Whether you’re in the process of buying or selling a home, you’re likely to encounter a variety of mortgage acronyms and terms that you may not have heard before. We’ve compiled a list of the more common mortgage terms and acronyms and their meanings:


An additional amount that a borrower pays toward their mortgage balance that is beyond their established monthly mortgage payment.


This is a written statement of facts made by a person under oath or affirmation.  It may be administered by a public officer authorized to do so, including city recorders, court clerks and notaries. Affidavits are necessary when a person needs to give information that can be relied upon, such as when one is applying for a loan.


A loan amount, including projected interest, divided into equal periodic payments calculated to pay off a debt at the end of a specified period. The payments are calculated to include any debt that will accrue during a set time. An example of amortization is a 30-year fixed-rate mortgage.

APPLICATION (mortgage application/1003 form):

When applying for a mortgage, potential borrowers submit an application to provide certain information that the lender will use to determine whether a person is a viable candidate for a home loan. The information provided by the applicant includes employment and income information, debts owed, liquid assets and current rent or mortgage payment information.


After a candidate submits an application for a mortgage, the lender must establish the value of the property being used as collateral for the loan. An appraiser is selected by the lender and sent to the property to make a qualified analysis based on his or her knowledge and experience about the value of the home.


The appraisal fee is simply the cost of having a home appraised. The price may vary depending on the appraiser or the size of the property.   


While a homebuyer may end up paying more or less than the market price of a home, the appraised value is more objective. It is an evaluation of the value of the property at a certain point in time as established by a professional appraiser. 


This indicates how an asset such as property increases in value over time. A home’s value may appreciate for any number of reasons, including increased demand, weak supply, inflation or changes to the community. It is the opposite of depreciation, which is a decrease in value over time.

APR – Annual Percentage Rate:

An Annual Percentage Rate is the total price, including fees and interest, a borrower pays for borrowing money expressed as an interest rate. Because the APR is a standardized calculation it is designed to make it easier for borrowers to compare the same product and cost between multiple lenders.

ARM – Adjustable Rate Mortgage:

An Adjustable Rate Mortgage, or ARM, is a type of mortgage in which the interest rate applied on the outstanding loan balance varies throughout the life of the loan. Usually, the initial interest rate is fixed for a set period of time, and it resets at a regular interval, usually either monthly or annually.


Each property comes with certain applicable taxes, and the assessed value is used to calculate these taxes. This value is typically determined by the corresponding government municipality by examining comparable home sales and inspections. The assessed value may be determined annually. 


This is the process of setting the value of a property, usually for the purpose of calculating real property taxes. The assessed value is multiplied by the tax rate to determine the annual tax bill.


Any resource that has economic value is considered an asset. Assets can be held or controlled by individuals, corporations or governments. 


Most loan terms feature regular monthly payments that are carefully calculated to repay the loan over a set period of time. However, a loan that has lower monthly payments than required to pay the loan in full at maturity results in the borrower owing a large, or balloon, payment in order to repay the remaining balance. These loans are popular among borrowers who do not intend to hold onto the property long term and instead intend to sell the property and repay the loan before it matures. This may be an attractive option because balloon loans tend to have lower interest rates. However, should the property owner be unable to come up with the balloon loan, they may face penalties or higher interest rates.


A balloon loan is one that is not designed to be paid off simply through monthly payments. Instead, at the end of the term of the loan, the borrower will pay a large, or balloon, payment to the lender. This payment is intended to repay the remaining balance of the loan. Often, this payment is made when the borrower sells the home.


If a person or business is in debt that they are unable to repay, they may choose to file for bankruptcy. The debtor first files a petition, at which point all of their assets are calculated and used to repay a portion of the outstanding debt. At the end of the proceedings, the debtor will no longer be obligated to repay the debts. There are several chapters of the Bankruptcy Code, each of which takes different steps in repaying some of the debt owed. Each serves as a way for the debtor to be given another chance with renewed finances as well as providing the lenders some measure of repayment. 


A person or company who is receiving money from a lender with the intention of repayment is called a borrower. 

An intermediary working with a buyer and seller in a real estate transaction, or between a borrower and a lender while qualifying the borrower for a mortgage. The broker gathers income, asset and employment documentation, a credit report and other information used in assessing the borrower’s ability to secure financing.


A buydown is a financing technique in which money is paid upfront to temporarily reduce a loan's interest rate and lower the payment. For example, a 2/1 buydown means the interest rate will be two percent lower for the first year, one percent lower for the second year, and back to its permanent rate in year three.


These reserves generally refer to funds that a borrower can have access to quickly, in case of an emergency.  Cash reserves may simply refer to a checking or savings account. A capital reserve refers to an amount of money that is reserved for a specific, imminent project by a business.


