’s not insured or guaranteed by the federal government. It can be for conforming or non-conforming loan amounts.

Convertibility clause

A rule in some adjustable-rate mortgages (ARMs) that lets you change the ARM to a fixed-rate loan at certain times during the loan term.

Convertible ARM

An adjustable-rate mortgage (ARM) that can be converted to a fixed-rate loan under certain conditions.

Convey

This is when the title to a property is transferred or given from one person to another.

Co-signer

A person who signs your loan and takes on the responsibility to pay it back. However, they don’t get any benefit from the loan.

Credit bureau

An organization that collects and stores financial and public records of individuals who have been granted credit. It provides this information to lenders for a fee. The three major credit bureaus are Equifax, Experian, and TransUnion.

Credit limit

The maximum amount of money you can borrow under a credit line.

Credit monitoring service

A service that alerts you to any unauthorized activity on your credit, helping you limit the financial damage from identity theft.

Credit report

A record that shows an individual’s debt history and payment habits. It is used by lenders to assess if a borrower is a good business risk.

Credit risk

The risk that a borrower may not repay their loan as agreed.

Credit score

A numerical value that represents an individual’s creditworthiness. It’s used to predict how likely a person is to repay a loan. The higher the score, the better.

Creditor

A person or business that you owe money to.

Creditworthiness

A borrower’s likelihood to repay a debt.

Cumulative interest

The total amount of interest accrued over time.

Curtailment

A payment that reduces the principal balance of a loan.

Debt consolidation

Taking out a single loan to pay off multiple debts, typically using a home equity line of credit.

Debt-to-income ratio

The ratio of your total monthly debt payments to your gross monthly income, expressed as a percentage.

Deed (warranty or quit-claim)

A legal document that transfers ownership of real estate from a seller to a buyer.

Deed of trust

A document used in some states instead of a mortgage. The title is held by a trustee to secure repayment of the loan.

Default

The failure to make mortgage payments on time or to meet other terms of a loan.

Delinquency

The failure to make payments on time.

Discount points

Also called “points,” these are fees paid to a lender at closing in exchange for a reduced interest rate.

Down payment

The amount of money you pay upfront when purchasing a home.

Draw

The act of getting an advance against your available line of credit.

Draw period

The time frame during which you can obtain advances from a line of credit.

Due-on-sale provision

A clause in a mortgage that allows the lender to demand full repayment if the borrower sells the property that secures the loan.

Earnest money

A deposit made towards a down payment as a demonstration of good faith when a purchase agreement is signed.

Encumbrance

Any claim or liability attached to a property, such as liens, unpaid taxes, or leases, that can affect or limit the title.

Equal Credit Opportunity Act (ECOA)

A federal law requiring lenders and other creditors to make credit available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.

Equity

The difference between the fair market (appraised) value of your home and the total of your outstanding mortgage balances and other liens.

Escrow

Money held by a third party until a specific date or condition has been met.

Escrow account

An account where funds for homeowners insurance and property taxes are held and paid out when due. This helps avoid a large one-time expense for the homeowner.

Escrow impound account

An account typically set up by a lender where money for real estate taxes and homeowners insurance is deposited as part of the borrower’s monthly mortgage payment. The money is then used to pay these expenses as they come due.

Escrow analysis

A periodic review of an escrow account to compare the amounts collected and paid with the actual charges for taxes and insurance. This analysis also projects future escrow expenses and adjusts payments accordingly.

Escrow overage

When the balance in an escrow account exceeds the required minimum. This often happens when property taxes or insurance premiums decrease. Overages may be refunded to the homeowner or applied to future escrow balances.

Escrow shortage

When the balance in an escrow account drops below the required minimum, often due to an increase in property taxes or insurance premiums. Homeowners may need to make up the shortage through increased payments or a separate payment into the account.

Extra Payment/Payment Overage

When a payment exceeds the required mortgage payment, the additional amount can be applied to the next month’s payment or used to reduce the unpaid principal balance. This may lead to reduced interest in the future.

