Glossary of Terms

A

1003 Uniform Residential Loan Application

Standard form used to apply for a residential mortgage loan.

A & D Loan (Acquisition and Development Loan)

A loan to purchase raw land for development.

Abstract of Title

A written history of the ownership and legal status of a piece of land.

Acceleration Clause

A provision that allows the lender to demand early repayment of the loan balance if the borrower defaults.

Acknowledgment

A statement by a notary certifying the identity of the person who signed a document.

Adjustable Rate Mortgage (ARM)

A mortgage with an interest rate that changes periodically based on an index. Also called a variable rate mortgage.

Adjustment Interval

The period between interest rate changes on an adjustable-rate mortgage (ARM), typically 1, 3, or 5 years.

Affidavit

A written, sworn statement made under oath.

American Land Title Association (ALTA)

An organization that sets standards for title companies and provides standardized title insurance coverage.

Amortization

The process of gradually paying off a loan through equal, periodic payments that cover both principal and interest, fully paying off the debt by the end of the loan term.

Annual Percentage Rate (APR)

The yearly cost of a mortgage, including interest, points, and fees. It’s usually higher than the interest rate to reflect the total cost of borrowing.

Appraisal

An expert's assessment of a property's market value, typically required for a mortgage.

Assumption

An agreement where the buyer takes over the seller’s existing mortgage payments, subject to lender approval.

B

Back-End Ratio

A debt-to-income ratio that includes all monthly debt payments (mortgage, taxes, insurance, and credit obligations) divided by gross monthly income, expressed as a percentage.

Balloon Loan

A loan with small periodic payments and a large final payment (balloon payment) due at the end of the term.

Beneficiary

The lender or entity to whom the loan is owed.

Bankruptcy (BK)

A legal process for discharging or reorganizing debts, typically under Chapter 7, 11, or 13 of the Bankruptcy Code.

Broker

An intermediary who helps arrange financing or negotiate contracts.

Buy-Down

A temporary reduction in the interest rate, often subsidized by the lender or home builder, leading to lower initial payments that increase after the subsidy ends.

C

Cap

The maximum interest rate an adjustable-rate mortgage (ARM) can reach. It can be stated as the highest rate or the limit on the rate change from the starting rate.

Cash Out

Funds provided directly to the borrower, usually from a refinance or home equity loan.

Certificate of Occupancy

A certificate issued by local authorities confirming that a building is safe and ready for occupancy.

Certified Copy

A copy of a document that has been verified as a true and accurate replica by the person holding the original, usually with a stamp or signature.

Clear-to-Close

The status indicating that all conditions have been met and the loan is ready to close.

Closing

The final meeting where the buyer, seller, and lender (or their agents) complete the transaction, transferring property ownership and funds.

Closing Costs

Fees associated with finalizing a mortgage, including origination fees, title insurance, appraisals, and recording fees. Typically 3–6% of the loan amount.

Commitment

A written agreement by a lender to provide a loan, subject to certain conditions being met.

Community Property

Property owned jointly by a married couple, where each spouse has equal ownership, regardless of who holds the title. This applies in certain states.

Comparable (Comp)

A property used to estimate the value of another, based on similar characteristics and recent sales data.

Condominium

A property where individuals own specific units, but share common areas. It is typically governed by a Homeowners Association (HOA).

Construction Loan

A construction loan is a short-term, interim loan used to finance the building or renovation of a property. It typically covers costs like materials, labor, and permits during construction and is paid off either upon completion or converted into a permanent mortgage.

Consumer Credit

Debt that is not secured by real estate, such as credit card debt or personal loans.

Conventional Loan

A conventional loan is a standard mortgage not insured or guaranteed by the government. It typically requires a higher credit score and a down payment.

Conversion Clause

A provision in some ARMs allowing the borrower to convert the loan to a fixed-rate mortgage during the loan term.

Credit Ratio

The percentage that results from dividing a borrower’s monthly debt payments by their income. It can be calculated on net effective income (for FHA/VA loans) or gross income (for conventional loans).

Credit Report

A detailed record of a borrower’s credit history and past payment behavior.

Credit Score

A numerical score that represents a borrower’s creditworthiness, based on information from credit bureaus like TRW, Equifax, and TransUnion.

