Mortgage Glossary

The content provided in this guide is for informational purposes only and is not intended as legal, financial, or professional advice. Readers are advised to seek the services of qualified professionals to receive personalized advice tailored to their specific situation and needs. By continuing to read this guide, you agree to not hold the author, publisher, or any of their affiliates liable for any decisions made based on the information provided herein.
READ MORE

Welcome to our Mortgage Glossary, your essential guide to navigating the often complex world of home financing.

Whether you’re a first-time homebuyer or a seasoned investor, understanding mortgage terms is key to making informed decisions. Our glossary offers detailed explanations of common mortgage-related terms and concepts, from interest rates to refinancing. Designed to simplify the mortgage process, this resource empowers you with the knowledge you need to confidently approach your mortgage journey.

Dive in and explore the language of home loans, demystified for your convenience.

A

Adjustable-Rate Mortgage (ARM): A mortgage with an interest rate that changes periodically based on a benchmark index.

Amortization: The process of paying off a debt over time through regular payments, which cover both principal and interest.

Annual Percentage Rate (APR): The yearly cost of a loan, including interest, mortgage insurance, and loan origination fees, expressed as a percentage.

Application Fee: A fee charged by a lender to process a new loan application.

Appraisal: An expert assessment of a property’s value.

Appraisal Fee: The fee charged for the appraisal service.

Appreciation: An increase in the value of a property over time.

Assessed Value: The valuation placed on a property by a public tax assessor for purposes of taxation.

Assessment: The process of placing a value on a property for taxation.

Asset: Anything of value that a person owns.

Assignment: The transfer of a mortgage from one person to another.

Assumable Mortgage: A mortgage that can be taken over (“assumed”) by the buyer when a home is sold.

Assumption Clause: A provision in a mortgage that allows the buyer to assume responsibility for the mortgage from the seller.

Attorney-In-Fact: A person who holds a power of attorney from another to execute documents on behalf of the grantor.

Automated Underwriting: Computer systems that evaluate a loan application’s risk level quickly.

Adjustment Date: The date on which the interest rate changes for an adjustable-rate mortgage (ARM).

Adjustment Interval: On an ARM, the time between changes in the interest rate and/or monthly payment.

Amortization Schedule: A timetable for payment of a mortgage showing the amount of each payment applied to interest and principal.

Amortization Term: The amount of time required to amortize the mortgage loan expressed in months.

Annual Percentage Yield (APY): The amount of interest that a savings account or investment would earn, taking into account compound interest.

Application: The first step in the official loan approval process; this form is used to record important information about the potential borrower necessary to the underwriting process.

Applicant: An individual who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan in full.

Appraised Value: An opinion of a property’s fair market value, based on an appraiser’s knowledge, experience, and analysis of the property.

ARM Cap: A limit to how much an adjustable-rate mortgage’s interest rate or monthly payment can increase.

Assets and Liabilities: A borrower’s financial position, showing what they own and owe.

Assumption: The agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller.

Assumption Fee: The fee paid to a lender (usually by the purchaser of real property) when an assumption takes place.

Auction: A public sale of a property to the highest bidder.

Authorization to Release Information: A document signed by the borrower authorizing the lender to verify the borrower’s credit, employment, and other information.

Automated Valuation Model (AVM): A service that uses mathematical modeling to value properties.

Adjustment Period: The time between interest rate adjustment dates for an adjustable-rate mortgage (ARM).

Affordability Analysis: A detailed analysis of a borrower’s ability to afford the purchase of a home.

Agency: A legal relationship in which an agent represents a principal in dealings with third parties.

Agent: A person authorized to act on behalf of another in negotiations or transactions.

Alienation Clause: A clause in a mortgage that gives the lender the right to call the entire loan balance due if the property is sold or transferred.

Amortizing Loan: A loan that is paid off, both principal and interest, by regular payments.

Annual Income: The total income from all sources before taxes and other deductions.

Annuity: A series of equal payments at regular intervals, often used in the context of retirement savings.

Application Date: The date on which a loan application is completed and submitted.

Appreciation Rate: The rate at which the value of a property is increasing in a given market.

Arbitration: A method of resolving disputes without going to court.

As-Is Condition: The current state of a property; the buyer accepts the property in its present condition without modifications.

Assessment Ratio: A percentage applied to the fair market value of a property to arrive at an assessed value for tax purposes.

Asset Verification: The process of verifying the borrower’s assets.

Assignment of Mortgage: A document evidencing the transfer of ownership of a mortgage from one person to another.

Assumption Agreement: An agreement between the buyer and the lender whereby the buyer takes over the payments on an existing mortgage.

Average Daily Balance: A method used to calculate interest charges based on the average balance owed each day during a billing period.

Acceleration Clause: A clause in a mortgage that allows the lender to demand payment of the outstanding loan balance for various reasons.

Accrued Interest: Interest that has accumulated between the most recent payment and the sale of a bond or other fixed-income security.

Acknowledgment: A formal declaration before a public official (such as a notary) by the person who signs a document that the signing is voluntary.

B

Balloon Mortgage: A mortgage with a large payment due at the end of a shorter-than-usual term.

Bankruptcy: A legal proceeding involving a person or business unable to repay outstanding debts.

Basis Point: One hundredth of a percentage point, used primarily in expressing differences of interest rates.

Biweekly Mortgage: A mortgage plan where half the scheduled monthly payment is made every two weeks.

Blanket Mortgage: A mortgage that covers more than one property owned by the same borrower.

Borrower: The individual or entity that is using a loan to finance the purchase of property.

Bridge Loan: A short-term loan used until a person or company secures permanent financing.

Broker: An individual or firm that acts as an intermediary between a buyer and seller, usually charging a commission.

Building Code: Local regulations that control design, construction, and materials used in construction.

Buydown: A financing technique used to reduce the monthly payments for the first few years of a loan.

Buyer’s Agent: A real estate agent who represents the buyer of a property.

Buyer’s Market: A situation in the real estate market where buyers have a large selection of properties to choose from.

Broker’s Price Opinion (BPO): An estimated value of a property as determined by a real estate broker or other qualified individual or firm.

Brokerage Fee: A fee charged by a broker for services rendered.

Building Permit: A permit issued by a local government agency that allows the construction or renovation of a house.

Biweekly Payment Mortgage: A mortgage repaid by making half the usual monthly payment every two weeks.

Breach of Contract: A violation of any of the terms or conditions in a contract without a legal excuse.

Brokerage: The business or establishment of a broker.

Bundle of Rights: The various interests or rights an owner has in a property.

Business Credit Report: A report detailing the credit history of a business.

Buyer’s Market: A market condition characterized by low demand and high supply, giving buyers an advantage over sellers in price negotiations.

Back-End Ratio: A ratio that calculates the percentage of a borrower’s gross income used to cover debts.

Bailout: The act of providing financial assistance to a failing business or economy to save it from collapse.

Bank Draft: A check drawn by a bank against funds deposited in another bank.

Bank Inspection: An inspection by a bank or its agent to ensure a property is a good financial risk.

Bankruptcy Discharge: The release of a debtor from personal liability for certain dischargeable debts.

Basis: The financial value of a property for tax purposes.

Beneficiary: The person designated to receive the income from a trust, estate, or a deed of trust.

Bid: An offer made to purchase a property.

Billing Cycle: The time interval between billings for goods sold or services provided.

Binder: A temporary insurance policy that provides coverage until a permanent policy is issued.

Blanket Insurance Policy: An insurance policy covering more than one property or person.

Bona Fide: In good faith; without fraud or deceit.

Bond Market: A financial market where participants can issue new debt or buy and sell debt securities.

Breach of Warranty: Failure to fulfill the terms of a warranty or guarantee.

Bridge Financing: A form of interim financing used until permanent financing is secured.

