Glossary of Mortgage Terms
A verbal or written acceptance of an offer to buy a home made from the seller to the buyer.
This is a land measurement that is commonly used in the U.S. for property negotiations. One acre equals 43,560 square feet.
Adjustable rate mortgage, ARM
Is a mortgage loan that is characterized by an interest rate which automatically adjusts or fluctuates with certain market indexes. An Adjustable Rate Mortgage generally begins with an introductory or initial interest rate which then can rise or fall, but monthly payments may not exceed the ARM loan cap.
The process of a loans value over a period of time it often amortization is laid out on an amortization schedule or measured by an amortization calculator.
Annual percentage rate, APR
This is the truest cost of a home loan. Per the Truth in Lending Act, all mortgage lenders must disclose their APR. (Annual Percentage Rate) In the mortgage industry, APR may include fees such as documentation fees, private mortgage insurance and more.
It is the measurable value that increases on the home or property. Market improvements and home renovations often drive appreciation value.
Is the value determined by local government assessors and used to calculate annual property or real estate taxes.
Is a mortgage that can be transferred, this includes the interest and all, from the seller to the buyer.
There can be fees due during closing.
It is a loan that is short term. This high risk loan leaves the borrower with a potentially very high balance at the end of the term of the loan.
An individual or individuals extended a loan and mortgage for the purchase of a house and/or property. The borrower is responsible for making all payments and fees associated with the loan over the life of the loan.
Is a short term loan that is used to quickly effect the sale while pending for more conventional real estate financing. This is not a popular loan but, it can be very useful in certain commercial real estate deals.
This is where the seller or the lender puts in a sum of money in order to lower the initial interest rate on a home loan this makes the sale more appealing for the buyer.
A real estate agent works on behalf of the home buyer.
The maximum monthly payment a borrower is expected to pay on a loan
The profit earned on an asset, such as a home or property.
Capital gain tax
A tax levied against the profit made on the sale of a home and or property
Cash out refinance
Is a second mortgage in which the borrower extracts home equity at the same time a refinance deal is made an alternative to a home equity loan.
The formal documented sale of a home and or property that includes signing all documents associated with the exchange and payment of required closing fees. A closing agent usually oversees this process.
Is the person responsible for mediating the closing, documenting the process and assuring all associated paperwork is completed. May be an attorney or official from a title or mortgage company.
A real estate transaction related fees payable by the buyer and seller during a closing. A wide variety of fees may be included, such as title search, attorney’s fees, origination fees, documentation fees and more.
An itemized list of closing costs
A borrower with good credit that agrees to take on shared responsibility for a home loan so that the primary borrower may purchase property.
This loan combines an initial loan which is normally a new home construction, with a second conventional home loan that supplants the first.
A document from a lender to a borrower that officially lays out the terms of a loan.
Comparable sales, comps
Similar to a home sale prices in the region used as a metric in the calculation of a home’s appraised value.
Is a conventional loan that is characterized by loan limits that fall within those guidelines laid out by Government Sponsored Enterprises (GSEs) like Freddie Mac and Fannie Mae?
This is a short term loan for new home construction it is supplanted with a conventional long term home loan.
A number of common clauses added to real estate agreements that provide buyer or seller rights during various stages of a transaction
This mortgage is offered by any one of the Government sponsored entities, it is different from a FHA loan.
Money extended from a lender to a borrower based on that borrower’s credit history.
Date of closing
The date upon which all paperwork associated with a mortgage/property sales exchange is finalized.
Date of possession
The actual date upon which the buyer will move into a home or property; it is usually the closing date, but may be another agreed upon date as well.
The amount of money a borrower owes to creditors. A metric used to calculate creditworthiness.
An official and public document that establishes property ownership.
Deed of Reconveyance
Is when a borrower has paid in full on a mortgage, the lender then awards the borrower a deed of Reconveyance? This document becomes also a part of public record. This is also known as Reconveyance deed and recon.
Deed of trust
This is a document that in some states is used in place of a mortgage. A deed of trust may be held by a third party, similar to a mortgage
The inability of borrower to make regular and consecutive payments on a loan
The measure of loss in value of a home or property. Depreciation could be driven by poor economic factors or property damage.