If a homeowner is interested in using the equity that has built up in their home, a cash-out refinance is an option. This is a mortgage refinance transaction in which the new mortgage balance is greater than the existing mortgage amount, which provides the homeowner with cash in hand.


A state or municipal-issued document that designates the owner or owners of property. This title will also list any liens or easements associated with the property. 


A charge-off or chargeoff is the declaration by a creditor that an amount of debt is unlikely to be collected. This occurs when a consumer becomes severely delinquent on a debt. Traditionally, creditors will make this declaration at the point of six months without payment. A charge-off is a form of write-off for the creditor.


The final transaction between the buyer and seller of a property is called the closing. At this point, all documents are signed and exchanged, the seller is paid and the title is transferred to the buyer. These often take place at the office of the title company, and the buyer and seller - or their respective representatives - each has the opportunity to review the closing package. After the closing is completed, the buyer takes possession of the property. 

Closing also refers to the signing of mortgage documents in a refinance transaction which gives the lender the ability to pay off the existing mortgage and record their new mortgage documents.


Any expenses a buyer and/or seller incur upon the completion of a real estate transaction aside from the price of the property, also referred to as settlement costs. Some examples of closing costs that may be incurred are loan origination fees, discount points, appraisal fees, title searches, title insurance, surveys, taxes, deed-recording fees and credit report charges. Closing costs may be nonrecurring or prepaid. Nonrecurring costs are the one-time costs associated with obtaining a loan or buying a property, whereas prepaid costs will be recurring over time, such as property taxes. 


Any additional person or persons whose name or names appear on a loan document. The co-borrower's income and credit history will be considered in order to qualify for the loan, and all parties involved will be responsible to repay it. A Co-Borrower is also an owner of the collateral.


A person who signs for another person's debt should the primary borrower default. Generally, a Co-Signer has better income and/or credit than the borrower and will leverage it to help the borrower get better rates or terms on a loan. A Co-Signer is not required to be an owner of the collateral.


A borrower may offer property or other assets to a lender to secure a loan. Should the loan go into default, the lender can collect the collateral to recoup its losses. For example, the collateral for a mortgage is the house. Should the borrower stop making payments, the lender can foreclose on the house and take possession. Loans secured with collateral generally have lower interest rates because the lender has extra security. The lender's claim to the collateral is called a lien. 


Any loan that conforms to loan limits set by the Office of Federal Housing Enterprise Oversight, which regulates Fannie Mae and Freddie Mac. Loans that exceed this amount are called non-conforming or jumbo loans. 


A contingency clause defines a condition or action that must be met for a real estate contract to become binding. A contingency becomes part of a binding sales contract when both parties (i.e., the seller and the buyer) agree to the terms and sign the contract.  A typical contingency clause might read like this: "This contract is contingent upon Buyer successfully obtaining a mortgage loan at an interest rate of 6 percent or less."


A mortgage loan that is secured by investors, as opposed to the Federal Housing Authority or the Department of Veterans Affairs. Conventional loans may also be conforming loans if they follow the loan amount guidelines set by Fannie Mae and Freddie Mac, but can be nonconforming loans if they do not. 


While an adjustable rate mortgage (ARM) features regular rate changes, a convertible ARM gives the borrower the option to convert to a fixed-rate mortgage. They are generally marketed as a way for the borrower to avoid rising interest rates, though a fee is often charged to switch from the ARM to fixed-rate. 


A borrower who receives something of value like goods or money with a contractual agreement to repay the lender at a later time is borrowing on credit. Generally, the lender will charge interest. Credit also refers to the borrowing capacity of an individual or company. 


An agency that collects individual credit information and sells it to creditors. The creditors - often banks, mortgage lenders and credit card companies - then use this information when deciding whether or not to grant loans. Credit bureaus are also referred to as consumer reporting agencies or credit reporting agencies. The bureau does not make any decisions regarding an individual's credit, but simply reports information. 


A record of a consumer's ability to repay debts. A credit history consists of the number and types of credit accounts a consumer has, how long they have been open, amounts owed, amount available on each card, whether payments are made in a timely manner.


A detailed report of a consumer's credit history. Information on a credit report includes: personal data, such as a Social Security number and current and previous address, a credit history summary, inquiries into a consumer's credit history and any liens or wage garnishments. Generally, information will stay on your report for about seven years, except for bankruptcies, which remain for 10 years. If there is any inaccurate information on a report, it is possible to dispute it. 


When a lender is considering providing money to a borrower, credit risk is a way to determine the lender's risk of loss of principal or financial reward as a result of the borrower's failure to repay the loan. Interest rates reflect this risk: A borrower who is less likely to repay a loan will be given a higher interest rate as a way to mitigate the risk. Credit risk is determined by considering the borrower's credit history, the collateral for the loan, additional assets and ability of the borrower to generate income/revenue, among other factors. 


