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Mortgage Glossary

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Abstract (of title): A written summary of the title history of a particular piece of real estate.
Acceleration Clause: A provision of a mortgage or note which provides that the entire outstanding balance will become due and payable in the event of default.
Additional Borrowers: Borrowers who contribute income and credit history to the qualification process of a loan and whose names appear on all closing documents. Each additional borrower is equally liable for the debt and condition of the property.
Adjustment Date: The date the interest rate changes for an adjustable rate mortgage (ARM).
Adjustment Period: The interval of months between the interest rate adjustment dates for an adjustable rate mortgage (ARM).
ARM (Adjustable Rate Mortgage): A mortgage in which the interest rate is adjusted periodically, based on the movement of a financial index.
Amortization: Repayment of loan by installment payments. As the payments are made, the debt is reduced so that at the end of fixed period or term, no money will be owed.
Amount Financed: The Amount Financed is not the amount of the loan. It is the requested loan amount minus the prepaid finance charge. The Amount Financed is the amount on which the APR is based. For example, if the borrower requests $100,000 and the Prepaid Finance Charge totals $4,000, the Amount Financed would be $96,000.
APR (Annual Percentage Rate): The annual percentage rate refers to the total cost of the loan, expressed as a yearly rate.
Application Fee: That part of the closing costs pre-paid to the lender at time of application to cover initial expenses.
Appraisal: A report made by a qualified person as to the value of a property as of a given date.
Appraised Value: An opinion or estimate of property value provided by a certified property appraiser. The estimate of value is generally obtained by comparing homes similar to the "subject" home that are within the same location or neighborhood.
Assessed Value: The value placed on a piece of real estate by the taxing authority for the purpose of taxation. Also called an assessment.
Assumption of Mortgage: The purchaser takes over mortgage payments for the balance of the loan, assuming primary liability. Unless specifically released by the lender, the seller remains secondarily liable.
Available Cash: The amount of liquid assets (i.e. checking, savings, mutual funds, etc.) immediately available to pay closing costs and down payment.
Average Interest Rate: The actual average interest rate for a combination of debts based upon a total weighted interest rate calculation. Utilizing each loan balance and interest rate, the calculator determines an average interest rate for multiple debts.

Balloon Mortgage: A mortgage with periodic payments that do not fully amortize the loan. The outstanding balance of the mortgage is due in a lump sum at the end of the term.
Borrower: An individual (also known as mortgagor) who receives funds in the form of a loan with an obligation to repay the principal with interest.
Bridge Loan: A short-term loan secured by the equity in an as-yet-unsold house, with the funds to be used for a down payment and/or closing costs on a new house. There is no payment of principal until the house is sold or the end of the loan term, whichever comes first. Interest payments may or may not be deferred until the house is sold.
Broker: The person who, for a commission or a fee, brings parties together and assists in negotiating contracts between them.
Buydown: Money advanced by an individual (e.g. builder, seller, buyer, lender, developer) to lower monthly mortgage payments for a few years or the whole term.

