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
Additional principal payment
Paying more than the scheduled payment amount. This type of payment is typically made to reduce the remaining balance on the loan.
Adjustable-rate mortgage (ARM)
A mortgage with an interest rate and payments that adjust at scheduled dates based on a pre-selected index.
Adjustment period
The amount of time between interest rate changes on an adjustable-rate mortgage (ARM), after the initial fixed rate ends.
Agreement/Offer
An agreement between a buyer and seller of a property that states the price and terms of the sale. Also known as a purchase contract.
Amortization
The process of paying off a debt over time through regular payments with a percentage going to the principal and interest.
Annual percentage rate (APR)
The cost to borrow money expressed as a yearly percentage. For mortgage loans, it includes the interest rate plus other charges or fees. For home equity lines of credit, the APR is just the interest rate.
Application
A document submitted by a borrower to a mortgage lender that includes required information to begin the home loan process.
Appraisal
A report that states a determination of a home’s market value by a qualified independent third-party known as an appraiser.
Appraised value
An opinion of value reached by an appraiser based upon comparable recent sales of homes in the neighborhood.
Appreciation
An increase in the value of property due to a positive improvement to the property, real estate in the area or inflation.
Assets
Things of value owned by a person (e.g., automobiles, property, savings or retirement fund) that are used to calculate a borrower’s net worth (assets minus liabilities) and determine their ability to afford the down payment and closing costs.
B
Balloon payment
A large one-time payment due at the end of the term that pays off your remaining loan balance.
Bankruptcy
A legal proceeding in federal court in which a debtor seeks to restructure his or her obligations to creditors pursuant to the Bankruptcy code. This generally affects the borrower’s personal liability for a mortgage debt, but not the lien securing the mortgage.
Borrower-paid mortgage insurance (BPMI)
When your down payment is less than 20% of the home’s value, the lender typically requires you to pay a monthly premium for mortgage insurance in case you fail to make your mortgage payment. As soon as the loan-to-value ratio reaches 80% of the original value, you may be able cancel the insurance.
Buydown
A financing technique where the borrower attempts to get a lower interest rate on a purchase or refinance for the first few years of the loan.
C
Cash reserves
Extra money some lenders require borrowers to have available after loan closing to help ensure they can make the payments and keep the home.
Cash to close
Money the borrower will use to pay the closing costs for getting a mortgage.
Closing
The last step in buying and financing a home. The closing, also known as settlement, is when all parties in a mortgage loan transaction sign the necessary documents. After signing these documents, the borrower becomes responsible for the mortgage loan.
Closing costs
All monies paid by the borrower at the time of loan closing.
Co-borrower(s)
Additional named borrower(s) who appear on loan documents and whose income and credit history are used to qualify for the loan. Under this arrangement, all parties have an obligation to repay the loan.
Concession/contribution
A discount or incentive a seller gives to a prospective buyer to encourage him or her to purchase a property — something that “sweetens the deal.”
Condition
A loan stipulation that must be met before a mortgage loan can be closed/funded.
Conventional mortgage
A home loan that isn’t guaranteed or insured by the federal government.
D
Deed
A legal document that conveys ownership of a property.
Deed of trust
A document that secures a debt, in which a debtor places legal ownership of real property with a trustee, to be held in trust until the debt is repaid. As the borrower repays the debt, the borrower keeps the actual title to the property and maintains full responsibility over the premises.
Depreciation
A reduction in the value of property due to physical deterioration, wear and tear, or other factors.
Down payment
The amount of cash you pay toward the purchase of your home, often between 3% and 20%. The rest of the payment to the seller comes from your mortgage.
Down payment assistance program
Programs offered by a government housing authority designed to help more families become homeowners by assisting with the cost of the down payment, closing costs, or in some cases both.
E
Earnest money
A deposit made to someone selling their home that represents the prospective buyer’s intention to purchase the home (see deposit).
Equity
The difference between the market value of a home and the amount owed to the lender who holds the mortgage. If you were to sell your home, equity is the money you would receive after paying off the mortgage.