A numeric expression between 300 and 850 of a person's creditworthiness. Credit scores are used by lenders as a summation of the likelihood that a person will repay debts. This score is calculated by algorithms created by The Fair Isaac Corporation (FICO) using several factors, most prominently the consumer's credit history. 


Any person or institution that extends credit by loaning money to another person with the understanding that it will be paid back at a later date. A personal creditor may loan money to family or friends, whereas a real creditor is generally a bank or finance company that has legal contracts with a borrower. 


An assessment of how likely a borrower is to pay back a loan. It is determined using several factors, including the borrower's credit score and history. Creditworthiness is generally expressed by a three-digit credit score. 


Any company or individual who owes money to a lender. A debtor is referred to as a borrower if the money was lent from a financial institution.


A way to measure an individual's finances by comparing debt payments to the income generated. It is one of several measures that a lender will use to establish how likely a prospective borrower is to pay back a loan. A low debt-to-income ratio is usually more desirable. 


A deed is the written document which transfers title (ownership) or an interest in real property to another person. ... A written document for the transfer of land or other real property from one person to another. A quitclaim deed conveys only such rights as the grantor has.


If a borrower defaults on a mortgage, an option to avoid foreclosure is a deed in lieu of foreclosure. The borrower deeds the home - or collateral property - back to the lender in exchange for a release of all obligations under the mortgage. It can be advantageous for both parties, as a foreclosure proceeding can be costly, time consuming and detrimental to the credit of the borrower.


The failure to repay a loan when due. If the debtor is unable to meet the legal obligations of the loan because they are unwilling or unable to honor the debt, the loan goes into default. 


When an individual or company fails to make required payments when due. If a party remains delinquent on a mortgage payment for a set amount of time, the lender can begin foreclosure proceedings. 


If a buyer wishes to show their sincere interest in a transaction, an earnest money deposit may be used. This is commonly used during real estate transactions to buy more time in finding financing for the purchase. Usually, the deposit is held jointly by the buyer and seller in a trust or escrow account and will usually go toward a down payment. If the seller decides not to move forward with the transaction, the buyer can usually reclaim the money. However, if the buyer retracts the offer, the earnest money will usually go to the seller unless there are contingencies that have not been met. 


The decrease in an asset's value. Usually, depreciation is caused by unfavorable market conditions or an economic downturn. Real estate and currency are most likely to fall victim to depreciation. 


During an investment or purchase decision, all relevant information pertaining to the subject must be disclosed. For real estate purchases, this generally pertains to major structural flaws or other issues with a home. The Real Estate Settlement Procedures Act requires that mortgage applicants receive several mortgage loan disclosure statements. These statements inform you about the costs you'll incur by taking out a mortgage. The purpose of the statements is to give you the information you need to make an informed decision.


A type of prepaid interest that can be purchased by mortgage borrowers in order to lower the amount of interest they must pay on subsequent payments. Generally, each discount point costs 1 percent of the total loan amount and lowers the interest rate by one-eighth to one-quarter of the total rate. For example, if a loan is $100,000, each point costs $1,000. If the mortgage is 5 percent and each point will lower the interest rate by 0.25 percent, buying four points will cost $4,000 and lower the interest rate to 4 percent. This point system is beneficial to both the lender and borrower, as the lender receives cash upfront instead of in smaller interest payments over time, while the borrower can see decreased interest payments. 


The initial payment made in cash at the onset of the purchase of an expensive good or service. Usually, the down payment is a specific percentage of the overall price of the product. Often, after a down payment is paid, the remainder of the balance will be paid back to the lender in installments. In some cases, the down payment is nonrefundable if the deal falls through. 


The Equal Credit Opportunity Act (ECOA) implemented by Regulation B, protects applicants from discrimination on the basis of race, color, religion, national origin, gender, marital status or age, to the fact that all or part of the applicant’s income derives from a public assistance program; or to the fact that the applicant has in good faith exercised any right under the Consumer Credit Protection Act. The ECOA is a United States law that was enacted in Oct. 28, 1974.


While equity may have several definitions depending on the context, in real estate, it is the difference between the current market value of a given property verses the amount the owner owes. Should the owner sell the home, it is the amount they would receive after repaying the remaining balance on the mortgage. 


A financial instrument that is held by a third party during a real estate transaction. All funds are held by the escrow agent or office until all necessary financial and other obligations have been met. Once this occurs, the escrow service will release the money or assets to the correct parties. Escrow is used to show that both parties are committed to the agreement after certain contingencies are met, such as the house in question passing inspection. 


A bank account that is intended solely for keeping the money that is the property of others. For example, a real estate agent will keep an escrow account for client money until an agreement is reached. This account cannot commingle with the agent's own funds. A mortgage servicer uses an escrow account to hold funds collected from the borrower to pay future obligations such as Property Tax payments.