Fair Credit Reporting Act (FCRA)

A law established by Congress giving borrowers certain rights when dealing with consumer reporting agencies or credit bureaus. This law requires all credit bureaus to provide accurate credit reports to authorized businesses for evaluating applications for insurance, credit, employment, or loans.

Fair market value

The estimated selling price of a home in the current market, generally determined through an appraisal.

Fannie Mae

Federal National Mortgage Association, a government-sponsored enterprise that purchases and securitizes mortgages to sell them on the secondary market.

Federal Housing Administration (FHA)

An agency of the Department of Housing and Urban Development that provides mortgage insurance for certain residential mortgages. The FHA also establishes standards for underwriting these mortgages and for the construction of homes secured by these mortgages.

Fee Simple

Complete and unrestricted ownership of a property. The fee simple owner has the right to use the land in any manner they see fit, including selling it, leasing it, or building upon it.

FHA home loan

A mortgage insured by the Federal Housing Administration (FHA), often known as a government loan. The FHA mortgage insurance protects the lender, not the borrower, if the borrower defaults on the loan. This insurance allows lenders to provide loan options and benefits typically not available through conventional financing.

FICO®

Acronym for Fair Isaac Corporation, the company that develops the mathematical formulas used to produce credit scores for assessing credit risk. FICO scores range from 300 to 850, with higher scores indicating lower credit risk.

Finance charge

The total cost of consumer credit expressed as a dollar amount. This includes the amount of interest paid over the loan term, origination fees, and certain other costs. Some closing costs are not considered finance charges.

First mortgage

A mortgage that holds the primary lien against a property.

Fixed-rate mortgage

A mortgage with a fixed interest rate for the entirety of the loan term.

Fixed-rate option (Fixed-Rate Loan Option)

An option available on some home equity lines of credit that allows borrowers to fix the interest rate and payments on a portion of their outstanding principal balance for a specific term. A fee may be charged for this service.

Floating rate

A loan rate that the lender has not “locked” or committed to. The floating interest rate and any discount points are not guaranteed, and the actual rate and points will be based on the market price available for your loan product at the time your interest rate is locked.

Flood certification

A certification provided by a reputable source that determines whether a property is located within a special flood hazard zone.

Flood insurance

Insurance that protects against damage caused by floods. This insurance is legally required when a property is located within a special flood hazard zone.

Forbearance

A period during which your monthly loan payments are temporarily suspended or reduced due to certain types of financial hardships. During forbearance, principal payments are postponed, but interest continues to accrue.

Foreclosure

A legal process where property securing a defaulted loan is sold by the lender to repay the loan. The amount paid by a buyer at foreclosure may not fully repay the loan, and the borrower may continue to owe the lender the difference.

Forfeiture

The loss of money, property, rights, or privileges due to a breach of a legal obligation.

Form 1098

A tax form that reports the amount of mortgage interest and points paid during the previous year.

Freddie Mac

A government-sponsored enterprise that buys and securitizes mortgages for resale in the secondary market.

Funding date

The date when the loan proceeds are available to or disbursed for the benefit of the borrowers.

Good faith estimate (GFE)

An itemized, detailed list of certain costs associated with a mortgage that the lender must provide to the borrower within three business days of the application.

Government loan

A loan insured by the Federal Housing Administration (FHA), guaranteed by the Department of Veterans Affairs (VA), or guaranteed by the Rural Housing Service (RHS). This insurance protects the lender (not the borrower) in case the borrower defaults on the loan, enabling the lender to provide loan options and benefits often not available through conventional financing.

Government National Mortgage Association (GNMA or Ginnie Mae)

A government-owned corporation within the U.S. Department of Housing and Urban Development (HUD). Created by Congress on September 1, 1968, GNMA assumed responsibility for the special assistance loan programs formerly administered by Fannie Mae.

Hazard insurance

See: Homeowners insurance

Home equity line of credit (HELOC)

A line of credit secured by the borrower’s home. The typical HELOC term is 30 years: a 10-year draw period followed by a 20-year repayment period. A HELOC is often used for home improvements, debt consolidation, or other significant expenses. In most cases, during the draw period, you can withdraw funds up to your available credit limit using convenience checks, debit cards, or money transfer via Online Banking.