Escrow
Funds a lender collects and holds in an account to pay real estate taxes, homeowners insurance, other periodic debts against the property, and mortgage insurance (if applicable), on behalf of a customer. Also known as impounds or reserves.
Escrow payment
The portion of a homeowner’s monthly mortgage payment that is held by a lender or servicer to pay property taxes and insurance, including mortgage insurance and hazard insurance, on your behalf.
F
FHA home loan
A mortgage that is insured by the Federal Housing Administration (FHA). Also known as a government loan. FHA mortgage insurance protects the lender (not the borrower) if a borrower defaults on the FHA loan. This insurance enables a lender to provide loan options and benefits often not available through conventional financing.
First adjusted payment
The payment due each month on an adjustable-rate mortgage after the initial fixed rate ends. Interest rate adjustments may increase or decrease the amount due.
Fixed-rate mortgage
A mortgage loan with an interest rate and monthly principal-and-interest payment amount that remains the same for the life of the loan.
Flood certification
A document that indicates whether or not the subject property is located within a designated flood zone.
Foreclosure
The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.
G
Gift letter
A written explanation stating that money was given to a homebuyer, free and clear of any obligation to repay it, as a gift for the purchase of a house.
H
Hazard insurance
Protects a property owner against damage to a property due to certain hazards such as fire, severe storms, or other natural events.
Home equity line of credit (HELOC)
A revolving credit line that can be used for large expenses or to consolidate higher-interest rate debt. The loan is secured by the borrower’s home.
Homeowners insurance
Insurance to protect a home against damage from fire, hurricanes and other catastrophes. Usually, homeowners insurance also covers against theft and vandalism, as well as personal liability in case someone is hurt or injured on the property.
I
Inspection
An objective and unbiased visual examination of the physical condition, structure and various systems of a property from the foundation to the roof.
Intent to Proceed
A form the borrower signs when they have decided on a lender and agree to move forward with the loan.
Interest rate
The cost a customer pays to a lender for borrowing funds over a period of time expressed as a percentage rate of the loan amount.
Investment property
Real estate property owned with the intent to earn income, either through rent, future resale, or both, and not intended for owner occupancy.
J
Joint tenancy
A property owned by more than one person, each with equal rights and obligations.
Jumbo loan
Also known as a nonconforming loan. The amount of the loan exceeds standards that would 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 additional fees and place certain restrictions due to the large loan amounts.
L
Late charge
The penalty a borrower must pay when a payment is made after its due date or courtesy period.
Lender-paid mortgage insurance (LPMI)
When your down payment is less than 20% of the home’s value, the lender can pay the insurance costs upfront, in which its cost is included in the interest rate. This help provide protection against financial loss. Although the interest rate is slightly higher with LPMI, this option usually results in a lower monthly payment and a potential tax deduction. (Consult your tax advisor.)
Lien
A legal right granted by the owner of the property, by a law or otherwise acquired by a creditor. A lien serves to guarantee an underlying obligation, such as the repayment of a loan. If the underlying obligation is not satisfied, the creditor may be able to seize the asset that is the subject of the lien.
Line of credit
An agreement between a lender and a customer that specifies the size and terms of an amount of money that can be borrowed. In a home equity line of credit, the line of credit is secured by the borrower’s home.
Loan conditions
Terms and requirements in a loan agreement, including loan amount, interest rate, and other enforceable conditions.
Loan estimate (LE)
A document that contains important details, such as estimated rate, monthly payment and closing costs for a loan. The LE must be delivered by a lender within 3 business days from the date of the mortgage application.
M
Manufactured home
A type of prefabricated housing that is largely assembled in factories, built on a chassis and wheels, then transported to a site.
Margin
The set percentage the lender adds to an established index to determine the interest rate of an ARM or variable-rate home equity line of credit.
Market value
The amount a willing buyer would pay and a willing seller would accept, assuming each is fully informed and under no pressure to act, for property or other assets.
Monthly payment
The amount of principal and interest paid each month on a home loan, sometimes including real estate taxes, homeowners insurance, and, if applicable, mortgage insurance.
