Glossary of Mortgage and Lending Terms
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Use this glossary of mortgage terms to better understand the overall mortgage process as well as any specific mortgage terms that may be unfamiliar to you.
A B C D E F G H I J K L M N O P Q R S T U V W X Y Z #
A
Acceleration Clause
A condition within a contract that allows a lender to speed up the repayment of a loan if certain conditions are not met.
A condition within a contract that allows a lender to speed up the repayment of a loan if certain conditions are not met.
Additional Principal Payment
An extra payment that goes to the principal of a loan that exceeds the monthly payment amount and can help you pay off your mortgage early.
Adjustable-Rate Mortgage (ARM)
A mortgage in which the interest rate is adjusted periodically based on a pre-selected index. Also sometimes known as a variable-rate mortgage.
Adjusted Basis
Change to the recorded initial cost of an asset or security after it has already been owned.
Adjustment Date
The first day that interest will begin accumulating on a home mortgage.
Adjustment Period
How often interest rate adjustments happen in an ARM (adjustable-rate mortgage).
Affordability Analysis
Analysis of a buyer's eligibility to afford a home.
Amortization
The action or process of gradually reducing or paying off your mortgage with regular payments.
Amortization Term
Period of time in which a mortgage or loan is amortized.
Annual Percentage Rate (APR)
The interest rate reflecting the cost of a mortgage as a yearly rate. It allows homebuyers to compare different types of mortgages based on the annual cost for each loan.
Application Fees
Charge for submitting a loan application up-front.
Appraisal
A document giving an estimate of a property’s fair market value; generally required by a lender before loan approval.
Appraised Value
Professional assessment of the value and condition of a piece of property at a specific point in time.
Professional assessment of the value and condition of a piece of property at a specific point in time.
Assessed Value
Determines the value of a residence for the purpose of taxation.
Assessment
A local tax levied against a property for a specific purpose, such as a sewer or street lights.
Assets
Items you own that have a monetary value, such as cash, money in accounts, cars, boats, RVs, jewelry, 401Ks, and more.
Assignment
Document of the legal record of a transfer from one mortgagee to another.
Document of the legal record of a transfer from one mortgagee to another.
Assumability
A type of mortgage in which a financing agreement is made and an outstanding mortgage and the terms of that mortgage are transferred to a buyer from a current owner.
Assumption Fee
A fee paid by a buyer who assumes a mortgage on a property.
B
Balance Sheet
The sheet displays what a business owns and owes at a specific point in time.
Balloon (Payment) Mortgage
Usually, a short-term fixed-rate loan which involves small payments for a certain period of time; after that time period elapses, the balance is due or is refinanced by the borrower.
Basis Point
A unit of measurement that determines any changes of interest rate.
Before-tax Income
Net-Income before taxes.
Biweekly Payment Mortgage
A mortgage loan with payments made every two weeks.
Borrower (Mortgage)
A person approved to receive a loan who is then obliged to repay it and any additional fees according to the loan terms.
Bridge Loan
A short-term loan used until a person or company attains more permanent financing.
Broker
Individual or firm that arranges transactions between a buyer and seller for a fee or commission after a deal is executed.
Buydown Financing
A technique where the buyer attempts to secure a lower interest rate in the first few years of the mortgage.
Buyer's Market
When the number of homes for sale exceeds the number of buyers in the market to purchase a home.
Cancelling PMI
You must have at least 20% equity in the home. You may cancel PMI when you have paid down the mortgage balance to 80% of the home's original appraised value.
CAP
A consumer safeguard on an adjustable-rate mortgage that limits how much a monthly payment or interest rate can increase or decrease.
Cash-Out Refinance
Refinancing of an existing mortgage loan, where the new mortgage loan is for a larger amount than the existing mortgage loan, and you (the borrower) get the difference between the two loans in cash.
Certificate of Eligibility
A document given to qualified veterans entitling them to Veteran’s Administration guaranteed loans. Obtained by sending DD-214 (Separation Paper) to the local VA office with VA form 1880 (request for Certificate of Eligibility).
