Glossary

Here you will find a collection of definitions and terms that exist throughout the mortgage and finance process. Find a definition below, but remember: we’re here to guide you and help you learn throughout the process. Contact a local Loan Officer to learn more.

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A type of government-insured mortgage offered for a home purchase or renovation

The amount of interest on a loan or other financial obligation that has not yet been paid

A mortgage with an interest rate and monthly payment that fluctuate periodically with market indexes — often starting with a lower interest rate. Most ARMs have rate caps — both in an adjustment period and over the life of the loan.

A verbal or written request from a buyer offering to purchase a home from a seller for a certain dollar amount.

The gradual reduction in the principal amount owed on a loan. During the earlier years, most of each payment is applied toward interest. During the final years, payments are applied almost exclusively to the remaining principal.

The annual cost a borrower pays for a loan. Like an interest rate, the APR is expressed as a percentage. Unlike an interest rate, it includes other charges or fees (mortgage insurance, most closing costs, discounts, points and loan origination fees) to reflect the total cost of the loan. The Federal Truth in Lending Act requires every loan agreement to disclose the APR, so borrowers can use it to compare costs of similar credit transactions.

The personal and financial information form that potential borrowers fill out to begin the mortgage process.

Nonrefundable credit profile or a property appraisal fee that a borrower pays when applying for a mortgage.

An independent third party’s estimate of how much a home is worth, ensuring that the lender isn’t over-lending.

A lender’s confirmation — after reviewing financial data — that a borrower can take on mortgage payments.

A public tax assessor’s valuation of a property that’s used to determine property tax amounts.

Property of economic value owned by a person or company.

A digital network for processing transactions —usually domestic low value payments — between financial institutions that supports both credit transfers and direct debits.

The amount left to pay on the mortgage principal.

A loan that requires lower-than-usual monthly payments for a set period, followed by larger than usual payments, which can mean higher interest payments over the life of the loan.

A legal debt relief process for those who cannot repay creditors

The primary individual responsible for making all associated payments and fees for the lifetime of the loan. Additional borrowers are referred to as Co-Borrowers.

A type of mortgage financing between the termination of one loan and the start of another loan. A bridge loan might be secured by a borrower’s current home so that the closing on a new house can occur before the current one is sold.

The real estate agent that works on behalf of the homebuyer.

A refinance loan that exceeds the amount of the principal balance of an existing first mortgage, secondary mortgage, liens, closing costs, and points for the new loan. This excess is usually given to the borrower in cash.

The cash amount a homebuyer needs at closing, which includes down payment and closing costs.

A public record-based statement issued by an abstract company, title company, or attorney specifying who holds a real estate title.

The time and place all loan documents are signed, dated, and notarized.

Appraisal fees, loan origination fees, title fees, and other finalizing fees that typically make up 3-6% of the total loan amount.

A closing document that outlines the interest rate, monthly payments, and costs required to close the loan. Consumers are required to receive this form no later than 3 business days before closing on the loan.

The time at which the underwriter has approved all documentation and allowed the title company to schedule the closing and draft the Closing Disclosure.

An additional borrower on a loan who shares property ownership and loan payment responsibility.

The ratio between the unpaid principal amount of a first mortgage, plus a home equity line of credit, and the appraised value of the home. Expressed as a percentage.

A lender’s promise to offer a loan or credit of a specified amount to a borrower.

The closing costs that the seller has agreed to pay.

A mortgage loan that has the standard features as defined by (and is eligible for sale to) Fannie Mae and Freddie Mac.

A mortgage underwriter’s expressed satisfaction with a mortgage application.

Anything that a lender needs to be confident that a mortgage will be repaid as agreed.

A United States government agency responsible for consumer protection in the financial sector.

A short-term interim loan for financing the cost of home construction. The lender makes payments to the builder at periodic intervals as the work progresses.

A specified condition in a sales contract that must be satisfied before the home sale can occur. The 2 most common contingencies are that the house must pass inspection and that the borrower must be approved for a loan.

A home loan — for conforming or non-conforming loan amounts —that is not insured or guaranteed by the federal government.

Money which is extended from a lender to a borrower based on that borrower’s credit history.

An organization that gathers, records, updates and stores financial and public records of individuals who have been granted credit and provides this information to lenders and other authorized users for a fee. The 3 major credit bureaus are Equifax, Experian and TransUnion and you are legally entitled to receive 1 free report each year from each of these agencies.

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

A record of an individual’s debts and payment habits that help a lender determine whether or not a potential borrower is a good business risk. The 3 major credit bureaus that provide credit reports are Equifax, Experian and TransUnion and you are legally entitled to receive 1 free report each year from each of these agencies.

Your total monthly debt payments (for example: loans, credit cards and court-ordered payments) divided by your gross monthly income before taxes and expressed as a percentage.

A document, delivered at closing, that legally transfers ownership of real estate from a seller to a buyer. Before making a loan, a lender usually requires a title search or a title report to ensure the borrower legally owns the real estate that is securing the loan.

Failure to make payments on time.