Brokerage Commission: A fee charged by a broker for executing a transaction.

Budget Mortgage: A mortgage with payments that include property taxes and insurance.

Building Inspector: An official who examines buildings to ensure compliance with local codes.

Bullet Loan: A loan where a large lump sum is paid back at the end of the term.

Bundled Services: A package of services (like lending, real estate brokerage, and title insurance) offered by a single provider.

Business Days: Days excluding weekends and public holidays, used in timing certain aspects of mortgages.

Buyer’s Premium: An additional charge to the buyer at auction, often a percentage of the final bid amount.

Buyout: The purchase of a controlling share in a company.

Bylaws: Rules governing the management of a corporation or other form of association.

Balance Sheet: A financial statement that shows assets, liabilities, and net equity.

Balloon Payment: A large payment due at the end.

Building and Loan Association: A financial institution that provides loans for the construction or purchase of homes.

Building Code: Regulations set by local governments regarding the design, construction, and materials used in building.

Building Inspection: An examination of a property’s condition, usually performed in connection with the property’s sale.

Building Permit: Official authorization for construction, alteration, or demolition of a building.

Buydown Account: An account established to fund the reduction of mortgage payments in the early years of a loan.

Buyer’s Agent: A real estate agent who represents the homebuyer.

Buyer’s Market: A market condition characterized by more sellers than buyers, giving buyers more choice and bargaining power.

Buyer’s Premium: A fee that a buyer pays, usually in auctions, in addition to the purchase price.

Bylaws: Rules and regulations governing the internal management of an organization, such as a condominium or homeowners’ association.

Break-even Point: The point at which total income equals total expenses, often used in refinancing analysis.

C

Closing Costs: Various fees and expenses paid at the closing of a real estate transaction.

Collateral: Property or assets offered to secure a loan or other credit.

Conventional Loan: A mortgage not insured or guaranteed by a government agency.

Credit Score: A numerical expression based on a level analysis of a person’s credit files, representing the creditworthiness of an individual.

Contingency: A condition that must be met before a real estate contract is legally binding.

Commission: The fee paid to a real estate agent/broker for their services, usually a percentage of the property’s sale price.

Compound Interest: Interest calculated on the initial principal and also on the accumulated interest of previous periods.

Condominium: A type of real estate divided into several units that are each separately owned, surrounded by common areas that are jointly owned.

Construction Loan: A short-term loan used to finance the building of a home or another real estate project.

Consumer Credit Report: A report detailing an individual’s credit history, used by lenders in the decision-making process.

Credit History: A record of an individual’s repayment of debts.

Credit Report: A detailed report of an individual’s credit history prepared by a credit bureau.

Credit Risk: The risk of default on a debt that may arise from a borrower failing to make required payments.

Creditor: A person or company to whom money is owed.

Cap: A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or mortgage payments can increase or decrease.

Capital: Wealth in the form of money or assets, taken as a sign of the financial strength of an individual or organization.

Capital Gain: A profit from the sale of property or of an investment.

Cash-out Refinance: A mortgage refinancing transaction where the new mortgage amount is greater than the existing mortgage amount, plus closing costs.

Chain of Title: The sequence of historical transfers of title to a property.

Clear Title: A title without any kind of lien or levy from creditors or other parties and poses no question as to legal ownership.

Closing: The final step in executing a real estate transaction.

Closing Agent: The person or entity that coordinates the various closing activities, including the preparation and recordation of closing documents and the disbursement of funds.

Closing Disclosure: A document that provides final details about the mortgage loan.

Closing Statement: A document prepared by a closing agent, outlining the final financial transaction between buyer and seller and the costs paid by each party.

Cloud on Title: Any document, claim, unreleased lien, or encumbrance that may impair the title to real property or make the title doubtful.

Co-borrower: Any additional borrower whose name appears on loan documents and whose income and credit history is used to qualify for the loan.

Co-signer: A person who signs a credit application with another person, agreeing to be equally responsible for the repayment of the loan.

Collateralized Mortgage Obligation (CMO): A type of mortgage-backed security in which mortgage loans are organized into tranches based on maturity and risk.

Collection: The process a lender takes to pursue payments on a defaulted loan.

Commissioner of Oaths: A person authorized to verify affidavits, statutory declarations, and other legal documents.

Commitment Letter: A letter from a lender promising to lend a certain amount of money at a particular rate for a specified period.

Common Area Assessments: Levies against individual unit owners in a condominium or planned unit development (PUD) for additional capital to maintain the common areas.

Common Areas: Areas on a property that are available for use by all residents, such as hallways, pools, and recreational facilities.

Community Property: Property owned jointly by a married couple.

Comparative Market Analysis (CMA): A study of the prices at which similar properties in the same area recently sold.

Conforming Loan: A mortgage that meets the purchase criteria of Fannie Mae and Freddie Mac.

Construction-to-Permanent Loan: A construction loan that converts to a permanent mortgage upon completion of the building project.

Consumer Price Index (CPI): A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care.

Contingent Liability: A liability that does not yet exist but may arise in the future.

Contract for Deed: A contract for the sale of real estate wherein the seller retains title to the property until the buyer completes all or a certain portion of the payment.

Conveyance: The act of transferring ownership of a piece of property from one person to another.

Cooperative (Co-op): A type of residential building owned by a corporation where residents purchase stock in the corporation, which entitles them to reside in a unit in the building.

Cost of Funds Index (COFI): An index that is used to determine interest rates for certain adjustable-rate mortgages.

Credit Counseling: Professional counseling provided by organizations that help consumers find ways to manage their debt.

Credit Line: The maximum amount of credit a financial institution extends to a client.

Credit Utilization Ratio: The amount of available credit being used by a borrower.

Cross-collateralization: The use of collateral from one loan to secure another loan.

Curable Defect: A problem with a property that can be fixed without significant expense.

Current Maturity: The interval of time until the next interest rate adjustment for an adjustable-rate mortgage (ARM).

Curtailment: A voluntary additional payment made to reduce the principal balance of a loan.

D

Debt-to-Income Ratio (DTI): A measure of a person’s monthly debt payments compared to their monthly gross income.

Deed: A legal document that transfers property from one owner to another.

Deed of Trust: A document used in some states instead of a mortgage, where the property is transferred to a trustee until the loan is paid off.

Default: Failure to meet legal obligations in a contract, specifically, failure to make the monthly payments on a mortgage.

Delinquency: Failure to make mortgage payments on time.

Depreciation: A decrease in the value of property over time due to wear and tear, decay, or decline in the value of the area where the property is located.

Discount Points: Fees paid to the lender at closing in order to lower the interest rate on the mortgage.

Down Payment: The part of the property’s purchase price that the buyer pays in cash and does not finance with a mortgage.

Due-on-Sale Clause: A provision in a mortgage allowing the lender to demand full repayment if the borrower sells the property securing the mortgage.

Debt Consolidation: The process of combining multiple debts into a single loan, often with a lower monthly payment and a longer repayment period.

Debt Service: The total amount of all interest and principal payments made over the life of the loan.

Declarant: In condominium law, the person or entity that establishes the condominium.

Declaration of Homestead: A document filed with a county recorder’s office to declare a home as one’s primary residence.

Deed-in-Lieu of Foreclosure: A deed given by a mortgagor to the mortgagee to satisfy a debt and avoid foreclosure.

Deed Restriction: A limitation placed in a deed to control how future owners may use the property.

Default Judgment: A binding judgment in favor of either party based on some failure to take action by the other party, most often used in the context of a foreclosure.

Defeasance Clause: A clause used in mortgages that voids a lien on a property after the borrower has paid off the debt.

Deferred Interest: Interest added to the balance of a loan when the monthly payments are not sufficient to cover it.

Deferred Payment Loan (DPL): A loan that allows for a delay in payment until a certain condition is met, such as the sale of the home.