Certificate of Reasonable Value (CRV)
An appraisal issued by the Veterans Administration showing a property’s current market value.
Certificate of Title
The official document that states who owns a given piece of property.
Change Frequency
How often a payment or interest rate changes in an adjustable-rate mortgage.
Closing
The meeting between the buyer, seller, and lender or their agents where the property and funds legally change hands.
Closing Costs
Fees paid at the closing of a real estate transaction.
Co-borrower
Accepts equal responsibility for paying off a loan alongside the borrower.
Collateral
Property pledged by a borrower to a lender to accept as a form of security for a loan. Usually an asset.
Commitment
An agreement, often in writing, between a lender and a borrower to loan money at a future date subject to the completion of paperwork or compliance with stated conditions.
Comparables
Recently sold homes in the same price and size range as the property a buyer is looking at used to compare the home's fair market value.
Compound Interest
The interest earned on both money saved and money earned.
Conforming Loan
Type of mortgage in which the terms match the criteria set by Fannie Mae and Freddie Mac.
Construction Loan
A short-term interim loan to pay for the construction of buildings or homes. Usually written to provide periodic disbursements to the builder as progress is made.
Consumer Reporting Agency
A company that collects and sells consumer information in order to decide whether or not to provide the consumers with credit, insurance, housing, etc.
Contingency
A condition in a purchase contract that needs to be met by the buyer or the seller before the buyer is obligated to purchase the home. Contingencies protect both parties in the transaction and often include clauses that allow you to back out of the sale if you're unable to secure financing or if the home fails to pass inspections.
Contract Sale or Dead
A contract between buyer and seller of real estate to convey title after certain conditions have been met.
Conventional Loan
A private-sector loan, one that is not guaranteed or insured by the U.S. government.
Conversion Clause
An additional clause within an adjustable-rate mortgage loan allowing a borrower to switch from an adjustable-rate mortgage to a fixed mortgage.
Credit Report
Documents an individual's credit history, listing all past and present debts and the timeliness of their repayment.
Credit Risk Score
Predicts the likelihood that a consumer will become ninety days or more overdue on any given account over a two-year period.
Credit Score
Range of numbers between 300 and 850 that represents an individual's credit risk.
D
Debt Consolidation
Grouping of all types of debts into one monthly payment.
Debt-to-income Ratio
The ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on long-term debt is divided by their gross monthly income.
Deed
Legally binding agreement paperwork signed by the borrower that is kept as collateral by the lender until the loan is paid off.
Deed of Trust
In many states, a document used instead of a mortgage to secure the payment of a note.
Default
Failure to make the monthly payments on a mortgage.
Delinquency
Failure to make payments on time. This can lead to foreclosure.
Deposit
The sum payable as a first installment on the purchase of something with the balance being payable later.
Discount
A mortgage where the buyer has paid more cash at closing in order to attain a lowered interest rate.
Down Payment
The portion of a home’s purchase price which is paid in cash and not part of the mortgage loan.
Earnest Money
The money given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment.
Effective Gross Income
The ratio between the sale price of the property value and its effective gross rental income.
Equal Credit Opportunity Act (ECOA)
A federal law requiring lenders to make credit equally available without discrimination by race, color, religion, national origin, age, sex, marital status, or income from public assistance programs.
Equity
An owner’s financial interest in a property; calculated by subtracting the amount still owed on the mortgage from the fair market value of the property.
Escrow
An account held by the lender into which the homebuyer pays money for tax or insurance payments.
Escrow Disbursements
Payment coming from an escrow account by the lender for a borrower that is used to cover homeowners insurance and property taxes.
Fannie Mae
A government-sponsored enterprise that makes mortgages available to low and moderate-income borrowers.
FHA
The Federal Housing Administration provides mortgage insurance to lenders to cover most losses when a borrower defaults; this encourages lenders to make loans to borrowers who might not qualify for conventional mortgages.
FHA Insured
Insurance provided by the Federal Housing Administration that serves to protect lenders from any loss they may incur if a borrower is to default on mortgage payments.