Cap (interest rate): The maximum interest rate increase allowable on an adjustable rate mortgage. Does not result in negative amortization. See Negative amortization.
Cap (payment rate): The maximum payment amount increase allowable on an adjustable rate mortgage. May result in negative amortization. See Negative amortization.
Cash Needed: The total dollar amount required for payment of closing costs and down payment.
Cash Out Refinance: A mortgage loan that allows the borrower to pay off an existing debt and obtain excess money from the equity of their home for payment of closing costs and additional funds for personal needs (i.e., college tuition, home improvement, remodel home, purchase automobile and etc).
Certificate Of Title: A statement that shows ownership of property, stating that the seller has clear legal title.
Closing: The concluding day of the real estate transaction, when title and deed pass from seller to buyer, the buyer signs the mortgage and pays the purchase price and closing costs.
Closing Costs: Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Also called "settlement costs."
Closing Statement: A financial disclosure giving an account of all funds received and expected at closing, including the escrow deposit for taxes, hazard insurance and mortgage insurance for the escrow account.
Co-borrower: Borrower(s) who contribute income and credit history to the qualification process of a loan and whose name(s) appear(s) on all closing documents. The co-borrower is also liable for the debt and condition of property.
Collateral: An item of value pledged as security for a debt. The real estate is pledged as collateral for a mortgage loan and is bound by signing and recording a mortgage or deed of trust.
Commission: An agent's or broker's fee for bringing the principals together and helping to negotiate a real estate transaction, often a percentage of the sales price or flat fee.
Commitment: An agreement, frequently in writing, between a lender and a borrower to loan money at a future date, subject to certain conditions.
Comparables: Refers to similar properties used for comparison purposes in the appraisal process. These properties will be reasonably the same size and location, with similar amenities and characteristics, so that the approximate fair market value of the subject property can be determined.
Condominium: Ownership of a single unit in a multiunit building or complex of buildings. Along with this goes a share of ownership of the common areas.
Contingency: A condition that must be met for a contract or a commitment to remain binding.
Conventional Mortgage: Any mortgage loan that is not insured by FHA, guaranteed by VA, of funded by a government authorized bond sale or grant.
Convey: To transfer real estate from one person to another.
Cooperative: A structure of two or more units in which the right to occupy a unit is obtained by the purchase of stock in the corporation that owns the building or units.
Cost to Refinance a Loan: The fees and total cost associated with obtaining a new mortgage loan and refinancing an existing mortgage loan. Generally fees are assessed at closing and may include: insurance, title fees, transfer fees, taxes, settlement or closing fee, survey fee, title insurance, appraisal fees, etc. The total closing cost is typically 5% of the mortgage loan amount.
Credit Report: The report to a prospective lender on the credit standing of a prospective borrower.

Debt Consolidation Loan: A type of loan that allows the borrower to payoff all or a portion of existing debt (including the existing mortgage loan) from loan proceeds.
Deed: A legal written document by which title to property is transferred.
Default: Failure to fulfill the terms as agreed to in the mortgage of note.
Deposit: A sum of money given to the seller, real estate broker or escrow agent with an offer to purchase real estate as evidence of good faith. Also known as earnest money.
Discount Points: An amount payable to the lender paid by the borrower or seller to increase the lender's effective yield and reduce the interest rate. One point is equal to one percent of the loan amount. Also known as discount fee.
Down Payment: The difference between the sale price of a property and the mortgage amount.
Due-On-Sale: A clause in a mortgage which gives the lender the right to require immediate repayment of a mortgage balance if the property changes hands.

Earnest Money: The deposit money given to seller or his agent by the potential buyer at the time of the purchase offer. If the offer is accepted, the money will become part of the down payment.
Easement: A right to the limited use of land owned by another. An electric company, for example, could have an easement to put up electric power lines over someone's property.
Encumbrance: Anything that affects or limits the title to a property, such as outstanding mortgages, easement rights or unpaid property taxes.
Equifax Credit Services: A credit reporting agency that provides a detailed report itemizing an individual's credit history and current credit status.
Equity: The value in which the owner has in real estate over and above the mortgages against it. When the mortgage and all other debts against the property are paid in full, the owner has 100% equity in his property.
Escrow: Funds and/or deed left in trust to a third party. Generally, a portion of the monthly mortgage payment is held in escrow by the lender to pay for taxes, hazard insurance and yearly mortgage insurance premiums.
Estimated Property Value: The Purchase Price or Current Market value of a specific property.

Finance Charge: The total amount of interest, prepaid finance charge and specific required insurance premiums (if applicable) that the borrower is expected to pay over the life of the loan.
First Mortgage: A mortgage that has a primary lien against a property.
Fixed-Rates Mortgage: A mortgage with an interest rate and monthly payments that remain constant over the life of the loan.
Fixed Interest Rate: An interest rate that does not change during the entire term or life of the loan.
Fixed Monthly Debt: The amount of monthly payment required to be paid each month. Sometimes referred to as "minimum monthly payment" for credit card or revolving accounts.
Fixture: Property, such as a hot water heater or plumbing fixture, that has become permanently attached to piece of real estate and goes with the property when it is sold.
Flood Certification: An independent agency report required by the lender to determine whether a property is located in a flood hazard zone, which would then require a federally mandated flood insurance policy.
Foreclosure: A legal procedure in which property mortgaged as security for a loan is sold to pay the defaulting borrower's debt.