D

Debt Ratio (D.R.)

The ratio of a borrower’s total monthly debt payments to their gross monthly income. Also known as the back-end ratio.

Deed

A legal document that transfers property ownership.

Deed of Trust

A document used to pledge property as collateral for a loan, similar to a mortgage.

Default

Failure to meet the terms of a loan agreement, such as missing payments.

Deferred Interest

Interest that is not paid as it accrues, leading to an increase in the loan balance (also referred to as negative amortization).

Delinquency

Failure to make a payment on time, which may lead to foreclosure if unresolved.

Department of Veterans Affairs (VA)

A government agency that guarantees loans for eligible veterans, often with low or no down payment requirements.

Derog Letter

A letter written by the borrower explaining any negative credit events or issues.

Derogatory

Referring to negative or adverse credit items that can impact a borrower’s credit score.

Discharge

In bankruptcy, the formal release from the obligation to repay certain debts, after the bankruptcy process is completed.

Discount Points

Prepaid interest charged at closing, where one point equals 1% of the loan amount.

Dismissal

The cancellation of a bankruptcy case before it is completed. A dismissal document may be required for the loan process.

Down Payment

The upfront payment made by the borrower, typically 10-20% of the purchase price, to cover the difference between the home’s cost and the loan amount.

Due-On-Sale Clause

A provision in a mortgage or deed of trust that allows the lender to demand full repayment of the loan if the property is sold.

E

Earnest Money

A deposit made by the buyer to show good faith in a real estate transaction. It is part of the total purchase price.

Easement

A legal right to use someone else's property for a specific purpose, such as access or utility lines.

Encroachment

An intrusion of a property feature (e.g., a fence or building) onto another’s property.

Equal Credit Opportunity Act (ECOA)

A federal law that ensures credit is granted without discrimination based on race, color, religion, national origin, age, sex, marital status, or public assistance income.

Equity

The difference between the market value of a property and the remaining balance on the mortgage.

Escrow Instructions

The guidelines provided to an escrow agent detailing the terms and conditions for completing a transaction.

Escrow Waiver

A request by the borrower to handle their own property tax and insurance payments instead of using an escrow account, typically requiring at least 25% equity.

Escrow

A neutral third party that manages the closing process and holds funds or documents until all terms are met. It also refers to an account used by the lender to collect and pay taxes and insurance for the borrower.

F

Farmers Home Administration (FMHA)

Provides loans to farmers and other qualified borrowers who can't obtain financing from traditional sources.

Federal Home Loan Mortgage Corporation (FHLMC)

Also known as Freddie Mac, a government-sponsored entity that buys conventional mortgages from banks and mortgage lenders.

Federal Housing Administration (FHA)

A division of the Department of Housing and Urban Development (HUD) that insures loans made by approved lenders to homebuyers, and sets underwriting standards for mortgages.

Federal National Mortgage Association (FNMA)

Also known as Fannie Mae, a government-sponsored enterprise that buys and sells mortgages, including FHA and VA loans, to make home financing more accessible.

Fee Simple

The most common form of property ownership, where the owner has full control over both the land and any structures on it.

FHA Loan

A loan insured by the Federal Housing Administration, available to all qualified homebuyers. FHA loans have limits based on the location and are designed for moderate-priced homes.

TEXFHA Mortgage Insurance

Insurance required on FHA loans, paid as a one-time fee at closing or as part of monthly payments, to protect the lender. An annual premium is also required.

Fixed-Rate Mortgage

A mortgage with an interest rate that remains the same for the entire term of the loan.

Flood Insurance

Insurance required for properties located in flood zones to protect against flood-related damage.

Foreclosure

The legal process in which a lender sells a property to recover funds from a defaulted loan.

Free and Clear

Property that is fully paid off and has no liens or outstanding debts attached to it.

Functional Obsolescence

A reduction in a property's value due to outdated design or materials, making it less functional than modern properties.

G

Good Faith Estimate (GFE)

An estimate of the costs and fees associated with a loan, provided to the borrower early in the application process.

Government National Mortgage Association (GNMA)

Also known as Ginnie Mae, a government agency that provides funds for FHA- and VA-insured mortgages by guaranteeing mortgage-backed securities.