FHA Loan
A loan insured by the FHA that is open to all qualified home purchasers. While there are limits, they are generous enough to handle moderately-priced homes almost anywhere in the country.
FHA Mortgage Insurance
A policy paid at closing to insure the loan with FHA.
FICO Score
Three-digit number in credit reports that helps lenders determine the likeliness of a borrower repaying a loan.
First Mortgage
Primary loan obtained on a piece of real estate.
Fixed Installment
Type of loan granted to a borrower with a set number of equal monthly payments.
Fixed-Rate Mortgage
A mortgage with payments that remain the same throughout the life of the loan because the interest rate and other terms are fixed.
Foreclosure
A legal process in which mortgaged property is sold to pay the loan of the defaulting borrower.
Freddie Mac
A government-sponsored enterprise that enables the flow of money to lenders in order to support homeownership and rentals for families.
Fully Amortized ARM
Type of periodic repayment on an adjustable-rate mortgage (ARM).
G
Ginnie Mae
A government-sponsored enterprise within the HUD that serves to create funding for insured mortgages.
GNMA (Government National Mortgage Association)
The federal corporation that offers mortgage-backed securities.
Growing-Equity Mortgage (GEM)
A type of fixed-rate mortgage in which monthly payments increase over time based on a schedule.
Guarantee Mortgage
A home loan guaranteed by a third party that buys the debt from the lender if the borrower defaults.
H
Hazard Insurance
A form of insurance in which the insurance company protects the insured from specified losses, such as fire or windstorm.
Home Equity Line of Credit (HELOC)
Loans secured using the borrower's home as collateral.
Homeowners Insurance
Type of insurance policy that covers any damage or losses in the case of natural disaster or other destructive events.
Housing Expense Ratio
The division of a borrower's housing expenses by their pre-tax income used to help determine who qualifies for a loan.
HUD (United States Department of Housing and Urban Development)
The federal agency that creates programs addressing the country's housing needs and enforces fair housing laws.
HUD-1 Statement
A standardized mortgage lending document.
Hybrid ARM
Combines elements of a fixed-rate mortgage with elements of an adjustable-rate mortgage.
I
Index
Benchmark interest rate that changes according to the market.
Initial Interest Rate
The opening rate of an adjustable-rate loan.
Installment
Fixed amount of money provided to a borrower that has to be paid off in scheduled regular payments.
Insured Mortgage
Insurance on a mortgage that lowers the risk to the lender if the borrower were to default on payments.
Interest
The regular payment made at a certain rate to pay back borrowed money.
Interest Accrual Rate
Amount of interest earned on a debt that has not been collected.
Interest Rate Buydown Plan
Mortgage plan in which a borrower will pay an extra charge in order to obtain a lower interest rate on their mortgage.
Interest Rate Floor
The interest rate that is agreed upon between the seller/provider of the floor and an investor ensuring that the investor's floating rate of return does not fall under a certain level.
Interest-only loan
Type of mortgage where the borrower only has to pay interest for a certain period.
Investment Property
A property purchased by someone under the premise that they will earn a higher return on that property through rental income or future resale.
L
Late Charge
Additional charge serving as a penalty if a payment on a loan has not been made at the time it is due.
Lease-Purchase Mortgage Loan
The contract between a tenant and landlord where the renter pays the seller a fee giving them rights to purchase the property at a later point in time.
Liabilities
Any type of financial obligation for the borrower.
Lien
A legal claim against property that must be resolved before the property is sold.
Lifetime Payment Cap
The maximum interest rate a borrower could pay during the life of a loan.
Line of Credit
Amount of credit extended to a borrower.
Liquid Asset
Something you own (either an asset or cash on hand) that can be easily converted to cash.
Loan
Something that is borrowed, typically money, that is expected to be paid back in a set period of time with interest.
Loan Agreement
A contract between a lender and borrower that sets the terms of the loan.
Loan Origination Fee
The amount charged by the lender to a borrower to process a loan application.
Loan-to-Value (LTV) Ratio
A percentage calculated by dividing the amount borrowed by the sales price or appraised value of the home to be purchased.