Is a measure of interest; 1 point = 1% of the home loan value. Homebuyers may pay points up front, a type of buy-down, in order to lower their overall interest rate and mortgage payment.
Is the sum of money that is usually put up by the buyer when an offer on a home or property. The purpose of earnest money is as a token of good faith, a symbol that the buyer is seriously pursuing purchase.
It is the measurable value of a home or property above and beyond that owned on a loan. This is a value many homeowners often borrow.
Is a separate account held by a mortgage lender out of which required property bills, separate from the loan payment, are made. Property taxes and insurance are examples of costs paid out of escrow. Also called an “impound account.”
The price for a piece of property will bear in the current market.
This is a private mortgage corporation that began as a government subsidized entity in the late 30s. Today Fannie Mae, along with Freddie Mac, is a government sponsored enterprise (GSE) and together they are responsible for setting annual conforming loan limits and assuring that most Americans are able to finance a home. Fannie Mae is commonly known as a secondary mortgage market and lends to mortgage lenders which in turn extend mortgages to borrowers.
Federal Housing Administration
This loan is extended by FHA-approved lenders and it is designed to assist borrowers that are unable to obtain approval for conventional home loans.
First time buyer
Is a home loan for a borrower who has never taken out a mortgage before; it often qualifies for various discounts for these first-time buyers.
Fixed rate mortgage
Is a conventional mortgage with a fixed interest rate over the life of the loan? Monthly payments are the same from month to month.
In the majority of real estate cases a lender will require a flood certification before making a loan on a home. In areas where a property falls in a flood zone, the borrower may be required to purchase standalone flood insurance before a mortgage and/or home loan is approved.
The repossession of a home and/or property by a lender in the event of borrower loan default or the inability to meet mortgage agreements.
Works in concert with Fannie Mae, Freddie Mac is a leading government sponsored enterprise (GSE) and is responsible for maintaining reasonable mortgage market stability, this assuring that Americans are able to purchase homes. Freddie Mac is a secondary mortgage market, meaning the corporation lends to lenders, which in turn extend mortgage products directly to borrowers.
Good Faith Estimate
An itemized list of anticipated loan costs and closing fees passed from a lender to a potential borrower within three days of an application for a home loan. This is a required step in the loan application process per the Real Estate Settlement Procedures Act.
Is also known as homeowner’s insurance; extra insurance taken out on a home that protects the borrower and lender in the event of damage. Usually covers the value of the home.
This home loan is extended to borrowers that have poor credit history or that fall outside the conventional or conforming loan limits set by Fannie Mae and Freddie Mac. Sub-prime loan is an example of a high-risk loan.
A comprehensive and exhaustive examination of a home by a licensed inspector. It is often required as part of a mortgage and home loan process.
Home inspection contingency clause
A clause added to an offer letter that gives the buyer certain rights pending home inspection. A buyer may ask the seller to repair defects discovered during the home inspection or even request release from the offer to buy in light of a home inspection.
This is not a mortgage it is the actual amount of money a buyer owes the lender in the purchase of a home.
Home price index
Is a financial and market tool that provides historical data on residential home prices in various regions.
An association attached to a neighborhood, apartment, condo or town home complex that establishes certain rules of ownership. It is Common but not exhaustive, it covers the responsibilities of a homeowner’s association includes collection of neighborhood dues for landscape maintenance or membership in recreation and entertainment facilities.
Insurance that protects the value of the home for both lender and borrower. Homeowner’s insurance typically covers the cost of replacing the home and various parts of the same. Most mortgage lenders require borrowers to carry a term of insurance.
Is the purchase of a house or property at a reduced market rate for the purpose of a quick turnaround you flip and you profit. Most house flippers must do some renovation or home fix-up in order to turn a profit on a home.
Is a real estate corporation in which buyers own a share of real estate holdings and may reside in a co-op unit? Shareholders do not have mortgages, but pay on a cut of the shares and earn equity over the long term.
This type of loan is available to HUD homebuyers that want t purchase and fix up a home. The loan is subsequently absorbed into the mortgage. The term “HUD loan” is often confused with “FHA loan.”