Passed in 1970, FCRA regulates the collection of credit information and access to one's own credit report to ensure fairness, accuracy and privacy of personal information contained in credit reporting agencies. The act requires that any person or entity that requests a credit report must show a permissible purpose for the information. It also grants consumers the right to see their credit report for free once every 12 months and to remove outdated, negative information. Consumers are also qualified for a free report under circumstances such as identity theft or adverse action by a lender.


Enforced by the U.S. Department of Housing and Urban Development, the FHA assures that no one can be denied housing based on their age, race, sex, religion or disability. 


The price that a property would likely fetch in the marketplace should the prospective buyers and sellers have reasonable knowledge of the asset, are not under pressure to sell or buy, and are each acting in their own best interest. This value is often used to assess municipal property taxes. 


The Federal Housing Administration (FHA) is a United States government agency created in part by the National Housing Act of 1934. The FHA sets standards for construction and underwriting and insures loans made by banks and other private lenders for home building.


Federal Home Loan Mortgage Corporation, or FHLMC, is the official name of Freddie Mac. It is a private corporation founded by Congress to promote stability and affordability in the housing market by purchasing mortgages from banks and other loan makers. Freddie Mac purchases, guarantees and securitizes mortgages to form mortgage-backed securities.


A FICO score is a type of credit score that was created by the Fair Isaac Corporation. Lenders review prospective borrowers’ FICO scores, along with other details on their credit reports, to assess credit risk. A FICO score is calculated solely on information found in consumer credit reports that are maintained by the three credit reporting agencies. Individuals will have a FICO score for each of the three credit bureaus: Equifax, TransUnion and Experian, and each is based on information that that credit bureau has on file for you. Be aware that your credit score may be different at each bureau, so it is always a good idea to check all three before making a purchase decision.


The first loan on a property that secures the mortgage, which has priority over any other liens or claims on a property in the event of a default. 


A mortgage that has a fixed interest rate for the life of the loan. An extremely common choice for mortgages, this ensures that the borrower knows the interest rate for each installment for the entire term, so he or she does not have to contend with loan payments that vary from month to month or year to year. The interest rate remains steady despite any fluctuations in the housing market. In order for a borrower to secure a lower interest rate, he or she must refinance the loan. 


The Federal National Mortgage Association (FNMA) is better known as Fannie Mae. Created in 1938 as a part of an amendment to the National Housing Act, Fannie Mae’s purpose is to create a secondary market for the purchase and sale of mortgages. Fannie Mae transitioned from a federal government agency to a private/public corporation in 1954 under the Charter Act of 1954. The primary difference between Freddie Mac and Fannie Mae is who they buy loans from. Fannie Mae purchases mortgage loans from large commercial banks, while Freddie Mac buys theirs from smaller banks.


Foreclosure is a legal process in which a lender attempts to recover the balance of a loan from a borrower who has stopped making payments to the lender by forcing the sale of the asset used as the collateral for the loan.


A Good Faith Estimate, or GFE, was a standard form that (prior to 2015) had to be provided by a mortgage lender or broker to a consumer as required by the Real Estate Settlement Procedures Act (RESPA). Since 2015, the GFE has been replaced by a Loan Estimate form (LE), which serves the same purpose but follows slightly different guidelines set by the Consumer Financial Protection Bureau (CFPB) to reduce consumer confusion. A Good Faith Estimate was designed to be able to compare different offers or quotes from different lenders or brokers. The estimate includes an itemized list of fees and costs associated with the loan and must be provided within three business days of applying for the loan.


Government National Mortgage Association (GNMA) also known as Ginnie Mae, is a U.S. government corporation that exists within the U.S. Department of Housing and Urban Development. It ensures the liquidity of government-insured mortgages, like those insured by the Federal Housing Administration, the U.S. Department of Veterans Affairs and the Rural Housing Administration. It also is designed to bring investor capital into the market for government-issued mortgages to encourage additional lending. While Ginnie Mae does not issue, sell or buy mortgage-backed securities, it does insure them to guarantee the timely payment of qualifying loans. 


A graduated payment mortgage, or GPM, is a type of fixed-rate mortgage in which the payment increases gradually over a specified period of time. These types of loans are usually geared toward people who cannot initially afford a large payment, but realistically expect their incomes to increase in the near future.


An estimation of the fees due at closing for a mortgage loan. This estimate must be provided by the lender to the borrower within three days of the lender taking a borrower's loan application, as required by the Real Estate Settlement Procedures Act. It is intended to allow borrowers to compare costs between various lenders. The Good Faith Estimate was replaced in 2015 by two new forms, the Loan Estimate and the Closing Disclosure.


The total personal income a person earns before any taxes or deductions are taken out. This will generally be the amount lenders request when a borrower is applying for a mortgage. 