Gift Funds: Transfer of funds to assist with payment of closing costs and/or down payment. Investors typically require that gift funds may only be received from the borrower's parents and/or grandparents with no intent for repayment.
Graduated Payment Mortgage: A fixed rate loan with monthly payments that start low, increasing by a fixed amount for a specific number of years. After that period, the payments typically remain constant for the duration of the loan.
Gross Income: Normal income, including overtime, prior to any payroll deductions, that is regular and dependable. This income may come from more than one source.

Hazard Insurance: Insurance protection against damage to a property from fire, windstorms, and other common hazards.
Home Equity Loan: A type of loan that allows homeowners to acquire a loan in addition to their original mortgage/lien using a portion or all of the equity in their home (primary residence). A home equity loan is a generally a second mortgage on the subject property and may be used for any personal needs (i.e., college education, debt consolidation, home improvement, etc).
Homeowner's Insurance: An insurance policy that covers the dwelling and its contents in case of fire or wind damage, theft, liability for property damage and personal liability.
HUD-1 Form: See Real Estate Settlement Statement.

Income Property: Real estate that is owned for investment purposes and not used as the owner's residence.
Installment Loans: A loan that has a fixed (or closed-end) term (i.e., 36 months) and fixed unchanging monthly payments. When the loan is paid in full the borrower cannot advance additional money unlike a revolving loan.
Interest: A charge paid for the use of money.
Interim Financing: See Bridge Loan.
Investment Property: A property designated solely as a "rental" or "leased" property.

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Land Contract: When the buyer agrees to make payments directly to the seller at pre-negotiated terms. The seller agrees to deed the property to the buyer upon completion of the agreement. The buyer becomes the owner of equity in this type of sale. (Also see Owner Financing.)
Lender Name: The name of the mortgage lender that has been assigned to review and process the loan application.
Lien: A legal claim on a property used as security for a debt.
Lien of Credit (Revolving Line of Credit): A loan with a maximum credit limit that allows the borrower(s) to disburse funds up to the maximum credit line as needed. Funds may be disbursed repeatedly as the principal balance is paid down up to the maximum credit limit available. A line of credit functions similar to a credit card and may be accessed by writing a check or a using a debit card.
Loan Amount: The total amount requested by the borrower to be financed. This amount is the basis of many loan fee calculations. For refinance loans, the loan amount will include the balance of all loans the borrower requests to be paid off, including the original mortgage, other personal debt and/or cash out amount.
Loan Balance: The outstanding balance of a loan not paid in full, excluding any accrued interest.
Loan Product: The loan program that dictates the finance type, amortization term and other pertinent loan functions (i.e., fixed or adjustable rate and 360 or 180 months).
Loan Term: The total number of payments required to pay the loan in full. This is also known as amortization term.
Loan-To-Value Ratio: The relationship between the amount of the mortgage and property value, usually shown as a percentage.

Manufactured Home: A type of house that is constructed in a factory, delivered to a property location and set on a foundation. In the past, manufactured homes were called "mobile homes". However, "mobile" is no longer an accurate name because fewer than five percent of such homes are ever moved off the owner's original site.
Maturity: The termination or due date on which final payment of a loan must be paid in full.
Maximum Monthly Payment: The maximum payment a borrower may qualify for based on their income and debt. The maximum payment is calculated by using a debt-to-income ratio.
Market Value: The price at which a property will sell, assuming a knowledgeable buyer and seller, both operating without undue pressure.
Mobile Home: A type of home that is 100% constructed in a factory, delivered to a property location and set on a lot or foundation. A mobile home can generally be moved off of the owner's original site.
Monthly Housing Payment: Typically the total amount of principal, interest, taxes, and insurance (PITI) paid each month on a mortgage loan. Many lenders and investors limit the monthly housing payment to 28% of the gross monthly income.
Monthly Payment: The amount of principal and interest paid each month on a loan. The monthly payment on a mortgage loan may also include an escrow payment for taxes and insurance.
Monthly Payment Savings: The total monthly payment reduction a borrower may gain by refinancing their mortgage loan.
Mortgage: A contract in which a borrower's property is pledged as security for a loan which is to be repaid on an installment basis.
Mortgage Insurance (MI): Insurance required by investors to protect the lender in case the borrower defaults on the loan. Mortgage Insurance is typically required for conventional loans that have a down payment less than 20% of the purchase price. FHA and VA loans have different insurance and guidelines. Also known as Private Mortgage Insurance.
Mortgage Note: A written promise to pay a debt at a stated interest rate during a specified term. The agreement is secured by a mortgage.
Mortgagee: The lender in a mortgage contract.
Mortgagor: The borrower in a mortgage contract.
Multi Family: A term generally to distinguish a house designed for use by more than one family.

