Mortgage Glossary

Acceleration	The right of the mortgagee (lender) to demand the immediate repayment of the mortgage loan balance upon the default of the mortgagor (borrower), or by using the right vested in the Due-on-Sale Clause.
Adjustable Rate	An interest rate that changes periodically in relation to an index. Payments may increase or decrease accordingly.
Adjustable-rate mortgage (ARM)	A mortgage with an interest rate and payment that change periodically over the life of the loan based on changes in a specified index.
Adjustment interval	On an adjustable rate mortgage, the time between changes in the interest rate and/or monthly payment, typically one, three or five years, depending on the index.
Alternative Documentation	The use of pay stubs, W-2 forms, and bank statements in lieu of Verifications of Employment (VOE) and Verifications of Deposit (VOD) to qualify a borrower for a mortgage.
Amortization	A repayment method in which the amount you borrow is repaid gradually though regular monthly payments of principal and interest. During the first few years, most of each payment is applied toward the interest owed. During the final years of the loan, payment amounts are applied almost exclusively to the remaining principal.
Annual Membership	An amount that may be charged annually for having a line of credit available. Often charged regardless of whether or not you use the line. Also referred to as a "participation fee."
Annual Percentage Rate (APR)	The cost of credit on a yearly basis, expressed as a percentage. Required to be disclosed by the lender under the federal Truth in Lending Act, Regulation Z. Includes up-front costs paid to obtain the loan, and is, therefore, usually a higher amount than the interest rate stipulated in the mortgage note. Does not include title insurance, appraisal, and credit report.
Application	An initial statement of personal and financial information which is required to approve your loan.
Application Fee	Fees that are paid upon application. An application fee may frequently include charges for property appraisal ($200-$400) and a credit report ($30-50).
Appraisal Amount or Appraised Value	The fair market value of a home determined by an independent appraisal. The appraisal uses local real estate market sales activity as a major basis for valuation.
Appreciation	An increase in the value of a property due to market conditions or other causes. The opposite is depreciation.
Assessment	A local tax levied against a property for a specific purpose, such as a sewer or street lights.
Assumption	The agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller. Assuming a loan can usually save the buyer money since this is an existing mortgage debt, unlike a new mortgage where closing cost and new, probably higher, market-rate interest charges will apply.
Balloon (payment) mortgage	Usually a short-term fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a time specified in the contract.
Bankruptcy	Legal relief from the payment of all debts after the surrender of all assets to a court-appointed trustee. Assets are distributed to creditors as full satisfaction of debts, with certain priorities and exemptions. A person, firm or corporation may declare bankruptcy under one of several chapters of the U. S. Bankruptcy Code: Chapter 7 covers liquidation of the debtor's assets; Chapter 11 covers reorganization of bankrupt businesses; Chapter 13 covers payment of debts by individuals through a bankruptcy plan.
Blanket Mortgage	A mortgage covering at least two pieces of real estate as security for the same mortgage.
Borrower (Mortgagor)	One who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan in full
Broker	An individual in the business of assisting in arranging funding or negotiating contracts for a client buy who does not loan the money himself. Brokers usually charge a fee or receive a commission for their services.
Buy-down	When the lender and/or the home builder subsidized the mortgage by lowering the interest rate during the first few years of the loan. While the payments are initially low, they will increase when the subsidy expires.
Callable debt	A debt security whose issuer has the right to redeem the security at a specified price on or after a specified date, but prior to its stated final maturity.
Cap	The limit placed on adjustments that can be made to the interest rate or payments such as the annual cap on an adjustable rate loan (ARM) or the cap on a rate over the life of the loan.
Cash Flow	The amount of cash derived over a certain period of time from an income-producing property. The cash flow should be large enough to pay the expenses of the income producing property (mortgage payment, maintenance, utilities, etc.)
Cash Out	Receiving money back when refinancing your present mortgage.