Homeowners insurance

Insurance to protect your home against damage from fire, hurricanes, and other disasters. Typically, homeowners insurance also covers theft and vandalism, as well as personal liability if someone is injured on your property. A lender will likely require you to name it as a payee under the insurance if you need to make a claim. Also known as hazard insurance.

HUD

An acronym for the U.S. Department of Housing and Urban Development. HUD is a government agency responsible for implementing and administering housing and urban development programs. Among other things, HUD administers the Federal Housing Administration, enforces RESPA regulations, and oversees Fannie Mae and Freddie Mac.

Impound account

See: escrow impound account

Impounding

The act of collecting and depositing money by a lender into an account to cover the borrower’s property taxes and insurance premiums when they are due.

Income

Regular inflow of money from earnings, commissions, investments, rental payments, or other sources.

Income property

Real estate that is developed or improved with the intention of generating income.

Index

In a mortgage note or credit agreement, an index is the financial benchmark used to determine how much the annual percentage rate will change at the start of each adjustment period. Typically, the index plus or minus the margin equals the new rate that will be charged, subject to any caps. Lenders use various financial index rates like the Secured Overnight Financing Rate (SOFR) and Treasury-Indexed ARMs (T-Bills).

Inflation rate

The rate at which the price of consumer goods increases, generally expressed as a percentage over a specific period.

Initial advance

The process of obtaining an advance against the available credit under your line of credit.

Initial advance at closing

This term is often used in the context of a funds transfer option chosen to reduce the interest rate. For example, if a borrower maintains a minimum balance of $25,000 for the first three consecutive billing cycles, they might receive a discount off the approved rate for the life of the line.

Initial advance of $25,000 or more

A discount that applies when a borrower takes an initial advance of $25,000 or more, and maintains at least that minimum balance for the first 3 full consecutive billing cycles.

Initial draw amount

The proceeds of a home equity line of credit or construction loan up to an amount the borrower is allowed to request at closing.

Initial rate

The starting interest rate. Sometimes called the “teaser rate,” this rate offers low interest and low monthly payments at the beginning but may adjust upwards at the next adjustment period.

Inquiry

A request for your credit report, made by you or a company considering you for an offer of credit.

Installment loan

A loan that is repaid in equal payments, known as installments.

Insurance

A contract providing compensation for specific losses in exchange for a periodic payment. An individual contract is known as an insurance policy, and the periodic payment is known as an insurance premium.

Insurance binder

A document indicating temporary insurance coverage. A permanent policy must be obtained before the coverage expiration date.

Insured mortgage

A mortgage protected by insurance in case of default. The insurance protects the lender (not the borrower) if the borrower defaults on the loan.

Interest accrual rate

The percentage rate at which interest accumulates on the mortgage. It’s often the rate used to calculate monthly payments.

Interest-only loan

A loan for which you only pay the interest due for a portion of the term. This arrangement lowers your periodic payment but does not reduce your principal balance on the loan.

Interest rate

The annual cost of a loan to a borrower, usually expressed as a percentage. The interest rate does not include fees charged for the loan.

Interest rate buydown

See: Buydown

Interest rate cap

A limit on the amount that the variable interest rate can increase at any one time. Many home loans have both annual and lifetime caps.

Investment property

Property bought to generate rental income or to be sold once it has appreciated in value.

Judgement

A decree by a court of law indicating that one person owes another a specific amount of money. In some states, the court may impose a lien against the debtor’s real property as collateral for the payment of the judgment to the creditor.

Jumbo Loan

Also known as a nonconforming loan. The loan amount exceeds standards for eligibility for sale to Fannie Mae and Freddie Mac. Certain geographical areas have temporary conforming loan limits higher than the typical conforming limits. Lenders may impose additional fees and restrictions due to the large loan amounts.

Liabilities

A person’s debts or financial obligations. Liabilities can include both long-term and short-term debt, as well as potential losses from legal claims.

Liability insurance

See: Homeowners insurance

Lien

A legal claim by a creditor on a borrower’s property, used as security for a debt.

Lien holder

An individual or entity that has imposed a lien on real property.

