Glossary

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1003 (Uniform Residential Loan Application) - A standardized mortgage loan application used by borrowers to provide information about their finances, employment, assets, liabilities, and the property being financed.

A & D Loan (Acquisition and Development Loan) - A loan used to purchase land and finance improvements necessary to prepare the property for development.

Abstract of Title - A written summary of the recorded history of ownership and other matters affecting title to a specific property.

Acceleration Clause - A provision in a loan agreement that allows the lender to require immediate payment of the outstanding loan balance if certain conditions occur, such as a borrower default.

Acknowledgment - A formal declaration before a notary public or other authorized official confirming that a person signed a document voluntarily and that their identity was verified.

Adjustable-Rate Mortgage (ARM) - A mortgage with an interest rate that may change periodically based on the terms of the loan. Changes in the interest rate may result in changes to the borrower's monthly principal and interest payment.

Adjustment Interval - For an adjustable-rate mortgage (ARM), the period of time between potential changes to the loan's interest rate.

Affidavit - A sworn statement in writing.

American Land Title Association (ALTA) - A national trade association representing the title insurance and real estate settlement services industries. ALTA develops standardized forms, best practices, and other resources used throughout the industry.

Amortization - The process of paying off a loan over time through scheduled payments. With a fully amortizing mortgage, payments are structured to repay the principal and interest by the end of the loan term.

Annual Percentage Rate (APR) - A measure of the cost of borrowing expressed as a yearly rate. APR includes the interest rate plus certain fees and other costs associated with the loan, making it useful when comparing mortgage offers.

Appraisal - An independent estimate of a property's value completed by a qualified appraiser. Depending on the loan program, a lender may require an appraisal as part of the mortgage process.

Assets -  Property or financial resources owned by a borrower, such as cash, bank accounts, investments, or real estate, that may be considered during the mortgage qualification process.

Assumption - An arrangement in which a buyer takes responsibility for a seller's existing mortgage, subject to the terms of the loan and lender approval when required. Not all mortgages are assumable.

Back-End Ratio - A debt-to-income (DTI) ratio that compares a borrower's total monthly debt obligations, including the proposed housing payment and other recurring debts, to their gross monthly income. It is expressed as a percentage.

Balloon Mortgage - A loan that requires a larger-than-usual payment, known as a balloon payment, at the end of the loan term. The payments made during the loan term may not be sufficient to fully repay the loan balance.

Bankruptcy - A legal process that may allow individuals or businesses to address debts they are unable to repay.

Bankruptcy Discharge - A court order that releases a debtor from personal liability for certain debts following a bankruptcy proceeding. Not all debts are necessarily dischargeable.

Bankruptcy Dismissal - The termination of a bankruptcy case before a discharge is granted. A case may be dismissed for various reasons by the court or at the debtor's request, depending on the circumstances.  

Bank Statement Loan -  A mortgage that may allow eligible borrowers to document income using bank statements as an alternative to traditional income documentation. These loans are commonly used by self-employed borrowers or borrowers with non-traditional income documentation.

Beneficiary - In a deed of trust, the lender or other party whose interest is secured by the property.

Borrower - A person who obtains financing and is responsible for repaying the loan according to its terms.

Buydown - An arrangement in which funds are used to reduce a borrower's mortgage interest rate for a specified period of time or, in some cases, for the life of the loan. The cost may be paid by the borrower, seller, builder, or another party, subject to loan requirements.

Cap - A limit on how much the interest rate or payment on an adjustable-rate mortgage (ARM) may change. Caps may apply to individual adjustment periods or over the life of the loan.

Cash-Out Refinance - A refinance that replaces an existing mortgage with a new, larger loan and allows the borrower to receive a portion of their available home equity as cash.

Certificate of Occupancy - A document issued by a local government or other authorized agency indicating that a property meets applicable requirements for occupancy.

Certified Copy - A copy of an original document that has been formally verified as a true and accurate copy by an authorized person or agency.