Cash-out Refinance	To refinance the mortgage on a property for more than the principal owed. This allows the borrower to get cash from the equity in their home. Loan products may vary on how much can be borrowed on a cash-out refinance.
Ceiling	The maximum allowable interest rate over the life of the loan of an adjustable rate mortgage.
Certificate of Eligibility	The document given to qualified veterans which entitles them to VA guaranteed loans for homes, business, and mobile homes. certificates of eligibility may be obtained by sending DD-214 (Separation Paper) to the local VA office with VA form 1880 (request for Certificate of Eligibility)
Certificate of Reasonable Value (CRV)	An appraisal issued by the Veterans Administration showing the property's current market value
Certificate of Veteran status	The document given to veterans or reservists who have served 90 days of continuous active duty (including training time) It may be obtained by sending DD 214 to the local VA office with form 26-8261a (request for certificate of veteran status. This document enables veterans to obtain lower down payments on certain FHA insured loans).
Certified Mortgage Specialist (CMS)	The Certified Mortgage Specialist is the professional sales associate who communicates the needs of the agent and borrower to the operation team.
Charge-off	The portion of principal and interest due on a loan that is written off when deemed to be uncollectible.
Closer	The person who coordinates the closing time with the Client Coordinator and reviews and prepares the necessary closing documents.
Closing	The meeting between the buyer, seller and lender or their agents where the property and funds legally change hands. Also called settlement. closing costs usually include an origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. The cost of closing usually are about 3 percent to 6 percent of the mortgage amount.
Closing Costs	Costs that are due at closing, in addition to the purchase price of the property. These costs normally include, but are not limited to, origination fee, discount points, attorney's fees, costs for title insurance, surveys, recording documents, and prepayment of real estate taxes and insurance premiums held by the lender. Sometimes the seller will help the borrower pay some of these costs.
Closing Statement	An accounting of the debits and credits incurred at closing. All FHA, VA and Conventional financing loans use a Uniform Closing or Settlement Statement commonly referred to as the HUD-1.
Co-Borrower	A party who signs the mortgage note along with the primary borrower, and who also shares title to the subject real estate.
Collateral	Property pledged as security for a debt. For example, real estate that secures a mortgage. Collateral can be repossessed if the loan is not repaid.
Combined Loan To Value (CLTV)	The mathematical relationship between the total of all loan amounts (first mortgage plus subordinate liens) and the value of the subject property.
Commitment	A promise by a lender to make a loan on specific terms or conditions to a borrower or builder. A promise by an investor to purchase mortgages from a lender with specific terms or conditions. an agreement, often in writing, between a lender and a borrower to loan money at a future date subject to the completion of paperwork or compliance with stated conditions.
Common stock	A security that represents ownership in a company but gives no legal claim to a definite dividend or to a return of capital.
Community Reinvestment Act (CRA)	This act requires financial institutions to meet the credit needs of their community, including low and moderate-income sections of the local community. It also requires banks to make reports concerning their investment in the areas where they do business.
Condominium	A form of property ownership in which the homeowner holds title to an individual dwelling unit, an undivided interest in common areas of a multi-unit project, and sometimes the exclusive use of certain limited common areas. All condominiums must meet certain investor requirements.
Conforming Loan	Generally, a mortgage loan under $203,150. Qualifying ratios and underwriting methods are standardized to a large degree.
Construction loan	A short term interim loan to pay for the construction of buildings or homes. These are usually designed to provide periodic disbursements to the builder as he progresses.
Contract of Sale	The agreement between the buyer and seller on the purchase price, terms, and conditions necessary to both parties to convey the title to the buyer. More...
Conventional Loan	A mortgage loan not insured or guaranteed by the federal government.
Conventional mortgage	A mortgage loan that is not insured or guaranteed by the federal government.
Conversion Option	Options to convert an adjustable rate mortgage or balloon loan to a fixed rate mortgage under specified conditions.
Co-Signer	A party who signs the mortgage note along with the borrower, but who does not own or have any interest in the title to the property.