Government-sponsored enterprises (GSEs) are privately held corporations that have public purposes. They are created by Congress in order to reduce the cost of capital for some borrowing sectors of the economy, like students, farmers and homeowners. While GSEs are backed by the U.S. government, they are not direct obligations of it. Examples of GSEs include Federal Home Loan Bank, Federal Home Loan Mortgage Corporation (Freddie Mac), Federal Farm Credit Bank and the Resolution Funding Corporation. 


The Home Affordable Refinance Program, or HARP, was created by the Federal Housing Finance Agency specifically to help homeowners who are current on their mortgage payments, but who have little to no equity in their homes, to refinance into more affordable mortgages without new or additional mortgage assistance. HARP is targeted to borrowers with loan-to-value (LTV) ratios are equal to or greater than 80 percent and who have limited delinquencies over the 12 months prior to financing.


A HELOC is a Home Equity Line of Credit. It is a loan which is secured by your home that is set up as a line of credit with a maximum draw limit. Using a HELOC, a lender is promising to advance up to a specific amount, vs. a standard home equity loan, with which you borrow a specific set amount. Draw periods for a HELOC are usually between 5 and 10 years, during which time the borrower is only required to pay interest. Repayment periods are usually 10 to 20 years, during which the borrower must make payments to principal equal to the balance at the end of the draw period divided by the number of months in the repayment period. Because the balance of a HELOC can change from day to day, depending on draws and repayments, interest on a HELOC is calculated daily vs. monthly. A HELOC often has a lower interest rate than some other types of loans, and the interest may be tax deductible.


A loan that allows homeowners to borrow against the equity in their home and is secured by taking out a second mortgage. The amount available to borrow is based on the homeowner's equity.


An evaluation of a property's condition that is generally performed during the sale. A qualified home inspector is usually hired by the buyer and will assess the condition of the roof, foundation, heating and cooling systems, plumbing, electrical work, water and sewage, and some fire and safety issues. The inspector will also look for any evidence of insect, water or fire damage. 


Property insurance that is designed to protect a house or the contents of the house. This insurance also provides liability coverage against accidents in the home or on the property. Homeowner's insurance will not cover some events. So-called “acts of God” like floods or earthquakes require separate insurance. 


Homestead exemption laws prevent the sale of a home in order to pay off taxes or creditors. Nearly every state in the U.S. has homestead exemption laws, and while the terms vary greatly from state to state, they all aim to lower property taxes and secure a family’s right to uninterrupted use of their home.


The United States Department of Housing and Urban Development, or HUD, is a cabinet department in the Executive branch of the United States federal government. It was founded as a Cabinet department in 1965 as part of the “Great Society” program of President Lyndon Johnson, to develop and execute policies on housing and metropolises. The agency is responsible for national policy and programs that address America’s housing needs, improve and develop the Nation’s communities and enforce fair housing laws.


The act of a bank or other credit-issuing institution viewing the credit report of an individual with the consideration of loaning him or her money or providing credit. The credit report is used for such lenders to establish creditworthiness. An inquiry may be soft - like when an individual is checking their own credit report for possible errors - and will not have an impact on the credit score, or it may be hard if a third party views the report in response to a credit application. A large number of hard inquiries will be interpreted as an attempt for an individual to greatly expand their amount of credit and will thereby hurt their credit score. 


To the borrower it is the cost of renting money, to the lender the income from lending it. The rate of interest is usually expressed as an annual percentage of the principal, and is influenced by the money supply, fiscal policy, amount being borrowed, creditworthiness of the borrower, and rate of inflation.


Interest rate is the amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets. Interest rates are typically noted on an annual basis, known as the annual percentage rate (APR).



An IRRRL, also known as a VA Streamline, is essentially a quick refinance with relatively fewer requirements than a VA Cash-Out refinance. It can allow veterans and military families to refinance existing VA loans to a lower rate without a lot of paperwork or hassles.



A mortgage loan amount that exceeds the loan limits set by the Office of Federal Housing Enterprise Oversight and therefore cannot be guaranteed, purchased or securitized by Fannie Mae or Freddie Mac. 


One who loans money to another party with the expectation that the funds will be repaid, usually with interest or fees. A lender may be an individual or a public or private group, and may provide a loan for a variety of reasons, including a mortgage, automobile loan or a small-business loan. The funds may be repaid in monthly installments or as a lump sum. 


Liabilities are legally binding obligations that are payable to another person or entity. Settlement of a liability can be accomplished through the transfer of money, goods, or services. Liabilities may include loans, credit card accounts, or mortgages.  In business current liabilities are debts payable within one year, while long-term liabilities are payable over a longer period of time. 