Lock-In
Guarantees a specific interest rate if the loan is closed within a specific time.
M
Margin
The difference between the amount of money borrowed and the value of the collateral that secures the loan.
Market Value
The highest price that a buyer would pay and the lowest price a seller would accept on a property.
Maturity
Due date of the last installment of principal on a loan.
Monthly Fixed Installment
The monthly payment on a mortgage.
Mortgage
The type of loan used to finance a property; agreement between a borrower and lender giving the lender the rights to take the borrower's property if they do not repay the borrowed amount plus interest.
Mortgage Banker
Company or individual that originates mortgage loans and sells them to investors.
Mortgage Broker
Intermediary that brokers mortgages on behalf of individuals or businesses.
Mortgage Insurance
A policy that protects lenders against some or most of the losses that can occur when a borrower defaults on a mortgage loan; usually required with a down payment of less than 20%.
Mortgage Insurance Premium (MIP)
Premium paid by homeowners that have taken out FHA-backed loans.
Mortgage Life Insurance
The policy used in the case of the borrower passing away that pays a death benefit to the lender.
Mortgage Modification
An option that allows a borrower to refinance and/or extend the term of the mortgage loan and thus reduce the monthly payments.
Mortgagor
Another term for the borrower.
N
Negative Amortization
An increase in the principal on a loan due to not paying the full interest due at a certain point on the loan.
Net Worth
An individual or company's total worth in assets and liabilities.
No-Cost Refinance
Option where the lender pays your closing costs instead of having to pay them yourself, but your rate will be higher as a result
Non-Liquid Asset
Assets that cannot be easily converted to cash.
Non-Conforming Loan
Type of home loan that does not follow the adherence of government-sponsored enterprises.
Note
A document listing the agreement between a lender and borrower that the money borrowed will be paid back.
P
Payment Change Date
Date in which a new monthly payment amount takes place.
Periodic Payment Cap
Limit on the amount an interest rate on an ARM can change.
Periodic Rate Cap
Limit on how much an interest rate can go up in a period of an ARM or mortgage.
PITI Reserves (Principal, Interest, Taxes, and Insurance)
Cash required for a borrower to keep on hand after down payment and closing cost are paid off.
Points
Prepaid interest charged at closing by the lender. Each point equals 1 percent of the loan (e.g., 2 points on a $100,000 mortgage would be $2,000).
Pre-Approval
When a borrower is evaluated by a lender in advance in order to see if they qualify for a loan.
Prepaids
Homeowner's insurance, mortgage interest, and property taxes that you pay when you buy a home.
Prepayment
Permits the borrower to make payments in advance of their due date, thus saving money on interest.
Prepayment Penalty
Charges for the early repayment of debt. Principal: the borrowed amount, less interest or additional fees.
Pre-Qualification
The evaluation of the creditworthiness of a potential borrower that determines if they qualify for pre-approval.
Prime Rate
The interest rate set by commercial banks that is the lowest rate of interest that money can be borrowed. This rate changes weekly.
Principal
The amount borrowed that has to be paid back.
Principal Balance
Amount due on the loan principal.
Principal, Interest, Taxes, and Insurance (PITI)
Sum of a mortgage payment.
Private Mortgage Insurance (PMI)
Insurance paid by the borrower. This may be required by the lender when the down payment is less than 20%.
Processing
When your loan goes to our processing team, they are collecting and verifying your personal financial information.
Processing Fee
Fee charged by the lender in order to process the mortgage application.
Property Deed
A legal document that transfers the ownership of a home from a seller to a buyer.
Purchase Agreement
A document that binds the buyer and seller outlining any conditions and the purchase price associated with the purchase of the property.
R
Rate
Interest charged on a mortgage.
Rate Lock
Your interest rate won't change between the offer and the closing if it occurs within a specified time frame, and there are no changes to your application.
Real Estate Agent
A person who coordinates the sales and rentals of property to potential buyers and homeowners.
Realtor®
A real estate agent or broker affiliated with the National Association of Realtors and its local and state associations.