Clear-to-Close - A status indicating that the lender has completed its required loan review and the loan is ready to proceed toward closing, subject to any remaining closing requirements.

Closing - The final stage of a real estate transaction when the required documents are completed, funds are provided and disbursed, and ownership of the property can officially transfer to the buyer. Also called settlement.

Closing Costs - Expenses associated with completing a mortgage transaction. These may include lender fees, appraisal and title services, government fees and taxes, and other costs related to the loan and closing.

Co-Borrower - A person who applies for a loan with another borrower and shares responsibility for repaying the debt.  

Community Property - A form of property ownership recognized in certain states in which property or assets acquired during a marriage may be considered jointly owned by both spouses, subject to applicable state law.

Comparable (Comp) - A recently sold property with similar characteristics to the property being appraised. Appraisers may use comparable properties to help estimate a property's market value.

Condominium - A form of property ownership in which an individual owns a specific unit and shares ownership or use of common areas with other unit owners. A homeowners association (HOA) typically manages the common areas and enforces community rules.

Construction Loan - Financing used to cover the costs of building or substantially renovating a property. Funds are typically disbursed in stages as construction progresses.

Consumer Credit - Credit extended to an individual for personal, family, or household purposes, such as credit cards, auto loans, or personal loans.

Conventional Loan - A mortgage that is not insured or guaranteed by a federal government agency, such as the FHA, VA, or USDA.

Conversion Clause -  A provision in some adjustable-rate mortgages (ARMs) that allows the borrower to convert the loan to a fixed interest rate under specified terms and conditions.

Credit Report - A record of your credit activity and current credit situation, including information about your credit accounts and payment history.

Credit Score - A number that predicts how likely you are to repay borrowed money on time, based on information in your credit report. You may have more than one credit score because different scoring models and sources of credit information may be used.

Debt-to-Income Ratio (DTI) - The percentage of your gross monthly income that goes toward monthly debt payments. Lenders use DTI as one factor when evaluating your ability to manage monthly payments and repay a loan.

Debt Service Coverage Ratio (DSCR) Loan -  A financing option for real estate investors that generally evaluates a property's rental income in relation to its debt obligations rather than relying primarily on the borrower's personal income.

Deed - A legal document used to transfer ownership of real property from one party to another.

Deed of Trust - A legal document used in some states to secure a loan with real property. It involves the borrower, lender, and a third-party trustee and serves a similar purpose to a mortgage.

Default - Failure to meet the terms or obligations of a loan agreement, such as failing to make required mortgage payments.

Deferred Interest - See Negative Amortization

Delinquency The status of a loan when a required payment has not been made by its due date. Continued delinquency may lead to additional consequences, including possible foreclosure.

Department of Veterans Affairs (VA) - A federal agency that administers benefits and services for eligible veterans, service members, and certain surviving spouses. The VA home loan program provides a guaranty on eligible mortgage loans made by private lenders.

Derogatory Credit Explanation - A written explanation from a borrower providing additional information about negative items appearing in their credit history when requested as part of the loan review.  

Discount Points - Optional fees paid at closing in exchange for a lower interest rate. One point equals 1% of the loan amount.

Down Payment - A provision in a mortgage or deed of trust that may allow the lender to require repayment of the outstanding loan balance if the property is sold or transferred.

Due-On-Sale Clause - A provision in a mortgage or deed of trust that allows the lender to demand immediate payment of the balance of the mortgage if the mortgage holder sells the home.

Earnest Money - A deposit made by a buyer to demonstrate their intent to complete a real estate purchase. The funds are typically held in escrow and may be applied toward the purchase at closing, subject to the terms of the purchase agreement.

Easement -  A legal right that allows a person or entity to use another person's property for a specific purpose, such as access or utilities, without owning the property.

Encroachment - A structure or improvement that extends onto another person's property without authorization, such as a fence, building, or other physical feature that crosses a property boundary.

Equal Credit Opportunity Act (ECOA) - A federal law that prohibits creditors from discriminating against credit applicants based on race, color, religion, national origin, sex, marital status, age (provided the applicant has the capacity to contract), receipt of income from a public assistance program, or the good-faith exercise of rights under certain federal consumer credit protection laws.