The legal right of a creditor to sell the collateral property of a debtor who does not meet the obligations of a loan contract. A lien may be an automobile loan - one that is released when the car is paid in full - or a mechanic's lien, which may be attached to a property if a homeowner does not pay a contractor for services rendered. There are also tax liens that may be filed by the County, City or other taxing authorities if a homeowner does not pay property taxes due. If the debtor fails to repay the money owed, the property can be auctioned off to pay the lien holder. 


A document provided by a contractor, subcontractor supplier or other party holding the rights to file a mechanic’s lien that states any debts have been paid in full and waiving future lien rights to the property. There are four types of lien waivers: 
1. Unconditional waiver and release upon progress payment: This discharges all claimant rights through a specific date and includes no stipulations. 
2. Conditional waiver and release upon progress payment: This discharges all claimant rights through specific dates providing payments have been both received and processed. 
3. Unconditional waiver and release upon final payment: Once the payment has been received, the claimant releases all rights. 
4. Conditional waiver and release upon final payment: Removes all claimant rights upon receipt of payment with certain provisions. 


The act of giving money, property or other material goods to another party with the expectation of future repayment of the principal amount along with any interest or charges agreed upon by both parties. A loan may either be for a one-time lump sum of an open-ended credit line with a specified ceiling amount. 


A representative of a bank, credit union or other financial institution that finds and assists borrowers in acquiring either consumer or mortgage loans. Loan underwriters, specialized loan officers, analyze and assess the creditworthiness of potential borrowers to establish whether they qualify for a loan. 


An upfront fee charged by a lender for processing a new loan application. This fee is generally either a flat fee or a percentage of the loan amount, usually between 0.5 and 1 percent of the total loan, which is used as compensation for putting the loan in the place. 


The administrator of a loan. Servicing takes place from the time the proceeds are dispersed until the loan is paid off and includes sending monthly payment statements, collecting monthly payments, maintaining payment and balance records, collecting and paying taxes and insurance when escrowed, remitting funds to the note holder and following up on delinquencies. 


The Loan-To-Value (LTV) ratio is a financial term used to express the ratio of a loan to the value of the property or asset purchased. The term represents the ratio of the first mortgage line as a percentage of the total appraised value of the property.


A lock-in or rate lock on a mortgage loan means that a prospective borrower’s interest rate wont change between the offer and closing, as long as the borrower closes within the specified time frame and there are no changes to the borrower’s application.


The window of time during which the prospective borrower’s interest rate is locked. The rate wont change between when the prospective borrower gets the rate lock and closing, as long as they close within the specified time frame and there are no changes to their application. Rate locks are typically available for 30, 45, or 60 days, and sometimes longer. If the rate is not locked, it can change at any time.


Market value is the most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus.


Any change made to an existing loan made by the lender. Usually, a modification is made in response to the borrower's long-term inability to repay the loan and will generally involve a reduction of the interest rate on the loan, an extension of the length of the term of the loan, a change in the type of loan or any combination. This is beneficial to the lender because the cost of doing so is less than the cost of a loan default. 


A loan that is secured by the collateral of a specified real estate property. It is used by individuals and businesses to purchase a piece of real estate without paying the entire value of the purchase up front, instead repaying the loan in installments scheduled over a period of many years and include interest. At the end of the life of the loan, the borrower owns the property free and clear. Should the borrower fail to make mortgage payments, the lender may foreclose on the property. 


A company, individual or institution that originates mortgages using their funds or funds borrowed from a warehouse lender. The mortgage banker may either retain the mortgage in portfolio or sell it to an investor. The mortgage banker earns money through the fees associated with the loan origination. 


An intermediary who brings mortgage borrowers and lenders together, but does not use its own funds to originate mortgages. A broker gathers paperwork from a borrower, passes it along to the lender for underwriting and approval and collects an origination fee or yield spread premium from the lender as compensation. 


The premium paid by homeowners on mortgage insurance for FHA loans that may be deducted in the same manner as home mortgage interest. Some premiums can be deducted in addition to allowable mortgage interest for as many as three years. 


An itemized deduction that allows many homeowners to deduct the interest paid on the first mortgage used to build, purchase or make improvements on their residence, which is offered as an incentive for homeowners. It may also be taken on loans for second homes or vacation residences, though certain limitations apply. 


A promissory note that is associated with a particular mortgage loan and represents the legal promise to repay the loan. It specifies the terms of the loan, which includes the amount of interest and principal that must be repaid and obligates the borrower to make the payments. 


An increase in the principal balance of a loan caused by payments that fail to cover the interest due. This remaining interest is added to the loan's principal, increasing the amount the borrower ultimately owes. 


The income of an individual after taxes, credits and other deductions are subtracted from gross income. Net income may also refer to the total earnings - or profit - of a company when factoring in the cost of doing business, depreciation, interest, taxes and other expenses and is also referred to as the bottom line. 


