• 5/1 Adjustable Rate MortgageA type of Adjustable Rate Mortgage where the interest rate changes periodically. The rate is fixed for five years, after which it will adjust every year.
• Acceleration ClauseThe right of a lender to demand immediate repayment of a loan in full, minus interest. Typically invoked if a borrower defaults on a loan.
• AcceptanceThe mutual agreement between a buyer and seller to enter into a contract bound to the terms of the offer
• Account Termination FeeThe fee that is possible to be charged if a buyer pays their mortgage in full and terminates the home equity line of credit before five years have elapsed.
• Additional Principal PaymentPayments from the borrower that are more than the scheduled principal payment amount. This is done in order to save on interest accruing over the life of a loan, and/or to pay off the loan early.
• Adjustable-Rate Mortgage (ARM)With an ARM, the interest rate changes at a certain point, typically after three to five years. The interest rate is typically fixed for the first several years of the mortgage, often a low rate, and then changes on a monthly, annual or other set interval basis. When the interest rate changes, so does the interest portion of the borrower's monthly payment.
• Adjustment CapThe limit for how much the variable interest rate on a mortgage can decrease or increase within an adjustment period.
• Adjustment DateThe predetermined date that the interest rate changes for adjustable-rate mortgages.
• Adjustment IntervalThe period of time after which the interest changes on an Adjustable-Rate Mortgage.
• Affordability AnalysisThe thorough analysis of the borrower's ability to afford the fees associated to purchase a home. Factors like income, liabilities/bills, currently available funds, and credit are considered.
• AmortizationThe process of paying off the outstanding balance of a loan in regular installments. Each payment covers both part of the principle- the initial amount of money borrowed - and the interest on that principle.
• Amortization TermThe amount of time to pay off (amortize) the loan, broken down into months. For instance, a standard 30-year fixed-rate mortgage amortization term is 360 months.
• Application FeeA fee some lenders charge to accept a loan application.
• AppraisalAn analysis by a professional appraiser comparing other sales of nearby homes to estimate a home’s value.
• Appraisal contingencyThe contingency in the homebuying contract that states that the property must appraise at the value that is equal to, or greater than your offering price.
• AppreciationThe gradual increase in value of a property over time, not counting value-adding improvements.
• APR (annual percentage rate)A measure of closing costs including points, origination fees and other credit charges included in mortgage financing expressed as an annual interest percentage.
• ARM marginThe margin on an Adjustable-rate mortgage is the interest a borrower must pay in addition to the normal index rate.
• As-IsAn “as is” property is offered in its present condition, including any repairs or maintenance that must be performed to make it habitable.
• Assessed ValueThe value of a piece of real estate as set by taxing authorities.
• AssetsThe more high-value assets you have, the less risky you'll appear to lenders because you have more financial resources to draw from.
• AssignmentThe process of transferring a contract/terms of a loan, from one borrower to another.
• Assumable LoanA loan that can be taken over or transferred to a buyer.
• Automated underwritingAn automated process using technology to analyze a borrower’s credit profile to recommend approval or denial of a loan.
• Balance SheetAn up-to-date financial statement that shows a buyer's total assets, liabilities, and total net worth.
• Balloon MortgageA type of mortgage that features a fixed-rate for 5-7 years, then requires the borrower to to immediately pay it in full after that time.
• Balloon PaymentA final, larger-than-usual payment at the end of a balloon mortgage.
• Base RateThe interest rate that is used as the basis for pricing variable-rates mortgages and loans.
• BondA certificate that accrues interest with a maturity date. In the context of a mortgage, a real estate bond is a predetermined obligation that is secured by either a mortgage or a deed of trust.
• Break Even PointThe point where total income is equal to total expenses, used to determine purchasing discount points for mortgages.
• Bridge LoanA type of mortgage financing utilized between the termination of one loan and the start of another loan; typically used when a borrower transitions between homes.
• BrokerA mortgage expert who helps clients with the mortgage process and arranges loans for them.
• BuydownA practice in which the seller of a home subsidizes the buyer so that they can qualify for a mortgage and purchase the property. The seller typically will increase the price of the home to compensate.
• CapsThe maximum percentage by which a ARM can change after an adjustment period.
• Cash-Out Refinancea mortgage that replaces an existing loan, is larger than the balance on the existing loan and pays out the difference in cash to the borrower.
• Ceiling rateThe absolute maximum interest rate that can possibly accrue on an adjustable-rate mortgage (ARM).
• Certificate of EligibilityA Veterans Administration provided document that proves the borrower is eligible for a VA loan.
• Certificate of Reasonable ValueA certificate that proves the Veterans Administration has had a property appraised for its current market value.
• Certificate of titleA statement from a title company or attorney stating the owner of the title to a real estate.