Graduated Payment Mortgage (GPM)

A mortgage with payments that start lower and gradually increase over time. This type of loan may include negative amortization.

Grant Deed

A deed used to transfer property title, guaranteeing the property has not been encumbered by previous claims or issues.

Gross Monthly Income

The total income earned by the borrower before any deductions, such as taxes or expenses.

Guarantee

A promise by one party to repay a debt or fulfill an obligation if the primary borrower fails to do so.

H

Hazard Insurance

Insurance covering losses from specific risks such as fire or storm damage, but excluding flood, earthquake, or riot damage.

Homestead

A family’s primary residence, which may be protected from creditors in some states through legal exemptions, sometimes offering property tax reductions.

Housing Expenses-to-Income Ratio

A ratio of a borrower’s housing-related expenses (mortgage, insurance, taxes, etc.) to their gross monthly income or net effective income.

I

Impound

Funds collected by the lender in monthly payments for property taxes, insurance, and other expenses, held in escrow until due.

Index

An interest rate benchmark (e.g., U.S. Treasury yield or bank lending rates) used to adjust the interest rate on an adjustable-rate mortgage (ARM).

Interest Bearing

A loan structure where interest is calculated based on the outstanding balance, charged daily or monthly.

Investor

The party that provides the funds for a lender, typically an institution or individual who funds loans.

J

Joint Tenants

A form of property ownership where two or more owners have equal rights, with the right of survivorship, meaning ownership passes automatically to the surviving tenant(s).

Jumbo Loan

A jumbo loan is a type of mortgage that exceeds the conforming loan limits set by the Federal Housing Finance Agency (FHFA) and is used to finance high-value properties. Since it’s not eligible for purchase by government-sponsored entities like Fannie Mae or Freddie Mac, it typically requires a higher credit score, a larger down payment, and more stringent approval criteria.

L

Land Contract

A type of seller financing where the buyer makes payments to the seller until the full price is paid, at which point title is transferred.

Leasehold Estate

A property interest where the lessee has the right to use the property under a lease but does not own it.

Legal Description

A detailed method of identifying a property’s boundaries, recognized by courts for legal and transaction purposes.

LIBOR

The London InterBank Offered Rate, the interest rate at which banks lend to each other in the international market, often used as a base rate for ARMs.

Lien

A legal claim against a property to secure payment of a debt or obligation.

Loan Committee

A group of individuals who review and assess loan applications, often involved in the underwriting process.

Loan Risk

A classification that estimates the likelihood of default or loss on a loan, used to determine loan terms and conditions.

Loan-To-Value Ratio (LTV)

The ratio of the loan amount to the appraised value of the property, expressed as a percentage. Higher LTVs are riskier for lenders.

M

Margin

The fixed percentage added to the index rate to determine the interest rate on an adjustable-rate mortgage (ARM).

Market Value

The most likely price a property would sell for in an open market transaction between a willing buyer and seller.

Mortgage Escrow Accounts

Accounts set up by the lender to collect and hold funds from the borrower for paying taxes, insurance, and other property-related expenses.

Mortgage Insurance

Insurance that protects the lender in case of borrower default, typically required when the down payment is less than 20%.

Mortgagee

The lender or entity that provides the mortgage loan.

Mortgagor

The borrower or homeowner who takes out the mortgage loan.

N

Negative Amortization

When loan payments are insufficient to cover the interest, causing the loan balance to increase instead of decrease.

Net Effective Income

A borrower’s gross income after deducting federal income taxes, used to determine eligibility for a loan.

Non-Assumption Clause

A clause in a mortgage agreement that prohibits the borrower from transferring the loan to another party without the lender’s approval.

Non-Owner Occupied

A property not used as the primary residence of the property owner, such as a rental property.

Notary Public

A legally authorized individual who verifies the identity of persons signing documents, ensuring signatures are genuine.

Note

A legal document that outlines the terms of a loan, including the borrower's promise to repay the debt.

O

Obligations

Any recurring payments or debts that a borrower is legally required to pay, including the mortgage.

Origination Fee

A fee charged by the lender for processing the loan application, typically a percentage of the loan amount.

Owner Occupied

Property that is used as the primary residence of the owner.