Equity - The difference between a property's current value and the amount owed on loans secured by the property.

Escrow - A process in which a neutral third party holds funds and documents and helps complete a real estate transaction according to agreed-upon instructions. Escrow can also refer to an account used to collect and pay expenses such as property taxes and homeowners insurance.

Escrow Instructions - Written instructions that outline the terms, conditions, and responsibilities the escrow holder must follow when completing a real estate transaction.

Escrow Waiver - An arrangement that allows a borrower to pay certain property-related expenses, such as property taxes and homeowners insurance, directly rather than through an escrow account. Eligibility and requirements vary by lender and loan program.

Fannie Mae (Federal National Mortgage Association) - A government-sponsored enterprise (GSE) that purchases mortgages from lenders, helping provide liquidity and stability to the U.S. housing finance market.

Federal Housing Administration (FHA) - A federal agency within the U.S. Department of Housing and Urban Development (HUD) that provides mortgage insurance on loans made by FHA-approved lenders.

Fee Simple - A form of real property ownership that generally provides the owner with the broadest ownership rights permitted by law, subject to applicable restrictions, liens, and government regulations.

FHA Loan - A mortgage insured by the Federal Housing Administration (FHA) and offered through FHA-approved lenders. FHA loans have specific borrower, property, and loan requirements, including limits on the amount that may be borrowed.

FHA Mortgage Insurance - Mortgage insurance required on FHA loans that helps protect the lender against losses if a borrower defaults. FHA mortgage insurance generally includes an upfront mortgage insurance premium and an annual premium paid as part of the borrower's monthly mortgage payment. Requirements and costs are determined by FHA guidelines.

Fixed-Rate Mortgage - A mortgage with an interest rate that remains the same for the term of the loan.

Flood Insurance - Insurance that provides coverage for certain losses caused by flooding. A lender may require flood insurance when a property is located in a designated high-risk flood area.

Foreclosure - A legal process through which a lender or loan servicer may take and sell a property when a borrower does not meet the obligations of the mortgage loan.

Free and Clear - A term used to describe property that is owned without any outstanding mortgage debt or other liens against it.

Freddie Mac (Federal Home Loan Mortgage Corporation) - A government-sponsored enterprise (GSE) that purchases mortgages from lenders, helping provide liquidity and stability to the U.S. housing finance market.

Functional Obsolescence - A reduction in a property's value or usefulness caused by outdated design, features, or layout compared with current standards or market expectations.

Gift Funds - Money provided to a borrower by an eligible donor to help with certain costs associated with purchasing a home, such as the down payment or closing costs. Eligibility, documentation, and other requirements vary by loan program.  

Ginnie Mae (Government National Mortgage Association) -  A government corporation within the U.S. Department of Housing and Urban Development (HUD) that guarantees mortgage-backed securities backed by federally insured or guaranteed loans, such as FHA, VA, and USDA loans.

Graduated Payment Mortgage (GPM) - A type of fixed-rate mortgage that begins with lower monthly payments that gradually increase according to a predetermined schedule before leveling off. Some GPMs may result in negative amortization during the early years of the loan.  

Grant Deed - A legal document used to transfer ownership of real property. A grant deed generally includes certain assurances from the grantor regarding ownership and undisclosed encumbrances.

Gross Monthly Income - A borrower's total monthly income before taxes and other deductions. Lenders may use qualifying gross monthly income when evaluating a borrower for a mortgage.

Guarantee - A commitment by one party to assume responsibility for a debt or obligation if another party fails to meet its contractual obligations.

Hazard Insurance - Insurance coverage that protects a home against certain types of damage or loss, such as fire or wind. Hazard coverage is typically included as part of a homeowners insurance policy. Coverage and exclusions vary by policy.

Homeowners Insurance - Insurance that provides coverage for a home and personal property against certain types of damage or loss and may also include liability coverage. Lenders generally require homeowners insurance when a property secures a mortgage.