The refinancing of an existing mortgage for an amount equal to or less than the existing balance of the loan plus an additional settlement cost. This type of refinance is generally done to lower the interest rate on a loan or to change the term of the mortgage without providing additional funds to the borrower at close. 


Any mortgage loan that does not meet the guidelines of government sponsored enterprises - Fannie Mae or Freddie Mac - and therefore cannot be sold to the GSEs. Loans may fail to conform to these guidelines because they exceed the maximum loan amount, are not a suitable property or don't meet down payment or credit requirements. 


A state-appointed official who witnesses important document signings and verifies the identities of the signers to help prevent fraud or identity theft. Any notarized document will contain the seal and signature of the notary who witnessed the signing. This will give the document more legal weight than one that is not notarized. A notary public is generally required for real estate deeds, affidavits, wills, trusts and powers of attorney. 


When a party expresses interest in buying or selling an asset from another party, an offer will be extended. This is generally the highest the buyer will pay to purchase the asset or the lowest price the seller will accept. However, the offer is often negotiable, especially if another prospective buyer enters the scene. 


The amount that a borrower owes before making any payments on the loan. 


The process of creating a home loan. During this process, the borrower will submit a variety of financial information, such as tax returns, prior paychecks, credit card info, bank balances, and so forth, to the lender. This information is used to determine what kind of loan will be extended to the borrower and what the interest rate will be. 


A fee that is charged up front by the lender for processing a new loan application. This is used as compensation for putting the loan in place. The origination fee may be quoted as a percentage of the total loan and is often between 0.5 and 1 percent of the total mortgage, or as a fixed fee. 


The principal is the amount that was borrowed and must be paid back. The interest is what the lender charges for lending the money. Together, P&I make up the majority of a monthly mortgage payment.

PITI – Principal, Interest, Taxes, Insurance:

PITI is an acronym for a mortgage payment that is the sum of monthly principal, interest, taxes and insurance. It is the sum of the monthly loan service (principal and interest) plus the monthly property tax payment, homeowner’s insurance premium and, as appropriate, mortgage insurance premium and homeowner’s association fee. (This may also be expressed as PITIA.)


In real estate mortgages, points indicate the initial fee charged by the lender which may be used to lower the interest rate. Each point is equal to 1 percent of the amount of the loan principal. It also may refer to each percentage difference between a mortgage's interest rate and the prime interest rate. If a loan is quoted as prime plus two points, it means the current loan interest rate is 2 percentage points higher than the prime rate of lending. 


The evaluation of a potential borrower by a lender that determines whether the borrower will qualify for a loan from said lender. It may also indicate the maximum amount that the lender would be willing to lend. In order to get preapproved for a mortgage, the potential borrower must present his or her financial information, including income, expenses, debts, credit report and score. Presuming no major income or credit change occur between the time of the pre-approval and the actual close of the loan, it is likely the dollar amount of the pre-approval will remain the same, though it is still subject to be reviewed once a specific property has been chosen. 


Actions carried out by a lender that intend to entice, induce or assist a borrower into taking a mortgage that carries high fees, a high interest rate, strips the borrower of equity or places the borrower in a lower credit rated loan that will benefit the lender. Many states have laws in place to prevent predatory lending, and the U.S. Department of Housing and Urban Development is taking measures to combat the practice. 


Paying a debt or installment payment before the borrower is contractually obligated to pay for it. Consumers may pay many different debts early with prepayment, including credit card charges that are paid before they receive a statement or on a tax form to settle future tax obligations. Some mortgage lenders allow prepayment, though some mortgage programs may charge a penalty for early payoff.


Many mortgage contracts include a clause that applies a penalty fee if the mortgage is prepaid within a certain time period. This fee is generally a percentage of the remaining mortgage balance or a certain number of months' worth of interest. If the penalty applies to the sale of a home as well as a refinancing transaction, it is referred to as a hard penalty. One that applies only to a refinancing transaction is called a soft penalty. 


An initial evaluation of the credit worthiness of a potential borrower. This is used to determine the estimated amount that a person is qualified to borrow. It is a relatively quick process that simply evaluates the potential borrower's income and expenses in order to generate an estimated borrowing range that they would likely be able to afford. 


The original amount borrowed or the remaining balance on a loan, not including interest. 


Also referred to as PMI (private mortgage insurance), it is a type of insurance policy with the premiums included in your monthly payment.  This type of insurance is designed to protect lenders who fund loans with an LTV greater than 80 percent if you stop making payments on your home loan.


The monthly or annual fees a property owner must pay to the local government. The amount owed is generally based on the value of the property. This tax is usually used for road repair, schools, snow removal or similar municipal services. 


Most state and local property taxes may be deductible from United States federal income taxes. Taxes eligible for deduction include real estate taxes and local or foreign taxes imposed for the welfare of the general public. 