Credit enhancement	A method to reduce credit risk by requiring collateral, letters of credit, mortgage insurance, corporate guarantees, or other agreements to provide an entity with some assurance that it will be recompensed to some degree in the event of a financial loss.
Credit Limit	The maximum amount that you can borrow under a home equity plan.
Credit loss ratio	The ratio of credit-related losses to the dollar amount of MBS outstanding and total mortgages owned by the corporation.
Credit Rating	A rating given a person or company to establish credit-worthiness based upon present financial condition, experience and past credit history.
Credit Report	A document completed by a credit-reporting agency providing information about the buyer's credit cards, previous mortgage history, bank loans and public records dealing with financial matters.
Credit scoring	A process that uses recorded information about individuals and their loan requests to assess - in a quantifiable, objective, and consistent manner - their future performance regarding debt repayment.
Creditor	A person to whom debt is owed by another person who is the "debtor".
Deal Structure	An Underwriters review of certain aspects of a loan application that do not meet standard guidelines.
Debt security	A security in which the issuing company generally agrees to repay the principal (typically, the original amount borrowed) and make interest payments according to an agreed schedule.
Debt Service	The total amount of credit card, auto, mortgage or other debt upon which you must pay.
Debt to Income Ratio	Compares the amount of monthly income to the amount the borrower will owe each month in house payment (PITI) plus other debts. The other debts may include but not limited to car payment, credit cards, alimony, child support, and personal loans. This ratio is commonly used to see if the borrower has the capacity to repay the debt.
Deed of Trust	A legal document that conveys title to real estate to a disinterested third party (trustee) who holds the title until the owner of the property has repaid the debt. In states where it is used, a Deed of Trust accomplishes essentially the same purpose as a Mortgage.
Default	The failure of a borrower to comply with the terms of a note or the provisions of a mortgage.
Deferred interest	When a mortgage is written with a monthly payment that is less than required to satisfy the note rate, the unpaid interest is deferred by adding it to the loan balance.See negative amortization
Delinquency	A mortgage loan on which a payment has not been made by the due date.
Department of Veterans Affairs (VA)	An independent agency of the federal government which guarantees long-term, low-or no-down payment mortgages to eligible veterans.
Depreciation	A decline in the value of property. The opposite of appreciation.
Derivative	A financial instrument which derives its value from an underlying security or notional amount.
Discount Points	A percentage of the loan amount which is charged or credited by the lender upon making a mortgage loan. Loans that are made at the present market rate, with no points, are considered to be made at "par." Because of the lender's ability to charge or credit points on an individual loan, the lender is able to tailor a loan program and interest rate to fit the needs of each individual borrower. Discount points can be negotiated in the Purchase Contract to be paid by either the seller or the borrower.
Down Payment	The difference between the purchase price and that portion of the purchase price being financed. Most lenders require the down payment to be paid from the buyer's own funds. Gifts from related parties are sometimes acceptable, and must be disclosed to the lender.
Due on Sale	A clause in a mortgage agreement providing that, if the mortgagor (the borrower) sells, transfers, or, in some instances, encumbers the property, the mortgagee (the lender) has the right to demand the outstanding balance in full.
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.
Duration	The weighted-average life of the present value of all future cash flows, both principal and interest, of a security. It is used as a measure of the sensitivity of the value of a security to changes in interest rates.
Earnest Money	Deposit made by a purchaser of real estate as evidence of good faith.
Effective Interest Rate	The cost of credit on a yearly basis expressed as a percentage. Includes up-front costs paid to obtain the loan, and is, therefore, usually a higher amount than the interest rate stipulated in the mortgage note. Useful in comparing loan programs with different rates and points.
Encumbrance	A claim against a property by another party which usually affects the ability to transfer ownership of the property.
Entitlement	The VA home loan benefit is called entitlement. Entitlement for a VA guaranteed home loan. This is also known as eligibility.