• Chain of titleThe history of the title certificate (and all additional relevant documents) of real property, from the earliest incarnation of the title to the most recent version.
• Clear titleA title that is free of all liens, legally undisputable to any question of the ownership of a property.
• ClosingTypically the last phase of the homebuying process. The final paperwork is completed and the transfer of ownership begins.
• Closing Costs (Cash to Close)Other fees you may encounter when finalizing your mortgage. Closing costs typically include your origination fee, along with fees associated with your home inspection, appraisal, application, title insurance, credit check and more.
• Closing DisclosureA final evaluation of the various costs and fees associated with the homebuying process. The Closing Disclosure features the loan terms, monthly rates, taxes, and other important financial information about the property.
• Closing statementThe accounting and total records of the funds given to the buyer and seller before a real estate purchase closes.
• Co-borrowerAny additional person who assumes equal responsibility for repayment of a mortgage, who accepts both the terms and the proceeds of the mortgage.
• Co-signerA co-signer is an individual who has agreed to assume the borrower's debt in the event they are no longer able to pay the loan. If a borrower defaults on a loan, the lender may hold the co-signer responsible. Co-signers are sometimes required in the event that a borrower has damaged credit or other concerns.
• CollateralAssets like homes and vehicles, used and leveraged by borrowers for securing repayment of loans from lenders. The assent can be forclosed upon if the loan isn't repaid.
• CollectionThe process of making a delinquent loan or mortgage current. If not possible, then the borrower proceeds in filing for foreclosure.
• Combination LoanWhen a borrower is granted two distinct loans for the same purchase. For example, a borrower could take out a loan to cover construction costs of a new home, followed by a seperate, traditional mortgage. A borrower might also take out a loan to cover their down payment, and then a seperate loan for the property itself.
• Combined loan-to-value ratio (CLTV)The Combined Loan to Value Ratio of a property is similar to the regular LTV of a property - the difference is that the Combined LTV Ratio factors in ALL the loans on that property. The total value of each loan together is divided by the total value of the property, producing the CLTV.
• Comparables (comps)Comparables are different properties that a potential buyer might compare against one another, hence the name. Comparing properties gives a buyer a sense of what kind of home they may be able to afford in the area they are looking in.
• Compound interestSimply put, compound interest is increased interest that a loan accrues as it is effected by interest. The value of an unpaid loan increases over time at a fixed percentage known as interest. As the total amount increases, so does the percentage, which is added to the total. For example, if a loan of $100 has a 10% interest rate, the balance will stand at $110 after 1 year. As 10% of 110 is 11, the following year the balance will increase by $11 - and so on, for as long as balance of the loan continues to grow.
• CompsRecent sales of similar properties used to estimate a property’s fair market value.
• Conforming LoanA loan type where the initial balance is less than or equal to the maximum amount set by the Federal mortgage providers.
• Construction loanA construction loan is a loan taken out specifcally to finance new construction or renovation on a property.
• ContingenciesHomebuyers can make their offer contingent upon certain requirements, such as the seller completing necessary repairs or improvements to the property.
• Conventional MortgageA mortgage loan program that is not insured by any government agency.
• ConversionThe process by which a borrower changes an non-fixed (adjustable or balloon) mortgage into a fixed-rate mortgage.
• Convertible ARMA Convertable ARM works just like a regular ARM - however, after a set number amount of time, the borrower may convert their loan to a fixed-rate mortgage.
• ConveyanceConveyance is the process through which a property transfers legal ownership.
• Credit ReportCredit reports give lenders a sense of how well you've historically managed your accounts, which helps them predict how likely you would be to default on a home loan.
• Credit scoreThe information on your credit reports
• Date of possessionThe date a buyer is entitled to move into a purchased home.
• Debt-to-Income RatioA figure that shows how your debt obligations compare with your gross (pretax) monthly income. It is calculated by dividing monthly debt payments by gross monthly income.
• DeedThe legal document that transfers title to a property from one person to another.
• Deed of trustA deed of trust, while similar to a mortgage, is distinct. A mortgage is between only two parties - the lender and the borrower. A deed of trust adds a third party to the equation; this entity holds the rights to the property until the borrower repays the loan in full.
• DefaultWhen a borrower fails to repay a loan.
• DelinquencyWhen a borrower fails to make loan payments on time.
• Discount pointsMoney a borrower may pay in advance to reduce the interest rate on the loan.
• Down paymentMoney paid upfront from the borrower’s own funds. Mortgage lenders generally require a substantial down payment to demonstrate that you're financially healthy and invested in the purchase. This amount is due upon completion of the closing paperwork for your mortgage, and your loan makes up the rest of the purchase price
• Draw MortgageA draw mortgage is a type of construction loan where money is allocated over time. As construction on a new property progresses, the lender will disburse a predetermined amount to cover the costs. This differs from a completion mortgage, where the money is granted to the builder only once construction finishes.