Owner's Policy

Title insurance that protects the buyer against legal issues with the title, such as ownership disputes or hidden liens.

P

P & I (Principal and Interest)

The portions of a mortgage payment that go toward paying off the loan’s principal balance and the interest charges.

P & L / Profit and Loss

A financial statement that summarizes a business's revenue, costs, and expenses over a specific period to determine the net profit or loss.

P.I.T.I. (Principal, Interest, Taxes, and Insurance)

The total monthly cost of a mortgage, including the principal repayment, interest charges, property taxes, and homeowner's insurance.

P.U.D. (Planned Unit Development)

A development where individuals own their land and structures but share ownership in common areas. A Homeowners Association (HOA) typically manages the development.

Piggyback Loan

Secondary financing taken in addition to a primary mortgage to cover part of the down payment or closing costs. This type of financing is subordinate to the first mortgage.

Points

A point is equal to 1% of the loan amount. Points can refer to both discount points (which lower the interest rate) or other fees charged by the lender.

Power of Attorney

A legal document that authorizes one person to act on behalf of another in specified legal or financial matters.

Pre-Approval

When a borrower has completed a formal loan application, and an underwriter has verified their income, credit, and assets. This indicates the borrower is approved for a loan, subject to conditions.

Prelim. / Preliminary Title Report

A report generated early in the loan process that outlines the current title status of a property, including any liens or claims.

Prepaid Interest

The interest collected at closing to cover the period between the loan’s closing date and the start of the first full payment cycle. For example, if a loan closes on the 15th, prepaid interest covers the days until the 1st of the next month.

Prepaids

Expenses like taxes, insurance, or other costs that the borrower pays upfront at closing, which will be held in escrow.

Prepayment Penalty

A fee charged if a borrower pays off their mortgage early, typically to compensate the lender for lost interest income.

Prepayment

The ability of a borrower to pay off their mortgage early or make extra payments toward the principal balance without penalty.

Pre-Qualified

A preliminary assessment of a borrower's financial situation, based on self-reported information, indicating how much they might be able to borrow. Pre-qualification is not a guarantee of loan approval.

Principal

The amount of money borrowed, not including interest. It’s the original loan balance or remaining balance after principal payments.

Private Mortgage Insurance (PMI)

Insurance required for loans with less than a 20% down payment to protect the lender in case of borrower default. PMI typically requires an upfront premium and/or monthly payments.

Purchase Agreement

A contract between a buyer and a seller outlining the terms of the sale, including the price and conditions that must be met.

Q

Quit Claim

A deed used to transfer ownership of property, without warranties or guarantees regarding the title. It releases any claims the grantor may have on the property.

R

Rate Float

When a borrower or lender assumes the risk of potential interest rate changes, hoping the rate will decrease before the loan is finalized.

Rate Lock

A commitment from a lender to maintain a specific interest rate for a set period, even if market rates change.

Ratios

Financial ratios used by lenders to assess a borrower's ability to repay a loan, such as the debt-to-income (DTI) ratio and housing expense-to-income ratio.

Real Estate Settlement Procedures Act (RESPA)

A federal law requiring lenders to provide borrowers with information on settlement costs, allowing for transparency during the loan process. 

Realtor

A real estate professional who is a member of the National Association of Realtors (NAR), adhering to its code of ethics and standards of practice.

Rescission

The legal process of canceling a contract. In refinancing, it refers to the three-day window homeowners have to cancel a loan agreement after signing.

Recon / Reconveyance

The process by which a lender or trustee releases a lien on a property after the debt has been paid off, recorded with the county recorder.

Recording Fees

Recording fees are charges imposed by local government authorities for officially documenting a property transaction, such as the transfer of ownership or the recording of a mortgage. These fees cover the cost of registering the legal documents in public records.

Refinance (Refi)

Refinance is the process of replacing an existing loan with a new one, usually to secure better terms such as a lower interest rate, different loan duration, or to access equity in the property.

Request for Reconveyance

A request to cancel a lien or trust deed, made by the beneficiary once the terms of the loan have been fulfilled.

Reverse Annuity Mortgage (RAM)

A type of mortgage where a homeowner receives periodic payments from a lender, using the equity in their home as collateral. Often used by older homeowners to access home equity without selling the property.