Equal Credit Opportunity Act (ECOA)	Is a federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs.
Equity	The difference between the current market value of a property and the principal balance of all outstanding loans.
Escrow Account	An account held by the lending institution to which the borrower pays monthly installments for property taxes, insurance, and special assessments, and from which the lender disburses these sums as they become due.
Fair Credit Reporting Act	Regulated the collection and distribution of information by the consumer credit reporting industry. It also affects how financial institutions collect and convey credit information about loan applicants or borrowers.
Fair Housing Act	Prohibits the denial or variance of the terms of real estate related transactions based on race, color, religion, sex, national origin, disability, or familiar status of the credit applicant. Real estate related transactions include a mortgage, home improvement, or other loans secured by a dwelling.
Fannie Mae	See Federal National Mortgage Association.
Farmers Home Administration (FmHA)	Provides financing to farmers and other qualified borrowers who are unable to obtain loans elsewhere.
Federal Home Loan Bank Board (FHLBB)	The former name for the regulatory and supervisory agency for federally chartered savings institutions. Agency is now called the Office of Thrift Supervision
Federal Home Loan Mortgage Corporation (FHLMC)	Also known as Freddie Mac. A publicly owned corporation created by Congress to support the secondary mortgage market. It purchases and sells conventional residential mortgages as well as residential mortgages insured by the Federal Housing Administration (FHA) or guaranteed by the Veterans Administration (VA).
Federal Housing Administration (FHA)	A division of the Department of Housing and Urban Development. Its main activity is the insuring of residential mortgage loans made by private lenders. FHA also sets standards for underwriting mortgages.
Federal National Mortgage Association (FNMA)	Also known as Fannie Mae. A privately owned corporation to support the secondary mortgage market. It adds liquidity to the mortgage market by investing in home loans through the country.
Federal National Mortgage Association (FNMA) also know as "Fannie Mae"	A tax-paying corporation created by Congress that purchases and sells conventional residential mortgages as well as those insured by FHA or guaranteed by VA. This institution, which provides funds for one in seven mortgages, makes mortgage money more available and more affordable.
FHA Loan	More appropriately termed "FHA Insured Loan." A loan for which the Federal Housing Administration insures the lender against losses the lender may incur due to your default.
FHA mortgage insurance	Requires a fee (up to 2.25 percent of the loan amount) paid at closing to insure the loan with FHA. In addition, FHA mortgage insurance requires an annual fee of up to 0.5 percent of the current loan amount, paid in monthly installments. The lower the down payment, the more years the fee must be paid.
FHLMC	The Federal Home Loan Mortgage Corporation provides a secondary market for savings and loans by purchasing their conventional loans. Also known as "Freddie Mac."
FICO Score	A credit score given to a person that establishes creditworthiness based on present financial condition, experience and past credit history.
Finance Charge	The cost of credit as a dollar amount (i.e. total amount of interest and specific other loan charges to be paid over the term of the loan and other loan charges to be paid by the borrower at closing). Loan charges include origination fees, discount points, mortgage insurance, and other applicable charges. If the seller pays any of these charges, they cannot be included in the finance charge.
Financial Statement	A summary of facts showing an individual's or company's financial condition. For individuals, it states their assets and liabilities as of a given date. For a company it should include a Profit and Loss Statement (P&L) for a certain period of time and balance sheet, stating assets and liabilities as of a given date.
Firm Commitment	A promise by FHA to insure a mortgage loam for a specified property and borrower. A promise from a lender to make a mortgage loan.
First Mortgage	A mortgage which is in first lien position, taking priority over all other liens (which are financial encumbrances).
First Rate Adjustment -- First rate adjustment after	In association with an Adjustable Rate Mortgage loan, this is the number of months after which the loan has closed when the first interest rate adjustment will occur.
First Rate Adjustment -- Maximum rate decrease	In association with an Adjustable Rate Mortgage loan, this is the most the interest rate can decrease during the first adjustment period.
