Mortgage Glossary
A comprehensive guide to mortgage terminology and key financial concepts. Learn the terms you need to know to make informed home buying decisions.
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1003 Form
The standard mortgage application form, also known as the Uniform Residential Loan Application (URLA). It collects information about your income, assets, employment, and the property you want to buy.
1099 Form
An IRS tax form used to report income paid to self-employed contractors and freelancers. Lenders use this to verify income for self-employed borrowers.
A
Adjustable-Rate Mortgage (ARM)
A mortgage with an interest rate that can change periodically based on market conditions. ARMs typically start with a lower rate than fixed-rate mortgages but carry the risk of rate increases.
Amortization
The process of paying off a debt over time through regular payments. Each payment includes both principal and interest, with the interest portion decreasing over time.
Annual Percentage Rate (APR)
The total yearly cost of borrowing, expressed as a percentage. APR includes the interest rate plus fees and other charges, making it useful for comparing loan offers.
Appraisal
A professional assessment of a property's market value conducted by a licensed appraiser. Lenders require appraisals to ensure the home is worth the loan amount.
Appreciation
An increase in a property's value over time due to market conditions, improvements, or inflation.
Assets
Items of value you own, such as savings accounts, investments, real estate, and vehicles. Lenders review your assets to determine your ability to make a down payment and cover closing costs.
Assumable Mortgage
A mortgage that can be transferred from the seller to the buyer, allowing the buyer to take over the existing loan terms. FHA and VA loans are sometimes assumable.
B
Balloon Mortgage
A mortgage with smaller monthly payments for a set period, followed by one large "balloon" payment to pay off the remaining balance.
Biweekly Mortgage
A payment schedule where you make half your monthly payment every two weeks, resulting in 26 half-payments (13 full payments) per year and faster loan payoff.
Borrower-Paid Mortgage Insurance (BPMI)
Private mortgage insurance where the borrower pays a monthly premium. Required when the down payment is less than 20% of the home's value.
Bridge Loan
A short-term loan that helps homebuyers purchase a new home before selling their current one, using the equity in their existing home as collateral.
Buydown
A financing technique where points are paid upfront to reduce the interest rate, either temporarily or permanently.
C
Cash-Out Refinance
A refinance transaction where you borrow more than your current mortgage balance and receive the difference in cash, often used to fund home improvements or consolidate debt.
Closing Costs
Fees and expenses paid at closing, including lender fees, appraisal, title insurance, attorney fees, and property taxes. Typically 2-5% of the home purchase price.
Collateral
Property or assets pledged as security for a loan. In a mortgage, your home serves as collateral.
Conforming Loan
A mortgage that meets the guidelines set by Fannie Mae and Freddie Mac, typically with a maximum loan amount and stricter underwriting standards.
Construction Loan
A short-term loan that finances the construction of a home or building project, typically converting to a permanent mortgage upon completion.
Credit Report
A detailed record of your credit history compiled by credit bureaus, including payment history, accounts, and credit inquiries. Lenders use this to assess creditworthiness.
Credit Score
A numerical score (typically 300-850 FICO) based on your credit history. Higher scores indicate lower credit risk and typically result in better loan terms.
D
Debt-to-Income Ratio (DTI)
The percentage of your monthly gross income that goes toward debt payments. Lenders typically want to see a DTI below 43% to qualify for a mortgage.
Deed
A legal document that transfers ownership of a property from one person to another.
Default
Failure to make payments on a loan as agreed. Prolonged default can lead to foreclosure.
Delinquency
Being behind on loan payments. A mortgage is typically considered delinquent if the payment is 30 days late.
Discount Points
Fees paid upfront to lower the interest rate on a mortgage. One point typically costs 1% of the loan amount and reduces the rate by 0.25%.
Down Payment
The amount of money you pay upfront toward the purchase price of a home, expressed as a percentage of the total price. Typical down payments range from 3% to 20%.
E
Earnest Money
A deposit made by a buyer to demonstrate serious intent when making an offer on a property, typically 1-3% of the purchase price.
