Glossary of mortgage terms

1003

Shorthand for the Uniform Residential Loan Application, the standard mortgage application form used by nearly all lenders.

Abstract of Title

A written history of the ownership of a parcel of land.

Acceleration Clause

A loan provision that lets the lender demand the entire outstanding balance immediately if you default.

Acknowledgment

A notary's declaration verifying the identity of the person signing a document.

Adjustable-Rate Mortgage (ARM)

A mortgage whose interest rate adjusts periodically based on a published index plus a margin, after an initial fixed period.

Adjustment Interval

On an ARM, the time between rate or payment changes, commonly six months or one year.

Affidavit

A sworn written statement.

Amortization

Paying off a loan through regular payments that cover interest and gradually reduce principal so the balance reaches zero at the end of the term.

Annual Percentage Rate (APR)

The yearly cost of a loan expressed as a rate, including interest plus points and certain lender fees. Usually higher than the note rate.

Appraisal

A licensed appraiser's estimate of a property's fair market value, required by the lender.

Assumption

When a buyer takes over the seller's existing mortgage payments, with the lender's approval.

Back-End Ratio

Your total monthly debt payments (housing plus all other debts) divided by gross monthly income.

Balloon Mortgage

A loan with smaller payments for a set period followed by one large payment of the remaining balance.

Buydown

Paying money up front to reduce the interest rate, either permanently or temporarily for the first few years.

Cap

The maximum amount an ARM's rate can rise at each adjustment or over the life of the loan.

Cash-Out Refinance

A refinance for more than you owe, with the difference paid to you in cash.

Certificate of Occupancy

A local government document stating a building is in proper condition to be lived in.

Clear to Close

Underwriting's confirmation that all conditions are met and the loan is ready to close.

Closing

The meeting where the property and loan funds legally change hands. Also called settlement.

Closing Costs

Fees due at closing, including origination, appraisal, title search and insurance, recording fees, prepaid taxes and insurance, and more.

Commitment

A lender's written agreement to make a loan at a future date, subject to stated conditions.

Comparable (Comp)

A recently sold property with similar characteristics, used by appraisers to estimate value.

Condominium

A property where individuals own their units and share ownership of common areas, governed by a homeowners association.

Construction Loan

Short-term financing for building a home, advanced to the builder in stages as work progresses.

Conventional Loan

A mortgage not insured or guaranteed by a government agency such as the FHA, VA, or USDA.

Conversion Clause

An ARM provision allowing you to switch to a fixed rate at some point during the term.

Credit Report

A record of your past and current credit accounts and how you've paid them.

Credit Score

A number, typically 300 to 850, that summarizes your credit risk based on your credit report.

Debt-to-Income Ratio (DTI)

Your monthly debt obligations divided by your gross monthly income, expressed as a percentage.

Deed

The legal document that conveys title to a property.

Deed of Trust

A document pledging real property as security for a loan. In some states it takes the place of a mortgage.

Default

Failure to meet the terms of a loan, most commonly by missing payments.

Delinquency

Being late on a payment. Continued delinquency can lead to foreclosure.

Discount Points

Prepaid interest paid at closing to lower the rate. Each point equals 1% of the loan amount.

Down Payment

The portion of the purchase price you pay up front rather than finance.

Due-on-Sale Clause

A provision letting the lender demand full repayment if the property is sold.

Earnest Money

A deposit made with your offer to show the seller you're serious. It's credited toward your purchase at closing.

Easement

A right held by someone else to use part of your property for a specific purpose, such as a utility line.

Equal Credit Opportunity Act (ECOA)

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

Equity

The difference between what your home is worth and what you owe on it.

Escrow

Funds held by a neutral third party. Before closing, an escrow agent handles the transaction. After closing, an escrow (impound) account holds money for taxes and insurance.

Fannie Mae (FNMA)

The Federal National Mortgage Association, a government-sponsored enterprise that buys conventional mortgages from lenders.

Fee Simple

The most complete form of ownership, covering both the land and the structures on it.

FHA Loan

A mortgage insured by the Federal Housing Administration, allowing lower down payments and more flexible credit.

Fixed-Rate Mortgage

A loan whose interest rate stays the same for the entire term.

Flood Insurance

Separate insurance required for properties in designated flood zones.

Foreclosure

The legal process by which a lender sells a property to recover a defaulted loan.

Freddie Mac (FHLMC)

The Federal Home Loan Mortgage Corporation, a government-sponsored enterprise that buys conventional mortgages.

Ginnie Mae (GNMA)

The Government National Mortgage Association, which guarantees securities backed by FHA and VA loans.

Gift Funds

Money given to you (not loaned) by a relative, employer, or close friend for your down payment or closing costs, documented with a gift letter.

Good Faith Estimate

The former name for the disclosure of estimated loan costs, now replaced by the Loan Estimate.