Lifetime adjustment cap

A limit on how much the variable interest rate can increase during the term of a loan.

Line of credit

An agreement by a lender to extend credit up to a maximum amount for a specific period. In a home equity line of credit, the line of credit is secured by the borrower’s home.

Loan commitment

A formal notification from a lender indicating that the borrower’s loan has been conditionally approved and outlining the terms under which the lender agrees to make the loan.

Loan Estimate (LE)

A disclosure designed to help consumers understand the key terms and estimated costs of a mortgage before they complete an application. After a consumer provides six key elements: name, income, social security number, property address, estimated property value, and desired loan amount, the lender must provide this form. All lenders are required to use the same standard Loan Estimate form to facilitate easier comparisons and shopping for consumers.

Loan modification

Changes made to one or more terms of a loan.

Loan origination

The process by which a mortgage lender creates a home loan and records a mortgage against the borrower’s real property as security for the repayment of the loan.

Loan term

See: Term

Loan-to-value ratio (LTV)

The ratio between the unpaid principal amount of your loan, or your credit limit in the case of a line of credit, and the appraised value of your collateral. It’s usually expressed as a percentage. For instance, if you have an $80,000 first mortgage on a property with an appraised value of $100,000, the LTV is 80% ($80,000 / $100,000 = 80%).

Lock period

The length of time before closing when you can secure an interest rate for your loan. Lock periods typically range from 30 days to more than 90 days. Generally, the longer the lock period, the more you’ll pay in points or interest.

Manufactured housing

A structure that is partially or entirely built at another location and then moved onto the property (on a permanent foundation). A manufactured home may or may not be a mobile home.

Margin

The number of percentage points that a lender adds to or subtracts from the index rate to calculate interest rate adjustments. The margin is constant throughout the life of the mortgage and is specified in the promissory note.

Maturity date

The date on which the outstanding principal, interest, and fees on a loan must be repaid in full.

Miscellaneous Payment

Miscellaneous payments can be made by the borrower through MortgagePay within Online Banking. Any Miscellaneous Payment made using MortgagePay will be applied to the account in accordance with the terms and conditions of the loan. This may include application to fees, principal, and/or other categories, such as unapplied funds if less than the current contractual payment due.

Mobile home

A type of residence that is built on a wheeled chassis and can be transported from one site to another.

Modular home

A factory-built home that is assembled on-site, and typically resembles a site-built residence in appearance and characteristics.

Mortgage

A legal document that grants a lender a lien on real estate as security for the repayment of a loan. Mortgage loans usually last from 10 to 30 years, after which the loan is required to be paid off. Also known as a deed of trust and/or security deed.

Mortgage insurance

For conventional loans, this insurance protects the lender if the borrower defaults on the loan. If your down payment is less than 20%, most lenders will require you to pay mortgage insurance, also called private mortgage insurance (PMI).

Mortgage points

See: Points

Mortgage type

Typically, there are three basic mortgage programs: Federal Housing Administration (FHA) loans, Department of Veterans Affairs (VA) loans, and conventional mortgage loans. VA loans are offered only to qualifying veterans and surviving spouses, while FHA loans are available to all qualifying borrowers. Both VA and FHA loans are guaranteed/insured by the federal government. This insurance protects the lender (not the borrower) if the borrower defaults and the lender sustains a loss. Conventional loans are available to all qualifying borrowers and are not insured or guaranteed by the federal government.

Multi-family residence (2 to 4 units)

A residential property with 2 to 4 individual housing units. These could be duplexes, triplexes, or quadplexes.

Negative amortization

A situation where monthly payments do not cover all the interest due on the loan. The unpaid interest is added to the unpaid balance, which means the borrower will owe increasingly more than the original amount of the loan.

New line amount

The total of the existing credit line and the additional credit that has been requested.

No closing cost loan

A loan in which the borrower does not need to pay out-of-pocket cash at closing for the usual closing costs. The lender typically includes the closing costs in the principal balance or charges a higher interest rate than for a loan with closing costs to cover the advance of closing costs.

Nonconforming loan

See: Jumbo loan

Nonowner occupied

Properties where the owner does not live in the property.

