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Mortgages Can Be Complicated. Here’s a Mortgage Glossary to Simplify Them.

Mortgages can be complicated, and contain lots of big words and terms that can be difficult to understand. That’s why we’ve compiled a mortgage glossary (below) to provide detailed definitions of these terms.

Term

Definition

1003The 1003 is the basic mortgage application that is usually 3 – 4 pages in length. It can also be called the Uniform Residential Loan Application.
AcreAn acre is a common land measurement. One acre equals 43,560 square feet.
Adjustable rate mortgage (ARM)An ARM mortgage loan is characterized by interest rates that automatically adjust or fluctuate, depending on certain market indexes. An ARM loan will start with an initial interest rate which can go up or down based on the index. The interest rate will never exceed the ARM loan cap.
AmortizationThe process of reducing your home loan principle. You can see this process via an Amortization Schedule.
Annual percentage rate (APR)This is the annual rate charged for borrowing money. The APR is your interest rate plus any additional fees.
AppreciationAppreciation is the increase in market value of property or real estate asset.
Assessed valueThis is value placed on your property by a tax assessor for tax purposes.
Assumable mortgageA mortgage that may be transferred, from seller to buyer. The transfer will include the interest rate, and there may be conditions involved.
Attorney feesThese are fees charged by the closing attorney, which usually show up as part of the closing cost.
Balloon mortgageA high-risk loan that leaves a single large payment at the end of the loan term. These are generally used for investment purposes have very short terms.
BorrowerThe individual or individuals responsible for repayment of the loan.
Business dayIn mortgage loans, a business day is any weekday as well as Saturdays. Business days do not include federal holidays.
Buy downBuying down is the process of paying additional points to lower an interest rate.
Buyer’s agentThe real estate agent that works on behalf of the buyer.
Capital gainCapital gain is the profit earned from the sale of an investment or property.
Capital gain taxA capital gain tax is charged on the profit made from the sale of a home, property, or investment.
Cash out refinanceThis is financing of more than the current principle owed on a house in order to receive cash or pay off other debt.
ClosingThe final step in completing a real estate transaction. See Settlement.
Closing agentThe closing agent is the person responsible for coordinating the loan closing related steps. This can include distribution of funds and recording closing documents. Depending on your state laws, the closing agent can be an attorney, a notary, or possibly a representative of the title company.
Closing costsClosing costs are fees associated with closing a mortgage loan. These fees typically include attorney fees, appraisal fees, up front mortgage insurance, title, and recording fees.
Co-borrowerA co-borrower is an additional person responsible for repaying the debt along with another borrower.
Commitment letterA commitment letter is sent by a lender stating the term by which the lender agrees to lend money to the borrower.
Comparable sales (Comps)Simlilar homes, located in the same region, used by an appraiser to help calculate the home value in an appraisal.
ConditionsConditions are terms sent by an underwriter and are needed to fund a home loan. These conditions can be required prior to, or after a loan closes. See Stipulations, or Stips
Conforming loanA conforming loan is a mortgage loan meeting GSE (Government Sponsored Enterprise like Fannie Mae or Freddie Mac) guidelines. Standard conforming loans are limited to $417,000.
Construction loanThis is a short-term loan used to finance new home construction. These loans are usually converted to a standard home loan after construction is complete.
ContingencyA contingency clause in a mortgage loan gives the buyer or seller certain rights in regards to backing out of the purchase contract. A standard contingency could be somehting as easy as ‘buyer will purchase the home if approved for a home loan.’
Conventional mortgageA conventional mortgage meets the conditions of funding set by Fannie Mae and Freddie Mac.
CreditA borrower’s ability to obtain a home loan based on current a previous repayment history.
Closing dateThe date all loan documents are signed and loan terms are finalized.
Date of possessionThe date which the buyer will be able to move into the property. This is usually the same as the close date.
DebtThe amount of money owed to creditors.
Debt to Income (DTI)DTI, or Debt to Income, is a ratio of your gross monthly income (aka how much money is coming in) and monthly liabilities (aka how much is going out). DTI is the model lenders use to determine your riskiness as a borrower. Lenders look for individuals with a monthly income higher than liabilities. The more income over liabilities, the more likely you are to get a loan.
DeedAn official document establishing property ownership.
Deed of trustA deed of trust is a document conveying title of the property to a third party. The title remains with the third party until the mortgage is paid.
DefaultA default is where there is a failure to pay back a loan.
DepreciationThe derease in market value of property or real estate asset.
Discount pointsDiscount points are purchased to lower an interst rate. Each point is equal to 1% of the loan amount.