Gross Monthly Income

Your total earnings each month before taxes and deductions.

Hazard Insurance

Insurance protecting against losses like fire and windstorm. Usually part of a homeowners policy.

Homeowners Association (HOA)

An organization that manages a condominium or planned community and collects dues from owners.

Impound Account

Another name for an escrow account used to pay taxes and insurance.

Index

A published interest rate (such as SOFR) that an ARM's rate is tied to.

Interest Rate Lock

A lender's guarantee of a specific rate for a set period while your loan is processed.

Joint Tenancy

Co-ownership where each owner has full rights of survivorship.

Jumbo Loan

A mortgage larger than the conforming loan limits set by Fannie Mae and Freddie Mac.

Lien

A legal claim against a property as security for a debt.

Loan Estimate

A standardized disclosure lenders must provide within three business days of your application, showing estimated rate, payment, and closing costs.

Loan-to-Value Ratio (LTV)

The loan amount divided by the appraised value or purchase price, whichever is lower.

Margin

The percentage points a lender adds to the index to set an ARM's rate at each adjustment.

Market Value

The price a willing buyer would pay and a willing seller would accept.

Mortgage Insurance

Insurance that protects the lender if you default, typically required when your down payment is under 20%.

Mortgagee

The lender.

Mortgagor

The borrower.

Negative Amortization

When payments don't cover the interest due, so the loan balance grows instead of shrinking.

Non-Owner Occupied

A property the owner doesn't live in, such as a rental.

Note

The promissory note, the legal document in which you promise to repay the loan on the stated terms.

Origination Fee

A lender's charge for processing a loan application, often a percentage of the loan amount.

Owner's Title Policy

Title insurance that protects the buyer against defects in the title.

P&I

Principal and interest, the two core parts of a mortgage payment.

PITI

Principal, interest, taxes, and insurance: the full monthly cost of owning a financed home.

Planned Unit Development (PUD)

A community where owners hold their own lot and home plus a shared interest in common areas.

Points

Fees equal to 1% of the loan amount each, paid at closing.

Power of Attorney

A legal document authorizing one person to act on behalf of another.

Pre-Approval

A lender's conditional commitment after reviewing your credit, income, and assets. Stronger than a pre-qualification.

Pre-Qualification

An informal estimate of what you can borrow based on information you provide, without full verification.

Prepaid Interest

Interest collected at closing to cover the days between funding and the start of your first full payment period.

Prepaids

Costs paid at closing to set up your escrow account, such as taxes and insurance.

Prepayment Penalty

A fee some loans charge for paying off the balance early. Most loans through our lenders have none.

Principal

The amount you borrowed, not counting interest.

Private Mortgage Insurance (PMI)

Mortgage insurance on a conventional loan when the down payment is less than 20%.

Purchase Agreement

The contract between buyer and seller stating the price and terms of the sale.

Quitclaim Deed

A deed transferring whatever interest the grantor has in a property, without warranties.

Rate Float

Choosing not to lock your rate, in hopes that rates fall before closing.

Real Estate Settlement Procedures Act (RESPA)

A federal law that requires lenders to disclose settlement costs and prohibits kickbacks.

Recording Fee

A fee paid to the county to record the deed and mortgage in public records.

Refinance

Replacing your current mortgage with a new one, typically to get a better rate or term or to take cash out.

Rescission

Your right to cancel certain refinance loans within three business days of signing.

Reserves

Cash or liquid assets you have left after closing, often measured in months of mortgage payments.

Second Mortgage

A loan secured by your home that sits behind the first mortgage, such as a home equity loan or HELOC.

Servicing

Collecting payments, managing escrow, and handling the day-to-day administration of a loan.

Survey

A measured drawing showing a property's boundaries and the location of structures.

Tenants in Common

Co-ownership where each owner holds a share without rights of survivorship.

Title

Legal evidence of ownership of a property.

Title Insurance

Insurance protecting the lender and/or owner against defects in the title.

Title Search

An examination of public records to confirm legal ownership and find any liens.

Truth in Lending Act (TILA)

A federal law requiring lenders to disclose the APR and other loan terms.

Underwriting

The lender's review of your credit, income, assets, and the property to decide whether to approve the loan.

USDA Loan

A zero-down mortgage guaranteed by the U.S. Department of Agriculture for eligible rural and suburban areas.

VA Loan

A mortgage guaranteed by the Department of Veterans Affairs for eligible service members, Veterans, and surviving spouses.

VA Funding Fee

A one-time fee on VA loans that can be financed. Veterans receiving disability compensation are usually exempt.

Verification of Deposit (VOD)

A form your bank completes confirming your account balances.

Verification of Employment (VOE)

A form your employer completes confirming your position and income.

Zoning

Local rules dividing an area into zones and specifying the allowed uses of property in each.

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