First Rate Adjustment -- Maximum rate increase	In association with an Adjustable Rate Mortgage loan, this is the most the interest rate can increase during the first adjustment period.
Fixed Rate	An interest rate which is fixed for the term of the loan. Payments as well are fixed at one amount.
Fixed-rate mortgage	A mortgage loan in which the interest rate does not change during the entire term of the loan.
Floating	The term used when a purchaser elects not to lock-in an interest rate at the time of application.
Flood Insurance	Insurance that compensates for direct physical damages by or from flood to the insured property subject to the terms, provisions, conditions and losses not covered provision of the policy. It is required for mortgages on properties located in federally designated flood areas.
FNMA	The Federal National Mortgage Association is a secondary mortgage institution which is the largest single holder of home mortgages in the United States. FNMA buys VA, FHA, and conventional mortgages from primary lenders. Also known as "Fannie Mae."
Forbearance	The lender's postponement of legal action when a borrower is delinquent. It is usually granted when a borrower makes satisfactory arrangements to bring the overdue mortgage payments up to date.
Foreclosure	The legal process by which property that is mortgaged as security for a loan may be sold to pay a defaulting borrower's loan.
Freddie Mac	See Federal Home Loan Mortgage Corporation
Gift Letter	A letter or affidavit that indicates that part of a borrower's down payment is supplied by relatives or friends in the form of a gift and that the gift does not have to be repaid.
Global Debt Facility	A debt issuance facility through which U.S. dollar and foreign currency debt securities may be offered to investors worldwide with the feature of clearing and settlement through a variety of clearing systems.
Good Faith Estimate (GFE)	An estimate of settlement charges paid by the borrower at closing. The Real Estate Settlement Procedures Act (RESPA) requires a Good Faith Estimate of settlement charges be provided to the borrower.
Grace Period	A period of time during which a loan payment may be paid after its due date but not incur a late penalty. Such late payments may be reported on your credit report.
Graduated Payment Mortgage (GPM)	A type of flexible-payment mortgage where the payments increase for a specified period of time and then level off. This type of mortgage has negative amortization built into it.
Gross Income	A person's income before deduction for income taxation.
Guaranty	A promise by one party to pay a debt or perform an obligation contracted by another if the original party fails to pay or perform according to a contract
Guaranty fee	Compensation paid by a lender to Fannie Mae for the guarantee of timely payments of principal and interest to MBS security holders.
Hazard Insurance	A form of insurance in which the insurance company protects the insured from specified losses, such as fire, windstorm and the like.
Home Equity Line of Credit	A loan providing you with the ability to borrow funds at the time and in the amount you choose, up to a maximum credit limit for which you have qualified. Repayment is secured by the equity in your home. Simple interest (interest-only payments on the outstanding balance) is usually tax-deductible. Often used for home improvements, major purchases or expenses, and debt consolidation.
Home Equity Loan	A fixed or adjustable rate loan obtained for a variety of purposes, secured by the equity in your home. Interest paid is usually tax -deductible. Often used for home improvement or freeing of equity for investment in other real estate or investment. Recommended by many to replace or substitute for consumer loans whose interest is not tax-deductible, such as auto or boat loans, credit card debt, medical debt, and education loans.
Home Maintenance	Costs associated with maintaining a home. This may include, but not limited to, general repairs, replacement or repair of furnace, air conditioning, roof, plumbing and electrical systems.
Home Mortgage Disclosure Act (HMDA)	Also known as Regulation C. The purpose of HMDA is to provide disclosure of mortgage lending application activity (home purchase or improvement) to regulators and the public. Information is collected on each application, and is recorded on a log that is compiled to produce a report on application activity by geographic designation (census tract).
Homeowners Association (HOA)	A non-profit corporation or association that manages common areas and services of a Condominium or Planned Unit Development (PUD).
Homeowners Insurance	Insurance that covers damage to the insureds' residence and liability claims made against the insured subject to the policy terms, conditions, provisions, losses not insured provision and exclusions.