Homestead - A person's primary residence. Depending on state law, a homestead may qualify for certain legal protections or property tax benefits.

Housing Expense Ratio - A debt-to-income calculation that compares a borrower's monthly housing expenses to their gross monthly income. It may be used by lenders as one factor when evaluating a borrower's ability to repay a mortgage.

Impound - An account used to collect a portion of property taxes, homeowners insurance, and certain other expenses as part of a borrower's mortgage payment. Also commonly called an escrow account.

Index - A benchmark interest rate used to help determine the interest rate on an adjustable-rate mortgage (ARM). The loan's interest rate is generally calculated using the index plus a specified margin, subject to the terms and limits of the loan.

Interest Rate - The percentage of a loan amount charged by a lender for borrowing money. The interest rate helps determine the amount of interest paid over the life of the loan and is different from the annual percentage rate (APR).

Investor - An individual or organization that purchases or holds mortgage loans or mortgage-backed securities as an investment.

Joint Tenancy -  A form of property ownership in which two or more people hold title together, typically with equal ownership interests and a right of survivorship. When one owner dies, their interest generally passes to the surviving joint tenant or tenants, subject to applicable law.

Jumbo Loan - A mortgage with a loan amount that exceeds the applicable conforming loan limit established for loans eligible for purchase by Fannie Mae and Freddie Mac. Loan limits vary by year and location, and jumbo loans may have different qualification requirements than conforming loans.

Land Contract - An agreement in which a buyer makes payments directly to a seller for the purchase of property while the seller generally retains legal title until the terms of the contract are satisfied. Requirements and terminology may vary by state.

Leasehold Estate - An interest in real property that gives a tenant (lessee) the right to use and occupy the property for a specified period under the terms of a lease, without owning the property itself.

Legal Description - A formal description used to identify the location and boundaries of a specific parcel of real property in legal documents.

Lien - A legal claim or interest against property that may secure payment of a debt or other obligation.

Loan Commitment - A lender's agreement to provide financing to a borrower, subject to specified terms and conditions.

Loan Estimate - A standardized form provided to a mortgage applicant that outlines important information about the proposed loan, including the estimated interest rate, monthly payment, closing costs, and other loan terms. It generally must be provided within three business days after a lender receives the information required to constitute an application.

Loan Term - The length of time scheduled for a loan to be repaid. Common mortgage loan terms include 15, 20, and 30 years, although other terms may be available.

Loan-To-Value Ratio (LTV) A percentage that compares the amount of a mortgage loan to the value of the property.

Margin - The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.

Market Value - An estimate of what a property would likely sell for in a competitive and open market under typical conditions.

Mortgage - A loan secured by real property in which the property serves as collateral for the debt.

Mortgage Broker - A licensed professional or company that helps borrowers find and arrange mortgage financing with lenders. A mortgage broker may receive compensation for these services.  

Mortgage Escrow Account -  An account used to collect a portion of certain property-related expenses, such as property taxes and homeowners insurance, as part of a borrower's mortgage payment. The servicer uses the funds to pay those expenses when they become due.

Mortgage Insurance - Insurance that protects the lender against certain losses if a borrower is unable to repay the loan. The type and requirements for mortgage insurance depend on the loan program.

Mortgagee The lender in a mortgage agreement.

Mortgagor The borrower in a mortgage agreement.

Negative Amortization - A situation in which a loan payment is not enough to cover all of the interest due. The unpaid interest is added to the loan's principal balance, causing the amount owed to increase rather than decrease.

Non-Assumption Clause - A provision in a loan agreement that restricts the transfer or assumption of the loan without the lender's approval.

Non-Owner Occupied Property - A property that the owner does not occupy as a residence and is typically held for investment or rental purposes.

Notary Public - A person authorized by the state to perform certain official acts, including verifying the identity of individuals signing documents and witnessing or acknowledging signatures.

Obligations - Debts or recurring financial payments a borrower is responsible for paying, such as mortgage payments, auto loans, credit cards, or other required payments.