Delinquent Mortgage: A mortgage for which the borrower has failed to make payments as required in the loan documents.

Deposit: A sum of money given to bind the sale of real estate, or given by a tenant to a landlord to cover potential damage to leased premises.

Depreciation (Tax): In terms of tax, a deduction allowing a taxpayer to recover the cost of property due to wear and tear, decay, or obsolescence.

Direct Lender: A financial institution that offers mortgages directly to borrowers, as opposed to through a third-party.

Disbursement: The payment of mortgage loan funds by the lender.

Discount Rate: The interest rate charged to commercial banks and other depository institutions for loans received from a Federal Reserve Bank.

Document Preparation Fee: A fee charged by a lender for preparing the necessary documents for closing.

Domestic Partner: A person who shares a domestic life with another as a couple without being legally married.

Down Payment Assistance Program: A program that provides financial aid for down payments and closing costs for homebuyers.

Due Diligence: The process of thoroughly investigating a property before purchase, including its legal status and physical condition.

Dual Agency: A real estate transaction in which the agent represents both the buyer and the seller.

Dual Application: When two or more individuals apply for a mortgage together.

Due-on-Encumbrance Clause: A clause in a mortgage that requires the borrower to pay the mortgage in full if they place another lien on the property.

Durable Power of Attorney: A legal document that grants one person the authority to act for another, typically used in cases of illness or disability.

E

Earnest Money Deposit: A deposit made by the potential home buyer to show that they are serious about buying the property.

Easement: A right to use the land of another for a specific purpose, such as access or utilities.

Economic Life: The period during which a property is expected to remain useful for its intended purpose.

Effective Age: An appraiser’s estimate of the physical condition of a building. The effective age may be shorter or longer than the actual age of the building.

Eminent Domain: The right of a government to take private property for public use, with payment of compensation.

Encroachment: An improvement that intrudes illegally on another’s property.

Encumbrance: Anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements, or restrictions.

Equal Credit Opportunity Act (ECOA): A federal law that prohibits lenders from discriminating against applicants on the basis of race, religion, national origin, sex, marital status, age, or because they receive public assistance.

Equity: The difference between the fair market value of the property and the amount still owed on its mortgage.

Escrow: An account held by a third party on behalf of the two parties in a transaction.

Escrow Analysis: The periodic examination of escrow accounts by a mortgage company to ensure that sufficient funds are being collected to pay taxes, insurance, and other escrow-related items.

Escrow Disbursements: The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.

Exclusive Listing: A written contract that gives a licensed real estate agent the exclusive right to sell a property for a specified time.

Executor: A person appointed by a will to administer the deceased’s estate.

Exemption: A deduction allowed by law to reduce the amount of income that would otherwise be taxed.

Extension Clause: A clause in a contract that allows for the extension of time to perform certain conditions or terms of the contract.

External Obsolescence: A loss in value of a property caused by factors outside of the property itself, such as changes in surrounding property usage or economic conditions.

F

Fair Credit Reporting Act (FCRA): A federal law that regulates the collection, dissemination, and use of consumer credit information.

Fair Market Value: The estimated value of a property based on current market conditions.

Fannie Mae: A government-sponsored enterprise that buys mortgages from lenders, pools them, and sells them as mortgage-backed securities.

Federal Housing Administration (FHA): A government agency that insures mortgages made by approved lenders to promote affordable housing.

Fee Simple: The greatest possible interest a person can have in real estate, where the owner has the right to dispose of the property at will.

FHA Loan: A mortgage insured by the Federal Housing Administration, designed for lower-income borrowers.

First Mortgage: The primary loan on a property, which has priority over all other mortgages or liens.

Fixed-Rate Mortgage (FRM): A mortgage with a fixed interest rate for the entire term of the loan.

Foreclosure: The legal process by which a lender attempts to recover the amount owed on a defaulted loan by taking ownership of the mortgaged property.

Freddie Mac: A government-sponsored enterprise that buys mortgages on the secondary market, pools them, and sells them as mortgage-backed securities.

FHA Mortgage Insurance: Insurance on FHA loans that protects lenders against losses from defaults on mortgages.

Federal Home Loan Mortgage Corporation (Freddie Mac): A government-sponsored enterprise that purchases, guarantees, and securitizes home loans.

Finance Charge: The total cost of credit a consumer pays, including interest and other fees.

Flood Certification: A document that states whether a property is located in a federally designated flood zone.

Flood Insurance: Insurance that covers property damage from flooding, which is required for properties located in areas designated as high flood risk.

Forbearance: An agreement between lender and borrower to delay foreclosure.

Foreclosure Sale: A sale of property used as security for a debt, typically under court order, after the borrower has failed to pay.

Fully Amortizing Payment: A periodic loan payment that is sufficient to pay both principal and interest so that the loan is paid off by the end.

Fair Housing Act: A federal law that prohibits discrimination in housing based on race, color, religion, sex, handicap, familial status, or national origin.

Fannie Mae/Freddie Mac Guidelines: The standards set by Fannie Mae and Freddie Mac for purchasing loans from lenders.

Fiduciary: A person or organization that acts on behalf of another person or persons, putting their clients’ interest ahead of their own.

First-Time Homebuyer: Typically defined as someone who has not owned a home in the past three years.

Fixed-Period Adjustable-Rate Mortgage: A mortgage that offers a fixed rate for an initial period and then adjusts to a new rate that may change periodically.

Fixture: Personal property that becomes real property when attached in a permanent manner to real estate.

Flipping: The act of buying a property and quickly reselling it for a profit.

Foreclosure Consultant: Someone who offers to provide counseling or assistance to a homeowner in regard to stopping or delaying a foreclosure sale.

Foreclosure Prevention: Measures taken by a borrower or a third party to avoid foreclosure.

Forgivable Loan: A loan in which all or a portion of the amount borrowed is forgiven or not required to be repaid, under certain conditions.

Fractional Ownership: Ownership of a part of a property, most often used for vacation properties.

Freehold Estate: An estate in land which is held for an indefinite period of time.

Front-End Ratio: A ratio that calculates the percentage of a borrower’s gross income used to make mortgage payments.

Funding Fee: A fee required by some loan programs (like VA loans) to help offset the cost to taxpayers.

Future Advance: Funds that are provided to a borrower after the initial loan settlement.

Fair Lending: The requirement that lenders provide fair and equal treatment to all consumers seeking credit.

Federal Reserve System: The central banking system of the United States, which regulates the U.S. monetary and financial system.

FHA Streamline Refinance: A simplified refinance program for existing FHA mortgages that typically requires less documentation.

FICO Score: A type of credit score created by the Fair Isaac Corporation used by lenders to evaluate credit risk.

Firm Commitment: A lender’s agreement to provide a loan under certain terms or conditions.

First Lien: A lien that is the first to be paid when a property is sold, typically the mortgage.

Fixed Interest Rate: An interest rate that does not change during the entire term of the loan.

Flip Tax: A fee paid by a seller or buyer, or both, in a cooperative housing corporation when a unit is sold.

Floor Rate: The minimum interest rate that can be charged on an adjustable-rate mortgage.

Forebearance Agreement: An agreement between a lender and borrower to temporarily suspend or reduce mortgage payments.

Foreclosure Prevention Counseling: Counseling services offered to homeowners trying to avoid foreclosure.

Forward Mortgage: A traditional mortgage where a borrower receives funds upfront and makes payments over time.

Freddie Mac Loan Look-Up Tool: A tool to help homeowners determine if Freddie Mac owns their loan.

Free and Clear: Ownership of property without any debts, liens, or mortgages.

Frontage: The length of property along the street or waterfront.

Full Documentation Loan: A mortgage that requires full income and asset verification.