• Draw periodA HELOC, or home equity line of credit, is divided into two periods of time - the draw period, where the funds provided by the HELOC are available for withdrawal and use, and the repayment period, where the loan must begin to be repaid.
• Earnest MoneyA deposit offered by a buyer as a token of good faith when an offer on a home is made.
• EncumbranceAn encumbrance is any legal restriction of usage or ownership on a property. This could be a mortgage, a zoning restriction, a lien, or something else.
• EntitlementThe amount of money that the Veterans Association will guarantee on a loan.
• EquityThe difference between the value of a home and the outstanding balance on the mortgage.
• EscrowA savings account set up by your lender to collect and pay property taxes, homeowners insurance and mortgage insurance as they come due.
• Fair market valueThe fair market value of a property is the amount it would sell for on the open market assuming both parties are fully aware of the facts and conditions of the property, have an unrestricted period of time to work with, and are acting objectively. Fair market value is often used to determine tax rates and insurance payouts.
• Fannie MaeThe Federal National Mortgage Association, often referred to as Fannie Mae, is government-sponsored enterprise that exists to provide mortgages to middle- and low-income buyers. Fannie Mae buys mortgages on the secondary market, and then pools them into mortgage-backed securities. This creates liquidity in the mortgage market that enables lenders to underwrite more mortgages and make them available to more people.
• Federal Home Loan Corporation (Freddie Mac)A federally-backed mortgage company. Enables banks to lend more money to homebuyers. Loans that adhere to Fannie Mae and Freddie Mac lending standards are called conforming loans.
• Federal Housing Administration (FHA)The FHA is a federally-backed entity that provides mortgage insurance on loans extended by FHA-approved lenders. This way, lenders know they are protected against default and can extend more loans to more people.
• Federal National Mortgage CorporationA private corporation created by Congress. Operates with the purpose of helping lower-income borrowers secure loans.
• FHA LoanA mortgage insured by the Federal Housing Administration (FHA) with more lenient borrowing guidelines.
• FHA Mortgage InsuranceInsurance required by the FHA as part of each loan they extend. Typically equals 1.5% of the loan amount paid up front and a monthly installment of .5% of the loan amount.
• Fixed-Rate MortgageA mortgage with an interest rate that stays the same for the life of the loan.
• Flood CertificationA surveyor’s determination that property is not located in a flood zone. If the certification shows the property is subject to flooding, a flood insurance policy may be required.
• ForeclosureThe legal process by which a lender sells the property securing a loan to repay the loan when the borrower defaults.
• Freddie MacThe Federal Home Loan Mortgage Corporation, or Freddie Mac, is a government-sponsored entity much like Fannie Mae. The two operate similarly - but while Fannie Mae buys its mortgages from large banks, Freddie Mac sources its mortgages from smaller lenders.
• Good Faith EstimateA list of costs and fees a lender must give to a borrower within three days of applying for a loan.
• Graduated Payment MortgageA loan type that features smaller payments at the beginning and larger payments as time goes by, up to a fixed amount.
• Gross Monthly IncomeThe money a borrower earns each month, before taxes and any expenses are assessed. Important for loan applications.
• Guaranteed MortgageA type of loan that is protected (guaranteed) against the borrower defaulting. These are typically FHA or VA loans that require the borrower to pay an mortgage insurance premium as part of their monthly payment.
• Home equity line of credit (HELOC)A home equity line of credit, or HELOC, is a line of credit tied directly to a property's value. Throughout the draw period established at closing, a homeowner can borrow against the equity they have built up in their home. If the amount that a homeowner owes on their mortgage is less than the value of the home, they are typically able to borrow up to 85% of the value of the home minus the outstanding balance.
• Home Equity Loana second mortgage secured by the amount of the fair market value of a home that exceeds the balance on the first mortgage.
• Home inspectionAn examination by a licensed home inspector that is usually required by a mortgage company.
• Homeowners insuranceInsurance that protects borrowers and lenders against financial loss due to damage or destruction of the home. Also called hazard insurance.
• Housing RatioThe monthly cost of housing divided by the Gross Monthly Income.
• HUDThe U.S Department of housing and Urban Development is the larger government entity of which the FHA is a part.
• Hybrid InsuranceA loan that has features of both a fixed-rate and Adjustable Rate Mortgage. Typically, these loans start out with a fixed rate and then transition into Adjustable-Rate Mortgages.
• Impound AccountA impound, or escrow, account is a way to ensure that taxes and bills related to homeownership are paid. A portion of a monthly mortgage payment goes into the impound account, which is set up by the lender. Then, that money is put towards the monthly non-mortgage expenses. For the homeowner, this has the practical effect of combining their mortgage payments with their other financial obligations on the property.