Negative Amortization: A loan in which the outstanding principal balance goes up instead of down because the monthly payments are not large enough to cover the full amount of interest due. Also called deferred interest.
Note: A written agreement and promise from the borrower(s) to pay a definite sum of money at a stated interest rate during a specified date and term. The note contains a description of the collateral and conditions under which the loan is to be repaid.
Number of People Applying for Loan: The total number of individuals who will be contributing income and credit to the approval process. Investors may limit the number of individuals applying for a loan.
Number of Years at this Address: The total number of years the borrower has lived at the current residence. Many loan programs may contain specific criteria allowing higher Loan-to-Value or Debt-to-Income ratios based upon years at current residence.
Number of Years with Employer: The total number of years the borrower has been employed with the current employer. Many loan programs may contain specific criteria allowing higher Loan-to-Value or Debt-to-Income ratios based upon years with current employer.

Offer to Purchase: A written proposal to buy a piece of real estate that becomes binding when accepted by the seller. Also called a sales contract.
Origination Fee: A fee charged for the work involved in the evaluation preparation and submission of a proposed mortgage loan.
Outstanding Debt to Consolidate: The total amount of all debt the borrower desires to payoff and consolidate into one loan and monthly payment.
Owner Financing: A purchase in which the seller provides all or part of the financing.

Payment Schedule: A schedule detailing the amount and due date of payments required to be paid over the life of the loan. The dollar figures represent principal, interest and private mortgage insurance (if applicable). This schedule does not reflect payment for taxes and insurance.
PITI: An acronym for payments to lender that cover principal, interest, taxes and insurance on a property.
Plat: A map of a piece of land showing boundary lines, streets, actual measurements and easements.
Point: A fee paid to the lender on closing day to increase the effective yield of the mortgage. A point is one percent of the amount of the mortgage loan. Also called a discount point.
Preferred Communication Method: A process of communication used to respond to a borrowers loan request.
Prepayment Penalty: A charge paid to the lender by the borrower if a mortgage loan is repaid before its term is over.
Pre-Approval: A commitment by a lender to extend credit provided that specific conditions are met.
Pre-Qualification: A preliminary assessment of a buyer's ability to secure a loan, based on a specific set of lending guidelines and buyer representations made. This is not a guarantee or commitment by a lender to extend credit.
Prime Rate: The interest rate charged by banks to their preferred corporate customers, it tends to be an estimator for general trends in short term interest rates.
Primary Borrower: An individual who is listed first on the mortgage loan application and is considered to be the primary borrower. Some lenders allow a non-occupying co-borrower or co-signor to be on the application. In this case, the borrower occupying the property will need to be the primary borrower.
Primary Home: A property that the owner intends to occupy and will be their primary residence.
Primary Residence: A home which the borrower intends to occupy as the principal residence.
Principal: The amount borrowed or remaining unpaid; also, that part of the monthly payment that reduces the outstanding balance of a mortgage.
Principal, Interest, Taxes and Insurance (PITI): The monthly payment that is applied toward the loan balance, accrued interest and escrow account. Principal, interest, taxes and insurance are the four major components of a regular monthly mortgage payment. Payment for principal and interest is considered PI (principal and interest).
Principal Balance: The outstanding balance due on a debt, excluding any accrued interest or other fees.
PMI (Private Mortgage Insurance): Insurance written by a private mortgage insurance company to protect the lender against losses caused by mortgage default. This is commonly required on loan transactions involving less than a 20% down payment or equity position.
Proceeds from Sale of Current Home: The total funds remaining from the sale and transfer of a current home. The proceeds are calculated by subtracting all settlement fees and lien payoffs from the sales price (purchase price). Many borrowers use the proceeds from the sale of the current home as down payment and/or payment of closing costs for the purchase of a new home.
Product Type: The loan type typically details the purpose of the loan (i.e., purchase new home, refinance existing home, home equity, debt consolidation and second mortgage). Many loan programs may contain specific criteria allowing only certain loan types.
Property Class: A description of the structure of the property determining whether it is uses as a Single (one) Family Home, Multi Family Home (2-4), Condominium, Town Home, Manufactured or Mobile Home and Cooperative Housing.
Property Taxes: A tax collected on real estate property by local, state and/or federal government. The amount of tax is determined by the value of the property.
Property Type: A description of the property that determines whether the property will be used as a Primary Residence Home, Investment Property or Second Home.
Property Use: A description of the property that determines whether the property will be used as a Primary Residence Home, Investment Property or Second Home.
Purchase Price: The amount of money paid for a specific property and is based upon a written agreement (purchase agreement) between the seller and buyer. Also known as sales price.