Earnest moneyEarnest money is put up by the buyer as a token of good faith when making an offer on a home, and is usually a sign the propossed buyer is serious about their offer.
EquityEquity is the value of a home above the principle amount owed on the house or property.
Escrow accountAn escrow account is held by the lender or servicer in which funds are held for items other than the mortgage. These funds are generally used for property taxes and home owners insurance. See Impound Account.
Fair-market-valueThe value of a property based on current market conditions.
Fannie MaeThe Federal National Mortgage Association. Fannie Mae provides funding for home mortgages.
FEMAFederal Emergency Management Agency.
FHAFederal Housing Administration. The Federal Housing Administration (FHA) provides mortgage insurance on loans.
FHA loanA type of home mortgage loan backed by FHA (Federal Housing Administration) mortgage insurance.
Fixed-rate mortgageA type of mortgage program set to have the same interest rate over the life of the loan.
Flood certification (Flood Cert)A document confirming whether or not a property is in a FEMA designated flood zone.
ForeclosureRepossessing a borrower’s home resulting from the failure to make mortgage payments.
Freddie MacFederal Home Loan Mortgage Corporation. Freddie Mac is authorized by Congress to provide a secondary market for residential mortgages.
Good Faith Estimate (GFE)An estimate of settlement charges and loan terms. RESPA (Real Estate Settlement Procedures Act) requires a GFE be provided to a borrower within three working days of the application.
Hazard insuranceThis insurance covers damage to the property and protects both the borrower and the lender in case of such damage. Most lenders will require the home owner’s insurance to cover the replacement value of the home, not the appraised value. See, Home Owner’s Insurance.
Home inspectionA thorough inspection of the home, done by a licensed inspector. A home inspection is done to find any major or minor flaws in the home prior to purchase, and is required by many lenders prior to home loan approval.
Home loanA loan of money used to purchase or refinance a home.
Homeowner’s association (HOA)An association organized for the purpose of maintaining the quality of an area. Neighborhoods with an HOA will usually require each resident to pay home owner’s due or HOA dues.
Homeowner’s insuranceThis insurance covers damage to the property and protects both the borrower and the lender in case of such damage. Most lenders will require the home owner’s insurance to cover the replacement value of the home, not the appraised value. See, Hazard Insurance.
House flippingThis is where a house is purchased and quickly sold for a profit.
HUDDepartment of Housing and Urban Development
HUD loanA type of loan available to HUD homebuyers that goes toward fixing up a home. The loan is subsequently absorbed into the mortgage. The term “HUD loan” is often confused with “FHA loan.”
Impound accountAn impound account is held by the lender or servicer in which funds are held for items other than the mortgage. These funds are generally used for property taxes and home owners insurance. See Escrow Account.
Initial interest rateThe interest rate given first the initial term of an Adjustable Rate Mortgage.
Interest rateThe percentage of the sum of a loan that is charged for its use.
Investment propertyA property or home purchased as an investment. Many times an investment home will be rented or “flipped” for profit.
Joint ownershipProperty ownership in which more than one person will share equal ownership in the home.
Joint tenancySimilar to joint ownership, this is where more than one person will share ownership in the home.
Jumbo mortgageTypically a jumbo mortgage is a loan exceeding the standard conventional loan limits. This is considered a high-risk loan and will usually have stiffer requirements.
Lender feesLender fees are associated with closing costs. These fees can include items like processing fees and origination charges.
LienA lein is a right given to another entity, by the owner of the property, to secure a debt.
LoanMoney borrowed by a credit worthy individual or business and paid back under agreed terms.
Loan MaturityThe date or time when a loan becomes due and payable. For example, a 15yr fixed-rate mortgage becomes “mature” at 180 months from loan closing.
MortgageThe document used to establish a home or property as collateral for a loan.
Mortgage brokerThe individual or company acting as an intermediary between a potential borrower and lender.
Mortgage Insurance (MI)An insurance policy that protects a lender or investor from losses due to default on a loan. Mortgage insurance can be reflected as a monthly premium on top of the mortgage payment, up front fees rolled into the loan, or paid in a bulk sum by the borrower.
Mortgage Insurance Premium (MIP)A dollar amount paid to the Mortgage Insurance Company to cover the cost of Mortgage Insurance.
Mortgage LenderUnlike the mortgage broker, a mortgage lender uses its own money or the money of investors in mortgage transactions.
Mortgage Loan Originator (MLO)The company or individual initiating and researching loan programs. An MLO or mortgage loan originator are the only people legally authorized to discuss mortgage terms and programs.
No-Fee mortgageA mortgage requiring no closing costs, fees, or origination charges. No-fee mortgages generally see a higher interest rate to compensate for the lack of fees charged to the borrower.