• InspectionA part of the homebuying process in which a property is examined to determine its quality and viability.
• Interest rateThe charge assessed for the use of the borrowed money - in other words, the rate that the borrower charges you for the money you are borrowing.
• Interim FinancingInterim financing, also called a bridge loan, is a loan that is taken out for a short time, usually to cover the cost of buying or renovating a property that will soon be sold for profit.
• Investment propertyAn investment proprty is a property purchased explicitly for the purpose of using it to earn income, either through renting it out, selling it for a profit, or both.
• Jumbo loanA higher-risk loan that is larger than the conventional loan limit set by Fannie Mae and Freddie Mac. As a result, they have a higher interest rate.
• LenderThe entity providing a loan.
• LienA creditor’s legal claim on property a borrower used as security for a debt.
• Life-of-Loan CapThe maximum interest rate a loan can reach. A loan that starts with a 5% interest rate with a cap of 10% will only ever adjust up to 5%.
• Loan-to-value ratioThe Loan-to-Value Ratio, or LTV, is a figure that indicates what percentage of the property’s value the borrower is borrowing. If a borrower pays 20% of the property’s value up front and borrows the other 80%, they have a LTV ratio of 80%.
• LockThe time during which a lender will guarantee, or “lock” their rate.
• Market ValueThe theoretical price of a given property, as assessed by an appraiser or other professional. Used to determine the price a house should be bought and sold for.
• Monthly Housing ExpenseThe net housing costs per month, including the mortgage payment, taxes, and other fees such as mortgage insurance.
• MortgageA type of loan used to purchase a property.
• Mortgage insuranceMortgage insurance is a way for lenders to reduce their risk because the insurer will assume your payments if you default on your mortgage.
• MortgageeThe entity providing the mortgage; the lender.
• MortgagorThe person who is extended the mortgage; the borrower.
• Origination FeeA fee assessed by a lender as part of the Mortgage Application. Typically equal to .5% or 1% of the loan amount, it covers the cost of processing the application.
• PITIPrinciple, Interest, taxes and insurance: the components of the Monthly Housing Expense.
• PointsAn amount of money paid by the borrower to the lender at closing to defray interest fees. A “point” is equal to 1%.
• PreapprovalA part of the homebuying process. An estimate of how much money a borrower will be eligible to borrow, based on their financial status. A crucial part of determining how much house one can afford.
• PrepaidsAmounts for interest, property taxes, insurance, homeowner’s association fees and other costs that may be required to be paid at closing.
• Prepayment penaltycharge some mortgage lenders apply if a borrower pays off a loan sooner than the terms call for.
• PrequalificationSimilar to preapproval, but no credit check
• PrincipalThe amount of money borrowed and owed on a mortgage.
• Principal and interestThe portion of a monthly mortgage payment that goes to paying interest and reducing the outstanding balance of the loan.
• Private Mortgage InsuranceAn insurance policy, paid for by the borrower, that protects lenders against default. Often required by lenders if a borrower’s LTV ratio is above 80%.
• Property taxesReal estate taxes levied by local taxing authorities.
• Qualifying RatioA figure that compares a borrower’s income to their monthly expenses. Plays a role in determining loan approval.
• Real Estate Settlement Procedures Act (RESPA)A 1974 federal law requiring all costs and fees to be disclosed to buyers and sellers.
• RefinanceA loan that is used to pay off a preexisting loan using the original property as collateral.
• Sweat EquityAn increase in home equity resulting from improvements made to the home by the owner.
• TermThe number of years it will take to pay off a mortgage if the minimum payment is made each month
• TitleAn official document describing who owns a piece of property
• Title Insurance PolicyAn insurance policy that protects parties to a real estate transaction against losses due to a dispute about ownership.
• Title SearchResearch a title company does to discover any outstanding liens on a property before it can be sold.
• Total Debt RatioTotal debt and housing payments divided by total monthly income.
• UnderwritingThe process of evaluating a borrower’s creditworthiness before approving an application for a mortgage.
• Uniform Residential Loan ApplicationThe standard mortgage application used by most lenders.
• VA LoanA mortgage guaranteed by the Department of Veterans Affairs that is available as a benefit to military veterans.
• Walk-ThroughA physical inspection of a property by a buyer, usually performed just before closing.
• Warranty DeedA document stating that there are no preexisting liens on a property so that the owner can sell it to a buyer.
• Wire TransferThe preferred method for transferring money from one bank account to another to settle real estate closings.
• Zoning Zoning refers to local laws that determine how property and land can be used. For example, zoning laws may restrict using a residential property as a storefront for a business.