Functional Obsolescence: A reduction in the usefulness or desirability of an object because of an outdated design feature.

G

Good Faith Estimate (GFE): An estimate of the costs and fees to be paid at the closing of a mortgage, provided by a lender to a borrower.

Government National Mortgage Association (Ginnie Mae): A government-owned corporation that guarantees principal and interest payments on mortgage-backed securities.

Grace Period: A period after the due date of a mortgage payment during which the payment can be made without penalty.

Graduated Payment Mortgage (GPM): A type of mortgage that starts with low initial payments, which increase over time.

Gross Income: Total income earned before taxes and other deductions.

Guarantee Fee: A fee charged by mortgage-backed securities providers, such as Ginnie Mae, Fannie Mae, and Freddie Mac, to guarantee payment of principal and interest.

Guarantor: A person who guarantees to pay a borrower’s debt in the event that the borrower defaults on a loan obligation.

General Lien: A lien that is attached to all property owned by an individual, both real and personal.

Government Loan: A loan that is insured or guaranteed by a government agency, such as FHA or VA loans.

Gross Debt Service Ratio (GDSR): A ratio used by lenders to determine the maximum amount a borrower can pay for housing expenses.

Gift Letter: A letter that explains that a portion of a down payment is a gift and not a loan.

Good Title: A title to property that is free from liens, defects, or other legal encumbrances.

Grace Period Extension: An extension of the grace period allowed for payments on a mortgage.

Green Mortgage: A mortgage that provides additional funding to pay for energy-efficient improvements to a property.

Gross Living Area: The total living area, typically in square footage, of a property.

Gross Monthly Income: The total amount of income earned in a month before any deductions.

Ground Lease: A lease of land only, on which the tenant typically is required to build a building.

Ground Rent: The amount of rent paid for the use of land when a building on the land is owned by someone other than the landowner.

Growing Equity Mortgage: A fixed-rate mortgage that increases payments over time according to a set schedule, with the increased amount applied to the principal.

Guaranteed Loan: A loan guaranteed by a third party, such as a government agency.

Government-Sponsored Enterprise (GSE): A financial services corporation created by the United States Congress to enhance the flow of credit to targeted sectors of the economy.

Gift of Equity: A sale of a home at a price below its market value, where the difference is considered a gift and can be used as a down payment.

Ginnie Mae Pass-Through: A pass-through certificate issued by Ginnie Mae, which guarantees timely payment of principal and interest to investors.

Goodwill: An intangible asset that arises when a buyer acquires an existing business and pays a price greater than the fair market value of the tangible assets.

Government Mortgage: A mortgage loan that is insured or guaranteed by a government entity, such as the FHA, VA, or USDA.

Graduated Payment: Payments that start low and increase at a predetermined rate.

Grant: A financial gift, typically used to assist with a down payment or closing costs.

Grantee: The person to whom an interest in real property is conveyed.

Grantor: The person conveying an interest in real property to another.

Gross Area: The total area of a property, including unlivable spaces like garages and basements.

Guaranteed Mortgage Price Agreement (GMPA): An agreement in which the sale price of a home is guaranteed by a third party.

Guaranteed Replacement Cost: Insurance coverage that pays the cost of rebuilding or repairing a home without deduction for depreciation.

Gap Financing: A short-term loan used to cover the difference between the purchase price of a new home and a mortgage until a more permanent financing solution can be arranged.

General Contractor: A person or company responsible for the construction of a building or project.

General Warranty Deed: A deed in which the seller guarantees they have clear title to the property and have a right to sell it.

Gift Funds: Money given by family or friends to assist with the purchase of a home, often used for the down payment.

Gross Rent Multiplier (GRM): A figure used in real estate to assess the value of a rental property.

Group Home: A residence for people with disabilities or other special needs.

Guaranteed Resale: A guarantee that a home will sell for a certain price within a certain time frame.

H

Hazard Insurance: Insurance coverage that protects against damage to a property from hazards like fires, storms, and other natural events.

Home Equity: The value of a homeowner’s interest in their property, calculated by subtracting the mortgage balance from the property’s market value.

Home Equity Line of Credit (HELOC): A line of credit secured by the equity in a home, allowing the homeowner to borrow funds as needed.

Home Equity Loan: A loan that allows homeowners to borrow against the equity in their home, typically used for large expenses.

Home Inspection: An examination of a property’s condition, usually performed by a qualified professional before a sale is finalized.

Homeowners Association (HOA): An organization in a residential community that makes and enforces rules for the properties and their residents.

Homeowners Insurance: Insurance that covers damage to a property from various hazards and liabilities for accidents that occur on the property.

HUD-1 Settlement Statement: A document that provides an itemized listing of the funds that are payable at the closing of a property sale.

Housing Expense Ratio: The percentage of a borrower’s gross monthly income that goes toward housing expenses, including mortgage payments, property taxes, and insurance.

Hard Money Loan: A loan typically issued at a higher interest rate, often for real estate transactions and usually by private investors or companies.

Holding Period: The time during which an individual owns a property.

Home Warranty Plan: A service contract covering the repair or replacement of major home systems and appliances.

Homestead Exemption: A legal provision protecting a portion of a home’s value from creditors in the event of bankruptcy or the owner’s death.

Housing Discrimination: Illegal practices of denying housing or making housing unavailable due to a person’s race, religion, sex, national origin, disability, or familial status.

HUD (Housing and Urban Development): A U.S. government department responsible for national policy and programs addressing America’s housing needs.

Hybrid Adjustable-Rate Mortgage: A mortgage that has a fixed interest rate for an initial period followed by an adjustable rate.

Hypothecation: The process of pledging collateral to secure a debt, with the borrower retaining ownership of the collateral.

High-Ratio Mortgage: A mortgage in which the borrower makes a down payment of less than 20% of the purchase price.

Home Improvement Loan: A loan for making improvements or repairs to a home.

Homeowner’s Warranty: A warranty typically provided by a builder or seller covering repairs to certain parts of a home for a specific period.

Housing Ratio: A ratio used by lenders to determine the percentage of a borrower’s gross income that goes towards housing expenses.

Hardship Letter: A letter written by a borrower to a lender explaining a financial hardship and requesting a modification or forbearance of loan terms.

HUD-Approved Housing Counselor: A counselor trained and approved by HUD to assist individuals with housing needs, including foreclosure prevention.

Housing and Economic Recovery Act (HERA): A 2008 law designed to address the subprime mortgage crisis, providing mortgage relief and enhancing consumer protections.

High-Cost Mortgage: A mortgage with fees or interest rates that exceed certain regulatory thresholds, requiring additional disclosures and protections for borrowers.

Home Price Index (HPI): An index that tracks changes in the value of residential real estate.

Heir: A person legally entitled to inherit property upon the death of its owner.

Home Affordability Index: A measure of a family’s ability to afford the purchase of a home based on income, interest rates, and median home prices.

House Flipping: The practice of buying a property and quickly reselling it for a profit, often after making renovations or improvements.

Homeownership Rate: The proportion of households that own their own home, as opposed to renting.

I

Interest: The cost of borrowing money, usually expressed as a percentage of the amount borrowed.

Interest Rate: The percentage charged on a mortgage that must be paid in addition to the principal.

Interest-Only Loan: A loan where the borrower only pays the interest for a set period, after which they start paying both principal and interest.

Initial Interest Rate: The starting interest rate for an adjustable-rate mortgage (ARM).

Installment Loan: A loan that is repaid over time with a set number of scheduled payments.

Insurance: Protection against financial loss from specific events, such as damage to property.

Insured Loan: A loan that is protected by an insurance policy, guaranteeing the lender will be repaid if the borrower defaults.

Investment Property: Property that is purchased to generate rental income or to be sold for a profit.

Impound Account: An account used by the lender to pay property taxes and insurance on behalf of the homeowner.