Impound account (Look at Escrow account)
Initial interest rate, introductory
Is the interest rate at which an Adjustable Rate Mortgage, ARM, will begin (Refer to: Adjustable rate mortgage).
A figure calculated as a percentage that is used in the financial industry to indicate the rate charged for use of money in a loan. Interest rates may be fixed or variable. (Refer to: Annual percentage rate).
Real Estate bought for investment purposes as opposed to private residential. Often the property will be used for rental purposes, such as rental home, apartments or other spaces that give owners the opportunity to create profit and income over the long term.
Is a type of property ownership in which two people share equally in a home and/or property; common for spouses.
It is property ownership in which two or more people share.
It is a high-risk loan, or non-conforming loan, in which the loan limit is higher than a conventional loan.
Is typically included in fees associated with closing costs, sometimes called processing fees; designed to cover costs incurred by lenders during the loan process.
Lender, mortgage lender
Is when the bank or finance company that directly awards home loan or mortgage money to a borrower or homebuyer.
It is a formal, legal symbol of money owed on a major asset. (Example: property, a mortgage).
It is when money is lent from a financial institution to a creditworthy borrower(s) over a specified period of time and at a particular interest rate.
Is typically applied to the term of a home loan or mortgage; the life span of a mortgage; for example, a 15-year loan matures in 15 years, the period of time in which the debt must be paid off.
Is a legal document between a mortgagor and a mortgagee to establish a home and/or property as security for a home loan.
Is the entity that acts as a go-between for the homebuyer and mortgage lender, they handle the paperwork and finally executing a mortgage. A broker does not make direct loans to buyers, but works to find the best deal and finally collects fees as part of the mortgage process.
An online financial tools that is available on many sites that allow potential buyers to plug in various personal financial figures to arrive at a mortgage value they can afford.
Can either be a brokerage business or a direct lender.
Is when buyers take out a mortgage with less than a certain dollar percentage to put down on the loan, and lenders require them to pay mortgage insurance, a monthly premium that is added to the mortgage. This protects the lender should a buyer default on the home loan.
Mortgage Insurance Premium, MIP
It is the required 1.5% fee added into a FHA loan, paid at closing.
The actual company that lends the mortgage is the “originator.”
This is a sales tactic to attract buyers who may not be able to pay out of pocket closing fees. Normally a no fee cost mortgage is bundled with a slightly higher interest rate that makes up the difference in the no fees over the life of the loan.
Notice of Incomplete Application, NOIA
Is a form sent to the buyer that indicates missing or incomplete loan application information. Buyer must provide all required information for the lender to complete the application process.
A verbal and written offer to buy a home for a certain dollar amount from it is from the buyer to the seller.
A fee, calculated as a small percentage of the value of the loan, charged by a mortgage lender for processing the loan. A fee that is often due at closing and one that must be disclosed on the Good Faith Estimate when a buyer first completes a loan application.
Is designed for an adjustable rate mortgage, this is the maximum payment amount a buyer could ever be expected to pay per month.
It is a second mortgage piggy backed onto a first mortgage and used in lieu of mortgage insurance. It is cost effective loan depending on the current market factors.
This mortgage can be carried by the borrower from one home purchase to the next.
Power of attorney
Is a legal document that grants an individual the rights to act on behalf of another. For example, if a borrower dies or becomes incapable of managing his or her home loan or mortgage, a power of attorney assigned by that individual could manage his or her mortgage and related decisions.
A lender that is closely affiliated with a brokerage based on reputation and other industry factors. This is a mortgage lender that is recommended by a broker.
Pre-paid costs or fees
Are any of a number of fees associated with a mortgage and usually paid out of pocket at the time of closing; includes origination fees, underwriting fees, attorney fees, etc.
Is the process in which a homebuyer may find out how much of a home loan he or she would be approved for with a lender; gives many buyers more flexibility when shopping for a home.
Primary mortgage market
Simple…. direct lenders
Is a conforming loan, this loan is for those who fall within the limits set by Fannie Mae or Freddie Mac. It is often given to borrowers who have good credit.
The amount borrowed on a home loan.
The amount currently owed on a home loan.