Note

A written agreement in which the signer promises to pay a specific sum of money to a named person or company on a specific date or on demand.

Note rate

The interest rate stated in a mortgage note.

Notice of default

A formal written notice to a borrower that a default has occurred and that legal action may be taken.

Option ARM

A type of adjustable-rate mortgage (ARM) that offers the borrower a choice of four monthly payment options to help provide financial flexibility. These options can be beneficial for managing payments in rising rate markets and capitalizing on falling interest rates.

Origination

The date that the proceeds of a loan are disbursed.

Origination date

The date on which a loan is funded or disbursed.

Origination fee

A fee charged by a lender to cover certain processing expenses associated with making a mortgage loan. Usually a percentage of the amount loaned (often 1%). The origination fee is expressed in the form of points. See also: Points

Owner financing

A property purchase transaction in which the property seller provides all or part of the financing.

Owner-occupied

A property that the owner occupies as their primary residence.

To adjust the descriptions of each term in the list while maintaining the alphabetical order, with PMI (Private Mortgage Insurance) as term 5, you can make the following modifications: “`html

Payment cap

A limit on how much a monthly payment can increase at any one time. Some adjustable-rate mortgages have payment caps in addition to annual (or semi-annual) interest rate caps and lifetime interest rate caps. Payment caps don’t limit the amount of interest charged and may lead to negative amortization. See also: Interest rate cap

Payment change date

The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM). The payment change date usually occurs in the month immediately after the interest rate adjustment date. Borrowers are notified 30 days before the new rate and payment take effect.

Payoff

The act of paying the outstanding balance of a loan in full. Also refers to the amount required to pay the outstanding balance in full.

Per diem interest

The amount of interest that accumulates daily on a loan. This is calculated by multiplying the outstanding loan balance by the annual interest rate and then dividing the result by 365.

PMI (Private Mortgage Insurance)

An insurance policy that protects the lender in case the borrower defaults on the mortgage. PMI is usually required for borrowers who make a down payment of less than 20% of the home’s purchase price. It allows borrowers to obtain a mortgage with a lower down payment but adds an additional cost to the monthly mortgage payment.

PITI

An acronym standing for principal, interest, taxes, and insurance—collectively referred to as the monthly housing expense.

Points

A payment to the lender, typically at closing, to reduce (or buy down) the interest rate. One point equals one percent of the loan amount. For example, two points on a $100,000 mortgage would cost $2,000. Negative points indicate the amount to be credited at closing to reduce closing costs. Also called discount points or mortgage points.

Preapproval

A lender’s conditional agreement to lend a specific amount of money to a homebuyer under certain terms.

Prearranged refinancing agreement

A formal or informal arrangement between a lender and a borrower where the lender agrees to offer special terms (like a reduction in the rate or closing costs) for a future refinancing as an inducement for the borrower to enter into the original mortgage transaction.

Preforeclosure sale

See: Short sale

Prepaid expenses

Expenses typically paid in advance, such as escrows for taxes and insurance (paid at closing).

Prepaid interest

Interest collected at closing of a mortgage, covering the period from the date of disbursement to the beginning of the next payment period.Qualifying ratios

Calculations used to determine whether a borrower can qualify for a mortgage. They include two separate calculations: a housing expense as a percent of income, and total debt obligations as a percent of income.

Rate

The amount of interest on a loan, expressed as a percentage.

Rate cap

See: Interest rate cap

Rate lock

A commitment issued by a lender to a borrower guaranteeing a specific interest rate for a specified period. This period has a fixed number of days, and when it has passed, the interest rate on the loan is subject to market fluctuations since the date of the initial rate lock. When a rate lock expires, the borrower must contact their lending specialist to establish a new rate lock prior to closing the loan.

Rate lock expiration

The end of the period during which a lender has committed to offer a specific interest rate to a borrower. When a rate lock expires, the borrower will need to establish a new rate lock prior to closing the loan.

Rate reduction option

A provision in a fixed-rate mortgage that allows the borrower to reduce the interest rate at a later date without refinancing. This typically doesn’t require requalifying for the loan.