Reamortize
When a borrower pays an additional sum of money on top of their monthly payment which reduces the loan principal balance.
Recording
Process of filing a deed for a home or a mortgage with the county the property is in.
Recording Fees
Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records.
Refinancing
Paying off one loan by obtaining another; refinancing is generally done to secure better loan terms (like a lower interest rate).
RESPA (Real Estate Settlement Procedures Act)
An act requiring mortgage brokers and lenders to provide consumers with full disclosure and information on settlement costs.
Revolving Liability
Liabilities owed to lenders by debtors.
S
Second Mortgage
A mortgage made subsequent to another mortgage and subordinate to the first mortgage.
Where investors and lenders buy and sell mortgages that gives lenders their source of money to lend out.
Seller Carry-back
Financing provided by the owner of a property to a buyer.
Servicer
Processes loan payments and other day-to-day management of loan accounts.
Short Sale
When a home is sold for less than the amount due on their mortgage.
Standard Payment Calculation
The formula used to calculate equal payment amounts and how often they need to be made to pay off the loan balance.
Step-Rate Mortgage
Type of ARM in which the interest rate is only adjusted one time during the loan term.
Survey
A measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to known points, its dimensions, and the location and dimensions of any buildings.
T
Term
Sets the number of years that a borrower will be paying off their loan until it is completely paid.
Third-Party Origination
Type of transaction where the lender uses assistance from a third party to complete the mortgage.
Title
A document that gives evidence of an individual’s ownership of property.
Title Company
The company whose role is to ensure that all property titles administered are legitimate.
Title Insurance
A policy, usually issued by a title insurance company, which insures a home buyer against errors in the title search. The cost of the policy is usually a function of the value of the property and is often borne by the purchaser and/or seller.
Title Search
A check of public records to be sure that the seller is the recognized owner of the real estate and that there are no unsettled liens or other claims against the property.
Total Expense Ratio
The total cost of fund management operation according to assets.
Treasury Index
An index used a benchmark to determine interest and mortgage rates set by recent auctions of U.S. Treasury bills.
Truth-in-Lending
A federal law requiring disclosure of the annual percentage rate charged to home buyers shortly after they apply for the loan.
Two-step Mortgage
Mortgage consisting of both a beginning interest rate during an introductory period and eventually a higher rate after the initial borrowing period.
W
W-2
A wage and tax statement provided by your employer annually. The W-2 form details your income and the various local and federal taxes withheld from your income. It is provided to the IRS along with your tax return.
Walk-through
A final inspection shortly before settlement to make sure the property is in the same condition that it was at the time the offer contract was written.
What-if analysis
An affordability analysis that is based on a what-if scenario. A what-if 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 or to the qualifying ratios or down payment expenses that are used in the analysis.
Wire transfer
A transfer of money from one person’s bank to another person’s bank account, either domestically or internationally.
A wage and tax statement provided by your employer annually. The W-2 form details your income and the various local and federal taxes withheld from your income. It is provided to the IRS along with your tax return.
Walk-through
A final inspection shortly before settlement to make sure the property is in the same condition that it was at the time the offer contract was written.
What-if analysis
An affordability analysis that is based on a what-if scenario. A what-if 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 or to the qualifying ratios or down payment expenses that are used in the analysis.
Wire transfer
A transfer of money from one person’s bank to another person’s bank account, either domestically or internationally.
"Wrap Around" Mortgage
When a buyer signs a mortgage with a seller as opposed to using a mortgage bank.
Y
Year-end statement
The report 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.
The report 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.
Your Guide to Happy Homebuying
As a LendRIGHT™ lender, we would like to help you make your homebuying transaction as easy as possible. Our Homebuyer Guide is designed to help familiarize you with the basics of the homebuying process. This guide can simplify the homebuying process and help guide you confidently to purchasing your first home.
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Home Comparison Checklist
Looking for the perfect place to call home can be overwhelming, which is why Apex created a Home Comparison Checklist. Use this checklist as an easy tool to find the house that best meets your needs.