Documents in which lenders are obligated to be completely transparent about all the terms of the mortgage agreement they are offering.

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

The amount of cash paid towards a home purchase price. The purchase price minus the down payment is the mortgage loan amount.

A deposit made toward a down payment as a sign of good faith. The deposit is typically made when a purchase agreement is signed.

A federal law that requires 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.

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

Funds deposited with a third party, to be held until a specific date is reached and/or a specific condition is met.

Federal National Mortgage Association, a government-sponsored enterprise that buys and securitizes mortgages for resale in the secondary market.

This agency of the Department of Housing and Urban Development provides mortgage insurance for certain residential mortgages. It also sets standards for underwriting these mortgages and for construction of homes secured by these mortgages.

Private lender loans that are regulated and insured by the Federal Housing Administration (FHA). These loans allow lower credit scores and lower down payments. Maximum loan amounts vary by county.

An acronym for Fair Isaac Corporation, creator of the mathematical formulas that generate credit scores to assess credit risk. FICO scores fall between 300 and 850 —the higher the score, the lower a consumer’s credit risk.

A borrower who has never yet taken out a mortgage and often qualifies for various discounts, grants, and perks.

A home loan with a predetermined full term fixed interest rate.

A period during which 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.

A lender’s sale of a property securing a defaulted loan in order to repay a borrower’s outstanding balance. The amount paid by a buyer at the foreclosure may not be enough to fully repay the loan and the borrower may continue to owe the lender the difference.

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

A statement ensuring a lender that the money in a buyer’s account is a gift and not a loan to be repaid.

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 lenders if a borrower defaults on the loan, enabling them to provide loan options and benefits often not available through conventional financing.

The set amount of time during which no interest is accruing on credit card debt, or a borrower is not being penalized for a late payment on a mortgage loan.

An individual’s income before deductions for taxes, social security, Medicare, health insurance, or retirement account contributions.

An organization that manages shared expenses such as landscaping and maintenance costs for driveways, shared structures, or roofs in a planned subdivision or condominium community.

A loan that leverages as collateral to the borrower’s home equity.

The purchase of a house or property at a reduced market rate, usually followed by fast renovation for a quick, profitable turnaround.

The examination of a property by a third-party home inspector to assess strengths and weaknesses of structural, mechanical, heating, ventilation, AC, and electrical systems.

House insurance against damage from fire, hurricanes, other natural disasters, theft and vandalism, as well as personal liability in case of injury on the property. Making a claim usually requires naming the lender as a payee.

The government agency that implements, administers, and enforces housing and urban development programs like the Federal Housing Administration, RESPA, Fannie Mae, and Freddie Mac.

Real estate developed or improved to generate income.

A loan on which the borrower pays only the interest due during a portion of the loan term, lowering the periodic payment but not decreasing the principal balance. Making interest-only payments results in larger payments being due at the end of the interest-only payment period.

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.

Property purchased to generate rental income, or to be sold once it has appreciated.

Securing a mortgage interest rate so that it cannot increase between the time a buyer accepts the bank offer and the house closing.

A loan amount exceeding standards that make it eligible for sale to Fannie Mae and Freddie Mac. Certain geographical areas have temporary conforming loan limits higher than typical conforming limits. Lenders may charge fees and impose restrictions on these large loan amounts.

Costs of the lender to process, approve (or decline) and fund a mortgage loan.

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

The right to keep possession of property belonging to another person until a debt owed by that person is discharged.

A lender’s extension of credit up to a maximum amount for a specified time that’s secured by the borrower’s home.

The agent who lists the home for sale and works on the seller’s behalf to sell the home at a price and under terms that favor their client.

The amount of time prior to closing during which an interest rate for a loan can be secured typically between 30-90+ days. Generally, the longer the lock period, the more the borrower pays in points or interest.

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

Disclosure to help consumers understand mortgage terms and estimated costs before completing an application. Once a consumer submits: name, income, social security number, property address, estimated property value and desired loan amount, all lenders are required to provide this standard form to make it easier for consumers to compare and shop for a mortgage.

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. Expressed as a percentage. For example, in a $80,000 first mortgage on a property with an appraised value of $100,000, the LTV is 80% ($80,000 / $100,000 = 80%).

The ability to buy or sell a security or an asset without the transaction having a significant effect on its price.

A legal document giving a lender a lien on real estate to secure repayment of a loan over generally 10 to 30 years.

A company or individual that originates mortgages, using their own or borrowed funds.

A required fee added into a FHA loan, paid at closing.

A financial institution or mortgage bank that offers and underwrites home loans.

An individual who guides mortgage applicants throughout the mortgage approval process, from preparing the loan application through closing.

A residential property with 2 to 4 individual housing units (duplex, triplex or quadplex).

A database of all homes currently for sale in a given area.

A mortgage licensing system developed and maintained by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators for the licensing and registration of mortgage loan originators.

An American trade association for real estate industry professionals.

When monthly payments don’t cover all the interest due on the loan the unpaid interest is added to the unpaid balance, which means the homebuyer will owe increasingly more than the original amount of the loan.