Mortgage banker
A company, individual or institution that originates mortgages. Mortgage bankers use their own funds, or funds borrowed from a warehouse lender, to fund mortgages.
Mortgage Insurance
A policy that protects the lender or investor if the borrower doesn’t make mortgage payments. It’s typically required when a borrower puts less than 20% down. There are different types of mortgage insurance options, including Lender-Paid Mortgage Insurance (LPMI) and Borrower-Paid Mortgage Insurance (BPMI).
N
Non-conforming loan
A loan that doesn’t meet the guidelines established by Fannie Mae or Freddie Mac due to the loan amount, insufficient credit, underwriting guidelines, or other factors.
Note
A written acknowledgement and agreement to repay a sum of money plus interest for a specific term. When the note is secured by a property, it’s called a mortgage note.
O
Origination
The entire process of working with a borrower to complete a mortgage from application, through underwriting, to final loan closing.
Origination charge
Compensation (other than discount points) that the lender receives for processing a loan application and putting the loan in place.
Owner occupancy
The borrower(s) intend to live in the home.
P
Payoff
The amount necessary to pay a loan in full.
Preapproval
A preliminary review of credit information and other documents to determine whether a potential borrower qualifies to purchase a home.
Prepaids
That portion of your loan closing costs which must be paid in advance to cover taxes, interest, insurance and any special assessments.
Prepayment fee or penalty
A fee that some lenders may charge if the borrower pays off the loan earlier than originally agreed in the lending contract.
Prequalification
An estimate of how much money a lender is willing to lend a prospective homebuyer based on a borrower’s current income and debt.
Primary residence
The home the borrower(s) live in day-to-day. (Not a vacation home).
Private mortgage insurance (PMI)
Insurance written by a private company that protects a mortgage lender against loss if the borrower defaults on the loan.
Processing
The act of ensuring that the loan application and supporting documentation is in order and ready to be reviewed by a lender.
Purchase contract
A legal document outlining the price and terms of the sale of real property. Also known as a sales contract.
R
Rate lock
An agreement between the borrower and lender that “locks in” the interest rate on a mortgage over a specified time period.
Real estate/property taxes
Taxes assessed on real property and usually based on the property’s value.
Refinancing
The process of starting a new loan to pay off an existing one. The new loan typically has different (better) terms and benefits, usually lower monthly payments, lower interest rates or financial savings.
S
Second home (vacation home or weekend home)
An additional residence that an owner visits or lives in for specified times each year.
Seller contributions
When the seller of a home pays some or all of the buyer’s closing costs. Depending on the loan terms, the amount of costs that can be covered by the seller may be limited.
Settlement costs
Costs associated with the closing of a mortgage loan, such as origination fees, discount points, or payments for title insurance, surveys, attorney services, and taxes.
Short sale
When net proceeds from selling the property will fall short of the debts secured by liens against the property.
Survey
The measurement of boundary lines to determine the exact amount of land that a homeowner owns.
T
Tax lien
A legal claim against property for unpaid taxes.
Title (insurance) company
A company that performs title searches to protect a homeowner and lender against a loss that could result from a title dispute.
Title insurance policy
A legal agreement made by the insurer, usually a title insurance company, to pay the insured party for losses relating to claims against title.
U
Underwriting
The process of deciding whether a loan should be approved or denied. It requires the verification of a borrower’s information and assessment of their creditworthiness.
Upfront Mortgage Insurance Premium (UFMIP)
This is required for all FHA loans and it is typically financed into the mortgage loan amount or paid by the borrower at closing.
V
Variable rate
An interest rate that changes periodically in relation to an index.
Veterans Administration (VA) mortgage
A mortgage available to qualifying veterans and guaranteed by the VA. This type of loan offers a lower down payment than most standard mortgages and requires no mortgage insurance. VA loans are backed by the Veterans Administration.
W
W2
IRS form. A W-2 reports annual wage earner income.
Wholesale Lender
Lenders that don’t work directly with borrowers. Instead, they offer their loans through mortgage brokers. The broker shops around to find the best mortgage terms and rates for their clients. The wholesale lender then underwrites and funds the loan.