Origination Fee - A fee charged by a lender for processing and originating a mortgage loan. The fee may be expressed as a percentage of the loan amount or as a flat amount.

Owner-Occupied Property - A property that the owner uses as their residence. Occupancy requirements may vary depending on the loan program.

Owner's Title Insurance Policy - A title insurance policy that protects a property owner against certain covered title defects or claims that existed before the property was purchased. Coverage is subject to the terms and exclusions of the policy.

Piggyback Loan - A second mortgage obtained at the same time as a first mortgage, often to help finance a home purchase. The second loan is subordinate to the first mortgage.

Planned Unit Development (PUD) - A type of community in which homeowners typically own their individual property and share the use or ownership of certain common areas or amenities. A homeowners association (HOA) may manage the community and enforce applicable rules.

Points - See Discount Points.

Power of Attorney - A legal document that authorizes one person to act on behalf of another in specified matters. The authority granted may be broad or limited, depending on the document.

Pre-Approval - A lender's preliminary evaluation of a borrower's ability to qualify for a mortgage based on a review of financial information, which may include income, assets, debts, and credit. A pre-approval is not a final loan approval and may be subject to additional documentation, underwriting, and other conditions.

Preliminary Title Report - A report that provides information about the current status of a property's title, including ownership, liens, easements, and other recorded matters that may affect the property.

Prepaid Interest Interest paid at closing that covers the period between the loan closing date and the beginning of the first full mortgage payment period.

Prepaids Expenses paid in advance at closing, which may include homeowners insurance, property taxes, and prepaid interest.

Prepayment - Payment of all or part of a loan balance before it is scheduled to be due.

Prepayment Penalty - A fee that may be charged under the terms of certain loans if the borrower pays off all or part of the loan earlier than specified. Applicability and restrictions vary based on the loan and applicable law.

Pre-Qualification -  An initial estimate of how much a borrower may be able to qualify for based on financial information provided to a lender. The information may not be fully verified, and a pre-qualification is not a final loan approval.

Principal - The amount borrowed or the remaining loan balance, excluding interest and other charges.

Principal and Interest (P&I) - The portions of a mortgage payment that are applied to repaying the loan principal and paying interest charged on the loan.

Principal, Interest, Taxes, and Insurance (PITI) - The combined monthly cost of a mortgage's principal and interest payments, property taxes, and homeowners insurance. Depending on the loan, other housing-related expenses may also be considered separately when evaluating the total housing payment.

Private Mortgage Insurance (PMI) - Insurance that may be required on a conventional mortgage when a borrower makes a down payment of less than 20%. PMI protects the lender if the borrower is unable to repay the loan and may allow eligible borrowers to purchase a home with a smaller down payment.

Profit and Loss Statement (P&L) - A financial statement showing a business's revenue, expenses, and resulting profit or loss over a specified period of time.

Promissory Note - A legal document in which a borrower promises to repay a loan according to specified terms, including the amount owed, interest rate, payment requirements, and other conditions.

Property Taxes - Taxes assessed by a local government or other taxing authority based on the value of real property. Property taxes may be collected as part of a borrower's monthly mortgage payment through an escrow or impound account.

Purchase Agreement - A contract between a buyer and seller that outlines the terms of a real estate purchase, including the purchase price, contingencies, closing terms, and other agreed-upon conditions.

Quitclaim Deed - A legal document used to transfer any ownership interest or claim a person may have in real property to another party, without guaranteeing that the person holds valid title or that the property is free of other claims.

Rate Float - Choosing not to lock an interest rate, allowing the rate to change with market conditions before closing.

Rate Lock - An agreement that secures an interest rate for a specified period of time while a mortgage loan is being processed, subject to the terms of the lock.

Real Estate Settlement Procedures Act (RESPA) - A federal law that provides consumer protections related to the real estate settlement process, including requirements involving settlement costs and certain mortgage-related disclosures and practices.

Reconveyance - The release of a deed of trust after the secured debt has been satisfied, returning the lender's or beneficiary's interest in the property to the borrower or property owner.