Escrow
A neutral third-party account that holds funds, documents, and keys during a real estate transaction until all conditions are met.
Equity
The difference between a home's current market value and the outstanding mortgage balance. Represents the portion of the home you truly own.
F
Fair Credit Reporting Act (FCRA)
Federal law that regulates how credit bureaus collect, maintain, and distribute credit information.
Fannie Mae
Federal National Mortgage Association, a government-sponsored enterprise that purchases mortgages from lenders to keep money flowing into the mortgage market.
FHA Loan
A Federal Housing Administration loan backed by the government, designed to help borrowers with lower credit scores or smaller down payments (as low as 3.5%).
FICO Score
Fair Isaac and Company score, the most widely used credit scoring model ranging from 300-850 that lenders use to assess credit risk.
Fixed-Rate Mortgage
A mortgage with an interest rate that stays the same for the entire loan term, providing payment predictability and protection from rate increases.
Forbearance
A temporary agreement by the lender to reduce or suspend loan payments during financial hardship without defaulting.
Foreclosure
The legal process by which a lender repossesses a home when a borrower fails to make payments and defaults on the mortgage.
Freddie Mac
Federal Home Loan Mortgage Corporation, a government-sponsored enterprise that purchases mortgages from lenders to support the secondary mortgage market.
G
Good Faith Estimate (GFE)
A document provided by lenders showing estimated closing costs and loan terms. Now replaced by the Closing Disclosure under TRID rules.
Gross Monthly Income
Your total monthly income before taxes and deductions, used by lenders to calculate debt-to-income ratios.
H
Home Equity Line of Credit (HELOC)
A variable-rate loan using your home's equity as collateral, allowing you to borrow funds as needed up to a credit limit.
Home Equity Loan
A fixed-rate loan that uses your home's equity as collateral, providing a lump sum of money with a set repayment schedule.
Home Inspection
A professional assessment of a property's condition and structural integrity, typically required before closing.
HOA Fees
Homeowners Association fees paid by residents of condos or planned communities to maintain common areas and amenities.
I
Impound Account
An account held by the lender where escrowed funds are deposited to pay property taxes and insurance on behalf of the borrower.
Index
The benchmark rate used to calculate adjustable-rate mortgage rates, such as SOFR or the prime rate.
Interest Rate
The percentage of the loan amount charged as interest, expressed as an annual percentage. Different from APR, which includes other fees.
Investment Property
Real estate purchased to generate income through rental payments or resale, rather than for personal use.
J
Jumbo Loan
A mortgage that exceeds conforming loan limits set by Fannie Mae and Freddie Mac, typically requiring stricter qualification and higher interest rates.
L
Lender
A financial institution or individual that provides funds for a mortgage loan.
Letter of Explanation
A written explanation requested by lenders regarding credit issues, unusual deposits, or other concerns about your financial history.
Lien
A legal claim against a property giving the lienholder a right to sell the property if debts are not paid.
Loan Origination Fee
A fee charged by the lender for processing, underwriting, and issuing the loan, typically 0.5-1% of the loan amount.
Loan-to-Value Ratio (LTV)
The percentage of the property value that the lender will finance. An 80% LTV means you need a 20% down payment.
Lock-in Rate
An agreement that fixes your interest rate for a specific period (typically 15-60 days) while your loan is being processed.
M
Margin
The additional percentage points added to the index rate to determine the interest rate on an adjustable-rate mortgage.
Master Lease
A lease agreement that covers multiple leased properties or units under the same terms.
Mortgage
A legal agreement where a property is pledged as security for a loan to purchase real estate.
Mortgage Broker
An intermediary who connects borrowers with lenders and assists in the loan origination process, typically earning a commission.
Mortgage Insurance
Insurance required when a down payment is less than 20%, protecting the lender in case of default.
Mortgage Note
A legal document signed by the borrower promising to repay the loan with specific terms and conditions.
N
Negative Amortization
A situation where loan payments don't cover interest owed, causing the principal balance to increase rather than decrease.
Non-Conforming Loan
A mortgage that doesn't meet the guidelines of Fannie Mae or Freddie Mac, often requiring stricter qualification.
