🏡 Glossary of Mortgage Terms

A

• Amortization – The process of paying off a loan over time through regular monthly payments that cover principal and interest.
• Appraisal – An unbiased estimate of a property’s market value by a licensed appraiser, typically required by lenders.
• Annual Percentage Rate (APR) – The total cost of a loan expressed as an annual percentage, including interest rate and other fees.
• Application Fee – A fee charged by lenders to process a loan application, often non-refundable.
• Assessed Value – The dollar value assigned to a property by a public tax assessor for tax purposes.
• Asset – Anything owned with value (cash, investments, real estate) that can help qualify a borrower.

B

• Balloon Mortgage – A mortgage with low initial payments but a large lump sum due at the end of the term.
• Basis Points – A unit of measure equal to 1/100th of 1%, used to express changes in interest rates (e.g., 0.25% = 25 basis points).
• Broker – A licensed individual or firm that connects borrowers with lenders but does not fund loans themselves.
• Buydown – A financing technique where the borrower or seller pays an upfront fee to reduce the interest rate for the early years of the loan.

C

• Cash-Out Refinance – A refinance where the borrower replaces their mortgage with a larger loan and receives the difference in cash.
• Closing Costs – Fees and expenses (e.g., appraisal, title insurance, recording fees) due at the closing of a real estate transaction.
• Co-Borrower – A second person who signs the mortgage and is equally responsible for repayment.
• Conventional Loan – A loan not insured or guaranteed by a government agency (e.g., FHA, VA).
• Credit Report – A summary of a borrower’s credit history, used to evaluate loan eligibility.
• Credit Score – A numerical rating (300–850) that reflects a person’s creditworthiness.

D

• Debt-to-Income Ratio (DTI) – A percentage that compares a borrower’s total monthly debts to their gross monthly income.
• Deed of Trust – A document used in some states in place of a mortgage to secure a home loan.
• Down Payment – The upfront portion of the home’s purchase price paid by the buyer, typically 3–20%.
• Discount Points – Fees paid to the lender at closing in exchange for a reduced interest rate.

E

• Earnest Money – A deposit made by a buyer to show serious intent to purchase a home.
• Equity – The difference between the current market value of a property and the amount owed on the mortgage.
• Escrow – An account set up by the lender to pay property taxes and insurance on behalf of the borrower.
• Estimated Closing Statement (CD) – A document that lists all final credits and debits to the buyer and seller in a real estate transaction.

F

• Fair Market Value – The price a property would sell for on the open market under normal conditions.
• Fannie Mae (FNMA) – A government-sponsored enterprise that buys and guarantees mortgages from lenders.
• FHA Loan – A loan insured by the Federal Housing Administration, typically for lower-income or first-time buyers.
• Fixed-Rate Mortgage – A mortgage with a constant interest rate for the entire term of the loan.
• Foreclosure – Legal process where a lender takes ownership of a property due to missed loan payments.

G

• Ginnie Mae (GNMA) – A government-owned corporation that guarantees mortgage-backed securities of FHA and VA loans.
• Good Faith Estimate (GFE) – An estimate of closing costs provided by the lender; now replaced by the Loan Estimate (LE).

H

• Homeowners Association (HOA) – An organization in a planned community that collects dues and enforces rules.
• Homeowners Insurance – A policy protecting the home against damages (e.g., fire, theft); required by most lenders.
• HUD-1 Statement – A closing document listing final loan and settlement costs (used before TRID regulations).

I

• Interest Rate – The percentage charged on a loan for borrowing money.
• Initial Escrow Deposit – The amount paid at closing to set up the escrow account for taxes and insurance.
• Interest-Only Loan – A loan where payments cover only interest for a certain period before principal repayment begins.

J

• Jumbo Loan – A mortgage that exceeds conforming loan limits set by Fannie Mae and Freddie Mac.
• Judgment Lien – A court ruling giving a creditor the right to take possession of a debtor’s property if the debt is unpaid.

L

• Loan Estimate (LE) – A form provided by the lender showing estimated loan terms, monthly payments, and closing costs.
• Loan-to-Value Ratio (LTV) – The ratio of the loan amount to the property’s value, used to assess risk.
• Lock-In Rate – An agreement to guarantee a borrower a specific interest rate for a set period during loan processing.

M

• Margin – A set percentage added to the index rate to determine the interest rate on an ARM (adjustable-rate mortgage).
• Mortgage – A legal agreement by which a lender lends money in exchange for title to the property as collateral.
• Mortgage Insurance (MI) – Required when the LTV is above 80%; protects the lender in case of borrower default.
• Mortgage Note – A legal document obligating the borrower to repay the loan.

N

• Non-Conforming Loan – A loan that doesn’t meet Fannie Mae/Freddie Mac standards due to size or credit risk.
• Negative Amortization – Occurs when payments are less than interest due, causing the loan balance to increase.

O

• Origination Fee – A fee charged by the lender for processing the loan, typically a percentage of the loan amount.
• Owner-Occupied – A property where the borrower intends to live; affects loan eligibility and terms.

P

• PITI – Acronym for Principal, Interest, Taxes, and Insurance – components of a monthly mortgage payment.
• Pre-Approval – A lender’s conditional commitment to lend, based on review of income, credit, and assets.
• Prepaid Costs – Expenses paid in advance at closing, such as interest, insurance, and property taxes.
• Principal – The original loan amount borrowed or the remaining balance owed.

Q

• Qualifying Ratios – Calculations (such as DTI) used to determine a borrower’s ability to repay a loan.

R

• Rate Lock – A guarantee from the lender that the interest rate won’t change between application and closing.
• Refinance – The process of replacing an existing mortgage with a new one, typically to reduce rate or change terms.
• Reserves – Extra funds left after closing, often required by lenders to cover several months of mortgage payments.

S

• Second Mortgage – A loan taken out using a home as collateral, in addition to a first mortgage.
• Settlement Statement (CD) – Final itemization of all closing costs (now called the Closing Disclosure under TRID).
• Short Sale – A sale of property for less than the mortgage balance, often requiring lender approval.
• Subordination Agreement – Agreement that changes the priority of liens, typically required in refinances.

T

• Title Insurance – Insurance that protects against losses due to defects in a property’s title.
• TRID – TILA-RESPA Integrated Disclosure rule; requires specific disclosures during the mortgage process.
• Truth in Lending Act (TILA) – A federal law requiring disclosure of terms and costs of consumer credit.

U

• Underwriting – The process by which the lender evaluates a borrower’s risk and approves or denies a loan.
• USDA Loan – A government-backed mortgage for eligible rural and suburban homebuyers, offering no-down-payment options.

V

• VA Loan – A loan guaranteed by the Department of Veterans Affairs for eligible military veterans and service members.
• Verification of Employment (VOE) – A form used to confirm a borrower’s employment and income with their employer.

W

• Walkthrough – A final inspection before closing to ensure the property’s condition hasn’t changed.
• W-2 Form – An IRS tax form showing annual wages and withheld taxes, used to verify income.