Index: A benchmark interest rate that reflects general market conditions and is used to adjust the interest rate on an ARM.

Inspection: A thorough examination of a property for defects and necessary repairs before purchase.

Interest Accrual Rate: The rate at which interest accrues on a mortgage loan.

Interest-Only Payment: A mortgage payment that only covers the interest on the loan, not reducing the principal.

Interest Rate Cap: A limit on how much the interest rate can increase or decrease on an ARM.

Interest Rate Ceiling: The maximum interest rate that can be charged on an ARM.

Interest Rate Floor: The minimum interest rate that can be charged on an ARM.

Involuntary Lien: A lien imposed on property without the consent of the owner, such as a tax lien.

Irrevocable Trust: A trust that cannot be altered or canceled once it is established.

Issue Date: The date a mortgage or other financial instrument is issued.

Insurable Interest: A financial or beneficial interest in property that enables someone to insure it.

Insurance Binder: A temporary contract that provides proof of coverage until a permanent policy is issued.

Insurance Premium: The amount paid for an insurance policy.

Insured Mortgage: A mortgage that is insured by the government or a private insurer against default by the borrower.

Intangible Tax: A tax levied on intangible assets such as mortgages or bonds.

Interest Accrued: Interest that has accumulated but not yet been paid.

Interest Deduction: The ability to deduct mortgage interest paid from one’s taxable income.

Interest-Only ARM: An adjustable-rate mortgage that allows for interest-only payments for a period of time.

Interest Rate Adjustment Period: The regular interval at which the interest rate on an ARM is adjusted.

Interest Rate Differential: The difference between the current interest rate and the rate available at the time of refinancing or selling.

Internal Rate of Return (IRR): A measure used to evaluate the profitability of potential investments.

Investor: An individual or entity that puts money into financial assets with the expectation of making a profit.

Inflation: The rate at which the general level of prices for goods and services is rising, reducing purchasing power.

Income Property: Real estate property that is used for rental income or investment purposes.

Income Ratio: A ratio used by lenders to determine a borrower’s ability to repay a mortgage.

Ingress and Egress: The legal right to enter and exit a piece of property.

In-house Processing: Mortgage processing done within the lending institution, rather than being outsourced.

Inquiry: A request for information regarding the credit history of an individual.

Installment Debt: Debt that is paid back in regular installments, such as a mortgage or car loan.

Insufficient Funds: A situation where an account does not have enough money to cover a check or withdrawal.

Interest Cost: The total amount of interest paid over the life of a loan.

Interest-Only Period: A period in a loan where the borrower pays only interest, with no payment on the principal.

Interest Rate Buydown: The payment of additional points to a lender in exchange for a lower interest rate.

Interest Rate Swap: A financial agreement in which two parties exchange different types of interest rate payments.

Interest Schedule: A table showing how payments are divided between interest and principal over the life of a loan.

Interim Financing: Short-term financing used until permanent financing is secured.

Interim Interest: Interest charged on a mortgage from the date of the closing until the first payment is due.

J

Joint Tenancy: A form of co-ownership where property is owned by two or more individuals at the same time, with rights of survivorship.

Judgment: A court’s final decision regarding the rights and liabilities of parties in a lawsuit, which may include a financial judgment against a borrower in a default situation.

Judgment Lien: A lien against the property of a debtor resulting from the decree of a court.

Jumbo Loan (or Jumbo Mortgage): A mortgage with a loan amount that exceeds the conforming loan limits set by Fannie Mae and Freddie Mac.

Junior Lien: A lien, such as a second mortgage, that is subordinate to a higher-priority lien, such as a first mortgage.

Junior Mortgage: A mortgage that is subordinate in priority to an existing mortgage on the same property. Commonly refers to second mortgages.

Judicial Foreclosure: A type of foreclosure process that is conducted through the court system.

Joint Application: An application for credit made by two or more individuals together.

Joint Credit: Credit extended to two or more individuals based on their combined incomes, assets, and credit histories.

Joint Liability: The responsibility of two or more people to fulfill the terms of a home loan or debt.

Jumbo Fixed-Rate Mortgage: A fixed-rate mortgage that exceeds the conforming loan limits and is not eligible to be purchased, guaranteed, or securitized by Fannie Mae or Freddie Mac.

Just Title: A title to property that is free from any reasonable doubt as to who the owner is.

Joint Venture: A business undertaking by two or more people or companies. In real estate, joint ventures might involve sharing the burden of purchasing and managing properties.

Judgment Proof: A term used to describe a person who does not have enough assets for a creditor to seize when a court order requires debt repayment.

Jump Bond: A bond that allows the issuer, which may include certain types of mortgage entities, to defer interest payments.

Jumbo Adjustable-Rate Mortgage (Jumbo ARM): An adjustable-rate mortgage with a loan amount larger than the conforming loan limits set by Fannie Mae and Freddie Mac.

Joint Ownership Agreement: An agreement between co-owners that specifies the rights, duties, and liabilities of each owner.

Judicial Sale: A sale conducted under the supervision of a court, often in connection with foreclosure proceedings.

Junior Interest: An interest in property that is subordinate to a senior interest, typically referring to mortgages or liens.

Jointly and Severally: A legal term describing the liability of individuals in a contract, where each party is responsible both together and individually for the terms of the agreement.

Jumbo Loan Pooling: The process of packaging jumbo loans into mortgage-backed securities for sale on the secondary market.

Just Compensation: In the context of eminent domain, the fair market value that must be paid to a property owner when their property is taken by the government.

Jumbo Prime Mortgage: A jumbo loan that is considered low risk due to the borrower’s high credit quality.

Jump Payment: A significant increase in the periodic payment on a loan, often associated with balloon mortgages or certain adjustable-rate mortgages.

Junior Deed of Trust: A deed of trust that is subordinate to a more senior deed of trust on the same property.

Joint Coverage: An insurance policy or other financial product that covers more than one person, often used in the context of life insurance policies on mortgage debt.

Judgment Creditor: The party who wins a judgment for a monetary award in a lawsuit.

Joint Life Annuity: An annuity that pays out until the death of the last survivor among the annuitants, often used in retirement planning for homeowners.

Judgment Debtor: The party who has been ordered by a court to pay a monetary judgment.

Job Stability: A factor considered by lenders when evaluating a borrower’s loan application, referring to the borrower’s employment history and future employment prospects.

K

Key Rate: A fundamental interest rate that influences the overall level of interest rates in the economy. This rate is often used as a benchmark for mortgage rates.

Kickback: An illegal payment made in return for a referral or service in a real estate transaction.

Knock-Down Clause: A clause in a mortgage contract that allows the lender to reduce the credit limit or demand repayment under certain conditions.

Knowledgeable Parties: Individuals who are assumed to have a certain degree of expertise or information regarding a real estate transaction, often used in legal contexts to determine the fairness or awareness of parties in a contract.

L

Lien: A legal right or claim against a property by a creditor until the debt is paid.

Loan-to-Value Ratio (LTV): A comparison of the amount of the loan to the value of the property, expressed as a percentage.

Loan Origination Fee: A fee charged by a lender for processing a new loan application, often expressed as a percentage of the loan amount.

Lock-In Rate: A guarantee from a lender to hold a certain interest rate and a certain number of points for a specified period during the loan process.

Late Charge: A fee imposed by a lender on a borrower for not making a payment on time.

Lease: A contractual agreement between a landlord (lessor) and a tenant (lessee) for the use of property.

Lender: An individual, bank, or financial institution that lends money to borrowers for the purchase of real estate.

Lien Waiver: A document from a contractor, subcontractor, or materials supplier involved in a home improvement project, stating that they have been paid and waive any future lien rights to the property for the amount paid.