A document extended to the seller that lists the price, terms and conditions under which a buyer is willing to purchase a property. There are a number of factors that should be included in the offer, such as how the buyer intends to finance the home, the down payment that will be made, who will pay which closing costs, what inspections, if any, are required, when the buyer expects to take possession of the property, terms of cancelation, what - if any - personal property is included in the purchase, any repairs that are to be performed, what professional services will be used and how to settle any disputes that may occur. 


A deed that releases a person's interest in a property without specifying the nature of that person's interest or rights, and with no warranties of ownership. When accepting a quitclaim deed, the buyer or the property accepts the risks that the grantor of the deed may not have valid ownership of the property or that there may be additional parties with ownership interests. The deed simply prevents the grantor from later claiming an interest in the property. 


Limits put in place for the interest rate on an adjustable-rate mortgage loan. There are several types of interest rate cap structures: Initial cap is a value that limits by what amount the interest rate can adjust at the mortgage's first rate adjustment date. Period cap is a value that limits by what amount the interest rate can adjust at each subsequent adjustment date. Lifetime cap limits the total amount by which the interest rate can adjust over the life of the mortgage. 


An agreement between a borrower and a lender that allows the borrower to lock in the interest rate on a mortgage over a specified time period at the prevailing market interest rate. A lock fee may be charged by the lender to lock the interest rate. 


A person licensed by the state to represent the buyer, seller, or both in a real estate transaction. These agents perform tasks like showing homes and negotiating transactions on behalf of their client. Generally, real estate agents work in exchange for commission. 


A real estate professional who is a member of the National Association of Realtors and subscribes to its strict code of ethics.


The act of replacing an older loan with a new one, generally to secure better terms or another tangible benefit such as ‘cash in hand’.


The amount of the principal on a home mortgage loan that has yet to be repaid. Also referred to as "outstanding balance." 


The current amount of time remaining in the length of a mortgage loan. 

RESPA – Real Estate Settlement Procedures Act:

The Real Estate Settlement Procedures Act, or RESPA, requires that a lender provide the borrower with certain disclosures, such as the Loan Estimate or Closing Disclosure, at specific times during the loan process.


A type of subordinate mortgage made while an original mortgage is still in effect. Should the borrower default, the original mortgage would receive the proceeds from the liquidation of the property until it is paid off in full. Because of this, the interest rate charged on a second mortgage is usually higher and the amount borrowed is generally lower than on the primary mortgage. A second mortgage is often used for large expenditure like a college education, the purchase of a new vehicle or to make major renovations on the home. They may also be used to consolidate debt. 


A loan backed by assets owned by the borrower in order to decrease the risk assumed by the lender. These assets may be forfeited if the borrower fails to make necessary payments. 


A company to which borrowers pay their mortgage loan payments. This may be the entity that originated the mortgage or the servicer may have purchased the mortgage servicing rights from the original lender. 


The process by which a company collects the mortgage payments from the borrower. This includes sending monthly payment statements, collecting monthly payments, maintaining records of payments and balances, collecting and paying taxes and insurance, remitting funds to the note holder and following up on delinquencies. 


A type of loan made to parties who may have difficulty maintaining the repayment schedule due to low credit ratings or other factors. Because of the additional risk associated with this type of borrower, these loans are often offered at interest rates that are higher than those offered borrowers who do not have these riskier attributes, e.g. prime borrowers. 


The period of time assigned as the lifespan of a debt. By the end of the term of the loan, the borrower will be expected to pay off the debt in its entirety. 


The Truth in Lending Act, or TILA, is a federal law enacted in 1968 designed to ensure that consumers are treated fairly by lenders and are properly informed about the true cost of credit.  Under the Truth in Lending Act, lenders must disclose the annual percentage rate, the term of the loan and total costs to the borrower. This information must be conspicuous on documents presented to the consumer before signing. 


The right to the ownership and possession of any item which may be gained by descent, grant or purchase. The three components of title are possession or occupation, the right of possession and apparent ownership. 


The process by which a large financial service provider like a bank, lender or insurer assess the eligibility of a customer to receive their capital, equity or credit. In real estate underwriting, the borrower and the property will both be assessed. 


Formed in 1930, the VA is a Federal Cabinet level agency that provides benefits, including home loans, to eligible veterans and family members. 


A mortgage loan program established by the U.S. Department of Veterans Affairs (VA) to help vets and their families obtain home financing. Though the VA does not directly originate these loans, they establish the rules for those who may qualify, dictate the terms of the mortgages offered and insure VA loans against default. To qualify for a VA loan, borrowers must present a certificate of eligibility, which establishes their record of military service to the lender. These loans are securitized by the Government National Mortgage Association - or Ginnie Mae - and are guaranteed against default by the U.S. government. 


An instrument that transfers real property from one person to another. Through a warranty deed, the grantor promises the title is good and clear of any claims, which provides protection to the buyer.