Real Estate Settlement Procedures Act (RESPA)

A consumer protection law that requires advance disclosure of settlement costs to home buyers and sellers, prohibits certain types of referral and other fees, sets rules for escrow accounts, and requires notice to borrowers when the servicing of a home loan is transferred.

Reamortize

To reset the period of amortization on the remaining balance of a mortgage loan, typically after the end of the term of an interest-only loan.

Recorder

The public official (typically a Registrar of Deeds or County Clerk) who notes in the public record the terms of a legal document affecting title to real property.

Recording

The act of a public official (typically a Registrar of Deeds or County Clerk) noting in the public record the terms of a legal document affecting title to real property.

Recording fee

The charge imposed by a public official (usually a Registrar of Deeds or County Clerk) for recording in the public record the terms of a legal document affecting title to real property.

Reduced documentation

A method used to determine income when qualifying a borrower for a loan. The borrower(s) provide their income, but no verification documentation is typically required.

Refinance

The process of paying off an existing loan with the proceeds from a new loan, usually using the same property as collateral. Refinancing is typically done to take advantage of lower monthly payments or lower interest rates, or to save on financing costs.

Rehabilitation loan

A type of first mortgage that allows borrowers to purchase or refinance and rehabilitate homes. With this mortgage, borrowers can qualify for loan amounts based on the as-completed value of the property.

Repayment period

The time during which you must repay your outstanding balance, according to your payment terms. In a home equity line of credit, the repayment period (typically 20 years) follows the draw period (typically 10 years).

Rescission

The cancellation of a contract. In certain real estate-secured transactions that involve the refinance of a primary residence, applicants have 3 business days to cancel the transaction.

Reserves

Savings set aside by a homebuyer, separate from the down payment, for unforeseen events or emergencies. Many lenders require reserves (usually equivalent to 2 monthly mortgage payments) to be verified during the loan approval process.

Right of first refusal

A provision in an agreement that requires the owner of a property to give another party the first opportunity to purchase or lease the property before they offer it for sale or lease to others.

Rural housing loan

A loan offered by the Rural Housing Service (RHS), an agency within the Department of Agriculture.

Second home

A property that is occupied part-time by an individual in addition to his or her primary residence.

Secured loans

Loans that require the borrower to provide the lender a lien on property, such as an automobile, boat, other personal property, or real estate, to serve as collateral for the loan.

Security

The property that is pledged as collateral for a loan. If the borrower defaults, the lender can sell the collateral to satisfy the debt.

Settlement

The completion of a property’s sale or purchase, or the completion of all steps necessary to receive the proceeds of a loan and create an obligation to repay it. Also known as Closing.

Settlement agent

A person or entity that conducts the settlement to transfer the title of the property and to close on the mortgage loan. This agent could be an attorney, a title insurer, a title agent, or an escrow agent.

Settlement costs

See: Closing costs

Short sale

A commonly used alternative to a foreclosure. If a homeowner can no longer afford to make mortgage payments and their home is worth less than they owe, a short sale allows them to sell the home to pay off the mortgage. The lender agrees to accept an amount less than is actually owed on the loan, based on a showing of financial hardship.

Single-family residence

A detached individual housing unit that shares no common ground with neighboring properties and shares no wall or roof. It can, however, be part of a planned unit development (PUD).

SOFR

Secured Overnight Financing Rate (SOFR) is a broad measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities.

Start rate

The starting interest rate for an adjustable-rate mortgage (ARM) loan or variable-rate home equity line of credit. Also known as an initial rate or intro rate, it provides lower interest and lower monthly payments at the beginning but may adjust at the next adjustment period.

Subordinate financing

Any mortgage or other lien that has a priority lower than that of the first mortgage. A subordinate loan’s claim to payment in a foreclosure occurs only after the first mortgage is paid.

Swing loan

See: Bridge loan

Term

The number of years it will take to pay off a loan. The loan term is used to determine the payment amount, repayment schedule, and total interest paid over the life of the loan.

Third-party fees

Fees charged for services provided by parties other than the borrower or the lender. These can include appraisal fees, credit report fees, title, and flood certifications.