Loan Estimate: An estimate of all closing fees including pre-paid and escrow items as well as lender charges; must be given to the borrower within three days after submission of a loan application.

Loan Modification: An adjustment to the terms of a mortgage, usually to help a borrower in financial hardship.

Loan Officer: A representative of a bank or broker who assists borrowers in the application process for obtaining a loan.

Loan Servicing: The administration of a loan from the time it is made until it is paid off, including collecting payments and managing escrow accounts.

Loan Underwriting: The process a lender uses to determine if the risk of lending to a particular borrower under certain parameters is acceptable.

Liquid Asset: An asset that is easily converted into cash.

Liquidity: The ability of a person or entity to quickly convert assets to cash for the purpose of paying debts.

Listing Agreement: A contract between a property owner and a real estate broker authorizing the broker to represent the seller and find a buyer.

Listing Agent: The real estate agent who represents the seller and has a listing agreement with them.

Living Trust: A trust created during the lifetime of the trustor that can be altered, changed, modified, or revoked.

Loan Balance: The amount of money remaining to be paid on a loan.

Loan Commitment: A lender’s promise to lend a specific amount under certain terms in the future.

Loan-to-Cost Ratio (LTC): A ratio used in commercial real estate financing to determine the value of a loan against the cost of constructing the property.

Loss Mitigation: The process by which a mortgage servicer works with a borrower to avoid foreclosure.

Loan Application: The form used to apply for a mortgage loan, containing information about a borrower’s income, savings, assets, debts, and more.

Loan Approval: Formal notification from the lender that the borrower’s loan application has been approved.

Loan Assumption: An arrangement where a borrower takes over the payments on an existing loan from the current holder.

Leasehold Estate: A type of property tenure where one party (the lessee) leases land from another party (the lessor) for a specified period.

Legal Description: A precise description of a piece of property for legal purposes.

Lender’s Title Insurance: Insurance that protects the lender against problems with the title to property being mortgaged.

Lienholder: A person or entity with a legal right or interest in another’s property, pending the payment of a debt.

Lifetime Cap: A provision of an adjustable-rate mortgage that limits the total increase in interest rates over the life of the loan.

Line of Credit: An arrangement in which a bank or vendor extends a specified amount of unsecured credit to a specified borrower for a specified time period.

Liquidation: The process of selling off assets to convert them into cash.

Lis Pendens: A recorded legal document giving notice of a lawsuit involving the title to a property or a claimed ownership interest in it.

Loan Covenant: Terms and conditions of a loan.

Loan Portfolio: The collection of mortgage loans held by a bank or financial institution.

Loan Processor: An individual who handles all the paperwork needed to close a loan.

Loan Term: The length of time a borrower has to repay a loan.

Loan-to-Deposit Ratio: A ratio comparing a bank’s loans to its deposits, used to assess the bank’s liquidity and health.

Low-Documentation Loan: A loan that requires less documentation than traditional loans, often used by self-employed or non-traditional borrowers.

Lowball Offer: An offer on a property that is much lower than the asking price.

Lump-Sum Payment: A single payment made at a particular time, as opposed to several smaller payments or installments.

Lease Option: An arrangement where the lessee has the option to purchase the property at a predetermined price at the end of the lease term.

Lease Purchase Agreement: An agreement where a tenant agrees to lease a property for a set term with the option to buy at the end of the lease.

Leaseback: An arrangement where the seller of a property leases back the same property from the buyer.

Legal Entity: An organization that has legal rights and responsibilities, like a person, including the right to enter into contracts, loan, and be sued.

Legal Ownership: The registered owner of the property according to legal documents.

Lender Credit: A credit from the lender towards the borrower’s closing costs in exchange for a higher interest rate on the mortgage.

Lender-Paid Mortgage Insurance (LPMI): A type of private mortgage insurance that is paid by the lender instead of the borrower, typically in exchange for a higher interest rate.

Lending Institution: A financial institution that makes loans directly to borrowers.

Letter of Intent (LOI): A non-binding document outlining the preliminary agreement between two parties before a deal is finalized.

M

Mortgage: A loan used to purchase or maintain a home, land, or other types of real estate where the borrower agrees to pay back the loan over a set period, typically with interest.

Mortgage Broker: A professional who arranges and negotiates mortgage loans on behalf of a borrower for a fee or commission.

Mortgagee: The lender in a mortgage agreement.

Mortgagor: The borrower in a mortgage agreement.

Monthly Payment: The amount paid by the borrower every month, typically including principal, interest, taxes, and insurance.

Mortgage Insurance: Insurance policies that protect lenders in case the borrower defaults on the mortgage. This is typically required for down payments less than 20%.

Mortgage Note: A legal document obligating a borrower to repay a mortgage loan at a stated interest rate during a specified period.

Mortgage Principal: The amount of money borrowed or still owed on a loan, not including interest.

Mortgage Rate: The rate of interest charged by a mortgage lender.

Maturity Date: The date on which the final payment of a mortgage is due.

Modification: A change to the terms of a mortgage loan, often used as a way to help borrowers who are having difficulty making payments.

Market Value: The most probable price that a property should bring in a competitive and open market.

Mortgage Banker: An individual, company, or institution that originates, sells, and services mortgage loans.

Mortgage Commitment: A lender’s formal promise to grant a mortgage loan for a specific amount and under certain terms.

Mortgage Deed: A legal document by which the mortgagor (borrower) conveys the property to the mortgagee (lender) as security for the loan.

Mortgage Lien: A legal claim against a property that must be paid off when the property is sold.

Mortgage Underwriter: A professional who evaluates the risk of lending money for mortgages and approves or denies loan applications.

Margin: The set number of percentage points the lender adds to the index rate to determine the adjustable-rate mortgage interest rate at each adjustment.

Minimum Payment: The lowest amount that a borrower can pay on their mortgage bill each month.

Money Market Account: An interest-bearing account that typically pays a higher interest rate than a savings account.

Monthly Mortgage Statement: A statement sent by the mortgage lender to the borrower detailing the current status of the mortgage account.

Multifamily Mortgage: A mortgage loan on a residential property with multiple units, such as an apartment building.

Modification Agreement: A document that evidences a change in the terms of a mortgage loan.

Mortgage Acceleration Clause: A provision in a mortgage that gives the lender the right to demand payment of the entire loan balance under certain conditions.

Mortgage Credit Certificate (MCC): A certificate that allows the borrower to claim a tax credit for some portion of the mortgage interest paid during the year.

Mortgage Insurance Premium (MIP): The fee paid by borrowers for mortgage insurance on FHA loans.

Mortgage Originator: A person or company who assists a borrower in obtaining a mortgage.

Mortgage Pre-Approval: A lender’s comprehensive review of a borrower’s ability to pay for a home, resulting in a pre-approval for a specified loan amount.

Mortgage Protection Insurance: Insurance that covers a mortgage in case the borrower dies or is unable to make payments.

Mortgage Qualification: The process of determining how much money a prospective homebuyer will be eligible to borrow before applying for a loan.

Mortgage Refinancing: The process of paying off one mortgage loan with the proceeds from a new mortgage loan.

Mortgage Servicing: The administration of a mortgage loan, including collecting monthly payments, paying taxes and insurance, and managing escrow and impound accounts.

Mortgage Term: The length of time the borrower has to repay the mortgage.

Mortgage Title Insurance: Insurance that protects the lender against loss due to problems or defects in the title.

Mortgage-Backed Security (MBS): A type of investment security representing an interest in a pool of mortgages.

N

Negative Amortization: This occurs when the monthly payments on a loan are not enough to cover the interest cost. The unpaid interest is added to the loan’s principal amount, causing the total debt owed to increase over time instead of decrease.

Net Income: This is the income that an individual or business has after subtracting expenses and taxes from their gross income. In mortgage contexts, lenders often examine net income to determine a borrower’s ability to repay the loan.