Recording Fees - Fees charged to record documents related to a real estate transaction with the appropriate government office.

Refinance - The process of replacing an existing mortgage with a new loan, typically with different terms.

Request for Reconveyance - A request made after a debt secured by a deed of trust has been satisfied, directing the trustee to complete the process of releasing the lien from the property.

Rescission - The cancellation of a contract or transaction. Certain mortgage transactions secured by a borrower's principal residence may provide a legal right to cancel the transaction within a specified period, subject to applicable law and exceptions.

Reverse Mortgage - A type of mortgage that allows eligible homeowners to convert a portion of their home equity into loan proceeds without making traditional monthly principal and interest payments. The loan generally becomes due when certain conditions occur, such as when the borrower sells the home, permanently moves out, or dies, subject to the terms of the loan.

Second Mortgage - A mortgage secured by a property that is subordinate to the first mortgage, meaning it generally has a lower priority lien position.

Seller Credit - An amount a seller agrees to contribute toward certain buyer costs associated with the purchase transaction, subject to the purchase agreement and applicable loan program requirements.

Servicing - The ongoing administration of a mortgage loan, which may include collecting payments, managing escrow accounts, providing account information, and assisting borrowers with certain loan-related needs.

Settlement Costs - See Closing Costs.

Settlement - See Closing.

Shared Appreciation Mortgage (SAM) - A mortgage arrangement in which a borrower receives specified financing terms in exchange for sharing a portion of the property's future appreciation with the lender or another participating party.

Subordination Agreement - An agreement that changes the priority of liens on a property by allowing one lien to take a lower priority position than another.

Substitution of Trustee - A document used to replace the existing trustee named under a deed of trust with a new trustee.

Survey - A professional measurement and description of land that identifies property boundaries and may show structures, easements, encroachments, or other features affecting the property.

Statement of Information - A form that may be requested by a title company to help distinguish individuals with similar names and identify matters in public records that may affect the transaction.

Tenancy in Common - A form of property ownership in which two or more people hold separate ownership interests in the same property. Ownership shares may be equal or unequal, and there is generally no automatic right of survivorship.

Title - The legal right to ownership of a property.

Title Insurance - Insurance that helps protect against certain financial losses related to defects or issues with a property's title. Lender's title insurance protects the lender, while owner's title insurance protects the homeowner.

Title Search - A review of public records to verify ownership of a property and identify liens, claims, or other issues that may affect the title.

Trust Deed - See Deed of Trust

Trustee -  A third party named in a deed of trust that holds certain legal rights or powers related to the property on behalf of the beneficiary until the secured obligation is satisfied or otherwise resolved.

Truth in Lending Act (TILA) - A federal law that requires creditors to provide consumers with certain disclosures about the cost and terms of credit, helping consumers understand and compare credit offers.

Underwriting - The process of reviewing a borrower's financial information, credit, and other loan documentation, along with applicable property information, to determine whether a loan meets the requirements of the loan program.

VA Loan - A mortgage loan available to eligible veterans, service members, and certain surviving spouses that is guaranteed in part by the U.S. Department of Veterans Affairs (VA). VA loans may offer financing with no down payment for eligible borrowers, subject to program requirements.

VA Funding Fee - A one-time fee that may apply to VA-backed or VA direct home loans. The amount can vary based on factors such as the type of loan, down payment, and whether the borrower has previously used the VA home loan benefit. Some borrowers may be exempt from the fee.

Verification of Deposit (VOD) - Documentation used to verify information about a borrower's accounts or assets held by a financial institution.

Verification of Employment (VOE) - Documentation or other verification used to confirm a borrower's employment and, when applicable, income information.

Wraparound Mortgage- A financing arrangement in which a new loan is created while an existing mortgage remains in place. The borrower typically makes payments to the wraparound lender or seller, who remains responsible for payments on the existing mortgage.

Zoning - Local laws or regulations that divide land into designated areas and establish how properties within those areas may be used or developed.