Qualifying Ratios: Guidelines used by lenders to determine how much of a loan a home buyer qualifies for. Often referred to as debt-to-income ratios (or DTI).

Rate Type: A factor that determines the payment structure and whether the rate may adjust during the life of the loan. Generally fixed or adjustable (ARM).
Real Estate Settlement Statement: Final settlement statement often referred to as the HUD-1 form, used to itemize buyer, seller, broker, and lender charges and credits at closing.
Realtor: A real estate broker or sales associate affiliated with the National Association of Realtors.
Recording Fee: The charges made by the register of deeds to record the legal documents.
Refinancing: Repaying a debt with the proceeds of a new loan, using the same property as collateral or security.
Revolving Loan: A loan with a maximum credit limit that provides the borrower with the ability to disburse funds up to the maximum credit line as needed. The line of credit can be accessed repeatedly as the balance is paid down. A revolving loan functions similar to a credit card and may be accessed by writing a check or a using a debit card.

Sales Price: The amount of money paid for a specific property, the sales price is based upon a written agreement between the seller and buyer (also known as purchase price).
Second Mortgage: A loan issued on property that is already encumbered by an existing mortgage (ie: the first mortgage). The second mortgage is subordinate to the first.
Secondary Mortgage Market: The market wherein home loans are sold by the lender after closing to Fannie Mae, Freddie Mac or a variety of other institutional investors.
Security: Real estate property pledged as collateral to secure the payment of a debt, most commonly used in mortgage loan transactions.
Settlement: The final meeting where the sale and transfer of property and/or loan closing is fully executed. This meeting generally requires the borrower(s), seller(s), lender (or their agent) to be present. The closing includes the delivery of a deed, signing of notes, and the collection and disbursement of funds necessary to complete the sale and loan transaction (also known as closing).
Single Family: A term generally to distinguish a house designed for use by one family.
Specific Monthly Payment: A desired monthly payment or pre-determined monthly payment.
State Property is Located: The actual state of which the property is located.
Student Loans: A government affirmed loan obtained to finance the cost of tuition for approved colleges and universities.
Survey: A map prepared by an engineer or surveyor charting a particular piece of real estate.

Term: A period of time (usually months) that a loan must be repaid.
Title: Ownership of a property. A clear title is one without any outstanding liens or encumbrances. A cloud on title refers to any outstanding liens or encumbrances which could impair the title.
Title Insurance Policy: A policy designed to protect the buyer or lender after closing from financial losses arising from any defects in the title that may have occurred prior to purchase.
Title Search: A check of public record to disclose the past and current facts regarding ownership of a particular piece of property.
Total of Payments: The Total of Payments represents the sum of all payments made toward principal, interest and mortgage insurance (if applicable) for the life of the loan.
Total Fixed Monthly Debt: The total monthly sum of all monthly loan payments for all borrowers. This total should only include the minimum required payment and not the actual payment made (if excess payment is made).
Transfer Tax: In some areas city, county or state taxes imposed when property passes from one person to another.
Truth-In-Lending: Federal law that requires lenders to disclose the terms and conditions of a mortgage, including the APR, based on certain charges incurred by the borrower. If the charges were $0, the APR would be equal to that actual interest rate on the loan.
Type of Property: A description of the structure of the property determining whether it is uses as a Single (one) Family Home, Multi Family Home (2-4), Condominium, Town Home, Manufactured or Mobile Home and Cooperative Housing.

Underwriting: The process of evaluating a loan application to determine the risk involved for the lender.
User Name: A specific name used to access or input data from or to the database.

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