Title

Written evidence that proves ownership of a property.

Title company

A company that investigates a property’s title (or deed) for discrepancies or undiscovered liens and that issues title insurance to the lender once the title is determined to be clear.

Title insurance

Insurance that protects an interested party (either the owner or the lender) against issues that could affect legal ownership of the property.

Title search

An examination of records to determine the legal ownership of property and all liens and encumbrances on it. This is typically performed by a title company or attorney.

Total expense ratio

See: Debt-to-income ratio

Transaction fee

A fee that may be charged each time you draw on your credit line.

Treasury index

An index used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It is based on the results of auctions that the U.S. Treasury holds for its Treasury bills and securities, or it is derived from the U.S. Treasury’s daily yield curve.

Trustee

A fiduciary who holds or controls property for the benefit of another.

Truth in Lending Act

A federal law that requires the disclosure of credit terms using a standardized format. This is intended to make it easier to compare lending terms from different financial institutions.

Unapplied Funds

A situation where an entire payment or a portion of a payment received may be placed into a suspense account. The details of this process can be found in the making mortgage payments section of most banks’ FAQ pages.

Underwriter

The person who approves or denies a home loan based on the lender’s underwriting and approval criteria.

Underwriting

The lender’s process of deciding whether to make a loan to a potential homebuyer based on credit, employment, assets, and other factors, and the matching of this risk to an appropriate rate, term, and loan amount.

Uniform Residential Loan Application (1003)

The standard loan application form published by the Federal National Mortgage Association (Fannie Mae) that is used by most lenders.

Unpaid Principal Balance

The amount borrowed (which may include amounts that have been added to the principal balance in connection with loan modifications) that has not yet been paid back. Interest may be charged each month on this unpaid principal balance, according to the terms of the loan.

Unsecured lines of credit

Typically used to refer to a loan or a line of credit that is not backed by collateral.

Unsecured loan

A loan or line of credit that is not backed by collateral.

Upfront costs

The costs that must be paid when applying for a loan. These typically include loan application fees, and some lenders require that some closing costs also be paid when you apply.

VA loan

A mortgage that is guaranteed by the Department of Veterans Affairs (VA) for qualified veterans of U.S. military forces.

Vacation home

A secondary property that the borrower occupies in addition to their primary residence. The property cannot be income-producing and must not be part of a mandatory rental pool. It is often rented to friends and relatives. Rental income from a vacation home cannot be used to qualify the applicant for a loan.

Variable rate

An interest rate that may fluctuate or change periodically, often in relation to an index such as the prime rate or other criteria.

Variable-rate monthly minimum payment

The minimum amount you will need to pay each month on your home equity line of credit, or HELOC. The payment amount includes both principal and interest (minimum of $100). This payment can vary each month, depending on your outstanding loan balance and fluctuating interest rate.

W-2

A wage and tax statement provided annually by your employer. The W-2 form details your income and the taxes withheld from your income, and is provided to the IRS with your tax return.

Walk-through

A final inspection conducted shortly before settlement to ensure the property is in the same condition as when the offer contract was written.

What-if analysis

An affordability analysis that is based on a hypothetical scenario. This type of analysis is useful if you do not have complete data, or if you want to explore the effect of various changes to your income, liabilities, or available funds.

Where is this found?

This refers to a question that could be asked about the location of an application number in relation to a loan or other banking procedure. The application number is usually found in a welcome letter or other communications from the bank.

Why do we ask for this?

This question is often related to the request for personal information, such as a Social Security number, in the process of creating online banking credentials. The information is used to confirm your identity.

Windstorm insurance

Insurance coverage typically required in coastal areas, which pays for property damage resulting from a windstorm. Some states offer programs or joint underwriting associations to help homeowners find coverage in areas where it is scarce.

Wire transfer

A method of transferring money from one person’s bank to another person’s bank account, either domestically or internationally.

Year-end statement

A report that shows how much was paid in interest during the year, as well as the remaining mortgage loan balance at the end of the year. If the bank has an impound account for you, it will also show how much was paid and reserved in property taxes. If the bank does not have a property tax impound account, then tax details are not displayed on the report.