Origination feeA fee charged by a lender or broker to help compensate employees involved in the loan process. This fee will always be disclosed in the GFE (Good Faith Estimate).
Power of attorneyA legal document giving certain rights to a person on behalf of another person. In most cases this is used if a borrower is unable to sign documents due to an illness or military duty.
Pre-paid costs or feesThese are any items that are paid prior to or at closing and not included in APR. These would include items such as homeowner’s insurance and property tax.
Pre-QualificationA process used to evaluate a borrower’s eligibility and maximum loan amount for a mortgage loan.
PrincipalThis is the amount financed on a loan, and does not include interest.
Private Mortgage Insurance (PMI)A type of insurance many homebuyers are required to purchase when they are unable to provide a required down payment. This insurance protects the lender in the event of borrower default.
Processing feesFees charged as compensation for various processing functions, which are part of closing costs.
Property appraisalA fair market value assessment of the subject property. The appraisal takes various factors into account, including similar property values, property condition, and market conditions.
Property taxesAnnual taxes charged on the home-owner’s property. These taxes are based on the local counties estimated value of the property.
Property valuationA fair market value assessment of the subject property. The appraisal will take various factors into account, including similar property values, property condition, and market conditions. See Property Appraisal.
Quit claim deedA quick claim deed document releases responsibility from one person on the home title and grants it to another.
Rate lockA rate lock puts a hold on an interest rate for a specific amount of time. Rates are generally locked when the mortgage consultant has a commitment from the borrower.
Real Estate Settlement Procedures Act (RESPA)RESPA was created in 1974 in order to make mortgage transactions more transparent for the borrower. RESPA restricts fees, sets timelines, and restricts fees.
RefinanceThe process of replacing a currnet loan with a new loan. In most cases, the new loan will be under different terms.
Repayment scheduleA list of payments over the life of the mortgage loan. The schedule may appear different depending on the loan terms.
Replacement valueThe estimated cost to completely rebuild your home at current material and labor costs. This is not the same as appraised value.
Reverse mortgageA reverse mortgage is a loan created for seniors, aged 62 and up, and allows a borrower to use equity as needed without the requirement of monthly payments. However, if the borrower leaves the home for a fixed period of time, or dies, the loan must be repaid or the home will revert back to the lender.
Right of RescissionA provision under the Truth In Lending act that allows a homeowner 3 days to make sure they understand and agree with the terms of a refinance. After 3 days, the loan is considered closed and funded.
Sales contractThis sales agreement defines the terms of the home purchase. These terms will include, among other things, purchase price, purchase date, and any supplements.
Second mortgageA second mortgage is a loan secured on a home or property that already has a mortgage.
Seller’s agentA real estate agent working for the home seller.
Short saleA short sale is selling a property or home for less than the amount owed. In some cases, this is used to avoid a foreclosure and allow a better outcome for both the lender and the home owner.
Stipulations, StipsStipulations are terms sent by an underwriter that are needed to fund the home loan. These conditions can be required both prior to or after a loan closes.
Sub-prime loanSub-prime loans are high-risk loans characterized by high interest rates and poor terms. Sub-prime loans are sometimes made for people that pose a higher credit risk and may have difficulty making their payments.
SurveyA survey is a document showing property boundary lines and any other property or construction limits.
Tenancy in commonTenancy is common is where all owners will have an equal right to use the property. Unlike joint tenancy, there is no right of survivorship if one of the owners dies; instead, there must be a probate to transfer the ownership.
Third-party feesThese are fees charged by vendors other than the mortgage lender, and are paid at closing. These fees will show up as closing costs.
TitleA title is an official document used in real estate that specifies who owns a piece of property.
Title companyThe title company will handle anything related to the property title, including property insurance, and title search. They may also handle settlement of any funds at closing.
Title insuranceInsurance that is pruchased on the title that protects the borrower or lender in case of any title disputes.
Title searchA search done by a title company that is used to find any existing liens or disputes against a property.
Truth in Lending Disclosure (TIL)Also known as a TIL, the Truth in Lending Disclosure provides the borrower a document that will show interest rate, APR, amount loaned, as well as total cost of the loan and loan interest.
UnderwriterThe underwriter will help determine risk on a loan for an investor or lender.
Up-Front Mortgage Insurance Premium (UFMIP)UFMIP or Up-Front Mortgage Insurance Premium is a portion of the MIP, or Mortgage Insurance Premium, rolled into the loan instead of adding it to the monthly payment.
VA loansThe VA (Veteran’s Administration) loan is a special loan program created for active, retired, and reserve military service members.
Warranty deedA warranty deed guarantees the seller holds a clear title and has a right to sell the property.