No-Cost Loan: A mortgage option where the lender pays the loan’s closing costs, but usually at a higher interest rate. It can be beneficial for borrowers who don’t have the funds for upfront costs, but it may result in higher long-term expenses.

No-Doc Loan: Short for “No Documentation Loan,” this is a type of loan where the borrower provides limited income and asset information. It typically requires a higher credit score and larger down payment due to the increased risk to the lender.

Non-Conforming Loan: A loan that does not meet the criteria set by government-sponsored enterprises like Fannie Mae and Freddie Mac. These loans often cater to borrowers with unique financial situations and might have higher interest rates.

Non-Owner Occupied: Refers to a property that the owner does not personally inhabit. In mortgage terms, loans on non-owner occupied properties often have different rates and requirements due to the higher perceived risk.

Note Rate: The interest rate stated on a mortgage note. It is the rate used to calculate the monthly payments.

Notice of Default: A formal notice sent to a borrower who has fallen behind on mortgage payments, indicating the lender’s intent to foreclose on the property if the default is not remedied.

NMLS (Nationwide Mortgage Licensing System and Registry): A system for licensing and registering mortgage loan originators and companies. It is a part of a national effort to improve consumer protection and streamline the mortgage process.

No-Interest Loan: A loan arrangement where the borrower is only required to repay the principal amount borrowed, without any interest charges. This type of loan is rare in the mortgage industry.

O

Origination Fee: This is a charge by the lender for processing a new loan application. It’s expressed as a percentage of the total loan and is generally between 0.5% and 1% in the U.S.

Overage: In the mortgage context, overage refers to the difference between the lowest available mortgage rate and the higher rate that the borrower agrees to pay. This overage is often shared between the mortgage broker and the lending institution as a form of compensation or profit.

Owner Financing: This occurs when the seller of a property provides all or part of the financing for a buyer. This can be an attractive option for buyers who may not qualify for traditional bank financing.

Owner’s Title Insurance: This is an insurance policy that protects the buyer from any problems with the property’s title. It’s different from lender’s title insurance, which only protects the lender’s interest in the property.

Obligation Bond: A bond issued by a municipality or other governmental entity that is backed by its full faith and credit. In the context of mortgages, these bonds may be used to finance housing developments or other related projects.

Offset Account: A savings account linked to a mortgage account. The balance of the offset account reduces the amount of interest charged on the linked mortgage.

Open-End Mortgage: A mortgage that allows for the borrowing of additional funds under the same loan agreement, up to a certain limit.

Option Adjustable-Rate Mortgage (Option ARM): This is a type of mortgage where the borrower has several payment options each month, including a minimum payment, an interest-only payment, and a fully amortizing payment.

Overcollateralization: In mortgage-backed securities, this refers to the practice of posting more collateral than is needed to secure a bond. This is done to enhance the creditworthiness of the issued bonds.

P

Payment Cap: A limit on how much a borrower’s monthly payment can increase on an adjustable-rate mortgage.

PITI (Principal, Interest, Taxes, and Insurance): The four components that typically make up a monthly mortgage payment. Principal refers to the loan amount, interest is the charge for borrowing, taxes are the property taxes, and insurance includes homeowners insurance and, if applicable, mortgage insurance.

Pre-Approval: A lender’s conditional agreement to lend a specific amount based on the borrower’s financial information. This is often used by prospective home buyers to strengthen their position when making an offer on a home.

Prepayment Penalty: A fee charged to a borrower who pays off a loan before its due date.

Pre-Qualification: A preliminary step in the loan application process where a lender estimates the amount a borrower may qualify for, based on basic financial information provided by the borrower.

Prime Rate: The interest rate that commercial banks charge their most credit-worthy customers, often used as a benchmark for variable-rate mortgages.

Principal: The amount of money borrowed or still owed on a loan, excluding interest.

Private Mortgage Insurance (PMI): Insurance that a borrower might be required to buy as a condition of a conventional mortgage loan when less than a 20% down payment is made on the home. It protects the lender against loss if the borrower defaults on the loan.

Promissory Note: A legal document in which the borrower promises to repay the lender a certain amount of money within a specified timeframe.

Property Appraisal: An evaluation to determine the market value of a property, typically required during the mortgage process.

Property Tax: A tax assessed on real estate by the local government, based on the value of the property.

Purchase Agreement: A legal document outlining the terms and conditions of a real estate transaction, agreed upon by both the buyer and seller.

Q

Qualification Ratios: These are guidelines applied by lenders to determine how much a borrower can afford for a mortgage. It consists of two ratios: a front-end ratio (housing expense ratio) which is the percentage of a borrower’s gross monthly income that can go toward the housing expense, and a back-end ratio (total debt ratio) which includes all monthly debt obligations.

Qualified Mortgage (QM): This is a category of loans that have certain, more stable features that help make it more likely that you’ll be able to afford your loan. QM loans are presumed to comply with the ability-to-repay requirements set forth in the Dodd-Frank Act.

Qualifying Ratios: Similar to qualification ratios, these are the calculations used to determine if a borrower can qualify for a mortgage. They consist of the ratio of housing expense to income and total debt obligations to income.

Quantitative Analysis: This involves the process of determining the ability of the borrower to repay a loan using mathematical and statistical methods. It typically includes analyzing the borrower’s income, credit history, debts, and other financial metrics.

Quasi-Government Agencies: These are entities that although not officially government agencies, play key roles in the mortgage markets. Examples include Fannie Mae and Freddie Mac, which are government-sponsored enterprises.

Quiet Enjoyment: A legal principle in real estate that ensures a homeowner or tenant can use their property without interference from the previous owner, landlord, or other parties.

Quitclaim Deed: A legal instrument by which the owner of a piece of real property, called the grantor, transfers any interest to a recipient, called the grantee. This deed is often used to transfer property between family members or to correct a mistake in the property’s title.

Quorum: In the context of homeowners’ associations or condo boards, a quorum is the minimum number of members that must be present at a meeting to make the proceedings of that meeting valid.

Quote: In mortgage terms, this usually refers to a written estimate of the costs a borrower will likely have to pay at closing. This can include the interest rate, monthly payments, and the costs of closing the loan.

Quid Pro Quo: This term, meaning “something for something” in Latin, refers to the practice of a lender offering a benefit like a lower interest rate in exchange for a borrower taking on additional responsibilities or costs, like a larger down payment.

R

Rate Lock: A guarantee from a lender to lock in a specific interest rate for a certain period of time, typically between loan application and loan closing, protecting the borrower from rate fluctuations.

Real Estate Agent: A licensed professional who represents buyers or sellers in real estate transactions.

Real Estate Settlement Procedures Act (RESPA): A federal law that ensures transparency of all costs related to a real estate transaction, including the closing costs, and prohibits certain practices like kickbacks.

Realtor®: A real estate agent who is a member of the National Association of Realtors®, bound by a specific code of ethics.

Recast: The process of re-amortizing the remaining balance of a mortgage to lower the monthly payments, typically after a large principal payment.

Recession: A period of temporary economic decline during which trade and industrial activity are reduced, often affecting the housing market.

Refinance: Replacing an existing mortgage with a new loan, typically to get a lower interest rate, change loan terms, or convert equity into cash.

Repayment Plan: An agreement between a lender and borrower to make up missed payments, often by adding a portion of the overdue amount to regular monthly payments for a set time.

Reverse Mortgage: A loan for older homeowners that requires no monthly mortgage payments and allows them to convert part of the equity in their homes into cash.

Right of Rescission: The legal right to cancel a contract within a certain period, typically applied to the refinance or home equity loan processes.

Rural Housing Service (RHS) Loans: A type of loan offered by the United States Department of Agriculture (USDA) designed to help rural residents purchase, construct, and repair homes.