Housing Expense Ratio	Ratio used to determine the borrowers capacity to repay a home loan. The ratio compares monthly income to the house payment (Principal, Interest, Taxes and Insurance).
Housing Expenses-to-Income Ratio	The ratio, expressed as a percentage, which results when a borrower's housing expenses are divided by his/her gross monthly income. See debt-to-income ratio.
HUD I Settlement Statement	A form utilized at loan closing to itemize the costs associated with purchasing the home. Used universally by mandate of HUD, the Department of Housing and Urban Development. More...
Impound	That portion of a borrower's monthly payments held by the lender or servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Also known as reserves.
Index	A published interest rate against which lenders measure the difference between the current interest rate on an adjustable rate mortgage and that earned by other investments (such as one- three-, and five-year U.S. Treasury security yields, the monthly average interest rate on loans closed by savings and loan institutions, and the monthly average costs-of-funds incurred by savings and loans), which is then used to adjust the interest rate on an adjustable mortgage up or down.
Initial Interest Rate	The beginning interest rate at the start of an adjustable rate mortgage (ARM). It may be lower than the fully indexed rate or "going market rate" and it will remain constant until it is adjusted up or down on the adjustment date.
Interest	The amount paid by a borrower to a lender for the use of the lender's money for a certain period of time.
Interest Income	The potential income from funds which would have been used for the down payment, closing costs, and any difference (increase) between monthly rental payment and monthly mortgage payment.
Interest Rate	The periodic charge, expressed as a percentage, for use of credit.
Interest rate swap	A transaction between two parties in which each agrees to exchange payments tied to different interest rates or indices for a specified period of time, generally based on a notional principal amount.
Interim Financing	A construction loam made during completion of a building or a project. A permanent loan usually replaces this loan after completion.
Intermediate-term mortgage	A mortgage loan with a contractual maturity at time of purchase equal to or less than 20 years.
Investor	A money source for a lender.
Judgment	Decree of a court declaring that one individual is indebted to another and fixing the amount of such indebtedness.
Jumbo Loan	Mortgage loans over $203,150. Terms and underwriting requirements may vary from conforming loans.
Late Charge	An additional charge a borrower is required to pay as a penalty for failure to pay a regular mortgage loan installment when due; a penalty for a delinquent payment.
Lender option commitments	An agreement giving a lender the option to deliver loans or securities by a certain date at agreed-upon terms.
Lien	A claim upon a piece of property for the payment or satisfaction of a debt or obligation.
Life of Loan -- Maximum rate decrease	In association with an Adjustable Rate Mortgage loan, this is the most the interest can decrease over the life of the mortgage loan.
Life of Loan -- Maximum rate increase	In association with an Adjustable Rate Mortgage loan, this is the most the interest can increase over the life of the mortgage loan.
Loan Application	A source of information on which the lender bases a decision to make or not make a loan; defines the terms of the loan contract, gives the names of the borrower(s), place of employment, salary, bank accounts, credit references, real estate owned, and describes the property to be mortgaged.
Loan Balance	The amount of remaining unpaid principal balance owed by the borrower.
Loan servicing	The tasks a lender performs to protect a mortgage investment, including collecting monthly payments from borrowers and dealing with delinquencies.
Loan Term	Number of years a loan is amortized. Mortgage loan terms are generally 15, 20, or 30 years.
Loan to Value Ratio (LTV)	A ratio determined by dividing the sales price or appraised value into the loan amount, expressed as a percentage. For example, with a sales price of $100,000 and a mortgage loan of $80,000, your loan to value ratio would be 80%. Loans with an LTV over 80% may require Private Mortgage Insurance, defined below.
Lock or Lock In	A commitment you obtain from a lender assuring you a particular interest rate or feature for a definite time period. Provides protection should interest rates rise between the time you apply for a loan, acquire loan approval, and, subsequently, close the loan and receive the funds you have borrowed.
Loss mitigation