Private label mortgage outsourcing
This is when a private bank or financial lender outsources mortgage products to another lender.
Private mortgage insurance, PMI
Is a type of insurance many homebuyers are required to purchase, particularly when they are unable to put down a certain dollar amount on the loan; protects the lender in the event of borrower default.
The lender fees associated with creating the loan or mortgage, usually part of closing costs.
It’s the physical street address of a home or property, required for mortgage application.
The fair market value of property performed by a licensed appraiser; takes into account not only condition, but also the value of similar local properties or comparable sales.
The annual local taxes charged against the value of a homeowner’s property.
Property valuation (Refer to Property appraisal)
Quit claim deed
Is a document that releases one party in a home title from any responsibility and grants all responsibility to the. This is normally used for spouses or in family situations in which more than one individual has an interest in a mortgage or property title.
Rate commitment option, RCO (Refer to Rate lock)
It is a short-term agreement by a lender to “hold” a certain interest rate on a home loan while the buyer negotiates a sale transaction. (A rate commitment option).
Real estate investment trust
It is securities or mutual funds that invest directly in real estate.
Real Estate Settlement Procedures Act (RESPA)
This act was passed in 1974 it informed the public of hidden costs, fees and kickbacks that had become widespread among real estate entities. Per this act all fees and costs must be disclosed to both buyers and sellers.
Real estate tax (Refer to Property tax)
Is the process by which a borrower/homeowner may negotiate a lower interest rate on a mortgage, thereby lowering monthly payments.
The current balance owed on a home loan.
It is the current amount of time remaining in the length of the loan.
The mortgage payments laid out over the life of the loan. Some mortgage calculators let borrowers see their repayment schedule based on the amount of the home loan, the interest rate and monthly payments. See also Amortization.
This type of mortgage designed for homeowners over 62 years of age it gives them access to home’s equity in cash payments it frees up money for them to use for other important finances or to make home repairs.
Is a real estate sales agreement is a formal written contract made between a homebuyer and seller. The document includes property address, condition, purchase price, inspections, date of closing, date of possession and more.
This is also known as a home equity loan, a second mortgage gives the borrower’s flexibility to access the cash equity in their home. It is normally useful for high-dollar expenses like college loans.
Secondary mortgage market
This is the segment of the mortgage and real estate securities market deal with the investment of mortgages but not direct mortgage lenders.
A real estate agent works on behalf of the person selling a home.
This is a great tool for lenders and homeowners when foreclosure could be on the horizon. In a real estate short-sale lenders give homeowners permission to discount the home value (the outstanding loan balance) to effect a quick sale, thereby averting foreclosure.
Speculative home market
Is one in which investors snatch up homes for quick re-sale hoping to cash in on improving markets; considered risky by some.
This is a high-risk loan that is packaged with non-conforming loan limits and interest rates which make it possible for homebuyers with poor credit to qualify for a mortgage.
Is a formal survey of property that establishes boundary lines and defines any types of limits on construction and other features that could affect the value of property in many cases lenders require buyers to purchase a property survey.
Swing loan (Refer to Bridge loan)
Tenancy in common
Is one or more persons may possess the property title, but ownership may be declared in various percentages.
Third-party fees (Refer to see closing costs)
The official document used in the real estate industry that specifies at any one time who owns a piece of property.
A title company typically handles all tasks associated with the property title, including insurance and search.
This insurance is taken out on the property title that protects both borrower and lender in the event of a title dispute.
It allows research on a property title usually conducted by a title company to determine if there exist any outstanding liens against the property prior to a sales transaction.
Truth in lending disclosure
Is a document that all lenders are required to provide when a borrower applies for a home loan. The document discloses interest rates, the amount to be loaned, plus the final cost of the loan upon maturity.
Turnaround loan (Refer to Bridge loan)
It is the company or service that evaluates a borrower’s credit prior to the loan or mortgage approval.
These are special often discounted home loans that are designed exclusively for military veterans.
It indicates no past liens or disputes against the property; the holder of the property deed has the right to sell it to another.
Commonly used mortgage loan application developed by Fannie Mae. Often called the Uniform Residential Loan Application.