The number permanently assigned by the Nationwide Mortgage Licensing System & Registry (NMLS) for each company, branch, and individual that is registered to originate loans and maintains a single account on NMLS.

The document signed at the end of a home closing that accurately reflects the mortgage terms between the borrower and the lender.

The rate a borrower locks in and uses to calculate monthly principal and interest payment to a lender.

A buyer’s verbal and written offer to buy a home for a certain dollar amount from a seller.

The date that the proceeds of a loan are disbursed.

A fee —stated in points— that’s imposed by a lender to cover mortgage loan processing expenses. Usually, a percentage of the amount loaned (often 1%).

A property that the owner occupies as a principal residence.

Payment of a loan’s outstanding balance in full. Also, the amount required to pay the outstanding balance in full.

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

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

A legal document that grants an individual the right to act on behalf of another. For example, if a borrower dies or becomes incapable of managing his or her loan or mortgage, a power of attorney assigned by that individual could manage his or her mortgage related decisions.

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

A prospective homebuyer’s disclosure of financial information (such as employment history and proposed collateral) for a lender to preliminarily estimate a loan amount. A prequalification is not a commitment to lend.

Interest collected at closing of a first mortgage, covering the period from the date of disbursement to the start of the next payment period.

A penalty assessed by some lenders for early loan pay off. This is a lump-sum amount due and payable in addition to the loan balance and is usually limited to the early years of a mortgage.

The property where a property owner usually lives, typically a house or an apartment. Though they may share the residence, people can only have one primary residence at any given time.

The unpaid portion of the loan amount — not including interest or any other charges.

An acronym for principal, interest, taxes and insurance.

Insurance that protects conventional loan lenders from defaults. If a down payment is less than 20%, most lenders require mortgage insurance.

The collection and verification of personal financial information before a loan file is sent to underwriting.

The individual who assembles, administers, and processes loan application paperwork before it gets approved by a loan underwriter.

A fee charged to cover the administrative costs of processing a loan request.

Protection against most risks to property, such as fire, theft and some weather damage.

Property value-based taxes (collected within the homeowner’s monthly mortgage payment) charged by local jurisdictions, typically at the county level, then paid to the relevant jurisdiction one or more times each year from an escrow account. If the loan does not have an escrow account, the homeowner pays property taxes directly.

The process of dividing various property expenses between the buyer and seller in a way that allows each party to only pay for the days he or she owns the property.

A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

Two calculations that are used to determine whether a borrower can qualify for a mortgage: a housing expense as a percent of income and total debt obligations as a percent of income.

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

A lender’s guaranteed interest rate for a fixed number of days. Rate lock expiration occurs when that period has passed, subjecting the loan interest rate to market fluctuations from the date of the initial rate lock, at which point a lending specialist establishes a new rate lock prior to closing.

A consumer protection law that, among other things, 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 servicing of a home loan is transferred.

A licensed professional who represents buyers or sellers in buying, selling, and renting real estate properties.

To take the remaining balance of a mortgage loan and establish a new payback period after which the principal balance will be zero, typically at the end of an interest-only loan term.

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

The savings balance that remains after a buyer closes on a home purchase.

A measure of an investment’s performance and efficiency.

A mortgage that allows homeowners age 62+ to borrow against their home equity. Borrowers receive money from the lender, and the interest increases the loan balance each month.

The chance that a bond issuer may fail to make payment when requested or that an insurance company will be unable to pay a claim.

A formal written contract between a homebuyer and seller documenting the property address, condition, purchase price, inspections, closing date, date of possession and more.

A property occupied part-time by a person in addition to his or her primary residence.

A lien taken out against a property that already has a home loan on it which allows the lender to possess and seize property if the borrower defaults.

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

A real estate agent that works on behalf of the home seller.

The time and place, at which all loan documents  are signed, dated, and notarized.

A commonly used alternative to 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 owed on the loan, based on a financial hardship.

A detached individual housing unit. The property shares no common ground with neighboring properties and shares no wall or roof but can be part of a planned unit development (PUD).

A high-risk loan packaged with non-conforming loan limits and interest rates that make it possible for homebuyers with poor credit to qualify for a mortgage.

A drawing of a property showing the location of the lot, the house and any other structures, as well as any improvements on the property.

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

The agency that investigates a property’s title (or deed) for discrepancies or undiscovered liens and issue title insurance to the lender after the title is deemed clear.

Insurance that protects an interested party, either the owner or the lender, against issues that would affect legal ownership of the property.

Consumer protection legislation against inaccurate and unfair credit billing and credit card practices. It requires lenders to provide loan cost information so that borrowers can comparison shop for loans.

A document signed by the bank or other financial institution verifying account balance and history.

The process by which financial entities and hiring companies review an individual’s employment status and history.

Backed by the federal government but issued through private lenders,  Department of Veterans Affairs mortgages are offered to active and veteran service personnel and their families.

The individual who approves or denies a home loan, based on the lender’s approval criteria.