Mortgage Glossary
Real Estate Industry and Financing: The real estate industry is known for using various specialized terms and jargon that can confuse those unfamiliar with the field. Historical roots through generations of Lenders, Banks, and other financial institutions, and complex legal regulatory processes are the reasons for the specific terminology.
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Real Estate professionals, such as agents, brokers, loan officers, and appraisers, use these terms to convey information efficiently among themselves. This allows for clear communication within the industry but can be confusing to outsiders. Explore the terms listed on this page for any real estate transaction you may be pursuing for a clear understanding of the terminology and its implications.
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Abstract Of Title
A historical summary provided by a title insurance company of all records affecting the title to a property.
Amortization
The process of gradually paying off a mortgage loan over a specified period through regular payments, typically in monthly installments, which include both principal and interest.
Annual Percentage Rate (APR)
A standardized way to express the total cost of borrowing, including interest rates and fees, as a percentage, making it easier to compare different mortgage offers.
Appraisal
A professional assessment of a property's value is conducted by a licensed appraiser to determine its market worth, which impacts the loan amount a lender is willing to provide.
Adjustable-Rate Mortgage (ARM)
A type of mortgage with an interest rate that can fluctuate periodically based on prevailing market rates, potentially resulting in varying monthly payments.
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Balloon Mortgage
A mortgage with a final lump sum payment that is greater than the preceding payments and pays the loan
in full.
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Bridge Loan
A loan to "bridge" the gap between the termination of one mortgage and the beginning of another, such as
when a borrower purchases a new home before receiving cash proceeds from the sale of a prior home.
Also known as a swing loan.
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Broker
An intermediary (middleman) between the borrower and the lender. The broker represents the borrower to
get the best deal.
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Closing Costs
The fees and expenses associated with finalizing a mortgage loan, including appraisal fees, attorney fees, title insurance, and more, typically paid by the borrower.
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Collateral
The property used to secure a mortgage loan, ensuring that the lender has a claim on the property if the borrower defaults on payments.
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Debt-to-Income Ratio (DTI)
A financial metric that compares a borrower's total monthly debt payments to their gross monthly income, helping lenders assess the borrower's ability to manage additional debt.
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Equity
The portion of a property's value that the homeowner owns outright, calculated by subtracting the outstanding mortgage balance from the property's market value.
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Fixed-Rate Mortgage
A mortgage with an interest rate that remains constant throughout the entire loan term, resulting in consistent monthly payments.
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Foreclosure
The legal process through which a lender takes possession of a property due to the borrower's failure to meet mortgage payments, often leading to the sale of the property to recover the debt.
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Grace Period
A specified period after the due date for a mortgage payment during which no late fees or penalties are assessed, allowing borrowers a short window to make payments without consequences.
Homeowners Association (HOA)
An organization in a planned community or condominium complex that manages common areas and enforces rules and regulations for homeowners, often requiring fees.
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Interest Rate
The cost of borrowing money is expressed as a percentage, which borrowers pay in addition to the principal amount when repaying a mortgage loan.
Joint ownership
a type of property ownership in which two people share equally in a home and/or property; common for spouses.
Joint tenancy
a type of property ownership in which two or more people share.
Jumbo Loan
A mortgage loan that exceeds the maximum loan limits set by government-sponsored entities like Fannie Mae and Freddie Mac, often requiring higher credit scores and larger down payments.
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Loan-to-Value Ratio (LTV)
Loan-to-Value Ratio is a ratio that compares the amount of the mortgage loan to the property's appraised value. This ratio helps lenders assess risk and determine the required down payment.
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Lender
the bank or finance company that directly awards home loan or mortgage money to a borrower or homebuyer. Legal-mortgagee.
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Lender fees
typically included in fees associated with closing costs, sometimes called processing fees; designed to cover costs incurred by lenders during the loan process.
Lien
a formal, legal symbol of money owed on a major asset such as property. Also, mortgage.
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Mortgage Insurance
Insurance that protects the lender in case the borrower defaults on the loan. This is typically required for loans with a high LTV ratio or smaller down payments.
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Mortgage Lender
Bank or finance company that provides the home loan or mortgage money to a borrower or homebuyer. Legal-mortgagee.
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No-fee mortgage
a sales tactic to attract buyers who may be unable to pay out of pocket closing fees. Typically a no-fee or no-cost mortgage is bundled with a slightly higher interest rate that more than makes up the difference in so-called “no fees” over the life of the loan.
Notice of Incomplete Application, NOIA
a form sent to the buyer that indicates missing or incomplete loan application information. Buyer must provide all required information for the lender to complete the application process.
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Offer
Verbal and written offer to buy a home for a certain dollar amount made from a buyer to a seller.
Origination Fee
A fee is charged by the lender for processing a mortgage application and creating the loan, typically expressed as a percentage of the loan amount.
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Payment cap
for an adjustable rate mortgage, this is the maximum payment amount a buyer could ever be expected to pay per month.
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a second mortgage "piggybacked" onto a first mortgage and used in lieu of mortgage insurance. Cost effectiveness of a piggyback loan depends on current market factors.