S

S.I. / Statement of Information

A form used by the title company to verify a borrower’s identity and eliminate any potential liens or debts associated with individuals with similar names.

Second Mortgage

A loan taken out in addition to the primary mortgage, secured by the property. It is subordinate to the first mortgage in terms of priority.

Secondary Financing

Financing that is subordinate to the primary mortgage, typically used to cover down payments or closing costs. Also known as a piggyback loan.

Servicing

The administrative tasks performed by a lender or servicer, including collecting payments, managing escrow accounts, and ensuring the loan remains in good standing.

Settlement Costs

The costs associated with finalizing a real estate transaction, including fees for inspections, title search, insurance, and other closing expenses.

Settlement

Settlement is the final step in a real estate transaction where the buyer and seller complete all required paperwork, financial transactions, and transfer of ownership. It is also known as closing and involves signing documents, paying fees, and disbursing funds.

Shared Appreciation Mortgage (SAM)

A type of mortgage where the lender offers a below-market interest rate in exchange for a share of the property’s future appreciation.

Submission

The process of submitting a complete loan application package to the underwriting department for review and approval.

Subordination Agreement

An agreement in which a lender agrees to allow another lender’s lien to take priority over their own in the event of a foreclosure.

Substitution of Trustee

A legal document that changes the trustee on a deed of trust, typically filed by the beneficiary.

Surety Bond

A bond that guarantees protection against loss or harm, typically used when a lien or deed is lost or when the original beneficiary cannot be located.

Survey

A professional measurement of land that outlines its boundaries, dimensions, and any structures on it, often performed by a licensed surveyor.

Suspended

A loan status indicating that the underwriter has not yet made a decision, as additional information or documentation is required.

T

Tenants in Common

A form of property ownership where two or more individuals hold fractional ownership shares in a property, but without rights of survivorship.

Term Mortgage

A mortgage with a fixed term, after which the remaining balance is due in full, often referred to as a balloon payment mortgage.

Title Insurance

An insurance policy that protects the lender and/or buyer against defects in the title or ownership of a property that were not disclosed during the title search. 

Title Search

An examination of public records to determine the legal ownership of a property and uncover any liens, encumbrances, or claims against it. 

Title

A legal document proving ownership of a property. 

Trust Deed

A legal document that secures a loan by placing a lien on the property. The trustee holds the title until the loan is repaid. 

Truth-in-Lending (TIL)

A federal law that requires lenders to disclose the Annual Percentage Rate (APR) and other loan terms to borrowers within a few days of applying for a mortgage. 

Two-Step Mortgage

A mortgage where the borrower receives a fixed interest rate for a set period (typically 7-10 years), after which the rate adjusts based on market conditions.

U

Underwriting

The process by which lenders evaluate a borrower's financial status, credit history, and other factors to determine whether they qualify for a loan.

V

VA (Veterans Administration)

A U.S. government agency that provides financial assistance and services to military veterans.

VA Loan

A VA loan is a mortgage loan backed by the U.S. Department of Veterans Affairs (VA) that is available to eligible military service members, veterans, and their families. It typically offers favorable terms, such as no low or no down payment and competitive interest rates.

VA Mortgage Funding Fee

A one-time fee required for VA loans, calculated as a percentage of the loan amount. It helps offset the cost of the VA loan program.

Variable Rate Mortgage (VRM)

A Variable Rate Mortgage (VRM), also known as an Adjustable Rate Mortgage (ARM), is a type of mortgage loan where the interest rate can change periodically based on the performance of a specific benchmark or index. The rate typically starts lower than a fixed-rate mortgage but can increase or decrease over time, affecting monthly payments.

Verification of Deposit (VOD)

A document from a borrower's financial institution confirming the status and balance of their accounts, used to verify assets.

Verification of Employment (VOE)

A document from a borrower's employer confirming their position and income, used to verify employment status.

W

Wraparound

A type of loan where an existing mortgage is combined with a new one, often with a blended interest rate. Payments are made to the second lender, who forwards the payment to the first lender.

Z

Zoning

The process by which a local government divides land into areas (zones) designated for specific uses, such as residential, commercial, or industrial.