O
Origination
The process of creating a new loan, including application, approval, and documentation.
Origination Fee
A fee charged by the lender for originating the loan, typically expressed as a percentage of the loan amount.
P
Par Rate
The interest rate offered with no discount points, representing the market rate without any adjustments.
Payment Shock
A sudden increase in monthly mortgage payments, often associated with ARM rate adjustments or refinancing.
PITI
Principal, Interest, Taxes, and Insurance - the components of a monthly mortgage payment.
PMI (Private Mortgage Insurance)
Insurance required by lenders when the down payment is less than 20% of the home's value, protecting the lender against loss.
Points
Fees paid at closing to reduce the interest rate, where one point equals 1% of the loan amount.
Pre-Approval
A lender's preliminary assessment that you qualify for a specific loan amount based on income, credit, and assets.
Pre-Qualification
An informal estimate of the loan amount you might qualify for, based on limited financial information.
Prepayment Penalty
A fee charged if the borrower pays off the loan before the end of the term.
Principal
The original amount borrowed or the remaining balance on a loan, excluding interest.
Q
Qualifying Ratios
Debt-to-income ratios used by lenders to determine if a borrower can afford a mortgage.
R
Rate Lock
A commitment by the lender to hold a specific interest rate for a set period during loan processing.
Real Estate Agent
A licensed professional who represents buyers or sellers in real estate transactions and negotiates on their behalf.
Refinance
The process of replacing an existing mortgage with a new loan, typically to obtain better terms or access equity.
Reinstatement
Paying back all overdue payments and associated fees to bring a delinquent mortgage current.
Rental Income
Income received from renting out a property, which lenders consider when calculating qualifying income.
Reverse Mortgage
A loan for homeowners 62+ that allows them to borrow against home equity, with repayment due when the home is sold or the borrower moves.
S
Second Mortgage
A loan taken out against a property that already has a mortgage, using the home's equity as collateral.
Secured Loan
A loan backed by collateral, such as a home in the case of a mortgage.
Self-Employed Income
Income earned from owning a business or working as an independent contractor, verified through tax returns.
Seller Financing
When the property seller provides financing for the buyer rather than the buyer obtaining a traditional mortgage.
Settlement
The final step of a real estate transaction where funds are exchanged and ownership is transferred.
Short Sale
A sale where the home sells for less than the mortgage balance, with lender approval.
SOFR
Secured Overnight Financing Rate, a replacement for LIBOR used to calculate adjustable-rate mortgage adjustments.
Stated Income
A loan program where borrowers state their income without full documentation verification.
T
Tax Lien
A government's legal claim against a property for unpaid property taxes.
Teaser Rate
A low introductory interest rate on an ARM that increases after an initial period.
Term
The length of time to repay a loan, typically 15, 20, or 30 years for mortgages.
Title
Legal ownership of a property, verified through a title search and title insurance.
Title Insurance
Insurance protecting the lender and homeowner against loss due to title defects or liens on the property.
Title Search
An examination of public records to verify that the seller has a clear right to transfer ownership.
TRID
TILA-RESPA Integrated Disclosure, federal rules requiring specific disclosures at loan application and closing.
Two-Step Mortgage
A mortgage with one interest rate for the first period (typically 5-7 years) and a different rate for the remaining term.
U
Underwriting
The process of reviewing and evaluating a mortgage application to determine if the lender will approve it.
Unsecured Loan
A loan not backed by collateral, relying instead on the borrower's creditworthiness.
V
VA Loan
A mortgage backed by the Department of Veterans Affairs for military members, veterans, and their families, offering favorable terms.
Verification of Deposit (VOD)
A document from a bank verifying the borrower's savings account balance.
Verification of Employment (VOE)
A document from an employer verifying the borrower's current employment and income.
W
Warranty Deed
A deed guaranteeing that the seller owns the property and has the right to transfer it.
Wraparound Mortgage
A financing arrangement where a new mortgage encompasses an existing mortgage, with the new lender taking over payment responsibility.
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