S

Sale Agreement: A legal document that outlines the terms and conditions of a property sale between a buyer and a seller.

Satisfaction of Mortgage: A document confirming that a mortgage loan has been fully repaid and the lien on the property has been released.

Second Mortgage: A loan taken out on a property that already has a mortgage, where the new loan is subordinate to the first.

Securitization: The process of pooling various types of debt (like mortgages) and selling them as bonds to investors.

Security: The property that is pledged as collateral for a loan.

Servicer: An entity that manages a loan, handling day-to-day tasks like collecting payments, managing escrow accounts, and responding to borrower inquiries.

Settlement: Another term for closing, the final step in executing a real estate transaction where the property’s title is transferred from seller to buyer.

Settlement Statement: A document that provides a detailed breakdown of costs involved in a real estate transaction, typically provided at or before closing.

Special Assessment: An additional charge to property owners by a local government for improvements that will increase the value of their properties.

Subprime Mortgage: A type of mortgage offered to borrowers with lower credit ratings, typically at higher interest rates than prime loans.

Survey: A precise measurement of a property’s boundaries and the location of improvements on the property, conducted by a professional surveyor.

Sweat Equity: The value added to a property by the owner through labor or improvements, rather than through cash investment.

T

Title: A legal document evidencing a person’s right to or ownership of a property.

Title Insurance: An insurance policy that protects the holder from loss sustained by defects in the title.

Title Search: A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.

Total Debt Ratio: A standard tool that calculates the proportion of income that goes towards paying all recurring debt payments, including mortgage and credit card payments.

Transfer Tax: Tax paid when the title passes from one owner to another.

Treasury Index: An index used to determine interest rate changes for certain adjustable-rate mortgages (ARMs). It is based on the results of auctions that the U.S. Treasury holds for its Treasury bills and securities.

Truth in Lending Act (TILA): A federal law designed to promote the informed use of consumer credit by requiring disclosures about its terms and cost.

Two-Step Mortgage: An adjustable mortgage with two interest rates: one for the first five to seven years of the loan and a different rate for the remainder of the loan term.

U

Underwriting: This is the process by which lenders assess the risk of lending to a borrower. Underwriting involves evaluating the borrower’s creditworthiness, income, assets, and the property in question to determine the likelihood of loan repayment.

Underwriting Fee: A fee charged by lenders to cover the costs associated with the underwriting process. This fee is part of the closing costs when obtaining a mortgage.

Uniform Residential Loan Application (URLA): A standardized loan application form used in the United States. It collects information about the borrower’s financial situation, employment history, and the property being purchased or refinanced.

Unsecured Loan: A loan that is not backed by collateral. In the context of mortgages, it usually refers to additional loans or lines of credit that are not secured by the property being mortgaged.

Usury: Charging interest at a rate that exceeds the legal limit. Each state has its own laws defining what constitutes usury.

Utility Easement: A legal right granted to a utility company or municipality to access and use a portion of a property owner’s land, typically for installing and maintaining utility lines or services.

V

Variable Rate Mortgage (VRM): A mortgage with an interest rate that can fluctuate based on changes in a base interest rate, such as the prime rate. Payments may vary during the loan term.

VA Loan: A mortgage loan in the United States guaranteed by the U.S. Department of Veterans Affairs (VA). It’s available to service members, veterans, and eligible surviving spouses.

Valuation: The process of determining the current worth of a property, often conducted by a professional appraiser.

Vendor: The seller of a property. In mortgage transactions, the vendor is the person selling the home to the buyer.

Verification of Employment (VOE): A document or process by which a lender verifies the employment status and income of a loan applicant.

Vested Interest: A legal term denoting the right to gain benefits from a trust, estate, or retirement plan, particularly relevant in the context of borrowing against a retirement plan for mortgage payments.

Voluntary Lien: A lien that a homeowner willingly places on their property, such as a mortgage or home equity loan, as opposed to an involuntary lien like a tax lien.

Volume: In the context of mortgages, it refers to the amount of business conducted by a lender or in a specific market, often measured in the number of loans or total amount loaned.

W

Waiver: A legal document in which a party voluntarily relinquishes a right, claim, or privilege. In mortgage terms, a waiver may be used to forego certain rights like home inspection or mortgage contingency in a real estate transaction.

Walk-Through: A final inspection of a property before closing where buyers can check if the condition of the home is as agreed upon in the contract. This process often includes checking if repairs were made and if the property is vacant.

Warranty Deed: A document used in real estate transactions, which guarantees that the seller holds clear title to a piece of real estate and has a right to sell it. It is more comprehensive than a quitclaim deed and provides greater protection to the buyer.

Water Table: The level below the earth’s surface at which the ground becomes saturated with water. A high water table can affect the foundation of a home and may require additional home construction considerations.

Wet Funding: A term used in some U.S. states referring to a mortgage closing where funds are available on the same day as the closing itself. This is opposed to ‘dry funding’ where there is a waiting period.

Wraparound Mortgage: A form of secondary financing for the purchase of real estate. The seller extends to the buyer a junior mortgage which wraps around and exists in addition to any superior mortgages already secured by the property.

X

X-Amortization: This isn’t a standard term in the mortgage industry, but it could theoretically refer to any unique or non-standard amortization schedule that doesn’t fit traditional models.

Xenocurrency: A term more common in currency markets than in mortgages, xenocurrency refers to a currency that is traded outside of its domestic borders. In the context of mortgages, this might apply to loans made in a foreign currency.

Y

Yield: In the context of mortgages, yield often refers to the return an investor will get on their investment. In the case of mortgage-backed securities, it’s the income return on the investment.

Yield Spread Premium (YSP): This is a term used in the mortgage industry to describe the money or rebate given to a broker or lender for originating a loan with a higher interest rate than the borrower qualifies for. The YSP is paid by the lender to the broker or mortgage originator.

Year-to-Date (YTD): This term refers to the period from the beginning of the current year to the current date. In mortgages, it’s often used in the context of financial statements or income documentation, showing the borrower’s earnings from the beginning of the year.

Yield Curve: In finance, the yield curve shows the relationship between interest rates and the maturity of debt. In mortgages, it can affect the interest rates offered for different mortgage terms.

Yield Maintenance: This is a prepayment premium that allows investors to attain the same yield as if the borrower made all scheduled mortgage payments until maturity. It’s commonly used in commercial real estate loans.

Z

Zero Down Payment: A mortgage option where the homebuyer is not required to make a down payment. This type of mortgage can increase the risk of default, as the borrower has no equity in the property at the time of purchase.

Zoning: Refers to municipal or local government laws that dictate how property in certain areas can be used. Zoning laws can affect the value of a property, its potential for future development, and the types of structures that can be built.

Zoning Ordinance: A law that defines how property in specific geographical zones can be used. Zoning ordinances include regulations regarding the type of buildings allowed, their sizes, lot sizes, building heights, setbacks, and other aspects of property use.

Zestimate: A term coined by the real estate website Zillow to describe its estimated market value for a home. While not an official appraisal, it provides a rough valuation based on public and user-submitted data.

Zero-Interest Mortgage: A rare type of mortgage where the borrower only pays back the principal, with no interest charged. This can occur in special financing situations, often supported by specific programs or incentives.

Zip Code: While not a mortgage term per se, zip codes are often used in the mortgage application process to determine the location of the property, which can impact interest rates, property values, and insurance costs.

Zoning Compliance: A certification or verification that a property meets all zoning regulations and requirements. Important for property developers and those looking to make significant alterations to a property.

Zoning Permit: A document or approval granted by local authorities that allows the holder to use a property for a specific purpose that complies with zoning regulations.

By continuing to use our website, you acknowledge that you have read and understood our Disclaimer, Privacy Policy, and Terms of Service. Your continued use of the site signifies your agreement to these terms.