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Portable mortgage
a type of mortgage that may be carried by the borrower from one home purchase to the next, portable.
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Power of attorney
a legal document that grants an individual the rights to act on behalf of another. For example, if a borrower dies or becomes incapable of managing his or her home loan or mortgage, a power of attorney assigned by that individual could manage his or her mortgage and related decisions.
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Preferred lender
a lender that is closely affiliated with a brokerage based on reputation and other industry factors. A mortgage lender that is recommended by a broker.
Pre-qualification
the process in which a homebuyer may find out how much of a home loan he or she would be approved for with a lender; gives many buyers more flexibility when shopping for a home.
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Prime loan
a conforming loan, one whose loan limits fall within those set by Fannie Mae or Freddie Mac and often awarded to borrowers with good credit.
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Principal
The initial amount borrowed in a mortgage loan, before interest and other costs are added decreases with each payment made toward the loan.
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Qualifying Ratios
Specific financial ratios, such as DTI and LTV, are used by lenders to evaluate a borrower's eligibility for a mortgage loan.
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Quit claim deed
a document that releases one party in a home title from any responsibility and grants all responsibility to another. Commonly used for spouses or in family situations in which more than one individual has an interest in a mortgage or property title.
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Rate lock
a short-term agreement by a lender to “hold” a certain interest rate on a home loan while the buyer negotiates a sale transaction. Also, Rate commitment option.
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Real estate investment trust
securities or mutual funds that invest directly in real estate.
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Real Estate Settlement Procedures Act (RESPA)
this act passed in 1974 reeled in hidden costs, fees and kickbacks that had become widespread among real estate entities. Per this act all fees and costs must be disclosed to both buyers and sellers.
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Refinance
The process of replacing an existing mortgage loan with a new one, often to obtain a lower interest rate, change the loan term, or access home equity.
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Remaining term
The current amount of time remaining in the length of the loan.
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Repayment schedule
mortgage payments laid out over the life of the loan. Some mortgage calculators let borrowers see their repayment schedule based on the amount of the home loan, the interest rate and monthly payments. See also Amortization.
a type of mortgage designed for homeowners over 62 years of age; gives them access to home’s equity in cash payments, frees up money they may use for other important costs or to make needed home repairs. Since reverse mortgages are typically structured as loans, these payments are not typically considered income.
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Second mortgage
Also known as a home equity loan, a second mortgage gives borrowers flexibility to access the cash equity in their home, usually useful for other high-dollar expenses such as auto and college loans.
The loan is issued on property that is already encumbered by an existing mortgage. The primary mortgage or the first mortgage. The second mortgage is subordinate to the primary mortgage.
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Secondary mortgage market
The segment of the mortgage and real estate securities market that deals in the investment of mortgages; not direct mortgage lenders.
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Seller’s agent
A real estate agent that works on behalf of the home seller.
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Short sale
Useful tool for lenders and homeowners when foreclosure could be a worst-case scenario. In a real estate short-sale lenders give homeowners permission to discount the home value (an outstanding loan balance) to effect a quick sale, thereby averting foreclosure.
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Speculative home market
One in which investors snatch up homes for quick re-sale hoping to cash in on improving markets; considered risky by some.
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Sub-prime loan
A high-risk loan packaged with non-conforming loan limits and interest rates that make it possible for homebuyers with poor credit to qualify for a mortgage.
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Second Mortgage
A loan issued on property that is already encumbered by an existing mortgage. The primary mortgage or the first mortgage. The second mortgage is subordinate to the primary mortgage.
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Survey
A map prepared by an engineer or surveyor charting a particular piece of real estate.
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Tenancy in common
one or more persons may possess the property title, but ownership may be declared in various percentages.
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Title Insurance
Insurance that protects the homeowner and lender against potential disputes or claims regarding property ownership and title issues.
Title search
research on a property title usually conducted by a title company to determine if there exist any outstanding liens against the property prior to a sales transaction.
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Truth in Lending disclosure
a document that all lenders are required to provide when a borrower applies for a home loan. The document discloses interest rates, the amount to be loaned, plus the final cost of the loan upon maturity.
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Underwriting
The process in which a lender evaluates a borrower's creditworthiness, financial situation, and the property's value to determine whether to approve or deny a mortgage application.
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VA Loan
VA loans are offered to veterans. The loans assist veterans in obtaining 100 percent financing. The United States Department of Veterans Affairs is the governing body that establishes the rules for the recipients of the VA loans. They also insure the VA loans and establish the terms of the loans offered to veterans.
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Variable Rate Mortgage (VRM)
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Veterans Administration (VA)
This is the federal agency responsible for the VA mortgage loan
guarantee program for eligible veterans. Qualified veterans can apply for
VA loans with no down payment and a funding fee of 1 percent of the loan
amount.
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Warranty deed
indicates no past liens or disputes against the property; the holder of the property deed has the right to sell it to another.
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Zoning
Local governments can specify the use of private property to control development within
designated land. For example, governments designate some areas for residential use only and
others for commercial use such as stores, gas stations, etc.